As filed with the Securities and Exchange Commission on October 16, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAPITAL BANK CORPORATION
(Exact name of registrant as specified in its charter)
NORTH CAROLINA
(State or other 6712
jurisdiction of (Primary Standard 56-2101930
incorporation or Industrial Classification (I.R.S. Employer
organization) Code No.) Identification No.)
4400 FALLS OF NEUSE ROAD
RALEIGH, NORTH CAROLINA 27609
(919) 878-3100
(Address, including ZIP Code, and telephone number, including area code,
of registrant's principal executive offices)
-------------------------
JAMES A. BECK, PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAPITAL BANK CORPORATION
4400 FALLS OF NEUSE ROAD
RALEIGH, NORTH CAROLINA 27609
(919) 878-3100
--------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
JOHN L. JERNIGAN, ESQ.
MICHAEL P. SABER, ESQ.
SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
2500 FIRST UNION CAPITOL CENTER
P. O. BOX 2611
RALEIGH, NORTH CAROLINA 27602-2611
(919) 821-1220
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------
Proposed
Maximum
Title of Each Class of Amount Offering Proposed
Securities to be Price Per Maximum Aggregate Amount of
to be Registered Registered Share Offering Price Registration Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value
per share................... 2,477,651(1) $12.125 $30,041,518(2) $8,862.25(2)
- --------------------------------------------------------------------------------------------
Common Stock, no par value
per share................... 1,216,000(3) 12.125 $14,744,000(4) $4,349.48(4)
- --------------------------------------------------------------------------------------------
</TABLE>
1 Based upon 2,477,651 shares of Capital Bank Corporation to be issued in
exchange for the same number of shares of common stock of Capital Bank in
connection with the reorganization of Capital Bank as described herein.
2 Estimated solely for purposes of calculating the registration fee and computed
pursuant to Rule 457(c) and (f)(1) under the Securities Act, based on the
average of the bid and asked prices of the common stock of Capital Bank on
October 14, 1998, as reported on the SmallCap Market of The Nasdaq Stock
Market (the "Nasdaq SmallCap Market").
3 Based upon the maximum number of shares of common stock of Capital Bank
Corporation that may be issued pursuant to the transaction with Home Savings
Bank of Siler City, Inc., SSB described herein.
4 Estimated solely for purposes of calculating the registration fee and computed
pursuant to Rule 457(c) and (f)(1) under the Securities Act, based on the
average of the bid and asked prices of the common stock of Capital Bank on
October 14, 1998, as reported on the Nasdaq SmallCap Market.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
CAPITAL BANK
4400 FALLS OF NEUSE ROAD
RALEIGH, NORTH CAROLINA 27609
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER ___, 1998
Capital Bank will hold a special meeting of shareholders
at_____________________________, in_____________,North Carolina, at _____ a.m.
local time on December __, 1998, to vote on the following proposals:
1. The Agreement and Plan of Reorganization and Share Exchange, dated as
of August 12, 1998, between Capital Bank and Capital Bank Corporation, and the
transactions contemplated by the Agreement, including the holding company
reorganization of Capital Bank by which its shareholders will exchange their
shares of Capital Bank stock for shares of Capital Bank Corporation stock on a
one-for-one basis.
2. The proposal to issue up to 1,216,000 shares of Capital Bank
Corporation Common Stock to the shareholders of Home Savings Bank of Siler City,
Inc., SSB, in connection with Capital Bank Corporation's acquisition of Home
Savings.
3. Any other matters that properly come before this special meeting, or
any adjournments or postponements of this special meeting.
Record holders of Capital Bank Common Stock at the close of business on
[NOVEMBER 13,] 1998, will receive notice of and may vote at the special meeting,
including any adjournments or postponements. The Agreement for the holding
company reorganization requires approval by a majority of the shares of Capital
Bank Common Stock outstanding on [NOVEMBER 13,] 1998. The approval of the
issuance of Capital Bank Corporation stock in the Home Savings acquisition
requires the affirmative vote of a majority of those shares present, in person
or by proxy, at the special meeting. Holders of Capital Bank Common Stock may
exercise dissenters' rights under Article 13 of the North Carolina Business
Corporation Act. We have attached a copy of that law as an appendix to the
accompanying Joint Proxy Statement-Prospectus.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Allen T. Nelson, Jr.
Secretary
Raleigh, North Carolina
______________, 1998
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
300 EAST RALEIGH STREET
SILER CITY, NORTH CAROLINA 27344
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER __, 1998
Home Savings Bank of Siler City, Inc., SSB will hold a special meeting of
shareholders at its offices on 300 East Raleigh Street, in Siler City, North
Carolina, at ____ p.m. local time on December __, 1998, to vote on the following
proposals:
1. The Agreement and Plan of Reorganization and Share Exchange with
Capital Bank Corporation, dated as of September 29, 1998, and the transactions
contemplated by the Agreement, including the share exchange by which Capital
Bank Corporation (the holding company for Capital Bank) will acquire all of the
outstanding stock of Home Savings.
2. Any other matters that properly come before this special meeting, or
any adjournments or postponements of this special meeting.
Record holders of Home Savings Common Stock at the close of business on
____________, 1998, will receive notice of and may vote at the special meeting,
including any adjournments or postponements. The Agreement with Capital Bank
Corporation requires approval by a majority of the shares of Home Savings Common
Stock outstanding on ____________, 1998. Holders of Home Savings Common Stock
may exercise dissenters' rights under Article 13 of the North Carolina Business
Corporation Act. We have attached a copy of that law as an appendix to the
accompanying Joint Proxy Statement-Prospectus.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Jack L. Tanner
Corporate Secretary
Siler City, North Carolina
________________, 1998
<PAGE>
[JOINT LETTERHEAD OF
CAPITAL BANK AND HOME SAVINGS]
ACQUISITION PROPOSED
YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Capital Bank Corporation and Home Savings Bank
of Siler City, Inc., SSB have agreed that Capital Bank Corporation will acquire
Home Savings by exchanging shares of Capital Bank Corporation stock for all
outstanding Home Savings stock.
Before this transaction can be completed, Home Savings and Capital Bank
shareholders must vote to approve it. We are sending you this Joint Proxy
Statement-Prospectus to ask you to vote in favor of the transaction.
Home Savings shareholders would receive 1.28 shares of common stock of
Capital Bank Corporation for each share of Home Savings that they own just
before the transaction. We estimate that Home Savings shareholders will own
about 32% of the outstanding common stock of Capital Bank Corporation after the
acquisition.
Shortly before the transaction, we expect that Capital Bank Corporation
will become the bank holding company for Capital Bank, currently a
state-chartered commercial bank. Capital Bank shareholders are separately being
asked to approve the reorganization of Capital Bank into a bank holding company
as a prerequisite to completion of the Home Savings acquisition.
THE BOARDS OF DIRECTORS OF CAPITAL BANK AND HOME SAVINGS
UNANIMOUSLY RECOMMEND A VOTE "FOR"
THE PROPOSALS DESCRIBED IN THIS DOCUMENT
Whether or not you plan to attend the shareholders' meetings, please take
the time to vote by completing and mailing the enclosed proxy card. If you sign,
date and mail your proxy card without indicating how you want to vote, we will
vote your proxy in favor of the holding company reorganization of Capital Bank
and in favor of the acquisition of Home Savings by Capital Bank Corporation. By
signing the proxy, you also authorize us to vote in our discretion for any
procedural motions, such as a motion for adjournment, that may come up at the
meeting.
THE DATE, TIME AND PLACE OF THE CAPITAL BANK SHAREHOLDERS' MEETING IS:
December __, 1998
_____ a.m. eastern time
-----------------------
-----------------------
THE DATE, TIME AND PLACE OF THE HOME SAVINGS SHAREHOLDERS' MEETING IS:
December __, 1998
____ p.m. eastern time
Home Savings' Offices
300 East Raleigh Street
Siler City, North Carolina 27344
This Joint Proxy Statement-Prospectus provides you with detailed
information about the Capital Bank holding company reorganization and the
acquisition by Capital Bank Corporation of Home Savings. You can also get
information about our companies from documents we have each filed with the
Federal Deposit Insurance Corporation. We encourage you to read this entire
document carefully.
James A. Beck
President and Chief Executive Officer
Capital Bank
Edwin E. Bridges
President and Chief Executive Officer
Home Savings Bank of Siler City, Inc., SSB
Raleigh, North Carolina
Siler City, North Carolina
_____________________, 1998
<PAGE>
JOINT PROXY STATEMENT
CAPITAL BANK
4400 Falls of Neuse Road
Raleigh, North Carolina 27609
HOME SAVINGS BANK OF SILER CITY, INC., SSB
300 East Raleigh Street
Siler City, North Carolina 27344
--------------------
PROSPECTUS
CAPITAL BANK CORPORATION
4400 Falls of Neuse Road
Raleigh, North Carolina 27609
_____ Shares of Common Stock, no par value per share
-----------------
Capital Bank and Home Savings Bank of Siler City, Inc., SSB are sending
you this Joint Proxy Statement-Prospectus for the following purposes:
o IF YOU ARE A CAPITAL BANK SHAREHOLDER, this Joint Proxy
Statement-Prospectus describes for you, and will help you decide how to
vote on:
(1)the proposed reorganization of Capital Bank into a bank holding
company named Capital Bank Corporation and
(2)the proposed issuance of Capital Bank Corporation stock to Home
Savings shareholders in the proposed acquisition of Home Savings.
o IF YOU ARE A HOME SAVINGS SHAREHOLDER, this Joint Proxy
Statement-Prospectus describes for you, and will help you decide how to
vote on, the agreement by which Capital Bank Corporation will acquire
Home Savings.
This document also serves as the prospectus of Capital Bank Corporation
and contains important investor information about the business and operations of
Capital Bank, Capital Bank Corporation and Home Savings.
Capital Bank Corporation has filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 under the Securities Act of 1933
and this Joint Proxy Statement-Prospectus is the prospectus filed as part of the
Registration Statement. This Joint Proxy Statement-Prospectus does not contain
all of the information in the Registration Statement nor does it include the
exhibits to the Registration Statement, as the SEC permits. Please see "Where
You Can Get More Information" on page ___. Capital Bank stock currently trades
on the Nasdaq SmallCap Market under the symbol "CBKN" and Home Savings stock
currently trades on the OTC Bulletin Board under the symbol "HSSC."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS
OF ANY BANK OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
AN INVESTMENT IN CAPITAL BANK CORPORATION STOCK WILL INVOLVE CERTAIN RISKS. SEE
"RISK FACTORS" ON PAGE ___.
JOINT PROXY STATEMENT-PROSPECTUS DATED _________, 1998 AND FIRST MAILED
TO SHAREHOLDERS ON _________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
QUESTIONS AND ANSWERS ........................................................ 1
SUMMARY ...................................................................... 3
Reasons for the Capital Bank Holding Company Reorganization ................ 3
Reasons for the Home Savings Acquisition ................................... 3
Our Recommendations to Shareholders ........................................ 3
Special Meetings of Shareholders ........................................... 3
Capital Bank Holding Company Reorganization ................................ 4
Home Savings Acquisition ................................................... 5
Market Prices and Dividend Policies ........................................ 8
Selected Historical Financial Data ......................................... 9
RISK FACTORS ................................................................. 13
CAPITAL BANK AND HOME SAVINGS UNAUDITED PRO-FORMA COMBINED CONDENSED
FINANCIAL INFORMATION ........................................................ 16
RECENT DEVELOPMENTS .......................................................... 19
GENERAL INFORMATION .......................................................... 20
Capital Bank Special Meeting ............................................... 20
Home Savings Special Meeting ............................................... 21
REORGANIZATION OF CAPITAL BANK INTO A HOLDING COMPANY ........................ 23
General .................................................................... 23
Vote Required .............................................................. 23
PARTIES TO THE HOLDING COMPANY REORGANIZATION ................................ 24
Capital Bank ............................................................... 24
Capital Bank Corporation ................................................... 24
DESCRIPTION OF THE HOLDING COMPANY AGREEMENT ................................. 24
Reasons for the Reorganization ............................................. 24
Holding Company Effective Date ............................................. 24
Actions at the Holding Company Effective Date .............................. 24
Conditions to the Holding Company Reorganization ........................... 25
Termination ................................................................ 25
Exchange of Stock Certificates ............................................. 26
Effect of the Holding Company Reorganization on Capital Bank's Stock Option
Plans ...................................................................... 26
Federal Income Tax Consequences of Holding Company Reorganization .......... 27
Accounting Treatment of the Holding Company Reorganization ................. 27
CAPITAL BANK CORPORATION'S SHARE EXCHANGE WITH HOME SAVINGS BANK ............. 28
General .................................................................... 28
Background of and Reasons for the Exchange ................................. 28
Recommendation of the Home Savings Board ................................... 30
Opinion of Home Savings' Financial Advisor ................................. 30
Opinion of Capital Bank's and Capital Bank Corporation's
Financial Advisor .......................................................... 33
Effective Time of the Exchange ............................................. 37
Distribution of Consideration .............................................. 37
Conditions to Consummation of the Exchange ................................. 38
Regulatory Approval ........................................................ 39
Waiver, Amendment, and Termination ......................................... 39
Conduct of Business Pending the Exchange ................................... 40
Management and Operations After the Exchange ............................... 41
Effect on Certain Employees and Benefit Plans .............................. 41
Federal Income Tax Consequences of the Exchange ............................ 44
Accounting Treatment ....................................................... 46
Expenses and Fees .......................................................... 46
Resales of Capital Bank Corporation Common Stock ........................... 46
Option Agreement ........................................................... 47
DISSENTERS' RIGHTS ........................................................... 49
DESCRIPTION OF CAPITAL BANK CORPORATION CAPITAL STOCK ........................ 53
General .................................................................... 53
Common Stock ............................................................... 53
Certain Articles and Bylaw Provisions Having Potential Anti-Takeover
Effects .................................................................... 54
Transfer Agent and Registrar ............................................... 55
COMPARISON OF THE RIGHTS OF SHAREHOLDERS ..................................... 55
Comparison of the Rights of Holders of Capital Bank Common Stock and Capital
Bank Corporation Common Stock .............................................. 55
Comparison of the Rights of Holders of Home
Savings Common Stock and Capital Bank Corporation Common Stock ............. 58
PRO FORMA CONSOLIDATED CAPITALIZATION ........................................ 62
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INFORMATION ABOUT CAPITAL BANK AND CAPITAL BANK CORPORATION .................. 62
Capital Bank Corporation ................................................... 62
Capital Bank ............................................................... 63
Competition ................................................................ 65
Year 2000 Issues ........................................................... 65
Properties ................................................................. 66
Employees .................................................................. 67
Legal Proceedings .......................................................... 67
Management and Certain Transactions ........................................ 67
Security Ownership of Management ........................................... 70
INFORMATION ABOUT HOME SAVINGS ............................................... 71
REGULATION AND SUPERVISION ................................................... 74
Regulation of Holding Company .............................................. 77
Branching .................................................................. 78
Recent Legislative Developments ............................................ 78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CAPITAL BANK ................................................... 79
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .................... 84
LEGAL MATTERS ................................................................ 96
EXPERTS ...................................................................... 96
FORWARD LOOKING STATEMENTS ................................................... 96
WHERE YOU CAN GET MORE INFORMATION ........................................... 96
Appendix I: Agreement and Plan of Reorganization and Share Exchange -
Holding Company Reorganization
Appendix II: Agreement and Plan of Reorganization and Share Exchange - Home
Savings Acquisition
Appendix III:Opinion of Baxter Fentriss and Company
Appendix IV: Opinion of Interstate/Johnson Lane Corporation
Appendix V: Article 13 of North Carolina Business Corporation Act regarding
Dissenters' Rights
</TABLE>
(iii)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE
REORGANIZATION OF CAPITAL BANK INTO A HOLDING COMPANY
AND
THE ACQUISITION OF HOME SAVINGS
BY CAPITAL BANK CORPORATION
Q: WHY DOES CAPITAL BANK WISH TO REORGANIZE FROM A BANK TO A BANK HOLDING
COMPANY? WHAT ARE THE BENEFITS TO CAPITAL BANK SHAREHOLDERS?
A: The Capital Bank Board of Directors believes that a holding company
structure will open up attractive opportunities to maintain growth,
enhance shareholder value and release Capital Bank from restrictions that
could impede future growth without sacrificing our hometown philosophy and
way of doing business. To review the reasons for the holding company
reorganization in greater detail, and related uncertainties, see pages
_____.
Q: WHY IS CAPITAL BANK CORPORATION ACQUIRING HOME SAVINGS? HOW DO
SHAREHOLDERS BENEFIT?
A. The acquisition of Home Savings means that shareholders of both banks
will have a stake in a larger, better capitalized community bank with
the ability to serve depositors in a wider area of the Research
Triangle of North Carolina, including Chatham County. This transaction
will allow the combined company to increase market share and geographic
reach, position Capital Bank Corporation to manage planned growth by
adding experienced personnel from Home Savings and increase the number
of its branch offices. To review the reasons for the acquisition in
more detail, and related uncertainties, see pages ____.
Q: WHAT DO I NEED TO DO NOW?
A. Just mail a signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meetings.
The Capital Bank meeting will take place on December __, 1998, at _____
a.m. The Home Savings meeting is also on December __, 1998, but at ____
p.m.
THE BOARDS OF DIRECTORS OF CAPITAL BANK AND HOME SAVINGS HAVE EACH
UNANIMOUSLY VOTED TO RECOMMEND THAT YOU VOTE IN FAVOR OF EACH OF THE
PROPOSALS ON WHICH YOU WILL BE VOTING.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the transactions are completed, we will send all Capital
Bank and Home Savings shareholders written instructions for exchanging
their share certificates.
Q: PLEASE EXPLAIN THE EXCHANGE RATIOS IN THE TRANSACTIONS.
A: Capital Bank shareholders will receive one share of Capital Bank
Corporation stock for each share of Capital Bank stock that they own. Home
Savings shareholders will receive 1.28 shares of Capital Bank Corporation
stock in exchange for each share of Home Savings stock that they own. We
will not issue fractional shares.
EXAMPLE: IF YOU CURRENTLY OWN 100 SHARES OF CAPITAL BANK STOCK, THEN YOU
WILL HOLD 100 SHARES OF CAPITAL BANK CORPORATION STOCK AFTER THE HOLDING
COMPANY REORGANIZATION. A HOME SAVINGS SHAREHOLDER WITH 100 SHARES OF HOME
SAVINGS STOCK WOULD RECEIVE 128 SHARES OF CAPITAL BANK CORPORATION STOCK
AFTER THE HOME SAVINGS ACQUISITION.
<PAGE>
Q: WILL CAPITAL BANK CORPORATION PAY DIVIDENDS TO SHAREHOLDERS? (See page___)
A: Shareholders should not expect to receive any dividends from Capital Bank
Corporation for the foreseeable future. The Board may decide from time to
time whether Capital Bank Corporation will pay dividends after it
evaluates business and financial results and other factors.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: We are working towards completing the transactions as quickly as
possible. In addition to shareholder approvals, we must also obtain
regulatory approvals. We hope to complete the transactions as early as
December 31, 1998.
Q: WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS?
A: We expect the transactions to be tax-free to shareholders. Capital Bank
Corporation will receive the opinion of its independent accountants as to
the tax-free nature of the transactions as a condition to completing the
transaction. Please see pages ___ for a full description of the federal
income tax consequences of the transactions.
Q: MY SHARES ARE HELD IN MY BROKER'S NAME. HOW DO I GO ABOUT VOTING?
A: Copies of the Joint Proxy Statement-Prospectus have been sent to your
broker, who must forward one to you. The broker will request instructions
from you as to how you want your shares to be voted, and the broker will
vote your shares according to your instructions.
Q: WHAT WILL HAPPEN IF I DON'T SEND IN MY PROXY CARD?
A: If you don't send in your Proxy Card and you don't attend either
special meeting and vote in person, then your shares will not be
voted. If a significant number of shareholders do not return their
Proxy Cards, there may not be enough shares represented at either
meeting to approve the transactions even if all those present are in
favor of approval. In that case, the transactions could not take place
at that time. Therefore, the failure to return your Proxy Card or vote
in person at the meeting will have the same effect as a vote against
the transactions.
Q: IF I'VE LOST MY STOCK CERTIFICATE, CAN I STILL GET MY NEW STOCK?
A: Yes. However, you will have to provide an indemnity or, in some cases, a
paid surety bond that will protect Capital Bank Corporation against a loss
in the event someone finds or has your lost certificate and is able to
transfer it. To avoid having to pay for a surety bond, you should do
everything you can to find your lost certificate before the time comes to
send it in.
2
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROXY
STATEMENT-PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE CAPITAL BANK HOLDING COMPANY REORGANIZATION
AND THE HOME SAVINGS ACQUISITION FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THESE TRANSACTIONS, YOU SHOULD READ THIS ENTIRE DOCUMENT, AND
THE DOCUMENTS WE REFER YOU TO, CAREFULLY. SEE "WHERE YOU CAN GET MORE
INFORMATION." (PAGE ___)
REASONS FOR THE CAPITAL BANK HOLDING COMPANY REORGANIZATION (SEE PAGE ____)
The Board of Directors of Capital Bank believes that a holding company
structure will better position Capital Bank to:
o facilitate acquisitions of other financial institutions if
opportunities arise,
o provide more options for funding Capital Bank's growth,
o enhance the ability to accommodate distinct subsidiaries for additional
lines of business and
o permit corporate actions, such as stock repurchases, that may enhance
shareholder value.
REASONS FOR THE HOME SAVINGS ACQUISITION (SEE PAGE ___)
The Home Savings Board considered a number of factors before agreeing to
the share exchange with Capital Bank Corporation. Overall, the Board believes
that the exchange will enable Home Savings to offer a wider array of services
and products to Home Savings' existing customers and to compete more effectively
in its market area due to the stronger financial and managerial resources of
Capital Bank. This transaction is consistent with Home Savings' goal to enhance
its ability to compete in a thriving economic region.
OUR RECOMMENDATIONS TO SHAREHOLDERS
CAPITAL BANK SHAREHOLDERS. The Capital Bank Board believes that the
transactions are in your best interest and unanimously recommends that you vote
FOR the proposals to:
(1) approve the holding company reorganization agreement and
(2) approve the issuance of shares of Capital Bank Corporation stock to
Home Savings shareholders
HOME SAVINGS SHAREHOLDERS. The Home Savings Board believes that the share
exchange agreement with Capital Bank Corporation is in your best interest and
unanimously recommends that you vote FOR approval of the share exchange
agreement and the share exchange.
CAPITAL BANK SPECIAL MEETING (SEE PAGE __)
TIME AND PLACE OF THE CAPITAL BANK SPECIAL MEETING. Capital Bank will
hold its Special Meeting on December __, 1998 at _____ a.m. local time at
- -----------------------.
PURPOSE OF CAPITAL BANK SPECIAL MEETING. The purpose of Capital Bank's
Special Meeting is twofold: (1) to vote on the plan by which Capital Bank will
reorganize into a holding company named Capital Bank Corporation which will, in
turn, own all of the stock of Capital Bank and (2) to vote on the issuance of
Capital Bank Corporation stock to Home Savings shareholders.
3
<PAGE>
RECORD DATE FOR CAPITAL BANK SPECIAL MEETING. The Capital Bank Directors
have chosen the close of business on [NOVEMBER 13, 1998] as the record date for
the determination of shareholders entitled to notice of and to vote at Capital
Bank's Special Meeting and at any adjournment or postponement.
BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. On September 30,
1998 the directors and executive officers of Capital Bank beneficially owned in
the aggregate 366,973 shares of its stock, or 14.8% of total shares entitled to
vote. We expect these persons to vote in favor of the holding company
reorganization.
ADDITIONAL INFORMATION. For additional information, please call Allen
T. Nelson, Jr., Senior Vice President and Chief Financial Officer of Capital
Bank, at (919) 874-6321.
HOME SAVINGS SPECIAL MEETING
TIME AND PLACE OF THE HOME SAVINGS SPECIAL MEETING. Home Savings will hold
its Special Meeting on December __, 1998 at ____ p.m. local time at its offices
at 300 East Raleigh Street, Siler City, North Carolina.
PURPOSE OF THE HOME SAVINGS SPECIAL MEETING. The primary purpose of the
Home Savings Special Meeting is to vote on the acquisition by which Home Savings
shareholders will exchange each of their shares of Home Savings stock for 1.28
newly issued shares of Capital Bank Corporation stock.
RECORD DATE FOR HOME SAVINGS SPECIAL MEETING. The Home Savings directors
have chosen the close of business on ___________, 1998 as the record date for
the determination of shareholders entitled to notice of and to vote at Home
Savings' Special Meeting and at any adjournment or postponement.
BENEFICIAL OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS. On September 30,
1998 the directors and executive officers of Home Savings beneficially owned in
the aggregate ________ shares of its stock, or ______% of total shares entitled
to vote. We expect these persons to vote in favor of the exchange agreement with
Capital Bank Corporation and the exchange.
ADDITIONAL INFORMATION. For additional information, please call Edwin
E. Bridges, President and Chief Executive Officer of Home Savings, at (919)
742-4186.
CAPITAL BANK HOLDING COMPANY REORGANIZATION
THE HOLDING COMPANY REORGANIZATION AGREEMENT IS ATTACHED AS APPENDIX I TO
THIS JOINT PROXY STATEMENT-PROSPECTUS. WE ENCOURAGE YOU TO READ THIS AGREEMENT
CAREFULLY AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE HOLDING COMPANY
REORGANIZATION.
VOTING. Only Capital Bank shareholders are voting on the holding
company reorganization. Home Savings shareholders are not asked to vote on
this matter.
PARTIES. Capital Bank and Capital Bank Corporation are the only
parties to the holding company reorganization agreement.
CAPITAL BANK. Capital Bank is a state-chartered commercial bank organized
under the rules and regulations of the State of North Carolina. Capital Bank
conducts its business through a main office located at 4400 Falls of Neuse Road,
Raleigh, North Carolina 27609 and its telephone number is (919) 878-3100. In
addition, Capital Bank has two offices in Cary, and two offices in Sanford,
North Carolina.
CAPITAL BANK CORPORATION. Capital Bank Corporation is a corporation
incorporated under the laws of the State of North Carolina. Capital Bank
Corporation was organized at the direction of Capital Bank to apply to become a
bank holding company with Capital Bank as its wholly-owned subsidiary. If
Capital Bank shareholders approve the holding company reorganization agreement,
then Capital Bank Corporation will hold all of the shares of Capital Bank stock
following the reorganization. Capital Bank Corporation's address and telephone
number are the same as those for Capital Bank.
DESCRIPTION OF THE HOLDING COMPANY REORGANIZATION. Under the holding
company
4
<PAGE>
reorganization agreement, all of the outstanding shares of Capital Bank stock
(other than shares held by shareholders who exercise dissenters' rights, if any)
will be automatically converted into the right to receive shares of Capital Bank
Corporation stock in a one-for-one exchange and Capital Bank will become the
wholly-owned subsidiary of Capital Bank Corporation. Capital Bank will continue
its current business and operations as a North Carolina chartered commercial
bank using its current name.
Certificates representing shares of Capital Bank stock will not
automatically represent shares of Capital Bank Corporation stock. Shareholders
will need to exchange their Capital Bank stock certificates for Capital Bank
Corporation stock certificates after the transaction is completed. We will mail
Capital Bank shareholders information following the date Capital Bank and
Capital Bank Corporation complete the holding company reorganization.
HOME SAVINGS ACQUISITION
THE SHARE EXCHANGE AGREEMENT AMONG CAPITAL BANK, CAPITAL BANK CORPORATION
AND HOME SAVINGS IS ATTACHED AS APPENDIX II TO THIS JOINT PROXY
STATEMENT-PROSPECTUS. WE ENCOURAGE YOU TO READ THIS AGREEMENT CAREFULLY AS IT IS
THE LEGAL DOCUMENT THAT GOVERNS THE HOME SAVINGS ACQUISITION.
VOTING. Home Savings shareholders are voting on the Home Savings
acquisition. Capital Bank shareholders are voting on the issuance of Capital
Bank Corporation stock to the Home Savings shareholders in the acquisition.
PARTIES. Capital Bank, Capital Bank Corporation and Home Savings Bank
of Siler City, Inc., SSB.
HOME SAVINGS. Home Savings is a North Carolina state savings bank
headquartered in Siler City, North Carolina. Home Savings was organized as a
North Carolina mutual savings and loan association in 1950 under the name Home
Savings and Loan Association and was converted from mutual to stock form on
November 14, 1995. The principal and only office of Home Savings is located at
300 East Raleigh Street, Siler City, North Carolina 27344. The telephone number
is (919) 742-4186.
DESCRIPTION OF THE SHARE EXCHANGE. The share exchange agreement with
Capital Bank Corporation provides for the exchange of Home Savings stock for
shares of Capital Bank Corporation's stock. At the effective time of the
exchange, each share of Home Savings stock (excluding shares held by Capital
Bank or Capital Bank Corporation or as to which dissenters' rights are
exercised) will be converted into the right to receive 1.28 newly issued shares
of Capital Bank Corporation stock, rounded up or down to the nearest whole
share.
EFFECT ON HOME SAVINGS' OPTIONS. At the effective time of the exchange,
each Home Savings stock option granted under Home Savings' stock option plans
which are outstanding at the effective time, whether or not exercisable, will be
converted into a right to purchase Capital Bank Corporation stock and Capital
Bank Corporation will assume each Home Savings option.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGE ___). In deciding to approve the
share exchange between Capital Bank Corporation and Home Savings shareholders,
our Boards considered opinions from our respective financial advisors as to the
fairness of the 1.28 to 1 exchange ratio from a financial point of view. Home
Savings received an opinion from Baxter Fentriss and Company, and Capital Bank
received an opinion from Interstate/Johnson Lane Corporation. These opinions are
attached as Appendices III and IV to this Joint Proxy Statement-Prospectus. We
encourage you to read them.
In connection with delivering these opinions, our financial advisors
performed a variety of analyses. While not uniformly performed or presented, the
analyses included comparing Home Savings and Capital Bank historical stock
prices and financial multiples to each other and to those of other selected
companies, comparing the financial terms of the exchange to those of other
publicly announced transactions and estimating the relative values and
contributions of Home Savings and Capital Bank
5
<PAGE>
based on past and estimated future performances and anticipated benefits of the
exchange.
CONDITIONS TO THE EXCHANGE (SEE PAGE ___). The completion of the exchange
depends upon meeting a number of conditions, including the following:
o the approval of Capital Bank shareholders of the holding company
reorganization,
o the approval of the holders of Capital Bank and Home Savings shares,
o the absence of any law or injunction which prohibits the exchange or
which causes a material adverse effect on any of the parties,
o the approval of governmental authorities and
o the assurances of Capital Bank Corporation's independent accountants
that the exchange will qualify for pooling of interests accounting
treatment.
The party entitled to assert the condition may waive it, if it so chooses.
TERMINATION OF THE EXCHANGE AGREEMENT (SEE PAGE ___). Management of the
parties can agree to terminate the exchange agreement without completing the
exchange, and either can terminate the exchange agreement if any of the
following occurs:
o the exchange is not completed by June 30, 1999,
o the approvals of shareholders are not received,
o the other party breaches or materially fails to comply with any of
its representations or warranties or obligations under the exchange
agreement or
o the number of shares dissenting from the exchange, if any, prevents
pooling of interests accounting treatment for the exchange.
REGULATORY APPROVALS. (SEE PAGE ___). The Board of Governors of the Federal
Reserve System must approve the holding company reorganization and the exchange
before we can complete either transaction. As of ______, 1998 we have filed
application with the Federal Reserve complying with applicable law. The Federal
Reserve also has the authority to challenge the exchange on antitrust grounds
before or after the exchange is completed.
RELATED TRANSACTIONS - STOCK OPTION (SEE PAGE ___). In connection with the
exchange, Home Savings granted to Capital Bank an option to purchase up to
183,615 shares of Home Savings stock at a price of $11.75 per share. Capital
Bank may exercise this option when certain events, generally related to the
potential acquisition of Home Savings by another party, occur. The option is
intended to increase the likelihood that the exchange will be consummated by
making it more difficult and expensive for any third party to acquire control of
Home Savings while the parties seek to complete the exchange.
INTERESTS OF CERTAIN PERSONS IN EXCHANGE (SEE PAGE ___). Certain members of
Home Savings' and Capital Bank's management and Board of Directors have
interests in the exchange in addition to their interests as shareholders of
Capital Bank and Home Savings generally.
Among the matters to consider in this context is that Capital Bank
Corporation intends to employ Edwin E. Bridges, currently the President and
Chief Executive Officer of Home Savings, after the acquisition in his current
capacity for an annual salary of
6
<PAGE>
$107,000. The agreement will provide for employment for a five-year initial term
and for severance benefits equal to the salary remaining under his agreement if
his employment ceases for certain reasons. In addition, Mr. Bridges and John F.
Grimes, currently a director of Home Savings, will be appointed to the Board of
Directors of Capital Bank Corporation.
OTHER INFORMATION
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE ___). Shares of
Capital Bank common stock are listed on the Nasdaq SmallCap Market under the
symbol "CBKN" and shares of Home Savings are listed on the OTC Bulletin Board
under the symbol "HSSC". On September 29, 1998, the last full trading day prior
to the public announcement of the proposed exchange, Capital Bank stock closed
at $12.75 per share and Home Savings stock closed at $___ per share. On
______________, 1998, Capital Bank stock closed at $______ per share and Home
Savings stock closed at $_____ per share.
LISTING OF CAPITAL BANK CORPORATION COMMON STOCK (SEE PAGE __). Capital
Bank Corporation will list the shares of Capital Bank Corporation stock to be
issued in connection with the holding company reorganization and the exchange on
the Nasdaq SmallCap Market under the symbol "CBKN". Nasdaq will first have to
approve our application for this listing.
DIVIDENDS AFTER THE EXCHANGE (SEE PAGE ___). Capital Bank Corporation does
not expect to pay dividends for the foreseeable future The Board's decision from
time to time on whether Capital Bank Corporation should pay a dividend will
depend on its evaluation of business conditions, financial condition and
results, and other factors existing at that time.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE. We have structured the
exchange so that neither Capital Bank nor Home Savings shareholders will
recognize any gain or loss for federal income tax purposes. Capital Bank
Corporation has conditioned the exchange on its receipt of an opinion that such
is the case.
ACCOUNTING TREATMENT. We expect the exchange to qualify as a pooling of
interests, which means that we will treat our companies as if they had always
been combined for accounting and financial reporting purposes.
DISSENTERS' RIGHTS. Shareholders who vote against or abstain from voting
and file a demand for appraisal prior to the Special Meetings have the right to
receive a cash payment for the fair value of their stock. In order to exercise
such rights, shareholders must comply with the North Carolina Business
Corporation Act, the applicable portion of which is attached as Appendix V to
this Joint Proxy Statement-Prospectus.
7
<PAGE>
MARKET PRICES AND DIVIDEND POLICIES
CAPITAL BANK
Capital Bank Common Stock has traded publicly on the Nasdaq SmallCap
Market under the symbol "CBKN" since December 18, 1997. The prices below are
shown without retail mark-ups, mark-downs or commissions. The following table
sets forth the high and low bid information of Capital Bank Common Stock for the
periods indicated as reported by the Nasdaq SmallCap Market:
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter (beginning on
December 18, 1997) $13.50 $11.375
YEAR ENDED DECEMBER 31, 1998
First Quarter $16.00 $13.00
Second Quarter 17.50 15.875
Third Quarter 16.75 12.00
Fourth Quarter (through _______,
1998) _____ _____
- --------------------
As provided under North Carolina banking law, Capital Bank has been
prohibited from paying any dividends on Capital Bank stock since its inception
in June 1997 and will continue to be so prohibited until late June 2000.
In addition, North Carolina corporate law precludes any distribution to
shareholders, including the payment of a dividend, if, after giving effect to
the distribution, Capital Bank Corporation would not be able to pay its debts as
they become due in the usual course of business or Capital Bank Corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Capital Bank Corporation has no shareholders who currently have
preferential rights over the holders of the Common Stock.
Future dividends will be determined by Capital Bank Corporation's Board of
Directors in light of circumstances existing from time to time, including
Capital Bank Corporation's growth, financial condition and results of
operations, the continued existence of the restrictions described above and
other factors that Capital Bank Corporation's Board of Directors considers
relevant.
HOME SAVINGS
Home Savings Common Stock trades publicly on the OTC Bulletin Board under
the symbol "HSSC." The following table presents quarterly information on the
price range of Home Savings Stock for the calendar periods indicated. The table
indicates the high and low bid information for Home Savings Common Stock as
obtained from Bloomberg, L.P. The prices are shown without retail mark-ups,
markdowns or commissions. Home Savings was a mutual savings bank without stock
prior to its conversion on November 14, 1995.
8
<PAGE>
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1996
First Quarter $13.50 $12.50
Second Quarter 14.50 13.25
Third Quarter 16.50 11.50
Fourth Quarter 13.00 12.375
YEAR ENDED DECEMBER 31, 1997
First Quarter $12.875 $12.375
Second Quarter 13.375 12.125
Third Quarter 13.75 13.50
Fourth Quarter 15.00 13.75
YEAR ENDED DECEMBER 31, 1998
First Quarter $14.875 $13.50
Second Quarter 13.625 12.25
Third Quarter 12.875 11.75
Fourth Quarter (through _______,
1998 _________ ___________
Since its conversion from mutual to stock form, Home Savings has paid
five regular dividends of $.20 per share which is the declared regular dividend
rate. On August 12, 1996, Home Savings also paid a special dividend of $4.80 per
share, and on August 19, 1997, the Home Savings Board declared a $.30 per share
dividend, consisting of the regular semiannual dividend of $.20 per share and a
special dividend of $.10 per share. There can be no assurance that, in the event
that the share exchange with Capital Bank Corporation is not consummated,
regular dividends or special dividends would continue to be paid in the future.
Home Savings is required to obtain the prior written approval of the
administrator of the North Carolina Savings Institution Division before the
payment of a dividend. Written approval also is required before a savings bank,
which has been in stock form for less than five years (like Home Savings)
following its conversion from mutual form, may declare or pay a cash dividend on
its capital stock in an amount in excess of 50% of the greater of (i) Home
Savings' net income for the most recent fiscal year end or (ii) the average of
Home Savings' net income after dividends for the most recent fiscal year end and
not more than two of the immediately preceding fiscal year ends. There can be no
assurance that dividends would continue to be paid by Home Savings in the future
if the exchange is not consummated. The declaration, payment and amount of any
such future dividends would depend upon business conditions, operating results,
capital, reserve requirements, regulatory authorizations and the consideration
of other relevant factors by Home Savings' Board of Directors.
SELECTED HISTORICAL FINANCIAL DATA
SELECTED FINANCIAL DATA OF CAPITAL BANK
The summary of operations data set forth below for the period ended June
20, 1997 to December 31, 1997 and the 10 day period ended June 30, 1997 and the
balance sheet data set forth below as of December 31, 1997 are derived from the
financial statements of Capital Bank and notes thereto which have been audited
by PricewaterhouseCoopers LLP. The selected financial data provided as of June
30, 1998 and for the six months ended June 30, 1998 are derived from unaudited
financial statements of Capital Bank, and in the opinion of management contain
all adjustments, consisting only of normal recurring accruals, which are
necessary for a fair statement of the results of such periods. The selected
financial data presented below is a summary and is qualified in its entirety by
and should be read in conjunction with Capital Bank's audited and unaudited
9
<PAGE>
financial statements and notes thereto presented elsewhere herein. The results
for the first half of fiscal 1998 are not necessarily indicative of results to
be expected for any other interim period or for the full year.
AS OF AND FOR AS OF AND FOR
PERIODS ENDED PERIOD ENDED
JUNE 30, DECEMBER 31,
-------- ------------
1998 1997 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
SELECTED FINANCIAL CONDITION DATA:
Total assets................... $ 85,297 $ 51,074 $ 68,904
Loans receivable, net.......... 52,482 10,836 26,638
Mortgage-backed securities..... 7,715 -- 5,357
Investments.................... 13,248 -- 14,175
Federal funds sold............. 4,300 33,585 1,687
Deposits....................... 60,270 24,684 43,386
Shareholders' equity........... 24,386 24,749 24,956
SELECTED OPERATING DATA: (1)
Net interest income............ $ 1,434 $ 33 $ 878
Provision for loan loss........ 345 -- 270
Other operating income......... 184 1 146
Other operating expense........ 1,888 62 1,746
Net income (loss).............. (615) (28) (722)
PER SHARE DATA: (1)
Net income (loss), basic....... $ (0.25) $ (0.01) $ (0.29)
Net income (loss), diluted..... (0.25) (0.01) (0.29)
SELECTED RATIOS: (1)
Return on average assets....... (1.6%) (1.98%) (2.61%)
Return on average equity....... (5.0%) (4.01%) (5.74%)
Equity to total assets......... 28.59% 48.46% 36.22%
- -------------
(1) Capital Bank opened its first branch on June 20, 1997. Operating and per
share data for 1997 are for the periods from June 20, 1997 to June 30 and
December 31, 1997, respectively.
SELECTED CONSOLIDATED FINANCIAL DATA OF HOME SAVINGS
The following table sets forth selected consolidated financial data and
other operating information of Home Savings at the dates and for the periods
indicated. The selected consolidated financial data in the table as of and for
the years ended September 30, 1997, 1996, 1995, 1994 and 1993, are derived from,
and should be read in conjunction with, Home Savings' audited consolidated
financial statements, related notes and other information presented elsewhere
herein, and the selected consolidated financial data presented as of and for the
nine months ended June 30, 1998 and 1997 are derived from, and should be read in
conjunction with, Home Savings' unaudited consolidated financial statements,
related notes and other financial information presented elsewhere herein.
Management believes such unaudited consolidated financial statements include all
adjustments (which consist only of normal recurring accruals) necessary for a
fair presentation of such results for such interim periods. All averages
presented have been calculated on a monthly basis unless otherwise stated.
Results for the nine months ended June 30, 1998 are not necessarily indicative
of results that may be expected for any other interim period or for the full
year.
10
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF SEPTEMBER 30,
--------------- -----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets ......................... $58,813 $55,456 $56,305 $52,514 $47,785 $43,969 $43,878
Loans receivable, net ................ 30,933 30,932 31,556 30,034 30,074 29,653 31,635
Mortgage-backed securities ........... 4,308 5,235 4,985 5,640 1,719 1,888 1,059
Investments .......................... 9,563 12,504 12,510 13,450 5,997 1,642 443
Federal funds sold ................... 11,450 4,450 5,050 975 1,750 3,350 5,400
Deposits ............................. 48,098 44,401 45,396 41,667 41,369 38,211 38,646
Equity ............................... 9,819 9,711 9,533 9,337 5,409 4,855 4,875
NINE MONTHS ENDED YEARS ENDED
JUNE 30, SEPTEMBER 30,
--------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(in thousands, except ratio data)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest and dividend income ... $ 3,023 $ 2,862 $3,865 $3,992 $3,386 $3,034 $3,216
Total interest expense ............... 1,824 1,592 2,185 2,149 1,897 1,546 1,657
------- ------- ------- ------- ------- ------- -------
Net interest income .................. 1,199 1,270 1,680 1,843 1,489 1,488 1,559
Provision for loan loss .............. 0 0 0 0 0 0 14
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan loss ...................... 1,199 1,270 1,680 1,843 1,489 1,488 1,545
Other operating income ............... 62 55 78 77 60 72 66
Other operating expense .............. 925 750 1,167 1,594 683 1,733 590
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes,
extraordinary credit, and cumulative
effect of accounting change.......... 336 575 591 326 866 (173) 1,021
Income tax expense (benefit) ......... 122 207 192 206 313 (72) 345
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
credit and cumulative effect
of accounting change ............... 214 368 399 120 553 (101) 676
Extraordinary credit ................. 0 0 0 0 0 0 14
Cumulative effect of accounting
change ............................. 0 0 0 0 0 81 0
------- ------- ------- ------- ------- ------- -------
Net income (loss) .................... $ 214 $ 368 $ 399 $ 120 $ 553 ($ 20) $ 690
======= ======= ======= ======= ======= ======= =======
SELECTED OTHER DATA: (1)
Return on average assets ............. 0.49% 0.92% 0.73% 0.21% 1.22% -0.05% 1.60%
Return on average equity ............. 2.94% 5.17% 4.17% 0.97% 10.78% -0.49% 18.72%
Average equity to average assets ..... 16.71% 17.20% 17.62% 21.89% 11.33% 9.11% 8.53%
Tangible equity to end
of period assets ................... 16.70% 17.66% 16.93% 17.78% 11.32% 11.04% 11.11%
Interest rate spread for period ...... 2.06% 2.37% 2.35% 2.36% 2.83% 3.13% 3.48%
Net interest margin .................. 2.89% 3.25% 3.20% 3.43% 3.38% 3.51% 3.82%
Nonperforming assets to total
assets ............................. 0.66% 0.82% 0.69% 1.09% 1.38% 1.70% 2.20%
Loan loss reserves to nonperforming
loans .............................. 69.85% 62.15% 71.65% 48.95% 42.21% 43.56% 39.72%
Average interest-earning assets to
average interest bearing liabilities. 119.11% 121.48% 120.39% 126.67% 112.59% 110.42% 108.37%
Dividend payout ratio ................ 84.35% 48.45% 111.71% 584.10%(2) -- -- --
- -------
</TABLE>
(1) Ratios have been annualized for the periods ended June 30, 1998 and 1997.
(2) Excludes special dividend of $4.80 per share paid in 1996.
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical per share data
of Capital Bank and Home Savings and combined per share data on an unaudited pro
forma basis after giving effect to the share exchange between Home Savings and
Capital Bank Corporation. In addition, this table presents certain unaudited per
11
<PAGE>
share data for Capital Bank and Home Savings on a pro forma combined basis. The
proposed transactions will be accounted for on a pooling of interests basis, and
the pro forma data is derived in accordance with such method. The unaudited pro
forma combined financial data are not necessarily indicative of the operating
results that would have been achieved had the transactions been in effect as of
the beginning of each of the periods presented and should not be construed as
representative of future operations. The Home Savings pro forma equivalent
amounts are presented with respect to each set of pro forma information. The
Home Savings pro forma equivalent per share amounts are computed by multiplying
the Capital Bank and Home Savings Pro Forma Per Share amounts by the exchange
ratio of 1.28. The periods presented for Home Savings are the fiscal year ended
September 30, 1997 and the six months ended June 30, 1998.
CAPITAL BANK HOME
HISTORICAL PER SHARE AND HOME SAVINGS
DATA SAVINGS EQUIVALENT
-------------------- PRO FORMA PRO FORMA
CAPITAL HOME PER SHARE PER SHARE
BANK SAVINGS DATA DATA
------- ------- -------- ---------
SIX MONTH PERIODS ENDED
JUNE 30, 1998
Net income, basic... $ (0.25) $ 0.16 $ (0.13) $ (0.16)
Net income, diluted. (0.25) 0.16 (0.13) (0.16)
Dividends........... --- 0.20 0.05 0.06
Book value.......... 9.84 10.64 9.35 11.97
YEAR ENDED DECEMBER 31, 1997
Net income, basic... $ (0.29)(1) $ 0.45(2) $ (0.09) $ (0.11)
Net income, diluted. (0.29)(1) 0.45(2) (0.09) (0.11)
Dividends........... --- 0.50 0.12 0.16
Book value.......... 10.07 10.33 9.43 12.07
- --------------------------
(1) Includes results of operations of Capital Bank for the period from June 20,
1997 (opening) to December 31, 1997.
(2) Includes results of operations of Home Savings for the year ended
September 30, 1997.
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS, WE URGE YOU TO CONSIDER THE
FOLLOWING FACTORS BEFORE DECIDING HOW TO VOTE AT THE CAPITAL BANK AND HOME
SAVINGS SPECIAL MEETINGS. PLEASE SEE PAGE--UNDER "FORWARD-LOOKING STATEMENTS"
FOR ADDITIONAL INFORMATION TO BEAR IN MIND BEFORE CASTING YOUR VOTE.
OPERATING HISTORY; PROFITABILITY. Capital Bank was incorporated under the
laws of the State of North Carolina on May 30, 1997 and opened on June 20, 1997.
As a result, Capital Bank has minimal operating history against which to compare
historical performance. Capital Bank's profitability, like that of most
financial institutions, is dependent to a large extent upon its net interest
income, which is the difference between its interest income and its interest
expense. It follows that Capital Bank's financial performance depends on market
interest rates and its ability to manage its assets in response to these
fluctuating rates. New banks typically operate at a loss in the first several
years of operation and Capital Bank, to date, has been no exception to that
general rule. Although Capital Bank will make every reasonable effort to reach a
level of profitability, Capital Bank does not know if or when it will become
profitable.
DEPENDENCE ON KEY PERSONNEL. Capital Bank currently depends heavily on the
services of its Chief Executive Officer, James A. Beck, and a number of other
key management personnel. Even though Capital Bank carries a $2 million key man
life insurance policy on Mr. Beck, the loss of Mr. Beck's services or of other
key personnel could affect Capital Bank in a material and adverse way. Capital
Bank's success will also depend in part on its ability to attract and retain
additional qualified management personnel. Competition for such personnel is
strong in the banking industry and Capital Bank may not be successful in
attracting or retaining the personnel it requires.
REGULATION. Current and future legislation and the policies established by
federal and state regulatory authorities will affect Capital Bank's operations.
Capital Bank Corporation will be subject to supervision and periodic examination
by the Board of Governors of the Federal Reserve System ("Federal Reserve") and
the North Carolina State Banking Commission. Home Savings, as a state savings
bank, also receives regulatory scrutiny from the North Carolina Administrator of
Savings Banks. Banking regulations, designed primarily for the protection of
depositors, may limit a financial institution's growth and the return to its
investors by restricting such activities as:
o the payment of dividends;
o mergers with or acquisitions by other institutions;
o investments;
o loans and interest rates;
o interest rates paid on deposits;
o expansion of branch offices;
o providing securities or trust services.
Capital Bank Corporation may be able to overcome some of these regulatory
hurdles as a bank holding company, but will have to comply with other federal
and state laws and regulations and could face enforcement actions by regulatory
agencies. Capital Bank cannot predict what changes, if any, will be made to
existing federal and state legislation and regulations or the effect that such
changes may have on its business. The cost of compliance with regulatory
requirements may adversely affect Capital Bank's ability to operate profitably.
(See pages ___)
TRADING VOLUME; MARKET PRICES. The trading volume in Capital Bank stock on
the Nasdaq SmallCap Market has been comparable to other similarly-sized banks
since trading began in December 1997. Nevertheless, this trading is relatively
low when compared with more seasoned companies listed on the Nasdaq SmallCap
Market or other stock exchanges.
13
<PAGE>
This market is still limited in scope relative to other companies. We cannot say
with any certainty that an active and liquid trading market for Capital Bank
Corporation stock will develop.
COMPETITION. The banking and financial services business in North Carolina
generally, and in Capital Bank's market areas specifically, is highly
competitive. The increasingly competitive environment is a result primarily of:
o changes in regulation;
o changes in technology and product delivery systems;
o the accelerating pace of consolidation among financial services
providers.
Capital Bank Corporation will compete for loans, deposits and customers
with various bank and nonbank financial service providers, many of which are
much larger in total assets and capitalization, have greater access to capital
markets and offer a broader array of financial services. Capital Bank
Corporation may not be able to compete effectively in its markets, and its
results of operations could be adversely affected by the nature or pace of
change in competition.
STOCK OWNERSHIP IN CAPITAL BANK CORPORATION. After the exchange, holders
of Home Savings stock will become holders of Capital Bank Corporation stock.
Capital Bank Corporation's business is different from that of Home Savings, and
different factors will affect Capital Bank Corporation's results of operations
and the price of Capital Bank Corporation stock than those affecting Home
Savings' results of operations and the price of Home Savings stock. Please
review the financial data on pages ___ for more information about our companies'
operations on an assumed combined basis.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE. In considering the Home
Savings Board's recommendation of the approval and adoption of the exchange
agreement, Home Savings shareholders should be aware that certain directors and
executive officers of Home Savings have interests in the exchange in addition to
their interests as Home Savings shareholders. The Board of Directors considered
these interests, together with other relevant factors, in recommending the
approval and adoption of the exchange agreement. (See page ___)
NEED FOR GOVERNMENT APPROVALS; POSSIBLE OPERATING RESTRICTIONS. Capital
Bank and Home Savings are seeking to obtain all required regulatory approvals
prior to the Capital Bank and Home Savings Special Meetings. However, it is
possible Capital Bank and Home Savings will not obtain the regulatory approvals
we seek. In addition, governmental agencies may impose restrictions on the
combined company as a condition to obtaining such approvals. If the parties
comply with any restrictions imposed, this could adversely affect the value of
the combined institutions.
RISKS RELATED TO YEAR 2000 ISSUES. Capital Bank uses software that will be
affected by the date change in the Year 2000 and recognizes that the arrival of
the Year 2000 poses challenges that will require modifications of portions of
its software to enable it to function properly. As the Year 2000 approaches,
date sensitive systems may recognize the Year 2000 as 1900, or not at all. This
may cause systems to process critical financial and operational information
incorrectly. Capital Bank, like many other companies, is expected to incur
expenditures over the next year to address this issue. Capital Bank has taken
various actions to understand the nature and work required to make its systems
Year 2000 compliant. Capital Bank continues to evaluate the estimated costs and
has commenced portions of the work required to achieve compliance. While
compliance has and will involve additional costs, budgeted to be $43,000 in
total, Capital Bank believes, based on current information, that it will achieve
year 2000 compliance without a material adverse effect on its business. We
cannot
14
<PAGE>
assure you, however, that our estimates of costs involved will prove to be
accurate or that we will have resolved all Year 2000 related issues. Thus,
despite our work and planning on this issue, it is still possible that we could
experience a material adverse effect on our business. Please see page ___ for
more detailed information on this issue.
15
<PAGE>
CAPITAL BANK AND HOME SAVINGS UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Set forth below are unaudited pro forma financial data of Capital Bank and
Home Savings combined. The proposed transaction with Home Savings is reflected
under the pooling of interests method of accounting. This information is not
necessarily indicative of the results that actually would have occurred. All
amounts have been derived based upon Home Savings' fiscal year which ends on
September 30 and Capital Bank's fiscal year which ends on December 31;
conforming Home Savings' year end to that of Capital Bank would not materially
impact the amounts set forth below.
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
PRO FORMA
COMBINED
HOME CAPITAL BANK
SAVINGS AND HOME SAVINGS
CAPITAL BANK OF PRO FORMA BANK OF SILER
BANK SILER CITY ADJUSTMENTS CITY
---- ----------- ----------- -------------
ASSETS
Cash and Due from Banks $ 2,558 $ 1,239 $ --- $ 3,797
Investment Securities 20,963 14,225 --- 35,188
Federal Funds Sold.. 4,300 11,450 --- 15,750
Loans and Leases, net 52,482 30,933 --- 83,415
Premises and Equipment 2,229 288 --- 2,517
Intangible Assets... 1,941 --- --- 1,941
Deferred Income Taxes --- 405 --- 405
Other Assets........ 824 273 377 (1) 1,474
----------- ----------- ------------ ----------
Total Assets........ $ 85,297 $ 58,813 $ 377 $ 144,487
=========== =========== ============ ==========
LIABILITIES
Noninterest Bearing
Demand......... $ 4,350 $ --- $ --- $ 4,350
Savings and Interest
Bearing Demand.. 14,611 11,784 --- 26,395
Time Deposits....... 41,309 36,314 --- 77,623
----------- ----------- ---------- ----------
Total Deposits...... 60,270 48,098 --- 108,368
Other Liabilities... 641 896 1,137 (2) 2,674
----------- ----------- ---------- ----------
Total Liabilities... 60,911 48,994 1,137 111,042
SHAREHOLDERS' EQUITY
Common Stock........ 12,388 923 4,982 (3) 18,293
Surplus............. 13,285 8,170 (4,982)(3) 16,473
Retained Earnings... (1,337) 1,096 (993)(4) (1,234)
Unearned ESOP Shares --- (156) --- (156)
Deferred Stock Awards --- (233) 233 (5) ---
Unrealized Gain (Loss)
on Securities AFS.. 50 19 --- 69
Total Shareholders' ----------- ----------- ----------- ----------
Equity............. 24,386 9,819 (760) 33,445
----------- ----------- ----------- ----------
Total Liabilities and
Shareholders'
Equity............. $ 85,297 $ 58,813 $ 377 $ 144,487
=========== =========== =========== ==========
- ----------------------
(1) Adjustment for deferred tax benefit resulting from acceleration of director
and executive retirement plans in accordance with change in control
provisions. Such benefits will be recognized only if the combined entity
achieves profitable operations in the future periods.
(2) Adjustment for investment advisor fees and acceleration of director and
executive retirement plans in accordance with change in control provisions.
(3) Adjustment for issuance of Capital Bank Corporation shares.
(4) Net of tax impact on earnings resulting from pro forma adjustments.
(5) Acceleration of vesting due to change in control.
16
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS(1)
SIX MONTH PERIOD ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA
COMBINED
CAPITAL BANK
AND
HOME SAVINGS HOME SAVINGS
BANK OF SILER BANK OF SILER
CAPITAL BANK CITY CITY
------------ ------------- -------------
INTEREST INCOME
Loans.................... $ 1,764 $ 1,296 $ 3,060
Investment securities and
federal funds sold.. 901 758 1,659
----- ---- -----
Total interest income.... 2,665 2,054 4,719
----- ----- -----
INTEREST EXPENSE
Deposits................. 1,231 1,205 2,436
ESOP note................ -- 10 10
Total interest expense... 1,231 1,215 2,446
----- ----- -----
Net interest income before
provision for loan
losses.................. 1,434 839 2,273
Provision for loan losses 345 - 345
----- ----- -----
Net interest income after
provision for loan
losses.................. 1,089 839 1,928
Noninterest income.......... 184 35 219
Noninterest expenses........ 1,888 650 2,538
----- --- -----
Net income before taxes.. (615) 224 (391)
Income taxes................ - 78 78
----- ---------- ------------
$
Net income (loss)........... (615) $ 146 $ (469)
===== ========== ============
Net income (loss) per $
common share,
basic.................. (0.25) $ 0.16 $ 0.13(2)
====== =========== ===========
Net income (loss) per
common share, assuming
dilution............... $(0.25) $ 0.16 $ (0.13)(2)
====== =========== =============
- ---------------------
(1) The table below summarizes non-recurring charges (net of applicable tax
benefits) resulting from the Exchange and the acceleration of certain director
and executive benefit plans due to change in control provisions. These charges
have not been reflected in the above pro forma information.
Management recognition plan $ 144
Executive employment contract 310
Investment advisor fees 235
Health benefits 62
Other retirement liabilities 242
--------
$ 993
========
(2) Adjusted for exchange ratio of 1.28 shares of Capital Bank Corporation stock
for each share of Home Savings stock.
17
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
PRO FORMA
COMBINED
CAPITAL BANK
AND
HOME SAVINGS HOME SAVINGS
BANK OF SILER BANK OF SILER
CAPITAL BANK(1) CITY(2) CITY
------------- ------------ -------------
INTEREST INCOME
Loans.................... $ 815 $ 2,485 $ 3,300
Investment securities
and federal funds sold. 1,002 1,380 2,382
----------- ------------- -------------
Total interest income.... 1,817 3,865 5,682
----------- ------------- -------------
INTEREST EXPENSE
Deposits................. 663 2,164 2,827
Borrowed funds........... 6 --- 6
ESOP note................ -- 20 20
Total interest expense... 669 2,184 2,853
----------- ------------- -------------
Net interest income before
provision for loan losses. 1,148 1,681 2,829
Provision for loan losses 270 - 270
----------- ------------- -------------
Net interest income after
provision for loan
losses.................... 878 1,681 2,559
Noninterest income.......... 146 78 224
Noninterest expenses........ 1,746 1,167 2,913
----------- ------------- -------------
Net income before taxes..... (722) 592 (130)
Income taxes................ - 193 193
----------- ------------- -------------
Net income (loss)........... $ (722) $ 399 $ (323)
=========== ============= =============
Net income (loss) per
common share, basic....... $ (0.29) $ 0.45 $ (0.09)(2)
=========== ============= =============
Net income (loss) per
common share, assuming
dilution.................. $ (0.29) $ 0.45 $ (0.09)(2)
=========== ============ =============
- -----------------------
(1) Income statement amounts are presented for the period from June 20, 1997
(opening day) to December 31, 1997 for Capital Bank and for the year ended
September 30, 1997 for Home Savings.
(2) Adjusted for exchange ratio of 1.28 shares of Capital Bank Corporation stock
for each share of Home Savings stock.
18
<PAGE>
RECENT DEVELOPMENTS
On October 16, 1998, Capital Bank issued a press release with respect to
earnings for its third fiscal quarter ended September 30, 1998. Selected
Financial Condition Data, Selected Operating Data and other information for the
periods ended September 30, 1998 and 1997 are set forth below:
AS OF AND FOR PERIOD
ENDED
SEPTEMBER 30,
---------------
1998 1997(1) PERCENT CHANGE
---- ------- --------------
SELECTED FINANCIAL CONDITION (in thousands, except
DATA: per share and ratio data)
Total assets................ $100,064 $53,900 86%
Loans receivable, net....... 63,359 17,736 257
Mortgage-backed securities.. 8,239 1,654 398
Investments................. 8,309 12,163 (32)
Federal funds sold.......... 11,810 16,677 (29)
Deposits.................... 75,095 27,988 168
Shareholders' equity........ 24,314 25,271 (4)
SELECTED OPERATING DATA:
Net interest income......... $2,339 $ 546 328%
Provision for loan loss..... 518 135 284
Other operating income...... 472 45 949
Other operating expense..... 3,106 866 259
Net income (loss)........... (813) (410) 98
PER SHARE DATA:
Net income, basic........... $(.33) $ (.16) 106%
Net income, diluted......... (.33) (.16) 106
SELECTED RATIOS:
Return on average assets.... (1.3%) (3.08%)
Return on average equity.... (4.4%) (5.83%)
Average equity to average
assets..................... 29.8% 52.8%
- ----------
(1) Capital Bank commenced operations on June 20, 1997.
19
<PAGE>
GENERAL INFORMATION
CAPITAL BANK SPECIAL MEETING
GENERAL. This Joint Proxy Statement-Prospectus is being furnished to the
shareholders of Capital Bank in connection with the solicitation by the Board of
Directors of Capital Bank of proxies for use at the Capital Bank Special
Meeting. The purposes of the Capital Bank Special Meeting are to consider and
vote upon (1) the adoption and approval of the Agreement and Plan of
Reorganization and Share Exchange, dated as of August 12, 1998 (the "Holding
Company Agreement") pursuant to which Capital Bank will become a wholly-owned
subsidiary of Capital Bank Corporation and (2) the approval of the issuance of
shares of Capital Bank Corporation Common Stock to Home Savings' shareholders in
connection with the proposed share exchange with Capital Bank Corporation.
The principal executive offices of both Capital Bank Corporation and
Capital Bank are located at 4400 Falls of Neuse Road, Raleigh, North Carolina
27609. Their telephone number is (919) 878-3100.
This Joint Proxy Statement-Prospectus is first being mailed to
shareholders on or about ________, 1998.
RECORD DATE; VOTING RIGHTS. Capital Bank shareholders of record at the
close of business on [November 13], 1998 (the "Capital Bank Record Date") are
entitled to vote at the Capital Bank Special Meeting, or at any adjournment or
postponement. As of the Capital Bank Record Date, there were _____ shares of
Capital Bank Common Stock outstanding and entitled to vote held of record by
______ persons. Each share of Capital Bank Common Stock entitles the holder to
one vote on each matter submitted to a vote at the meeting. Pursuant to the
Bylaws of Capital Bank, a majority of the votes entitled to be cast by holders
of Capital Bank Common Stock, represented in person or by proxy, will constitute
a quorum for the transaction of business at the meeting.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of Capital Bank Common Stock is required by Article 11 of the
North Carolina Business Corporation Act (the "NCBCA") to approve the Holding
Company Agreement and the reorganization of Capital Bank into a holding company,
as provided in that agreement. The approval of the issuance of Capital Bank
Corporation stock to the Home Savings shareholders requires the affirmative vote
of a majority of the Capital Bank shareholders present, in person or by proxy,
at the Capital Bank Special Meeting.
The principal officers and directors of Capital Bank, together with their
affiliates, beneficially owned, directly or indirectly, as of September 30,
1998, an aggregate of 366,973 shares of Capital Bank Common Stock (excluding
54,550 shares subject to outstanding stock options) constituting approximately
14.8% of such shares outstanding and entitled to vote on that date. Of that
aggregate, non-employee directors own 352,173 shares of Capital Bank Common
Stock (excluding 43,750 shares subject to outstanding stock options), or
approximately 14.2% of the total, and principal officers of Capital Bank own
14,800 of such shares (excluding 10,800 shares subject to outstanding stock
options), or less than one percent.
James A. Beck, currently the sole director and officer of Capital Bank
Corporation, owns one share of Capital Bank Corporation Common Stock, or 100% of
the total, with nominal value. We expect that Capital Bank Corporation will
cancel Mr. Beck's share after consummation of the Holding Company
Reorganization. The result will be that the same persons who held Capital Bank
Common Stock before the transaction (except if anyone exercises dissenters'
rights) will own Capital Bank Corporation Common Stock after the transaction
without any change in the number of their shares.
20
<PAGE>
SOLICITATION, REVOCATION AND USE OF PROXIES. A proxy card is enclosed for
your use. YOU ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CAPITAL BANK
TO COMPLETE, DATE, SIGN, AND RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE,
which is postage-paid if mailed in the United States.
You have three choices on each proposal to be voted at the Capital Bank
Special Meeting. By checking the appropriate box on the proxy card you may: (i)
vote "FOR" the Holding Company Agreement and the issuance of the Capital Bank
Corporation stock in the Home Savings acquisition; (ii) vote "AGAINST" the
Holding Company Agreement and the issuance of the Capital Bank Corporation stock
in the Home Savings acquisition; or (iii) "ABSTAIN" from voting altogether.
Since we need a majority of all outstanding Capital Bank shares to vote
FOR the Holding Company Agreement, if you do not submit a proxy card or
alternatively, vote in person at the Capital Bank Special Meeting you will, in
effect, have voted AGAINST the Holding Company Agreement and the reorganization
of Capital Bank into a holding company. In addition, if you abstain or do not
instruct your broker how to vote, that will also be, in effect, a vote AGAINST
the proposal, although your shares would still be counted toward the required
quorum for the meeting if you abstain.
To approve the issuance of Capital Bank Corporation stock in the Home
Savings acquisition, we need a majority of those voting, either in person or by
proxy, to vote affirmatively. Therefore, if you do not submit a proxy card or
vote in person, you will not be counted towards the quorum requirement, although
if a quorum is otherwise present, in person or by proxy, at the meeting, your
failure to vote would have no outcome on the final vote. If you abstain from
voting on this proposal, that would have the effect of a vote against the
proposal.
You may revoke your proxy at any time before it is actually voted at the
Capital Bank Special Meeting by delivering written notice of revocation to the
Secretary of Capital Bank, Allen T. Nelson, Jr., 4400 Falls of Neuse Road,
Raleigh, NC 27609, by submitting a subsequently dated proxy, or by attending the
Special Meeting and withdrawing the proxy. Each unrevoked proxy card properly
executed and received prior to the close of the Special Meeting will be voted as
indicated. Where specific instructions are not indicated, the proxy will be
voted "FOR" the adoption of the Holding Company Agreement.
The expense of preparing, printing and mailing this Joint Proxy
Statement-Prospectus will be shared equally by Capital Bank and Home Savings. In
addition to the use of the mails, proxies may be solicited personally or by
telephone by regular employees of Capital Bank without additional compensation.
Capital Bank will reimburse banks, brokers and other custodians, nominees and
fiduciaries for their costs in sending the proxy materials to the beneficial
owners of Capital Bank Common Stock.
HOME SAVINGS' SPECIAL MEETING
GENERAL . This Joint Proxy Statement-Prospectus is being furnished to
shareholders of Home Savings as of _______________, and is accompanied by a form
of proxy which is solicited by the Board of Directors of Home Savings for use at
the Home Savings' Special Meeting to be held on December 28, 1998 and at any
adjournment thereof. At the Home Savings' Special Meeting, Home Savings'
shareholders will be asked to vote on a proposal to approve the Agreement and
Plan of Reorganization and Share Exchange (the "Exchange Agreement") with
Capital Bank and Capital Bank Corporation, and the share exchange between Home
Savings shareholders and Capital Bank Corporation (the "Exchange").
RECORD DATE; VOTING RIGHTS. Shareholders of record at the close of
business on _______________, 1998 (the "Home Savings Record Date") are entitled
to vote at the Home Savings Special Meeting or at any
21
<PAGE>
adjournment thereof. On the Home Savings' Record Date there were 922,686 shares
of Home Savings' common stock outstanding which were held by approximately _____
holders of record. Each share of Home Savings' common stock outstanding on the
Home Savings Record Date is entitled to one vote on the proposal regarding the
Exchange. Approval of the Exchange will require the affirmative vote of an
absolute majority of the shares of Home Savings' common stock entitled to vote
at the Home Savings' Special Meeting. Failure of the holder of Home Savings'
common stock to vote such shares, as well as abstentions and broker nonvotes
will have the same effect as a vote "AGAINST" the Exchange. As of the Home
Savings' Record Date, the directors and executive officers of Home Savings and
their affiliates owned a total of ______ shares or ____% of Home Savings' common
stock, all of which are expected to be voted in favor of the Exchange.
The shares of Home Savings' common stock represented by properly executed
proxies received at or prior to the Home Savings' Special Meeting will be voted
as directed by the shareholders, unless revoked as described below. If no
instructions are given, such proxies will be voted "FOR" the Exchange. Such vote
will constitute a waiver of the shareholders' right to dissent in any other
matters properly presented at the Home Savings' Special Meeting or any
adjournment or adjournments thereof, that may be properly voted on, the proxy
solicited hereby will be voted on such matters in accordance with the best
judgment of a majority of the proxy holders named therein. However, in such
event, voting authority will only be exercised to the extent permissible under
applicable federal securities laws. Home Savings is not aware of any other
matters to be presented at the Home Savings' Special Meeting. This proxy is
being solicited for the Home Savings' Special Meeting and any adjournment or
adjournments thereof and will not be used for any other meeting. The presence of
a shareholder at the Home Savings' Special Meeting will not automatically revoke
such shareholders' proxy. A shareholder may, however, revoke a proxy at any time
prior to its exercise (1) by filing a written notice of revocation with, or by
delivering a duly executed proxy bearing a later date to, the President of Home
Savings at Home Savings' main office prior to the Home Savings' Special Meeting
or (2) by attending the Home Savings' Special Meeting and voting in person. A
proxy will not be revoked by the death or incapacity of the shareholder
executing it unless, before the shares are voted, such death or incapacity is
filed with the President of Home Savings or other person authorized to tabulate
votes. Whether or not they plan to attend the Home Savings' Special Meeting,
HOLDERS OF HOME SAVINGS' COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
22
<PAGE>
REORGANIZATION OF CAPITAL BANK INTO A HOLDING COMPANY
GENERAL
Capital Bank Corporation and Capital Bank entered into the Agreement and
Plan of Reorganization and Share Exchange (the "Holding Company Agreement") as
of August 12, 1998, pursuant to which Capital Bank Corporation will become a
bank holding company with Capital Bank as its wholly-owned subsidiary (the
"Holding Company Reorganization"). A copy of the Holding Company Agreement is
attached as Appendix I to this Joint Proxy Statement-Prospectus. Capital Bank
Corporation is a newly-formed North Carolina corporation that was organized by
Capital Bank for the purpose of effecting the Holding Company Reorganization
and, therefore, has no operating history. If the Holding Company Reorganization
is approved by the holders of Capital Bank Common Stock, and subject to the
satisfaction of all other conditions set forth in the Holding Company Agreement,
including receipt of all required regulatory approvals, all of the outstanding
shares of Capital Bank Common Stock (other than shares held by shareholders
exercising dissenters' rights, if any) will be converted into the right to
receive an equal number of shares of Common Stock in a one-for-one exchange.
After the effective date of the Holding Company Reorganization, Capital
Bank will continue its existing business and operations as a wholly-owned
subsidiary of Capital Bank Corporation. The consolidated assets, liabilities,
shareholders' equity and income of Capital Bank Corporation immediately
following the effective date will be the same as those of Capital Bank
immediately prior to the effective date. The Board of Directors of Capital Bank
Corporation is, and upon the Effective Date will continue to be, comprised of
the current members of the Board of Directors of Capital Bank. However, Edwin E.
Bridges and John F. Grimes will be appointed to the Board of Directors of
Capital Bank Corporation following consummation of the Exchange. The executive
officers of Capital Bank Corporation are, and upon the effective date of the
Holding Company Reorganization will continue to be, substantially the same as
the current executive officers of Capital Bank. Capital Bank will continue to
operate under the name "Capital Bank " and its deposit accounts will continue to
be insured by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The corporate existence of Capital Bank will continue
unaffected and unimpaired by the Holding Company Reorganization, except that all
of the outstanding shares of Capital Bank Common Stock (other than shares held
by shareholders exercising dissenters' rights, if any) will be owned by Capital
Bank Corporation. Capital Bank's shareholders prior to the effective date of the
Holding Company Reorganization will, in turn, own all of the outstanding shares
of Common Stock, having received that stock in exchange for their shares of
Capital Bank Common Stock as part of the Holding Company Reorganization.
VOTE REQUIRED
Approval of the Holding Company Agreement requires the approval of a
majority of the issued and outstanding shares of Capital Bank. The required vote
of shareholders is based upon the number of outstanding shares of Capital Bank
Common Stock, and not the number of those shares that are actually voted.
Accordingly, as we explained on page ___, anything but a vote FOR the proposal
will have the effect of a vote AGAINST the proposal. That is why your vote is
very important. The failure to submit a proxy card or to vote in person at the
Special Meeting or an abstention from voting will have the same effect as a "NO"
vote with respect to this proposal.
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<PAGE>
THE CAPITAL BANK BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE PROPOSED HOLDING COMPANY REORGANIZATION AND UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION
OF THE HOLDING COMPANY AGREEMENT
PARTIES TO THE HOLDING COMPANY REORGANIZATION
CAPITAL BANK
Capital Bank was incorporated under the laws of the State of North
Carolina on May 30, 1997, and commenced operations as a state-chartered banking
corporation on June 20, 1997. Capital Bank is not a member of the Federal
Reserve System and has no subsidiaries. As of September 30, 1998, Capital Bank
had assets of approximately $100 million, net loans outstanding of approximately
$64 million and deposits of approximately $75 million.
CAPITAL BANK CORPORATION
Capital Bank Corporation was incorporated on August 10, 1998 at the
direction of the Board of Directors of Capital Bank to become a bank holding
company with Capital Bank as its wholly-owned subsidiary. Capital Bank
Corporation, upon the approval by the Federal Reserve of Capital Bank
Corporation's application for approval to become a bank holding company, will be
subject to regulation by the Federal Reserve. Upon consummation of the Holding
Company Reorganization, Capital Bank Corporation will have no significant assets
other than the shares of Capital Bank's capital stock acquired in the Holding
Company Reorganization, and will have no significant liabilities. Initially,
Capital Bank Corporation will neither own nor lease any property, but will
instead use the premises, equipment and furniture of Capital Bank. At the
present time, Capital Bank Corporation does not intend to employ any persons
other than certain executive officers, but will utilize the support staff of
Capital Bank from time to time. Additional employees will be hired as
appropriate, to the extent Capital Bank Corporation expands its business in the
future.
DESCRIPTION OF THE HOLDING COMPANY AGREEMENT
REASONS FOR THE REORGANIZATION
Capital Bank's Board of Directors believes that the formation of a holding
company creates a more flexible organizational structure that could provide
benefits such as more options for funding Capital Bank's growth, the ability to
accommodate distinct subsidiaries for additional lines of business and increased
efficiency with regard to acquisition activities. This corporate structure would
be consistent with Capital Bank's stated strategy of positioning Capital Bank to
seize opportunities that it expects to result from the consolidation of the
financial services industry.
HOLDING COMPANY EFFECTIVE DATE
The date and time on which the Holding Company Reorganization is effective
will be the first business day following the date on which Capital Bank
Corporation files Articles of Share Exchange in accordance with the NCBCA.
We refer to this date and time as the "Holding Company Effective Date."
ACTIONS AT THE HOLDING COMPANY EFFECTIVE DATE
The Holding Company Reorganization will be accomplished through the
following steps:
24
<PAGE>
1 Capital Bank Corporation has been incorporated as a North Carolina
corporation. The primary purpose of Capital Bank Corporation is to become the
bank holding company for Capital Bank.
2 At the Holding Company Effective Date, Capital Bank Corporation will
exchange shares of its Common Stock for all the shares of Capital Bank Common
Stock issued and outstanding immediately prior to the Holding Company Effective
Date on a one-for-one basis. As an example, if a Capital Bank shareholder owned
100 shares of Capital Bank stock before the Holding Company Effective Date, he
or she would receive 100 shares of Capital Bank Corporation in the Holding
Company Reorganization.
3 Not more than 20 days following the Holding Company Effective Date,
Capital Bank Corporation will cause Wachovia Bank, N.A. (or its successor,
Boston Equiserve), the transfer agent for Common Stock (the "Exchange Agent"),
to mail to each former shareholder of Capital Bank of record immediately prior
to the Holding Company Effective Date written instructions and transmittal
materials for use in surrendering shares of Capital Bank Common Stock to the
Exchange Agent.
4 Upon the proper delivery to the Exchange Agent by a Capital Bank
shareholder of his or her Capital Bank share certificates, the Exchange Agent
will register in the name of such shareholder the shares of Common Stock and
deliver new share certificates to the Capital Bank shareholder
5 Capital Bank shareholders have the right to dissent from the Holding
Company Reorganization if they follow the procedure in the North Carolina
Business Corporation Act. We have explained that procedure under "Dissenters'
Rights" beginning on page ___ and have also included a copy of the statute
itself in Appendix V to this Joint Proxy Statement-Prospectus.
CONDITIONS TO THE HOLDING COMPANY REORGANIZATION
The Holding Company Agreement provides that the obligations of Capital
Bank and Capital Bank Corporation to consummate the Holding Company
Reorganization are subject to the satisfaction of the following conditions: (1)
the approval of the Holding Company Agreement by an affirmative vote of the
holders of a majority of the issued and outstanding shares of Capital Bank
Common Stock; (2) the approval by the Federal Reserve of Capital Bank
Corporation's application to become a holding company under the Bank Holding
Company Act of 1956 (the "BHC Act"); (3) the receipt of all other consents and
approvals and the satisfaction of all other requirements necessary to the
consummation of the Holding Company Reorganization; (4) the receipt of a
favorable opinion from Capital Bank's independent auditors as to the federal
income tax consequences of the Holding Company Reorganization; and (5)
expiration of any waiting period required by any supervisory authority to
complete the transaction. There are no assurances that these conditions will be
satisfied and that the Holding Company Reorganization will be consummated.
TERMINATION
The Holding Company Agreement may be terminated prior to the Holding
Company Effective Date if: (1) any condition precedent contained in the Plan has
not been fulfilled or waived; (2) any action, suit, proceeding or claim has been
instituted, made or threatened relating to the Holding Company Agreement which
makes consummation of the transaction inadvisable in the opinion of the Board of
Directors of Capital Bank or Capital Bank Corporation; (3) the number of shares
of Capital Bank Common Stock owned by dissenting shareholders, if any, makes
consummation inadvisable in the opinion of Capital Bank or Capital Bank
Corporation; or (4) for any other reason, consummation of the transaction is
inadvisable in the opinion of the Board of Directors of Capital Bank or Capital
Bank Corporation.
25
<PAGE>
EXCHANGE OF STOCK CERTIFICATES
At the Holding Company Effective Date, a certificate representing one
share of Capital Bank Common Stock will represent the right to be exchanged for
one share of Capital Bank Corporation Common Stock, except for certificates
representing Capital Bank shares whose holders, if any, have exercised
dissenters' rights. After the Holding Company Effective Date, shareholders will
exchange their present certificates for new certificates representing shares of
Capital Bank Corporation Common Stock. Capital Bank shareholders will be
notified by Capital Bank Corporation as to the procedure for the exchange of
Capital Bank Common Stock certificates for Capital Bank Corporation Common Stock
certificates. Your present stock certificates will for all purposes after the
Holding Company Effective Date, until exchanged with the Transfer Agent,
evidence only the exchange rights for which the Holding Company Agreement
provides or, if applicable, the rights of a dissenting shareholder.
EFFECT OF THE HOLDING COMPANY REORGANIZATION ON CAPITAL BANK'S STOCK OPTION
PLANS
GENERAL. On June 19, 1997, the Board of Directors of the Capital Bank
adopted, and on April 29, 1998, the Capital Bank shareholders approved, the
Capital Bank Incentive Stock Option Plan (the "ISO Plan") and the Capital Bank
Nonqualified Stock Option Plan (the "NQSO Plan") (individually, a "Plan" or
collectively, the "Plans"). On [OCTOBER 15, 1998] the Capital Bank Corporation
Board of Directors and sole shareholder approved the following actions:
o Capital Bank Corporation's assumption of the Plans;
o amendments to the Plans to conform them with provisions that bank
holding companies would typically adopt; and
o the reservation of additional shares for issuance under the Plans.
PURPOSES. The purposes of the Plans are to advance the interests of
Capital Bank Corporation by making shares of Capital Bank Corporation's stock
available for purchase by persons who are in a position to make significant
contributions to the success of Capital Bank Corporation. An effect of this
arrangement is to further align the interests of these persons with those of
Capital Bank Corporation's shareholders.
NUMBER OF SHARES. In conjunction with the Holding Company Reorganization,
Capital Bank Corporation will reserve additional shares for issuance under the
Plans so that a total of 200,000 shares of Common Stock will be available for
issuance under each Plan. If any option granted under a Plan expires or
terminates for any reason without having been exercised in full, the unpurchased
shares of Common Stock subject to the expired or terminated option will be
available for future options under that Plan.
ELIGIBLE RECIPIENTS. The ISO Plan permits grants of incentive stock
options to officers and other key employees, while the NQSO Plan permits grants
of nonqualified stock options to officers, key employees, directors and local
board members.
ADMINISTRATION. Both Plans are administered by a committee appointed by
the Board of Directors, which consists of two or more non-employee directors.
The Compensation Committee of Capital Bank Corporation's Board of Directors has
assumed all responsibilities with regard to administering the Plans. In general,
the Compensation Committee has broad discretionary authority regarding the
Plans, including the authority to determine which persons shall be granted
options and the amount of such options, to determine and construe the terms and
provisions of the agreements and other documents by which options are granted
and accepted and to make all other determinations that the Compensation
Committee deems necessary or desirable for the administration of the Plans.
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OPTIONS HELD BY CAPITAL BANK DIRECTORS AND OFFICERS. As of the record date
for the Capital Bank shareholders' meeting, directors and officers of Capital
Bank held an aggregate of 54,550 shares of Capital Bank Common Stock subject to
presently exercisable stock options, all of which have been assumed by Capital
Bank Corporation. An additional 45,200 shares of Capital Bank Common Stock,
subject to outstanding stock options that are not presently exercisable, are
held by executive officers of Capital Bank.
FEDERAL INCOME TAX CONSEQUENCES OF HOLDING COMPANY REORGANIZATION
Capital Bank expects to receive an opinion of PricewaterhouseCoopers LLP
to the effect that, among other things:
o The proposed Holding Company Reorganization and resulting exchange of
Capital Bank Corporation's Common Stock for Capital Bank's Common
Stock will constitute a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended (the "Code").
o No gain or loss will be recognized by Capital Bank's shareholders on
the receipt of Capital Bank Corporation's Common Stock in exchange for
their Capital Bank Common Stock.
o The basis of each Capital Bank shareholder in Capital Bank
Corporation's Common Stock received by such shareholder will be the
same as the basis of Capital Bank Common Stock surrendered in exchange
therefor.
o The holding period of Capital Bank Corporation's Common Stock received
by each Capital Bank shareholder will include the holding period of
the Capital Bank Common Stock surrendered in exchange therefor,
provided that the Capital Bank Common Stock is held as a capital asset
at the effective time of Holding Company Reorganization.
o If a Capital Bank shareholder dissents from the Holding Company
Reorganization and receives cash in exchange for his Capital Bank
Common Stock, the receipt of such cash will be a taxable transaction
and will be treated as a distribution and redemption of his shares,
subject to the provisions and limitations of Sections 301 and 302 of
the Code.
The opinion assumes that the Holding Company Reorganization will be
consummated as described in the Holding Company Agreement, and that dissenters'
rights will be exercised with respect to not more than 20% of the Capital Bank's
outstanding Common Stock.
The tax opinion will not address state or local tax consequences, and
shareholders are advised to consult their own tax advisors for advice with
respect thereto.
ACCOUNTING TREATMENT OF THE HOLDING COMPANY REORGANIZATION
The Holding Company Reorganization is expected to be characterized as, and
treated similarly to, a "pooling of interests" (rather than a "purchase") for
financial reporting and related purposes, with the result that the accounts of
Capital Bank and Capital Bank Corporation will be combined.
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CAPITAL BANK CORPORATION'S SHARE EXCHANGE WITH
HOME SAVINGS BANK
THE FOLLOWING INFORMATION DESCRIBES MATERIAL ASPECTS OF THE PROPOSED
TRANSACTION BY WHICH CAPITAL BANK CORPORATION WOULD ACQUIRE ALL OF THE STOCK OF
HOME SAVINGS BANK OF SILER CITY, INC., SSB BY A SHARE EXCHANGE UNDER THE
EXCHANGE AGREEMENT. THIS DESCRIPTION MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO HOME SAVINGS SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE APPENDICES ATTACHED TO THIS JOINT PROXY STATEMENT-PROSPECTUS,
INCLUDING THE EXCHANGE AGREEMENT, WHICH IS INCLUDED AS APPENDIX II. WE URGE YOU
TO READ ALL APPENDICES IN THEIR ENTIRETY.
GENERAL
The Exchange Agreement provides for the Exchange which, when effective,
will result in the conversion of each share of Home Savings Common Stock then
issued and outstanding (excluding shares held by Capital Bank or Capital Bank
Corporation or as to which Home Savings shareholders have exercised dissenters'
rights) into the right to receive 1.28 newly issued shares of Capital Bank
Corporation's no par value common stock for each Home Savings share, rounded up
or down to the nearest whole share.
As of the Home Savings Record Date, Home Savings had [922,686] shares of
Home Savings Common Stock outstanding. Based upon the exchange ratio, upon
consummation of the Exchange, Capital Bank Corporation will issue approximately
[1,181,038] shares of Company Common Stock. Accordingly, Capital Bank
Corporation would then have outstanding approximately [3,658,689] shares of
Common Stock.
BACKGROUND OF AND REASONS FOR THE EXCHANGE
Home Savings was chartered in 1950 as a mutual savings and loan
association and since that time has grown to its present size of approximately
$__ million in assets. Home Savings believes that the lack of significant growth
during its 48-year history is due primarily to the historical slow growth of the
economy of Chatham County, its primary service area, although growth has
somewhat accelerated in recent years. Chatham County is primarily an
agricultural county with some light industry. The financial crisis of the 1980s
which affected savings and loan associations throughout the country was
weathered by Home Savings. In the early 1990s, Home Savings' Board of Directors
began to consider a strategic long-term plan for Home Savings and considered an
affiliation with a commercial bank located in an adjoining county that had a
small presence in Chatham County. A transaction known as a
conversion-acquisition was initiated on December 30, 1993 when Home Savings
entered into an agreement providing for its conversion from mutual-to-stock form
and its simultaneous acquisition by this commercial bank. However, due to
objections to this form of transaction by both federal and state regulatory
authorities, which objections culminated on November 22, 1994 in a moratorium on
such transactions declared by the Office of Thrift Supervision ("OTS"), the
agreement was ultimately terminated and abandoned on March 31, 1995. Thereafter,
the Board of Directors re-examined its strategic alternatives, affirmed its
earlier decision that, as a mutually-owned institution, Home Savings'
alternatives were limited and determined that a conversion from mutual to stock
form was the best alternative for Home Savings to increase its capital base for
lending and investment purposes. Accordingly, on November 14, 1995, the
conversion was effected after the sale of approximately $9 million in common
stock to the members and local community in Chatham County.
As a shareholder owned institution, Home Savings' Board of Directors
continued to assess its strategic position, mindful of its fiduciary duties to
its shareholders. Faced with increasing competition from other financial
intermediaries in its market, Home Savings' Board of Directors determined that
the best manner of serving its customers and establishing a positive financial
influence in its market was to affiliate with a larger financial institution.
Home Savings was periodically contacted regarding its interest in an affiliation
by some independent financial institutions with a presence in or adjacent to
Chatham County but nothing definitive was proposed or suggested by any such
party and pursuant to OTS
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regulations, nothing definitive could be proposed until twelve months had
expired from the date of mutual to stock conversion. In the spring of 1997,
management of Home Savings entered into discussions with a neighboring financial
institution with which it had previously considered the conversion-acquisition.
One other financial institution, significantly larger than both Home Savings and
this third party financial institution and with an existing presence in Home
Savings' market, also indicated an interest but did not follow with a specific
proposal. During the prior discussions between Home Savings and this third party
financial institution, both parties became familiar with the styles of operation
and management teams of the other, and Home Savings' management decided to begin
private negotiations with this third party financial institution beginning in
April 1997, which negotiations culminated in an Agreement and Plan of Merger
dated June 13, 1997. That transaction was approved by the shareholders of Home
Savings and received all federal and state regulatory approvals and was
scheduled to close in January 1998. The transaction provided for the
shareholders of Home Savings to elect either stock in the acquiring third party
financial institution or cash or a combination of stock and cash. That
transaction permitted Home Savings to terminate it if the acquiring third party
financial institution's stock price exceeded certain predetermined parameters
which, management of Home Savings believed, would result in a significant
dilution in value to the Home Savings' shareholders electing to take stock in
the transaction should the transaction be consummated at such increased values.
It was deemed necessary to negotiate such parameters because the acquiror
offered, and Home Savings accepted, a value of $15.50 per share, payable in
cash, stock or a combination thereof, of the acquiring third party financial
institution. Beginning in December 1997 and continuing into January 1998, during
the 20-day period of time predetermined to price the value of the acquiror's
stock, prices in the acquiror's stock began to rise dramatically and resulted in
a 20-day average price far in excess of the limitations deemed reasonable by
management of Home Savings and its financial advisors. Attempts were made to
renegotiate the exchange and to increase the number of shares to be received by
the shareholders of Home Savings but such attempts failed as the acquiror
refused to consider increasing the value for Home Savings' shareholders.
Accordingly, on January __, 1998, Home Savings exercised its unilateral option
to terminate the transaction in light of the diluted value that would result
from the lesser number of shares to be received by Home Savings' shareholders
should it have elected to consummate the transaction.
After terminating the transaction with the third party financial
institution, the Board of Directors began to consider its strategic
alternatives. The growth and profitability of Home Savings continued to lag and
Home Savings incurred some nonrecurring expenses as a result of attempting to
effect the transaction with that third party financial institution. These
expenses negatively impacted earnings. Additionally, other operational matters
requiring significant amounts of capital needed attention. Except for the
infusion of capital from its mutual-to-stock conversion in 1995, the strategic
position of Home Savings had remained unchanged. Growth remained slow and there
was no lessening of the competitive factors affecting a small, one office
financial institution. Accordingly, on May 1, 1998 the Board of Directors
retained the services of Baxter Fentriss & Company, Richmond, Virginia ("Baxter
Fentriss"), an experienced investment banking firm that specializes in
community-oriented financial institutions who had served as its financial
advisor in both its mutual-to-stock conversion and in its transaction with the
other third party financial institution. Home Savings asked Baxter Fentriss to
study the strategic position of Home Savings and to analyze its business,
operations, financial condition and prospects. Baxter Fentriss was also to
assess various strategic options available that would maximize shareholder value
and to advise Home Savings regarding its likely value in a merger, acquisition,
business combination or reorganization. If a change of control of Home Savings
was determined to be in the shareholders' best interest, Baxter Fentriss was to
assist Home Savings in identifying potential acquirors, to initiate confidential
discussions with potential acquirors and assist potential acquirors in
developing bids. It was determined by the Board of Directors, after discussions
with Baxter Fentriss, that a change of control of Home Savings was in the
shareholders' best interest. Accordingly, Baxter Fentriss developed and prepared
a confidential offering memorandum and upon receipt of executed confidentiality
agreements from interested acquirors, distributed that memorandum in June 1998.
Based upon that memorandum, discussions ensued with three independent financial
institutions, one of which was the financial institution with which Home Savings
had previously entered into an agreement but
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terminated such agreement in January 1998. These discussions conducted by Baxter
Fentriss resulted in the proposal by Capital Bank as being the proposal that
would result in the greatest maximization of shareholder value. The Board of
Directors of Home Savings appointed a committee to consider due diligence issues
of Capital Bank in light of the fact that it was a newly chartered commercial
bank and did not have a presence in Chatham County although it was acknowledged
that Chatham County was a logical extension of Capital Bank's markets in Wake
and Lee Counties. Direct discussions between senior management of Home Savings
and Capital Bank then occurred. Following direct discussions between management
of Home Savings and Capital Bank, representatives of both parties entered into
discussions regarding a definitive agreement and on September 28, 1998 the
Agreement was unanimously approved by the Board of Directors of Home Savings.
RECOMMENDATION OF THE HOME SAVINGS BOARD
The Board of Directors of Home Savings has unanimously approved the
Agreement and the Exchange contemplated thereby and believes that the Exchange
is fair to, and in the best interests of, Home Savings and its shareholders.
Home Savings' Board of Directors, therefore, unanimously recommends that the
holders of Home Savings Stock vote "FOR" approval of the Exchange Agreement and
the Exchange contemplated thereby. In making its recommendations, the Board of
Directors of Home Savings has considered, among other things, the opinion of
Baxter Fentriss that Capital Bank's proposal is fair to Home Savings'
shareholders from a financial point of view. See "Opinion of Home Savings'
Financial Advisor."
OPINION OF HOME SAVINGS' FINANCIAL ADVISOR
Baxter Fentriss has acted as financial advisor to Home Savings in
connection with the Exchange. Baxter Fentriss assisted Home Savings in
identifying prospective acquirors. On September 29, 1998, Baxter Fentriss
delivered to Home its opinion that as of such date, and on the basis of matters
referred to herein, the consideration to be paid to holders of Home Savings
common stock in the Exchange is fair, from a financial point of view, to the
holders of Home Savings Common Stock. In rendering its opinion, Baxter Fentriss
consulted with the management of Home Savings and Capital Bank, reviewed the
draft Exchange Agreement and certain publicly-available information on the
parties and reviewed certain additional materials made available by the
management of the respective banks.
In addition, Baxter Fentriss discussed with the management of Home Savings
and Capital Bank their respective businesses and outlook. No limitations were
imposed by Home Savings' Board of Directors upon Baxter Fentriss with respect to
the investigation made or procedures followed by it in rendering its opinion.
The full text of Baxter Fentriss' written opinion is attached as Appendix III to
this Joint Proxy Statement-Prospectus and should be read in its entirety with
respect to the procedures followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken by Baxter Fentriss in
connection therewith.
Baxter Fentriss' opinion is directed to Home Savings' Board of Directors,
and is directed only to the fairness, from a financial point of view, of the
consideration received. It does not address Home Savings' underlying business
decision to effect the Exchange, nor does it constitute a recommendation to any
Home Savings shareholder as to how such shareholder should vote with respect to
the Exchange or as to any other matter.
Baxter Fentriss' opinion was one of many factors taken into consideration
by Home Savings' Board of Directors in making its determination to approve the
Exchange Agreement, and the receipt of Baxter Fentriss' opinion is a condition
precedent to Home consummating the Exchange. The opinion of Baxter Fentriss does
not address the relative merits of the Exchange as compared to any alternative
business strategies that might exist for Home Savings or the effect of any other
business combination in which Home Savings might engage.
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Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is a nationally recognized advisor to firms
in the financial services industry on mergers and acquisitions. Home Savings
selected Baxter Fentriss as its financial advisor because Baxter Fentriss is an
investment banking firm focusing on bank and thrift transactions, and because of
the firm's extensive experience and expertise in transactions similar to the
Exchange. Baxter Fentriss is not affiliated with Capital Bank or Home Savings.
In connection with rendering its opinion to Home Savings' Board of
Directors, Baxter Fentriss performed a variety of financial analyses. In
conducting its analyses and arriving at its opinion as expressed herein, Baxter
Fentriss considered such financial and other factors as it deemed appropriate
under the circumstances including: (i) the historical and current financial
condition and results of operations of Capital Bank and Home Savings including
interest income, interest expense, interest sensitivity, noninterest income,
noninterest expense, earnings, book value, returns on assets and equity,
capitalization, the amount and type of non-performing assets, the impact of
holding certain non-earning real estate assets, the reserve for loan losses and
possible tax consequences resulting from the transaction; (ii) the business
prospects of Home Savings and Capital Bank; (iii) the economies of Home Savings'
and Capital Bank's respective market areas; (iv) the historical and current
market for Home Savings and Capital Bank Common Stock; and, (v) the nature and
terms of certain other merger transactions that it believed to be relevant.
Baxter Fentriss also considered its assessment of general economic, market,
financial and regulatory conditions and trends, as well as its knowledge of the
financial institutions industry, its experience in connection with similar
transactions, its knowledge of securities valuation generally, and its knowledge
of merger transactions in North Carolina and South Carolina (the "Carolinas").
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Exchange Agreement; (ii) drafts of this Joint Proxy Statement-Prospectus; (iii)
the Annual Reports to shareholders, including the audited financial statements
of Home Savings for the years ended September 30, 1995, 1996 and 1997; (iv) the
Annual Reports to shareholders, including the audited financial statements of
Capital Bank for the period June 20, 1997 through December 31, 1997; (v)
unaudited, condensed balance sheets and statements of income as of June 30,
1998; and (vi) certain additional financial and operating information with
respect to the business, operations and prospects of Capital Bank and Home
Savings as it deemed appropriate. Baxter Fentriss also (a) held discussions with
members of the senior management of Capital Bank and Home Savings regarding the
historical and current business operation, financial condition and future
prospects of their respective companies; (b) reviewed the historical market
prices and trading activity for the common stock of Home Savings and Capital
Bank; (c) compared the results of operations of Home Savings and Capital Bank
with those of certain banking companies that it deemed to be relevant; (d)
analyzed the pro-forma financial impact of the Exchange on Capital Bank; and (e)
analyzed the proforma financial impact of the Exchange on Home Savings.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the consideration to holders of Home Savings Common Stock was to some
extent a subjective one based on the experience and judgment of Baxter Fentriss
and not merely the result of mathematical analysis of financial data.
Accordingly, notwithstanding the separate factors summarized below, Baxter
Fentriss believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. The ranges of valuations resulting
from any particular analysis described below should not be taken to be Baxter
Fentriss' view of the actual value of Home Savings or Capital Bank.
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In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Home Savings or Capital Bank.
The analyses performed by Baxter Fentriss are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold. In rendering its opinion,
Baxter Fentriss assumed that, in the course of obtaining the necessary
regulatory approvals for the Exchange, no conditions will be imposed that will
have a material adverse effect on the contemplated benefits of the Exchange, on
a pro-forma basis, to Home Savings or Capital Bank.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion.
STOCK PRICE HISTORY. Baxter Fentriss studied the history of the trading
prices and volume for Home Savings and Capital Bank Common Stock and compared
that to publicly traded banks and thrifts in North Carolina and to the price
offered by Capital Bank. As of June 30, 1998, Home Savings' book value was
$10.64.
COMPARATIVE ANALYSIS. Baxter Fentriss compared the price to earnings
multiple, price to assets multiple and price to book multiple of the Capital
Bank offer with other comparable merger transactions after considering the
financial standing of Home Savings' nonperforming assets and other variables.
The comparative multiples included thirty-four North and South Carolina
institutions involved in sale or merger transactions during the last three
years. Of the 34 transactions, the Exchange ranked third in price to earnings
multiple, 14th in price to assets multiple and 27th in price to book multiple.
PRO-FORMA IMPACT. Baxter Fentriss considered the pro-forma impact of the
transaction on book value and earnings and concluded the transaction should have
an immediate positive impact on Capital Bank shareholders and would likely be
approved by banking regulators.
DISCOUNTED CASH FLOW ANALYSIS. Baxter Fentriss performed a discounted cash
flow analysis to determine hypothetical present values for a share of Home
Savings' common stock as a five and ten year investment. Under this analysis,
Baxter Fentriss considered various scenarios for the performance of Home
Savings' stock using (i) a range from 8% to 14% in the growth of Home Savings'
earnings and dividends and (ii) a range from 14 times to 24 times earnings as
the terminal value for Home Savings' stock. A range of discount rates from 12%
to 15% were applied to these alternative growth and terminal value scenarios.
These ranges of discount rates, growth alternatives and terminal values were
chosen based upon what Baxter Fentriss, in its judgment, considered to be
appropriate taking into account, among other things, Home Savings' past and
current performance, the general level of inflation, rates of return for fixed
income and equity securities in the marketplace generally and for companies with
similar risk profiles. In almost all of the scenarios considered, the present
value of a share of Home Savings' common stock was calculated at less than that
of the Capital Bank offer. Thus, Baxter Fentriss' discounted cash flow analysis
indicated that Home Savings shareholders would be in a better financial position
by receiving the consideration offered in the Exchange rather than continuing to
hold Home Savings' Common Stock.
Using publicly available information on Capital Bank and applying the
capital guidelines of banking regulators, Baxter Fentriss' analysis indicated
that the Exchange would not materially dilute the capital and earnings capacity
of Capital Bank and would, therefore, likely not be opposed by the banking
regulatory agencies from a capital perspective. Furthermore, Baxter Fentriss
considered the likely market overlap and the FEB guidelines with regard to
market concentration and did not believe there to be a significant issue with
regard to possible antitrust concerns.
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Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale and budgeted income, were reasonably prepared by management,
and reflect their best current judgments. Baxter Fentriss did not make an
independent appraisal of the assets or liabilities of either Home Savings or
Capital Bank, and has not been furnished such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to Home Savings, Capital Bank or the Exchange. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies used for comparison in the above analysis.
Baxter Fentriss has been, or will be, paid (i) a fairness opinion fee of
$15,000 at the time the opinion is rendered, (ii) a fee, based on successful
completion of the proposed Exchange, equal to 1.25% of aggregate consideration
received by Home Savings or shareholders of Home Savings (to be offset by the
fairness opinion fee of $15,000) and (iii) reasonable out-of-pocket expenses for
its services. Home Savings has agreed to indemnify Baxter Fentriss against
certain liabilities, including certain liabilities under the federal securities
laws.
Baxter Fentriss has previously served as financial advisor to Home Savings
during its mutual to stock conversion and its previously terminated transaction.
Baxter Fentriss was engaged by Capital Bank in February 1998 to assist in the
acquisition of specific other banking entities or branches. Baxter Fentriss was
paid $7,500 by Capital Bank and reimbursed certain out of pocket expenses during
1998. To date, no transactions have occurred under such separate engagement.
OPINION OF CAPITAL BANK'S AND CAPITAL BANK CORPORATION'S FINANCIAL ADVISOR
Interstate/Johnson Lane Corporation ("IJL") has been engaged by Capital
Bank Corporation to render an opinion with respect to the fairness from a
financial point of view to the holders of Capital Bank Corporation Common Stock
of the consideration proposed to be paid by Capital Bank Corporation in the
Exchange. IJL is a recognized investment banking firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Capital Bank Corporation selected IJL to render
its opinion on the basis of its experience and expertise in merger transactions,
and its reputation in the banking, thrift and investment communities. In the
ordinary course of its business, IJL trades the equity securities of Capital
Bank and Home Savings for its own account and for the accounts of its customers,
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with its engagement, a preliminary oral opinion dated
October 15, 1998 was delivered by IJL to the Capital Bank Corporation Board of
Directors (as used in this section, the "Board") to the effect that, as of such
date and based upon and subject to certain matters, the consideration to be paid
by Capital Bank Corporation in the Exchange with Home Savings was fair to the
holders of Capital Bank Corporation Common Stock from a financial point of view.
IJL has confirmed its preliminary oral opinion dated October 15, 1998, by
delivery of a written opinion attached as Appendix IV. IJL updated certain of
its analyses, as necessary, and reviewed the assumptions on which such analyses
were based and the factors considered in connection therewith.
THE FULL TEXT OF IJL'S WRITTEN OPINION TO THE BOARD WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY IJL, IS
ATTACHED HERETO AS APPENDIX IV AND IS INCORPORATED HEREIN BY REFERENCE AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS AGREEMENT.
THE FOLLOWING SUMMARY OF IJL'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE OPINION. IJL'S OPINION, WHICH IS ADDRESSED TO THE
CAPITAL BANK CORPORATION BOARD, IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF
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CAPITAL BANK CORPORATION COMMON STOCK OF THE CONSIDERATION TO BE PAID BY CAPITAL
BANK CORPORATION IN THE EXCHANGE, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
PROPOSED EXCHANGE OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
CAPITAL BANK CORPORATION SPECIAL MEETING.
In connection with its opinion, IJL, among other things: (i) reviewed
certain publicly available financial and other data with respect to Capital Bank
and Home Savings, including the consolidated financial statements of Capital
Bank and Home Savings for recent fiscal years and interim periods as of June 30,
1998, and certain other relevant financial and operating data relating to
Capital Bank and Home Savings made available to IJL from published sources and
from the internal records of Capital Bank and Home Savings; (ii) reviewed a
draft of this Joint Proxy Statement-Prospectus and the Exchange Agreement; (iii)
reviewed certain historical market prices and trading volumes of Capital Bank
and Home Savings as reported by the SmallCap Market of The Nasdaq Stock Market
and the OTC Bulletin Board; (iv) compared Home Savings from a financial point of
view with certain other public companies which IJL deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
business combinations in the bank thrift industries; (vi) reviewed and discussed
with representatives of management of Capital Bank and Home Savings certain
information regarding the business and financial issues of the Exchange,
including financial forecasts relating to cost savings and other potential
synergies anticipated to result from the Exchange and related assumptions; (vii)
made inquiries regarding and discussed the due diligence review of Home Savings
conducted by Capital Bank with senior executives of Home Savings; (viii) made
inquiries regarding and discussed the Exchange, the Exchange Agreement and other
matters related thereto with Capital Bank's counsel; and (ix) performed such
other analyses and examinations as IJL deemed appropriate.
In connection with its review, IJL did not assume any obligation to verify
any of the foregoing information and relied on all such information being
complete and accurate in all material respects. With respect to the financial
forecasts for Capital Bank and Home Savings, IJL assumed, with Capital Bank's
consent, for purposes of its opinion that such forecasts were reasonably
prepared on bases reflecting at the time of preparation the best available
estimates and judgments of Capital Bank's management, as to the cost savings,
revenue enhancements and other potential synergies (including the timing, amount
and achievability thereof) anticipated to result from the Exchange, and that
such forecasts provided a reasonable basis upon which IJL could form its
opinion. IJL also assumed, with Capital Bank's consent, that there were no
material changes in Capital Bank's or Home Savings' assets, financial condition,
results of operations, business or prospects since the respective dates of their
last financial statements reviewed by IJL and that off-balance sheet activities
of Capital Bank and Home Savings will not materially and adversely affect the
future financial position or results of operations of Capital Bank or Home
Savings. IJL further assumed, with Capital Bank's consent, that in the course of
obtaining the necessary regulatory and third party consents for the Exchange, no
restriction will be imposed that will have a material adverse effect on the
contemplated benefits of the Exchange or the transactions contemplated thereby.
IJL further assumed, with Capital Bank's consent, that the Exchange will be
consummated in accordance with the terms and provisions of the Agreement,
without any amendments to, and without any waiver by Capital Bank of, any of the
material conditions to its obligations thereunder. IJL noted that it is not an
expert in the evaluation of loan portfolios for purposes of assessing the
adequacy of the allowances for losses with respect thereto and IJL assumed, with
Capital Bank's consent, that such allowances for each of Capital Bank and Home
Savings are in the aggregate adequate to cover such losses. In addition, IJL did
not assume responsibility for reviewing any individual credit files or making an
independent evaluation, appraisal or physical inspection of the assets or
individual properties of Capital Bank or Home Savings, nor was IJL furnished
with any such evaluations or appraisals. Finally, IJL's opinion was based on
economic, monetary and market and other conditions as in effect on, and the
information made available to IJL as of, the date thereof. These conditions
included, but were not limited to, Capital Bank's status as a financial
institution in existence less than two years and with assets less than $100
million. IJL also noted that, as a start-up financial institution, Capital Bank
has yet to record a profit. Furthermore, due to their
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small capital base and relative illiquidity, start-up financial institutions
have not been active acquirors of other financial institutions. Although IJL
evaluated the consideration to be paid by Capital Bank in the Exchange to the
holders of the Home Savings from a financial point of view, IJL was not
requested to, and did not, recommend the specific consideration payable in the
proposed Exchange. No other limitations were imposed by Capital Bank on IJL with
respect to the investigations made or procedures followed by IJL in rendering
its opinion.
Set forth below is a summary of the material analyses performed by IJL in
connection with its opinion delivered to the Capital Bank Board on October 15,
1998.
PRO FORMA DILUTION ANALYSIS. Using management's estimates for Capital Bank
of $0.08 in 1999 and $0.51 in 2000 and using estimates prepared by Capital Bank
management and IJL for Home Savings of $0.49 in 1999 and $0.75 in 2000
reflecting ongoing operations and estimates as to the cost savings and other
potential synergies anticipated to result from the Exchange prepared by Capital
Bank's management, IJL compared estimated earnings per share ("EPS") for Capital
Bank on a stand-alone basis to the estimated EPS for Capital Bank on a pro forma
combined basis for calendar years 1999 and 2000. In addition, IJL prepared a pro
forma balance sheet, for the periods ending at the transaction close, estimated
December 1998, and for calendar years 1999 and 2000. IJL noted that, based upon
estimates of Capital Bank Corporation's management of cost savings, revenue
enhancements and operating synergies and after giving effect to certain
assumptions as to, among other things, the number of shares outstanding in each
respective period, and assuming a transaction closing by December 31, 1998, the
Exchange could be expected to be accretive to Capital Bank Corporation's EPS in
calendar year 1999 by approximately 227%, and to Capital Bank Corporation's EPS
in calendar year 2000 by approximately 3.7%.
COMPARABLE COMPANY ANALYSIS. Based on publicly available information and
earnings estimates, IJL reviewed and compared actual and estimated selected
financial, operating and stock market information and financial ratios of Home
Savings and a group of six thrifts consisting of AF Bankshares, Inc.; Anson
Bancorp, Inc.; Mitchell Bancorp, Inc.; Mutual Community Savings Bank, Inc.;
Scotland Bancorp, Inc.; and Wake Forest Federal Savings & Loan Association (the
"Comparable Thrifts"). The Comparable Thrifts were selected on the following
criteria: thrifts located in North Carolina, holding less than $100 million in
assets, for which market data and financial information were publicly available.
IJL noted for Capital Bank's Board that, among other things: (i) Home
Savings had a common equity to total assets ratio of 16.7% at June 30, 1998, as
compared to the average for the Comparable Thrifts of 23.8%; (ii) Home Savings
had a return on average assets and a return on average equity for the latest
twelve months ended March 31, 1998 of 0.58% and 3.37%, respectively, as compared
to the average for the Comparable Thrifts of 1.00% and 5.03%, respectively;
(iii) Home Savings had an efficiency ratio (defined as noninterest expenses
divided by net interest income plus noninterest income, before taking into
account any goodwill amortization) of 65.6% for the period ended June 30, 1998,
as compared to the average for the Comparable Thrifts of 65.5%; (iv) Home
Savings, as of October 12, 1998, had a price to book ratio and a price to
tangible book ratio implied from the Exchange of 1.48x and 1.48x, respectively,
based on the balance sheet at June 30, 1998, as compared to the average for the
selected thrifts of 1.02x and 1.14x, respectively; and (v) Home Savings, as of
October 12, 1998, had a price to earnings ratio implied from the Exchange of
3.28x, adjusted for non-recurring items and based on the EPS for the latest
twelve months ended June 30, 1998, as compared to the average for the selected
thrifts of 20.1x.
ANALYSIS OF SELECTED COMPARABLE BANK AND THRIFT EXCHANGE TRANSACTIONS. IJL
reviewed the consideration paid for 21 transactions in the Southeast (defined as
Alabama, Arkansas, Florida, Georgia, Mississippi, North Carolina, South
Carolina, Tennessee, Virginia and West Virginia) announced since 1996 with
seller total assets less than $100 million. In addition, IJL reviewed the
consideration paid in the following 6 transactions announced since 1996 in North
Carolina (Acquiror/Target): Centura Banks Inc./Scotland Bancorp Inc.; First
Western Bank/Mitchell Bancorp; First Charter Corporation/HFNC Financial Corp.;
Triangle Bancorp/United Federal Savings Bank; First Citizens BancShares,
Inc./First Savings Financial Corporation; and Clyde Savings Bank SSB/Tryon
Federal Savings and Loan Association (collectively, the "Comparable
Transactions"). For each company merged or to be merged in such transactions,
IJL compiled figures illustrating, among other
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things, transaction price to latest 12 months earnings per share, transaction
price to book value, transaction price to tangible book value, and the ratio of
premium over tangible book value to core deposits.
The figures for the Comparable Transactions represent announced deals in
North Carolina from January 1, 1996 through October 12, 1998. The ratios are as
follows: (i) an average excluding high and low of transaction price to latest 12
months' earnings per share of 32.8x; (ii) an average excluding high and low of
transaction price to book value of 1.39x; (iii) an average excluding high and
low of transaction price to tangible book value of 1.39x; and (iv) an average
excluding high and low of premium over tangible book value to core deposits of
20.8%. The figures for the 21 Southeast transactions represent announced deals
in the Southeast from January 1, 1996 through October 12, 1998. The ratios are
as follows: (i) an average excluding high and low of transaction price to latest
12 months' earnings per share of 27.9x; (ii) an average excluding high and low
of transaction price to book value of 1.68x; (iii) an average excluding high and
low of transaction price to tangible book value of 1.68x; and (iv) an average
excluding high and low of premium over tangible book value to core deposits of
9.1%. In comparison, based upon an assumed Exchange Ratio of 1.28 shares of
Capital Bank for each share of Home Savings, representing shares of Capital Bank
with a value of $12.00 per share as of October 12, 1998, the consideration to be
paid to the holders of Home Savings represented a ratio of transaction price to
latest 12 months' earnings per share, adjusted for certain nonrecurring items,
of 32.8x, a ratio of transaction price to book value of 1.48x, a ratio of
transaction price to tangible book value of 1.48x and a ratio of tangible
premium to core deposits of 10.7%.
No other company or transaction used in the above analysis as a comparison
is identical to Capital Bank, Home Savings or the proposed Exchange.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the acquisition or public trading multiples of the companies
to which Capital Bank, Home Savings and the proposed Exchange are being
compared.
OTHER ANALYSIS. In addition, IJL analyzed the historical financial
performance of Home Savings and analyzed its deposit market share, its loan
portfolio and a break-down of its lending activities, as well as a history of
its non-performing assets.
The foregoing is a summary of the material analyses performed by IJL in
connection with its preliminary oral opinion delivered to the Capital Bank Board
on October 15, 1998. The summary set forth above does not purport to be a
complete description of the analyses performed by IJL. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. IJL believes that its analyses and the summary set forth above must
be considered as a whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and factors, would create
an incomplete view of the process underlying the analyses. In addition, IJL may
have given various analyses more or less weight than other analyses, and may
have deemed various assumptions more or less probable than other assumptions, so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be IJL's view of the actual values of Capital Bank,
Home Savings or the combined company. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis.
In performing its analyses, IJL made numerous assumptions with respect to
industry performance, regulatory, general business and economic conditions and
other matters, many of which are beyond the control of Capital Bank and Home
Savings. The analyses performed by IJL are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than those suggested by such analyses. Such analyses were prepared
solely as part of IJL's analysis of the fairness of the consideration to be paid
by Capital Bank from a financial point of view in connection with the delivery
of IJL's opinion. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold or
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the prices at which any securities may trade at the present time or at any time
in the future. IJL used in its analyses estimates by Capital Bank management and
estimates by IJL and projections prepared by Capital Bank and Home Savings as to
the cost savings and other potential synergies anticipated to result from the
Exchange. Such projections and estimates are based on numerous variables and
assumptions which are inherently unpredictable and must be considered not
certain of occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
Pursuant to the terms of IJL's engagement, Capital Bank has agreed to pay
IJL a fee equal to 3/8 of one percent of the total consideration paid for Home
Savings, of which $15,000 was payable upon the execution of IJL's letter of
engagement as financial advisor. Capital Bank also has agreed to reimburse IJL
for its reasonable out-of-pocket expenses, including the fees and expenses of
IJL's legal counsel. Capital Bank has agreed to indemnify IJL, its affiliates,
and their respective partners, directors, officers, agents, consultants,
employees and controlling persons against certain liabilities, including
liabilities under the federal securities laws.
IJL has performed various financial advisory and investment banking
services for Capital Bank in the past, for which IJL has received compensation,
and may provide such services to Capital Bank in the future.
EFFECTIVE TIME OF THE EXCHANGE
Subject to the conditions to the obligations of the parties to effect the
Exchange (including, without limitation, the receipt of all required approvals
of governmental and regulatory authorities), the Exchange will become effective
(the "Exchange Effective Time") when Articles of Share Exchange are filed with
the North Carolina Secretary of State.
We cannot give any assurance that the necessary shareholder and regulatory
approvals can be obtained or that other conditions precedent to the Exchange can
or will be satisfied. Home Savings, Capital Bank Corporation and Capital Bank
anticipate that all conditions to consummation of the Exchange will be satisfied
so that the Exchange can be consummated on or about December 31, 1998. However,
we could encounter delays that could cause us to consummate the Exchange in the
first quarter of 1999.
The Board of Directors of either Home Savings or Capital Bank Corporation
generally may terminate the Exchange Agreement if we do not complete the
Exchange on or before June 30, 1999, unless extended by the written mutual
agreement of Home Savings, Capital Bank Corporation and Capital Bank.
DISTRIBUTION OF CONSIDERATION
As soon as reasonably practicable, but in any event no more than 20 days
following the Exchange Effective Time, Capital Bank Corporation will cause the
Exchange Agent to mail to each former shareholder of Home Savings of record
immediately prior to the Effective Time ("Home Savings Record Holder") written
instructions and transmittal materials (including, without limitation, a return
mailing envelope addressed to the Exchange Agent (collectively, a "Transmittal
Letter") for use in surrendering certificates representing shares of Home
Savings Common Stock outstanding at the Effective Time to the Exchange Agent).
HOME SAVINGS SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL LETTER.
Upon surrender to the Exchange Agent of Certificates for Home Savings
Common Stock, together with a properly completed Transmittal Letter, there will
be issued and mailed to each Home Savings Record Holder a certificate or
certificates representing the number of shares of Company Common Stock to which
such holder is entitled. Capital Bank Corporation will not be obligated to
deliver the consideration to which any Home Savings Record Holder is entitled as
a result of the Exchange until the holder surrenders such
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holder's Certificates representing the shares of Home Savings Common Stock
together with a properly completed Transmittal Letter. Whenever a dividend or
other distribution is declared by Capital Bank Corporation on Common Stock, the
record date for which is at or after the Exchange Effective Time, the
declaration will include dividends or other distributions on all shares of
Capital Bank Corporation Common Stock issuable pursuant to the Agreement, but no
dividend or other distribution payable after the Exchange Effective Time with
respect to Capital Bank Corporation Common Stock will be paid to the holder of
any unsurrendered Home Savings Common Stock Certificate until the holder duly
surrenders such Certificate. Upon surrender of such Home Savings Common Stock
Certificate, however, a Capital Bank Corporation Common Stock certificate,
together with all undelivered dividends or other distributions (without
interest) will be delivered and paid with respect to the shares represented by
such Certificate. In the event any Home Savings Common Stock Certificate has
been lost, stolen, destroyed or is otherwise missing, the Exchange Agent will
issue in exchange for such lost, stolen, or destroyed Certificate a certificate
representing the shares of Company Stock to which he or she is entitled in
accordance with and upon compliance with conditions imposed by the Exchange
Agent or Capital Bank Corporation pursuant to the provisions of applicable North
Carolina law (including, without limitation, a requirement that the shareholder
provide a lost instruments indemnity or surety bond in form, substance and
amount satisfactory to the Exchange Agent and Capital Bank Corporation.)
At the Exchange Effective Time, the stock transfer books of Home Savings
will be closed to holders of Home Savings Common Stock and no transfer of shares
of Home Savings Common Stock by such holder will thereafter be made or
recognized.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE
Consummation of the Exchange is subject to various conditions, including
(i) receipt of the approval of the shareholders of Home Savings of matters
relating to the Exchange Agreement required to be approved by such shareholders,
(ii) receipt of certain regulatory approvals required for consummation of the
Exchange, (iii) receipt by Home Savings of a written opinion of counsel from
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. and by Capital
Bank Corporation and Capital Bank of a written opinion of counsel from Moore and
Van Allen, PLLC, (iv) receipt by Home Savings of a written opinion of Baxter
Fentriss and Company and by Capital Bank Corporation and/or Capital Bank of a
written opinion of IJL as to the fairness of the Exchange from a financial point
of view, (v) approval of the shares of Company Common Stock issuable pursuant to
the Exchange for listing on the Nasdaq SmallCap Market, (vi) the Registration
Statement being declared effective under the Securities Act, (vii) the accuracy,
as of the date of the Exchange Agreement and as of the Effective Time, of the
representations and warranties of Home Savings and Capital Bank and Capital Bank
Corporation as set forth in the Exchange Agreement, (viii) the performance of
all agreements and the compliance with all covenants of Home Savings and Capital
Bank Corporation as set forth in the Exchange Agreement, (ix) receipt by Capital
Bank Corporation of assurances, in a form satisfactory to it, from
PricewaterhouseCoopers LLP to the effect that the Exchange will qualify for
pooling-of-interests accounting treatment, (x) the absence of any law or order
or any action taken by any court, governmental, or regulatory authority of
competent jurisdiction prohibiting, restricting, or making illegal the
consummation of the transactions contemplated by the Agreement, (xi) receipt by
Capital Bank Corporation and Capital Bank of agreements from each affiliate of
Home Savings, and (xii) satisfaction of certain other conditions, including the
receipt of various certificates from the officers of Home Savings and Capital
Bank Corporation and Capital Bank.
We are unable to provide assurance as to when or if all of the conditions
precedent to the Exchange can or will be satisfied or waived by the party
permitted to do so. Except in limited circumstances, in the event the Exchange
is not effected on or before June 30, 1999, the Exchange Agreement may be
terminated and the Exchange abandoned by the Board of Directors of either Home
Savings or Capital Bank Corporation and Capital Bank. If the Capital Bank
shareholders do not approve the Holding Company Reorganization, then it
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may be necessary to postpone or adjourn the Home Savings Special Meeting without
completing the Exchange.
REGULATORY APPROVAL
The Exchange may not proceed in the absence of receipt of the requisite
regulatory approvals. We cannot assure you that such regulatory approvals will
be obtained or when we will obtain them, Applications for the approvals
described below have been submitted to the appropriate regulatory authorities.
Home Savings, Capital Bank Corporation and Capital Bank are not aware of
any material governmental approvals or actions that are required for
consummation of the Exchange, except as described in this Joint Proxy
Statement-Prospectus. Should any other approval or action be required, it
presently is contemplated that such approval or action would be sought.
The Exchange is subject to the prior approval of the Federal Reserve,
pursuant to Section 3 of the BHC Act. In evaluating the Exchange, the Federal
Reserve must consider, among other factors, the financial and managerial
resources and future prospects of the institutions and the convenience and needs
of the communities to be served. The relevant statutes prohibit the Federal
Reserve from approving the Exchange if (i) it would result in a monopoly or be
in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States or (ii) its
effect in any section of the country could be to substantially lessen
competition or to tend to create a monopoly, or if it would result in a
restraint of trade in any other manner, unless the Federal Reserve should find
that any anti-competitive effects are outweighed clearly by the public interest
and the probable effect of the transaction in meeting the convenience and needs
of the communities to be served. The Exchange may not be consummated until the
30th day (which the Federal Reserve may reduce to 15 days) following the date of
the Federal Reserve approval, during which time the United States Department of
Justice would be afforded the opportunity to challenge the transaction on
antitrust grounds. The commencement of any antitrust action would stay the
effectiveness of the approval of the agencies, unless a court of competent
jurisdiction should specifically order otherwise.
The Exchange is also subject to the prior approval of the Administrator of
the North Carolina Savings Institution Division (the "Administrator") pursuant
to Chapter 54C of the North Carolina General Statutes and the regulations
promulgated thereunder. An application must be submitted to the Administrator,
along with such other information, including certain filings, documents and
reports as the Administrator may request. A fee in the amount of $3,000 must be
submitted with the application.
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by law, the Exchange Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Board
of Directors of each of the parties before or after approval of the matters
relating to the Exchange Agreement required to be approved by the Home Savings
shareholders; provided, that no amendment may be made which modifies the number
of shares of Capital Bank Corporation Common Stock into which each share of Home
Savings Common Stock will be converted without the further approval of the Home
Savings shareholders. In addition, prior to or at the Exchange Effective Time,
generally either Home Savings or Capital Bank Corporation, or both, acting
through their respective Boards of Directors, may waive any default in the
performance of any term of the Exchange Agreement by the other party, may waive
or extend the time for the compliance or fulfillment by the other party of any
and all of its obligations under the Exchange Agreement, and may waive any of
the conditions precedent to the obligations of such party under the Exchange
Agreement, except any condition that, if not satisfied, would result in the
violation of any applicable law or governmental regulation and provided that
such waiver would not adversely affect the interests of the waiving party or its
shareholders. No such waiver will be effective
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unless written and unless executed by a duly authorized officer of Home Savings
or Capital Bank Corporation as the case may be.
The Exchange Agreement may be terminated and the Exchange abandoned at any
time prior to the Exchange Effective Time, notwithstanding the provisions of the
Exchange Agreement and the approval of the Exchange Agreement by the Home
Savings and Capital Bank shareholders, (i) by the mutual consent of the Boards
of Directors of Home Savings, Capital Bank Corporation, and Capital Bank, (ii)
by the Home Savings Board, Capital Bank Board or Capital Bank Corporation Board
(a) in the event Home Savings has violated or failed to fully perform any of its
obligations, covenants or Exchange Agreements contained in Article IV or Article
VI of the Exchange Agreement in any material respect or in the event Capital
Bank or Capital Bank Corporation has violated or failed to fully perform any of
its obligations, covenants or Exchange Agreement contained in Article V or VI of
the Exchange Agreement in any material respect and which has not been cured
within 30 days after giving written notice to the breaching party, (b) in the
event any representation or warranty of the other party contained in the
Exchange Agreement or in any other certificate or writing delivered pursuant to
the Exchange Agreement was false or misleading in any material respect when made
or has become false or misleading in any material respect and which has not been
cured within 30 days after giving written notice to the breaching party, (c) the
Home Savings shareholders do not ratify and approve the Exchange Agreement and
the transactions contemplated therein, (d) if any of the conditions of the
obligations of Capital Bank Corporation, Capital Bank or Home Savings as set
forth in the Exchange Agreement shall not have been satisfied or effectively
waived in writing, or (e) if the Exchange is not consummated by June 30, 1999,
unless such date is extended by mutual written Exchange Agreement, and (iii) by
Capital Bank Board or Company Board (a) in the event Capital Bank Corporation's
shareholders do not approve the Holding Company Reorganization, (b) if the
number of shares dissenting from the Exchange, when coupled with any other
shares of Capital Bank Stock, Company Stock and Home Savings Stock deemed
tainted for pooling of interests purposes, precludes accounting for the Exchange
as a pooling of interests, or (c) if the Home Savings Board (i) fails to convene
a meeting of Home Savings shareholders to approve the Exchange on or before
December 31, 1998 or postpones the date scheduled for the meeting of Home
Savings shareholders to approve the Exchange beyond December 31, 1998, except
with the written consent of Capital Bank Corporation or Capital Bank, (ii) fails
to recommend the approval of the Exchange Agreement and the Exchange to the Home
Savings shareholders in accordance with the Exchange Agreement, or (iii)
withdraws or amends or modifies in a manner adverse to Capital Bank or Capital
Bank Corporation its recommendation or approval in respect of the Exchange
Agreement and the Exchange or fails to reaffirm such recommendation within two
business days of a written request by Capital Bank or Capital Bank Corporation.
If the Exchange is terminated as described above, the Exchange Agreement
will become void and have no effect, except that certain provisions of the
Exchange Agreement, including those relating to the obligations to maintain the
confidentiality of certain information, and return all documents obtained from
the other party under the Exchange Agreement, will survive.
CONDUCT OF BUSINESS PENDING THE EXCHANGE
Pursuant to the Exchange Agreement, Home Savings generally has agreed that
Home Savings will: (i) operate its businesses only in the usual and regular
course in substantially the same manner as such businesses were previously
conducted: (ii) preserve intact its present business organization, keep
available its present officers and employees, and preserve its relationships
with customers, depositors, creditors, correspondents, suppliers, and others
having business relationships with it; (iii) maintain all its properties and
equipment in customary repair, order, and condition, ordinary wear and tear
excepted; (iv) maintain its books of account and records in the usual, regular,
and ordinary manner in accordance with sound business practices applied on a
consistent basis; (v) comply in all material respects with all laws, rules, and
regulations applicable to it, its properties and to the conduct of its business;
(vi) continue to maintain in force insurance such as is described in the
Exchange Agreement, not modify any bonds or policies of insurance in effect as
of the date of the
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Exchange Agreement unless the same, as modified, provides substantially
equivalent coverage, and not cancel, allow to be terminated or, to the extent
available, fail to renew, any such bond or policy of insurance unless the same
is replaced with a bond or policy providing substantially equivalent coverage;
(vii) provide to Capital Bank and Capital Bank Corporation on a monthly basis
Home Savings' and each Home Savings Subsidiary's market value report on their
respective investment portfolios and hedging portfolios; and, (viii) promptly
provide to Capital Bank and Capital Bank Corporation such information about Home
Savings and each of Home Savings Subsidiary and their respective financial
conditions, results of operations, prospects, businesses, assets, loan
portfolios (including, without limitation, changes in loan quality),
investments, properties, or operations, as Capital Bank or Capital Bank
Corporation shall reasonably request.
Prior to the Exchange Effective Time, Home Savings may not (1) encourage,
solicit or initiate any inquiries or the making of any proposal with respect to
any merger, consolidation, or other business combination involving Home Savings
or the acquisition of all or any significant part of the assets or capital stock
of Home Savings (an "Acquisition Transaction") or (2) negotiate, explore, or
otherwise engage in discussions with any person (other than Capital Bank,
Capital Bank Corporation and their representatives) with respect to any
Acquisition Transaction, or which may reasonably be expected to lead to a
proposal for an Acquisition Transaction or enter into any Exchange Agreement,
arrangement, or understanding with respect to any such Acquisition Transaction
or which would require it to abandon, terminate, or fail to consummate the
Exchange or any other transaction contemplated by this Exchange Agreement.
MANAGEMENT AND OPERATIONS AFTER THE EXCHANGE
As soon as practicable following the Exchange and subject to any necessary
regulatory and shareholder approval, Capital Bank Corporation Board will take
such steps as appropriate to appoint, or cause to be elected, Edwin E. Bridges
and John Grimes, as directors of Capital Bank Corporation. Messrs. Bridges and
Grimes shall be compensated in accordance with Capital Bank Corporation's
standard arrangements for the compensation of its directors, provided that no
such compensation shall be paid for services as a director to any director who
is at such time being compensated for services as an employee of Capital Bank
Corporation, Capital Bank, or Home Savings.
After the Exchange Effective Time, the current members of Home Savings'
Board of Directors shall serve as members of Capital Bank's local advisory board
for a minimum of five years, subject to satisfactory performance, and for such
service, such individuals shall be compensated in accordance with Capital Bank's
standard arrangements for the compensation of local advisory board members.
EFFECT ON CERTAIN EMPLOYEES AND BENEFIT PLANS
EFFECT ON THE EXCHANGE ON HOME SAVINGS OPTIONS. At the Exchange Effective
Time, each Home Savings Option granted by Home Savings under the Home Savings
Stock Plans (each as defined in the Exchange Agreement) that is outstanding at
the Exchange Effective Time, whether or not exercisable, will be converted into
and become a right with respect to Capital Bank Corporation Common Stock, and
Capital Bank Corporation will assume each Home Savings Option, in accordance
with the terms of the Home Savings Stock Plan and stock option Exchange
Agreement by which it is evidenced, except that from and after the Exchange
Effective Time, (i) Capital Bank Corporation and its Compensation Committee will
be substituted for Home Savings and the committee of the Home Savings Board
(including, if applicable, the entire Board of Directors of Home Savings)
administering such Home Savings Stock Plan, (ii) each Home Savings Option
assumed by Capital Bank Corporation may be exercised solely for shares of
Capital Bank Corporation Common Stock, (iii) the number of shares of Capital
Bank Corporation Common Stock subject to such Home Savings Option will be equal
to the number of shares of Home Savings Common Stock subject to such Home
Savings Option immediately prior to the Exchange Effective Time multiplied by
1.28 and rounding down to the nearest whole share, and (iv) the per share
exercise price under each such Home Savings Option will be adjusted by dividing
the per share exercise price under each such Home Savings Option by 1.28 and
rounding to the nearest cent.
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Employment of Home Savings Employees. Provided he remains employed as
President of Home Savings at the Exchange Effective Time, Home Savings will
enter into an Amended and Restated Employment Agreement with Edwin E. Bridges
for an initial term of five years, such term to be automatically renewed on a
monthly basis until written notification otherwise is given by the Board of
Directors of Home Savings or, upon a subsequent merger of Home Savings with and
into Capital Bank, by the Board of Directors of Capital Bank. Pursuant to the
Employment Agreement, Bridges is to serve as Home Savings' President while Home
Savings remains a wholly-owned subsidiary of Capital Bank Corporation and as the
Market Executive for Chatham County upon a merger of Home Savings into Capital
Bank. Mr. Bridges is to receive a base salary at least equal to $107,000 per
annum with minimum annual increases of not less than 6% during the term of the
Employment Agreement. Additionally, Mr. Bridges is to receive (i) health
insurance coverage for the remainder of his natural life; (ii) five weeks of
paid vacation per year; (iii) reimbursement for his civic and country club dues
provided Mr. Bridges is responsible for all personal expenses; (iv)
reimbursement for all business expenses for him to attend two conferences
annually sponsored by either the American Bankers Association, the North
Carolina Bankers Association or the Independent Bankers Association of America;
(v) reimbursement for all reasonable expenses incurred by him in the performance
of his duties for Home Savings and documented to the reasonable satisfaction of
the Savings Bank pursuant to established policies; (vi) disability and life
insurance and other benefits available generally to employees of Home Savings
pursuant to the employee benefit plans and programs for all employees; and (vii)
a monthly travel and mileage allowance in the amount of $250 per month. The
Employment Agreement may be terminated prior to the expiration of its term by
Home Savings with or without cause or upon Mr. Bridges' death or disability or
voluntarily by Mr. Bridges upon 60 days written notice. If Mr. Bridges'
employment is terminated without cause and is not due to death, Home Savings
must give him 90 days written notice of such termination and he will then be
entitled to his base salary at the rate then in effect at the time of such
termination through the term of the Employment Agreement. At any time during
the term of the employment agreement, either Mr. Bridges may elect, or Home
Savings may elect to cause Mr. Bridges, to perform such duties as may be
customarily performed by public relations/marketing consultants in the financial
services industry. In such event, Mr. Bridges would be entitled to receive for
such services equivalent benefits as provided in the Employment Agreement for
the balance of the then current term of the Employment Agreement; provided,
however, that Mr. Bridges' right to continued health insurance coverage shall
not be affected by such election. In addition to the foregoing, the Employment
Agreement contains certain confidentiality and noncompete provisions which
impact Mr. Bridges' ability, for three years after any termination of his
employment with Home Savings, to compete with Home Savings or to be in any way
involved with the management of a business that is engaged in the operation of a
bank or similar financial institution within a 60 mile radius of Siler City,
North Carolina.
Provided they remain employed by Home Savings at the Exchange Effective
Time, Capital Bank will in good faith use its best efforts to locate suitable
positions for and offer employment to all other employees of Home Savings ("Home
Savings Employees") at an office of Capital Bank or Home Savings located within
a reasonable commuting distance from their respective job locations at the
Exchange Effective Time. The employment so offered by Capital Bank shall be at
such compensation as that of the Home Savings Employee at the Exchange Effective
Time. Notwithstanding the foregoing, or anything else in this Exchange
Agreement, Capital Bank shall have no obligation with respect to any specific
Home Savings Employee, except for obligations relating to severance payments and
the employee stock ownership plan. Each such Home Savings Employee's employment
shall be on an "at-will" basis, and nothing in the Exchange Agreement shall be
deemed to constitute an Employment Agreement with any such person or to obligate
Capital Bank to employ any such person for any specific period of time or in any
specific position or to restrict Capital Bank's right to terminate the
employment of any such person at any time and for any reason satisfactory to
Capital Bank.
EMPLOYEE SEVERANCE. Pursuant to the Exchange Agreement, Home Savings
Employees (other than Edwin E. Bridges whose severance benefits are provided for
in his written Employment Agreement) whose employment is terminated by Capital
Bank within one year of the Exchange Effective Time (unless termination of such
employment is for cause as determined in Capital Bank's absolute discretion)
will be entitled to a
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severance payment from Capital Bank equal in amount to one week's regular salary
for each year such employee was employed by Home Savings, subject to a minimum
of three weeks severance.
EMPLOYEE STOCK OWNERSHIP PLAN. Capital Bank Corporation intends to assume
the Home Savings Employee Stock Ownership Plan ("Home Savings ESOP"), and,
thereafter, to terminate the Home Savings ESOP at the earliest practicable time
permitted by applicable legal and accounting authority (including without
limitation the applicable requirements for the transactions contemplated by the
Exchange Agreement to be treated as a pooling of interests for accounting
purposes), all at Capital Bank Corporation's discretion. Capital Bank
Corporation intends to continue to make ESOP loan payments substantially
consistent with Home Savings' past practices, and Capital Bank Corporation will
not terminate the ESOP until all loan balances due under the ESOP have been paid
in full.
EMPLOYEE BENEFITS. Except as otherwise provided in the Exchange Agreement,
all Home Savings Employees shall be entitled to receive all employee benefits
and to participate in all benefit plans provided by Capital Bank Corporation and
Capital Bank on the same basis (including costs) and subject to the same
eligibility and vesting requirements, and to the same conditions, restrictions
and limitations, as generally are in effect and applicable to other newly hired
employees of Capital Bank Corporation and Capital Bank. However, each Home
Savings Employee shall be given credit for his or her full years of service with
Home Savings for purposes of entitlement to vacation and sick leave and for
purposes of eligibility and vesting (but not for benefit accrual purposes) under
any Capital Bank Corporation and Capital Bank benefit plans. There shall be no
exclusion from coverage under the Capital Bank Corporation and Capital Bank
health insurance plan as a result of pre-existing conditions to the extent such
conditions were covered under any health insurance plan maintained by Home
Savings prior to the Exchange Effective Time.
PENSION PLAN. Prior to December 31, 1998, or at the Exchange Effective
Time (if the Exchange Effective Time is prior to December 31, 1998) (i) Home
Savings shall fund any deficits existing in the Home Savings defined benefit
pension plan ("Pension Plan"), and (ii) Home Savings' Board of Directors shall
adopt a resolution to terminate the Pension Plan, effective before the Exchange
Effective Time or as soon after the Exchange Effective Time as possible, in
accordance with the terms of the Pension Plan and the requirements of ERISA and
the Code.
Home Savings had previously committed to providing continued health
insurance for Jack Tanner, a director and the former Managing Officer of Home
Savings, and Gayle Loggins, an employee of Home Savings, for the remainder of
their lives with coverage at least equivalent to the group health insurance
coverage generally provided to all active, full-time employees of Home Savings.
However, this obligation to provide or pay for health insurance coverage may be
partially or wholly fulfilled by any Medicare, employer or similar coverage for
which Tanner or Loggins is eligible in the future to the extent of any coverage
provided thereby at no cost thereto.
After the Exchange Effective Time, the current members of the Board of
Directors of Home Savings shall serve as members of the Board of Directors of
Home Savings (then a subsidiary of Capital Bank Corporation), and if Home
Savings were later to merge with Capital Bank, for Capital Bank as a local
Advisory Board for a minimum of five years, subject to satisfactory performance.
For such service, such individual shall be compensated in accordance with the
standard arrangements for the compensation of local Advisory Board members in
effect from time to time by Capital Bank.
Further, the Company's Board of Directors will appoint each of the members
of Home Savings' Board of Directors, should Home Savings be merged with and into
Capital Bank, to be appointed as an Advisory Board member in Siler City, North
Carolina, to serve as such for a minimum of five years. The compensation paid to
Advisory Board members will be significantly less than that paid by Home Savings
to members of its Board of Directors and will be in accordance with standard
Advisory Board fees at Capital Bank.
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As of _____________, 1998, certain employees and directors of Home Savings
held options to acquire _____ shares of Home Savings' common stock. Such
options, to the extent not exercised prior to the Effective Time, will be
converted into and become rights with respect to the Company's common stock and
the Company will assume each such stock option, in accordance with the terms of
the particular stock option plan under which it was issued and stock option
agreement by which it is evidenced. In addition, each share of Home Savings'
common stock held by the Trustee under the Home Savings Bank of Siler City,
Inc., SSB 1995 Management Recognition Plan (the "MRP") will be converted at the
Effective Time into shares of the Company's common stock as provided therein,
and such shares will thereafter continue to be held and subject to the MRP and
delivered to the respective participants as such times that the shares of
Restricted Stock as defined in the MRP, become vested and nonforfeitable under
the MRP. The Agreement contains provisions concerning other benefits to be
provided to employees and directors of Home Savings, including the payment of
severance payments for Home Savings' employees whose employment is terminated
following the Effective Time, employee benefits after the Effective Time and the
assumption of certain Home Savings' benefit plans and agreements.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The Reorganization is intended to qualify as a reorganization for federal
income tax purposes under Section 368(a)(1)(B) of the Code. The obligation of
the parties to consummate the Exchange is conditioned on the receipt of an
opinion in form and substance reasonably satisfactory to Capital Bank
Corporation and Home Savings from PricewaterhouseCoopers LLP, which serves as
Home Savings' independent public accountant, to the effect that the Exchange
will constitute such a reorganization. A copy of such opinion has been delivered
to Capital Bank Corporation. In delivering its opinion, PricewaterhouseCoopers
LLP, has received and relied upon certain representations contained in
certificates of officers of Home Savings and Capital Bank Corporation and
certain other information, data, documentation and other materials as it deems
necessary. The tax opinion is based upon customary assumptions contained
therein, including the assumption that Capital Bank Corporation has no knowledge
of any plan or intention on the part of the Capital Bank Corporation
shareholders to sell or dispose of Home Savings Common Stock that would reduce
their holders to the number of shares having in the aggregate a fair market
value of less than 50% of the total fair market value of the Capital Bank
Corporation Common Stock outstanding immediately upon consummation of the
Exchange.
Neither Capital Bank Corporation nor Home Savings intends to seek a ruling
from the IRS as to the federal income tax consequences of the Exchange. Capital
Bank Corporation's shareholders should be aware that the opinion of
PricewaterhouseCoopers LLP will not be binding on the IRS or the courts. Capital
Bank Corporation's shareholders also should be aware that some of the tax
consequences of the Exchange are governed by provisions of the Code as to which
there are no final regulations and little or no judicial or administrative
guidance. There can be no assurance that future legislation, administrative
rulings, or court decisions will not adversely affect the accuracy of the
statements contained herein.
The tax opinion states that, provided the assumptions stated therein are
satisfied, the Exchange will constitute a reorganization as defined in Section
368(a) of the Code, and the following federal income tax consequences will
result to Capital Bank Corporation's shareholders who exchange their shares of
Capital Bank Corporation Common Stock for shares of Home Savings Common Stock:
o No gain or loss will be recognized by Capital Bank Corporation's
shareholders on the exchange of shares of Capital Bank Corporation
Common Stock for shares of Home Savings Common Stock;
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o The aggregate basis of Home Savings Common Stock received by each
Capital Bank Corporation shareholder (including any fractional shares
of Home Savings Common Stock deeded received, but not actually
received), will be the same as the aggregate tax basis of the shares
of Capital Bank Corporation Common Stock surrendered in exchange
therefor;
o The holding period of the shares of Home Savings Common Stock received
by each Capital Bank Corporation shareholder will include the period
during which the shares of Capital Bank Corporation Common Stock
exchanged therefor were held, provided that the shares of Capital Bank
Corporation Common Stock were a capital asset in the holder's hands as
of the Effective Date;
o Cash payments received by each Capital Bank Corporation shareholder in
lieu of a fractional share of Home Savings Common Stock will be
treated for federal income tax purposes as if the fractional share had
been issued in the exchange and then redeemed by Home Savings. Gain or
loss will be recognized on the redemption of the fractional share and
generally will be capital gain or loss if the Home Savings Common
Stock is a capital asset in the hands of the holder;
o No gain or loss will be recognized by Capital Bank Corporation upon
the transfer of its assets and liabilities to Home Savings. No gain or
loss will be recognized by Home Savings upon the receipt of the assets
and liabilities of Capital Bank Corporation;
o The basis of the assets of Capital Bank Corporation acquired by Home
Savings will be the same as the basis of the assets in the hands of
Capital Bank Corporation immediately prior to the Exchange;
o The holding period of the assets of Capital Bank Corporation in the
hands of Home Savings will include the period during which such assets
were held by Capital Bank Corporation; and
o A Capital Bank Corporation shareholder who dissents and receives only
cash pursuant to dissenters' rights will recognize gain or loss. Such
gain or loss will, in general, be treated as capital gain or loss,
measured by the difference between the amount of cash received and the
tax basis of the shares of Capital Bank Corporation Common Stock
converted, if the shares of Capital Bank Corporation Common Stock were
held as capital assets. However, a Capital Bank Corporation
shareholder who receives only cash may need to consider the effects of
Section 302 and 318 of the Code in determining the federal income tax
consequences of the transaction. Each Capital Bank Corporation
shareholder will be required to report on such shareholder's federal
income tax return for the fiscal year of such shareholder in which the
Exchange occurs that such shareholder has received Home Savings Common
Stock in a reorganization.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF CAPITAL BANK
CORPORATION, TO CAPITAL BANK CORPORATION AND TO HOME SAVINGS AND DOES NOT
PURPORT TO BE A COMPLETE DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER.
THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A
PARTICULAR SHAREHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME
TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS, SHAREHOLDERS WHO DO NOT HOLD THEIR
SHARES OF CAPITAL BANK CORPORATION COMMON STOCK AS CAPITAL ASSETS WITHIN THE
MEANING OF SECTION 1221 OF THE CODE, AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES
OF CAPITAL BANK CORPORATION COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR
OTHERWISE AS
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COMPENSATION, NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY
OR FOREIGN JURISDICTION; MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF CAPITAL
BANK CORPORATION OPTIONS, IF ANY, ARE NOT DISCUSSED. THE DISCUSSION IS BASED
UPON THE CODE, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND
COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING IS SUBJECT TO CHANGE
AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
CAPITAL BANK CORPORATION SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO THEM.
ACCOUNTING TREATMENT
It is anticipated that the Exchange will be accounted for as a pooling of
interests, and the parties will not consummate the Exchange if such accounting
treatment is not available. Under the pooling of interests method of accounting,
the recorded amounts of the assets and liabilities of Home Savings will be
carried forward at their previously recorded amounts, and current and prior
period financial statements will be restated for all periods as though Home
Savings and Capital Bank Corporation had been combined at the beginning of the
earliest period presented.
There are certain other criteria that must be satisfied in order for the
Exchange to qualify as a pooling of interests, some of which criteria cannot be
satisfied until after the Exchange Effective Time. In addition, it is a
condition to closing that Capital Bank Corporation receive assurances, in a form
satisfactory to them, from PricewaterhouseCoopers LLP to the effect that the
Exchange will qualify for pooling of interests accounting treatment.
EXPENSES AND FEES
The Exchange Agreement provides that each of the parties will bear and pay
its own expenses in connection with the transactions contemplated by the
Exchange Agreement, including filing, negotiation, and application fees,
printing fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and counsel. All expenses associated with the
fees for filing the Registration Statement with the SEC and expenses related to
the printing and mailing of this Joint Proxy Statement-Prospectus will be shared
by Capital Bank and Home Savings as provided in the Exchange Agreement.
RESALES OF CAPITAL BANK CORPORATION COMMON STOCK
Capital Bank Corporation Common Stock to be issued to shareholders of Home
Savings in connection with the Exchange will be registered under the Securities
Act. All shares of Capital Bank Corporation Common Stock received by holders of
Home Savings Common Stock and all shares of Capital Bank Corporation Common
Stock issued and outstanding immediately prior to the Exchange Effective Time as
a result of the Holding Company Reorganization will be freely transferable upon
consummation of the Exchange by those shareholders of Home Savings not deemed to
be "Affiliates" of Home Savings. "Affiliates" generally are defined as persons
or entities who control, are controlled by, or are under common control with
Home Savings (generally, this will include executive officers, directors, and
10% or greater shareholders).
Rule 145 promulgated under the Securities Act restricts the sale of
Capital Bank Corporation Common Stock received in the Exchange by Affiliates of
Home Savings and certain of their family members and related interests. Under
the rule, during the one-year period following the Exchange Effective Time,
Affiliates of Home Savings may resell publicly Capital Bank Corporation Common
Stock received by them in the Exchange within certain limitations as to the
amount of Capital Bank Corporation Common Stock sold in any three-month period
and as to the manner of sale. After the one-year period, such Affiliates of Home
Savings who are not Affiliates of Capital Bank Corporation may resell their
shares without restriction. The
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ability of Affiliates to resell shares of Capital Bank Corporation Common Stock
received in the Exchange under Rule 145 will be subject to Capital Bank
Corporation having satisfied its Exchange Act reporting requirements for
specified periods prior to the time of sale. Affiliates also would be permitted
to resell Capital Bank Corporation Common Stock received in the Exchange
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Joint Proxy Statement-Prospectus does not cover any resales of Capital Bank
Corporation Common Stock received by persons who may be deemed to be Affiliates
of Home Savings.
Home Savings has agreed to use its best efforts to cause each person who
is an Affiliate of Home Savings to execute and deliver to Capital Bank and
Capital Bank Corporation at least five days prior to the Exchange Effective
Time, a written Exchange Agreement (the "Affiliates' Exchange Agreement")
providing that such Affiliate will not sell, pledge, transfer, or otherwise
dispose of any Capital Bank Corporation Common Stock held by such Affiliate
except as contemplated by the Exchange Agreement or the Affiliates' Exchange
Agreement, and will not sell, pledge, transfer or otherwise dispose of any
Capital Bank Corporation Common Stock received by such Affiliate upon
consummation of the Exchange (i) except in compliance with the Securities Act
and the rules and regulations thereunder and (ii) until such time as financial
results covering 30 days of combined operations of Capital Bank Corporation and
Home Savings have been published. Shares of Capital Bank Corporation Common
Stock issued to such Affiliates of Home Savings in exchange for shares of Home
Savings Common Stock will not be transferable until such time as financial
results covering at least 30 days of combined operations of Capital Bank
Corporation and Home Savings have been published, regardless of whether each
such Affiliate has provided an Affiliate Exchange Agreement (and Capital Bank
Corporation shall be entitled to place restrictive legends upon certificates for
shares of Capital Bank Corporation Common Stock issued to Affiliates of Home
Savings). Certificates representing shares of Home Savings Common Stock
surrendered for exchange by any person who is an Affiliate of Home Savings for
purposes of Rule 145(c) under the Securities Act shall not be exchanged for
certificates representing shares of Capital Bank Corporation Common Stock until
such time as financial results covering at least 30 days of combined operations
of Capital Bank Corporation and Home Savings have been published, regardless of
whether Capital Bank Corporation has received such a written Exchange Agreement
from such person. Prior to publication of such results, Capital Bank Corporation
will not transfer on its books any shares of Capital Bank Corporation Common
Stock received by Affiliate pursuant to the Exchange. The stock certificates
representing Capital Bank Corporation Common Stock issued to Affiliates in the
Exchange may bear a legend summarizing the foregoing restriction.
OPTION AGREEMENT
Capital Bank and Home Savings entered into a Stock Option Agreement, dated
as of September 29, 1998 (the "Option Agreement"), pursuant to which Capital
Bank was granted an option to purchase up to 183,615 shares of Home Savings
Common Stock (19.9% of the currently outstanding Home Savings Common Stock) at a
price per share equal to $11.75 (the "Option"). If the Option were exercised in
full, the Option Shares would represent approximately 16.6% of the currently
outstanding Common Stock (after giving effect to the issuance of such option
shares).
Subject to applicable law and regulatory restrictions, Capital Bank may
exercise the Option, in whole or in part, if, but only if a Purchase Event (as
defined below) has occurred, provided that written notice of such exercise as
required by the Option Agreement is provided within 60 days following such
Purchase Event (or such later period as provided in the Option Agreement).
As defined in the Option Agreement, "Purchase Event" means any of the
following events or transactions occurring after the date of signing the
Exchange Agreement:
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(i) Home Savings or any subsidiary of Home Savings, without having
received Capital Bank's prior written consent, shall have entered
into an agreement with any person, whereby such person would (x)
merge or consolidate, or enter into any similar transaction, with
Home Savings or any Home Savings Subsidiary, (y) purchase, lease or
otherwise acquire all or substantially all of the assets of Home
Savings or any Home Savings Subsidiary or (z) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 20% or more of
the voting power of Home Savings or any Home Savings Subsidiary.
(ii) any person shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 20% or more of the outstanding
shares of the Home Savings Common Stock (the term "beneficial
ownership" for purposes of the Option Agreement having the meaning
assigned thereto in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the regulations
promulgated thereunder);
(iii) any corporation, person, partnership, trust, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act) solicits, or
announces its intentions to solicit, proxies or consents of
stockholders of Home Savings in opposition to any recommendation of
the Board of Directors of Home Savings;
(iv) a "change of control" (as would be required to be reported in
response to Item 5(f) of Schedule 14A or Regulation 14A promulgated
under the Exchange Act) of Home Savings occurs;
(v) Home Savings breaches any of its obligations under the Exchange
Agreement; or
(vi) any person (x) shall have made a bona fide proposal to Home
Savings by public announcement or written communication that is
or becomes the subject of public disclosure to acquire Home
Savings or any Home Savings Subsidiary by merger, consolidation,
purchase of all or substantially all of its assets or any other
similar transaction, (y) shall have commenced a bona fide tender
or exchange offer to purchase shares of Home Savings Common Stock
such that upon consummation of such offer such person would own
or control 20% or more of the outstanding shares of Home Savings
Common Stock, or (z) shall have filed an application or notice
with any federal or state regulatory agency for clearance or
approval to engage in any transaction described in clause (i) or
(ii) above, and thereafter the holders of Home Savings Common
Stock shall have not approved the Exchange Agreement and the
transactions contemplated thereby at the meeting of such
shareholders held for such purposes of such meeting shall have
not been held or shall have been canceled prior to termination of
the Exchange Agreement.
If more than one of the transactions giving rise to a Purchase Event under
the Option Agreement is undertaken or effected, then all such transactions shall
give rise only to one Purchase Event, which Purchase Event shall be deemed
continuing for all purposes under the Option Agreement until all such
transactions are abandoned. As used in the Option Agreement, "person" shall have
the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
As defined in the Option Agreement, "Exercise Termination Event" means
each of the following: (i) the time and date on which the Exchange becomes
effective; (ii) termination of the Exchange in accordance with the provisions
thereof prior to the occurrence of the Purchase Event; or (iii) the passage of
six months after termination of the Exchange Agreement if such termination
follows the occurrence of a Purchase Event or is due to a breach by Home Savings
of any covenant contained therein.
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As provided in the Option Agreement, if Capital Bank is entitled to and
wishes to exercise the Option, it is obligated to send to Home Savings 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; provided that if prior notification to or approval of the Federal
Reserve Board or any other governmental authority, regulatory or administrative
agency or commission, domestic or foreign, is required in connection with such
purchase, Capital Bank is obligated to promptly file the required notice or
application for approval and expeditiously process the same and the period of
time that otherwise would run pursuant to this sentence will run instead from
the later of (x) the date on which any required notification periods have
expired or been terminated and (y) the date on which such approvals have been
obtained and any requisite waiting period or periods shall have passed.
Certain regulatory approvals may be required before an acquisition of Home
Savings Common Stock pursuant to an exercise of the Option could be completed.
Neither of the parties to the Option Agreement may assign any of its
rights or obligations under the Option Agreement or the Option created
thereunder to any other person, without the express written consent of the other
party, except that if a Purchase Event shall have occurred and be continuing
Capital Bank may assign in whole or in part its rights and obligations
thereunder.
In the event of any change in the Home Savings Common Stock by reasons of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and number
of shares of Home Savings Common Stock purchasable upon exercise of the Option
will be appropriately adjusted.
DISSENTERS' RIGHTS
Article 13 (entitled "Dissenters' Rights") of the NCBCA sets forth the
rights of the Capital Bank shareholders who object to Holding Company
Reorganization and the Home Savings shareholders who object to the Exchange. The
following is a summary of the statutory procedures to be followed by (i) a
holder of Capital Bank Common Stock in order to dissent from a Holding Company
Reorganization and perfect dissenters' rights under the NCBCA, and (ii) a holder
of Home Savings Common Stock in order to dissent from the Exchange and protect
dissenters' rights under the NCBCA. This summary is qualified in its entirety by
reference to Article 13 of the NCBCA, a copy of which is attached as Appendix V
hereto. For purposes of this Summary, "Company" shall refer to Capital Bank or
Home Savings, as the case may be, and "Transaction" shall refer to the Holding
Company Reorganization or the Exchange, as the case may be.
If either a Capital Bank shareholder or a Home Savings shareholder elects
to exercise such a right to dissent and demand appraisal, such shareholder must
satisfy each of the following conditions:
(i) such Shareholder must give to the Company and the Company must
actually receive, before the vote on approval or disapproval of the
Transaction is taken, written notice (the "Notice") of such Shareholder's
intent to demand payment for such Shareholder's shares if the Transaction
is effectuated (this Notice must be in addition to and separate from any
proxy or vote against the Transaction; neither voting against, abstaining
from voting, nor failing to vote on the Transaction will constitute a
Notice within the meaning of the NCBCA); and
(ii) such Shareholder must not vote in favor of the Transaction (a
failure to vote will satisfy this requirement, but a vote in favor of the
Transaction, by proxy or in person, or the return of a signed
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proxy which does not specify a vote against approval of the Transaction or
direction to abstain, will constitute a waiver of such Shareholder's
dissenters' rights).
If the requirements of (i) and (ii) above are not satisfied and the
Transaction becomes effective, a Company Shareholder will not be entitled to
payment for such Shareholder's shares under the provisions of Article 13 of the
NCBCA.
Any Notices should be addressed if to Capital Bank, to Capital Bank, P.O.
Box 18949, Raleigh, North Carolina 27601, attention: Allen T. Nelson, Jr., and
if to Home Savings, to Home Savings Bank of Siler City, Inc., SSB, 300 East
Raleigh Street, Siler City, North Carolina 27344, attention Edwin E. Bridges.
The Notice must be executed by the holder of record of shares of Company Common
Stock as to which dissenters' rights are to be exercised. A beneficial owner may
assert dissenters' rights only if he dissents with respect to all Company Common
Stock of which he is the beneficial owner. With respect to shares of Company
Common Stock which are owned of record by a voting trust or by a nominee, the
beneficial owner of such shares may exercise dissenters' rights if such
beneficial holder also submits to the Company the record holder's written
consent to such exercise not later than the time such beneficial holder asserts
the dissenters' rights. A record owner, such as a broker, who holds shares of
Company Common Stock as a nominee for others, may exercise dissenters' rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner, provided such record owner
dissents with respect to all Company Common Stock beneficially owned by any one
person. In such case, the Notice submitted by such broker as record owner must
set forth the name and address of the Shareholder who is objecting to the
Transaction and demanding payment for such person's shares.
If the Transaction creating dissenter's rights is approved, the Company
will be required to mail by registered or certified mail, return receipt
requested, a written notice (the "Dissenters' Notice") to all Shareholders who
have satisfied the requirements of (i) and (ii) above. The Dissenters' Notice
must be sent no later than ten days after the Shareholder approval of the
Transaction, and must (i) state where the payment demand must be sent and where
and when certificates for shares of Company Common Stock must be deposited; (ii)
supply a form for demanding payment; (iii) set a date by which the Company must
receive the payment demand (not fewer than 30 days nor more than 60 days after
the Dissenters' Notice is mailed) and (iv) include a copy of Article 13 of the
NCBCA.
A Shareholder who receives a Dissenters' Notice must demand payment and
deposit such Shareholder's share certificates in accordance with the terms of
the Dissenters' Notice. A Shareholder who demands payment and deposits such
Shareholder's share certificates retains all other rights of a Shareholder until
these rights are canceled or modified by the Transaction. A Shareholder who does
not demand payment or deposit such Shareholder's share certificates where
required, each by the date set in the Dissenters' Notice, is not entitled to
payment for their shares under the NCBCA.
Within 30 days after receipt of a demand for payment, the Company is
required to pay each dissenting Shareholder the amount the Company estimates to
be the fair value of such Shareholder's shares, plus interest accrued from the
effective date of the Transaction to the date of payment. The payment must be
accompanied by (i) the Company's most recent available balance sheet, income
statement and statement of cash flows as of the end of or for the fiscal year
ending not more than 16 months before the date of payment, and the latest
available interim financial statements, if any; (ii) an explanation of how the
Company estimated the fair value of the shares; (iii) an explanation of the
interest calculation; (iv) a statement of the dissenters' right to demand
payment (as described below); and (v) a copy of Article 13 of the NCBCA.
If the Transaction is not consummated within 60 days after the date set
for demanding payment and depositing share certificates, the Company must,
pursuant to the NCBCA, return the deposited certificates. If
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after returning the deposited certificates the Transaction is consummated, the
Company must send a new Dissenters' Notice and repeat the payment demand
procedure.
A Shareholder may, however, notify the Company in writing of such
Shareholder's own estimate of the fair value of his shares and amount of
interest due, and demand payment of the excess of such Shareholder's estimate of
the fair value of such Shareholder's shares over the amount previously paid by
the Company if: (i) the Shareholder believes that the amount paid is less than
the fair value of the Company Common Stock or that the interest is incorrectly
calculated; (ii) the Company fails to make payment of its estimate of fair value
to a Shareholder within 30 days after receipt of a demand for payment; or (iii)
the Exchange not having been consummated, the Company does not return the
deposited certificates within 60 days after the date set for demanding payment.
A Shareholder waives the right to demand payment unless such Shareholder
notifies the Company of such Shareholder's demand in writing within 30 days of
the Company's payment of its estimate of fair value (with respect to clause (i)
above) or the Company's failure to perform (with respect to clauses (ii) and
(iii) in this paragraph). A Shareholder who fails to notify the Company of his
demand within such 30-day period shall be deemed to have withdrawn such
Shareholder's dissent and demand of payment.
If a demand for payment remains unsettled, the dissenting Shareholder may
commence a proceeding within 60 days after the earlier of (i) the date of his
payment demand or (ii) the date payment is made, by filing a complaint with the
Superior Court Division of the North Carolina General Court of Justice to
determine the fair value of the shares and accrued interest. If the dissenting
Shareholder does not commence the proceeding within such 60-day period, the
dissenting Shareholder shall be deemed to have withdrawn the dissent and demand
for payment.
The court in such an appraisal proceeding will determine all costs of the
proceeding and assess the costs as it finds equitable. The proceeding is to be
tried as in other civil actions; however, the dissenting Shareholder will not
have the right to a trial by jury. The court may also assess the fees and
expenses of counsel and expenses for the respective parties, in the amounts of
the court finds equitable: (i) against the Company if the court finds that it
did not comply with the statutes; or (ii) against the Company or the dissenting
Shareholder, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith. If
the court finds that the services of counsel for any dissenting Shareholder were
of substantial benefit to other dissenting Shareholders, and that the fees for
those services should not be assessed against the Company, the court may award
to these counsel reasonable fees to be paid out of the amounts awarded the
dissenting Shareholders who were benefited.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF
THE PROVISIONS OF THE NCBCA RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE APPLICABLE SECTIONS OF THE
NCBCA, WHICH ARE INCLUDED AS APPENDIX V TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. SHAREHOLDERS INTENDING TO EXERCISE THEIR DISSENTERS'
RIGHTS ARE URGED TO REVIEW CAREFULLY APPENDIX V AND TO CONSULT WITH LEGAL
COUNSEL SO AS TO BE IN STRICT COMPLIANCE THEREWITH.
If the number of shares of Home Savings Common Stock held by Home Savings
Shareholders dissenting from the Exchange would preclude accounting for the
Exchange as a pooling-of-interests, Capital Bank Corporation will have no
obligation to consummate the Exchange. To comply with the requirements for a
reorganization under Section 368(a)(1)(B) of the Code, the Exchange Agreement
provides that Home Savings will establish an escrow fund with an independent
third party from which all payments to dissenting Home Savings shareholders (if
any) will be made. Neither Capital Bank Corporation nor Capital Bank will
contribute any funds to the escrow fund. Section 368(a)(1)(B) applies to the
acquisition by one corporation, in exchange solely for all or a part of its
voting stock, of stock of another corporation, and no cash consideration
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may be paid by the acquiror. Accordingly, it is necessary that all cash payments
to dissenters of the acquired corporation be paid from funds of the acquired
corporation, and not from funds of the acquiring corporation. The escrow fund
mechanism described above was included in the Exchange Agreement to ensure that
any and all Home Savings dissenters would be paid from Home Savings' funds and
that the Exchange would remain eligible for treatment as a reorganization under
Section 368(a)(1)(B) of the Code.
The Holding Company Agreement provides that if the Board of Directors at
Capital Bank determines that the holders of a sufficient number of shares of
Capital Bank Common Stock have dissented from the Holding Company Reorganization
so that consummation of the Holding Company Reorganization is inadvisable, the
Board of Directors of Capital Bank may terminate the Holding Company Agreement.
To comply with the requirements for a reorganization under Section 368(a)(1)(B)
of the Code, the Holding Company Agreement provides that Capital Bank will
establish an escrow fund from which all payments to dissenting Capital Bank
shareholders (if any) will be made. Capital Bank Corporation will not contribute
any funds to the escrow fund. Section 368(a)(1)(B) applies to the acquisition by
one corporation, in exchange solely for all or a part of its voting stock, of
stock of another corporation, and no cash consideration may be paid by the
acquiror. Accordingly, it is necessary that all cash payments to dissenters of
the acquired corporation be paid from funds of the acquired corporation, and not
from funds of the acquiring corporation. The escrow fund mechanism described
above was included in the Holding Company Agreement to ensure that any and all
Capital Bank dissenters would be paid from Capital Bank's funds and that the
Holding Company Reorganization would remain eligible for treatment as a
reorganization under Section 368(a)(1)(B) of the Code.
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DESCRIPTION OF CAPITAL BANK CORPORATION CAPITAL STOCK
The following summary of certain provisions of Capital Bank Corporation's
Articles of Incorporation and Bylaws does not purport to be complete and is
qualified in its entirety by reference to such instruments.
GENERAL
The Articles of Incorporation of Capital Bank Corporation authorize the
issuance of capital stock consisting of 20,000,000 shares of common stock, no
par value per share. There is one share of Capital Bank Corporation Common Stock
currently issued and outstanding, which is owned by James A. Beck. There is
currently no established public trading market for Capital Bank Corporation
Common Stock.
On the Holding Company Effective Date, the currently outstanding share of
Capital Bank Corporation Common Stock will be redeemed and canceled, and there
will be, subject to the exercise of dissenters' rights, 2,477,651 shares
outstanding as a result of the exchange of shares of Capital Bank Corporation
Common Stock for shares of Capital Bank Common Stock. After consummation of the
Exchange, pursuant to which each share of Home Savings Common Stock will be
exchanged for 1.28 shares of Capital Bank Corporation Common Stock, Capital Bank
Corporation will have 3,658,689 shares outstanding, subject to the exercise of
dissenters' rights.
In the future, the authorized but unissued and unreserved shares of
Capital Bank Corporation Common Stock will be available for issuance for general
purposes, including, but not limited to, possible issuance as stock dividends or
stock splits, future mergers or acquisitions, or future private placements or
public offerings. Except as otherwise may be required to approve a merger or
other transaction in which the additional authorized shares of Capital Bank
Corporation Common Stock would be issued, no shareholder approval will be
required for the issuance of those shares. See pages _____ for a discussion of
the rights of the holders of Capital Bank Corporation Common Stock as compared
to the holders of Capital Bank Common Stock and as compared to the holders of
Home Savings Common Stock.
COMMON STOCK
GENERAL. Each share of Capital Bank Corporation Common Stock has the same
relative rights as, and is identical in all respects to, each other share of
Capital Bank Corporation Common Stock.
DIVIDEND RIGHTS. As a North Carolina corporation, Capital Bank Corporation
will not be directly subject to the restrictions on the payment of dividends
applicable to Capital Bank or Home Savings. Holders of shares of Capital Bank
Corporation's Common Stock will be entitled to receive such cash dividends as
the Board of Directors of Capital Bank Corporation may declare out of funds
legally available therefor. However, the payment of dividends by Capital Bank
Corporation will be subject to the restrictions of North Carolina law applicable
to the declaration of dividends by a business corporation. Under such
provisions, cash dividends may not be paid if a corporation will not be able to
pay its debts as they become due in the usual course of business after making
such cash dividend distribution or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy certain liquidation preferential rights. After the Holding Company
Reorganization and the Exchange are consummated, the ability of Capital Bank
Corporation to pay dividends to the holders of shares of Capital Bank
Corporation Common Stock will, at least initially, be completely dependent upon
the amount of dividends Capital Bank and Home Savings pays to Capital Bank
Corporation. In addition, it is not likely that Capital Bank Corporation will
declare or pay cash dividends in the foreseeable future since earnings, if any,
will be used to support growth in earning assets and the opening of branch
locations, should such action be pursued. See "Comparison of the Rights of
Shareholders - Comparison of the Rights of Holders of Capital Bank Common Stock
and Capital Bank Corporation Common Stock - Dividends" and "Comparison of the
Rights of Shareholders - Comparison of the
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Rights of Holders of Home Savings Common Stock and Capital Bank Corporation
Common Stock - Dividends."
VOTING RIGHTS. Each share of Capital Bank Corporation Common Stock will
entitle the holder thereof to one vote on all matters upon which shareholders
have the right to vote. In addition, the Board of Directors of Capital Bank
Corporation is classified so that approximately one-third of the directors will
be elected each year. Shareholders of Capital Bank Corporation are not entitled
to cumulate their votes for the election of directors. See "Comparison of the
Rights of Shareholders - Comparison of the Rights of Holders of Capital Bank
Common Stock and Capital Bank Corporation Common Stock - Voting Rights" and
"Comparison of the Rights of Shareholders Comparison of the Rights of Holders of
Home Savings Common Stock and Capital Bank Corporation Common Stock - Voting
Rights."
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of Capital Bank Corporation, the holders of shares of Capital Bank
Corporation Common Stock will be entitled to receive, after payment of all debts
and liabilities of Capital Bank Corporation, all remaining assets of Capital
Bank Corporation available for distribution in cash or in kind. In the event of
any liquidation, dissolution or winding up of Capital Bank or Home Savings,
Capital Bank Corporation, as the holder of all shares of Capital Bank Common
Stock upon completion of the Holding Company Reorganization and as the holder of
all shares of Home Savings Common Stock upon completion of the Exchange, would
be entitled receive payment of all debt, and liabilities of Capital Bank and
Home Savings (including all deposits and accrued interest thereon) and all
remaining assets of Capital Bank and Home Savings available for distribution in
cash or in kind.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of shares of Capital Bank
Corporation Common Stock will not be entitled to preemptive rights with
respect to any shares that may be issued. Capital Bank Corporation Common
Stock is not subject to call or redemption.
CERTAIN ARTICLES AND BYLAW PROVISIONS HAVING POTENTIAL ANTI-TAKEOVER EFFECTS
GENERAL. A number of provisions of Capital Bank Corporation's Articles of
Incorporation and Bylaws address matters of corporate governance and the rights
of shareholders. The following summary of such provisions is not intended to be
complete and is qualified in all respects by Capital Bank Corporation's Articles
of Incorporation and Bylaws. Certain of these provisions may delay or prevent
takeover attempts not first approved by the Board of Directors (including
takeovers which certain shareholders may deem to be in their best interests).
These provisions also could delay or frustrate the removal of incumbent
directors or the assumption of control by shareholders. All references to the
Articles of Incorporation and Bylaws are to the Capital Bank Corporation`s
Articles of Incorporation and Bylaws in effect as the date of this Joint Proxy
Statement-Prospectus.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The Articles of Incorporation
provide that if the number of directors is greater than nine (the number of
directors is currently 17 and will be 19 after consummation of the Exchange),
the Board of Directors of Capital Bank Corporation shall divided into three
classes, Class I, Class II and Class III, which shall be as nearly equal in
number as possible. Each director shall serve for a term ending on the date of
the third annual meeting of shareholders following the annual meeting at which
the director was elected (except for the initial directors of Capital Bank
Corporation, whose terms may be shorter than three years as necessary to effect
the classification process). A director elected to fill a vacancy shall serve
for the remainder of the term of the present term of office of the class to
which he or she was elected. As a result of the classification of the Board of
Directors, approximately one-third of the members of the Board of Directors will
be elected each year, and two annual meetings will be required for Capital Bank
Corporation's shareholders to change a majority of the members constituting the
Board of Directors.
REMOVAL OF DIRECTORS; FILLING VACANCIES. Capital Bank Corporation's Bylaws
provide that (i) shareholders may remove one or more of the directors with or
without cause; (ii) a director may be removed by
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the shareholders only if the number of votes cast for the removal exceeds the
number of votes cast against the removal; and (iii) a director may not be
removed by the shareholders at a meeting unless the notice of the meeting states
that the purpose, or one of the purposes, of the meeting is removal of the
director. Vacancies occurring in the Board of Directors may be filled by the
shareholders or a majority of the remaining directors, even though less than a
quorum, or by the sole remaining director.
AMENDMENT OF BYLAWS. Subject to certain restrictions described below,
either a majority of the Board of Directors or the shareholders of Capital Bank
Corporation may amend or repeal the Bylaws. A bylaw adopted, amended or repealed
by the shareholders may not be readopted, amended or repealed by the Board of
Directors. Generally, the shareholders of Capital Bank Corporation may adopt,
amend, or repeal the Bylaws in accordance with the North Carolina General
Statutes.
SPECIAL MEETINGS OF SHAREHOLDERS. Capital Bank Corporation's Bylaws
provide that special meetings of shareholders may be called only by the Chief
Executive Officer, President, Secretary or Board of Directors of Capital Bank
Corporation, or by the shareholders pursuant to the written request of the
holders of not less than 10% of all the shares entitled to vote at the meeting.
As a result, this provision would prevent shareholders owning less than 10% of
the voting power of the outstanding Capital Bank Corporation Common Stock from
compelling shareholder consideration of any proposal (such as a proposal for a
merger or business combination) over the opposition of the Capital Bank
Corporation's Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Capital Bank Corporation Common
Stock is expected to be Boston Equiserve, successor to Wachovia Bank, N.A.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
COMPARISON OF THE RIGHTS OF HOLDERS OF CAPITAL BANK COMMON STOCK AND CAPITAL
BANK CORPORATION COMMON STOCK
GENERAL. Upon consummation of the Holding Company Reorganization,
shareholders of Capital Bank, other than those shareholders who properly
exercise dissenters' rights, will become shareholders of Capital Bank
Corporation. Certain legal distinctions exist between owning Capital Bank
Corporation Common Stock and Capital Bank Common Stock. The shareholders of
Capital Bank Corporation will be governed by and subject to the Articles of
Incorporation and Bylaws of Capital Bank Corporation rather than the Articles of
Incorporation and Bylaws of Capital Bank. Capital Bank Corporation is a
corporation governed by the laws of the State of North Carolina applicable to
business corporations, while Capital Bank is a commercial bank governed by the
banking laws of North Carolina, which incorporate the corporate laws of North
Carolina only to the extent they do not conflict with the banking laws. NEITHER
THE CAPITAL BANK COMMON STOCK NOR THE CAPITAL BANK CORPORATION COMMON STOCK ARE
INSURED BY THE FDIC OR GUARANTEED BY THE ISSUER AND ARE BOTH SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF VALUE.
The following is only a general summary of certain differences in the
rights of holders of Capital Bank Corporation Common Stock and those of holders
of Capital Bank Common Stock. Shareholders should consult with their own legal
counsel with respect to specific differences and changes in their rights as
shareholders which will result from the proposed Holding Company Reorganization.
CAPITAL STRUCTURE. Capital Bank's Articles of Incorporation authorize the
issuance of up to 20,000,000 shares of common stock, par value $5.00 per share,
and there are currently 2,477,651 shares issued and outstanding.
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Capital Bank Corporation's Articles of Incorporation authorize the
issuance of up to 20,000,000 shares of no par value common stock. Because the
exchange of shares by virtue of the Holding Company Reorganization is to be
one-for-one (and the Company will redeem and cancel the single share previously
issued by it for nominal consideration), Capital Bank Corporation will have the
same number of shares issued and outstanding immediately after consummation of
the Holding Company Reorganization as Capital Bank did before, except to the
extent that any shareholders of Capital Bank perfect their appraisal rights of
dissent and receive cash rather than Capital Bank Corporation Common Stock.
VOTING RIGHTS. In general, each holder of Capital Bank Common Stock and
Capital Bank Corporation Common Stock is entitled to one vote per share on all
matters submitted to a vote of shareholders. In the election of directors, each
holder of Capital Bank Common Stock and of Capital Bank Corporation Common Stock
has the right to vote the number of shares owned by him or her on the record
date for as many persons as there are directors to be elected. Cumulative voting
is not available with respect to the election of directors of Capital Bank or
Capital Bank Corporation.
Under North Carolina banking law, Capital Bank may effect a merger with or
transfer of all of its assets and liabilities to another bank, or may dissolve,
only upon the affirmative vote of the holders of at least two-thirds of Capital
Bank's outstanding shares of Common Stock. Under North Carolina corporate law
(the effect of which is not altered by Capital Bank Corporation's Articles of
Incorporation or Bylaws), Capital Bank Corporation may effect a merger with or
transfer all of its assets and liabilities to another corporation, or may
dissolve upon the affirmative vote of the holders of a least a majority of
Capital Bank Corporation's outstanding shares of Common Stock.
DIRECTORS. The Bylaws of both Capital Bank and Capital Bank Corporation
provide that the Board of Directors shall have from five to 25, and one to 25,
members, respectively. The Boards of Directors of both Capital Bank and Capital
Bank Corporation are currently comprised of the same 17 members. Upon
consummation of the Exchange, Edwin E. Bridges and John Grimes will be appointed
to the Board of Directors of Capital Bank Corporation. The Boards of Directors
of both Capital Bank and Capital Bank Corporation may fill vacancies arising in
their directorships.
The Articles of Incorporation of both Capital Bank and Capital Bank
Corporation provide that if the number of directors is at least nine, the terms
of the directors shall be staggered. Capital Bank and Capital Bank Corporation
both currently have staggered Boards of Directors. Pursuant to the Articles of
Incorporation, the directors are divided into three classes, each consisting of
approximately one-third of the total directors. Each year, one class of the
directors comes up for election, resulting in director terms of three years.
ASSESSMENT. Section 53-42 of the General Statutes of North Carolina
provides for the pro rata assessment of holders of capital stock of a state bank
in the event that its capital becomes impaired. Such assessment is to be
enforced by the sale, to the extent necessary, of the bank stock of any
shareholder who fails to pay his or her assessment. Accordingly, the shares of
Capital Bank Common Stock are subject to assessment as provided by such statute.
All shares of Capital Bank Corporation's Common Stock will, upon
consummation of the Holding Company Reorganization, be fully paid and
non-assessable.
RIGHTS TO REPURCHASE STOCK. Under the North Carolina banking law, Capital
Bank may repurchase its stock only after approval by holders of two-thirds of
its outstanding Common Stock and by the North Carolina Banking Commission. Under
the BHC Act, no prior approval is required and, therefore, Capital Bank
Corporation will be allowed to purchase its own stock in the open market subject
to applicable law and the availability of funds therefor. Under certain
circumstances, stock repurchases by Capital Bank Corporation
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will require the prior approval of the Federal Reserve Bank of Richmond. See
page ___ for a description of the restrictions on the repurchase by Capital Bank
Corporation of its stock. Capital Bank Corporation may consider repurchases of
its stock in the future, but there can be no assurance that Capital Bank
Corporation will conduct such repurchases.
PAYMENT OF DIVIDENDS. The ability of Capital Bank to pay dividends on its
common stock is restricted by North Carolina banking law and by tax
considerations related to state-chartered banks. North Carolina law imposes
restrictions on the ability of all banks chartered under North Carolina law to
pay dividends. Under North Carolina law, no dividend may be declared or paid
during Capital Bank's first three years of operations. In the future, Capital
Bank will only be able to pay dividends out of undivided profits as determined
pursuant to North Carolina General Statutes Section 53-87. In addition,
regulatory authorities may limit payment of dividends by any bank when it is
determined that such a limitation is in the public interest and is necessary to
ensure the financial soundness of the bank. Although Capital Bank Corporation's
ability to pay dividends will not be subject to these restrictions, such
restrictions will indirectly affect Capital Bank Corporation because dividends
from Capital Bank will be a source of funds of Capital Bank Corporation for the
payment of dividends to shareholders of Capital Bank Corporation.
Capital Bank Corporation will be limited by certain restrictions imposed
generally on North Carolina corporations. Subject to certain limitations and
exceptions, cash dividends may not be paid if a corporation will not be able to
pay its debts as they become due in the usual course of business after making
such cash dividend distribution or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy certain liquidation preferential rights. See page ____. It is not likely
that Capital Bank Corporation will declare or pay cash dividends in the
foreseeable future since earnings, if any, will be used to support growth in
earnings assets and the opening of branch locations, should such action be
pursued.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES. The Articles of Incorporation of both Capital Bank and Capital Bank
Corporation eliminate a director's personal liability for breach of duty as a
director to the fullest extent permitted by law. As required by North Carolina
banking law, the Articles of Incorporation of Capital Bank qualify the
elimination of liability for acts or omissions as to which the elimination of
liability would be inconsistent with the provisions of North Carolina banking
law or the business of banking.
The Bylaws of both Capital Bank and Capital Bank Corporation provide for
indemnification to the fullest extent permitted by law. Under the Federal
Deposit Insurance Act, as amended ("FDIA"), both Capital Bank and Capital Bank
Corporation would be prohibited from paying any indemnification with respect to
any liability or legal expense incurred by a director, officer, or employee as
result of an action or proceeding by a federal banking agency resulting in a
civil money penalty or certain other remedies against such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Capital Bank
Corporation pursuant to the forgoing provisions, Capital Bank Corporation has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
CHANGE IN CONTROL REGULATION. Both Capital Bank and Capital Bank
Corporation have opted out of the North Carolina Shareholder Protection Act and
the North Carolina Control Share Acquisition Act, each of which, if applicable,
would hinder the ability of a third party to acquire control of either company.
See page ___ for a brief description of these Acts.
The acquisition of more than ten percent (10%) of either the outstanding
Capital Bank Corporation Common Stock or the outstanding Capital Bank Common
Stock may, in certain circumstances, be subject to
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the provisions of the Change in Bank Control Act of 1978 (the "Change in Bank
Control Act"). The FDIC has also adopted a regulation pursuant to the Change in
Bank Control Act which generally requires persons who at any time intend to
acquire control of an FDIC-insured state-chartered non-member bank, either
directly or indirectly through an acquisition of control of its holding company,
to provide 60 days' prior written notice and certain financial and other
information to the FDIC. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least
twenty-five percent (25%) of any class of voting stock or the power to direct
the management or policies of the bank or the holding company. However, under
FDIC regulations, control is presumed to exist where the acquiring party has
voting control of at least ten percent (10%) of any class of voting securities
if (i) the bank or holding company has a class of voting securities which is
registered under Section 12 of the Exchange Act, or (ii) the acquiring party
would be the largest holder of a class of voting shares of the bank or the
holding company. The statute and underlying regulations authorize the FDIC to
disapprove a proposed acquisition on certain specified grounds.
Prior approval of the FRB would be required for any acquisition of control
of Capital Bank or Capital Bank Corporation by any bank holding company under
the BHC Act. Control for purposes of the BHC Act would be based on, among other
things, a twenty-five percent (25%) voting stock test or on the ability of the
holding company otherwise to control the election of a majority of the Board of
Directors of Capital Bank or Capital Bank Corporation. As part of such
acquisition, the acquiring company (unless already so registered) would be
required to register as a bank holding company under the BHC Act.
The Securities Exchange Act of 1934, as amended, requires that a purchaser
of any class of a corporation's securities registered under the Exchange Act
notify the SEC and such corporation within ten days after its purchases exceed
five percent of the outstanding shares of that class of securities. This notice
must disclose the background and identity of the purchaser, the source and
amount of funds used for the purchase, the number of shares owned and, if the
purpose of the transaction is to acquire control of the corporation, any plans
to alter materially the corporation's business or corporate structure. In
addition, any tender offer to acquire a corporation's securities is subject to
the limitations and disclosure requirements of the Exchange Act.
BYLAW CHANGES. The Bylaws of Capital Bank Corporation are substantially
the same as the Bylaws of Capital Bank. Certain differences exist because a few
provisions of Capital Bank's Bylaws are required of Banks by Chapter 53 of the
North Carolina General Statutes and are not required of holding companies formed
under the North Carolina Business Corporation Act (which is codified in Chapter
55 of the North Carolina General Statutes). Therefore, although these provisions
remain in Capital Bank's Bylaws, they were not incorporated into the Bylaws of
Capital Bank Corporation. The provisions of Capital Bank's Bylaws which were not
incorporated into the Bylaws of Capital Bank Corporation are that: (i) not less
than three-fourths of the directors shall be residents of the State of North
Carolina; (ii) all directors are required to own stock of Capital Bank; (iii)
the Board of Directors has an option to establish and elect local boards of
directors for branch offices to serve in an advisory capacity; (iv) every
director be required to take an oath; and (v) active officers and employees give
bond. In addition, Capital Bank Corporation's Bylaws do not include certain
bank-specific committees that are included in Capital Bank's Bylaws.
Upon request, Capital Bank will provide its shareholders with copies of
the Bylaws of both Capital Bank and Capital Bank Corporation free of charge.
Requests should be made to Allen T. Nelson, Jr., at (919) 874-6321 or mailed to
Capital Bank, P.O. Box 18949, Raleigh, North Carolina 27601, Attention:
Allen T. Nelson, Jr.
COMPARISON OF THE RIGHTS OF HOLDERS OF HOME SAVINGS COMMON STOCK AND CAPITAL
BANK CORPORATION COMMON STOCK
GENERAL. Upon consummation of the Exchange, shareholders of Home Savings,
other than those shareholders who properly exercise dissenters' rights, will
become shareholders of Capital Bank Corporation. Certain legal distinctions
exist between owning Capital Bank Corporation Common Stock and Home Savings
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Common Stock. The shareholders of Capital Bank Corporation will be governed by
and subject to the Articles of Incorporation and Bylaws of Capital Bank
Corporation rather than the Amended and Restated Certificate of Incorporation
and Bylaws of Home Savings. Capital Bank Corporation is a corporation governed
by the laws of the State of North Carolina applicable to business corporations,
while Home Savings is a savings bank governed by the savings bank laws of North
Carolina, which incorporate the corporate laws of North Carolina only to the
extent they do not conflict with the savings bank laws. NEITHER THE HOME SAVINGS
COMMON STOCK NOR THE CAPITAL BANK CORPORATION COMMON STOCK ARE INSURED BY THE
FDIC OR GUARANTEED BY THE ISSUER AND ARE BOTH SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF VALUE.
The following is only a general summary of certain differences in the
rights of holders of Capital Bank Corporation Common Stock and those of holders
of Home Savings Common Stock. Shareholders should consult with their own legal
counsel with respect to specific differences and changes in their rights as
shareholders which will result from the proposed Exchange.
CAPITAL STRUCTURE. Home Savings' Amended and Restated Certificate of
Incorporation authorizes the issuance of up to 5,000,000 shares of common stock,
par value $1.00 per share, and there are currently 922,686 shares issued and
outstanding. Capital Bank Corporation's Articles of Incorporation authorize the
issuance of up to 20,000,000 shares of no par value common stock, and there are
2,477,651 shares issued and outstanding. Because the exchange of shares by
virtue of the Exchange is to be effected at the rate of 1.28 shares of Capital
Bank Corporation Common Stock for each share of Home Savings Common Stock,
Capital Bank Corporation will have 3,658,689 shares of Common Stock issued and
outstanding after consummation of the Exchange (except to the extent that any
shareholders of Home Savings perfect their appraisal rights of dissent and
receive cash rather than Capital Bank Corporation Common Stock in connection
with the Exchange).
VOTING RIGHTS. In general, each holder of Home Savings Common Stock and
Capital Bank Corporation Common Stock is entitled to one vote per share on all
matters submitted to a vote of shareholders. However, for three years after the
HSB Conversion Effective Date, or until [November 14, 1998], Home Savings
Amended and Restated Certificate of Incorporation eliminates voting rights with
respect to those shares that are beneficially owned by any person in excess of
10% of the total Home Savings Common Stock then outstanding.
In the election of directors, each holder of Home Savings Common Stock and
of Capital Bank Corporation Common Stock has the right to vote the number of
shares owned by him or her on the record date for as many persons as there are
directors to be elected. Cumulative voting is not available with respect to the
election of directors of Home Savings or Capital Bank Corporation.
Under North Carolina savings bank law, Home Savings may dissolve upon the
affirmative vote of the holders of at least two-thirds of its outstanding shares
of Common Stock. Under North Carolina corporate law, Capital Bank Corporation
may dissolve upon the affirmative vote of the holders of a least a majority of
Capital Bank Corporation's outstanding shares of Common Stock.
DIRECTORS. The Bylaws of Home Savings provide that the Board of Directors
of Home Savings shall have from seven to 20 members, and the Board of Directors
of Home Savings currently has eight members. The Bylaws of Capital Bank
Corporation provide that the Board of Directors of Capital Bank Corporation
shall have from one to 25 members, and the Board of Directors of Capital Bank
Corporation currently has 17 members. The Boards of Directors of both Home
Savings and Capital Bank Corporation may fill vacancies arising in their
directorships.
The Articles of Incorporation of Capital Bank Corporation provide that if
the number of directors is at least nine, the term of the directors shall be
staggered. Capital Bank Corporation currently has a staggered
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Board of Directors. Pursuant to the Articles of Incorporation, Capital Bank
Corporation's directors are divided into three classes, each consisting of
approximately one-third of the total directors. Each year, one class of the
directors comes up for election, resulting in director terms of three years.
Home Savings does not have a staggered Board of Directors.
RIGHTS TO REPURCHASE STOCk. For a period of five years from the HSB
Conversion Effective Date, Home Savings may not, without the approval of the
Savings Administrator, repurchase any of its capital stock. Under the BHCA, no
prior approval is required and, therefore, Capital Bank Corporation will be
allowed to purchase its own stock in the open market subject to applicable law
and the availability of funds therefor. Under certain circumstances, stock
repurchases by Capital Bank Corporation will require the prior approval of the
Federal Reserve Bank of Richmond. See page ____ for a description of the
restrictions on the repurchase by Capital Bank Corporation of its stock. Capital
Bank Corporation may consider repurchases of its stock in the future, but there
can be no assurance that Capital Bank Corporation will conduct such repurchases.
PAYMENT OF DIVIDENDS. Holders of Home Savings Common Stock are entitled to
receive dividends as may be declared by the Board of Directors of Home Savings
out of funds legally available therefor. Home Savings' ability to pay such
dividends is subject to different statutory and regulatory restrictions.
Although Capital Bank Corporation's ability to pay dividends will not be subject
to these restrictions, such restrictions will indirectly affect Capital Bank
Corporation because dividends from Home Savings will be a source of funds of
Capital Bank Corporation for the payment of dividends to shareholders of Capital
Bank Corporation.
Capital Bank Corporation will be limited by certain restrictions imposed
generally on North Carolina corporations. Subject to certain limitations and
exceptions, cash dividends may not be paid if a corporation will not be able to
pay its debts as they become due in the usual course of business after making
such cash dividend distribution or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy certain liquidation preferential rights. It is not likely that Capital
Bank Corporation will declare or pay cash dividends in the foreseeable future
since earnings, if any, will be used to support growth in earnings assets and
the opening of branch locations, should such action be pursued.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES. The Articles of Incorporation of both Home Savings and Capital Bank
Corporation eliminate a director's personal liability for breach of duty as a
director to the fullest extent permitted by law.
The Bylaws of both Home Savings and Capital Bank Corporation provide for
indemnification to the fullest extent permitted by law. Under the FDIA, both
Home Savings and Capital Bank Corporation would be prohibited from paying any
indemnification with respect to any liability or legal expense incurred by a
director, officer, or employee as result of an action or proceeding by a federal
banking agency resulting in a civil money penalty or certain other remedies
against such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Capital Bank
Corporation pursuant to the forgoing provisions, Capital Bank Corporation has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
CHANGE IN CONTROL REGULATION. Home Savings is subject to the protection of
the North Carolina Shareholder Protection Act and the North Carolina Control
Share Acquisition Act. As permitted thereby, Capital Bank Corporation has opted
out of both Acts.
Pursuant to the North Carolina Shareholder Protection Act, no business
combination (defined to include any merger, consolidation, share exchange or
sale of all or any substantial part of the corporation's assets) involving a
corporation which has a class of securities registered under the Exchange Act
and any
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<PAGE>
entity that is the beneficial owner, directly or indirectly, of more than 20% of
the corporation's voting shares may be consummated unless the holders of 95% of
the outstanding voting shares approve the business combination. This provision
does not apply if the parties comply with certain requirements relating to the
value of the consideration paid in the business combination, the composition of
the corporation's board of directors, the disclosure to shareholders regarding
the business combination and other procedural matters. Home Savings has not
opted out of the Shareholder Protection Act.
The North Carolina Control Share Acquisition Act applies to a corporation
that is incorporated in North Carolina and that has substantial assets in North
Carolina, its principal place of business or a principal office within North
Carolina, a class of securities registered under the Exchange Act and more than
10% of its shareholders resident in North Carolina or more than 10% of its
shares held by North Carolina residents. The North Carolina Control Share
Acquisition Act restricts the voting rights of a person who acquires "control
shares" in a subject corporation. Control shares are shares that, when added to
all other shares of the subject corporation beneficially owned by a person,
would entitle that person to voting power equal to or greater than one-fifth,
one-third or a majority of all voting power. Without shareholder approval by
"disinterested shareholders," the shares acquired by the acquiror have no voting
rights. Disinterested shareholders are shareholders other than the acquiror and
the employee-directors of the subject corporation. If the shares held by
acquiror are accorded voting rights pursuant to the procedure described above
and the acquiror beneficially holds more than 50% of the voting power for the
election of director, each of the corporation's other shareholders have the
right to require that the corporation redeem their shares at a price not less
than the highest price per share paid by the acquiror for any of its shares.
Home Savings has not opted out of the Control Share Acquisition Act.
The acquisition of more than ten percent of either the outstanding Capital
Bank Corporation Common Stock or the outstanding Home Savings Common Stock may,
in certain circumstances, be subject to the provisions of the Change in Bank
Control Act. The FDIC has also adopted a regulation pursuant to the Change in
Bank Control Act which generally requires persons who at any time intend to
acquire control of an FDIC-insured state-chartered non-member bank, either
directly or indirectly through an acquisition of control of its holding company,
to provide 60 days' prior written notice and certain financial and other
information to the FDIC. Control for the purpose of this Act exists in
situations in which the acquiring party has voting control of at least 25% of
any class of voting stock or the power to direct the management or policies of
the bank or the holding company. However, under FDIC regulations, control is
presumed to exist where the acquiring party has voting control of at least ten
percent 10% of any class of voting securities if (i) the bank or holding company
has a class of voting securities which is registered under Section 12 of the
Exchange Act, or (ii) the acquiring party would be the largest holder of a class
of voting shares of the bank or the holding company. The statute and underlying
regulations authorize the FDIC to disapprove a proposed acquisition on certain
specified grounds.
Prior approval of the Federal Reserve would be required for any
acquisition of control of Home Savings or Capital Bank Corporation by any bank
holding company under the BHC Act. Control for purposes of the BHC Act would be
based on, among other things, a twenty-five percent (25%) voting stock test or
on the ability of the holding company otherwise to control the election of a
majority of the Board of Directors of Home Savings or Capital Bank Corporation.
As part of such acquisition, the acquiring company (unless already so
registered) would be required to register as a bank holding company under the
BHC Act.
The Exchange Act requires that a purchaser of any class of a corporation's
securities registered under the Exchange Act notify the SEC and such corporation
within ten days after its purchases exceed 5% of the outstanding shares of that
class of securities. This notice must disclose the background and identity of
the purchaser, the source and amount of funds used for the purchase, the number
of shares owned and, if the purpose of the transaction is to acquire control of
the corporation, any plans to alter materially the corporation's
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<PAGE>
business or corporate structure. In addition, any tender offer to acquire a
corporation's securities is subject to the limitations and disclosure
requirements of the Exchange Act.
CERTAIN DIFFERENCES IN PROVISIONS OF INCORPORATION DOCUMENTS AND BYLAWS.
RESTRICTION ON ACQUISITION. Home Savings' Amended and Restated Certificate of
Incorporation provides that for three years after the HSB Conversion Effective
Date, or until [NOVEMBER 14, 1998], no person may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
equity security of Home Savings. This prohibition does not apply to, among other
things, the purchase of securities by underwriters in connection with a public
offering of Home Savings' securities, any employee stock benefit plan of Home
Savings, or any class or series of preferred stock or other security, other than
common stock, as to which, and to the extent, the Board of Directors determines
this provision shall not apply. Capital Bank Corporation's Articles of
Incorporation contain no such provisions.
CONSTITUENCY CLAUSE. Home Savings' Amended and Restated Certificate of
Incorporation provides that in determining what is in the best interests of Home
Savings, the Board of Directors may consider, among other things, the social and
economic effects of the matter to be considered (including a change of control)
on Home Savings and its employees, customers, creditors and the community in
which Home Savings operates. Capital Bank Corporation's Articles of
Incorporation contain no such provision.
BYLAWS. Certain differences exist between the Bylaws of Home Savings and
the Bylaws of Capital Bank Corporation. Upon request, Home Savings will provide
its shareholders with copies of the Bylaws of both Home Savings and Capital Bank
Corporation free of charge. Requests should be made to Edwin E. Bridges, at
(919) 742-4186 or mailed to Home Savings' main office, located at 300 East
Raleigh Street, Siler City, North Carolina 27344, Attention: Edwin E. Bridges.
PRO FORMA CONSOLIDATED CAPITALIZATION
The following table presents the pro forma capitalization of Capital Bank
as of June 30, 1998, and the pro forma consolidated capitalization of
Capital Bank Corporation and Capital Bank, as its subsidiary, at June 30,
1998, adjusted to give effect to the Holding Company Reorganization as described
in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
PRO
CAPITAL FORMA
BANK CAPITAL CONSOLIDATED
CORPORATION BANK ADJUSTMENTS CAPITALIZATION
----------- ----- ----------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Shareholders' equity:
Common stock, no par value per share... $ 1 $ -- $25,693 $25,674
Common stock, $5.00 par value per share. --- 12,388 (12,388) ---
Additional paid-in capital............ --- 13,285 (13,285) ---
Accumulated deficit................... --- (1,337) --- (1,337)
Accumulated other comprehensive income,
net............................... --- 50 -- 50
--- -------- ------- ------
Total shareholders' equity.............. $ 1 $24,386 $ - $24,387
===== ======= ======= =======
</TABLE>
INFORMATION ABOUT CAPITAL BANK AND CAPITAL BANK CORPORATION
CAPITAL BANK CORPORATION
GENERAL. Capital Bank Corporation is a business corporation incorporated
under the laws of the State of North Carolina on August 10, 1998. The only
office of Capital Bank Corporation, and its principal place of
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business, is located at the administrative office of Capital Bank at 4400 Falls
of Neuse Road, Raleigh, North Carolina 27609. Capital Bank Corporation's
telephone number is (919) 878-3100.
Capital Bank Corporation was organized for the purpose of becoming the
holding company of Capital Bank. Pursuant to the Reorganization, Capital Bank
will become a wholly-owned subsidiary of Capital Bank Corporation, Capital Bank
Corporation will become a bank holding company, and each shareholder of Capital
Bank will, subject to the exercise of dissenters' rights, become a shareholder
of Capital Bank Corporation without any change in the number of shares owned or
percentage ownership.
Capital Bank Corporation has not yet undertaken any operating business
activities and does not currently propose to do so. In the future, Capital Bank
Corporation may become an operating company or acquire other commercial banks or
bank holding companies, or engage in or acquire such other activities or
businesses as may be permitted by applicable law, although there are no present
plans or intentions to do so.
PROPERTY. Initially, Capital Bank Corporation will neither own nor lease
any real or personal property but will utilize the premises and property of
Capital Bank without the payment of any rental fees to Capital Bank.
COMPETITION. It is expected that for the near future the primary business
of Capital Bank Corporation will be the ongoing business of Capital Bank.
Therefore, the competitive conditions to be faced by Capital Bank Corporation
will be the same as those faced by Capital Bank. In addition, many banks and
financial institutions have formed, or are in the process of forming, holding
companies. It is likely that these holding companies will attempt to acquire
banks, thrift institutions or companies engaged in bank-related activities.
Thus, Capital Bank Corporation will face competition in undertaking any such
acquisitions and in operating subsequent to any such acquisitions.
EMPLOYEES. At the present time, Capital Bank Corporation does not intend
to have any employees other than its management. See "Management of Capital Bank
Corporation." It will utilize the support staff of Capital Bank from time to
time without the payment of any fees to Capital Bank. If Capital Bank
Corporation acquires other financial institutions or pursues other lines of
business, it may at such time hire additional employees.
CAPITAL BANK
GENERAL. Capital Bank was incorporated under the laws of the State of
North Carolina on May 30, 1997, and commenced operations as a state-chartered
banking corporation on June 20, 1997. Capital Bank is not a member of the
Federal Reserve System and has no subsidiaries. As of June 30, 1998, Capital
Bank had assets of approximately $100.0 million, net loans outstanding of
approximately $64.0 million and deposits of approximately $75.0 million. Capital
Bank's corporate and main office is located at 4400 Falls of Neuse Road,
Raleigh, North Carolina 27609, and its telephone number is (919) 878-3100. In
addition to the main office, Capital Bank has four branch offices in Cary and
Sanford, North Carolina. The two branch offices in Sanford, North Carolina are
currently located at 130 North Steele Street and 2800 Williams Street. The
Williams Street location and a branch located at 129 South Steele Street were
acquired from an existing banking institution immediately upon Capital Bank's
commencement of operations. The two branch offices in Cary, North Carolina are
currently located at 1201 Kildaire Farm Road and 915 North Harrison Avenue in
Cary, North Carolina. The branch at 915 North Harrison Avenue opened on March
23, 1998 and the branch at 1201 Kildaire Farm Road opened on September 14, 1998.
Capital Bank may also explore opportunities to add additional service points in
the North Carolina market, although no Exchange Agreements or understandings,
written or oral, currently exist other than pursuant to the Exchange Agreement.
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<PAGE>
Capital Bank is a community bank currently engaged in the general
commercial banking business in Wake and Lee Counties, North Carolina. Wake
County has a diversified economic base, comprised primarily of services, retail
trade, government and manufacturing and includes the City of Raleigh, the state
capital. Lee County is a significant center for various industries, including
manufacturing, lumber and tobacco.
Capital Bank offers a full range of banking services, including checking
accounts, savings accounts, NOW accounts, money market accounts and certificates
of deposit; loans for real estate, businesses, agriculture, personal uses, Home
Savings improvement and automobiles; equity lines of credit; credit cards;
individual retirement accounts; safe deposit boxes; bank money orders;
electronic funds transfer services including wire transfers; traveler's checks;
and free notary services to all Capital Bank customers. In addition, Capital
Bank provides automated teller machine access to its customers for cash
withdrawals through nationwide ATM networks. At present, Capital Bank does not
provide the services of a trust department.
LENDING ACTIVITIES AND DEPOSITS. Capital Bank makes a variety of loans,
including loans secured by real estate, loans for commercial purposes and loans
to individuals for personal and household purposes. There were no large
concentrations of credit to any particular industry. The economic trends of the
area served by Capital Bank are influenced by the significant industries within
the region. Virtually all Capital Bank's business activity is with customers
located in the Cary, Raleigh and Sanford areas. The ultimate collectibility of
Capital Bank's loan portfolio is susceptible to changes in the market conditions
of this geographic region.
Capital Bank uses a centralized risk management process to insure uniform
credit underwriting that adheres to bank policy. Lending policies are reviewed
on a regular basis to confirm that Capital Bank is prudent in setting its
underwriting criteria. Credit risk is managed through a number of methods
including loan grading of commercial loans, committee approval of larger loans,
and class and purpose coding of loans. Management believes that early detection
of credit problems through regular contact with Capital Bank s' clients coupled
with consistent reviews of the borrowers' financial condition are important
factors in overall credit risk management.
The following table sets forth, as of [June 30, 1998,] the approximate
composition of Capital Bank's loan portfolio:
LOAN TYPE AMOUNT PERCENTAGE
- --------- ------ ----------
(IN THOUSANDS)
Real Estate............................ $10,036 19%
Commercial............................. 36,594 69
Consumer............................... 6,618 12
-------- ----
Total........................ $53,248 100%
======== ====
The majority of Capital Bank's customers are individuals and small to
medium-size businesses located in Wake and Lee Counties, North Carolina and
contiguous areas. Capital Bank's deposits and loans are well diversified, with
no material concentration in a single industry or group of related industries.
The management of Capital Bank does not believe that the deposits or the
business of Capital Bank in general are seasonal in nature. The deposits may,
however, vary with local and national economic conditions but not enough,
management believes, to have a material effect on planning and policy making.
Capital Bank attempts to control deposit flow through the pricing of deposits
and promotional activities. Management believes that Capital Bank's rates are
competitive with those offered by other institutions in Cary, Raleigh and
Sanford.
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The following table sets forth the mix of depository accounts at Capital
Bank as a percentage of total deposits as of September 30, 1998:
Non-interest bearing demand............... 7%
Interest checking......................... 6
Market rate investment.................... 16
Savings................................... 3
Time deposits
Under $100,000...................... 57
Equal to or over $100,000........... 11
--
100%
===
COMPETITION
Commercial banking in North Carolina is extremely competitive in large
part due to statewide branching. Capital Bank competes in its market areas with
some of the largest banking organizations in the state and the country and other
financial institutions, such as federally and state-chartered savings and loan
institutions and credit unions, as well as consumer finance companies, mortgage
companies and other lenders engaged in the business of extending credit. Many of
Capital Bank's competitors have broader geographic markets and higher lending
limits than Capital Bank and are also able to provide more services and make
greater use of media advertising.
The enactment of legislation authorizing interstate banking has caused
great increases in the size and financial resources of some of Capital Bank's
competitors. In addition, as a result of interstate banking, out-of-state
commercial banks may acquire North Carolina banks and heighten the competition
among banks in North Carolina.
Despite the competition in its market areas, Capital Bank believes that it
has certain competitive advantages that distinguish it from its competition.
Capital Bank believes that its primary competitive advantages are its strong
local identity and affiliation with the community and its emphasis on providing
specialized services to small and medium-sized business enterprises, as well as
professional and upper-income individuals. Capital Bank offers customers modern,
high-tech banking without forsaking community values such as prompt, personal
service and friendliness. Capital Bank offers many personalized services and
intends to attract customers by being responsive and sensitive to their
individualized needs. Capital Bank also relies on goodwill and referrals from
shareholders and satisfied customers, as well as traditional media to attract
new customers. To enhance a positive image in the community, Capital Bank
supports and participates in local events and its officers and directors serve
on boards of local civic and charitable organizations.
YEAR 2000 ISSUES
As the Year 2000 approaches, an important business issue has emerged
regarding whether or not existing computer systems and other operating systems
can process this date value properly. The problem is the result of computer
programs and related logic which use a two digit value to define a particular
calendar year (i.e. 99 for 1999). When this logic is used, computer systems
cannot recognize the two digit code "00" associated with the Year 2000 as coming
after 99. The issue is significant because many computer systems deployed
throughout the business world, not just in banks, use software which contain the
two digit date logic.
Before it opened in June 1997, Capital Bank's management made the
strategic decision to use an outside data processing company (service bureau) to
provide computer processing systems for its primary banking products including
loans, deposits, ATM's, check processing and general ledger. The computer
software used by the service bureau was developed and is maintained by a third
party vendor. This same
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software is used by many banks throughout the country and uses a five-digit date
logic designed to avoid the problems associated with the two digit logic
discussed above.
In addition to the service bureau, Capital Bank utilizes personal
computers configured into five local area networks (LANS) which are, in turn,
connected to each other through a wide area network (WAN). All equipment was
purchased new in 1997 and has subsequently been tested for Year 2000 readiness
by an independent consultant. The test results indicate that all equipment will
function properly into the Year 2000.
In addition to the service bureau applications, Capital Bank uses software
distributed through the LAN/WAN network for functions such as word processing,
E-mail, spreadsheet, teller transactions, document preparation and new account
setup. All of these software products are purchased or licensed from third party
vendors. It should be noted that Capital Bank does not write or develop any of
its own computer applications and all third party vendors have provided Capital
Bank with written certification that their software is Year 2000 compliant.
In addition to receiving these assurances from third party vendors,
Capital Bank has instituted a Year 2000 compliance program whereby it is
reviewing Capital Year 2000 issue on a comprehensive, company-wide basis. This
program is administered by a project team consisting of executive and senior
management as well as a representative from the Board of Directors.
As of September 30, 1998, Capital Bank had completed its assessment of
existing computer systems and applications and had identified mission critical
applications. Where possible, Capital Bank is developing plans to test these
systems and is in the process of reviewing third party test results. However,
the Year 2000 is a global issue which extends beyond the control of Capital Bank
and may effect the providers of services such as power and telecommunications.
These services are critical to the ongoing operations of Capital Bank and in the
unlikely event of an interruption in these services, it is management's opinion
that such a failure will be quickly resolved.
As testing of Capital Bank's mission critical systems is completed,
Capital Bank will develop detailed contingency plans as necessary for each
system. Capital Bank has developed a general business resumption contingency
plan which provides for the implementation of manual processes on a temporary
basis should any computer application malfunction on or after January 1, 2000.
Capital Bank has budgeted $43,000 for the Year 2000 program and has spent
approximately $12,000 to date.
As a lending institution, Capital Bank is exposed to potential risk if
borrowers suffer Year 2000 related difficulties and are unable to repay their
loans. In July 1998, Capital Bank sent informational material and a Year 2000
questionnaire to all large borrowers which focuses on their Year 2000 readiness.
During the third quarter 1998, Capital Banks' loan officers and account managers
met with these customers to personally review the answers to these
questionnaires and to discuss the impact of the Year 2000 on their operations.
Capital Bank is currently evaluating the information obtained from these
meetings in order to determine what impact, if any, the Year 2000 will have on
their financial performance and their ability to make loan payments. Thus far
none of Capital Bank's borrowers have reported the expectation of material
adverse impacts as a result of the Year 2000 issue.
Based on the information now available, Capital Bank anticipates that the
systems it uses will properly process dates in the year 2000 and beyond and that
the costs incurred in achieving full Year 2000 compliance will not be material
to Capital Bank's business, financial condition or results of operation.
PROPERTIES
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The following table sets forth the location and other related information
regarding Capital Bank's offices and other properties occupied as of September
30, 1998.
Offices Location Status
------- -------- ------
Main Office 4400 Falls of Neuse Road Leased
Raleigh, North Carolina
Cary Office 915 North Harrison Avenue Owned
Cary, North Carolina
Cary Office 1201 Kildaire Farm Road Leased real property,
Cary, North Carolina owned improvements
Sanford Office 2800 Williams Street Leased
Sanford, North Carolina
Sanford Office 130 North Steele Street Leased
Sanford, North Carolina
EMPLOYEES
At September 30, 1998, Capital Bank had 46 full-time equivalent employees.
None of its employees is represented by any collective bargaining unit. Capital
Bank considers relations with its employees to be good.
LEGAL PROCEEDINGS
In the normal course of its operations, Capital Bank from time to time is
party to various legal proceedings. Based upon information currently available,
and after consultation with its counsel, management believes that such legal
proceedings, in the aggregate, will not have a material adverse effect on
Capital Bank's business, financial position or results of operations.
MANAGEMENT AND CERTAIN TRANSACTIONS
EXECUTIVE COMPENSATION. The following tables set forth a summary of
compensation of Capital Bank's Chief Executive Officer ("CEO") in fiscal year
1997. No other executive officer earned in excess of $100,000 in salary and
bonus during Capital Bank's first fiscal year. Capital Bank began operations in
June 1997, although prior thereto (commencing in late January 1997) the CEO
performed services for Capital Bank's predecessor in interest from whom he
received compensation which was reimbursed by Capital Bank to its predecessor;
accordingly, the compensation recorded below is not for a full fiscal year.
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION COMPENSATION
------------------- ------------ ------------
NO. OF
NAME AND OTHER SECURITIES
PRINCIPAL ANNUAL UNDERLYING
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- -------- ---- ------ ----- ------------ ----------
James A.
Beck,
President
and CEO 1997 $121,875 $50,000 (1) 25,000(2) $8,011(3)
- ------------------
(1) Perquisites and other personal benefits received did not exceed the lesser
of $50,000 or 10% of salary and bonus compensation.
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(2) On January 27, 1997, Mr. Beck was granted an option to acquire up to
25,000 shares of Common Stock at $11.00 per share, 9,000 shares of which
are currently vested, with the balance vesting in increments of 4,000
shares per year over the ensuing four years. Such options were granted
under Capital Bank's Incentive Stock Option Plan.
(3) Includes $3,311 for health, life and long-term disability insurance,
$2,600 in 401(k) contributions and $2,100 in membership dues.
OPTION GRANTS IN THE 1997 FISCAL YEAR
The following table reflects the stock options granted to date by Capital
Bank to the named executive officer pursuant to Capital Bank's Incentive Stock
Option Plan in 1997, which is the first fiscal year of Capital Bank's
operations. The table sets forth the hypothetical potential realizable values
that would exist for the options at the end of their ten-year terms, at assumed
rates of stock price appreciation of 5% and 10%. The amounts shown as potential
realizable values represent the corresponding increases in the market value of
all outstanding shares of Common Stock. The actual value of the options will
depend on the market value of Capital Bank's Common Stock. No gain to the option
holders is possible without an increase in the stock price, which will benefit
all shareholders proportionately. These potential realizable values, based on 5%
and 10% appreciation rates prescribed by the FDIC, are not intended to forecast
possible future appreciation, if any, of Capital Bank's stock price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
---------------------------------------------------------------------
% OF TOTAL
NO. OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE EXPIRATION
NAME GRANTED YEAR PER SHARE DATE 5% 10%
- ---- ------- ---- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
James A. Beck 25,000 (2) 59.5% $11.00 2007 $412,500 $550,000
</TABLE>
- ---------------
(1) Potential realizable value of each grant is calculated assuming that the
market price of the underlying security appreciates at annualized rates of
5% and 10%, respectively, over the ten-year term of the grant. The assumed
annual rates of appreciation of 5% and 10% would result in the value of
the Common Stock increasing to $16.50 and $22.00 per share.
(2) See footnote (2) to the Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
The following table sets forth certain information concerning options to
purchase Common Stock held by Mr. Beck during the year ended December 31, 1997
and the value of unexercised options as of December 31, 1997.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL "IN-THE-MONEY" OPTIONS AT
YEAR-END FISCAL YEAR-END
NAME (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- --------------------------- ---------------------------
James A. Beck 9,000/16,000 $18,000/$32,000
- ---------------
(1) No options were exercised by the CEO in the last fiscal year.
(2) Options are "In-The-Money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The value of the
options is calculated by subtracting the exercise price from $13.00, the
closing market price
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of the underlying Common Stock as of December 31, 1997, and multiplying
the difference by the number of securities underlying the options.
EMPLOYMENT AGREEMENT. Under an employment agreement effective January 27,
1997, James A. Beck agreed to serve as President and Chief Executive Officer of
Capital Bank at an annual salary of $130,000, subject to increase in an amount
to be determined by Capital Bank's Board of Directors. Mr. Beck received a cash
bonus of $50,000 upon signing his employment agreement. Pursuant to the terms of
his employment agreement, Mr. Beck was granted an option to acquire up to 25,000
shares of Common Stock at $11.00 per share, 9,000 shares of which are currently
vested, with the balance vesting in increments of 4,000 shares per year over the
next four years. Mr. Beck will be eligible for performance bonuses and other
benefits available to executives of Capital Bank. The term of his employment is
three years, annually renewable for successive three year periods unless Capital
Bank furnishes 60 days prior written notice to Mr. Beck before an anniversary
date of the agreement, in which event Mr. Beck would be entitled to his salary
and bonus for the remaining term. Capital Bank may terminate Mr. Beck's
employment for cause, in which event Capital Bank would be required to pay only
Mr. Beck's compensation due at termination. Upon a change in control of Capital
Bank, Mr. Beck is entitled to compensation equal to three years' salary and
bonus. Mr. Beck has also agreed that during his employment and for two years (or
longer in certain cases) thereafter, he will not compete with Capital Bank
within its then existing areas of operation.
CERTAIN TRANSACTIONS. Certain of the directors and executive officers of
Capital Bank are customers of and borrowers from Capital Bank in the ordinary
course of business. As of December 31, 1997, loans outstanding to directors and
executive officers of Capital Bank, and their associates as a group, equaled
approximately $3.2 million and during 1997 did not exceed $5.0 million at any
time. Total individual and corporate obligations, direct and indirect, for any
one director did not exceed 10% of the equity capital of Capital Bank at any
time during fiscal 1997. All outstanding loans and commitments included in such
transactions are made substantially on the same terms, including rate and
collateral, as those prevailing at the time in comparable transactions with
other customers. In the opinion of management, these loans do not involve more
than normal risk of collectibility, or contain other unfavorable features.
Capital Bank has had, and expects to have in the future, banking
transactions in the ordinary course of its business with directors, officers and
principal shareholders of Capital Bank, and their associates, on the same terms
including interest rates and collateral on loans, as those prevailing at the
same time for comparable transactions with others.
Capital Bank reimbursed certain members of the Board of Directors for the
expenses incurred by them in connection with the organization of Capital Bank in
June 1997. The directors were the guarantors under a line of credit in the
amount of $600,000 from Centura Bank to NB Acquisition Corp., an entity
established by one of the directors prior to the formation of Capital Bank. NB
Acquisition Corp., in turn, loaned such funds to Capital Bank for the payment of
organizational expenses. Capital Bank has repaid NB Acquisition Corp. and NB
Acquisition Corp. has, in turn, repaid the loan from Centura Bank, in accordance
with its terms. The directors have also been released as guarantors.
Capital Bank purchased a computer network, which consists of hardware and
software, from Alphanumeric Systems, Inc., a company owned and operated by
Darleen Johns, a member of the Board of Directors. Prior to the purchase,
Capital Bank reviewed proposals from Alphanumeric Systems, Inc. and two other
competitors and selected Alphanumeric Systems, Inc.'s proposal based on
competitive factors. Alphanumeric Systems, Inc. also provides maintenance for
Capital Bank's computer network and Capital Bank anticipates purchasing on a
competitive basis additional hardware and software from time to time. The
aggregate amount of all payments made by Capital Bank to Alphanumeric Systems in
1997 equaled approximately $248,000.
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Davidson, Jones & Beers Company, a construction firm located in Raleigh,
North Carolina, of which Robert L. Jones, a director of Capital Bank, is
Chairman of the Board, has been engaged by Capital Bank to construct
improvements to certain of Capital Bank's offices. In 1997, Capital Bank paid
Davidson, Jones & Beers Company approximately $64,000 for such services. Capital
Bank believes that the fees paid to Davidson, Jones & Beers Company are
comparable to market rates charged in arms-length transactions, based on
management's knowledge of, and familiarity with, the construction markets in its
areas of operation.
O.A. Keller, III, the Chairman of the Board of Capital Bank, is the
father-in-law of Stephen T. Parascandola, who is an associate at the law firm
that serves as principal outside counsel to Capital Bank. In 1997, Capital Bank
paid legal fees to such firm for services rendered in 1996 and 1997 in the
aggregate amount of approximately $115,000, net of expenses associated with
Capital Bank's initial public offering of Common Stock paid from the proceeds of
such offering.
SECURITY OWNERSHIP OF MANAGEMENT
The following table set forth certain information as of September 30, 1998
regarding shares of Common Stock of Capital Bank owned of record or known by
Capital Bank to be owned beneficially by (i) each director, (ii) each executive
officer named in the Summary Compensation Table on page ___ and (iii) all
directors and executive officers as a group. Except as set forth in the
footnotes, the persons listed below have sole voting and investment power with
respect to all shares of Common Stock owned by them, except to the extent that
such power may be shared with a spouse. The mailing address of each of the
directors and executive officers is in care of the Capital Bank 's address.
There are no shareholders known to Capital Bank who own in excess of five
percent of the Common Stock as of September 30, 1998.
Beneficial Ownership (1)
------------------------
Name No. of Shares Percent of Class
---- ------------- ----------------
Charles F. Atkins (2) 64,500 2.6%
Lamar Beach (3) 11,300 *
James A. Beck(4) 22,500 *
William C. Burkhardt(5) 28,000 1.1%
L. I. Cohen, Jr. (6) 51,000 2.0%
David J. Gospodarek 5,500 *
Carolyn W. Grant (7) 9,600 *
Darleen M. Johns 7,500 *
Robert L. Jones 12,500 *
O. A. Keller, III (8) 47,500 1.9%
Oscar A. Keller, Jr. (9) 47,750 1.9%
Vernon Malone 2,650 *
George R. Perkins, III
(10) 43,773 1.8%
Donald W. Perry (11) 14,800 *
J. Rex Thomas (12) 6,500 *
Bruce V. Wainright (13) 12,600 *
Samuel J. Wornom, III (14) 30,500 1.2%
All directors and
executive officers as a
group (21 persons) (15) 424,523 16.8%
- ----------
*Less than one percent
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the FDIC. Accordingly, they may include securities owned by
or for, among others, the spouse and/or minor children of the individual
and any other relative who has the same home as such individual, as well
as other securities as to which the
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individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days of September 30,
1998. Beneficial ownership may be disclaimed as to certain of the
securities. In the case of each director named in the table above, the
number of shares shown as beneficially owned includes 2,500 shares of
Capital Bank subject to presently exercisable stock options, except for
Mr. Keller, III and Mr. Keller, Jr., who hold 5,000 and 3,750 shares
subject to presently exercisable options, respectively.
(2) Includes 61,000 shares of Common Stock held by entities for which Mr.
Atkins is an officer and the principal shareholder.
(3) Includes 800 shares of Common Stock held by Mr. Beach's wife.
(4) Includes 500 shares of Common Stock held by Mr. Beck's wife and 12,000
shares held in an Individual Retirement Account. Also includes 9,000
shares of Common Stock subject to options.
(5) Includes 500 shares of Common Stock held by Mr. Burkhardt's wife.
(6) Includes 22,250 shares of Common Stock held by Mr. Cohen's wife and 4,500
shares held in the Profit Sharing Plan of Lee Iron & Metal Co., a company
in which Mr. Cohen is the principal shareholder. Mr. Cohen and his wife
serve as co-trustees of such Profit Sharing Plan.
(7) Includes 100 shares of Common Stock held by Ms. Grant's child and 3,875
shares held in an Individual Retirement Account.
(8) Includes 18,000 shares of Common Stock held jointly with Mr. Keller's
wife, 20,000 shares held in Individual Retirement Accounts and 4,000
shares held by Mr. Keller's children and grandchildren. Oscar A.
Keller, Jr. is the father of O. A. Keller, III.
(9) Includes 21,500 shares of Common Stock held jointly with Mr. Keller's wife
and 21,500 held by an entity in which Mr. Keller is an officer and
principal shareholder.
(10) Includes 14,000 shares owned by Mr. Perkins' father over which Mr.
Perkins, III has voting and investment power.
(11) Includes 9,000 shares held jointly with Mr. Perry's wife and 2,300 shares
held by his children.
(12) Includes 1,000 shares of Common Stock held by a child of Mr. Thomas.
(13) Includes 100 shares of Common Stock held by Dr. Wainright's wife.
(14) Includes 1,000 shares of Common Stock held in a trust for the benefit of
Mr. Wornom's grandchild, for which Mr. Wornom serves as a trustee, and
1,000 shares held by a child of Mr. Wornom.
(14) Includes the shares of Common Stock beneficially owned by the directors of
Capital Bank and by four executive officers of Capital Bank who are not
also directors. Also includes 54,550 shares of Common Stock subject to
options.
INFORMATION ABOUT HOME SAVINGS
Home Savings was organized as a North Carolina mutual savings and loan
association in 1950 under the name Home Savings and Loan Association and
converted from mutual to stock form on November 14,
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1995. Deposits in Home Savings are insured by the FDIC. Home Savings is
engaged primarily in the business of attracting deposits from the
general public and using such deposits to make mortgage loans secured by
residential real estate. Home Savings also makes second mortgage loans
secured by the equity in a home, commercial real estate loans, savings
account loans and other loans. Home Savings' primary sources of revenue
are interest income from its real estate lending activities, consisting
primarily of making first mortgage loans for the purchase and
refinancing of residential real property. Substantially all of Home
Savings' lending and deposit activities are conducted in eastern
Randolph County and Chatham County out of its home office.
At June 30, 1998, Home Savings had total assets of approximately $59
million, total deposits of approximately $48 million and total shareholders'
equity of approximately $10 million.
ADDRESS. The principal and only office of Home Savings is located at
300 East Raleigh Street, Siler City, North Carolina 27344. Its telephone
number is (919) 742-4186.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF. As of September 30,
1998, the shareholders identified in the following table beneficially owned more
than 5% of Home Savings' common stock.
AMOUNT
AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------------- ---------- --------
First Citizens BancShares, Inc.,
Raleigh, North Carolina, Lewis R.
Holding, Frank B. Holding and certain
members of Frank B. Holding's family 71,800 7.78%
Edwin E. Bridges, Siler City, North
Carolina 49,465* 5.31%
* See footnote (4) below.
As of September 30, 1998, the beneficial ownership of Home Savings' common
stock by directors individually, and by directors and executive officers as a
group, was as follows:
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------------ ---------------- ---------
Jennie T. Bridgers 13,371(3) 1.45%
Edwin E. Bridges 49,465(4) 5.31%
Ben S. Foust 2,550(3) (**)
John F. Grimes 6,150(5) (**)
Ed M. Harris, Jr. 12,150(3) 1.31%
Jack L. Tanner (*) 13,150(6) 1.42%
F. Lafayette Wrenn, Sr. 14,650(3) 1.59%
Dr. Grover C. Wrenn (*) 11,150(7) 1.21%
All directors and executive
officers as a group (8
persons) 122,636 13.01%
(*) Dr. Wrenn and Mr. Tanner are brothers-in-law.
(**) Less than 1% of outstanding shares.
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(1) Except as otherwise noted, each individual exercises sole voting and
investment power with respect to all shares shown as beneficially owned.
Does not include 922 unvested shares for each non-officer director and
5,378 unvested shares for Mr. Bridges granted, subject to a five year
vesting schedule of 20% each year which commenced on July 17, 1997,
pursuant to the Bank's 1995 Management Recognition Plan.
(2) The calculations of the percentage of class beneficially owned by each
individual and the group as a whole are based, in each case, on a total of
942,401 shares which includes the 922,686 shares of Common Stock that were
issued and outstanding as of the Record Date plus the number of shares
subject to stock options exercisable as of the Record Date or within 60
days thereafter held by each respective individual or group.
(3) Includes 1,536 shares subject to currently exercisable stock options.
(4) Includes 17,688 shares allocated to Mr. Bridges' ESOP account to which he
exercises sole voting power and 8,963 shares subject to currently
exercisable stock options.
(5) Includes 3,000 shares with respect to which Mr. Grimes exercises shared
voting and investment power and 1,536 shares subject to currently
exercisable stock options.
(6) Includes 2,000 shares with respect to which Mr. Tanner exercises shared
voting and investment power and 1,536 shares subject to currently
exercisable stock options.
(7) Includes 8,500 shares with respect to which Dr. Wrenn exercises shared
voting and investment power and 1,536 shares subject to currently
exercisable stock options.
BUSINESS. Home Savings is engaged primarily in the business of attracting
deposits from the general public and using such deposits to make mortgage loans
secured by residential real estate. Home Savings also makes second mortgage
loans secured by the equity in a home, commercial real estate loans, savings
account loans and other loans. Home Savings' primary sources of revenue are
interest income from its real estate lending activities, consisting primarily of
making first mortgage loans for the purchase or refinancing of residential real
property located primarily in Chatham County and eastern Randolph County, North
Carolina. Home Savings also earns revenues from interest on other loans,
interest and dividend income from investments, and fees from lending and deposit
activities. The major expenses of Home Savings are interest on deposits and
general administrative expenses such as salaries, employee benefits, federal
deposit insurance premiums and office occupancy and related expenses.
Home Savings' market area can be characterized as primarily rural in
nature. The economy in this area is diverse, with such major industries as
textiles, furniture, food processing, hosiery and agriculture. Because no one
industry dominates the local economy, it can be classified as relatively stable.
Consistent with Home Savings' emphasis on being a community-oriented financial
institution, management estimates that substantially all of Home Savings'
deposits were provided by residents in this two-county area and substantially
all of its loans were secured by property located in the same area.
Home Savings operates one full-service office which is located at 300 East
Raleigh Street in Siler City. There are no plans for expansion.
Home Savings has one subsidiary, Home S&L Service Corporation (the
"Subsidiary"), established in 1983 for the purpose of offering discount
brokerage services. The Subsidiary is presently inactive, and Home Savings
presently does not offer such services.
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The business of banking in Chatham County, and in North Carolina as a
whole, is extremely competitive with the state laws permitting state-wide
branching. Home Savings competes directly for deposits in its market area with
other savings institutions, commercial banks, credit unions, brokerage firms and
all other organizations and institutions engaged in money market transactions.
In its lending activities, Home Savings competes with all other financial
institutions, as well as consumer finance companies, mortgage companies and
other lenders engaged in the business of extending credit.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office locations,
office hours, customer service, community reputation and continuity of personnel
are also important competitive factors. Home Savings' predominant competitors
have greater resources, broader geographic markets and higher lending limits.
They can offer more products, and can better afford and make more effective use
of media advertising, support services and electronic technology than Home
Savings. Home Savings depends on its reputation as a community bank in its local
market, direct customer contact, its ability to make credit and other business
decisions locally, and personalized service to counter these competitive
disadvantages. With respect to deposits, Home Savings' primary competitors are
four of North Carolina's largest commercial banks, each with a significant
state-wide presence. The market share of deposits of Home Savings during the
three years ended September 30, 1996 has steadily decreased. Home Savings is
predominately a mortgage lending financial institution that funds its loans with
savings deposits and finds it difficult to compete with larger commercial
banking institutions in its market that offer similar products as well as a full
range of commercial and retail banking products.
Home Savings is periodically assessed insurance premiums by the FDIC in
connection with the insurance of deposits. Home Savings is required under North
Carolina law to maintain deposit insurance with the FDIC. Home Savings'
assessment for the fiscal year ended September 30, 1997 was approximately
$______. This insurance assessment may be increased within certain parameters
established by FDIC's bank rating system.
As of September 30, 1998, Home Savings employed 10 full-time employees.
Home Savings is not a party to a collective bargaining agreement, and considers
its relations with employees to be good.
PROPERTIES. Home Savings owns its office building, which is located at 300
East Raleigh Street, Siler City, North Carolina. The net book value of the
property at June 30, 1997 was $270,248.
LEGAL PROCEEDINGS. There are no material pending legal proceedings to
which Home Savings is a party or of which any of its property is the subject,
other than ordinary routine litigation incidental to its business.
REGULATION AND SUPERVISION
Capital Bank is extensively regulated under both federal and state law.
Generally, these laws and regulations are intended to protect depositors and
borrowers, not shareholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in applicable law or regulation may have a material effect on the business of
Capital Bank Corporation, Capital Bank and/or Home Savings.
STATE LAW. Capital Bank is subject to extensive supervision and regulation
by the North Carolina Commissioner of Banks (the "Commissioner"). The
Commissioner oversees state laws that set specific requirements for bank capital
and regulate deposits in, and loans and investments by, banks, including the
amounts, types, and in some cases, rates. The Commissioner supervises and
performs periodic examinations of North Carolina-chartered banks to assure
compliance with state banking statutes and regulations, and Capital Bank is
required to make regular reports to the Commissioner describing in detail the
resources, assets,
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liabilities and financial condition of Capital Bank. Among other things, the
Commissioner regulates mergers and consolidations of state-chartered banks, the
payment of dividends, loans to officers and directors, record keeping, types and
amounts of loans and investments, and the establishment of branches.
DEPOSIT INSURANCE. As a member institution of the Federal Deposit
Insurance Corporation ("FDIC"), Capital Bank's deposits are insured up to a
maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"),
administered by the FDIC, and each member institution is required to pay
semi-annual deposit insurance premium assessments to the FDIC. The BIF
assessment rates have a range of 0 cents to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.
CAPITAL REQUIREMENTS. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain
U.S. Treasury securities, to 100% for assets with relatively high credit risk,
such as business loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which include off balance sheet items,
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. "Tier 1," or core capital,
includes common equity, qualifying noncumulative perpetual preferred stock and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangibles, subject to certain exceptions. "Tier 2," or
supplementary capital, includes among other things, limited-life preferred
stock, hybrid capital instruments, mandatory convertible securities, qualifying
subordinated debt, and the allowance for loan and lease losses, subject to
certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of the
federal banking agencies. Banks and bank holding companies subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
June 30, 1998, Capital Bank was classified as "well-capitalized" with Tier 1 and
Total Risk - Based Capital of 37.74% and 39.03% respectively.
The federal banking agencies have adopted regulations specifying that they
will include, in their evaluations of a bank's capital adequacy, an assessment
of the bank's interest rate risk ("IRR") exposure. The standards for measuring
the adequacy and effectiveness of a banking organization's interest rate risk
management include a measurement of board of director and senior management
oversight, and a determination of whether a banking organization's procedures
for comprehensive risk management are appropriate to the circumstances of the
specific banking organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under "Federal Deposit Insurance Corporation Improvement Act
of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of Capital Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the shareholders.
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FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In
December, 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
significant revisions to several other federal banking statutes. FDICIA provides
for, among other things, (i) publicly available annual financial condition and
management reports for certain financial institutions, including audits by
independent accountants, (ii) the establishment of uniform accounting standards
by federal banking agencies, (iii) the establishment of a "prompt corrective
action" system of regulatory supervision and intervention, based on
capitalization levels, with greater scrutiny and restrictions placed on
depository institutions with lower levels of capital, (iv) additional grounds
for the appointment of a conservator or receiver, and (v) restrictions or
prohibitions on accepting brokered deposits, except for institutions which
significantly exceed minimum capital requirements. FDICIA also provides for
increased funding of the FDIC insurance funds and the implementation of
risk-based premiums.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
MISCELLANEOUS. The dividends that may be paid by Capital Bank are subject
to legal limitations. In accordance with North Carolina banking law, dividends
may not be paid unless Capital Bank's capital surplus is at least 50% of its
paid-in capital. In addition, Capital Bank may not, in any case, pay any
dividends during its first three years of operation. See "Comparison of the
Rights of Shareholders - Comparison of the Rights of Holders of Capital Bank
Common Stock and Capital Bank Corporation Common Stock - Payment of Dividends."
Shareholders of banks may be compelled by bank regulatory authorities to
invest additional capital in the event their bank's capital shall have become
impaired by losses or otherwise. Failure to pay such an assessment could result
in a forced sale of a shareholder's bank stock.
The earnings of Capital Bank will be affected significantly by the
policies of the Federal Reserve, which is responsible for regulating the United
States money supply in order to mitigate recessionary and inflationary
pressures. Among the techniques used to implement these objectives are open
market transactions in United States government securities, changes in the rate
paid by banks on bank borrowings, and changes in reserve requirements against
bank deposits. These techniques are used in varying combinations to influence
overall growth and distribution of bank loans, investments, and deposits, and
their use may also affect interest rates charged on loans or paid for deposits.
The monetary policies of the Federal Reserve have had significant effect
on the operating results of commercial banks in the past and are expected to
continue to do so in the future. In view of changing conditions in the national
economy and money markets, as well as the effect of actions by monetary and
fiscal
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authorities, no prediction can be made as to possible future changes in interest
rates, deposit levels, loan demand or the business and earnings of Capital Bank.
Capital Bank cannot predict what legislation might be enacted or what
regulations might be adopted, or if enacted or adopted, the effect thereof on
Capital Bank's operations.
REGULATION OF HOLDING COMPANY
FEDERAL REGULATION. Following consummation of the Holding Company
Reorganization, Capital Bank Corporation will be subject to examination,
regulation and periodic reporting under the BHC Act, as administered by the
Federal Reserve. The Federal Reserve has adopted capital adequacy guidelines for
bank holding companies on a consolidated basis.
Capital Bank Corporation will be required to obtain the prior approval of
the Federal Reserve to acquire all, or substantially all, of the assets of any
bank or bank holding company. Prior Federal Reserve approval will be required
for Capital Bank Corporation to acquire direct or indirect ownership or control
of any voting securities of any bank or bank holding company if, after giving
effect to such acquisition, it would, directly or indirectly, own or control
more than five percent of any class of voting shares of such bank or bank
holding company.
Capital Bank Corporation will be required to give the Federal Reserve
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of Capital Bank
Corporation's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would constitute an
unsafe and unsound practice, or would violate any law, regulation, Federal
Reserve order or directive, or any condition imposed by, or written agreement
with, the Federal Reserve. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the Federal Reserve, that has received a composite "1" or "2"
rating at its most recent bank holding company inspection by the Federal
Reserve, and that is not the subject of any unresolved supervisory issues.
The status of Capital Bank Corporation as a registered bank holding
company under the BHC Act will not exempt it from certain federal and state laws
and regulations applicable to corporations generally, including, without
limitation, certain provisions of the federal securities laws.
In addition, a bank holding company is prohibited generally from engaging
in, or acquiring five percent or more of any class of voting securities of any
company engaged in, non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities that the Federal Reserve has determined by
regulation to be so closely related to banking as to be a proper incident
thereto are: (i) making or servicing loans; (ii) performing certain data
processing services; (iii) providing discount brokerage services; (iv) acting as
fiduciary, investment or financial advisor; (v) leasing personal or real
property; (vi) making investments in corporations or projects designed primarily
to promote community welfare; and (vii) acquiring a savings and loan
association.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would be applicable to the extent
that Capital Bank Corporation maintains as a separate subsidiary a depository
institution, such as Home Savings, in addition to Capital Bank.
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Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit on
behalf of, the bank holding company or its subsidiaries, and on the investment
in or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and Federal Reserve regulations limit the amounts of, and establish
required procedures and credit standards with respect to, loans and other
extensions of credit to officers, directors and principal stockholders of
Capital Bank, Capital Bank Corporation, any subsidiary of Capital Bank
Corporation and related interests of such persons. Moreover, subsidiaries of
bank holding companies are prohibited from engaging in certain tie-in
arrangements (with the holding company or any of its subsidiaries) in connection
with any extension of credit, lease or sale of property or furnishing of
services.
STATE SAVINGS BANK REGULATION. As a state-chartered savings bank whose
deposits are insured by the FDIC, Home Savings is subject to supervision,
examination and regulation by the North Carolina Savings Administrator and the
FDIC. While Home Savings is not a member of the Federal Reserve System, Home
Savings is also subject to certain regulations of the Federal Reserve. The
regulations of these agencies govern most aspects of Home Savings' business,
including capital adequacy ratios, reserves against deposits, restrictions on
the rate of interest which may be paid on some deposit instruments, limitations
on the nature and amount of borrowings, dividends, loans that may be made, the
location of branch offices and the nature and scope of Home Savings' activities.
Supervision, regulation and examination of Home Savings by the regulatory
agencies are generally intended to protect depositors and are not intended for
the protection of Home Savings' shareholders.
BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle Act"), the Federal Reserve may approve bank holding company
acquisitions of banks in other states, subject to certain aging and deposit
concentration limits. As of June 1, 1997, banks in one state may merge with
banks in another state, unless the other state has chosen not to implement this
section of the Riegle Act. These mergers are also subject to similar aging and
deposit concentration limits.
North Carolina "opted-in" to the provisions of the Riegle Act. Since July
1, 1995, an out-of-state bank that did not already maintain a branch in North
Carolina was permitted to establish and maintain a de novo branch in North
Carolina, or acquire a branch in North Carolina, if the laws of the home state
of the out-of-state bank permit North Carolina banks to engage in the same
activities in that state under substantially the same terms as permitted by
North Carolina. Also, North Carolina banks may merge with out-of-state banks,
and an out-of-state bank resulting from such an interstate merger transaction
may maintain and operate the branches in North Carolina of a merged North
Carolina bank, if the laws of the home state of the out-of-state bank involved
in the interstate merger transaction permit interstate merger.
RECENT LEGISLATIVE DEVELOPMENTS
On September 30, 1996, President Clinton signed the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the "Growth Act"), which contained a
comprehensive approach to recapitalize the FDIC's Savings Association Insurance
Fund (the "SAIF") and to assure payment of the Financing Corporation (the
"FICO") obligations. Most of Capital Bank's deposits are insured by the FDIC's
Bank Insurance Fund (the "BIF"). Under the Growth Act, banks with deposits that
are insured under the BIF are required to pay a portion of the interest due on
bonds that were issued by FICO to help shore up the ailing Federal Savings and
Loan Insurance Corporation in 1987. The Growth Act stipulates that the BIF
assessment rate to contribute toward the FICO obligations must be equal to
one-fifth the SAIF assessment rate through year-end 1999, or until the insurance
funds are merged, whichever occurs first. The amount of FICO debt service to be
paid by all BIF-insured institutions is approximately $0.0126 per $100 of
BIF-insured deposits for each year from 1997 through 1999 when the obligation of
BIF-insured institutions increases to approximately $0.0240 per $100 of
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<PAGE>
BIF-insured deposits per year through the year 2019, subject in all cases to
adjustments by the FDIC on a quarterly basis. The Growth Act also contained
provisions protecting banks from liability for environmental clean-up costs;
prohibiting credit unions sponsored by Farm Credit System banks; easing
application requirements for most bank holding companies when they acquire a
thrift or a permissible non-bank operation; easing Fair Credit Reporting Act
restrictions between bank holding company affiliates; and reducing the
regulatory burden under the Real Estate Settlement Procedures Act, the
Truth-in-Savings Act, the Truth-in-Lending Act and the Home Savings Mortgage
Disclosure Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF CAPITAL BANK
OVERVIEW
Capital Bank was incorporated under the laws of North Carolina on May 30,
1997 and commenced banking operations on June 20, 1997. Its initial stock
offering resulted in gross proceeds to the Bank of more than $27 million. On
June 20, 1997, Capital Bank opened its main office in Raleigh, North Carolina,
and acquired two branch locations in Sanford, North Carolina from another
financial institution, including the deposits and selected loans of those
branches. On December 1, 1997, Capital Bank announced an agreement in principle
to purchase two branch facilities in Cary, North Carolina from Branch Banking
and Trust Company ("BB&T"). In March 1998, Capital Bank purchased the real
property and improvements associated with one of these facilities and opened it
for business on March 23, 1998. On June 5, 1998 Capital Bank assumed the land
lease and purchased the improvements associated with the other facility, which
opened for business in September 1998. There were no deposits or loans acquired
by Capital Bank in connection with these facilities.
Capital Bank is a full-service community bank. Its profitability depends
principally upon its net interest income, provision for loan losses, noninterest
income and noninterest expenses.
INTERIM PERIOD ENDED JUNE 30, 1998
FINANCIAL CONDITION. Total assets of Capital Bank for the quarter ended
June 30, 1998 were $85.3 million, an increase of 24% compared to December 31,
1997. On June 30, 1998, loans were $53.2 million, up $26.1 million or 96%
compared to December 31, 1997. Investment securities were $21.0 million, and
Federal funds sold were $4.3 million at period end. During the first half of
1998, Federal Funds sold declined by $12.5 million as this asset category was
redeployed into higher yielding loans and securities. The allowance for loan
losses on June 30, 1998 was $766,000 and stood at 1.43% of total loans.
Management believes that the amount of the allowance is adequate at this time.
Deposits on June 30, 1998 were $60.3 million, an increase of $16.9 million
or 39% from December 31, 1997. Earning assets represented 92% of total assets on
both June 30, 1998 and December 31, 1997. Total stockholders' equity was $24.4
million at June 30, 1998.
RESULTS OF OPERATIONS. Capital Bank incurred a net loss for the quarter
ended June 30, 1998 of $316,000 or $.13 a share compared to a loss of $28,000 or
$.01 per share in the second quarter of 1997. It should be noted that Capital
Bank opened for business on June 20, 1997 and that the 1997 results of
operations only reflect the ten day period from June 20 through June 30.
Management believes that operating losses are typical for a newly organized
bank. It is expected that the amount of the loss should moderate over time as
Capital Bank continues to grow.
Net interest income in the second quarter was $786,000, up 21 % compared
to $648,000 in the first quarter of 1998. Capital Bank's net interest margin
(net interest income as a percent of average earning assets) was 4.05% in the
second quarter of 1998 compared to 4.00% in the first quarter of 1998.
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<PAGE>
The provision for loan losses was $171,000 for the second quarter of 1998.
This provision was used to build the allowance for loan losses to a prudent
level to support Capital Bank's actual and anticipated loan growth. At June 30,
1998, the allowance for loan losses was 1.43% of total loans.
Noninterest income for the second quarter was $123,000 compared to $61,000
in the first quarter. The increase in non-interest income is attributable to
mortgage origination fees and loan servicing fees associated with accounts
receivable financing. These two business activities were new revenue sources in
the second quarter.
Noninterest expense was $1,054,000 for the second quarter compared with
$834,000 in the first quarter. Salaries and employee benefits represented the
largest expense category as Capital Bank must maintain adequate staffing levels
in order to meet customer needs and to keep pace with its expected growth. The
increase in second quarter operating expense is primarily associated with
opening of a new branch and starting a mortgage origination department. Although
management expects noninterest expense to increase on an absolute basis as
Capital Bank continues its growth, these expenses as a percentage of asset size
and operating revenue are anticipated to decrease over time. Also included in
the second quarter results is the effect of the initial expenditures for the
building and equipment at our new branch which will open in the third quarter.
These costs will not be recovered until the branch can produce the level of
deposits and loans necessary to contribute to the profitability of Capital Bank.
LIQUIDITY AND CAPITAL RESOURCES. Capital Bank's liquidity management
involves planning to meet Capital Bank's anticipated funding needs at a
reasonable cost. Liquidity management is guided by policies formulated by
Capital Bank's senior management and the Asset/Liability Management Committee of
the Board. Capital Bank had $6.9 million in its most liquid assets, cash and
cash equivalents at quarter end. Capital Bank's principal sources of funds are
deposits, short term borrowings and capital. Core deposits (total deposits less
certificates of deposits in the amount of $100,000 or more), one of the most
stable sources of liquidity, together with equity capital funded 91.4% of total
assets at June 30, 1998. In addition, Capital Bank has $7.4 million line of
credit with Federal Home Loan Bank of Atlanta and has the ability to take
advantage of various funding programs available from that resource.
Shareholders' equity was $24.4 million or $9.84 per share at June 30,
1998. Management believes this level of shareholders' equity provides adequate
capital to support Capital Bank's growth for the next 12 months and to maintain
a well-capitalized position. At June 30, 1998, Capital Bank had a leverage ratio
of 28.5%, a Tier I capital ratio of 51.6%, and a total risk-based capital ratio
of 38.9%. These ratios far exceed the federal regulatory minimum requirements
for a "well-capitalized" bank. Management's challenge is to use this capital to
implement a prudent growth strategy of branch and bank acquisitions while
growing the existing branch structure through quality service and responsiveness
to its customers' needs, although there is no assurance that Capital Bank will
meet these objectives.
PERIOD ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS. Capital Bank reported a net loss from operations of
$722,000 or $.29 per share in 1997. It is generally expected that a new bank in
its start-up phase will operate at a loss and that the amount of the loss should
moderate over time as the bank continues to grow. The amount of the 1997
operating loss was in line with management expectations. The operating loss in
the third quarter ended September 30, 1997 was $382,000, or $.15 per share and
the operating loss in the fourth quarter ended December 31, 1997 was $312,000,
or $.13 per share. Both of these quarterly amounts were also in line with
management expectations.
NET INTEREST INCOME. Net interest income is the difference between total
interest income and total interest expense and is Capital Bank's principal
source of earnings. The amount of net interest
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<PAGE>
income is determined by the volume of interest-earning assets, the level of
rates earned on those assets, and the cost of supporting funds. The difference
between rates earned on interest earning assets and the cost of supporting funds
is measured by the net interest margin. During 1997, average earnings were
$50,951,000 and the net interest margin was 4.24%.
PROVISION FOR LOAN LOSSES. The provision for loan losses is the amount
charged against earnings for the purpose of establishing an adequate allowance
for loan losses. Loan losses are, in turn, charged to this allowance rather than
being reported as a direct expense. In 1997, $270,000 was expensed as a loan
loss provision. The amount of the allowance for loan losses is established based
on management's estimate of the inherent risks associated with lending
activities and is regularly reviewed and modified, as necessary. Due to Capital
Bank's limited operating history, this estimate is primarily based on industry
practices and consideration of local economic factors. The allowance for loan
losses was $427,000 on December 31, 1997 and represented approximately 1.58% of
total loans outstanding on that date.
NON-INTEREST INCOME. Non-interest income totaled $146,000 in 1997. Of this
amount, $100,000 was associated with service charges on deposit accounts. There
were no securities gains or losses taken in 1997.
NON-INTEREST EXPENSE. Non-interest expense represents the overhead
expenses of Capital Bank. Management monitors all categories of non-interest
expense in an attempt to improve productivity and operating performance.
Non-interest expense was $1,746,000 for the year ended December 31, 1997. Of
this amount, $816,000 was salary and benefit expense, $161,000 was occupancy
expense, and $328,000 was other operating expenses.
PROVISION FOR INCOME TAXES. No federal or state income tax expense
resulted from the current period due to the generation of net operating losses
and the establishment of a valuation allowance against deferred tax assets.
FINANCIAL CONDITION. Capital Bank's financial condition is measured in
terms of its asset and liability composition, asset quality, capital resources,
and liquidity. The growth and composition of assets and liabilities in the
second half of 1997 reflected generally favorable economic conditions. Capital
Bank is not engaged in investment strategies involving derivative financial
instruments. Asset and liability management is conducted without the use of
forward-based contracts, options, swap Exchange Agreements or other synthetic
financial instruments derived from the value of an underlying asset, reference
rate, or index.
ASSETS. On December 31, 1997 total assets were $68,904,000.
LOAN PORTFOLIO. Total loans were $27,066,000 as of December 31, 1997.
Continued low interest rates during 1997, coupled with strong economic growth in
the greater Raleigh (including Wake County) and Sanford areas, were key factors
in the $15.8 million growth of the loan portfolio in the second half of 1997. At
year end, commercial loans, real estate loans, and consumer loans were $14.7
million, $2.3 million, and $10.0 million, respectively. The commercial loan
portfolio is comprised mainly of loans to small businesses and there were no
significant concentrations of credit.
Although there were no concentrations of credit to any particular
industry, the economic trends of the area served by Capital Bank are influenced
by the significant industries within the region. Virtually all Capital Bank's
business activity is with customers located in Raleigh and Sanford areas. The
ultimate collectibility of Capital Bank's loan portfolio is susceptible to
changes in the market conditions of this geographic region.
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<PAGE>
Capital Bank uses a centralized risk management process to insure uniform
credit underwriting that adheres to Capital Bank policy. Lending policies are
reviewed on a regular basis to confirm that Capital Bank is prudent in setting
its underwriting criteria. Credit risk is managed through a number of methods
including loan grading of commercial loans, committee approval of larger loans,
and class and purpose coding of loans. Management believes that early detection
of credit problems through regular contact with Capital Bank's clients coupled
with consistent reviews of the borrowers' financial condition are important
factors in overall credit risk management.
During 1997, the management charged off $6,000 of loans as uncollectible.
At December 31, 1997 the allowance for loan losses as a percentage of total
loans was 1.58%. Management believes the allowance for loan losses of $427,000
provides adequate coverage of the potential loss exposure in the loan portfolio.
INVESTMENT SECURITIES. Investment securities represent the second largest
component of earning assets. On December 31, 1997, investments, including
securities available for sale and securities held to maturity, totaled
$19,532,000. Of this amount, 58% was classified as "available for sale" with the
remaining 42% classified as "held to maturity." This distribution allows
flexibility in the management of interest rate risk, liquidity, and loan
portfolio growth.
MONEY MARKET INVESTMENTS. At year-end 1997, Capital Bank had $16,787,000
in short-term money market investments.
LIABILITIES. During 1997, Capital Bank relied on deposits and excess
liquidity to fund its earning assets.
DEPOSITS. Total deposits on December 31, 1997 were $43,386,000. Of this
amount, $6,118,000 was in the form of non-interest bearing demand deposits and
$37,268,000 in interest bearing deposits. Balances in certificates of deposit
$100,000 and over were $3,889,000 at year-end.
DEBT. Capital Bank had no short-term or long-term borrowings on December
31, 1997.
CAPITAL RESOURCES. In June 1997, Capital Bank completed its initial public
offering of common stock. The offering, net of issuance costs, raised
$26,042,000. At year-end total shareholders' equity, excluding unrealized gains
(losses) on securities of $5,000 (net of taxes), was $24,951,000. The North
Carolina Banking Commission and the FDIC prohibit the payment of any dividends
during Capital Bank's first three years of operation. Capital Bank did not pay
any dividends to its shareholders in 1997. It is not likely Capital Bank will
declare or pay cash dividends in the foreseeable future since earnings, if any,
would be used to support growth in earning assets and the opening of branch
locations, should such action be pursued. Within the framework established by
federal banking law for regulatory capital requirements, Capital Bank is
categorized as "well capitalized" which is the highest regulatory
classification.
ASSET/LIABILITY MANAGEMENT. Asset/liability management functions to
maximize profitability within established guidelines for interest rate risk,
liquidity, and capital adequacy. Measurement and monitoring of liquidity,
interest rate risk, and capital adequacy are performed centrally through the
Asset/Liability Management Committee, and reported under guidelines established
by management, the Board of Directors and regulators. Oversight on
asset/liability management matters is provided by the Board of Directors through
its Asset/Liability Management Committee.
At December 31, 1997, Capital Bank had $19,428,000, or 28% of total
assets, in its most liquid assets, cash and short-term investments. Capital
Bank's principal sources of funds are deposits and capital. Core deposits (total
deposits less certificates of deposit in denominations of $100,000 or more)
together with equity capital funded 94% of total assets at December 31, 1997.
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<PAGE>
The table below shows the major categories of interest earning assets, and
interest bearing liabilities, the average balance and interest earned or paid,
the average yield/rate on daily average balances outstanding, net interest
earnings and net yields on interest earning assets for the period beginning June
20, 1997 and ending December 31, 1997.
AVERAGE BALANCES, INTEREST EARNED OR PAID, AND INTEREST YIELDS/RATES
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------
Average
Balance Interest Yield/Rate
----------- ----------- ------------
<S> <C> <C> <C>
Securities available for sale $ 5,237 $ 179 6.43%
Securities held to maturity 6,305 214 6.39
Commercial loans 9,282 435 8.82
Consumer loans 6,574 296 8.47
Residential mortgages 1,785 84 8.86
Federal funds sold 20,211 594 5.31
Other 1,557 14 4.59
----------- ----------- ------------
Total interest earning assets 50,951 1,816 6.71%
Cash and due from banks 1,777
Other assets 2,895
Reserve for loan losses (271)
-----------
Total assets $ 55,352
===========
Savings and interest bearing
demand deposits and other $ 8,865 $ 166 3.52%
Time deposits less than $100,000 14,553 440 5.69
Time deposits $100,000 and greater 2,242 63 5.29
----------- ----------- ------------
Total interest bearing liabilities 25,660 669 4.91%
Demand deposits 3,842
Other liabilities 711
-----------
Total liabilities 30,213
Shareholders' equity 25,139
-----------
Total liabilities and shareholders'
equity $ 55,352
===========
Net interest spread $ 1,147 1.80%
Net interest margin 4.24%
</TABLE>
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<PAGE>
INVESTMENT PORTFOLIO
The following table shows the maturities of securities available for sale
and securities held to maturity as of December 31, 1997. Mortgage backed
securities are included in each of the categories based on forecasted average
life. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay these obligations.
SECURITIES AVAILABLE FOR SALE PORTFOLIO DATA
(in thousands)
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years
Amount Yield Amount Yield Amount Yield Total
----------------------------------------------------------- --------
<S> <C> <C> <C> <C> <C>
US Treasury Securities $ 0 - $ 3,014 6.03% $ 0 - $ 3,014
Obligations of US
Government Agencies 0 - 3,006 6.26% 0 - 3,006
Mortgage Backed Securities 0 - 0 -- 5,357 6.55% 5,357
------- ------- --------- -------
$ 0 $ 6,020 $ 5,357 $11,377
======= ======= ========= =======
SECURITIES HELD TO MATURITY PORTFOLIO DATA
(in thousands)
Obligations of US
Government Agencies $ 0 - $ 8,002 6.24% $ 0 - $ 8,002
======== ======= ======= ========= =======
LOAN PORTFOLIO
(in thousands)
The following table shows significant loan categories as of December 31,
1997.
Commercial $ 14,715
Consumer 10,054
Residential mortgages 2,296
-----------
27,065
Less allowance for loan losses 427
-----------
Loans, net $ 26,638
===========
</TABLE>
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The following tables show the amount of commercial loans outstanding as of
December 31, 1997, which mature or reprice within the time frames shown below.
(in thousands)
Commercial loans:
Due within one year $ 8,812
Due one through five years 5,251
Due after five years 652
------------
$ 14,715
============
Commercial loans:
Interest rates are floating
or adjustable $ 8,309
Interest rates are fixed or
predetermined 6,406
------------
$ 14,715
============
On December 31, 1997, there were no non-accruals, past due or restricted
loans. There were no potential problem loans, impaired loans, or foreign loans
outstanding.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table shows changes in the allowance for loan losses arising
from loans charged off and recoveries on loans previously charged off by loan
category and additions to the allowance which have been charged to operating
expenses.
(in thousands)
Average amount of loans outstanding during the year $ 17,641
========
Allowance for loan loss balance at beginning of period 0
Adjustment for loans acquired $ 163
Loans charged off:
Commercial 0
Consumer 6
Residential mortgages 0
Total loans charged off 6
Recoveries of loans previously charged off 0
Net loans charged off 6
Additions to allowance charged to operating expense 270
------
Balance at end of period $ 427
======
Ratio of net chargeoffs during period to average
loans outstanding .03%
======
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Management has allocated the allowance for loan losses by loan category. This
allocation is based on management's assessment of the risk associated with the
different types of lending activities and is not intended to be management's
judgment as to future loan losses by loan type.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
% to
(in thousands) Amount Total loans
-------- -----------
Commercial $ 125 54%
Consumer 50 37
Residential mortgages 25 9
Unallocated 227 0
-------- ---------
$ 427 100%
======== =========
DEPOSITS
The Bank has a base of time deposits, principally certificates of deposits
and money market investment accounts, primarily obtained from customers in North
Carolina. The following table shows the maturities of certificates of deposit in
amounts of $100,000 or more.
Maturity
(in thousands)
Three months or less $ 966
Over three months to six months 109
Over six months to twelve months 982
Over twelve months 1,832
---------
$3,889
=========
The ratio of net income to average shareholders' equity and to average
total assets, and certain other ratios is presented below.
Return on average assets (1.30)%
Return on average shareholders' equity (2.87)%
Avg. shareholders' equity to average assets 45.42%
EFFECTS OF INFLATION
Inflation can have a significant effect on the operating results of all
industries. However, management believes the inflationary factors are not as
critical to the banking industry as they are to other industries, due to the
high concentration of relatively short-duration monetary assets in the banking
industry. Inflation does, however, have some impact on Capital Bank's growth,
earnings and total assets, and on its need to closely monitor capital levels.
Interest rates are significantly affected by inflation, but it is
difficult to assess the impact, since neither the timing nor the magnitude of
the changes in the various inflation indices coincides with changes in interest
rates. Inflation does impact the economic value of longer-term interest-bearing
assets and liabilities, but Capital Bank attempts to limit its long-term assets
and liabilities.
RECENT ACCOUNTING DEVELOPMENTS
Please refer to Note 1 of Capital Bank's financial statements, for the
year ended December 31, 1997, for a discussion of recent accounting
developments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF
HOME SAVINGS BANK, INC. SSB
OVERVIEW
The principal business of Home Savings consists of attracting deposits
from the local public and investing these funds in real estate loans primarily
collateralized by one-to-four family residences located in Chatham and eastern
Randolph Counties in North Carolina. Home Savings' profitability depends
primarily on net interest income, which is the difference between the interest
income it earns on its loan and investment portfolios and the interest expense
it pays on deposits. Home Savings' profitability, to a lesser extent, is also
affected by other operating income and expense. Other operating income consists
of fees earned on loan originations and customer deposit account service
charges. Other operating expense consists of compensation and employee benefits,
federal deposit insurance premiums, occupancy and equipment, data processing and
other expenses.
INTERIM PERIOD ENDED JUNE 30, 1998
FINANCIAL CONDITION
Total assets were $58,813,000 as of June 30, 1998, an increase of
$2,434,000 from September 30, 1997. The increase is reflected in the increase in
cash and cash equivalents and was fueled by an increase in deposits of
$2,702,000. The increase in deposits was primarily in time deposits and the
result of Home Savings' aggressive pricing. The remaining increase in cash is
due to several investments being called in the second quarter. Home Savings has
reinvested the majority of these proceeds in the third quarter and expects to
re-invest the remainder in the fourth quarter.
Home Savings loan portfolio continues to perform well. Nonaccrual loans
were approximately $45,000 at June 30, 1998 and September 30, 1997. The loan
loss reserves at June 30, 1998 were .9% of gross loans and 70.0% of
nonperforming assets. Home Savings held no foreclosed real estate at either June
30, 1998 or September 30, 1997. A summary of certain information related to the
loan loss reserves and nonperforming assets as of June 30, 1998 follows:
ANALYSIS OF RESERVE FOR LOAN LOSSES:
Beginning balance October 1, 1997 $278,490
Deduct charge-offs: ---
Add recoveries: ---
--------
Ending balance June 30, 1998 $278,490
========
ANALYSIS OF NONPERFORMING ASSETS:
Nonaccrual loans $ 45,000
Loans contractually past due 90 days
or more as to principal or interest 353,000
--------
Total $398,000
========
OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
NET INTEREST INCOME. Net interest income decreased from $1,270,000 to $1,199,000
from the nine month period ended June 30, 1997 to the same period in 1998. This
decrease resulted primarily from aggressive pricing of time deposits during
1998 designed to retain present customers and attract new customers. As a
result, the interest rate spread for the 1998 period decreased to 2.06% from
2.37% in the 1997 period.
PROVISION FOR LOAN LOSS. Home Savings did not provide for any loan losses during
either of the nine month periods ended June 30, 1998 and 1997. It was determined
that the performance of the loan portfolio during these periods did not require
such provisions. Non-performing assets as a percentage of total assets decreased
to 0.66% as of June 30, 1998, from 0.82% as of June 30, 1997.
OTHER OPERATING INCOME. Other operating income remained relatively consistent
from the nine month period ended June 30, 1997 to the same period in 1998.
OTHER OPERATING EXPENSE. Other operating expense increased 23%, or $175,000,
from the nine month period ended June 30, 1997 to the same period in 1998. Most
operating expenses remained relatively stable. The increase resulted principally
from the settlement in the 1998 period of certain retirement liabilities
amounting to approximately $62,000 and expenses in 1998 of approximately $96,000
related to a failed merger with another community bank.
INCOME TAX EXPENSE. Income tax expense remained relatively stable as a
percentage of net income before taxes.
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<PAGE>
CAPITAL. The adequacy of capital is reviewed regularly, in light of
current plans and economic conditions, to ensure that sufficient capital is
available for current and future needs, to minimize Home Savings' cost of
capital and to assure compliance with regulatory requirements. Home Savings'
capital ratios as of June 30, 1998 are as follows:
Actual Percent Required Percent
(Well-Capitalized)
Tier 1 capital to risk weighted assets 44.30% 4.00%
Tier 1 capital to average assets 16.85 4.00
Total capital to risked weighted assets 45.50 8.00
Total tangible capital to total tangible assets 16.66 5.00
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
FINANCIAL CONDITION
Consolidated assets of Home Savings increased to $56,380,000 at September
30, 1997, an increase of $3,866,000 or 7.4% from September 30, 1996.
Consolidated assets were $52,514,000 at September 30, 1996, an increase of
$4,729,000 or 9.9% from September 30, 1995. The increases in total consolidated
assets in 1997, 1996 and 1995 were primarily due to Home Savings investing new
funds received from depositors and investors into U.S. Government and agency
obligations.
Loans receivable amounted to $31,556,000 at September 30, 1997, which was
a 5.1% increase from September 30, 1996. Loans receivable were $30,034,000 at
September 30, 1996, which was an increase of $381,000 from September 30, 1995.
Investment and mortgage-backed securities totaled $17,495,000, $19,090,000
and $7,716,000 at September 30, 1997, 1996, and 1995, respectively. The
increases were a result of proceeds received from the sale of shares of stock
which were invested in short-term U.S. government and agency obligations.
Retained income amounted to $1,062,000 at September 30, 1997, $1,109,000
at September 30, 1996 and $5,409,000 at September 30, 1995. From September 30,
1996 to September 30, 1997 retained income was increased by income of $400,000
and decreased by $446,000 in dividends. Retained income as a percentage of Home
Savings' total consolidated assets at September 30, 1997 was 1.9%. Shareholders'
equity increased to $9,533,000 in 1997 from $9,337,000 in 1996.
OPERATING RESULTS
NET INCOME. Net income for the year ended September 30, 1997 was
$400,000 compared to net income of $120,000 and $554,000 for the years
ended September 30, 1996 and 1995, respectively. The increase in net
income in 1997 as compared to 1996 is primarily attributable to the fact
that $584,000 of compensation expense on ESOP shares and a special SAIF
assessment of approximately $256,000 were recognized in 1996. These
items also account for the decrease between 1995 and 1996.
NET INTEREST INCOME. Net interest income decreased $162,000 to $1,681,000
from $1,843,000 in 1996. This decrease was the result of decreases in both the
interest earnings assets and the yield on those assets coupled with an increase
in interest bearing liabilities. The overall decrease was partially offset by a
decrease in the rates paid on interest bearing liabilities. There was an
increase in net interest income of $354,000 in 1996 from $1,489,000 in 1995.
This increase was related to the growth in net interest-earning assets of
$606,000 or 17.9% which was offset by a decline in the net interest spread to
2.36%.
INTEREST INCOME. Interest income amounted to $3,865,000 in 1997,
$3,992,000 in 1996, and $3,386,000 in 1995. Home Savings has experienced
fluctuations in its average interest-earning assets and its yields have
decreased from 7.67% in 1995 to 7.43% in 1996 and 7.36% in 1997. The
fluctuations reflect the changes in prevailing market interest rates over the
three year period. Home Savings experienced a decrease in the average volume of,
and rate earned on, interest-earnings assets during 1997.
INTEREST EXPENSE. Interest expense amounted to $2,184,000 in 1997,
$2,149,000 in 1996 and $1,897,000 in 1995. The increase in 1997 can be
attributed to a $1,156,000 increase in interest-bearing liabilities offset by a
6 basis point decrease in the average rate on those liabilities. The increase in
expense for 1996 can be attributed to a $3,213,000 increase in interest-bearing
liabilities and a 23 basis points increase in the average rate paid.
PROVISION FOR LOAN LOSSES. Home Savings made no provision for loan losses
during the three years ended September 30, 1997. Management's decision to make
no provision is due to the reduction in the level of non-performing assets and
loan delinquencies, overall portfolio quality and current economic conditions.
OTHER OPERATING INCOME. Other operating income amounted to $78,000 in 1997
and 1996 and $60,000 in 1995.
OTHER OPERATING EXPENSES. Other operating expenses amounted to $1,167,000
in 1997, $1,595,000 in 1996 and $683,000 in 1995. The decrease in 1997 was
primarily attributable to Home Savings' nonrecurring assessment of approximately
$256,000 to recapitalize the SAIF and $584,000 in compensation expense recorded
on ESOP shares recognized in 1996.
Compensation and employee benefits increased from $315,000 in 1995 to
$915,000 in 1996 and decreased to $639,000 in 1997. Occupancy and equipment
expenses amounted to $40,000 in 1997, $43,000 in 1996 and $43,000 in 1995.
Regular federal deposit insurance premiums, which are a factor of the level of
Home Savings' deposit accounts and the premium charged by the FDIC, amounted to
$20,000 in 1997, $93,000 in 1996 and $87,000 in 1995. The decrease in 1997 is
due to the readjusted premiums resulting from the recapitalization of the
insurance fund.
INCOME TAXES. Home Savings' effective income tax rate was 32.5% for the
year ended September 30, 1997, 63.2% for the year ended September 30, 1996, and
36.1% for the year ended September 30, 1995. The high rate in 1996 is primarily
related to the tax effect of the difference between the average fair value and
cost of ESOP shares released.
88
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
At September 30, 1997, Home Savings had total tangible capital to total
tangible assets of 18%, which is in excess of the 5% required under regulations
promulgated by the Administrator of the North Carolina Savings Institutions
Division (the "Administrator's Regulations"). At September 30, 1997, Home
Savings had total risk based capital of $9,879,000 and leverage capital and Tier
1 risk-based capital of $9,606,000, all of which were in excess of each
regulatory requirement.
The Administrator's Regulations require savings banks to maintain liquid
assets equal to at least 10% of total assets. The computation of liquidity under
the Administrator's Regulations allows the inclusion of investments with readily
marketable value, including investments with maturities in excess of five years.
Home Savings' liquidity ratio at September 30, 1997, as computed under the
Administrator's Regulations, was 51.81%.
Home Savings' primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated by operations
and principal payments on investment and mortgage-backed securities. External
sources of funds through September 30, 1997, have been solely from increases in
deposits. Home Savings completed its conversion from mutual to stock form on
November 15, 1995, and received approximately $8,515,000 in net proceeds. Home
Savings has invested these funds in U.S. Government and agency obligations of
varying maturities. Home Savings believes that it will have sufficient funds
available to meet its anticipated future loan commitments.
ASSET/LIABILITY MANAGEMENT
Home Savings strives to achieve consistent net interest income and reduce
its exposure to adverse changes in interest rates by matching the terms to
repricing of its interest-sensitive assets and liabilities. Factors beyond Home
Savings' control, such as market interest rates and competition, may also have
an impact on Home Savings' interest income and interest expense.
In the absence of any other factors, the overall yield or return
associated with Home Savings' earning assets generally will increase from
existing levels when interest rates rise over an extended period of time, and
conversely interest income will decrease when interest rates decrease. In
general, interest expense will increase when interest rates rise over an
extended period of time, and conversely interest expense will decrease when
interest rates decrease. Therefore, by controlling the increases and decreases
in its interest income and interest expense which are brought about by changes
in market interest rates, Home Savings can significantly influence its net
interest income.
Home Savings' asset/liability management may be analyzed by examining the
extent to which its assets and liabilities are interest rate sensitive. Interest
rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap," provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities, and is considered negative
when the amount of interest-rate sensitive liabilities exceed the amount of
interest-rate sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would result
in a decrease in net interest income. Also, changes in interest rates could have
a significant effect on Home Savings' liquidity.
89
<PAGE>
At September 30, 1997, Home Savings' one year cumulative interest
sensitivity gap as a percentage of total interest-earning assets was a negative
36.79%. At September 30, 1997, Home Savings' five year cumulative interest
sensitivity gap as a percentage of total interest-earning assets was 16.92%.
A static interest rate "gap" analysis may not be an accurate indicator of
how net interest income will react to changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not react uniformly to changes in interest
rates. In addition, the magnitude and duration of changes in interest rates may
have a significant impact on net interest income. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities typically fluctuate in advance
of changes in general market interest rates, while interest rates on other types
may lag behind changes in general market rates. As an example, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates on a short-term
basis over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels could also deviate significantly from
those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debt may also decrease in the event of an interest
rate increase.
The following table sets forth the amounts of interest-earnings assets and
interest-bearing liabilities outstanding at September 30, 1997, which are
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown which reprice or
mature within a particular period were determined in accordance with the
contractual terms of the asset or liability. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Passbook
accounts, money market deposit accounts, and NOW or other transaction accounts
are assumed to be subject to immediate repricing and depositor availability and
have been placed in the shortest period. No prepayment assumptions have been
utilized for any other interest-earning assets or interest-bearing liabilities.
The interest rate sensitivity of Home Savings' assets and liabilities
illustrated in the following table would vary substantially if different
assumptions were used or if actual experience differs from that indicated by
such assumptions.
90
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF REPRICING MECHANISMS AND MATURITIES
BASED UPON ESTIMATES AND ASSUMPTIONS
As of September 30, 1997
------------------------
Gap Analysis 3 4 to 12 1 to 5 Over 5
(Dollars in Thousands) Months Months Years Years Total
or Less ------ ------ ----- ------
--------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Real estate loans:
Fixed rate $ 69 $5,544 $1,389 $19,332 $26,334
Adjustable rate 0 5,182 0 0 5,182
Loans secured by deposits -
adjustable 0 318 0 0 318
Interest-bearing deposits 460 0 0 0 460
Federal funds sold 5,050 0 0 0 5,050
Investment and mortgage-backed
securities 0 2,989 7,618 6,984 17,591
------ ------- ------ ------- -------
Total interest-earning assets 5,579 14,033 9,007 26,316 54,935
------ ------- ------ ------- -------
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook savings 3,196 0 0 0 3,196
NOW and money market accounts 8,308 0 0 0 8,308
Fixed maturity deposits 9,536 18,721 5,635 0 33,892
ESOP note payable 13 46 186 0 245
------ ------ ------ ------- -------
Total interest-bearing liabilities 21,053 18,767 5,821 0 45,641
-------- ------ ------ ------- -------
Interest sensitivity gap per period $(15,474) $(4,734) $3,186 $26,316 $9,294
=============================================
Cumulative gap $(15,474) $(20,208) $(17,022) $9,294
============================ ======
Cumulative gap as a percentage of
interest-earning
assets -28.17% -36.79% -30.99% 16.92%
Cumulative gap as a percentage of
total assets -27.45% -35.84% -30.19% 16.48%
</TABLE>
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and the interest expense on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities, which is
sometimes referred to as the "net earning balance."
The following table sets forth information relating to average balances of
Home Savings' assets and liabilities for the years ended September 30, 1997,
1996, and 1995. The tables reflect the average yield on assets and the average
cost of liabilities for the periods indicated (derived by dividing income or
expense by the monthly average balance of assets or liabilities, respectively)
as well as the "net interest margin" (which reflects the impact of the net
earning balance) for the periods shown.
91
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996 1995
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- --------- ------- ------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
ASSETS:
Interest-earning assets:
Interest-bearing
deposits $ 537 $ 30 5.60% $ 5,238 $ 307 5.86% $ 6,579 $ 375 5.70%
Federal funds sold 3,546 176 4.97 1,910 100 5.24 2,516 144 5.73
Investment and
mortgage-backed-securities 17,781 1,174 6.60 16,394 1,093 6.67 4,665 326 7.00
Loans receivable, net(3) 30,671 2,485 8.10 30,171 2,492 8.26 30,366 2,541 8.37
------ ----- ----- ------ ----- ---- ------ ----- ----
Total interest-earning
assets 52,535 3,865 7.36% 53,713 3,992 7.43% 44,126 3,386 7.67%
----- ----- ----- ----- ----- -----
Non-interest earning
assets 1,772 2,673 1,162
----- -------- --------
TOTAL $54,307 $56,388 $45,288
======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Certificates of
deposits $31,652 $1,743 5.51% $29,989 $ 1,699 5.67% $28,105 $1,487 5.29%
Savings accounts 3,306 99 3.01 3,573 105 2.94 3,255 97 2.98
NOW accounts 8,338 315 3.78 8,200 298 3.63 7,831 313 4.00
-------- ------- ------
ESOP note payable and
other 340 27 7.92 643 47 7.31
--- -- ---- --- ------- ----
Total interest-bearing
liabilities 43,636 2,184 5.01% 42,404 2,149 5.07% 39,191 1,897 4.84%
----- ----- ----- ----- ----- -----
Non-interest-bearing
liabilities 1,102 1,638 965
Stockholders' equity 9,569 12,345 5,132
----- ------ --------
TOTAL $54,307 $56,388 $ 45,288
======= ====== =======
Net interest income and
interest rate spread(1) $1,681 2.35% $ 1,843 2.36% $1,489 2.83%
====== ===== ===== ===== ====== =====
Net interest-earning
assets and net
interest margin(2) $8,899 3.20% $11,309 3.43% $4,935 3.38%
====== ===== ======= ===== ====== =====
</TABLE>
- --------------------
1 Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
2 Net interest margin represents income divided by average interest-earning
assets.
3 Nonperforming loans are included in the calculation of average balances.
92
<PAGE>
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), and (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume). The rate/volume changes (changes in rate multiplied by
changes in volume) have been allocated to the rate and volume columns using the
absolute values of the rate and volumes columns.
Year Ended September 30,
1997 vs. 1996 1996 vs. 1995
------------- ---------------
Increase (Decrease) Increase (Decrease)
Attributable to Attributable to
(In Thousands)
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ----
INTEREST INCOME ON:
Interest-bearing deposits $(264)$(13) $(277) $(78) $10 $(68)
Federal funds 81 (5) 76 (32) (12) (44)
Investments 92 (11) 81 783 (16) 767
Loans Receivable 41 (48) (7) (16) (33) (49)
-- ---- --- ---- ---- ----
Total interest income on
interest-earning
assets (50) (77) (127) 657 (51) 606
---- ---- ----- --- ---- ---
INTEREST EXPENSES ON:
Certificates of deposit 92 (48) 44 103 109 212
Savings accounts (9) 3 (6) 10 (2) 8
NOW and money market
accounts 5 12 17 14 (29) (15)
ESOP note payable (23) 3 (20) 47 0 47
---- - ---- -- - --
Total interest expense
on interest-bearing
liabilities 65 (30) 35 174 78 252
-- ---- -- --- -- ---
Increase (decrease) in
net interest income $(115) $(47) $(162) $483 $(129) $354
====== ===== ====== ==== ====== ====
93
<PAGE>
Loan Portfolio
The following table sets forth the composition of Home Savings' loan portfolio
by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------
1997 1996 1995
------------------ ------------------ --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ ------- -------- -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential:
Owner occupied $26,189 81.15% $24,977 80.31% $23,823 76.95%
Nonowner occupied 3,401 10.54 3,800 12.22 4,351 14.05
Commercial real estate 1,645 5.10 712 2.29 1,912 6.18
Residential construction 719 2.23 1,230 3.95 532 1.72
--- ------ ----- ------ --- ----
Total real estate
loans 31,954 99.02 30,719 98.77 30,618 98.90
------ ------ ------ ------ ------ ------
Other:
Savings account 318 0.98 383 1.23 341 1.10
--- ----- --- ----- --- -----
Total gross loans 32,272 100.00% 31,102 100.00% 30,959 100.00%
------ ------- ------ ------- ------ -------
Less:
Unearned fees and
discounts (215) (196) (180)
-----
Loans in process (223) (592) (425)
Allowance for losses (278) (280) (280)
----- ----- -----
Total reductions (716) (1,068) (885)
----- ------- -----
Total loans
receivable, net $31,556 $30,034 $30,074
======= ======= ======
</TABLE>
The following table sets forth the contractual maturities or repricings of
Home Savings' commercial and construction loan portfolio at September 30, 1997
The table does not include prepayments or scheduled principal repayments.
Amounts in the table are net of loans in process, and in thousands.
2002 and
1998 1999-2002 THEREAFTER TOTAL
---- ---------- ---------- ------
Commercial Real Estate $11 $117 $1,517 $1,645
Construction/permanent loans 496 496
94
<PAGE>
The following table sets forth the dollar amount at September 30, 1997 of
certain loans maturing or repricing on or after September 30, 1998 by type of
interest rate calculation.
FIXED ADJUSTABLE
------ ----------
(In Thousands)
Commercial Real Estate $492 $1,142
Construction/permanent loans 496
The following table sets forth information with respect to non-performing
assets identified by Home Savings, including accruing loans 90 days past due,
nonaccrual loans and foreclosed assets at the dates indicated.
AT SEPTEMBER 30,
-----------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Total delinquent 90 days
or more $343 $525 $661
Nonaccrual loans 45 45 0
------ ----- ----
Total nonperforming
assets $388 $570 $661
===== ===== ====
Nonperforming loans to
total loans 1.22% 1.88% 2.18%
Nonperforming assets to
total assets 0.69% 1.09% 1.38%
Total assets $56,380 $52,514 $47,785
Total loans, gross $31,834 $30,314 $30,354
As of September 30, 1997 management of Home Savings is not aware of any
loans which are not disclosed above where known information about possible
credit problems causes management to have serious doubts as to the ability of
the borrower to comply with the present loan repayment terms.
At September 30, 1997 and during the year then ended, there were no
material loans that management of Home Savings considered impaired.
95
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying footnotes have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which require
the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of Home
Savings are primarily monetary in nature and changes in interest rates have a
greater impact on Home Savings' performance than do the effects of inflation.
IMPACT OF RECENT ACCOUNTING STANDARDS
Home Savings adopted Statement of Financial Accounting Standards ("SFAS")
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" on January 1, 1997. The impact of adopting this
statement is not material to Home Savings' consolidated financial statements.
Home Savings will adopt SFAS No. 128 "Earnings Per Share", on October 1,
1997. SFAS No. 128 requires Home Savings to change its method of computing,
presenting and disclosing earnings per share information. Upon adoption, all
prior period data presented will be restated to conform to the provisions of
SFAS No. 128. If Home Savings had adopted SFAS No. 128 for the period ending
September 30, 1997, basic earnings per share and the number of weighted average
shares outstanding would not have changed from the amounts presented on the
Consolidated Statements of Operations. Net income per share assuming dilution
would have been $0.44 and the weighted average shares would have been 901,361
after giving consideration to common stock equivalents.
Home Savings will adopt SFAS No. 130, "Reporting Comprehensive Income" on
October 1, 1998. SFAS No. 130 establishes standards for reporting and displaying
comprehensive income and its components in a full set of general-purpose
financial statements.
Home Savings will adopt SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" on October 1, 1998. SFAS No. 131 specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed.
Home Savings will adopt the provisions of SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" effective with the fiscal quarter
beginning July 1, 1999. Home Savings has not historically participated in any
hedging or derivative instruments, and the impact of adoption is not expected to
be material.
96
<PAGE>
LEGAL MATTERS
The validity of the shares of Capital Bank Corporation's Common stock
offered hereby has been passed upon for Capital Bank Corporation by Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., Raleigh, North Carolina.
EXPERTS
The financial statements of Capital Bank as of December 31, 1997 and for
the periods then ended have been included herein and in the Registration
Statement in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Home Savings as of September 30,
1997 and 1996 and for each of the years in the three-year period ended September
30, 1997, have been included herein and in the Registration Statement in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this Joint Proxy
Statement-Prospectus about the financial condition, results of operations, and
business of Capital Bank Corporation following the consummation of the Exchange
and the Holding Company Reorganization that are subject to risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among other
things, the following possibilities:
o deposit attrition, customer loss, or revenue loss following
the Exchange and the Holding Company Reorganization is greater
than expected;
o competitive pressure in the banking industry increases
significantly;
o costs or difficulties related to the integration of the
business of Capital Bank Corporation and Home Savings are
greater than expected;
o changes in the interest rate environment reduce margins;
o general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in, among other
things, a deterioration in credit quality;
o changes occur in the regulatory environment; and
o changes occur in business conditions and the rate of
inflation.
When used in this Joint Proxy Statement-Prospectus, the words "believes,"
"estimates," "plans," "expects," "should," "may," "might," "outlook," and
"anticipates," and similar expressions as they relate to Capital Bank
Corporation, or its management are intended to identify forward-looking
statements.
WHERE YOU CAN GET MORE INFORMATION
Each of Capital Bank and Home Savings files reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with the FDIC. These
reports include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K. These reports, as well as annual proxy statements
mailed to shareholders and other information are available for you to inspect
and copy, after paying a prescribed fee, at the FDIC's public reference
facilities at the Registration, Disclosure and Securities
97
<PAGE>
Operations Unit, 550 17th Street, N.W., Room 6043, Washington, DC 20429. The
Registration, Disclosure and Securities Operations Unit telephone number is
(202) 898-8908 and their fax number is (202) 898-3909. After the Holding Company
Reorganization and the Exchange are completed, Capital Bank and Home Savings
will no longer file these reports with the FDIC. Instead, Capital Bank
Corporation will begin filing such reports with the SEC.
Capital Bank Corporation has filed with the SEC a Registration Statement
on Form S-4 under the Securities Act of 1933, as amended, regarding the shares
of Capital Bank Corporation's Common Stock to be issued in the Holding Company
Reorganization and the Exchange. This Joint Proxy Statement-Prospectus is part
of that registration statement and does not contain all of the information
contained in the Registration Statement since certain portions have been omitted
as the SEC permits. If you would like more information about Capital Bank
Corporation and the Capital Bank Corporation stock being issued, please refer to
the Registration Statement and its exhibits which you may read, without charge,
at the SEC's public reference facility at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You can make copies of all or any part of
the Registration Statement at the SEC's office in Washington, D.C. upon payment
of prescribed SEC fees. In addition, copies of the exhibits to the Registration
Statement may be obtained from Allen T. Nelson, Jr., Secretary of Capital Bank,
4400 Falls of Neuse Road, Raleigh, North Carolina 27609 (919) 878-3100.
We expect Capital Bank Corporation to be subject to the informational
requirements of the Exchange Act and file reports, proxy statements and other
information with the SEC. You can inspect and copy these materials, after they
have been filed, at the SEC's Public Reference Section, Room 1204, 450 Fifth
Street, N.W., Washington, DC 20549, and at the following Regional Offices of the
SEC: New York Regional Office, Room 1028, Federal Building, 26 Federal Plaza,
New York, New York 10006; and Chicago Regional Office, Room 1204, Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604.
You may also copy this material at the Public Reference Section of the SEC, 450
Fifth Street, N.W. Washington, DC 20549 at prescribed rates. The SEC maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants, such as Capital Bank Corporation, that file
electronically with the SEC. The address of the SEC's Web site is
(http://www.sec.gov).
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference information into this Joint
Proxy Statement-Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC or FDIC. The information incorporated by reference is deemed to be part
of this Joint Proxy Statement-Prospectus, except for any information superseded
by information in this Joint Proxy Statement-Prospectus. This Joint Proxy
Statement-Prospectus incorporates by reference the documents set forth below
that Home Savings has previously filed with the FDIC:
o Annual Report on Form 10-KSB for the year ended September 30,
1997
o Quarterly Reports on Form 10-Q for the quarters ended December
31, 1997, March 31, 1998 and June 30, 1998.
Documents incorporated by reference are available from Home Savings without
charge, excluding all exhibits, unless we have specifically incorporated by
reference an exhibit in this Joint Proxy Statement-Prospectus. Home Savings
shareholders may obtain documents incorporated by reference in this Joint Proxy
Statement-Prospectus by requesting them in writing or by telephone from Edwin E.
Bridges, Home Savings Bank of Siler City, Inc., SSB, 300 East Raleigh Street,
Siler City, North Carolina 27344. If you would like to request documents from
Home Savings, please do so by ___________________, 1998 to receive them before
the Special Meetings.
98
<PAGE>
_____________________
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT-PROSPECTUS TO VOTE AT THE MEETINGS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT-PROSPECTUS. THIS JOINT
PROXY STATEMENT-PROSPECTUS IS DATED _____________, 1998. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS JOINT STATEMENT-PROSPECTUS IS ACCURATE AS
OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE JOINT PROXY
STATEMENT-PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF CAPITAL BANK
CORPORATION COMMON STOCK SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
99
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
CAPITAL BANK
ANNUAL FINANCIAL STATEMENTS
<S> <C>
Report of Independent Accountants........................................................... F-2
Balance Sheet as of December 31, 1997....................................................... F-3
Statement of Operations for the period from June 20, 1997 to December 31, 1997.............. F-4
Statement of Changes in Shareholders' Equity for the period from June 20, 1997 to
December 31, 1997...................................................................... F-5
Statement of Cash Flows for the period from June 20, 1997 to December 31, 1997
Notes to Financial Statements............................................................... F-6
INTERIM FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997........................ F-14
Statements of Operation for the six months ended June 30, 1998 (unaudited)
and the period from June 20, 1997 (opening) to December 31, 1997....................... F-15
Statements of Cash Flows for the six months ended June 30, 1998 (unaudited)
and the period from June 20, 1997 (opening) to December 31, 1997....................... F-16
Notes to Financial Statements............................................................... F-17
HOME SAVINGS BANK OF SILER CITY, INC., SSB
ANNUAL FINANCIAL STATEMENTS
Report of Independent Accountants........................................................... F-18
Consolidated Statements of Financial Condition as of September 30, 1997 and 1996............ F-19
Consolidated Statements of Operations for the years ended September 30, 1997,
1996 and 1995.......................................................................... F-20
Consolidated Statements of Changes in Shareholders' Equity for the years ended
September 30, 1997, 1996 and 1995...................................................... F-21
Consolidated Statements of Cash Flows for the years ended September 30, 1997,
1996 and 1995.......................................................................... F-22
Notes to Consolidated Financial Statements.................................................. F-24
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Financial Condition as of June 30, 1998 and
September 30, 1997 .................................................................... F-41
Condensed Consolidated Statements of Operations for the nine months ended June 30, 1998
and 1997 .............................................................................. F-42
Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1998
and 1997 .............................................................................. F-43
Notes to Condensed Consolidated Financial Statements........................................ F-44
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Capital Bank
We have audited the accompanying balance sheet of Capital Bank as of December
31, 1997 and the related statements of operations, changes in shareholders'
equity and cash flows for the period from June 20, 1997 to December 31, 1997.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Bank as of December 31,
1997 and results of its operations and its cash flows for the period from June
20, 1997 to December 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
By: /s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 27, 1998, except for Note 13, for which the date
is September 29, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK
BALANCE SHEET
DECEMBER 31, 1997
<S> <C>
ASSETS
Cash and due from banks $ 2,641,244
Federal funds sold 16,787,000
Securities:
Available for sale 6,020,050
Held to maturity (estimated market value of $8,003,590) 8,001,646
Mortgage-backed securities available for sale 5,356,612
Federal Home Loan Bank Stock 153,300
Loans:
Commercial 14,715,200
Consumer 10,054,387
Residential mortgages 2,296,088
--------------
27,065,675
Less allowance for loan losses (427,272)
--------------
Net loans 26,638,403
--------------
Accrued interest receivable 452,879
Premises and equipment:
Furniture and equipment 425,665
Automobiles 40,572
Leasehold improvements 107,809
Construction in progress 153,862
--------------
727,908
Less accumulated depreciation (62,594)
--------------
665,314
--------------
Deposit premium and goodwill, net 2,049,518
Other assets 138,281
--------------
Total assets $ 68,904,247
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 6,118,274
Savings and interest bearing demand deposits 11,955,612
Time deposits less than $100,000 21,422,779
Time deposits $100,000 and greater 3,889,392
--------------
Total deposits 43,386,057
Accrued interest payable 211,478
Other liabilities 351,027
--------------
Total liabilities 43,948,562
--------------
Commitments and contingencies (Notes 7, 8, 9, 10 and 13)
Shareholders' equity:
Common stock, $5 par value; 20,000,000 shares authorized, 2,477,651 shares
issued and outstanding 12,388,255
Surplus 13,284,673
Net unrealized gain on securities available for sale 4,963
Accumulated deficit (722,206)
--------------
Total shareholders' equity 24,955,685
--------------
$ 68,904,247
==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
CAPITAL BANK
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 20, 1997 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Interest income:
Loans and fees on loans $ 815,199
Federal funds sold 594,405
Securities 407,172
--------------
Total interest income 1,816,776
--------------
Interest expense:
Short-term borrowings 6,436
Deposits 662,957
--------------
Total interest expense 669,393
--------------
Net interest income 1,147,383
Provision for loan losses 270,000
--------------
Net interest income after provision for loan losses 877,383
--------------
Other operating income:
Service charges and fees 100,401
Other fees and income 46,070
--------------
Total other operating income 146,471
--------------
Other operating expenses:
Personnel 816,469
Advertising 101,609
Occupancy 161,299
Data processing 43,795
Legal 94,049
Director fees 86,384
Amortization of intangibles 114,108
Other 328,347
--------------
Total other operating expenses 1,746,060
--------------
Net loss $ (722,206)
==============
Net loss per share - basic and diluted $ (0.29)
==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
CAPITAL BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 20, 1997 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Gain
on Securities Stock
Common Available for Subscriptions Accumulated
Stock Surplus Sale Receivable Deficit Total
-------------- ------------- -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 19,
1997 $ 12,234,335 $ 13,175,035 $ - $ (982,800) $ - $ 24,426,570
Issuance of stock 153,920 184,704 - - - 338,624
Proceeds from stock
subscriptions - - - 982,800 - 982,800
Commissions paid on
issuance of stock - (75,066) - - - (75,066)
Change in unrealized
gain
on available for
sale
securities, net of
taxes - - 4,963 - - 4,963
Net loss during period - - - - (722,206) (722,206)
------------ ------------ ------------- ----------- ----------- -----------
Balance at December 31,
1997 $ 12,388,255 $ 13,284,673 $ 4,963 $ - $ (722,206) $ 24,955,685
============ ============ ============= =========== =========== ===========
</TABLE>
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 20, 1997 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows used in operating activities $ (2,080,826)
--------------
Cash flows from investing activities:
Net increase in loans (16,163,645)
Additions to premises and equipment (478,501)
Purchase of Federal Home Loan Bank stock (153,300)
Purchase of securities available for sale (11,528,184)
Purchase of securities held-to-maturity (8,004,531)
Proceeds from maturities of securities available for sale 155,255
Net cash received from branch acquisitions 10,289,408
--------------
Net cash used by investing activities (25,883,498)
--------------
Cash flows from financing activities:
Net increase in deposits 20,091,837
Net decrease in short-term borrowings (525,000)
Proceeds received from sale of stock, net of costs 263,558
Proceeds received from stock subscriptions 982,800
--------------
Net cash provided by financing activities 20,813,195
--------------
Net change in cash and cash equivalents (7,151,129)
Cash and cash equivalents at beginning of period 26,579,373
--------------
Cash and cash equivalents at end of period $ 19,428,244
==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Capital Bank (the "Bank") was incorporated under the laws
of North Carolina on May 30, 1997 and commenced operations on June 20, 1997. The
Bank operates through its corporate office in Raleigh, North Carolina and two
branches in Sanford, North Carolina. The Bank is a locally-owned community bank
engaged in general commercial banking, providing a full range of banking
services. The majority of the Bank's customers are expected to be individuals
and small to medium-size businesses. The Bank's primary source of revenue is
interest earned from loans to customers and from invested cash and securities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS AND CERTAIN
SIGNIFICANT ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include demand and time
deposits (with original maturities of 90 days or less) at other institutions and
Federal funds sold. Generally, Federal funds are purchased and sold for one-day
periods.
SECURITIES - Investments in certain securities are classified into three
categories and accounted for as follows:
1. Debt securities that the institution has the positive intent and
ability to hold to maturity are classified as held to maturity and
reported at amortized cost;
2. Debt and equity securities that are bought and held principally for
the purpose of selling in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings;
3. Debt and equity securities not classified as either held to
maturity securities or trading securities are classified as
available for sale securities and reported at fair value, with
unrealized gains and losses reported as a separate component of
shareholders' equity.
The classification of securities is generally determined at the date of
purchase. Gains and losses on sales of securities, computed based on specific
identification of the adjusted cost of each security, are included in other
income at the time of the sales.
Premiums and discounts on debt securities are recognized in interest income on
the level interest yield method over the period to maturity.
LOANS AND ALLOWANCE FOR LOAN LOSSES - Loans are stated at the amount of unpaid
principal, reduced by an allowance for loan losses. Interest on loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
A loan is considered impaired, based on current information and events, if it is
probable that the Company will be unable to collect the scheduled payments of
principal and interest when due according to the contractual terms of the loan
agreement. Uncollateralized loans are measured for impairment based on the
present value of expected future cash flows discounted at the historical
effective interest rate, while all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.
At December 31, 1997, and during the period then ended, there were no loans
material to the financial statements considered to be impaired.
The Bank uses several factors in determining if a loan is impaired. The internal
asset classification procedures include a thorough review of significant loans
and lending relationships and include the accumulation of related data. This
data includes loan payment status, borrowers' financial data and borrowers'
operating factors such as cash flows, operating income or loss, etc.
F-6
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) - The allowance for loan losses
is established through a provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions and trends that may affect the borrowers' ability to pay. Significant
loan origination and commitment fees and certain direct origination costs are
deferred and are amortized over the contractual life of the related loans using
the level yield method.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS - Loans, including impaired
loans, are generally classified as nonaccrual if they are past due as to
maturity or payment of principal or interest for a period of more than 90 days,
unless such loans are well-secured and in the process of collection. If a loan
or a portion of a loan is classified as doubtful or as partially charged off,
the loan is generally classified as nonaccrual. Loans that are on a current
payment status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of
repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to the principal outstanding, except in the
case of loans with scheduled amortizations where the payment is generally
applied to the oldest payment due. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan had been partially charged-off,
recognition of interest on a cash basis is limited to that which would have been
recognized on the recorded loan balance at the contractual interest rate.
Receipts in excess of that amount are recorded as recoveries to the allowance
for loan losses until prior charge-offs have been fully recovered.
FORECLOSED ASSETS - Any assets acquired as a result of foreclosure are valued at
the lower of the recorded investment in the loan or fair value less estimated
costs to sell. The recorded investment is the sum of the outstanding principal
loan balance and foreclosure costs associated with the loan. Any excess of the
recorded investment over the fair value of the property received is charged to
the allowance for loan losses. Valuations will be periodically performed by
management and any subsequent write-downs due to the carrying value of a
property exceeding its estimated fair value less estimated costs to sell are
charged against other expenses.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed by the straight-line method based on estimated service lives of assets.
Useful lives range from 5 to 7 years for furniture and equipment. The cost of
leasehold improvements is being amortized using the straight-line method over
the terms of the related leases. Repairs and maintenance are charged to expense
as incurred.
Upon disposition, the asset and related accumulated depreciation or amortization
are relieved and any gains or losses are reflected in operations.
INTANGIBLE ASSETS - Deposit premium and goodwill arising from the branch
acquisition completed on June 20, 1997 of $2,000,000 and $163,626, respectively,
before accumulated amortization of $114,108 at December 31, 1997, are being
amortized on a straight-line basis over ten years. These lives were estimated by
management at the time the assets were acquired using information available at
that time and are subject to re-evaluation as new information becomes available.
Amortization expense recognized during the period ended December 31, 1997 was
$114,108.
F-7
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED) The Bank evaluates intangible assets for potential
impairment by analyzing the operating results, trends and prospects of the Bank.
The Bank also takes into consideration recent acquisition patterns within the
banking industry and any other events or circumstances which might indicate
potential impairment.
INCOME TAXES - Deferred tax asset and liability balances are determined by
application to temporary differences of the tax rate expected to be in effect
when taxes will become payable or receivable. Temporary differences are
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date. A
valuation allowance is recorded for deferred tax assets if the Bank cannot
determine that the benefits will more likely than not be realized.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES - In June 1996, the Financial Accounting Standards Board issued
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities ("SFAS No. 125"). This Statement establishes
new criteria for determining whether a transfer of financial assets should be
accounted for as a sale or as a pledge of collateral in a secured borrowing.
This Statement also establishes new accounting requirements for pledged
collateral. The Statement is effective for certain transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. Statement of Financial Accounting Standards No. 127 defers the effective
date of certain provisions of SFAS No. 125 until January 1, 1998. The Bank does
not anticipate a significant effect on operations or its financial position from
the adoption of these Statements.
NET LOSS PER SHARE - Net loss per share is computed on the weighted average
number of shares outstanding during the period. The weighted average number of
shares outstanding was 2,475,546 for the period ended December 31, 1997.
As of December 31, 1997, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". In accordance with SFAS 128,
the Bank has presented both basic and diluted EPS on the face of the Statement
of Operations. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. For loss periods, diluted EPS is the same as basic
EPS due to the fact that including common stock equivalents in the calculation
of diluted EPS would be anitdilutive.
NEW PRONOUNCEMENTS - The Financial Accounting Standards Board has recently
issued Statements No. 130 "Reporting Comprehensive Income" and No. 131
"Disclosures about Segments of an Enterprise and Related Information". These
statements will be adopted effective January 1, 1998, with appropriate
restatements or disclosures for prior periods. The adoption of these statements
is not expected to have a significant effect on operations or financial
position.
2. ORGANIZATION AND SIGNIFICANT ACTIVITIES
The Bank was organized on December 12, 1996 and commenced a public subscription
offering on February 17, 1997. The offering resulted in gross proceeds of
$27,254,161 from the sale of 2,477,651 shares.
On June 20, 1997, the Bank acquired the two branches located in Sanford, North
Carolina from a large community bank. A summary of the acquisition is as
follows:
Deposits assumed $ 23,294,220
Deposit premium paid (2,000,000)
Loans acquired (10,908,384)
Goodwill recorded 163,626
Net other assets acquired (260,054)
--------------
Net cash received $ 10,289,408
==============
F-8
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
2. ORGANIZATION AND SIGNIFICANT ACTIVITIES (CONTINUED)
In accordance with the rules and regulations of the North Carolina Commissioner
of Banks, all expenditures of the Bank prior to commencing operations are
charged against surplus. The operating expenses, principally personnel and
occupancy, amounted to $437,017, and expenses related to the offering aggregated
$1,069,150.
3. SECURITIES
Securities at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------- -------------- --------------- ---------------
<S> <C> <C> <C>
U.S. Government and agency securities:
Held to maturity $ 8,001,646 $ 1,944 $ - $ 8,003,590
Available for sale 5,993,458 26,592 - 6,020,050
------------- ------------- -------------- -------------
13,995,104 28,536 - 14,023,640
Mortgage backed securities:
Available for sale 5,378,241 - 21,629 5,356,612
------------- ------------- -------------- -------------
Total $ 19,373,345 $ 28,536 $ 21,629 $ 19,380,252
============= ============= ============== =============
</TABLE>
All U.S. Government and agency securities mature after one year and within five
years as of December 31, 1997. Expected maturities for mortgage-backed
securities will differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without call or prepayment
penalties.
4. FEDERAL HOME LOAN BANK STOCK
The Company, as member of the Federal Home Loan Bank System, is required to
maintain an investment in capital stock of the FHLB in an amount equal to the
greater of 1% of its outstanding home loans or 5% of its outstanding FHLB
advances. No ready market exists for the FHLB stock, and it has no quoted market
value. The balance of Federal Home Loan Bank Stock held at December 31, 1997 was
$153,300.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the period ended
December 31, 1997 is as follows:
Balance at beginning of period $ -
Adjustment for loans acquired 163,626
Provision for loan losses 270000
Loans charged-off, net of $0 recoveries (6,354)
--------------
Balance at end of period $ 157,272
==============
At December 31, 1997 there were no nonperforming assets.
In the normal course of business certain directors and executive officers of the
Bank, including their immediate families and companies in which they have an
interest, may be loan customers. Total loans to such groups at December 31,
1997, and activity during the period ended December 31, 1997, is summarized as
follows:
Beginning balance $ 1,538,062
New loans 3,412,570
Principal repayments (1,741,276)
--------------
Ending balance $ 3,209,356
==============
F-9
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
5. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
In addition, such groups had available lines of credit in the amount of $250,000
at December 31, 1997. The Bank paid an aggregate of approximately $312,000 to
companies owned by members of the board of directors for equipment and
construction and consulting services.
6. INCOME TAXES
No federal or state income tax expense resulted from the current period due to
the generation of net operating losses and the establishment of a valuation
allowance against deferred tax assets.
The difference between income tax and the amount computed by applying the
statutory federal income tax rate of 34% was primarily a result of the
establishment of the valuation allowance on the net deferred tax assets for the
period ended December 31, 1997.
Significant components of deferred tax assets and liabilities at December 31,
1997 are as follows
Deferred tax assets (liabilities):
Preopening expenditures $ 178,000
Reserve for bad debts 105,000
Amortization 14,000
Directors fees 34,000
Net operating loss 161,000
-------------
Total deferred tax assets 492,000
Valuation allowance (479,000)
Depreciation (13,000)
-------------
Net deferred tax assets $ -
=============
The net operating losses expire in 2012 for federal tax purposes and in 2002 for
state tax purposes.
7. LEASES
The Bank has noncancelable operating leases for its corporate office, branch
locations, and an automobile that expire at various times through 2007. Future
minimum lease payments under the leases for years subsequent to December 31,
1997 are $148,863 for 1998, $137,751 for 1999, $85,497 for 2000, $31,200 for
2001 and 2002, and $153,400 thereafter.
8. REGULATORY MATTERS AND RESTRICTIONS
The Bank is subject to various regulatory capital requirements administered by
the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Quantitative measures
established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios, as set forth in the table below. Management
believes, as of December 31, 1997 that the Bank meets all capital adequacy
requirements to which it is subject.
The Bank, as a North Carolina banking corporation, may pay dividends only out of
undivided profits as determined pursuant to North Carolina General Statues
Section 53-87. However, regulatory authorities may limit payment of dividends by
any bank when it is determined that such a limitation is in the public interest
and is necessary to ensure financial soundness of the Bank.
F-10
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
8. REGULATORY MATTERS AND RESTRICTIONS (CONTINUED)
To be categorized as well capitalized the Bank must maintain minimum amounts and
ratios. The Bank's actual capital amounts and ratios as of December 31, 1997 and
the minimum requirements are presented in the table below.
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ---------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ -------- ------------ -------- --------------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted
Assets) $ 23,328 68.80% $ 2,713 8.00% $ 3,391 10.00%
Tier I Capital (to Risk Weighted
Assets) 22,901 67.54 1,356 4.00 2,034 6.00
Tier I Capital (to Average Assets) 22,901 42.12 2,175 4.00 2,719 5.00
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Bank's Board of Directors has approved an incentive stock option plan and a
nonqualified stock option plan for the benefit of its employees and its
employees and directors, respectively. The plans are pending shareholder and
regulatory approval. The Board has reserved 122,500 and 122,500 shares,
respectively, under the aforementioned plans.
Grants of options will be made by the Board or the Compensation Committee. All
grants must be at no less than fair market value on the date of grant, must be
exercised no later than 10 years from the date of grant, and may be subject to
some vesting provisions.
For the period ended December 31, 1997, there were 42,000 options granted. At
December 31, 1997 there were 42,000 options outstanding, of which 13,000 will be
exercisable upon approval of the plans by the shareholders and regulators. The
weighted average exercise price of options granted, forfeited, outstanding and
exercisable was $11.00 at December 31, 1997.
The Bank instituted a 401(k) plan for the benefit of its employees, which
includes provisions for employee contributions, subject to limitation under the
Internal Revenue Code, with the Company to match contributions up to 6% of the
employee's salary. The Plan provides that employees' contributions are 100%
vested at all times and the Bank's contributions vest 25% during the third year
of service, an additional 25% during the fourth year of service and the
remaining 50% during the fifth year of service. Further, the Bank may make
additional contributions on a discretionary basis. Aggregate contributions for
1997 were $18,595.
The Bank intends to account for its Plans under the provisions of APB Opinion
No. 25. However, the Bank is required to disclose the pro forma effects on net
income regarding the new fair value based method. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 1997: dividend yield,
zero; expected volatility of 15%; risk free interest rate of 5.75%; and expected
life of 6 years. Had compensation cost for the Bank's stock-based compensation
plans, as described above, been determined consistent with SFAS No. 123, the
Bank's net loss and loss per share would have been increased by $28,119 or $.01
per share. The compensation costs disclosed here may not be representative of
the effects of pro forma net income in future years.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. At
December 31, 1997, these financial instruments were comprised entirely of unused
lines of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
F-11
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
The Bank's exposure to credit loss in the event of nonperformance by the other
party is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making these commitments as they do for
on-balance sheet instruments. The amount of collateral obtained, if deemed
necessary by the Bank, upon extension of credit is based on management's credit
evaluation of the borrower. Collateral held varies but may include trade
accounts receivable, property, plant, and equipment and income-producing
commercial properties. Since many unused lines of credit expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Unused lines of credit and outstanding letters of credit were $5,634,000 and
$239,000, respectively, at December 31, 1997. The Bank does not anticipate any
losses as a result of these transactions.
The Bank's lending in concentrated primarily in Wake and Lee counties in North
Carolina. Credit has been extended to certain of the Bank's customers through
multiple lending transactions.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("SFAS No. 107"), requires the disclosure of
estimated fair values for financial instruments. Quoted market prices, if
available, are utilized as an estimate of the fair value of financial
instruments. Because no quoted market prices exist for a significant part of the
Bank's financial instruments, the fair value of such instruments has been
derived based on management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. Different assumptions could significantly affect these estimates.
Accordingly, the net amounts ultimately collected could be materially different
from the estimates presented below. In addition, these estimates are only
indicative of the values of individual financial instruments and should not be
considered an indication of the fair value of the Bank taken as a whole.
The fair values of cash and due from banks, Federal funds sold, interest bearing
deposits in banks and accrued interest receivable/payable are equal to the
carrying value due to the nature of the financial instruments. The fair value of
the Bank's loans is determined by discounting the scheduled cash flows through
the loan's estimated maturity using estimated market discount rates that most
reflect the credit and interest rate risk inherent in the loan. The fair value
of the Bank's loan portfolio at December 31, 1997 was $27,118,231, while the
carrying value was $27,065,675.
The fair value of deposits with no stated maturities, such as savings deposits,
and interest bearing demand deposits, are equal to the amount payable. The fair
value of time deposits, such as certificates of deposit and Individual
Retirement Accounts, are based on the discounted contractual cash flows. The
discount rate is estimated using rates currently offered for deposits of similar
maturities. The fair value of certificates of deposit and individual retirement
accounts was $25,381,574 at December 31, 1997, compared to a carrying value of
$25,312,171.
There is no material difference between the carrying amount and estimated fair
value of off-balance sheet items totaling $5,873,000 at December 31, 1997.
The Bank's remaining assets and liabilities are not considered financial
instruments.
F-12
<PAGE>
CAPITAL BANK
NOTES TO FINANCIAL STATEMENTS
12. STATEMENT OF CASH FLOWS - INFORMATION
The following is a reconciliation of net loss with the cash flows used in
operating activities:
<TABLE>
<CAPTION>
<S> <C>
Net loss $ (722,206)
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deposit premium and goodwill 114,108
Depreciation 62,595
Amortization of premium on securities, net 4,115
Provision for loan losses 270,000
Changes in assets and liabilities:
Accrued interest receivable (390,014)
Accrued interest payable (22,683)
Other assets (128,034)
Other liabilities (1,268,707)
----------------
Cash flows used in operating activities $ (2,080,826)
================
</TABLE>
The Bank paid interest expense aggregating $457,915 during the period ending
December 31, 1997.
13. SUBSEQUENT EVENT
On September 29, 1998, Capital Bank signed an Agreement and Plan of
Reorganization and Share Exchange with Home Savings Bank of Siler City, Inc.,
SSB (Home Savings). The Plan calls for the issuance of approximately 1,180,000
shares of Capital Bank stock in exchange for all the outstanding shares of Home
Savings. The exchange will be accounted for as a pooling of interests and is
expected to be completed by December 31, 1998.
F-13
<PAGE>
CAPITAL BANK
BALANCE SHEET
June 30, 1998 and December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------- -------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,558 $ 2,641
Federal funds sold 4,300 16,787
Securities
Available for sale, at fair value 13,963 11,377
Held-to-maturity, at amortized cost (market
value $7,017 at June 30, 1998) 7,000 8,155
----------------- -------------------
Total Securities 20,963 19,532
Loans-net of unearned income 53,248 27,065
Allowance for loan losses (766) (427)
----------------- -------------------
Net loans 52,482 26,638
Premises and equipment, net 2,229 665
Accrued interest receivable 545 453
Deposit premium and goodwill, net 1,941 2,050
Other assets 279 138
----------------- -------------------
Total assets $ 85,297 $ 68,904
================= ===================
LIABILITIES
Deposits
Demand, non-interest bearing $ 4,350 $ 6,118
Savings and interest bearing demand deposits 14,611 11,956
Time deposits 41,309 25,312
----------------- -------------------
Total deposits 60,270 43,386
Accrued interest payable 201 211
Other liabilities 440 351
----------------- -------------------
Total liabilities 60,911 43,948
STOCKHOLDERS' EQUITY
Common stock, par value $5; 20,000,000 shares
authorized; 2,477,651 shares issued and outstanding 12,388 12,388
Surplus 13,285 13,285
Accumulated deficit (1,337) (722)
Accumulated other comprehensive income 50 5
----------------- -------------------
Total stockholders' equity 24,386 24,956
----------------- -------------------
Total liabilities and stockholders' equity $ 85,297 $ 68,904
================= ===================
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
CAPITAL BANK
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except for per share data)
Six months ended From June 20, 1997 to
June 30, 1998 June 30, 1997
----------------- ---------------------
<S> <C> <C>
Interest income:
Loans and fees on loans $ 1,764 $ 22
Securities 650 -
Federal funds 251 40
----------------- -----------------
Total interest income 2,665 62
----------------- -----------------
Interest expense:
Deposits 1,231 22
Short-term borrowings - 7
----------------- -----------------
Total interest expense 1,231 29
----------------- -----------------
Net interest income 1,434 33
Provision for loan losses 345 -
----------------- -----------------
Net interest income after provision
for loan losses 1,089 33
----------------- -----------------
Noninterest income:
Service charges and fees 107 -
Other fees and income 77 1
----------------- -----------------
Total other income 184 1
----------------- -----------------
Noninterest expenses:
Salaries and employee benefits 1,049 27
Occupancy 147 1
Equipment expense 125
Advertising 100 11
Office expense 56 -
Professional fees 56 -
Communications and data processing 84 7
Amortization of intangibles 108 6
Other 163 10
----------------- -----------------
Total other expenses 1,888 62
----------------- -----------------
Income (loss) before income tax
expense (615) (28)
Income tax expense - -
----------------- -----------------
Net income (loss) $ (615) $ (28)
================= =================
Weighted average shares outstanding 2,478 2,458
================= =================
Net loss per share-basic and diluted $ (0.25) $ (0.01)
================= =================
</TABLE>
F-15
<PAGE>
CAPITAL BANK
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended From June 20, 1997
June 30, 1998 to June 30, 1997
----------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (615) $ (28)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Amortization of deposit premium and goodwill 108 6
Depreciation 104 -
Amortization of securities premium
(discount), net 10 -
Provision for loan losses 345 -
Changes in assets and liabilities:
Accrued interest receivable (92) (9)
Accrued interest payable (10) 1
Other assets (141) -
Other liabilities 89 (214)
----------- -------------
Net cash used in operating activities (202) (244)
Cash flows from investing activities:
Purchases of securities available-for-sale (3,234) -
Net increase in loans (26,183) (92)
Additions to premises and equipment (1,668) (232)
Proceeds from maturities of securities available for sale 887 -
Proceeds from maturities of securities held to maturity 1,000 -
Purchase of Federal Home Loan Bank stock (54) -
----------- -------------
Net cash used in investing activities (29,252) (324)
Cash flows from financing activities
Net increase in deposits 16,884 1,389
Net decrease in short-term borrowings - (525)
Proceeds received from stock subscriptions - 350
----------- -------------
Net cash provided by financing activities 16,884 1,214
Net change in cash and cash equivalents (12,570) 646
----------- -------------
Cash and cash equivalents at beginning of period 19,428 36,869
----------- -------------
Cash and cash equivalents at end of period $ 6,858 $ 37,515
=========== =============
</TABLE>
F-16
<PAGE>
CAPITAL BANK
Notes to the Financial Statements
1. Significant Accounting Policies and Interim Reporting
The significant accounting policies followed by the Bank for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. These unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, and in management's
opinion, all adjustments necessary for a fair presentation (all of which were of
a normal recurring nature) have been included. The accompanying financial
statements do not purport to contain all the necessary financial disclosures
that might otherwise be necessary in the circumstances and should be read in
conjunction with the financial statements and notes thereto for the period from
June 20, 1997 to December 31, 1997. The results of operations for the six-month
period ended June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. Operations
Capital Bank (the "Bank") was incorporated under the laws of North Carolina on
May 30, 1997 and commenced operations on June 20, 1997. The Bank operates
through its corporate office in Raleigh, North Carolina, one branch in Cary,
North Carolina and two branches in Sanford, North Carolina. The Bank is a
locally-owned community bank engaged in general commercial banking, providing a
full range of banking services. The majority of the Bank's customers are
individuals and small to medium-size businesses. The Bank's primary source of
revenue is interest earned from loans to customers and from invested cash and
securities.
3. Changes in Accounting Principles
As of December 31, 1997, the Bank adopted statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." In accordance with SFAS 128,
the Bank has presented both basic and diluted EPS on the face of the Statement
of Operations. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. For loss periods, diluted EPS is the same as basic
EPS due to the fact that including common stock equivalents in the calculation
of diluted EPS would be antidilutive.
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income." As required by the SFAS No.
130, prior year information will be modified to conform with the new
presentation. Comprehensive income includes net income and all other changes to
the Company's equity, with the exception of transactions with shareholders
("Other Comprehensive Income"). The Company's only components of other
comprehensive income relate to unrealized gains and losses on available for sale
securities. The Company's total comprehensive income for the six month period
ended June 30, 1998 was $(570,000). Information concerning the Company's other
comprehensive income for the six month period ended June 30, 1998 is as follows:
Unrealized gains/(losses) on securities available for sale $45,000
Reclassification of gains recognized in net income 0
Income tax expense (benefit) relating to unrealized gains
On available for sale securities 0
-------
Other comprehensive income $45,000
=======
On January 1, 1998, the Company adopted SFAS 131, "Disclosure about Segments of
an Enterprises and Related Information." SFAS 131 establishes standards for
determining an entity's operating segments and the type and level of financial
information to be disclosed in both annual and interim financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. No changes were made to the financial
statements or related disclosures as a result of adopting SFAS 131.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Home Savings Bank of Siler City, Inc., SSB
Siler City, North Carolina
We have audited the accompanying consolidated statements of financial condition
of Home Savings Bank of Siler City, Inc., SSB and Subsidiary as of September 30,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997. These financial statements are the responsibility of
the Savings Bank's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Home Savings Bank
of Siler City, Inc., SSB and Subsidiary as of September 30, 1997 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1997 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
By: /s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
October 24, 1997, except Note 14, for which the date is
September 29, 1998
F-18
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks ......................... $ 498,641 $ 357,901
Interest-bearing deposits ....................... 459,862 445,692
Federal funds sold .............................. 5,050,000 975,000
------------ ------------
Total cash and cash equivalents ............. 6,008,503 1,778,593
Certificates of deposit ........................... -- 200,000
Investment securities - available for sale ........ 6,950,296 6,889,859
Mortgage backed securities - available for sale ... 4,985,300 5,639,536
Investment securities held-to-maturity, estimated
market values of $5,530,000 and $6,443,000 in
1997 and 1996, respectively . 5,560,000 6,560,000
Loans receivable, less allowance for loan losses of
$278,490 and $279,659 in
1997 and 1996, respectively ................... 31,555,709 30,034,366
Premises and equipment, net ....................... 293,627 314,625
Federal Home Loan Bank of Atlanta stock, at cost
which approximates market ..................... 346,500 316,900
Deferred income taxes ............................. 433,484 414,800
Accrued interest and dividends receivable ......... 198,695 207,990
Prepaid expenses and other assets ................. 47,626 157,327
------------ ------------
$ 56,379,740 $ 52,513,996
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ........................................ $ 45,395,847 $ 41,666,943
Accrued interest payable ........................ 130,278 100,588
Other liabilities ............................... 1,075,932 1,109,529
ESOP note payable ............................... 244,570 299,768
------------ ------------
Total liabilities ........................... 46,846,627 43,176,828
------------ ------------
Commitments (Note 12)
Stockholders' equity:
Common stock, $1 par value, 5,000,000 shares
authorized, 922,686 shares outstanding ...... 922,686 922,686
Additional paid-in capital ...................... 8,144,111 8,126,923
Retained income, substantially restricted ....... 1,062,008 1,108,779
Unearned ESOP shares ............................ (244,570) (299,768)
Deferred stock awards ........................... (292,771) (367,771)
Unrealized loss on available for sale securities,
net of taxes ................................ (58,351) (153,681)
------------ ------------
Total stockholders' equity .................. 9,533,113 9,337,168
------------ ------------
$ 56,379,740 $ 52,513,996
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-19
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income:
Loans receivable ........................ $ 2,485,164 $ 2,491,791 $ 2,540,552
Investment securities and bank deposits . 1,028,726 1,189,629 712,687
Mortgage-backed securities .............. 351,464 310,088 133,019
----------- ----------- -----------
Total interest and dividend income .. 3,865,354 3,991,508 3,386,258
Interest expense:
Deposits ................................ 2,157,731 2,102,145 1,896,921
ESOP note ............................... 20,462 46,490 --
Other ................................... 6,484 -- --
----------- ----------- -----------
Total interest expense .............. 2,184,677 2,148,635 1,896,921
----------- ----------- -----------
Net interest income ................. 1,680,677 1,842,873 1,489,337
Provision for loan losses ................. -- -- --
----------- ----------- -----------
Net interest income after provision
for loan losses ................. 1,680,677 1,842,873 1,489,337
----------- ----------- -----------
Other operating income:
Loan fees and charges ................... 17,780 18,560 12,972
Deposit fees and charges ................ 38,409 32,342 24,727
Other ................................... 22,298 26,675 22,268
----------- ----------- -----------
Total other operating income ........ 78,487 77,577 59,967
----------- ----------- -----------
Other operating expenses:
Compensation and employee benefits ...... 491,603 330,930 314,583
Compensation expense on ESOP shares ..... 72,386 584,223 --
Directors' fees ......................... 40,168 42,883 54,030
Amortization of MRP deferred compensation 75,000 -- --
Conversion/acquisition expenses ......... 116,465 -- 2,041
Occupancy and equipment ................. 40,642 36,239 43,301
Federal deposit insurance premiums ...... 19,829 349,219 87,283
Income from sales and operations of
foreclosed assets, net ................ -- -- (25,032)
Data processing ......................... 77,998 67,577 67,260
Other ................................... 232,787 183,527 139,170
----------- ----------- -----------
Total other operating expenses ...... 1,166,878 1,594,598 682,636
----------- ----------- -----------
Income before income taxes ................ 592,286 325,852 866,668
Income tax expense ........................ 192,704 205,824 312,786
----------- ----------- -----------
Net income ................................ $ 399,582 $ 120,028 $ 553,882
=========== =========== ===========
Net income per common share ............... $ .45 $ .07(1)
=========== ===========
Weighted average shares outstanding ....... 896,017 838,257(1)
=========== ===========
</TABLE>
(1) Calculated from date of conversion, see Note 2.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-20
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Loss
on
Retained Available
Additional Income- Unearned Deferred for
Common Paid-in Substantially ESOP Stock Sale
Stock Capital Restricted Shares Awards Securities Total
-------- --------- ---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 30, 1994 $ - $ - $4,854,691 $ - $ - $ - $4,854,691
Net income for year ended
September 30,1995 - - 553,882 - - - 553,882
------- --------- ---------- --------- -------- -------- ----------
Balance September 30, 1995 - - 5,408,573 - - - 5,408,573
Issuance of shares of common stock 896,339 7,618,578 - (717,070) - - 7,797,847
Net income for the year ended
September 30, 1996 - - 120,028 - - - 120,028
Change in unrealized loss on
available for sale
securities, net of taxes - - - - - (153,681) (153,681)
Cash dividends paid ($5.20 per share) - - (4,419,822) - - - (4,419,822)
Release of ESOP shares - 166,921 - 417,302 - - 584,223
Issuance of deferred stock awards 26,347 355,685 - - (382,032) - -
Change in market value of deferred
stock awards - (14,261) - - 14,261 - -
------- --------- ---------- --------- -------- -------- ----------
Balance September 30, 1996 922,686 8,126,923 1,108,779 (299,768) (367,771) (153,681) 9,337,168
Net income for the year ended
September 30, 1997 - - 399,582 - - - 399,582
Change in unrealized loss on
available for sale
securities, net of taxes - - - - - 95,330 95,330
Cash dividends paid ($.50 per share) - - (446,353) - - - (446,353)
Release of ESOP shares - 17,188 - 55,198 - - 72,386
MRP Amortization - - - - 75,000 - 75,000
------- --------- ---------- --------- --------- -------- ---------
Balance September 30, 1997 $922,686 $8,144,111 $1,062,008 $(244,570) $(292,771) $(58,351) $9,533,113
======= ========= ========== ========= ========= ======== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-21
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $399,582 $120,028 $553,882
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 22,213 15,816 22,726
ESOP compensation 72,386 584,223 --
Net accretion and amortization of
discount and premium on investment
and mortgage-backed securities (13,005) (10,659) (1,836)
MRP amortization 75,000 -- --
Net gain on sale and write-down of
foreclosed assets -- -- (25,359)
Deferred income tax provision
(benefit) (80,002) 45,600 34,100
Changes in operating assets and
liabilities:
Accrued interest and dividends
receivable 9,295 (114,296) (62,319)
Prepaid expenses and other assets 109,701 89,905 (206,590)
Accrued interest payable 29,690 (38,915) 81,278
Other liabilities (40,312) 247,966 1,842
------------ ------------ ------------
Net cash provided by operating
activities 584,548 939,668 397,724
------------ ------------ ------------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank of
Atlanta stock (29,600) (4,200) --
Redemption of Federal Home Loan Bank of
Atlanta stock -- -- 130,700
Maturity of certificate of deposit 200,000 100,000 100,000
Purchase of certificate of deposit -- (100,000) (100,000)
Maturities of investment securities
available-for-sale 1,000,000 2,000,000 --
Purchases of investment securities
available-for-sale (999,688) (2,966,035) --
Maturities of investment securities
held-to-maturity 2,000,000 -- --
Purchases of investment securities
held-to-maturity (1,000,000) (6,559,375) (4,996,718)
Purchases of mortgage-backed securities
available-for-sale -- (3,577,281) --
Purchases of mortgage-backed securities
held-to-maturity -- (1,105,590) --
Principal payments received on
mortgage-backed securities available
for sale 769,855 548,276 --
Principal payments received on
mortgage-backed securities
held-to-maturity -- 45,713 168,331
Loan originations, net of principal
repayments (1,521,343) 39,494 (421,041)
Proceeds from sale of foreclosed assets -- -- 131,969
Purchases of equipment (1,215) (10,184) --
------------ ------------ ------------
Net cash provided by (used in)
investing activities 418,009 (11,589,182) (4,986,759)
------------ ------------ ------------
Cash flows from financing activities:
Net change in deposits 3,728,904 297,521 3,158,274
Net proceeds from issuance of stock -- 8,514,917 --
Cash dividends paid (446,353) (4,419,822) --
Principal payments on ESOP note (55,198) (417,302) --
------------ ------------ ------------
Net cash provided by financing
activities 3,227,353 3,975,314 3,158,274
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 4,229,910 (6,674,200) (1,430,761)
Cash and cash equivalents, beginning of
year 1,778,593 8,452,793 9,883,554
------------ ------------ ------------
Cash and cash equivalents, end of year $6,008,503 $1,778,593 $8,452,793
============ ============ ============
</TABLE>
(CONTINUED)
F-22
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $2,154,987 $2,187,550 $1,815,643
Income taxes 77,371 245,821 312,894
Supplemental schedule of noncash investing
and financing:
Funding of MRP plan -- $ 367,771 --
Transfer of securities to available for sale:
Investment securities -- $2,779,233 --
Mortgage-backed securities -- 6,000,000 --
Issuance of deferred stock awards -- $ 382,032 --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-23
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Home Savings Bank of Siler City, Inc., SSB (the "Savings Bank") operates
one office in central North Carolina. The Savings Bank's principal business
activity is to accept deposits from the general public and to make
conventional first mortgage loans for the purchase of real estate or for
the refinancing of loans secured by real estate. These loans, and the
securities portfolio, are the Savings Bank's primary source of revenue.
Substantially all of the Savings Bank's lending activity is with customers
located in Chatham, Randolph, Guilford and Orange counties in central North
Carolina.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at September 30, 1997 and
1996 and the reported amounts of revenues and expenses during the years
ended September 30, 1997, 1996 and 1995. Actual results could differ from
those estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Savings
Bank and its wholly-owned subsidiary, Home S&L Service Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand and time deposits (with original
maturities of ninety days or less) at other institutions and Federal funds
sold. Generally, Federal funds are purchased and sold for one-day periods.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investments in certain securities are classified into three categories and
accounted for as follows: (1) debt securities that the Savings Bank has the
positive intent and the ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; (2) debt and equity
securities that are bought and held principally for the purpose of selling
them in the near term are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings; (3) debt
and equity securities not classified as either held-to-maturity securities
or trading securities are classified as available for sale securities and
reported at fair value, with unrealized gains and losses excluded from
earnings and reported as a separate component of equity.
F-24
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INVESTMENT AND MORTGAGE-BACKED SECURITIES (CONTINUED)
Premiums and discounts on debt securities are recognized in interest income
on the level interest yield method over the period to maturity.
On December 31, 1995, the Savings Bank transferred mortgage-backed and
investment securities with a carrying value of $2,779,233 and $6,000,000
and a market value of $2,830,781 and $6,051,720, respectively, from the
held-to-maturity category to the available-for-sale category under a one
time amnesty provision from SFAS No. 115. The carrying values of these
securities were adjusted to market upon transfer. The related unrealized
gain of $103,268 was included in the total unrealized gain/(loss) (net of
tax effect) presented as a separate component of equity in the financial
statements.
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are stated at the amount of unpaid principal, reduced by
an allowance for loan losses and net deferred loan origination fees.
Interest is calculated by using the simple interest method on daily
balances of the principal amount outstanding. Deferred loan fees and costs
are amortized to interest income over the contractual life of the loan
using the interest method.
A loan is considered impaired, based on current information and events, if
it is probable that the Savings Bank will be unable to collect the
scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are
measured for impairment based on the present value of expected future cash
flows discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair
value of the collateral.
The Savings Bank uses several factors in determining if a loan is impaired.
The internal asset classification procedures include a thorough review of
significant loans and lending relationships and the accumulation of related
data. This data includes loan payment status, borrowers' financial data and
borrowers' operating factors such as cash flows, operating income or loss,
etc. At September 30, 1997 and 1996 and during the years then ended, there
were no loans material to the consolidated financial statements that were
considered impaired as defined.
F-25
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The allowance for loan losses is established through a provision for loan
losses charged to expense to reduce the recorded balance of loans to their
estimated net realizable value or fair value, as applicable. Loans are
charged against the allowance for loan losses when management believes that
the collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on the evaluations of
the collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature, quality and
volume of the loan portfolio, review of specific problem loans, and current
economic conditions and trends that may affect the borrowers' ability to
pay. Accrual of interest is discontinued on loans (1) which are past due 90
days or more if collateral is inadequate to cover principal and interest,
or (2) immediately if management believes, after considering economic and
business conditions and collection efforts, that the borrowers' financial
condition is such that collection is doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
The provision for depreciation is computed using the straight-line method
over the estimated useful lives of the various classes of assets. Useful
lives range from 10 to 30 years for buildings and 5 to 10 years for
furniture and equipment. Repairs and maintenance are charged to expense as
incurred.
FORECLOSED ASSETS
Assets acquired as a result of foreclosure are valued at the lower of the
recorded investment in the loan or fair value less estimated costs to sell.
The recorded investment is the sum of the outstanding principal loan
balance and foreclosure costs associated with the loan. Any excess of the
recorded investment over the fair value of the property received is charged
to the allowance for loan losses. Valuations are periodically performed by
management and any subsequent write-downs due to the carrying value of a
property exceeding its estimated fair value are recorded as a valuation
allowance with a corresponding charge to other operating expenses.
INCOME TAXES
Deferred tax asset and liability balances are determined by application to
temporary differences of the tax rate expected to be in effect when taxes
will become payable or receivable. Temporary differences are differences
between the tax basis of assets and liabilities and their reported amounts
in the consolidated financial statements that will result in taxable or
deductible amounts in future years.
F-26
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
NET INCOME PER COMMON SHARE
Net income per common share is computed on the basis of weighted average
number of shares of common stock outstanding, excluding unallocated ESOP
shares. Common stock equivalents are not included in the computation of
weighted average shares since the effect is not material. Net income per
common share for 1997 of $.45 is calculated by dividing net income for the
year ended September 30, 1997, $399,582, by the number of weighted average
shares of common stock outstanding.
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", on October 1, 1997. SFAS No. 128 requires
the Savings Bank to change its method of computing, presenting and
disclosing earnings per share information. Upon adoption, all prior period
data presented will be restated to conform to the provisions of SFAS No.
128. If the Savings Bank had adopted SFAS No. 128 for the period ending
September 30, 1997, basic earnings per share and the number of weighted
average shares outstanding would not have changed from the amounts
presented on the Consolidated Statements of Operations. Net income per
share assuming dilution would have been $0.44 and the weighted average
shares would have been 901,361 after giving consideration to common stock
equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
The Savings Bank adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" on
January 1, 1997. The impact of adopting this statement is not material to
the Savings Bank's consolidated financial statements.
The Savings Bank will adopt SFAS No. 130, "Reporting Comprehensive Income"
on October 1, 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements.
The Savings Bank will adopt SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" on October 1, 1998. SFAS No. 131
specifies revised guidelines for determining an entity's operating segments
and the type and level of financial information to be disclosed.
2. CONVERSION TO STOCK SAVINGS BANK
On November 14, 1995, the Savings Bank converted from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered
capital stock savings bank. In connection with the conversion the Savings
Bank issued 896,339 shares of common stock, including 71,707 issued to the
Employee Stock Ownership Plan ("ESOP"), for $10 per share. The sale of
common stock generated proceeds of $8,514,917, net of conversion costs of
$451,473.
F-27
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CONVERSION TO STOCK SAVINGS BANK (CONTINUED)
At the time of the conversion, the Savings Bank established a liquidation
account in an amount equal to the Savings Bank's net worth, or
approximately $5,467,000, for the benefit of eligible account holders at
that time. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their eligible deposits, shall
cease upon the closing of the accounts, and shall never be increased. In
the event of the liquidation of the Savings Bank, all remaining eligible
deposit account holders shall be entitled, after all payments to creditors,
to a distribution from the liquidation account before any distribution to
stockholders. Dividends paid by the Savings Bank cannot be paid from the
liquidation account.
The Savings Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if its regulatory capital would thereby be
reduced below either the aggregate amount then required for the liquidation
account or the minimum regulatory capital requirements imposed by federal
and state regulations.
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES
A summary of investment and mortgage-backed securities at September 30,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
1997:
Held-to-maturity:
Federal Home Loan Bank
bonds:
Due after one through
five years $3,560,000 $ -- $ 20,000 $3,540,000
Due after five through
ten years 1,000,000 -- -- 1,000,000
Due after ten years 1,000,000 -- 10,000 990,000
---------- ---------- ---------- ----------
$5,560,000 $ -- $ 30,000 $5,530,000
========== ========== ========== ==========
Available for sale:
U.S. Treasury notes:
Due within one year $1,989,092 $ -- $ 8,983 $1,980,109
Federal Home Loan Bank
bonds:
Due within one year 999,688 312 -- 1,000,000
Due after one through
five years 4,000,000 -- 29,813 3,970,187
---------- ---------- ---------- ----------
$6,988,780 $ 312 $ 38,796 $6,950,296
========== ========== ========== ==========
Mortgage-backed
securities:
GNMA Certificates $ 666,603 $ 18,075 $ -- $ 684,678
FNMA Certificates 1,361,271 -- 15,976 1,345,295
FHLMC Certificates 3,014,275 -- 58,948 2,955,327
---------- ---------- ---------- ----------
$5,042,149 $ 18,075 $ 74,924 $4,985,300
========== ========== ========== ==========
</TABLE>
F-28
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996:
Held-to-maturity:
U.S. Treasury notes:
Due within one year $1,000,000 $ 1,400 $ -- $1,001,400
---------- ---------- ---------- ----------
Federal Home Loan Bank
bonds:
Due after one through
five years 3,560,000 -- 72,900 3,487,100
Due after ten years 2,000,000 -- 45,500 1,954,500
---------- ---------- ---------- ----------
$6,560,000 $ 1,400 $ 118,400 $6,443,000
========== ========== ========== ==========
Available for sale:
U.S. Treasury notes:
Due after on through five
years $1,974,468 $ -- $ 10,562 $1,963,906
Federal Home Loan Bank
bonds:
Due after one through
five years 5,000,000 -- 74,047 4,925,953
---------- ---------- ---------- ----------
$6,974,468 $ -- $ 84,609 $6,889,859
========== ========== ========== ==========
Mortgage-backed
securities:
GNMA Certificates $ 804,066 $ 11,946 $ -- $ 816,012
FNMA Certificates 1,508,022 -- 39,867 1,468,155
FHLMC Certificates 3,494,820 -- 139,451 3,355,369
---------- ---------- ---------- ----------
$5,806,908 $ 11,946 $ 179,318 $5,639,536
========== ========== ========== ==========
</TABLE>
Expected maturities for mortgage-backed securities will differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
4. LOANS RECEIVABLE
Loans receivable at September 30, 1997 and 1996 consists of the following:
1997 1996
---- ----
Real estate loans:
Residential owner occupied $ 26,189,421 $ 24,976,725
Residential non-owner occupied 3,401,412 3,800,546
Commercial 1,645,086 711,727
Construction loans 718,681 1,230,332
Loans collateralized by deposits 317,593 382,982
------------ ------------
32,272,193 31,102,312
Less:
Undisbursed portion of
construction loans (223,212) (591,877)
Net deferred loan origination fees (214,782) (196,410)
Allowance for loan losses (278,490) (279,659)
------------ ------------
Loans receivable, net $ 31,555,709 $ 30,034,366
============ ============
F-29
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS RECEIVABLE (CONTINUED)
The Savings Bank originates both adjustable and fixed interest rate loans.
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the current market rate at the date of adjustment.
Future market factors may affect the correlation of the interest rate
adjustment with the rates the Savings Bank pays on the short-term deposits
that have been primarily utilized to fund these loans.
A summary of the allowance for loan losses for the years ended September
30, 1997, 1996 and 1995, is as follows:
1997 1996 1995
---- ---- ----
Balance, beginning of year $ 279,659 $ 279,659 $ 279,659
Provision charged against income -- -- --
Loans charged off, net of recoveries (1,169) -- --
--------- --------- ---------
Balance, end of year $ 278,490 $ 279,659 $ 279,659
========= ========= =========
The following is a summary of nonperforming assets at September 30, 1997
and 1996:
1997 1996
---- ----
Loans 90 days past due and still accruing
interest $ 343,000 $ 525,000
Nonaccrual loans 45,000 45,000
--------- ----------
$ 388,000 $ 570,000
========= ==========
5. PREMISES AND EQUIPMENT
Premises and equipment at September 30, 1997 and 1996 are summarized as
follows:
1997 1996
---- ----
Land $ 44,000 $ 44,000
Building and improvements 368,605 368,605
Furniture, fixtures and equipment 245,330 244,115
--------- ----------
657,935 656,720
Less accumulated depreciation (364,308) (342,095)
--------- ----------
$ 293,627 $ 314,625
========= ==========
F-30
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEPOSITS
A summary of deposits at September 30, 1997 and 1996 follows (in
thousands):
1997 1996
-------------------- ---------------------
Weighted Weighted
Average Average
Rate Balance Rate Balance
-------- --------- --------- ---------
NOW and money market accounts
includes noninterest-bearing
deposits of $74 and $85 at
September 30, 1997 and 1996,
respectively) 4.11% $ 8,308 3.65% $ 8,618
Passbook savings 3.04 3,196 3.04 3,165
Certificates of deposit
(by upcoming maturities):
3 months 5.56 9,341 5.37 7,658
4 months 5.44 3,276 5.27 3,179
6 months 5.77 5,505 5.11 4,382
9 months 5.96 7,058 5.20 4,187
12 months 5.55 3,077 5.28 3,571
18 months 5.73 2,594 6.08 3,994
36 months 5.74 3,041 6.07 2,913
-------- --------- --------- ---------
Total certificates of
deposit 5.70 33,892 5.45 29,884
-------- --------- --------- ---------
Total deposits 5.22% $ 45,396 4.89% $ 41,667
========= =========
The aggregate amount of certificates of deposit $100,000 or greater at
September 30, 1997 by scheduled maturities follows:
3 months or less $ 968,000
Less than 3 months through 12 months 909,000
In excess of 12 months 667,000
----------
$2,544,000
==========
Interest on deposits for the years ended September 30, 1997, 1996 and 1995
consists of the following:
1997 1996 1995
---- ---- ----
NOW and money market accounts $ 314,927 $ 298,213 $ 313,080
Passbook savings 99,435 104,600 97,056
Certificates of deposit 1,743,369 1,699,332 1,486,785
---------- --------- ----------
$2,157,731 $2,102,145 $1,896,921
========== ========= ==========
F-31
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. REGULATORY CAPITAL REQUIREMENTS
The Savings Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Savings Bank's financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios, as set
forth in the table below. Management believes, as of September 30, 1997,
that the Savings Bank meets all capital adequacy requirements to which it
is subject.
As of September 30, 1997, the most recent notification from the FDIC
categorized the Savings Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the Savings Bank must maintain minimum amounts and ratios, as
set forth in the table below. There are no conditions or events since that
notification that management believes have changed the Savings Bank's
category.
The Savings Bank's actual capital amounts and ratios are also presented in
the table below (dollars in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Action Provisions
---------------- --------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
----- ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
--------------------------
Total Capital (to Risk
Weighted Assets) $9,879 45.2% $1,706 8.0% $2,134 10.0.%
Tier I Capital (to Risk
Weighted Assets) 9,606 43.9 853 4.0 1,280 6.0
Tier I Capital (to
Average Assets) 9,606 17.3 2,223 4.0 2,779 5.0
Total Tangible Capital (to
Total Tangible Assets) 9,606 18.0 2,815 5.0 2,815 5.0
As of September 30, 1996:
--------------------------
Total Capital (to Risk
Weighted Assets) $9,771 47.0% $1,590 8.0% $1,987 10.0%
Tier I Capital (to Risk
Weighted Assets) 9,491 47.0 795 4.0 1,192 6.0
Tier I Capital (to
Average Assets) 9,491 17.1 2,189 4.0 2,736 5.0
Total Tangible Capital (to
Total Tangible Assets) 9,491 17.5 2,626 5.0 2,626 5.0
</TABLE>
On September 30, 1996, Congress passed into law a recapitalization plan for
the Savings Association Insurance Fund (the "SAIF"), the insurance fund
covering deposits of savings institutions. The approved plan provided for a
special assessment of 0.66% on certain deposits as of March 31, 1995. The
Savings Bank's assessment amounted to approximately $256,000 and is
included in Federal deposit insurance premiums in the statement of
operations for the year ended September 30, 1996.
F-32
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES
Income taxes charged to operations for the years ended September 30, 1997,
1996 and 1995 consist of the following components:
1997 1996 1995
---- ---- ----
Current:
Federal $ 262,406 $ 154,824 $ 252,366
State 10,300 5,400 26,320
---------- --------- ----------
272,706 160,224 278,686
---------- --------- ----------
Deferred:
Federal (62,700) 35,800 26,900
State (17,302) 9,800 7,200
---------- --------- ----------
(80,002) 45,600 34,100
---------- --------- ----------
$ 192,704 $ 205,824 $ 312,786
========== ========= ==========
The components of the net deferred income tax asset at September 30, 1997
and 1996 are as follows:
1997 1996
---- ----
Deferred income tax assets:
MRP and deferred compensation $ 357,900 $ 311,100
Deferred loan origination fees and costs 84,000 73,000
Bad debt reserve 43,500 31,700
Unrealized securities losses 36,982 98,300
Other accrued liabilities and expenses 16,302 1,400
---------- -----------
538,684 515,500
---------- -----------
Deferred income tax liabilities:
Depreciation (53,700) (49,200)
FHLB stock dividends (51,500) (51,500)
---------- -----------
(105,200) (100,700)
---------- -----------
Net deferred income tax asset $ 433,484 $ 414,800
========== ===========
F-33
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INCOME TAXES (CONTINUED)
A reconciliation of income taxes computed at the statutory federal income
tax rate (34%) to the income tax expense for the years ended September 30,
1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense at the
statutory federal rate $ 201,377 $ 110,790 $ 294,667
Increases (decreases) resulting from:
State tax, net of federal benefit (4,603) 9,986 17,349
Effect of difference between average fair
value and cost of released
ESOP shares 7,055 56,187 --
Other (11,125) 28,861 770
--------- --------- ---------
$ 192,704 $ 205,824 $ 312,786
========= ========= =========
</TABLE>
Retained income at September 30, 1997, includes approximately $1,552,000
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. Reductions of the amount so allocated for purposes other
than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which would be
subject to the then current corporate income tax rate.
During 1996, Congress enacted certain tax legislation that exempted thrift
institutions from being taxed on pre-1987 bad debt reserves, however the
Savings Bank will be recapturing a portion of its post-1987 bad debt
reserve created by using the percentage of taxable income method. The
Savings Bank has previously recorded deferred tax liabilities related to
these excess reserves. Additionally, the Savings Bank is now required to
use the experience method.
9. PENSION AND RETIREMENT PLANS
The Savings Bank has a noncontributory defined benefit pension plan
covering substantially all its employees. The Savings Bank's policy is to
fund current normal pension costs.
Net periodic pension cost for the years ended September 30, 1997, 1996 and
1995 included the following components:
1997 1996 1995
---- ---- ----
Service cost for benefits earned $ 43,815 $ 38,953 $ 21,743
Interest cost on projected benefit
obligation 12,408 9,196 12,188
Actual return on plan assets (11,034) (15,163) (8,734)
Net amortization and deferral 1,503 7,703 6,697
-------- -------- --------
$ 46,692 $ 40,689 $ 31,894
======== ======== ========
F-34
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PENSION AND RETIREMENT PLANS (CONTINUED)
The following schedule sets forth the plan's funded status at September 30,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Vested benefit obligation $ 133,189 $ 105,343
========= =========
Accumulated benefit obligation $ 134,085 $ 106,170
========= =========
Projected benefit obligation $ 233,473 $ 179,505
Plan assets at fair value (159,507) (122,275)
--------- ---------
Projected benefit obligation in excess of plan assets 73,966 57,230
Unrecognized net obligation (16,423) (17,367)
Unrecognized prior service cost 28,483 30,539
Unrecognized net loss (59,709) (43,777)
--------- ---------
Accrued pension liability recognized in other liabilities $ 26,317 $ 26,625
========= =========
</TABLE>
The assumed discount rate used in the determination of the actuarial
present value of accumulated plan benefits was 7% at September 30, 1997 and
1996. The assumed long-term rate of return on plan assets was 7%, and the
assumed rate of compensation increase was 6%, for the years ended September
30, 1997 and 1996.
The Savings Bank has filed to terminate the defined benefit plan on
December 31, 1997. Participants will accrue benefits up to that date and
will become fully vested in the plan at that time. The Savings Bank intends
to fund its obligation under the plan through the purchase of an
irrevocable commitment from an insurer or by an alternative form of
distribution under the plan, including lump sum distributions. The vested
benefits on the termination date will be determined in using the Pension
Benefit Guaranty Corporation's (PBGC) settlement formula and discount rate.
Management believes that any potential curtailment liability would be
immaterial to the Savings Bank's financial statements.
The Savings Bank's 401(k) plan was terminated on October 12, 1995 at which
time the balance in each participant's account was paid in full.
Total pension plan expense charged to operations for the years ended
September 30, 1997, 1996 and 1995 was $49,938, $44,177 and $42,464,
respectively.
Effective January 12, 1994 the Savings Bank adopted a Director's Retirement
Plan ("DRP") to provide retirement benefits of $1,000 per month for a
period of ten years to members of the Board of Directors upon each
director's retirement. All directors are immediately vested under the DRP.
Persons re-elected or appointed to the Board subsequent to the effective
date shall have no rights under the DRP. The Savings Bank has recorded a
liability for the estimated obligation under the DRP.
F-35
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PENSION AND RETIREMENT PLANS (CONTINUED)
During 1997 the Savings Bank agreed to pay health insurance premiums for
certain employees for the remainder of their lives. Coverage to be obtained
with these premiums is to be at least equal to coverage afforded active
full time employees. The Savings Bank has accrued the estimated cost of
these benefits at September 30, 1997 through a charge to compensation
expense of $55,000.
10. EMPLOYEE STOCK OWNERSHIP PLAN
On November 15, 1995 the Savings Bank established an Employee Stock
Ownership Plan ("ESOP"), under which the Savings Bank makes annual
contributions to a trust for the benefit of eligible employees. To be
eligible, an employee must be 18 years of age and have completed 1,000 or
more hours of service during the consecutive twelve month period following
employment commencement. The contributions may be in the form of cash or
common shares of the Savings Bank. Allocations to participants' accounts
occur annually on September 30 (the plan valuation date). Shares are
committed to be released for financial statement purposes when the Savings
Bank makes scheduled payments on the ESOP note payable and will be
allocated to employees for services rendered in the current accounting
period. Employees vest in their allocated ESOP shares over six years. The
number of shares legally released and allocated is based on the ratio of
the actual principal payments amount to the remaining principal balance for
the ESOP note payable. As required by current regulations, the ESOP
includes a provision allowing participants to require that allocated shares
be distributed in cash upon withdrawal. The amount of the annual
contribution is at the discretion of the Board of Directors of the Savings
Bank, but must be sufficient to enable the trust to pay principal and
interest on the related ESOP note payable. Additionally, the contribution
is limited by Federal tax regulations.
Initially, the ESOP acquired 71,707 shares of the Savings Bank's common
stock financed by $717,070 in borrowings by the ESOP. At September 30, 1997
approximately 47,250 shares have been allocated to participants' accounts
and 24,457 shares, with an estimated market value of $330,170, remain
unallocated. All allocated shares are considered outstanding for earning
per share purposes, while the unallocated shares are not included in the
calculation.
The principal balance of the ESOP loan was $244,570 at September 30, 1997.
The Savings Bank is using the dividends declared on shares held by the ESOP
to reduce the outstanding debt. Dividends on allocated shares are treated
as a reduction of retained earnings. Dividends on unallocated shares are
treated only as debt service, and there is no reduction of retained
earnings. Compensation expense related to the plan is based on the fair
market value of the Savings Bank's stock on the date shares are committed
to be released. The financial statements for the years ended September 30,
1997, 1996 and 1995 include compensation expense of $72,386, $584,223 and
$0 and interest expense of $20,462, $43,686 and $0, respectively, related
to the ESOP.
F-36
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
The Savings Bank guarantees the repayment of the ESOP debt to the outside
lender and, accordingly, has recorded the debt on its balance sheet with a
corresponding contra-equity account.
Future minimum principal payments related to the ESOP obligation are as
follows:
Year ended September 30,
1998 $ 62,500
1999 62,500
2000 62,500
2001 62,500
2002 41,750
---------
291,750
Less amounts representing interest at 7.75% 47,180
---------
$ 244,570
=========
11. STOCK OPTION AND AWARD PLANS
MANAGEMENT RECOGNITION PLAN (MRP)
The Savings Bank adopted the MRP Plan on July 17, 1996 and committed to
provide funding to the MRP Plan to purchase 35,854 shares of common stock
to the plan on that date. On July 17, 1996, 26,347 shares, with a market
value of $382,032, were issued to the MRP Plan and awarded to certain
officers and employees as restricted stock which will vest 20% per year
over the five year period ending July 17, 2001. The remaining 9,507 shares
may be purchased and awarded at the discretion of the Board of Directors to
participants in the future by Trustees of the MRP Plan. The plan contains
provisions providing for forfeiture of unvested shares in the event of
termination of employment, and vesting in the event of death or disability.
The shares issued to the MRP plan have been recorded as outstanding shares,
and the unvested portion has been recorded as unearned compensation through
a contra equity account. The consolidated statements of operations for the
year ended September 30, 1997 include compensation expense of $75,000
relating to the scheduled vesting of MRP shares.
INCENTIVE AND NON-STATUTORY STOCK OPTION PLANS
On July 17, 1996, the shareholders of the Savings Bank approved the
Incentive and Non-Statutory Stock Option Plans ("ISO" and "NSSO"). The
number of shares authorized and awarded by the ISO and NSSO are 22,408 and
26,890, respectively. The options were granted on September 12, 1996. On
that date the exercise price was set at $11.50, the fair market value of
the shares as established by the Board of Directors. The options for both
plans become exercisable at 20% per year over the five year period
following the grant date.
F-37
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. STOCK OPTION AND AWARD PLANS (CONTINUED)
INCENTIVE AND NON-STATUTORY STOCK OPTION PLANS (CONTINUED)
On October 1, 1996 the Savings Bank adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation"
(SFAS 123). As permitted by SFAS 123, the Savings Bank has chosen to
continue to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for its
option plans. Accordingly, no compensation cost has been recognized for
options granted under the plans. Had compensation cost for the plans been
determined based on the fair value at the grant dates for awards under the
plans consistent with the method of SFAS 123, the impact on the Savings
Bank's net income and net income per share would not have been material.
The exercise price for options outstanding is $11.50. The number of shares
exercisable at September 30, 1997 and 1996 are 9,860 and 0, respectively.
The remaining contractual maturity for all options at September 30, 1997 is
9.01 years. No options were granted during the year ended September 30,
1997. No options were exercised, forfeited or expired during the years
ended September 30, 1997 or 1996.
12. COMMITMENTS
The Savings Bank is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of the unfunded portion of
construction loans. All construction loans are subject to the Savings
Bank's underwriting criteria and are secured by first deeds of trust,
however these instruments involve elements of credit risk in excess of
amounts recognized in the accompanying financial statements.
The Savings Bank's risk of loss in the event of nonperformance by the other
party to the unfunded loan is represented by the contractual amount of
these instruments. The Savings Bank uses the same credit policies in making
commitments under such instruments as it does for on-balance sheet
instruments. The amount of collateral obtained, if any, is based on
management's credit evaluation of the counterparty. Collateral held
includes a first mortgage on the underlying single family home under
construction. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. At September 30, 1997 and 1996, the Savings Bank
had outstanding loan commitments totaling approximately $580,000 and
$836,000, respectively.
F-38
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Quoted market prices, if available, are utilized as an estimate of the fair
value of financial instruments. Because no quoted market prices exist for a
significant part of the Savings Bank's financial instruments, the fair
value of such instruments has been derived based on management's
assumptions with respect to future economic conditions, the amount and
timing of future cash flows and estimated discount rates. Different
assumptions could significantly affect these estimates. Accordingly, the
net realizable value could be materially different from the estimates
presented below. In addition, the estimates are only indicative of
individual financial instruments' values and should not be considered an
indication of the fair value of the Savings Bank taken as a whole.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument.
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
Cash and due from banks and Federal funds sold are equal to the fair value
due to the liquid nature of the financial instruments.
SECURITIES
Fair values of securities available for sale and held to maturity are based
on quoted market prices. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.
FEDERAL HOME LOAN BANK OF ATLANTA STOCK
The carrying amount of the investment in Federal Home Loan Bank stock
approximates market.
LOANS RECEIVABLE
For variable-rate loans that reprice frequently and with no significant
credit risk, fair values are based on carrying values. The fair values of
fixed rate loans are estimated by discounting the future cash flows using
the current rates at which loans with similar terms would be made to
borrowers with similar credit ratings and for the same remaining
maturities. The Savings Bank has assigned no fair value to off-balance
sheet financial instruments since they are either short term in nature or
subject to immediate repricing.
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at year end. Fair value of
certificates of deposit is estimated by discounting the future cash flows
using the current rate offered for similar deposits with the same
maturities.
F-39
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying amount of accrued interest approximates market.
The following table presents information for financial assets and
liabilities as of September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 959 $ 959 $ 804 $ 804
Federal funds sold 5,050 5,050 975 975
Securities available for sale 6,950 6,950 6,890 6,890
Mortgage backed securities
available for sale 4,985 4,985 5,640 5,640
Investment securities held to
maturity 5,560 5,530 6,560 6,450
Federal Home Loan Bank of
Atlanta stock 347 347 317 317
Interest receivable 199 199 208 208
Loans, less allowance for loan
losses 31,556 31,754 30,034 30,402
------- ------- ------- -------
Total financial assets $55,606 $55,774 $51,428 $51,686
======= ======= ======= =======
Financial liabilities:
Deposits $45,396 $45,409 $41,667 $41,714
Interest payable 130 130 101 101
ESOP note payable 245 245 300 300
------- ------- ------- -------
Total financial liabilities $45,771 $45,784 $42,068 $42,115
======= ======= ======= =======
</TABLE>
The Savings Bank's remaining assets and liabilities are not considered
financial instruments.
14. SUBSEQUENT EVENT
On September 29, 1998, Home Savings Bank of Siler City, Inc., SSB (Home
Savings) signed an Agreement and Plan of Reorganization and Share Exchange
with Capital Bank. The Plan calls for the issuance of approximately
1,180,000 shares of Capital Bank stock in exchange for all the outstanding
shares of Home Savings. The exchange will be accounted for as a pooling of
interests and is expected to be completed by December 31, 1998.
F-40
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 739,271 $ 498,641
Interest-bearing deposits 499,301 459,862
Federal funds sold 11,450,000 5,050,000
--------------- ----------------
Total cash and cash equivalents 12,688,572 6,008,503
Investment securities available for sale 6,002,869 6,950,296
Mortgage backed securities available for sale 4,307,569 4,985,300
Investment securities held to maturity 3,560,000 5,560,000
Loans receivable, less allowance for loan losses of $278,490 30,932,671 31,555,709
Premises and equipment, net 288,632 293,627
Federal Home Loan Bank of Atlanta stock 355,000 346,500
Interest receivable 109,076 198,695
Deferred income taxes 405,347 433,484
Other assets 163,640 47,626
--------------- ----------------
$ 58,813,376 $ 56,379,740
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 48,097,617 $ 45,395,847
Other liabilities 740,590 1,206,210
ESOP note payable 155,769 244,570
--------------- ----------------
Total liabilities 48,993,976 46,846,627
--------------- ----------------
Stockholders' equity:
Common stock, $1 par value; 5,000,000 shares authorized;
922,686 shares issued and outstanding 922,686 922,686
Additional paid-in capital 8,170,266 8,144,111
Retained income, substantially restricted 1,095,535 1,062,008
Unearned ESOP shares, 15,577 and 24,457 shares at June 30,
1998 and September 30, 1997, respectively (155,769) (244,570)
Deferred stock awards (232,775) (292,771)
Unrealized gain (loss) on securities available for sale, net 19,457 (58,351)
--------------- ----------------
Total stockholders' equity 9,819,400 9,533,113
--------------- ----------------
$ 58,813,376 $ 56,379,740
=============== ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-41
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest and dividend income:
Interest on loans receivable $ 1,915,436 $ 1,854,125
Interest on mortgage-backed securities 226,466 267,737
Interest and dividends on investment securities
and bank deposits 880,797 740,353
------------ -------------
Total interest and dividend income 3,022,699 2,862,215
------------ -------------
Interest expense:
Deposits 1,807,502 1,576,057
ESOP note payable 16,088 15,516
------------ -------------
Total interest expense 1,823,590 1,591,573
------------ -------------
Net interest income 1,199,109 1,270,642
------------ -------------
Other operating income 61,749 55,031
------------ -------------
Other operating expenses:
Compensation and employee benefits 427,214 419,739
Directors' fees 32,175 32,175
Occupancy and equipment 34,921 31,522
Federal deposit insurance premiums 21,290 13,162
Data processing 82,164 55,650
Merger expenses 95,724 -
Other 231,204 197,669
------------ -------------
Total other operating expenses 924,692 749,917
------------ -------------
Income before income taxes 336,166 575,756
Income tax expense 121,994 207,272
------------ -------------
Net income $ 214,172 $ 368,484
============ =============
Net income per common share, basic $ .24 $ .41
============ =============
Net income per common share, assuming dilution $ .24 $ .41
============ =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-42
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 214,172 $ 368,484
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 16,662 16,660
MRP and ESOP compensation 148,940 78,001
Net accretion and amortization of discount and premium (8,717) (7,191)
on investment and mortgage-backed securities
Changes in operating assets and liabilities:
Accrued interest and dividends receivable 89,619 29,316
Prepaid expenses and other assets (137,300) 133,117
Other liabilities (465,618) (125,730)
------------ ------------
Net cash provided by operating activities (142,242) 492,657
------------ ------------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank of Atlanta stock (8,500) (29,600)
Purchase of investment securities available for sale (3,999,375) -
Maturities of securities available for sale 5,000,000 -
Purchase of investment securities held to maturity - (1,000,000)
Maturities of securities - held to maturity 2,000,000 2,000,000
Maturities of certificates of deposit - 200,000
Principal payments received on mortgage-backed securities available for sale 760,479 477,135
Purchase of property plant and equipment (11,665) -
Loan originations, net of principal repayments 623,038 (897,613)
------------ ------------
Net cash provided by investing activities 4,363,977 749,922
------------ ------------
Cash flows from financing activities:
Net change in deposits 2,701,770 2,733,640
Cash dividends (180,647) (178,542)
Principal payment on ESOP note (62,789) (39,761)
------------- ------------
Net cash provided by financing activities 2,458,334 2,515,337
------------- ------------
Net increase in cash and cash equivalents 6,680,069 3,757,916
Cash and cash equivalents, beginning of period 6,008,503 1,778,593
------------- ------------
Cash and cash equivalents, end of period $ 12,688,572 $ 5,536,509
============= ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-43
<PAGE>
HOME SAVINGS BANK OF SILER CITY INC., SSB AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis Of Presentation
The unaudited condensed consolidated financial statements include the
accounts of the Home Savings Bank of Siler City, Inc., SSB and its wholly
owned subsidiary. All significant intercompany accounts and transactions
have been eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been
made. Operating results for interim periods are not necessarily
indicative of results which may be expected for a full year. The
information included in this 10-QSB should be read in conjunction with
the September 30, 1997 annual consolidated financial statements and notes
thereto.
2. Earnings Per Share
The following table provides a reconciliation of income available to
common stockholders, and the average number of shares outstanding (less
unearned ESOP shares) for the nine months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Net income (numerator) $ 214,172 $ 368,484
============== ==============
Shares for basic EPS
(denominator) 902,795 895,221
Dilutive effect of stock options 3,405 4,691
-------------- --------------
Adjusted shares for diluted EPS 906,200 899,912
============== ==============
</TABLE>
3. Modification of the Management Recognition and Stock Option Plans
On April 1, 1998 the shareholders of the Bank approved amendments to the
1995 Management Recognition Plan and the 1995 Non-Qualified and Incentive
Stock Option Plans. The amendments provide for accelerated vesting of the
awards in the event of a director's retirement or a change in control of
the Bank. These provisions were omitted from the original plans because
of regulatory restrictions on such provisions and have been made to
ensure that the Bank's plans are similar to other community financial
institutions.
F-44
<PAGE>
APPENDIX I
EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE
FOR HOLDING COMPANY REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE (this
"Agreement"), made and entered into as of August 12, 1998, by and between
Capital Bank, a banking corporation organized under the laws of the State of
North Carolina and having its principal place of business in the City of
Raleigh, North Carolina (the "Bank"), and Capital Bank Corporation, a North
Carolina business corporation (the "Holding Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Bank and the Holding Company
believe that it is in the best interests of their respective shareholders that
the Bank be reorganized into a bank holding company structure pursuant to which
the shareholders of the Bank (collectively, the "Shareholders" and individually,
a "Shareholder") would receive shares of the common stock of the Holding Company
in exchange for their shares of Bank common stock.
NOW, THEREFORE, in consideration of the mutual promises and conditions
herein contained, the Bank and the Holding Company hereby mutually agree to an
exchange of shares on the terms and conditions and in the manner and on the
basis hereinafter provided:
1. The Exchange.
(a) The name of the corporation whose shares will be acquired
is "Capital Bank" and the name of the acquiring corporation is "Capital Bank
Corporation."
(b) At the Effective Time (as defined in Section 2 below),
upon the terms and subject to the conditions set forth in this Agreement, and in
accordance with Article 11 of the North Carolina Business Corporation Act, as
amended (the "NCBCA"), each share of the $5 par value common stock of Bank
("Bank Stock") shall be exchanged (the "Exchange") for one (1) share of the no
par value common stock of the Holding Company (all such shares of Holding
Company common stock issued to the Shareholders, collectively, the "Shares").
(c) As soon as possible after the Effective Time, the Holding
Company shall furnish to each Shareholder transmittal forms and written
instructions with respect to the Exchange. Until shares of the Bank Stock are
surrendered for exchange in accordance with this Agreement, each outstanding
certificate which, prior to the Effective Time, represented shares of Bank
Stock, shall for all purposes evidence only the exchange rights established
pursuant to this Agreement or, if applicable, the rights described in Paragraph
3 of this Agreement. The Holding Company may in its discretion elect not to
treat any such unsurrendered shares as shares of common stock of the Holding
Company for purposes of the payment of dividends or other distributions. If the
Holding Company in its discretion so elects, then unless and until any
outstanding certificate evidencing Bank Stock shall be so surrendered, no
dividends payable to the holders of common stock of the Holding Company shall be
paid to the holder of the unsurrendered Bank Stock certificate; provided,
however, upon surrender and exchange of each
<PAGE>
outstanding certificate evidencing Bank Stock for a certificate evidencing
outstanding common stock of the Holding Company, there shall be paid to the
holder thereof the amount, without interest, of all dividends and other
distributions, if any, which theretofore were declared and became payable, but
were not paid, with respect to said shares.
(d) At the Effective Time, all shares of common stock of the
Holding Company outstanding immediately prior to the Effective Time shall be
redeemed from the holder(s) thereof for the sum of $1.00 per share.
2. Closing; Effective Time. Consummation of the Exchange and the other
transactions contemplated by this Agreement shall take place at 10:00 a.m. at
the offices of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. on
November 30, 1998, or at such other time and date as the Holding Company and the
Bank shall determine (such specified or other time and date, the "Closing"). The
Exchange shall become effective at the time specified in articles of share
exchange to be filed with the Secretary of State of North Carolina (the
"Effective Time").
3. Rights of Dissenting Shareholders. Any Shareholder who has not voted
for the Exchange at the meeting of Shareholders for consideration of the
Exchange, and who has given notice in writing at or prior to such meeting that
he or she dissents from the Exchange, and who complies with the provisions of
Part 2 of Article 13 of the North Carolina Business Corporation Act ("NCBCA"),
shall be entitled to receive the fair value of the shares held by him or her.
Upon its receipt of any notice of a Shareholder's intent to assert dissenters
rights pursuant to the NCBCA, the Bank shall establish an escrow fund (the
"Escrow Fund") from which all payments, whether before or after the Effective
Time, necessary with respect to the exercise of such dissenters rights shall be
made. The Holding Company shall not directly or indirectly contribute any funds
to the Escrow Fund. The Bank shall deposit in the Escrow Fund an amount that it
reasonably believes is sufficient to pay fully the claims of all Shareholders
asserting dissenters rights, and shall make additional deposits to the Escrow
Fund as it may reasonably determine to be necessary to satisfy such claims. In
the event funds remain in the Escrow Fund after all claims for payment pursuant
to dissenters rights have finally expired, terminated, or have been finally
satisfied or settled, then any balance remaining in the Escrow Fund shall be
returned to the Bank.
4. Lost, Destroyed, or Stolen Certificates. Shareholders whose
certificates evidencing shares of Bank Stock have been lost, destroyed or stolen
shall be entitled to receive certificates evidencing shares of Holding Company
common stock for which such shares of Bank Stock were exchanged pursuant to this
Agreement in compliance with the provisions of the Holding Company's bylaws.
5. Stock Option and Other Plans. At the Effective Time, all outstanding
options under the Bank's existing stock option plans ("Plans") shall be
converted into options to acquire the number of shares of common stock of the
Holding Company that the holders of such options were entitled to acquire of
Bank Stock immediately prior to the Exchange on the same terms and conditions as
set forth in the Plans.
2
<PAGE>
6. Obligations of the Parties Pending the Effective Time. The Bank and
the Holding Company shall, as soon as practicable take the following action:
(a) This Agreement shall be duly submitted to the Shareholders
of the Bank and the sole shareholder of the Holding Company for the purpose of
considering and acting upon the Exchange in the manner required by law and their
respective articles of incorporation and bylaws. The Bank and the Holding
Company shall use their best efforts to obtain the requisite approval of their
shareholders of the Exchange and the transactions contemplated by this
Agreement, and the Bank and the Holding Company shall, through their respective
officers, execute and file with the appropriate regulatory authorities,
including the Board of Governors of the Federal Reserve System, such
applications, exhibits, documents and papers as shall be necessary or
appropriate to secure approval of this Agreement, the Exchange and the other
transactions contemplated hereby, as required by applicable statutes, rules and
regulations;
(b) The Holding Company shall use its best efforts to cause
the issuance of common stock of the Holding Company made pursuant to this
Agreement and the Exchange to be qualified or exempted under the Securities Act
of 1933 and the Blue Sky Laws of each state in which it deems such qualification
or exemption to be required;
(c) Until the Effective Time, neither the Bank nor the Holding
Company shall dispose of its assets except in the ordinary and normal course of
business.
7. Conditions Precedent to the Exchange. The Exchange shall be subject
to the satisfaction of the following conditions:
(a) Ratification and confirmation of this Agreement by
approval of a majority of the Shareholders and by approval of the sole
shareholder of the Holding Company as required by law;
(b) Approval by the Board of Governors of the Federal Reserve
System to the Exchange and the transactions related thereto;
(c) Approval, to the extent required, of any other
governmental or regulatory authority;
(d) Receipt of a favorable opinion with respect to the tax
consequences of the proposed Exchange from the Bank's independent auditors; and
(e) Expiration of any waiting period required by any
supervisory authority.
8. Termination. This Agreement may be terminated prior to the Effective
Time for any of the following reasons by written notice by either the Bank or
the Holding Company to the other upon authorization by resolution adopted by
either Board of Directors:
3
<PAGE>
(a) Any condition precedent contained in Paragraph 7 has not
been fulfilled or waived;
(b) Any action, suit, proceeding, or claim has been
instituted, made or threatened, relating to the proposed Exchange that makes
consummation of the Exchange inadvisable in the opinion of the Board of
Directors of either the Bank or the Holding Company;
(c) The Board of Directors of the Bank determines that the
holders of a sufficient number of shares of Bank Stock have dissented from the
Exchange so that consummation of the Exchange is not in the best interests of
the Bank;
(d) A determination by the Board of Directors of either the
Bank or the Holding Company that consummation of the Exchange is inadvisable in
the opinion of such Board of Directors.
9. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the transactions contemplated hereby.
10. Effect of Agreement. The terms and conditions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
[remainder of page intentionally left blank; signatures appear on next page]
4
<PAGE>
IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed by their duly authorized officers and their corporate
seals to be affixed hereto as of the date first above written.
CAPITAL BANK
By: /s/ James A. Beck
--------------------------------------
James A. Beck
President and Chief Executive Officer
ATTEST:
By: /s/ Allen T. Nelson, Jr.
-------------------------------
, Secretary
-------------------
[CORPORATE SEAL]
CAPITAL BANK CORPORATION
By: /s/ James A. Beck
------------------------------------
James A. Beck
President and Chief Executive Officer
ATTEST:
By: /s/ Allen T. Nelson, Jr.
-----------------------------
, Secretary
------------------
[CORPORATE SEAL]
5
<PAGE>
APPENDIX II
AGREEMENT AND PLAN
OF REORGANIZATION AND SHARE EXCHANGE
BY AND AMONG
CAPITAL BANK,
CAPITAL BANK CORPORATION
AND
HOME SAVINGS BANK OF SILER CITY, INC., SSB
September 29, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I - THE EXCHANGE..........................................................................................2
1.01 Names Of Exchanging Corporations..........................................................................2
1.02 The Exchange..............................................................................................2
1.03 Exchange Of Shares........................................................................................2
A. Closing Of Home's Stock Transfer Books...................................................................2
B. Exchange Procedures......................................................................................2
C. Treatment Of Fractional Shares...........................................................................3
D. Surrender Of Certificates................................................................................3
E. Anti-Dilutive Adjustments................................................................................3
F. Dissenters...............................................................................................4
G. Lost Certificates........................................................................................4
H. Treatment Of Home's Stock Options........................................................................4
1.04 Closing; Articles Of Share Exchange; Effective Time.......................................................5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF HOME...............................................................6
2.01 Organization; Standing; Power.............................................................................6
2.02 Home's Capital Stock......................................................................................6
2.03 Subsidiaries..............................................................................................7
2.04 Convertible Securities, Options, Etc......................................................................7
2.05 Authorization And Validity Of Agreement...................................................................8
2.06 Validity Of Transactions; Absence Of Required Consents Or Waivers.........................................8
2.07 Home's Books And Records..................................................................................9
2.08 Home Reports..............................................................................................9
2.09 Home Financial Statements.................................................................................9
2.10 Tax Returns And Other Tax Matters........................................................................10
2.11 Absence Of Material Adverse Changes Or Certain Other Events..............................................10
2.12 Absence Of Undisclosed Liabilities.......................................................................10
2.13 Compliance With Existing Obligations.....................................................................11
2.14 Litigation And Compliance With Law.......................................................................11
2.15 Real Properties..........................................................................................12
2.16 Loans, Accounts, Notes And Other Receivables.............................................................12
2.17 Securities Portfolio And Investments.....................................................................13
2.18 Personal Property And Other Assets.......................................................................14
2.19 Environmental Matters....................................................................................14
2.20 Absence Of Brokerage Or Finders Commissions..............................................................15
2.21 Material Contracts.......................................................................................16
2.22 Employment Matters; Employee Relations...................................................................16
2.23 Employment Agreements; Employee Benefit Plans............................................................17
2.24 Insurance................................................................................................18
2.25 Insurance Of Deposits....................................................................................18
2.26 Affiliates...............................................................................................19
2.27 Obstacles To Regulatory Approval, Accounting Treatment, Or Tax Treatment.................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
2.28 Year 2000 Readiness......................................................................................19
2.29 Disclosure...............................................................................................19
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF CAPITAL AND CBC..................................................19
3.01 Organization; Standing; Power............................................................................19
3.02 Capital Stock............................................................................................20
3.03 Authorization And Validity Of Agreement..................................................................20
3.04 Validity Of Transactions; Absence Of Required Consents Or Waivers........................................20
3.05 Capital's And CBC's Books And Records....................................................................21
3.06 Capital Reports..........................................................................................21
3.07 Capital Financial Statements.............................................................................21
3.08 Tax Returns And Other Tax Matters........................................................................22
3.09 Absence Of Material Adverse Changes......................................................................22
3.10 Absence Of Undisclosed Liabilities.......................................................................22
3.11 Compliance With Existing Obligations.....................................................................22
3.12 Litigation And Compliance With Law.......................................................................23
3.13 Obstacles To Regulatory Approval, Accounting Treatment, Or Tax Treatment.................................24
3.14 Disclosure...............................................................................................24
ARTICLE IV - COVENANTS OF HOME...................................................................................24
4.01 Affirmative Covenants Of Home...........................................................................24
A. "Affiliates" Of Home....................................................................................24
B. Conduct Of Business Prior To Effective Time.............................................................24
C. Periodic Information Regarding Loans....................................................................25
D. Notice Of Certain Changes Or Events.....................................................................26
E. Consents To Assignment Of Leases........................................................................27
F. Further Action; Instruments Of Transfer, Etc............................................................27
4.02. Negative Covenants Of Home..............................................................................27
A. Amendments To Articles Of Incorporation Or Bylaws.......................................................27
B. Change In Capital Stock.................................................................................27
C. Options, Warrants, And Rights...........................................................................27
D. Dividends..............................................................................................27
E. Employment, Benefit, Or Retirement Agreements Or Plans..................................................28
F. Increase In Compensation; Additional Compensation.......................................................28
G. Accounting Practices....................................................................................28
H. Acquisitions; Additional Branch Offices.................................................................28
I. Changes In Business Practices...........................................................................29
J. No Solicitation.........................................................................................29
K. Acquisition Or Disposition Of Assets....................................................................30
L. Debt; Liabilities.......................................................................................31
M. Liens; Encumbrances.....................................................................................31
N. Waiver Of Rights........................................................................................31
O. Other Contracts.........................................................................................31
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V - COVENANTS OF CAPITAL AND CBC.........................................................................32
5.01 Notice Of Certain Changes Or Events......................................................................32
5.02 Indemnification; Directors' And Officers' Insurance......................................................32
5.03. Further Action..........................................................................................33
5.04 Board Of Directors.......................................................................................33
5.05 Advisory Board Of Directors..............................................................................33
ARTICLE VI - MUTUAL AGREEMENTS...................................................................................34
6.01 Shareholders' Approvals; Registration Statement; Proxy Statement/Prospectus; Listing Application........34
A. Meetings Of Shareholders................................................................................34
B. Registration Statement..................................................................................34
C. Preparation And Distribution Of Joint Proxy Statement/Prospectus........................................34
D. Recommendation Of Home's Board Of Directors.............................................................35
E. Information For Proxy Statement/Prospectus And Registration Statement...................................35
F. Listing Application.....................................................................................35
6.02 Regulatory Approvals.....................................................................................35
6.03 Access...................................................................................................36
6.04 Costs....................................................................................................36
6.05 Announcements............................................................................................36
6.06 Environmental Studies....................................................................................37
A. Environmental Surveys...................................................................................37
B. Results Of Environmental Surveys Conducted By Capital Or CBC............................................37
C. Results Of Environmental Surveys Conducted By Home......................................................38
6.07 Employees; Severance Payments; Employee Benefits.........................................................38
A. Employment Agreements...................................................................................38
B. Employment Of Other Home Employees......................................................................38
C. Severance Payment.......................................................................................39
D. Employee Benefits.......................................................................................39
E. Employee Stock Ownership Plan...........................................................................39
F. Pension Plan............................................................................................39
G. Stock Plans.............................................................................................39
6.08 Confidentiality..........................................................................................40
6.09 Reorganization For Tax Purposes..........................................................................40
6.10 Accounting Treatment.....................................................................................40
6.11 Other Permissible Transactions...........................................................................41
ARTICLE VII - CONDITIONS PRECEDENT TO EXCHANGE...................................................................41
7.01 Conditions To All Parties' Obligations...................................................................41
A. Approval By Governmental Or Regulatory Authorities; No Disadvantageous
Conditions.................................................................................................41
B. Effectiveness Of Registration Statement; Compliance With Securities And Other "Blue Sky" Requirements...41
C. Adverse Proceedings, Injunction, Etc....................................................................42
D. Approval By Board Of Directors And Shareholders.........................................................42
</TABLE>
iii
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<CAPTION>
<S> <C>
E. Fairness Opinions.......................................................................................42
F. Tax Opinion.............................................................................................42
G. Listing Of CBC's Stock..................................................................................43
H. No Termination Or Abandonment...........................................................................43
7.02 Additional Conditions To Home's Obligations..............................................................43
A. Material Adverse Change.................................................................................43
B. Compliance With Laws....................................................................................43
C. Capital's And CBC's Representations And Warranties And Performance Of Agreements; Officers' Certificate.43
D. Legal Opinion Of Capital's And CBC's Counsel............................................................44
E. Other Documents And Information From Capital And CBC....................................................44
F. Acceptance By Home's Counsel............................................................................44
7.03 Additional Conditions To Capital's And CBC's Obligation..................................................44
A. Material Adverse Change.................................................................................44
B. Compliance With Laws....................................................................................44
C. Home's Representations And Warranties And Performance Of Agreements; Officers' Certificate..............44
D. Legal Opinion Of Home's Counsel.........................................................................45
E. Other Documents And Information From Home...............................................................45
F. Consents To Assignment Of Leases........................................................................45
G. Acceptance By Capital's And CBC's Counsel...............................................................45
H. Exercise Of Dissenters Rights...........................................................................45
I. Employment And Non-Compete Agreements...................................................................45
J. Capital Reorganization Into A Holding Company Structure.................................................45
K. Accounting Treatment....................................................................................46
L. Resignations............................................................................................46
M. Affiliates' Agreements..................................................................................46
ARTICLE VIII - TERMINATION; BREACH...............................................................................46
8.01 Mutual Termination.......................................................................................47
8.02 Unilateral Termination...................................................................................47
A. Termination By Capital Or CBC...........................................................................47
B. Termination By Home.....................................................................................48
ARTICLE IX - MISCELLANEOUS PROVISIONS............................................................................49
9.01 "Previously Disclosed" Information; "Material Adverse Effect" And "Material Adverse Change"..............49
9.02 Waiver...................................................................................................49
9.03 Amendment................................................................................................50
9.04 Notices..................................................................................................50
9.05 Further Assurances.......................................................................................50
9.06 Headings And Captions....................................................................................51
9.07 Entire Agreement.........................................................................................51
9.08 Severability Of Provisions...............................................................................51
9.09 Assignment...............................................................................................51
</TABLE>
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<CAPTION>
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9.10 Enforcement..............................................................................................51
9.11 Counterparts.............................................................................................51
9.12 Governing Law............................................................................................51
9.13 Inspection...............................................................................................51
9.14 Survival Of Representations, Warranties, Indemnification And Other Agreements............................51
A. Representations, Warranties And Other Agreements........................................................52
B. Indemnification And Other Agreements....................................................................52
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE
BY AND AMONG CAPITAL BANK, CAPITAL BANK CORPORATION
AND HOME SAVINGS BANK OF SILER CITY, INC., SSB
THIS AGREEMENT AND PLAN OF REORGANIZATION AND SHARE EXCHANGE
(hereinafter called "Agreement") entered into as of the 29th day of September,
1998, by and among Capital Bank ("Capital"), Capital Bank Corporation ("CBC")
and Home Savings Bank of Siler City, Inc., SSB ("Home").
WHEREAS, Capital is a North Carolina commercial bank with its principal
office and place of business located in Raleigh, North Carolina; and,
WHEREAS, CBC is a North Carolina corporation with its principal office
and place of business located in Raleigh, North Carolina; and,
WHEREAS, Home is a North Carolina savings bank with its principal
office and place of business located in Siler City, North Carolina; and,
WHEREAS, CBC has been formed to become, and Capital and CBC intend for
CBC to become, the holding company of Capital; and,
WHEREAS, CBC, Capital and Home have agreed that it is in their mutual
best interests and in the best interests of their respective shareholders for
CBC and Home to consummate a share exchange whereby each of the outstanding
shares of Home's common stock would be exchanged for shares of CBC's common
stock, all in the manner and upon the terms and conditions contained in this
Agreement; and,
WHEREAS, to effectuate the foregoing, CBC, Capital and Home desire to
adopt this Agreement as a plan of reorganization in accordance with the
provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended (the "Code"); and,
WHEREAS, the parties intend that the transactions contemplated herein
qualify for treatment as a pooling of interests pursuant to APB Opinion No. 16;
and,
WHEREAS, the respective Boards of Directors of each of Home, CBC and
Capital have determined that it is in the best interests of their respective
companies and their shareholders to consummate the transactions provided for
herein; and,
WHEREAS, as further inducement and as a condition to CBC's and
Capital's entering into this Agreement, Home and Capital have entered into a
certain Stock Option Agreement (the "Stock Option Agreement"), dated of even
date herewith, whereby Capital has the option to acquire certain shares of
Home's common stock under certain conditions.
NOW, THEREFORE, in consideration of the premises, the mutual benefits
to be derived from this Agreement, and of the representations, warranties,
conditions, covenants, and promises
<PAGE>
herein contained, and subject to the terms and conditions hereof, Home, CBC and
Capital hereby adopt and make this Agreement and mutually agree as follows:
ARTICLE I
THE EXCHANGE
1.01 NAMES OF EXCHANGING CORPORATIONS. The name of the corporation
whose shares will be acquired is "Home Savings Bank of Siler City, Inc., SSB"
and the name of the acquiring corporation is "Capital Bank Corporation."
1.02 THE EXCHANGE. At the "Effective Time" (as defined in Paragraph
1.07 below), upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Article 11 of the North Carolina Business
Corporation Act, as amended (the "NCBCA"), each share of the $1.00 par value
common stock of Home ("Home Stock") (other than any shares held by Capital or
CBC or as to which rights of dissent and appraisal are properly exercised as
provided below) shall be exchanged (the "Exchange") for 1.280 (the "Exchange
Rate") newly issued shares of CBC's no par value common stock, rounded to the
nearest whole share ("CBC Stock"). The Exchange shall have the effects set forth
in Section 55-11-06 of the NCBCA.
1.03 EXCHANGE OF SHARES.
A. CLOSING OF HOME'S STOCK TRANSFER BOOKS. At the Effective
Time, and without any action by Home or CBC, Home's stock transfer books shall
be closed as to holders of Home Stock immediately prior to the Effective Time
and, thereafter, no transfer of Home Stock by any such holder may be made or
registered; and the holders of shares of Home Stock shall cease to be, and shall
have no further rights as, shareholders of Home other than as provided herein.
Following the Effective Time, certificates representing shares of Home Stock
outstanding at the Effective Time (herein sometimes referred to as "Old
Certificates") shall evidence only the right of the registered holder thereof to
receive, and may be exchanged for, (i) certificates for the number of whole
shares of CBC Stock to which such holders shall have become entitled on the
basis set forth above (herein sometimes referred to as "New Certificates"), or
(ii) in the case of shares as to which rights of dissent and appraisal are
properly exercised (as provided below), cash as provided in Article 13 of the
NCBCA.
B. EXCHANGE PROCEDURES. As soon as reasonably practicable, but
in any event no more than twenty (20) days following the Effective Time, CBC
shall cause Wachovia Bank, N.A., the transfer agent for CBC Stock (the "Exchange
Agent"), to mail to each former shareholder of Home of record immediately prior
to the Effective Time ("Home Record Holder") written instructions and
transmittal materials (including, without limitation, a return mailing envelope
addressed to the Exchange Agent (collectively, a "Transmittal Letter") for use
in surrendering Old Certificates to the Exchange Agent. All Transmittal Letters
shall be sent by United States mail to the Home Record Holders at the addresses
set forth on a certified shareholder list to be delivered by Home to CBC at the
Closing and shall also be made available
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at the offices of the Exchange Agent. As soon as reasonably practicable
thereafter, the Home Record Holders of all of the outstanding shares of Home
Stock, shall deliver, or cause to be delivered, by United States Postal Service,
hand delivery or any other means of delivery selected by such Home Record
Holders, to the Exchange Agent, pursuant to the Transmittal Letters, the Old
Certificates, and the Exchange Agent shall take prompt action to process such
Old Certificates received by it (including the prompt return of any defective
submissions with instructions as to those actions which may be necessary to
remedy any defects). Upon the proper delivery to the Exchange Agent (in
accordance with the above instructions, and accompanied by a properly completed
Transmittal Letter) by a Home Record Holder of his or her Old Certificates, the
Exchange Agent shall register in the name of such Home Record Holder the shares
of CBC Stock and deliver New Certificates to the Home Record Holder entitled
thereto upon and in exchange for the surrender and delivery to the Exchange
Agent by said individual Home Record Holder of his or her Old Certificates.
C. TREATMENT OF FRACTIONAL SHARES. No scrip or certificates
representing fractional shares of CBC Stock will be issued in connection with
the Exchange, and Home's former shareholders shall have no right to vote or
receive any dividend or other distribution on, or any other right with respect
to, any fraction of a share of CBC Stock resulting from the Exchange.
D. SURRENDER OF CERTIFICATES. Subject to Paragraph 1.03.F.
below, no certificate for any shares of CBC Stock shall be delivered to any
former shareholder of Home unless and until such shareholder shall have properly
surrendered to the Exchange Agent the Old Certificate(s) formerly representing
his or her shares of Home Stock, together with a properly completed Transmittal
Letter in such form as shall be provided to the shareholder by the Exchange
Agent for that purpose. Further, until such Old Certificate(s) are so
surrendered, no dividend or other distribution payable to holders of record of
CBC Stock as of any date subsequent to the Effective Time shall be delivered to
the holder of such Old Certificate(s). However, upon the proper surrender of
such Old Certificate(s) the Exchange Agent shall pay to the registered holder of
the shares of CBC Stock represented by such Old Certificate(s) the amount of any
such cash, dividends or distributions which have accrued but remain unpaid with
respect to such shares. Neither CBC, Home, nor the Exchange Agent, shall have
any obligation to pay any interest on any such cash, dividends or distributions
for any period prior to such payment. Further, and notwithstanding any other
provision of this Agreement, neither CBC, Home, nor the Exchange Agent shall be
liable to a former holder of Home Stock for any amount paid or property
delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat, or similar law.
E. ANTI-DILUTIVE ADJUSTMENTS. If, following the date of this
Agreement, CBC shall change the number of outstanding shares of CBC Stock as a
result of a dividend payable in shares of CBC Stock, a stock split, a
reclassification or other subdivision or combination of outstanding shares, and
if the record date of such event occurs prior to the Effective Time, then an
appropriate and proportionate adjustment shall be made to the Exchange Rate so
as to appropriately and proportionately increase or decrease the number of
shares of CBC Stock to be issued in exchange for each of the shares of Home
Stock.
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F. DISSENTERS.
(i) Any shareholder of Home who has and properly
exercises the right of dissent and appraisal with respect to the Exchange as
provided in Article 13 of the NCBCA ("Dissenters Rights") shall be entitled to
receive cash payment of the fair value of all of his or her shares of Home Stock
from the Escrow Fund (defined below) in the manner and pursuant to the
procedures provided therein, subject further to the conditions set forth in
Paragraph 7.03.H. Shares of Home Stock held by persons who exercise Dissenters
Rights shall not be exchanged for CBC Stock as provided in Paragraph 1.03.A.
above. However, if any shareholder of Home who exercises Dissenters Rights shall
fail to perfect his or her right to receive cash payment as provided above, or
effectively shall waive or lose such right, then each of his or her shares of
Home Stock, at CBC's sole option, shall be deemed to have been converted into
the right to receive CBC Stock as of the Effective Time as provided in Paragraph
1.03.A. above.
(ii) Upon its receipt of any notice of a Home
shareholder's intent to assert Dissenters Rights pursuant to the NCBCA, Home
shall establish an escrow fund (the "Escrow Fund") with an independent third
party reasonably satisfactory to Capital and CBC (the "Escrow Agent"), from
which the Escrow Agent shall make all payments, whether before or after the
Effective Time, necessary with respect to the exercise of such Dissenters
Rights. Neither CBC nor Capital shall, directly or indirectly, contribute any
funds to the Escrow Fund. Home shall deposit in the Escrow Fund an amount,
subject to Capital's and CBC's approval, that Home reasonably believes is
sufficient to pay fully the claims of all Home shareholders asserting Dissenters
Rights, and shall make additional deposits to the Escrow Fund as Home, Capital
or CBC may reasonably determine to be necessary to satisfy such claims. In the
event funds remain in the Escrow Fund after all claims for payment pursuant to
Dissenters Rights have finally expired, terminated, or have been finally
satisfied or settled, then any balance remaining in the Escrow Fund shall be
returned to Home.
G. LOST CERTIFICATES. Any Home shareholder whose certificate
evidencing shares of Home Stock has been lost, destroyed, stolen or otherwise is
missing shall be entitled to receive a certificate representing the shares of
CBC Stock to which he or she is entitled in accordance with and upon compliance
with conditions imposed by the Exchange Agent or CBC pursuant to the provisions
of N.C. Gen. Stat. ss. 25-8-405 and N.C. Gen. Stat. ss. 25-8-104 (including
without limitation a requirement that the shareholder provide a lost instruments
indemnity or surety bond in form, substance and amount satisfactory to the
Exchange Agent and CBC).
H. TREATMENT OF HOME'S STOCK OPTIONS.
(i) At the Effective Time, each option or other right
to purchase shares of Home Stock pursuant to stock options ("Home Options")
granted by Home under its 1995 Nonqualified Stock Option Plan and its 1995
Incentive Stock Option Plan (as amended, collectively referred to herein as the
"Home Stock Plan"), which are outstanding at the Effective Time, whether or not
exercisable, shall be converted into and become rights with respect to CBC
4
<PAGE>
Stock, and CBC shall assume each Home Option, in accordance with the terms of
the Home Stock Plan and stock option agreement by which it is evidenced, except
that from and after the Effective Time (A) CBC and its Compensation Committee
shall be substituted for Home and the Committee of Home's Board of Directors
(including, if applicable, the entire Board of Directors of Home) administering
the Home Stock Plan, (B) each Home Option assumed by CBC may be exercised solely
for shares of CBC Stock, (C) the number of shares of CBC Stock subject to such
Home Option shall be equal to the number of shares of Home Stock subject to such
Home Option immediately prior to the Effective Time multiplied by the Exchange
Rate and rounding to the nearest whole share, and (D) the per share exercise
price under each such Home Option shall be adjusted by dividing the per share
exercise price under each such Home Option by the Exchange Rate and rounding to
the nearest cent.
(ii) As soon as practicable after the Effective Time,
CBC shall deliver to the participants in the Home Stock Plan an appropriate
notice setting forth such participant's rights pursuant thereto and the grants
pursuant to the Home Stock Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by Paragraph 1.03.H(i) after
giving effect to the Exchange). At or prior to the Effective Time, CBC shall
take all corporate action necessary to reserve for issuance sufficient shares of
CBC Stock for delivery upon exercise of Home Options assumed by it in accordance
with this Paragraph 1.03.H. As soon as practicable after the Effective Time, CBC
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of CBC
Stock subject to such options and shall use its reasonable efforts to maintain
the effectiveness of such registration statement (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(iii) All restrictions or limitations on transfer
with respect to Home Stock awarded under the Home Stock Plan or any other plan,
program, or arrangement of Home, to the extent that such restrictions or
limitations shall not have already lapsed, and except as otherwise expressly
provided in such plans, program, or arrangement, shall remain in full force and
effect with respect to shares of Home Stock into which such restricted stock is
converted pursuant to this Agreement.
(iv) Home agrees to cooperate with CBC to insure the
implementation of this Paragraph 1.03.H.
(v) Notwithstanding anything to the contrary in this
Agreement, CBC and Capital agree that Home may, prior to the Effective Time,
amend Home's 1995 Nonqualified Stock Option Plan to provide that continued
service as an advisory director of either Home or Capital by any optionee under
such Plan shall qualify such optionee to continue to hold options under such
Plan; provided, however, that any such amendment shall be subject to Capital's
and CBC's prior approval, which approval shall not be unreasonably withheld.
1.04 CLOSING; ARTICLES OF SHARE EXCHANGE; EFFECTIVE TIME. The closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place at the offices of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P. in Raleigh, North
5
<PAGE>
Carolina, or at such other place as CBC shall designate, on a date specified by
CBC (the "Closing Date") after the expiration of any and all required waiting
periods following the effective date of required approvals of the Exchange by
governmental or regulatory authorities. At the Closing, Home, CBC and Capital
shall take such actions (including, without limitation, the delivery of certain
closing documents) as are required herein and as shall otherwise be required by
law to consummate the Exchange and cause it to become effective, and shall
execute Articles of Share Exchange under North Carolina law which shall contain
a "Plan of Exchange" substantially in the form attached as Exhibit A hereto.
Subject to the terms and conditions set forth herein (including,
without limitation, the receipt of all required approvals of governmental and
regulatory authorities), the Exchange shall be effective on the date and at the
time (the "Effective Time") the Articles of Share Exchange are filed with the
North Carolina Secretary of State in accordance with law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HOME
Except as otherwise specifically provided herein or as "Previously
Disclosed" (as defined in Paragraph 9.01 below) to Capital and CBC, Home hereby
makes the following representations and warranties to Capital and CBC:
2.01 ORGANIZATION; STANDING; POWER. Home (i) is duly organized and
incorporated, validly existing, and in good standing under the laws of North
Carolina; (ii) has all requisite power and authority (corporate and other) to
own, lease, and operate its properties and to carry on its business as now being
conducted; (iii) is duly qualified to do business and is in good standing in
each other jurisdiction in which the character of the properties owned, leased,
or operated by it therein or in which the transaction of its business makes such
qualification necessary, except where failure so to qualify would not have a
Material Adverse Effect on Home; and (iv) is not transacting business or
operating any properties owned or leased by it in violation of any provision of
federal or state law or any rule or regulation promulgated thereunder, which
violation would have a material adverse affect on Home.
2.02 HOME'S CAPITAL STOCK. Home's authorized capital stock consists of
5,000,000 shares of common stock, $1.00 par value per share. As of August 31,
1998, 922,686 shares of Home Stock were issued and outstanding, which constitute
Home's only issued and outstanding securities.
Each outstanding share of Home Stock (i) has been duly authorized and
is validly issued and outstanding, and is fully paid and nonassessable, (ii) has
not been issued in violation of the preemptive rights of any shareholder, and
(iii) has been issued pursuant to and in compliance with the requirement of a
registration statement or an applicable exemption from registration requirements
under the Securities Act of 1933, as amended (the "1933 Act").
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2.03 SUBSIDIARIES.
A. (i) Schedule 2.03 hereto is a list of all of Home's
Subsidiaries (defined below) together with the jurisdiction of organization of
each such Subsidiary, (ii) except as Previously Disclosed, Home owns, directly
or indirectly, all the issued and outstanding equity securities of each of its
Subsidiaries, (iii) no equity securities of any of its Subsidiaries are or may
become required to be issued (other than to it or its wholly-owned Subsidiaries)
by reason of any contractual right or obligation or otherwise, (iv) there are no
contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is or may be bound to sell or otherwise transfer any equity
securities of any such Subsidiaries (other than to it or its wholly-owned
Subsidiaries), (v) there are no contracts, commitments, understandings, or
arrangements relating to its rights to vote or to dispose of such securities;
(vi) all of the equity securities of each Subsidiary held by Home or its
Subsidiaries are fully paid and nonassessable, are owned by Home or its
Subsidiaries free and clear of any liens, charges, encumbrances or security
interests, have been duly authorized, and are validly issued and outstanding;
(vii) none of the equity securities of any Subsidiary held by Home have been
issued in violation of the preemptive rights of any shareholder, and all such
securities have been issued pursuant to a valid and effective registration
statement or pursuant to and in compliance with the requirement of an applicable
exemption from the registration requirements under the 1933 Act.
B. As used in this Agreement, "Subsidiary" shall have the
meaning ascribed to that term in Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission ("SEC").
C. Home does not own beneficially, directly or indirectly, any
equity securities or similar interests of any entity, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
D. Each of Home's Subsidiaries is duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified, except where the failure to so qualify
would not have a Material Adverse Effect on Home.
E. The representations of Home contained in Paragraphs 2.04
through 2.08, 2.10 through 2.24, and 2.27 through 2.29 hereof shall be deemed to
have been made by each Subsidiary of Home as well.
2.04 CONVERTIBLE SECURITIES, OPTIONS, ETC. With the exception of
options to purchase an aggregate of 49,295 shares of Home Stock which have been
issued and are outstanding under the Home Stock Plan (22,408 shares under the
1995 Incentive Stock Option Plan and 26,887 shares under the 1995 Nonqualified
Stock Option Plan), and the option granted pursuant to the Stock Option
Agreement, Home does not have any outstanding (i) securities or other
obligations (including debentures or other debt instruments) which are
convertible into shares of Home Stock or any other securities of Home; (ii)
options, warrants, rights, calls, or
7
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other commitments of any nature which entitle any person to receive or acquire
any shares of Home Stock or any other securities of Home; or (iii) plan,
agreement or other arrangement pursuant to which shares of Home Stock or any
other securities of Home, or options, warrants, rights, calls, or other
commitments of any nature pertaining thereto, have been or may be issued.
2.05 AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been
duly and validly approved by Home's Board of Directors in the manner required by
law and subject only to approval of this Agreement by the shareholders of Home
in the manner required by law (as contemplated by Paragraph 6.01.A. below) and
by the applicable regulatory authorities (as contemplated by Paragraph 6.02
below), (i) Home has the corporate power and authority to execute and deliver
this Agreement and to perform its obligations and agreements and carry out the
transactions described herein, (ii) all corporate action required to authorize
Home to enter into this Agreement and to perform its obligations and agreements
and carry out the transactions described herein has been duly and properly
taken, and (iii) this Agreement has been duly executed on behalf of Home, and
(assuming due authorization, execution and delivery by CBC and Capital)
constitutes a valid and binding agreement of Home, enforceable in accordance
with its terms (except to the extent enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
from time to time in effect which affect creditors' rights generally; and (b) by
legal and equitable limitations on the availability of injunctive relief,
specific performance, and other equitable remedies), and (c) general principles
of equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
2.06 VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Except where the same would not have a Material Adverse Effect on Home, neither
the execution and delivery of this Agreement, nor the consummation of the
transactions described herein, nor compliance by Home with any of its
obligations or agreements contained herein, will: (i) conflict with or result in
a breach of the terms and conditions of, or constitute a default or violation
under any provision of, Home's Articles of Incorporation or Bylaws, or any
contract, agreement, lease, mortgage, note, bond, indenture, license, or
obligation or understanding (oral or written) to which Home is bound or by which
it, its business, capital stock, or any properties or assets may be affected;
(ii) result in the creation or imposition of any lien, claim, interest, charge,
restriction, or encumbrance upon any of Home's properties or assets; (iii)
violate any applicable federal or state statute, law, rule, or regulation, or
any judgment, order, writ, injunction, or decree of any court, administrative or
regulatory agency, or governmental body; (iv) result in the acceleration of any
obligation or indebtedness of Home; or (v) interfere with or otherwise adversely
affect Home's or Home's ability to carry on its business as presently conducted.
No consents, approvals, or waivers are required to be obtained from any
person or entity in connection with Home's execution and delivery of this
Agreement, or the performance of its obligations or agreements or the
consummation of the transactions described herein, except for required approvals
of Home's shareholders as described in Paragraph 7.01.D. below and of
governmental or regulatory authorities as described in Paragraph 7.01.A. below,
and other
8
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consents or approvals, the failure of which to obtain would not have a Material
Adverse Effect on Home or its ability to consummate the Exchange.
2.07 HOME'S BOOKS AND RECORDS. Home's books of account and business
records have been maintained in material compliance with all applicable legal
and accounting requirements and in accordance with good business practices, and
such books and records are complete and reflect accurately in all material
respects Home's items of income and expense and all of its assets, liabilities,
and stockholders' equity. The minute books of Home accurately reflect in all
material respects the corporate actions which its shareholders and Boards of
Directors, and all committees thereof, have taken during the time periods
covered by such minute books. All such minute books have been or will be made
available to Capital, CBC and their representatives.
2.08 HOME REPORTS. Home has filed all reports, registrations, and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with (i) the Federal Deposit Insurance
Corporation ("FDIC"), (ii) the Administrator, Savings Institutions Division,
North Carolina Department of Commerce (the "Administrator"), and (iii) any other
governmental or regulatory authorities having jurisdiction over Home. All such
reports, registrations, and statements filed by Home with the FDIC, the
Administrator, or other such regulatory authority are collectively referred to
herein as the "Reports." As of their respective dates, each Report complied in
all material respects with all the statutes, rules, and regulations enforced or
promulgated by the regulatory authority with which it was filed and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and Home
has not been notified by any such governmental or regulatory authority that any
such Report was deficient in any material respect as to form or content.
Following the date of this Agreement, Home shall deliver to CBC, simultaneous
with the filing thereof, a copy of each report, registration, statement or other
regulatory filing made by it with the FDIC, the Administrator, or any other such
regulatory authority.
2.09 HOME FINANCIAL STATEMENTS. Home has delivered to CBC (i) a copy of
its audited consolidated balance sheets as of December 31, 1997 and 1996, and
its audited consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 1997 and 1996, together
with notes thereto (the "Home Financial Statements"), and (ii) a copy of its
unaudited consolidated balance sheet as of June 30, 1998 and its unaudited
statement of operations for the nine months ended June 30, 1998 (the "Home
Interim Financial Statements"). Following the date of this Agreement, Home
promptly will deliver to CBC and Capital all other annual or interim financial
statements prepared by or for Home. The Home Financial Statements and the Home
Interim Financial Statements (including any related notes and schedules thereto)
(i) are in accordance with Home's books and records, and (ii) were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated and present fairly in all
material respects Home's financial condition, assets and liabilities, results of
operations, changes in stockholders' equity, and changes in cash flows as of the
dates indicated and for the periods
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specified therein. The Home Financial Statements have been audited and certified
by Home's independent certified public accountants, PricewaterhouseCoopers LLP.
2.10 TAX RETURNS AND OTHER TAX MATTERS. (i) Home has timely filed or
caused to be filed all federal, state, and local tax returns and reports which
are required by law to have been filed, and to the best knowledge of management
of Home, all such returns and reports were true, correct, and complete in all
material respects and contained all material information required to be
contained therein; (ii) all federal, state, and local income, profits,
franchise, sales, use, occupation, property, excise, and other taxes (including
interest and penalties), charges and assessments which have become due from or
been assessed or levied against Home or its property have been fully paid, and,
to the best knowledge of management of Home, with respect to any such taxes to
become due from Home for any period or periods through and including June 30,
1998, adequate provision has been made for the payment of all such taxes and
such provision is reflected in the Home Financial Statements; (iii) Home's tax
returns and reports have been examined or closed by applicable statutes of
limitations through the tax year ended September 30, 1995, and Home has not
received any indication of the pendency of any audit or examination in
connection with any tax return or report and has no knowledge that any such
return or report is subject to adjustment; and (iv) Home has not executed any
waiver or extended the statute of limitations (or been asked to execute a waiver
or extend a statute of limitation) with respect to any tax year, the audit of
any tax return or report or the assessment or collection of any tax. Any
deferred taxes of Home have been provided for in the Home Financial Statements
in all material respects.
2.11 ABSENCE OF MATERIAL ADVERSE CHANGES OR CERTAIN OTHER EVENTS.
(i) Since June 30, 1998, Home has conducted its business only
in the ordinary course, and there has been no Material Adverse Change, and there
has occurred no event or development and there currently exists no condition or
circumstance to the best knowledge of management of Home which, with the lapse
of time or otherwise, is reasonably likely to cause, create, or result in a
Material Adverse Change, in or affecting Home's consolidated financial condition
or results of operations, prospects, business, assets, loan portfolio,
investments, properties, or operations.
(ii) Since June 30, 1998, and other than in the ordinary
course of its business including its normal salary review for 1998, all as
Previously Disclosed to CBC and Capital, Home has not incurred any material
liability or engaged in any material transaction or entered into any material
agreement, increased the salaries, compensation, or general benefits payable to
its employees, suffered any loss, destruction, or damage to any of its
properties or assets, or made a material acquisition or disposition of any
assets or entered into any material contract or lease.
2.12 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 2.12, Home has no liabilities or obligations, whether known or unknown,
matured or unmatured, accrued, absolute, contingent, or otherwise, whether due
or to become due (including, without limitation, tax liabilities or unfunded
liabilities under employee benefit plans or arrangements),
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other than (i) those reflected in the Home Financial Statements or the Home
Interim Financial Statements, or (ii) obligations or liabilities incurred in the
ordinary course of its business since June 30, 1998, and which are not
reasonably likely to, individually or in the aggregate, cause a Material Adverse
Change in Home.
2.13 COMPLIANCE WITH EXISTING OBLIGATIONS. Home has performed in all
material respects all obligations required to be performed by it under, and it
is not in default in any material respect under, or in violation in any material
respect of, the terms and conditions of its Articles of Incorporation or Bylaws,
and/or any contract, agreement, lease, mortgage, note, bond, indenture, license,
obligation, understanding, or other undertaking (whether oral or written) to
which Home is bound or by which it, its business, capital stock, or any of its
properties or assets may be affected, which default or violation would have a
Material Adverse Effect on Home.
2.14 LITIGATION AND COMPLIANCE WITH LAW.
(i) There are no actions, suits, arbitrations, controversies,
or other proceedings or investigations (or, to the best knowledge and belief of
management of Home, any facts or circumstances which reasonably could result in
such), including, without limitation, any such action by any governmental or
regulatory authority, which currently exists or is ongoing, pending, or, to the
best knowledge and belief of management of Home, threatened, contemplated, or
probable of assertion, against, relating to, or otherwise affecting Home or any
of its properties or assets which, if determined adversely, could result in
liability on the part of Home for, or subject it to, monetary damages, fines, or
penalties, or an injunction, and which could have a Material Adverse Effect on
Home's financial condition, results of operations, prospects, business, assets,
loan portfolio, investments, properties, or operations or on the ability of Home
to consummate the Exchange;
(ii) Home has all licenses, permits, orders, authorizations,
or approvals ("Permits") of any federal, state, local, or foreign governmental
or regulatory body that are material to or necessary for the conduct of its
business or to own, lease, and operate its properties; all such Permits are in
full force and effect, except where the failure to be in force and effect would
not have a Material Adverse Effect on Home; no violations are or have been
recorded in respect of any such Permits; and no proceeding is pending or, to the
best knowledge of management of Home, threatened or probable of assertion to
suspend, cancel, revoke, or limit any Permit;
(iii) Home is not subject to any supervisory agreement,
enforcement order, writ, injunction, capital directive, supervisory directive,
memorandum of understanding, or other similar agreement, order, directive,
memorandum, or consent of, with or issued by any regulatory or other
governmental authority (including, without limitation, the FDIC or the
Administrator) relating to its financial condition, directors or officers,
operations, capital, regulatory compliance, or otherwise; there are no
judgments, orders, stipulations, injunctions, decrees, or awards against Home
which in any manner limit, restrict, regulate, enjoin, or prohibit any present
or past business or practice of Home; and Home has not been advised and has no
reason to believe that
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any regulatory or other governmental authority or any court is contemplating,
threatening, or requesting the issuance of any such agreement, order,
injunction, directive, memorandum, judgment, stipulation, decree, or award; and,
(iv) Home is not in violation or default in any material
respect under, and Home has complied in all material respects with, all laws,
statutes, ordinances, rules, regulations, orders, writs, injunctions, or decrees
of any court or federal, state, municipal, or other governmental or regulatory
authority having jurisdiction or authority over it or its business operations,
properties, or assets (including, without limitation, all provisions of North
Carolina law relating to usury, the Consumer Credit Protection Act, and all
other laws and regulations applicable to extensions of credit by Home) and, to
the best knowledge of management of Home, there is no basis for any claim by any
person or authority for compensation, reimbursement, or damages or otherwise for
any violation of any of the foregoing that would have any Material Adverse
Effect on the financial condition of Home.
2.15 REAL PROPERTIES. Home has Previously Disclosed to Capital and CBC
a listing of all real property owned or leased by Home and its Subsidiaries
(including, without limitation, banking facilities and all other real estate or
foreclosed properties owned by Home) (the "Real Property") and all leases, if
any, pertaining to any such Real Property to which Home is a party (the "Real
Property Leases"). With respect to all Real Property owned by Home, Home has
good and marketable title to such Real Property and owns the same free and clear
of all mortgages, liens, leases, encumbrances, title defects, and exceptions to
title other than (i) the lien of current taxes not yet due and payable, and (ii)
such imperfections of title and restrictions, covenants and easements (including
utility easements) which do not affect materially and adversely affect the value
of the Real Property and which do not and will not materially detract from,
interfere with, or restrict the present or future use of the properties subject
thereto or affected thereby. With respect to each Real Property Lease (i) such
lease is valid and enforceable in accordance with its terms, (ii) there
currently exists no circumstance or condition which constitutes an event of
default by Home or their lessor or which, with the passage of time or the giving
of required notices will or could constitute such an event of default, and (iii)
subject to any required consent of Home's lessor, each such Real Property Lease
may be assigned to CBC and the execution and delivery of this Agreement does not
constitute an event of default thereunder.
To the best knowledge of management of Home, the Real Property complies
in all material respects with all applicable federal, state, and local laws,
regulations, ordinances, or orders of any governmental authority, including
those relating to zoning, building and use permits, and the Real Property may be
used under applicable zoning ordinances for commercial banking facilities as a
matter of right rather than as a conditional or nonconforming use.
All improvements and fixtures included in or on the Real Property are
in good condition and repair, ordinary wear and tear excepted, and, except as
may have been Previously Disclosed pursuant to Paragraph 2.19 below, there does
not exist any condition which materially interferes with Home's use or
materially and adversely affects the economic value thereof.
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2.16 LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES.
(i) All loans, accounts, notes and other receivables reflected
as assets on Home's books and records (a) have resulted from bona fide business
transactions in the ordinary course of Home's operations, (b) in all material
respects were made in accordance with Home's customary loan policies and
procedures, and (c) are owned by Home free and clear of all liens, encumbrances,
assignments, participation or repurchase agreements, or other exceptions to
title or to the ownership or collection rights of any other person or entity.
(ii) All records of Home regarding all outstanding loans,
accounts, notes, and other receivables, and all other real estate owned, are
accurate in all material respects, and, with respect to each loan which Home's
loan documentation indicates is secured by any real or personal property or
property rights ("Loan Collateral"), such loan is secured by valid, perfected,
and enforceable liens on all such Loan Collateral having the priority described
in Home's records of such loan.
(iii) Each loan reflected as an asset on Home's books, and
each guaranty therefor, is the legal, valid, and binding obligation of the
obligor or guarantor thereon, and to the best knowledge of management of Home no
defense, offset, or counterclaim has been asserted with respect to any such loan
or guaranty.
(iv) Home has Previously Disclosed to CBC a listing of (a)
each loan, extension of credit, or other asset of Home which, as of June 30,
1998, is classified by the FDIC, the Administrator, or by Home as "Loss,"
"Doubtful," "Substandard," or "Special Mention" (or otherwise by words of
similar import), or which Home has designated as a special asset or for special
handling or placed on any "watch list" because of concerns regarding the
ultimate collectibility or deteriorating condition of such asset or any obligor
or Loan Collateral therefor, and (b) each loan or extension of credit of Home
which, as of June 30, 1998, was past due thirty (30) days or more as to the
payment of principal and/or interest, or as to which any obligor thereon
(including the borrower or any guarantor) otherwise was in default, is the
subject of a proceeding in bankruptcy, or otherwise has indicated any inability
or intention not to repay such loan or extension of credit. Each such listing is
accurate and complete as of the date indicated.
(v) To the best knowledge of management of Home, each of
Home's loans and other extensions of credit (with the exception of those loans
and extensions of credit specified in the written listings described in
Subparagraph (iv) above) is collectible in the ordinary course of Home's
business in an amount which is not less than the amount at which it is carried
on Home's books and records.
2.17 SECURITIES PORTFOLIO AND INVESTMENTS. All securities owned by Home
(whether owned of record or beneficially) are held free and clear of all
mortgages, liens, pledges, encumbrances, or any other restriction or rights of
any other person or entity, whether contractual or statutory, which would
materially impair the ability of Home to dispose freely of any such security
and/or otherwise to realize the benefits of ownership thereof at any time (other
than pledges of securities in the ordinary course of Home's business to secure
public funds
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deposits and in connection with repurchase agreements with customers and Federal
Home Loan Bank borrowings). There are no voting trusts or other agreements or
undertakings to which Home is a party with respect to the voting of any such
securities.
Except for fluctuations in the market values of United States Treasury
and agency, municipal securities, or other debt securities since June 30, 1998,
there has been no material deterioration or Material Adverse Change in the
quality, or any material decrease in the value, of Home's securities portfolio.
2.18 PERSONAL PROPERTY AND OTHER ASSETS. All assets of Home (including,
without limitation, all banking equipment, data processing equipment, vehicles,
and all other personal property located in or used in the operation of each
office of Home or otherwise used by Home in the operation of its business) are
owned by Home free and clear of all liens, leases, encumbrances, title defects,
or exceptions to title. All of Home's banking and other equipment is in good
operating condition and repair, ordinary wear and tear excepted.
2.19 ENVIRONMENTAL MATTERS. Home has Previously Disclosed and provided
to Capital and CBC copies of all written reports, correspondence, notices, or
other materials, if any, in its possession pertaining to environmental reports,
surveys, assessments, notices of violation, notices of regulatory requirements,
penalty assessments, claims, actions, or proceedings, past or pending, of the
Real Property or any of its Loan Collateral and any improvements thereon, or to
any violation of Environmental Laws (as defined below) on, affecting or
otherwise involving the Real Property, any Loan Collateral, or otherwise
involving Home.
To the best knowledge of management of Home:
(i) There has been no presence, use, production, generation,
handling, transportation, treatment, storage, disposal, distribution, labeling,
reporting, testing, processing, emission, discharge, release, threatened
release, control, or clean-up, in a reportable or regulated quantity, of any
hazardous, toxic, or otherwise regulated materials, substances, or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, oil or other petroleum products or byproducts, asbestos or materials
containing (or presumed to contain) asbestos, polychlorinated biphenyls, or
radioactive materials, and/or any hazardous, toxic, regulated or dangerous
waste, substance, or material defined as such by the United States Environmental
Protection Agency or any other federal, state, or local government or agency or
political subdivision thereof, or for the purpose of any Environmental Laws (as
defined herein), as may now or hereafter (through the Effective Time) be defined
or in effect ("Hazardous Substances") by any person on, from, or relating to any
parcel of the Real Property;
(ii) Home has not violated any federal, state, or local law,
rule, regulation, order, permit, or other requirement relating to health,
safety, or the environment or imposing liability, responsibility, or standards
of conduct applicable to environmental conditions (all such laws, rules,
regulations, orders, and other requirements being herein collectively referred
to as "Environmental Laws"), and, there has been no violation of any
Environmental Laws (including
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any violation with respect to or relating to any Loan Collateral) by any other
person or entity for whose liability or obligation with respect to any
particular matter or violation Home is or may be responsible or liable;
(iii) Home is not subject to any pending claims, demands,
causes of action, suits, proceedings, losses, damages, penalties, liabilities,
obligations, costs, or expenses of any kind and nature which arise out of,
under, or in connection with, or which result from or are based upon the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, reporting, testing, processing,
emission, discharge, release, threatened release, control, or clean-up of any
Hazardous Substances on, from, or relating to the Real Property or any Loan
Collateral, by Home or any other person or entity; and,
(iv) No facts, events, or conditions relating to the Real
Property or any Loan Collateral, or the operations of Home at any of their
respective office locations, will prevent, hinder or limit continued compliance
with Environmental Laws, or give rise to any investigatory, remedial, or
corrective actions, obligations, or liabilities (whether accrued, absolute,
contingent, unliquidated, or otherwise) pursuant to Environmental Laws.
For purposes of this Agreement, "Environmental Laws" shall include:
(i) all federal, state, and local statutes, regulations,
ordinances, orders, decrees, and similar provisions having the force or effect
of law,
(ii) all contractual agreements, and
(iii) all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including, without limitation, all standards of conduct and bases of obligations
relating to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, reporting, testing,
processing, discharge, release, threatened release, control, or clean-up of any
Hazardous Substances (including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, the Oil Pollutant Act, the Coastal Zone Management Act, any
"Superfund" or "Superlien" law, the North Carolina Oil Pollution and Hazardous
Substances Control Act, the North Carolina Water and Air Resources Act, and the
North Carolina Occupational Safety and Health Act, including any amendments
thereto from time to time) as such may now or hereafter (through the Effective
Time) be defined or in effect.
2.20 ABSENCE OF BROKERAGE OR FINDERS COMMISSIONS. Except as set forth
on Schedule 2.20 hereto, (i) all negotiations relative to this Agreement and the
transactions described herein have been carried on by Home directly with Capital
and CBC; (ii) no person or firm has been retained by or has acted on behalf of,
pursuant to any agreement, arrangement or understanding with, or under the
authority of, Home or its Board of Directors, as a broker, finder,
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or agent or has performed similar functions or otherwise is or may be entitled
to receive or claim a brokerage fee or other commission in connection with the
transactions described herein; and (iii) Home has not agreed to pay any
brokerage fee or other commission to any person or entity in connection with the
transactions described herein.
2.21 MATERIAL CONTRACTS. Except as set forth in Schedule 2.21 hereto,
Home is not a party to or bound by any agreement involving money or other
property in an amount or with a value in excess of $10,000 (i) which is not to
be performed in full prior to the Effective Time, (ii) which calls for the
provision of goods or services to Home and cannot be terminated without material
penalty upon written notice to the other party thereto, (iii) which is material
to Home and was not entered into in the ordinary course of business, (iv) which
involves hedging, options, or any similar trading activity, or interest rate
exchanges or swaps, (v) which commits Home to extend any loan or credit (with
the exception of letters of credit, lines of credit, and loan commitments
extended in the ordinary course of Home's business), (vi) which involves the
purchase or sale of any assets of Home, or the purchase, sale, issuance,
redemption, or transfer of any capital stock or other securities issued by Home,
or (vii) with any director or officer of Home (including, without limitation,
any employment or consulting agreement, but not including any agreement relating
to loans or other banking services which were made in the ordinary course of
Home's business and on substantially the same terms and conditions as were
prevailing at that time for similar agreements with unrelated persons).
Home is not in default in any material respect, and there has not
occurred any event which with the lapse of time or giving of notice or both
would constitute a default, under any contract, lease, insurance policy,
commitment, or arrangement to which it is a party or by which it or its property
is or may be bound or affected or under which it or its property receives
benefits, where the consequences of such default would have a Material Adverse
Effect on the financial condition, results of operations, prospects, business,
assets, loan portfolio, investments, properties, or operations of Home.
2.22 EMPLOYMENT MATTERS; EMPLOYEE RELATIONS. Home (i) has paid in full
to or accrued on behalf of all its directors, officers, and employees all wages,
salaries, commissions, bonuses, fees, sick pay, severance pay, all other amounts
promised to the extent required by law or when Home has a policy of making such
payments and other direct compensation for all services performed by them to the
date of this Agreement and (ii) is in compliance with all federal, state, and
local laws, statutes, rules, and regulations with regard to employment and
employment practices, terms and conditions, and wages and hours, and other
compensation matters; and no person has, to the best knowledge of management of
Home, asserted that Home is liable in any amount for any arrearages in wages or
employment taxes or for any penalties for failure to comply with any of the
foregoing.
There is no action, suit, or proceeding by any person pending or, to
the best knowledge of management of Home, threatened, against Home (or any of
its employees), involving employment discrimination, sexual harassment, wrongful
discharge, or similar claims.
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Home is not a party to or bound by any collective bargaining agreement
with any of its employees, any labor union, or any other collective bargaining
unit or organization. There is no pending or threatened labor dispute, work
stoppage, or strike involving Home and any of its employees, or any pending or
threatened proceeding in which it is asserted that Home has committed an unfair
labor practice; and management of Home is not aware of any activity involving it
or any of its employees seeking to certify a collective bargaining unit or
engaging in any other labor organization activity.
2.23 EMPLOYMENT AGREEMENTS; EMPLOYEE BENEFIT PLANS
(i) Neither Home nor any its Subsidiaries is a party to or
bound by any employment agreements with any of their respective directors,
officers, or employees, except for the employment agreement between Home and
Edwin E. Bridges ("Bridges"), dated April 27, 1998.
(ii) Home has Previously Disclosed and has delivered or made
available to Capital and CBC prior to the execution of this Agreement copies, in
each case, of all pension, stock ownership, severance pay, vacation, bonus, or
other incentive plans, all other written employee programs, arrangements, or
agreements, all medical, vision, dental, or other health plans, programs,
arrangements or agreements, all life insurance plans, and all other employee
benefit plans or fringe benefit plans, including "employee benefit plans" as
that term is defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by Home for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Benefit Plans"). Schedule 2.23 identifies each
such Benefit Plan, and further identifies each person who receives benefits
under, or is or may become eligible to receive benefits under, each such Benefit
Plan. Without limiting the foregoing, Schedule 2.23 also identifies each person
for whom Home has agreed to provide "lifetime" health benefits and describes the
extent of Home's obligations in that regard. Any of the Benefit Plans which is
an "employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as an "ERISA Plan." No ERISA Plan is also a
"defined benefit plan" (as defined in Section 414(j) of the Code) or is or has
been a multi-employer plan within the meaning of Section 3(37) of ERISA, except
as described on Schedule 2.23. Neither Home nor any affiliate of Home has ever
been required to contribute to a multi-employer plan, as defined in Section
3(37) of ERISA.
(iii) All Benefit Plans are in compliance in all material
respects with the applicable terms of ERISA, the Code, and any other applicable
laws, rules, or regulations, the breach or violation of which are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Home. Each ERISA Plan which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the Internal Revenue
Service, and management of Home is not aware of any circumstances likely to
result in revocation of any such favorable determination letter. To the best
knowledge of management of Home, Home has not engaged in a transaction with
respect to any Benefit Plan that, assuming the
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taxable period of such transaction expired as of the date hereof, would subject
Home to a tax imposed by either Section 4975 of the Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Home.
(iv) Home has no liability for retiree health and life
benefits under any of the Benefit Plans and there are no restrictions on the
rights of Home to amend or terminate any such Plan without incurring any
liability thereunder, except as set forth on Schedule 2.23.
(v) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (a) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of Home from Home under
any Benefit Plan or otherwise, (b) increase any benefits otherwise payable under
any Benefit Plan or otherwise, or (c) result in any acceleration of the time of
payment or vesting of any such benefit, except as set forth on Schedule 2.23.
(vi) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of Home and its beneficiaries have been fully reflected on the
Home Financial Statements to the extent required by and in accordance with GAAP.
Any adjustments necessary will be made prior to the earlier of Closing and
December 31, 1998.
2.24 INSURANCE. Home has in effect such policies of general liability,
casualty, directors and officers liability, employee fidelity, errors and
omissions, and other property and liability insurance (including without
limitation a "banker's blanket bond") as have been Previously Disclosed to
Capital and CBC (the "Policies"). The Policies provide coverage in such amounts
and against such liabilities, casualties, losses, or risks as is customary or
reasonable for entities engaged in Home's businesses or as is required by
applicable law or regulation; and, in the reasonable opinion of management of
Home, the insurance coverage provided under the Policies is reasonable and
adequate in all respects for Home. Each of the Policies is in full force and
effect and is valid and enforceable in accordance with its terms, and is
underwritten by an insurer of recognized financial responsibility and which is
qualified to transact business in North Carolina; and Home has taken all
requisite actions (including the giving of required notices) under each such
Policy in order to preserve all rights thereunder with respect to all matters.
Home is not in default under the provisions of, has received notice of
cancellation or nonrenewal of or any material premium increase on, or has any
knowledge of any failure to pay any premium on or any inaccuracy in any
application for any Policy. There are no pending claims with respect to any
Policy (and there are no facts which would form the basis of any such claim),
and Home has no knowledge of any state of facts or of the occurrence of any
event that is reasonably likely to form the basis for any such claim.
2.25 INSURANCE OF DEPOSITS. All deposits of Home are insured by the
Savings Association Insurance Fund of the FDIC to the maximum extent permitted
by law, all deposit insurance premiums due from Home to the FDIC have been paid
in full in a timely fashion, and
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no proceedings have been commenced or, to the best knowledge of management of
Home, are contemplated by the FDIC or otherwise to terminate such insurance.
2.26 AFFILIATES. Home has Previously Disclosed to Capital and CBC a
listing of those persons deemed by Home as of the date of this Agreement to be
"Affiliates" of Home (as that term is defined in Rule 405 promulgated under the
1933 Act), including persons, trusts, estates, corporations, or other entities
related to persons deemed to be Affiliates of Home.
2.27 OBSTACLES TO REGULATORY APPROVAL, ACCOUNTING TREATMENT, OR TAX
TREATMENT. To the best knowledge of management of Home, there exists no fact or
condition (including Home's record of compliance with the Community Reinvestment
Act) relating to Home that may reasonably be expected to (i) prevent or
materially impede or delay Capital, CBC or Home from obtaining the regulatory
approvals required in order to consummate transactions described herein, (ii)
prevent the Exchange from qualifying to be a reorganization under Section
368(a)(1)(B) of the Code, or (iii) prevent the Exchange from being treated as a
"pooling-of-interests" for accounting purposes; and, if any such fact or
condition becomes known to Home, Home shall promptly (and in any event within
three days after obtaining such knowledge) communicate such fact or condition to
Capital and CBC in writing.
2.28 YEAR 2000 READINESS. To the best knowledge of management of Home,
Home is in compliance with the FDIC's guidelines on Year 2000 readiness.
2.29 DISCLOSURE. To the best knowledge of management of Home, no
written statement, certificate, schedule, list, or other written information
furnished by or on behalf of Home at any time to Capital or CBC in connection
with this Agreement (including, without limitation, information "Previously
Disclosed" by Home), when considered as a whole, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. Each document
delivered or to be delivered by Home to Capital or CBC is or will be a true and
complete copy of such document, unmodified except by another document delivered
by Home.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CAPITAL AND CBC
Except as otherwise specifically described herein or as "Previously
Disclosed" (as defined in Paragraph 9.01 below) to Home, Capital and CBC hereby
make the following representations and warranties to Home.
3.01 ORGANIZATION; STANDING; POWER. Each of Capital and CBC (i) is duly
organized and incorporated, validly existing, and in good standing under the
laws of North Carolina, (ii) has all requisite power and authority (corporate
and other) to own, lease and operate its properties and to carry on its business
as now being conducted, (iii) is duly qualified to do business and is in good
standing in each other jurisdiction in which the character of the properties
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owned, leased or operated by it therein or in which the transaction of its
business makes such qualification necessary, except where failure so to qualify
would not have a Material Adverse Effect on Capital or CBC, and (iv) is not
transacting business, or operating any properties owned or leased by it, in
violation of any provision of federal or state law or any rule or regulation
promulgated thereunder, which violation would have a Material Adverse Effect on
Capital or CBC.
3.02 CAPITAL STOCK. CBC's authorized capital stock consists of
20,000,000 shares of common stock, no par value per share. As of August 31,
1998, one (1) share of CBC Stock was issued and outstanding. CBC's outstanding
capital stock has been duly authorized and validly issued, and is fully paid and
nonassessable, and the shares of CBC Stock issued to shareholders of Home
pursuant to this Agreement, when issued as described herein, will be duly
authorized, validly issued, fully paid, and nonassessable. Capital's authorized
capital stock consists of 20,000,000 shares of common stock, $5.00 par value per
share. As of June 30, 1998, 2,477,651 shares of Capital's common stock ("Capital
Stock") were issued and outstanding. Capital's outstanding capital stock has
been duly authorized and validly issued, and is fully paid and nonassessable
(except to the extent assessable under applicable North Carolina banking laws).
3.03 AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been
duly and validly approved by each of Capital's and CBC's Board of Directors and
duly executed on Capital's and CBC's behalf. Subject only to approval of this
Agreement by all applicable regulatory authorities (as contemplated by Paragraph
6.02 below), (i) Capital and CBC each has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations and agreements
and carry out the transactions described herein, (ii) all corporate action
required to be taken to authorize Capital and CBC to enter into this Agreement
and to perform their respective obligations and agreements and carry out the
transactions described herein has been duly and properly taken, and (iii) this
Agreement has been executed on behalf of each of CBC and Capital and, assuming
due authorization, execution and delivery by Home, constitutes the valid and
binding agreement of Capital and CBC, enforceable in accordance with its terms
(except to the extent enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws from time to
time in effect which affect creditors' rights generally; (b) by legal and
equitable limitations on the availability of injunctive relief, specific
performance, and other equitable remedies, and (c) general principles of equity
and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
3.04 VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Except where the same would not have a Material Adverse Effect on Capital or
CBC, neither the execution and delivery of this Agreement, nor the consummation
of the transactions described herein, nor compliance by Capital or CBC with any
of their respective obligations or agreements contained herein, will: (i)
conflict with or result in a breach of the terms and conditions of, or
constitute a default or violation under any provision of, Capital's or CBC's
Articles of Incorporation or Bylaws, or any contract, agreement, lease,
mortgage, note, bond, indenture, license, or obligation or understanding (oral
or written) to which Capital or CBC is bound or by which it, its business,
capital stock or any of its properties or assets may be
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affected; (ii) result in the creation or imposition of any lien, claim,
interest, charge, restriction, or encumbrance upon any of Capital's or CBC's
properties or assets; (iii) violate any applicable federal or state statute,
law, rule or regulation, or any order, writ, injunction, or decree of any court,
administrative or regulatory agency or governmental body; (iv) result in the
acceleration of any obligation or indebtedness of Capital or CBC; or (v)
interfere with or otherwise materially and adversely affect Capital's or CBC's
ability to carry on its business as presently conducted.
No consents, approvals, or waivers are required to be obtained from any
person or entity in connection with Capital's or CBC's execution and delivery of
this Agreement, or the performance of its obligations or agreements or the
consummation of the transactions described herein, except for the required
approvals of governmental or regulatory authorities described in Paragraph
7.01.A. below, and other consents or approvals, the failure of which to obtain
would not have a Material Adverse Effect on Capital or CBC or their respective
abilities to consummate the Exchange.
3.05 CAPITAL'S AND CBC'S BOOKS AND RECORDS. Capital's and CBC's
respective books of account and business records have been maintained in
material compliance with all applicable legal and accounting requirements and in
accordance with good business practices, and such books and records are complete
and reflect accurately in all material respects Capital's and CBC's respective
items of income and expense and all of their respective assets, liabilities, and
stockholders' equity. The minute books of Capital and CBC accurately reflect in
all material respects the corporate actions which their respective shareholders
and Boards of Directors, and all committees thereof, have taken during the time
periods covered by such minute books. All such minute books have been or will be
made available to Home and its representatives.
3.06 CAPITAL REPORTS. Capital and CBC have filed all reports,
registrations, and statements, together with any amendments that were required
to be made with respect thereto, that were required to be filed with any
governmental or regulatory authorities having jurisdiction over Capital or CBC.
All such reports and statements filed with such regulatory authorities are
collectively referred to herein as the "Capital Reports." As of their respective
dates, the Capital Reports complied in all material respects with all the
statutes, rules, and regulations enforced or promulgated by the regulatory
authority with which they were filed and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and neither Capital
nor CBC has been notified that any of the Capital Reports were deficient in any
material respect as to form or content.
3.07 CAPITAL FINANCIAL STATEMENTS. Capital has delivered to Home (i) a
copy of Capital's balance sheet as of December 31, 1997, and its statement of
operations, changes in shareholders' equity, and cash flows for the period June
20, 1997 through December 31, 1997 (the "Capital Financial Statements"), and
(ii) a copy of Capital's unaudited balance sheet as of June 30, 1998 and its
unaudited statement of operations for the six months ended June 30, 1998 (the
"Capital Interim Financial Statements"). The Capital Financial Statements and
the Capital Interim Financial Statements were prepared in accordance with GAAP
applied on a
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consistent basis throughout the periods indicated and present fairly in all
material respects Capital's financial condition, assets and liabilities, results
of operations, changes in shareholders' equity and changes in cash flows as of
the dates and for the periods specified therein. The Capital Financial
Statements for 1997 have been audited by Capital's independent accountants,
PricewaterhouseCoopers LLP.
3.08 TAX RETURNS AND OTHER TAX MATTERS. (i) Capital has timely filed or
caused to be filed all federal, state, and local tax returns and reports which
are required by law to have been filed, and to the best knowledge of management
of Capital, all such returns and reports were true, correct, and complete in all
material respects and contained all material information required to be
contained therein; (ii) all federal, state, and local income, profits,
franchise, sales, use, occupation, property, excise, and other taxes (including
interest and penalties), charges and assessments which have become due from or
been assessed or levied against Capital or its property have been fully paid,
and, to the best knowledge of management of Capital, with respect to any such
taxes to become due from Capital for any period or periods through and including
December 31, 1997, adequate provision has been made for the payment of all such
taxes and such provision is reflected in the Capital Financial Statements; (iii)
Capital has not received any indication of the pendency of any audit or
examination in connection with any tax return or report and has no knowledge
that any such return or report is subject to adjustment; and (iv) Capital has
not executed any waiver or extended the statute of limitations (or been asked to
execute a waiver or extend a statute of limitation) with respect to any tax
year, the audit of any tax return or report or the assessment or collection of
any tax. Any deferred taxes of Capital have been provided for in the Capital
Financial Statements in all material respects.
3.09 ABSENCE OF MATERIAL ADVERSE CHANGES. Since June 30, 1998 there has
been no Material Adverse Change, and there has occurred no event or development
and, to the best knowledge of management of Capital, there currently exists no
condition or circumstance which, with the lapse of time or otherwise, is
reasonably likely to cause, create or result in a Material Adverse Change, in or
affecting Capital's or CBC's financial condition or results of operations, or in
its assets, loan portfolio, investments, properties, or operations.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Capital nor CBC has
any liabilities or obligations, whether known or unknown, matured or unmatured,
accrued, absolute, contingent, or otherwise, whether due or to become due
(including, without limitation, tax liabilities or unfunded liabilities under
employee benefit plans or arrangements), other than (i) those reflected in the
Capital Financial Statements or the Capital Interim Financial Statements, or
(ii) obligations or liabilities incurred in the ordinary course of its business
since June 30, 1998, and which are not reasonably likely to, individually or in
the aggregate, cause a Material Adverse Change in Capital or CBC.
3.11 COMPLIANCE WITH EXISTING OBLIGATIONS. Capital and CBC have
performed in all material respects all obligations required to be performed by
them under, and they are not in default in any material respect under, or in
violation in any material respect of, the terms and conditions of their
respective Articles of Incorporation or Bylaws, and/or any contract, agreement,
lease, mortgage, note, bond, indenture, license, obligation, understanding, or
other
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undertaking (whether oral or written) to which Capital or CBC is bound or by
which it, its business, capital stock, or any of its properties or assets may be
affected, which default or violation would have a Material Adverse Effect on
Capital or CBC.
3.12 LITIGATION AND COMPLIANCE WITH LAW.
(i) There are no actions, suits, arbitrations, controversies
or other proceedings or investigations (or, to the best knowledge and belief of
management of Capital or CBC, any facts or circumstances which reasonably could
result in such), including, without limitation, any such action by any
governmental or regulatory authority, which currently exists or is ongoing,
pending or, to the best knowledge and belief of management of Capital or CBC,
threatened, contemplated, or probable of assertion, against, relating to, or
otherwise affecting Capital or CBC or any of its or their respective properties
or assets which, if determined adversely, could result in liability on the part
of Capital or CBC for, or subject Capital or CBC to, monetary damages, fines or
penalties, or an injunction, and which could have a Material Adverse Effect on
Capital's or CBC's financial condition, results of operations, or in Capital's
or CBC's assets, loan portfolio, investments, properties, or operations or on
the ability of Capital or CBC to consummate the Exchange;
(ii) Capital and CBC have all licenses, permits, orders,
authorizations, or approvals ("Capital Permits") of any federal, state, local,
or foreign governmental or regulatory body that are material to or necessary for
the conduct of their respective businesses or to own, lease, and operate their
respective properties; all such Capital Permits are in full force and effect,
except where the failure to be in force and effect would not have a Material
Adverse Effect on Capital or CBC; no violations are or have been recorded in
respect of any such Capital Permits; and no proceeding is pending or, to the
best knowledge of management of Capital or CBC, threatened or probable of
assertion to suspend, cancel, revoke, or limit any Capital Permit;
(iii) Neither Capital nor CBC is subject to any supervisory
agreement, enforcement order, writ, injunction, capital directive, supervisory
directive, memorandum of understanding, or other similar agreement, order,
directive, memorandum, or consent of, with or issued by any regulatory or other
governmental authority (including, without limitation, the FDIC or the North
Carolina Banking Commissioner (the "Commissioner")) relating to its financial
condition, directors or officers, operations, capital, regulatory compliance, or
otherwise; there are no judgments, orders, stipulations, injunctions, decrees,
or awards against Capital or CBC which in any manner limit, restrict, regulate,
enjoin, or prohibit any present or past business or practice of Capital or CBC;
and neither Capital nor CBC has been advised or have reason to believe that any
regulatory or other governmental authority or any court is contemplating,
threatening, or requesting the issuance of any such agreement, order,
injunction, directive, memorandum, judgment, stipulation, decree, or award; and,
(iv) Neither Capital nor CBC is in violation or default in any
material respect under, and each of Capital and CBC has complied in all material
respects with, all laws, statutes, ordinances, rules, regulations, orders,
writs, injunctions, or decrees of any court or federal, state, municipal, or
other governmental or regulatory authority having jurisdiction or authority over
it
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or its business operations, properties, or assets (including, without
limitation, all provisions of North Carolina law relating to usury, the Consumer
Credit Protection Act, and all other laws and regulations applicable to
extensions of credit by Capital or CBC) and to the best knowledge of management
of Capital or CBC there is no basis for any claim by any person or authority for
compensation, reimbursement, or damages or otherwise for any violation of any of
the foregoing that would have any Material Adverse Effect on the financial
condition of Capital or CBC.
3.13 OBSTACLES TO REGULATORY APPROVAL, ACCOUNTING TREATMENT, OR TAX
TREATMENT. To the best of the knowledge and belief of the executive officers of
Capital and CBC, no fact or condition (including Capital's record of compliance
with the Community Reinvestment Act) relating to Capital or CBC exists that may
reasonably be expected to (i) prevent or materially impede or delay the Capital
or CBC regulatory approvals required in order to consummate the transactions
described herein, including, without limitation, the Reorganization (as defined
in Paragraph 7.03.J.), (ii) prevent the Exchange from qualifying to be a
reorganization under Section 368(a)(1)(B) of the Code, or (iii) prevent the
Exchange from being treated as a "pooling-of-interests" for accounting purposes;
and, if any such fact or condition becomes known to the executive officers of
Capital or CBC, they promptly (and in any event within three days after
obtaining such knowledge) shall communicate such fact or condition to Home.
3.14 DISCLOSURE. To the best knowledge of Capital and CBC, no written
statement, certificate, schedule, list, or other written information furnished
by or on behalf of Capital or CBC at any time to Home in connection with this
Agreement (including, without limitation, information "Previously Disclosed" by
Capital or CBC), when considered as a whole, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. Each document
delivered or to be delivered by Capital or CBC to Home is or will be a true and
complete copy of such document, unmodified except by another document delivered
by Capital or CBC.
ARTICLE IV
COVENANTS OF HOME
4.01 AFFIRMATIVE COVENANTS OF HOME. Home hereby covenants and agrees as
follows with Capital and CBC:
A. "AFFILIATES" OF HOME. Home will use its best efforts to
cause each person who is an Affiliate of Home (as defined in Paragraph 2.26
above), to execute and deliver to Capital and CBC at least five (5) days prior
to the Closing a written agreement (the "Affiliates' Agreement") relating to
restrictions on shares of CBC Stock to be received by such Affiliates pursuant
to this Agreement and which Affiliates' Agreement shall be in form and content
reasonably satisfactory to Capital and CBC. Certificates for the shares of CBC
Stock issued to Affiliates of Home shall bear a restrictive legend
(substantially in the form as shall be set forth in the Affiliates' Agreement)
with respect to the restrictions applicable to such shares.
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B. CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME. While the
parties recognize that the operation of Home and its Subsidiaries until the
Effective Time is the responsibility of Home and its Subsidiaries and their
respective Boards of Directors and officers, Home agrees that, between the date
of this Agreement and the Effective Time, Home will carry on, and cause its
Subsidiaries to carry on, their respective businesses in and only in the regular
and usual course in substantially the same manner as such businesses heretofore
were conducted and Home agrees that it will, and will cause each of its
Subsidiaries to:
(i) preserve intact its present business
organization, keep available its present officers and employees, and preserve
its relationships with customers, depositors, creditors, correspondents,
suppliers, and others having business relationships with it;
(ii) maintain all its properties and equipment in
customary repair, order, and condition, ordinary wear and tear excepted;
(iii) maintain its books of account and records in
the usual, regular, and ordinary manner in accordance with sound business
practices applied on a consistent basis;
(iv) comply in all material respects with all laws,
rules, and regulations applicable to it, its properties and to the conduct of
its business;
(v) continue to maintain in force insurance such as
is described in Paragraph 2.24 above; not modify any bonds or policies of
insurance in effect as of the date hereof unless the same, as modified, provides
substantially equivalent coverage; and not cancel, allow to be terminated or, to
the extent available, fail to renew, any such bond or policy of insurance unless
the same is replaced with a bond or policy providing substantially equivalent
coverage;
(vi) provide to Capital and CBC on a monthly basis
Home's and each Home Subsidiary's market value report on their respective
investment portfolios and hedging portfolios; and,
(vii) promptly provide to Capital and CBC such
information about Home and each of its Subsidiaries and their respective
financial conditions, results of operations, prospects, businesses, assets, loan
portfolios (including, without limitation, changes in loan quality),
investments, properties, or operations, as Capital or CBC shall reasonably
request.
C. PERIODIC INFORMATION REGARDING LOANS. All proposed new
extensions of unsecured credit by Home, and all proposed new extensions of
secured credit in excess of $150,000 by Home will be submitted by Home to
Capital and CBC at least three days prior to approval by Home of such extension
of credit for Capital's and CBC's review.
Additionally, Home agrees to make available and provide to
Capital and CBC the following information with respect to Home's loans and other
extensions of credit (such
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assets herein referred to as "Loans") as of August 31, 1998, and each month
thereafter until the Effective Time, such information for each month to be in
form and substance as is usual and customary in the conduct of Home's business
and to be furnished within ten (10) business days of the end of each month
ending after the date hereof:
(i) a list of Loans past due for thirty (30)
days or more as to principal or interest;
(ii) an analysis of all classified or "watch
list" Loans, along with the outstanding balance for each such classified or
"watch list" Loan;
(iii) a list of Loans on nonaccrual status;
(iv) a list of all Loans without principal
reduction for a period of longer than one year;
(v) a list of all foreclosed real property
or other real estate owned and all repossessed personal property;
(vi) a list of reworked or restructured
Loans over $10,000 and still outstanding, including original terms, restructured
terms, and status; and
(vii) a list of any actual or threatened
litigation by or against Home pertaining to any Loans or credits, which list
shall contain a description of circumstances surrounding such litigation, its
present status, and management's evaluation of such litigation.
All writedowns of Loans and foreclosed properties
prior to the Effective Time shall be satisfactory to CBC in its sole discretion.
Home shall use its best efforts to effect all writedowns that it anticipates
making prior to Closing before December 31, 1998, if that date is, or is
expected to be, prior to the Closing Date.
Prior to the earlier of December 31, 1998 or the
Effective Time, Home shall increase its loan loss reserve to an amount
satisfactory to Capital in its sole discretion, provided, however, that such
action is not prohibited by any applicable law or regulation and provided
further that such action by Home shall not be deemed a default by Home of any
provision of this Agreement.
D. NOTICE OF CERTAIN CHANGES OR EVENTS. Following the
execution of this Agreement and up to the Effective Time, Home promptly will
notify Capital and CBC in writing of and provide to them such information as
either of them shall request regarding (i) any Material Adverse Change in Home's
and each Home Subsidiary's financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties, or
operations, or of the actual or prospective occurrence of any
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condition or event which, with the lapse of time or otherwise, is reasonably
likely to cause, create or result in any such Material Adverse Change, or (ii)
the actual or prospective existence or occurrence of any condition or event
which, with the lapse of time or otherwise, has caused or may or could cause any
statement, representation, or warranty of Home herein, or any information that
has been Previously Disclosed by Home to Capital or CBC, to be or become
materially inaccurate, misleading, or incomplete, or which has resulted or may
or could cause, create, or result in the material breach or violation of any of
Home's covenants or agreements contained herein or in the failure of any of the
conditions described in Paragraphs 7.01 or 7.03 below.
E. CONSENTS TO ASSIGNMENT OF LEASES. Home will obtain all
consents of its and its Subsidiary's respective landlords and lessors to the
acquisition of Home by CBC as may be required under the Real Property Leases and
all other leases, each of which consents shall be in form and substance
satisfactory to Capital and CBC.
F. FURTHER ACTION; INSTRUMENTS OF TRANSFER, ETC. Home
covenants and agrees with Capital and CBC that it (i) will use its reasonable
best efforts in good faith to take or cause to be taken all action reasonably
required of it hereunder as promptly as practicable so as to permit the
consummation of the transactions described herein at the earliest possible date,
(ii) shall perform all acts and execute and deliver to Capital and CBC all
documents or instruments reasonably required herein or as otherwise shall be
reasonably necessary or useful to or reasonably requested by either of them in
consummating such transactions, and, (iii) will cooperate with Capital and CBC
in every reasonable way in carrying out, and will pursue diligently the
expeditious completion of, such transactions.
4.02. NEGATIVE COVENANTS OF HOME. Home hereby covenants and agrees
that, between the date hereof and the Effective Time, neither Home nor any Home
Subsidiary will do any of the following things or take any of the following
actions without the prior written consent and authorization of Capital and CBC:
A. AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS.
Neither Home nor any of its Subsidiaries will amend its Articles of
Incorporation or Bylaws (except as may be required by applicable law or
regulation).
B. CHANGE IN CAPITAL STOCK. Neither Home nor any of its
Subsidiaries will (i) make any change in its authorized capital stock, or create
any other or additional authorized capital stock or other securities, or (ii)
issue, sell, purchase, redeem, retire, reclassify, combine, or split any shares
of its capital stock or other securities issued by Home or any Home Subsidiary,
other than the issuance of shares upon the exercise of stock options which are
outstanding as of the date of this Agreement (including securities convertible
into capital stock), or enter into any agreement or understanding with respect
to any such action.
C. OPTIONS, WARRANTS, AND RIGHTS. Neither Home nor any of its
Subsidiaries will grant or issue any options, warrants, calls, puts, or other
rights of any kind relating to the purchase, redemption, or conversion of shares
of its capital stock or any other securities (including securities convertible
into capital stock) or enter into any agreement or understanding with respect to
any such action, other than the Stock Option Agreement.
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D. DIVIDENDS. Neither Home nor any Home Subsidiary will
declare or pay any dividends or make any other distributions on or in respect of
any shares of its capital stock or otherwise to its shareholders; provided,
however, Home may declare a semi-annual dividend prior to March 31, 1999, in
accordance with its customary prior practices, in an amount not to exceed $.20
prorated for that portion of the six-month period commencing on October 1, 1998
which will have elapsed on the date that the parties agree, as of the time such
dividend is declared, will be the Closing Date. By way of example, if Home
declares a dividend in January of 1999, and the parties agree that the Closing
date will be February 1, 1999, the amount of the dividend that Home may declare
in January of 1999 would be $.20 multiplied by 4/6, or $.133 per share. Should
the Closing take place after April 1, 1999 and before September 30, 1999, Home
shall be entitled to declare and pay a dividend in an amount not to exceed $.20
per share prorated for that portion of the six-month period commencing April 1,
1999 which will have elapsed on the date that the parties agree, as of the time
such dividend is declared, will be the Closing Date.
E. EMPLOYMENT, BENEFIT, OR RETIREMENT AGREEMENTS OR PLANS.
Except as required by law, neither Home nor any Home Subsidiary will (i) enter
into or become bound by any contract, agreement, or commitment for the
employment or compensation of any officer, employee, or consultant which is not
immediately terminable by Home or such Subsidiary without cost or other
liability on no more than thirty (30) days notice; (ii) adopt, enter into, or
become bound by any new or additional profit-sharing, bonus, incentive, change
in control, or "golden parachute," stock option, stock purchase, pension,
retirement, insurance (hospitalization, life, or other), or similar contract,
agreement, commitment, understanding, plan, or arrangement (whether formal or
informal) with respect to or which provides for benefits for any of its current
or former directors, officers, employees, or consultants; or (iii) enter into or
become bound by any contract with or commitment to any labor or trade union or
association or any collective bargaining group.
F. INCREASE IN COMPENSATION; ADDITIONAL COMPENSATION. Except
as otherwise provided herein or with the prior written consent of Capital and
CBC, neither Home nor any Home Subsidiary will increase the compensation or
benefits of, or pay any bonus or other special or additional compensation to,
any of Home's or any of any Home Subsidiary's directors, officers, employees, or
consultants. Notwithstanding anything contained herein to the contrary, this
Paragraph 4.02.F. shall not prohibit annual merit increases in the salaries of
Home's employees or other payments, including Home's usual and customary annual
"Christmas" bonus (in an amount not to exceed 5% of any employee's base salary),
for any employee or director made in the ordinary course of business, consistent
with Home's past practices, in connection with existing compensation or benefit
plans, so long as such increases or payments, including bonuses, are effected at
such times and in such manner and amounts, and so long as Home provides Capital
and CBC with reasonable advance notice of any such increase or payment.
G. ACCOUNTING PRACTICES. Neither Home nor any Home Subsidiary
will make any changes in its accounting methods, practices, or procedures or in
depreciation or
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amortization policies, schedules, or rates heretofore applied (except as
required by GAAP or governmental regulations).
H. ACQUISITIONS; ADDITIONAL BRANCH OFFICES. Neither Home nor
any Home Subsidiary will directly or indirectly (i) acquire or merge with, or
acquire any branch or all or any significant part of the assets of, any other
person or entity, (ii) open any new branch office, or (iii) enter into or become
bound by any contract, agreement, commitment or letter of intent relating to, or
otherwise take or agree to take any action in furtherance of, any such
transaction or the opening of a new branch office.
I. CHANGES IN BUSINESS PRACTICES. Except as may be required by
the FDIC, the Administrator, or any other governmental or other regulatory
agency or as shall be required by applicable law, regulation, or this Agreement,
neither Home nor any Home Subsidiary will (i) change in any material respect the
nature of its business or the manner in which it conducts its business, (ii)
discontinue any material portion or line of its business, or (iii) change in any
material respect its lending, investment, asset-liability management, or other
material banking or business policies (except to the extent required by
Paragraph 4.01.C. above).
J. NO SOLICITATION. (i) Prior to the Effective Time, neither
Home nor any Home Subsidiary, nor any of their respective affiliate entities,
directors, officers, employees, agents, or representatives, shall, directly or
indirectly, (1) encourage, solicit or initiate (including by way of furnishing
or disclosing non-public information) any inquiries or the making of any
proposal with respect to any merger, consolidation, or other business
combination involving Home or any Home Subsidiary or the acquisition of all or
any significant part of the assets or capital stock of Home or any Home
Subsidiary (including, without limitation, any branch office) (an "Acquisition
Transaction") or (2) negotiate, explore, or otherwise engage in discussions with
any person (other than Capital, CBC and their representatives) with respect to
any Acquisition Transaction, or which may reasonably be expected to lead to a
proposal for an Acquisition Transaction or enter into any agreement,
arrangement, or understanding with respect to any such Acquisition Transaction
or which would require it to abandon, terminate, or fail to consummate the
Exchange or any other transaction contemplated by this Agreement.
(ii) Except as may be reasonably necessary to comply
with the legal duties of Home's Board of Directors under applicable law,
including, without limitation, the NCBCA (based on the advice of outside
counsel), Home agrees that, as of the date hereof, it, each Home Subsidiary and
any affiliate entities, and the respective directors, officer, employees,
agents, and representatives of the foregoing, shall immediately cease and cause
to be terminated any existing activities, discussions, and negotiations with any
person (other than Capital, CBC and their representatives) conducted heretofore
with respect to any Acquisition Transaction. Home agrees to promptly advise
Capital and CBC of any inquiries or proposals received by, any such information
requested from, and any requests for negotiations or discussions sought to be
initiated or continued with, Home, any Home Subsidiary, or any affiliate
entities, or any of the respective directors, officers, employees, agents, or
representatives of the foregoing, in each case from a person (other than
Capital, CBC or their representatives) with respect to an Acquisition
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Transaction. In addition, Home shall promptly advise Capital and CBC of the
substance and content of any such inquiry, proposal, information request,
negotiations, or discussions.
(iii) Nothing contained in this Paragraph 4.02.J.
shall prohibit Home from (1) filing with the FDIC a report on Form 8-K with
respect to this Agreement (2) taking and disclosing to its shareholders a
position contemplated by Rule 14d-9 or 14e-2 promulgated under the Securities
Exchange Act of 1934 (if applicable), or (3) making any disclosure to its
shareholders if, in the good faith judgment of the Board of Directors of Home,
upon the advice of outside counsel, failure to so disclose would be inconsistent
with any applicable law, including, without limitation, the NCBCA, or any duty
of the Board of Directors.
K. ACQUISITION OR DISPOSITION OF ASSETS. Unless required to do
so by any regulatory authority having jurisdiction over Home (in which event,
Home shall provide CBC and Capital with prompt written notice of such
requirement), neither Home nor any Home Subsidiary will, without the prior
written consent of Capital and CBC:
(i) sell or lease (as lessor), or enter into or
become bound by any contract, agreement, option, or commitment relating to the
sale, lease (as lessor), or other disposition of any real estate; or sell or
lease (as lessor), or enter into or become bound by any contract, agreement,
option, or commitment relating to the sale, lease (as lessor), or other
disposition of any equipment or any other fixed or capital asset having a value
on Home's or such Subsidiary's books or a fair market value, whichever is
greater, of more than $10,000 in the aggregate for all such items or assets;
(ii) purchase or lease (as lessee), or enter into or
become bound by any contract, agreement, option, or commitment relating to the
purchase, lease (as lessee), or other acquisition of any real property; or
purchase or lease (as lessee), or enter into or become bound by any contract,
agreement, option, or commitment relating to the purchase, lease (as lessee), or
other acquisition of any equipment or any other fixed assets having a purchase
price, or involving aggregate lease payments, in excess of $10,000 in the
aggregate for all such items or assets;
(iii) enter into any purchase commitment for supplies
or services which calls for prices of goods or fees for services materially
higher than current market prices or fees or which obligates Home or any Home
Subsidiary for a period longer than six (6) months;
(iv) other than in the ordinary course of business
and at a level consistent with past practice, sell, purchase, or repurchase, or
enter into or become bound by any contract, agreement, option, or commitment to
sell, purchase, or repurchase, any loan or other receivable or any participation
in any loan or other receivable; or
(v) other than in the ordinary course of business and
at a level consistent with past practice, sell or dispose of, or enter into or
become bound by any contract, agreement, option, or commitment relating to the
sale or other disposition of, any other asset of Home or any Home Subsidiary
(whether tangible or intangible, and including, without limitation, any trade
name, copyright, service mark, or intellectual property right or license); or
assign its
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right to or otherwise give any other person its permission or consent to use or
do business under Home's or any Home Subsidiary's corporate name or any name
similar thereto; or release, transfer, or waive any license or right granted to
it by any other person to use any trademark, trade name, copyright, or
intellectual property right.
L. DEBT; LIABILITIES. Except in the ordinary course of its
business consistent with its past practices, including routine borrowings from
the Federal Home Loan Bank of Atlanta and other corresponding Banks, neither
Home nor any Home Subsidiary will (i) enter into or become bound by any
promissory note, loan agreement, or other agreement or arrangement pertaining to
its borrowing of money, (ii) assume, guarantee, endorse, or otherwise become
responsible or liable for any obligation of any other person or entity, or (iii)
incur any other liability or obligation (absolute or contingent).
M. LIENS; ENCUMBRANCES. Neither Home nor any Home Subsidiary
will mortgage, pledge, or subject any of its assets to, or permit any of its
assets to become or (except as Previously Disclosed) remain subject to, any lien
or any other encumbrance (other than in the ordinary course of business
consistent with its past practices in connection with securing of public funds
deposits, securities repurchase agreements, or other similar operating matters).
N. WAIVER OF RIGHTS. Neither Home nor any Home Subsidiary will
waive, release, or compromise any material rights in its favor (except in the
ordinary course of business) except in good faith for fair value in money or
money's worth, nor waive, release, or compromise any rights against or with
respect to any of its officers, directors, or shareholders or members of
families of officers, directors, or shareholders.
O. OTHER CONTRACTS. Neither Home nor any Home Subsidiary will
enter into or become bound by any contracts, agreements, commitments, or
understandings (i) for or with respect to any charitable contributions greater
than $5,000 in the aggregate; (ii) with any governmental or regulatory agency or
authority (except as may be reasonably required by applicable law or
regulation); (iii) pursuant to which Home or such Subsidiary would assume,
guarantee, endorse, or otherwise become liable for the debt, liability, or
obligation of any other person (except in the ordinary course of business
consistent with past practices); (iv) which is entered into other than in the
ordinary course of its business; and (v) which, in the case of any one contract,
agreement, commitment, or understanding and whether or not in the ordinary
course of its business, would obligate or commit Home or such Subsidiary to make
expenditures of more than $5,000.
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ARTICLE V
COVENANTS OF CAPITAL AND CBC
Capital and CBC hereby covenant and agree as follows with Home:
5.01 NOTICE OF CERTAIN CHANGES OR EVENTS. Following the execution of
this Agreement and up to the Effective Time, Capital or CBC promptly will notify
Home in writing of and provide to it such information as it shall reasonably
request regarding (i) any Material Adverse Change (other than changes relating
to or resulting from changes affecting the banking industry generally, but
excluding movements in interest rates in the economy) in Capital's financial
condition, results of operations, prospects, business, assets, loan portfolio,
investments, properties or operations, or of the actual or prospective
occurrence of any condition or event which, with the lapse of time or otherwise,
is reasonably likely to cause, create or result in any such Material Adverse
Change, or (ii) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or may
or could cause any statement, representation or warranty of Capital or CBC
herein, or any information that has been Previously Disclosed by Capital or CBC
to Home, to be or become materially inaccurate, misleading or incomplete, or
which has resulted or may or could cause, create or result in the material
breach or violation of any of Capital's or CBC's covenants or agreements
contained herein or in the failure of any of the conditions described in
Paragraphs 7.01 or 7.02 below.
5.02 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.
A. Following the Effective Time and for a period of five years
thereafter, CBC shall indemnify, defend and hold harmless the present directors
and officers of Home and its Subsidiaries (each, an "Indemnified Party") against
all costs or expenses (including reasonable attorneys' fees), judgments, amounts
paid in settlement, fines, 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 actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this Agreement)
to the fullest extent that CBC is permitted to indemnify (and advance expenses
to) its directors and officers under the NCBCA, the CBC Articles of
Incorporation, and the CBC Bylaws as in effect on the date hereof, including
provisions relating to the advancement of expenses incurred in the defense of
any investigation, suit or proceeding; provided, any determination required to
be made with respect to whether an officer's or director's conduct complies with
the standards set forth under the NCBCA, the CBC Articles of Incorporation and
the CBC Bylaws shall be made by independent counsel selected by CBC and Home;
and provided, further, in no circumstance, shall CBC be required to indemnify
any Indemnified Party for intentional misconduct or fraud.
B. Prior to the Effective Time, Home may obtain a three year
director's and officer's tail liability insurance policy, in a coverage amount
equal to the director's and officer's insurance policy that Home currently has
in place, for the benefit of the present officers and directors of Home or any
of its Subsidiaries.
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C. Any Indemnified Party wishing to claim indemnification
under Paragraph 5.02.A., upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify CBC thereof in accordance
with Paragraph 9.04; provided that the failure so to notify shall not affect the
obligations of CBC under Section 5.02.A. unless and to the extent that CBC is
actually prejudiced as a result of such failure.
D. If, after the Effective Time, CBC or any of its successors
or assigns shall consolidate with or merge into any other entity and shall not
be the continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any other entity, then and in
each case, proper provision shall be made so that the successors and assigns of
CBC shall assume the obligations set forth in this Paragraph 5.02.
5.03. FURTHER ACTION. Capital and CBC covenant and agree with Home that
they (i) will use their reasonable best efforts in good faith to take or cause
to be taken all action reasonably required of them hereunder as promptly as
practicable so as to permit the consummation of the transactions described
herein at the earliest possible date, (ii) shall perform all acts and execute
and deliver to Home all documents or instruments reasonably required herein or
as otherwise shall be reasonably necessary or useful to or reasonably requested
by it in consummating such transactions, and, (iii) will cooperate with Home in
every reasonable way in carrying out, and will pursue diligently the expeditious
completion of, such transactions.
5.04 BOARD OF DIRECTORS. Subject to any necessary regulatory and
shareholder approval, as soon as practicable following the Effective Time (or,
in CBC's sole discretion, prior to the Effective Time), CBC shall take such
steps as appropriate to appoint Edwin E. Bridges and John Grimes, or cause them
to be elected, as members of CBC's Board of Directors, and, for such service,
Messrs. Bridges and Grimes shall be compensated in accordance with CBC's
standard arrangements for the compensation of its directors; provided, however,
no such compensation shall be paid for services as a director to any director
who is at such time being compensated for services as an employee of CBC,
Capital or Home.
5.05 ADVISORY BOARD OF DIRECTORS. After the Effective Time, the current
members of Home's Board of Directors shall serve as members of Capital's (or
Home's, as the case may be) local advisory board for a minimum of five (5)
years, subject to satisfactory performance, and for such service, such
individuals shall be compensated in accordance with Capital's standard
arrangements for the compensation of local advisory board members.
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ARTICLE VI
MUTUAL AGREEMENTS
6.01 SHAREHOLDER APPROVALS; REGISTRATION STATEMENT; PROXY
STATEMENT/PROSPECTUS; LISTING APPLICATION.
A. MEETINGS OF SHAREHOLDERS. Home shall cause a meeting of its
shareholders (the "Home Shareholder Meeting") to be held for the purpose of
Home's shareholders voting on the approval of this Agreement and the
transactions contemplated hereby. Capital shall cause a special meeting of its
shareholders (the "Capital Shareholder Meeting") to be held for the purposes of
voting on the Reorganization (as defined in Paragraph 7.03.J.). In connection
with the call and conduct of and all other matters relating to the Home
Shareholder Meeting and the Capital Shareholder Meeting (including the
solicitation of proxies), Home and Capital shall fully comply with all
provisions of applicable law and regulations and with their respective Articles
of Incorporation and Bylaws.
B. REGISTRATION STATEMENT. As soon as practicable following
the execution of this Agreement, Capital, CBC and Home shall in consultation
with each other prepare, and CBC shall file with the SEC, a registration
statement on Form S-4 (or on such other form as Capital and CBC shall determine
to be appropriate) (the "Registration Statement") covering (i) the CBC Stock to
be issued to shareholders of Home pursuant to this Agreement, and (ii) the CBC
Stock to be exchanged in the Reorganization, and will use their respective
reasonable best efforts in good faith to see that the Registration Statement is
declared effective by the SEC under the 1933 Act. Additionally, Capital, CBC and
Home shall in consultation with each other take all such other actions, if any,
as shall be required by applicable state securities or "blue sky" laws (i) to
cause the CBC Stock to be issued upon consummation of the Exchange, at the time
of the issuance thereof, to be duly qualified or registered (unless exempt)
under such laws, (ii) to cause all conditions to any exemptions from
qualification or registration under such laws to have been satisfied, and (iii)
to obtain any and all required approvals or consents to the issuance of such
stock.
C. PREPARATION AND DISTRIBUTION OF PROXY STATEMENT/PROSPECTUS.
Capital and Home jointly will prepare a "Proxy Statement/Prospectus" for
distribution to Home's shareholders as the proxy statement relating to its
solicitation of proxies for use at the Home Shareholder Meeting and as CBC's
prospectus relating to the offer and distribution of CBC Stock as described
herein. The Proxy Statement/Prospectus shall be in such form and shall contain
or be accompanied by such information regarding the Home Shareholder Meeting and
this Agreement, the parties hereto, and the transactions described or
contemplated herein as is required by applicable law and regulations and
otherwise as shall be agreed upon by Home and Capital. CBC shall include the
Proxy Statement/Prospectus as the prospectus in the Registration Statement.
Capital and Home shall cause the Proxy Statement/Prospectus to be filed with the
FDIC and, to the extent required or deemed advisable or appropriate by Capital's
counsel, the SEC for review; and each party hereto will cooperate with the
others in good faith and will use its respective reasonable best efforts in good
faith to respond to any comments of the FDIC or the SEC thereon.
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Home will mail the Proxy Statement/Prospectus to its
shareholders as soon as practicable following the date on which it is cleared by
the SEC and the Registration Statement is declared effective.
D. RECOMMENDATION OF HOME'S BOARD OF DIRECTORS. Unless, due to
a material change in circumstances or for any other reason Home's Board of
Directors reasonably believes, based on a written opinion of outside counsel,
that such a recommendation would violate the directors' duties or obligations as
such to Home or to its shareholders under applicable law, including, without
limitation, the NCBCA, Home's Board of Directors will recommend to and actively
encourage Home's shareholders that they vote their shares of Home Stock at the
Home Shareholder Meeting to approve and adopt this Agreement and the Exchange,
and the Proxy Statement/Prospectus mailed to Home's shareholders will so
indicate and state that Home's Board of Directors considers the Exchange to be
advisable and in the best interests of Home and its shareholders.
E. INFORMATION FOR PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT. CBC, Capital and Home each agrees to respond promptly, and to use its
reasonable best efforts to cause its directors, officers, counsel, accountants,
and affiliates to respond promptly to requests by any other party or its counsel
for information for inclusion in the various applications for regulatory
approvals and in the Proxy Statement/Prospectus and the Registration Statement.
CBC, Capital and Home each hereby covenant that none of the information provided
by it for inclusion in the Proxy Statement/Prospectus will, at the time of its
mailing, contain any untrue statement of a material fact or omit any material
fact required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
false or misleading; and, at all times following such mailing up to and
including the Effective Time, none of such information contained in the Proxy
Statement/Prospectus, as it may be amended or supplemented, will contain an
untrue statement of a material fact or omit any material fact required to be
stated therein or necessary in order to make the statements contained therein,
in light of the circumstances under which they were made, not false or
misleading.
In addition, Home shall cooperate with Capital and CBC, and
shall provide such information as Capital or CBC may reasonably request, in
connection with the preparation of Capital's proxy statement relating to the
Reorganization (as defined in Paragraph 7.03.J.), and the provisions of the
immediately preceding paragraph shall apply with respect to such information
provided by Home.
F. LISTING APPLICATION. Capital and CBC shall use their
reasonable best efforts to cause the shares of CBC Stock to be issued pursuant
to this Agreement in the Exchange to be listed for trading on the Nasdaq
SmallCap Market or on any securities exchange on which shares of CBC Stock shall
be listed at the Effective Time.
6.02 REGULATORY APPROVALS. Promptly following the date of this
Agreement, CBC, Capital and Home each shall use their respective reasonable best
efforts in good faith to (i)
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prepare and file, or cause to be prepared and filed, all applications for
regulatory approvals and actions as may be required of them, respectively, by
applicable law and regulations with respect to the transactions described herein
(including applications to the FDIC, the Commissioner, the Administrator, the
North Carolina State Banking Commission, the Board of Governors of the Federal
Reserve ("Federal Reserve"), and to any other applicable federal or state
banking, securities, or other regulatory authority as may be required), and (ii)
obtain all necessary regulatory approvals required for consummation of the
transactions described herein. The parties shall cooperate in the preparation of
all applications to regulatory authorities and, upon request, promptly shall
furnish all documents, information, financial statements, or other material that
may be required by the other party to complete any such application; and, before
the filing thereof, each party to this Agreement (and its counsel) shall have
the right to review and comment on the form and content of any such application
to be filed by the other party. Should the appearance of any of the officers,
directors, employees, or counsel of any of the parties hereto be requested by
any other party or by any governmental agency at any hearing in connection with
any such application, such party shall promptly use its best efforts to arrange
for such appearance.
6.03 ACCESS. Following the date of this Agreement and to and including
the Effective Time, Home shall provide, and shall cause each of its Subsidiaries
to provide, Capital, CBC and their employees, accountants, and counsel, access
to all their respective books, records, files, and other information (whether
maintained electronically or otherwise), to all their respective properties and
facilities, and to all their respective employees, accountants, counsel, and
consultants, for purposes of the conduct of such reasonable investigation and
review as Capital, CBC and their employees, accountants, and counsel shall, in
their sole discretion, consider to be necessary or appropriate; provided,
however, that any such review conducted by CBC shall be performed in such a
manner as will not interfere unreasonably with Home's normal operations, or with
Home's relationship with its customers or employees, and shall be conducted in
accordance with procedures established by the parties having due regard for the
foregoing.
6.04 COSTS. Whether or not this Agreement shall be terminated or the
Exchange shall be consummated, Home, CBC and Capital each shall pay its own
legal, accounting, and financial advisory fees and all its other costs and
expenses incurred or to be incurred in connection with the execution and
performance of its obligations under this Agreement or otherwise in connection
with this Agreement and the transactions described herein (including, without
limitation, all accounting fees, legal fees, filing fees, printing costs, travel
expenses, and, in the case of Home, all fees owed to Baxter Fentriss and Company
for the cost of Home's fairness opinion described in Paragraph 7.01.E. below,
and, in the case of Capital, all fees owed to Interstate Johnson Lane for the
cost of Capital's and/or CBC's fairness opinion described in Paragraph 7.01.E.
below). All costs incurred in connection with the printing and mailing of the
Proxy Statement/Prospectus shall be deemed to be incurred and shall be paid
fifty percent (50%) by Home and fifty percent (50%) by Capital.
6.05 ANNOUNCEMENTS. Home, CBC and Capital each agrees that no person
other than the parties to this Agreement is authorized to make any public
announcement or statement about this Agreement or any of the transactions
described herein, and that, without the prior
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review and consent of the other (which consent shall not unreasonably be denied
or delayed), no party hereto (or any affiliates of such parties) may make any
public announcement, statement, or disclosure as to the terms and conditions of
this Agreement or the transactions described herein, except for such disclosures
as may be required incidental to obtaining the prior approval of any regulatory
agency or official, or the consent of any lessor or landlord of Home or any Home
Subsidiary to the consummation of the transactions described herein. However,
notwithstanding anything contained herein to the contrary, prior review and
consent shall not be required if in the good faith opinion of counsel to
Capital, CBC or Home, such disclosure by such entity is required by law or
otherwise is prudent. Capital, CBC and Home agree that they shall make a joint
public announcement of this Agreement and the transactions described herein
after execution of this Agreement. The timing and content of such announcement
shall be approved by Capital, CBC and Home prior to such announcement.
6.06 ENVIRONMENTAL STUDIES.
A. ENVIRONMENTAL SURVEYS At their option and expense Capital
and CBC may cause to be conducted Phase I environmental assessments of the Real
Property, the real estate subject to any Real Property Lease, or the Loan
Collateral, or any portion thereof, together with such other studies, testing,
and intrusive sampling and analyses as Capital or CBC shall deem necessary or
desirable, and at its option and expense Home may cause to be conducted Phase I
environmental assessments of Capital's real property or real property that
Capital has leased (collectively, "Capital Property"), together with such other
studies, testing, and intrusive sampling and analyses as Home shall deem
necessary or desirable (collectively, the "Environmental Survey"). All such
Phase I environmental assessments shall be completed within sixty (60) days
following the date of this Agreement and thereafter the parties shall conduct
and complete any such additional studies, testing, sampling, and analyses within
sixty (60) days following completion of all Phase I environmental assessments.
B. RESULTS OF ENVIRONMENTAL SURVEYS CONDUCTED BY CAPITAL OR
CBC. If (i) the final results of any Environmental Survey (or any related
analytical data) conducted by Capital or CBC reflect that there likely has been
any discharge, disposal, release, or emission by any person of any Hazardous
Substance on, from, or relating to any of the Real Property, real estate subject
to a Real Property Lease, or Loan Collateral at any time prior to the Effective
Time, or that any action has been taken or not taken, or a condition or event
likely has occurred or exists, with respect to any of the Real Property, real
estate subject to a Real Property Lease, or Loan Collateral which constitutes or
would or may constitute a violation of any Environmental Laws, and if, (ii)
based on the advice of its legal counsel or other consultants, Capital or CBC
believes that Home or any Home Subsidiary is reasonably likely to become
responsible for the remediation of such discharge, disposal, release or emission
or for other corrective action with respect to any such violation, or that Home
or any Home Subsidiary is reasonably likely to become liable for monetary
damages (including, without limitation, any civil or criminal penalties or
assessments) resulting therefrom (or that, in the case of any of the Loan
Collateral, Home or any Home Subsidiary is reasonably likely to incur any such
liability if it acquired title to such Loan Collateral), and if, (iii) based on
the advice of its legal counsel or other consultants, Capital or CBC believes
the amount of expenses or liability which Home or
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any Home Subsidiary is reasonably likely to incur or for which Home or any Home
Subsidiary could become responsible or liable on account of any and all such
remediation, corrective action or monetary damages at any time or over any
period of time could equal or exceed an aggregate of $50,000, then Capital or
CBC shall give Home written notice thereof (together with all information in its
possession relating thereto) within fifteen (15) days of the completion of the
Environmental Survey and, at Capital's or CBC's option and discretion, at any
time thereafter and up to the Effective Time, Capital or CBC may terminate this
Agreement without further obligation or liability to Home.
C. RESULTS OF ENVIRONMENTAL SURVEYS CONDUCTED BY HOME. If (i)
the final results of any Environmental Survey (or any related analytical data)
conducted by Home reflect that there likely has been any discharge, disposal,
release, or emission by any person of any Hazardous Substance on, from, or
relating to any of the Capital Property at any time prior to the Effective Time,
or that any action has been taken or not taken, or a condition or event likely
has occurred or exists, with respect to any of the Capital Property which
constitutes or would or may constitute a violation of any Environmental Laws,
and if, (ii) based on the advice of its legal counsel or other consultants, Home
believes that Capital or CBC is reasonably likely to become responsible for the
remediation of such discharge, disposal, release or emission or for other
corrective action with respect to any such violation, or that Capital or CBC is
reasonably likely to become liable for monetary damages (including, without
limitation, any civil or criminal penalties or assessments) resulting therefrom,
and if, (iii) based on the advice of its legal counsel or other consultants,
Home believes the amount of expenses or liability which Capital or CBC is
reasonably likely to incur or for which Capital or CBC could become responsible
or liable on account of any and all such remediation, corrective action or
monetary damages at any time or over any period of time could equal or exceed an
aggregate of $50,000, then Home shall give Capital and CBC written notice
thereof (together with all information in its possession relating thereto)
within fifteen (15) days of the completion of the Environmental Survey and, at
Home's option and discretion, at any time thereafter and up to the Effective
Time, Home may terminate this Agreement without further obligation or liability
to Capital or CBC.
6.07 EMPLOYEES; SEVERANCE PAYMENTS; EMPLOYEE BENEFITS.
A. EMPLOYMENT AGREEMENT. Home shall enter into an amended and
restated employment agreement with Edwin E. Bridges as of the Effective Time
which shall contain substantially the same terms and conditions and be in
substantially the same form as is attached as Exhibit B to this Agreement.
B. EMPLOYMENT OF OTHER HOME EMPLOYEES. Provided they remain
employed by Home at the Effective Time, Capital will in good faith use its best
efforts to locate suitable positions for and offer employment to all other
employees of Home ("Home Employees") at an office of Capital or Home located
within a reasonable commuting distance from their respective job locations at
the Effective Time. The employment so offered by Capital shall be at such
compensation as that of the Home Employee at the Effective Time. Notwithstanding
the foregoing, or anything else in this Agreement, Capital shall have no
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obligation with respect to any specific Home Employee, except as set forth in
subparagraphs C and E below. Each such Home Employee's employment shall be on an
"at-will" basis, and nothing in this Agreement shall be deemed to constitute an
employment agreement with any such person or to obligate Capital to employ any
such person for any specific period of time or in any specific position or to
restrict Capital's right to terminate the employment of any such person at any
time and for any reason satisfactory to Capital.
C. SEVERANCE PAYMENT. In the event Capital terminates any
employee of Home other than Edwin E. Bridges within one year of the Effective
Time for any reason other than cause ("cause" to be determined in Capital's
absolute discretion), Capital shall pay to such employee severance pay in an
amount equal to such employee's regular salary for one week, with a minimum of
three weeks, per year of such employee's employment with Home.
D. EMPLOYEE BENEFITS. Except as otherwise provided herein, all
Home Employees shall be entitled to receive all employee benefits and to
participate in all benefit plans provided by CBC and Capital on the same basis
(including costs) and subject to the same eligibility and vesting requirements,
and to the same conditions, restrictions and limitations, as generally are in
effect and applicable to other newly hired employees of CBC and Capital.
However, each Home Employee shall be given credit for his or her full years of
service with Home for purposes of entitlement to vacation and sick leave and for
purposes of eligibility and vesting (but not for benefit accrual purposes) under
any CBC and Capital benefit plans. There shall be no exclusion from coverage
under the CBC and Capital health insurance plan as a result of pre-existing
conditions to the extent such conditions were covered under any health insurance
plan maintained by Home prior to the Effective Time.
E. EMPLOYEE STOCK OWNERSHIP PLAN. Home acknowledges that CBC
intends to assume the Home Employee Stock Ownership Plan ("Home ESOP"), and,
thereafter, to terminate the Home ESOP at the earliest practicable time
permitted by applicable legal and accounting authority (including without
limitation the applicable requirements for the transactions contemplated by this
Agreement to be treated as a "pooling of interests" for accounting purposes),
all at CBC's discretion. CBC intends to continue to make ESOP loan payments
substantially consistent with Home's past practices, and CBC will not terminate
the ESOP until all loan balances due under the ESOP have been paid in full. Home
covenants and agrees with CBC and Capital to take any actions reasonably
requested by CBC or Capital to facilitate such assumption, including without
limitation, obtaining consents and approval, providing notices, and making any
filings as may be necessary or desirable.
F. PENSION PLAN. Prior to December 31, 1998, or the Effective
Time if the Effective Time is prior to December 31, 1998, (i) Home shall fund
any deficits existing in the Home defined benefit pension plan ("Pension Plan"),
and (ii) Home's Board of Directors shall adopt a resolution to terminate the
Pension Plan, effective before the Effective Time or as soon after the Effective
Time as possible, in accordance with the terms of the Pension Plan and the
requirements of ERISA and the Code.
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G. STOCK PLANS. CBC and Capital acknowledge that the Exchange
will constitute a change in control for purposes of Home's Management
Recognition Plan and Stock Option Plan and that all outstanding awards
thereunder, totaling 26,347 shares of Home Stock and 49,295 stock options will
be fully vested as a result of the Exchange.
6.08 CONFIDENTIALITY. Capital, CBC and Home each agrees that it will
treat as confidential and not disclose to any unauthorized person any documents
or other information obtained from or learned about the others during the course
of the negotiation of this Agreement and the carrying out of the events and
transactions described herein (including any information obtained during the
course of any due diligence investigation or review provided for herein or
otherwise) and which documents or other information relates in any way to the
business, operations, personnel, customers, or financial condition of such other
parties; and that it will not use any such documents or other information for
any purpose except for the purposes for which such documents and information
were provided to it and in furtherance of the transactions described herein.
However, the above obligations of confidentiality shall not prohibit the
disclosure of any such document or information by any party to this Agreement to
the extent (i) such document or information is then available generally to the
public or is already known to the person or entity to whom disclosure is
proposed to be made (other than through the previous actions of such party in
violation of this Paragraph 6.08), (ii) such document or information was
available to the disclosing party on a nonconfidential basis prior to the same
being obtained pursuant to this Agreement, (iii) disclosure is required by
subpoena or order of a court or regulatory authority of competent jurisdiction,
or by the SEC, FDIC or other regulatory authorities in connection with the
transactions described herein, or (iv) to the extent that, in the reasonable
opinion of legal counsel to such party, disclosure otherwise is required by law.
Capital, CBC and Home shall cause their respective Subsidiaries and affiliates,
and all of their respective officers, directors, employees and agents to comply
with the provisions of this Paragraph 6.08.
In the event this Agreement is terminated for any reason, each of the
parties hereto immediately shall return to the other parties all copies of any
and all documents or other written materials or information of or relating to
such other parties which were obtained from them or their Subsidiaries or
affiliates during the course of the negotiation of this Agreement and the
carrying out of the events and transactions described herein (whether during the
course of any due diligence investigation or review provided for herein or
otherwise) and which documents or other information relates in any way to the
business, operations, personnel, customers, or financial condition of such other
parties.
The parties' obligations of confidentiality under this Paragraph 6.08
shall survive and remain in effect following any termination of this Agreement.
6.09 REORGANIZATION FOR TAX PURPOSES. Capital, CBC and Home each
undertakes and agrees to use its reasonable best efforts to cause the Exchange
to qualify as a "reorganization" within the meaning of Section 368(a)(1)(B) of
the Code, and that it will not intentionally take any action that would cause
the Exchange to fail to so qualify.
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6.10 ACCOUNTING TREATMENT. Capital, CBC and Home each undertakes and
agrees to use its reasonable best efforts to cause the Exchange to qualify to be
treated as a "pooling-of-interests" for accounting purposes and that it will not
intentionally take any action that would cause the Exchange to fail to so
qualify.
6.11 OTHER PERMISSIBLE TRANSACTIONS. Home agrees that CBC and/or
Capital may offer to acquire, enter into agreements to acquire and acquire
financial institution holding companies and their subsidiaries, financial
institutions or financial services entities and their subsidiaries, leasing
companies and other entities which are permissible for financial institutions to
own, and/or the assets and liabilities of such entities prior to the Effective
Time.
ARTICLE VII
CONDITIONS PRECEDENT TO EXCHANGE
7.01 CONDITIONS TO ALL PARTIES' OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
A. APPROVAL BY GOVERNMENTAL OR REGULATORY AUTHORITIES; NO
DISADVANTAGEOUS CONDITIONS. (i) The Exchange and the other transactions
described herein (not including the Reorganization) shall have been approved, to
the extent required by law, by the FDIC, the Commissioner and the North Carolina
State Banking Commission, the Administrator, the Federal Reserve, and by all
other governmental or regulatory agencies or authorities having jurisdiction
over such transaction, (ii) no governmental or regulatory agency or authority
shall have withdrawn its approval of such transactions or imposed any condition
on such transactions or conditioned its approval thereof, which condition is
reasonably deemed by Capital, CBC or Home to be materially disadvantageous or
burdensome or to impact so adversely the economic or business benefits of this
Agreement as to render it inadvisable for such party to consummate the
transactions contemplated herein; (iii) all waiting periods required following
necessary approvals by governmental or regulatory agencies or authorities shall
have expired, and, in the case of any waiting period imposed by law or
regulation following approval by the Federal Reserve, the FDIC, or other
governmental or regulatory authority, no unwithdrawn objection to the
transactions contemplated herein shall have been raised by the U.S. Department
of Justice; and (iv) all other consents, approvals, and permissions, and the
satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.
B. EFFECTIVENESS OF REGISTRATION STATEMENT; COMPLIANCE WITH
SECURITIES AND OTHER "BLUE SKY" REQUIREMENTS. The Registration Statement shall
be effective under the 1933 Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC. CBC and Capital
shall have taken all such actions, if any, as required by applicable state
securities laws (i) to cause the CBC Stock to be issued upon
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consummation of the Exchange, at the time of the issuance thereof, to be duly
qualified or registered (unless exempt) under such laws, (ii) to cause all
conditions to any exemptions from qualification or registration under such laws
to have been satisfied, and (iii) to obtain any and all required approvals or
consents with respect to the issuance of such stock, and any such required
approvals or consents shall have been obtained and shall remain in effect.
C. ADVERSE PROCEEDINGS, INJUNCTION, ETC. There shall not be
(i) any order, decree, or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits the Exchange or any of the other
transactions described herein (not including the Reorganization) or any of the
parties hereto from consummating any such transaction, (ii) any pending or
threatened investigation of the Exchange or any of such other transactions
contemplated herein (not including the Reorganization) by the U.S. Department of
Justice, or any actual or threatened litigation under federal antitrust laws
relating to the Exchange or any other such transactions, or (iii) any suit,
action, or proceeding by any person (including any governmental, administrative,
or regulatory agency), pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit Home, CBC or Capital from
consummating the transactions contemplated herein (not including the
Reorganization) or carrying out any of the terms or provisions of this
Agreement, or (iv) any other suit, claim, action, or proceeding pending or
threatened against Home, CBC or Capital or any of their officers or directors
which shall reasonably be considered by Home, CBC or Capital to be materially
burdensome in relation to the proposed transactions or materially adverse in
relation to the financial condition of such corporation, and which has not been
dismissed, terminated, or resolved to the satisfaction of all parties hereto
within ninety (90) days of the institution or threat thereof.
D. APPROVAL BY BOARD OF DIRECTORS AND SHAREHOLDERS. The Boards
of Directors of Home, Capital and CBC shall have duly approved and adopted this
Agreement by appropriate resolutions and the shareholders of Home shall have
duly approved, ratified, and confirmed this Agreement and the transactions
contemplated herein, all to the extent required by and in accordance with the
provisions of this Agreement, applicable law, and applicable provisions of their
respective Articles of Incorporation and Bylaws.
E. FAIRNESS OPINIONS. Home shall have received from Baxter
Fentriss and Company a written opinion, in form and substance satisfactory to
Home and its counsel, dated as of the date of this Agreement to Home's
shareholders, to the effect that the terms of the transactions contemplated
herein are fair, from a financial point of view, to Home and its shareholders.
Capital and/or CBC shall have received from Interstate Johnson Lane a written
opinion, in form and substance satisfactory to Capital and/or CBC and its/their
counsel, dated as of the date of this Agreement to Capital's and/or CBC's
shareholders, to the effect that the terms of the transactions contemplated
herein are fair, from a financial point of view, to Capital and/or CBC and
its/their shareholders.
F. TAX OPINION. The parties shall have received, in form and
substance satisfactory to Capital, CBC and Home, an opinion of
PricewaterhouseCoopers LLP substantially to the effect that: (i) for federal
income tax purposes, consummation of the Exchange will
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constitute a "reorganization" as defined in ss. 368(a)(1)(B) of the Code; (ii)
that no taxable gain will be recognized by a shareholder of Home upon such
shareholder's receipt of CBC Stock in exchange for his or her Home Stock; (iii)
that the basis of the CBC Stock received by the shareholder in the Exchange will
be the same as his or her Home Stock surrendered in exchange therefor; and (iv)
that, if Home Stock is a capital asset in the hands of the shareholder at the
Effective Time, then the holding period of the CBC Stock received by the
shareholder in the Exchange will include the holding period of Home Stock
surrendered in exchange therefor. In rendering its opinion,
PricewaterhouseCoopers LLP may rely on representations contained in certificates
of officers of Home, CBC and Capital.
G. LISTING OF CBC'S STOCK. CBC Stock shall have been approved
for listing on the Nasdaq SmallCap Market effective as of the Effective Time.
H. NO TERMINATION OR ABANDONMENT. This Agreement shall not
have been terminated by any party hereto.
7.02 ADDITIONAL CONDITIONS TO HOME'S OBLIGATIONS. Notwithstanding any
other provision of this Agreement to the contrary, Home's obligations to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or prior to the
Closing Date:
A. MATERIAL ADVERSE CHANGE. There shall not have been any
Material Adverse Change in the financial condition or results of operations of
Capital or CBC, and there shall not have occurred any event or development and
there shall not exist any condition or circumstance which, with the lapse of
time or otherwise, is reasonably likely to cause, create, or result in any such
Material Adverse Change.
B. COMPLIANCE WITH LAWS. Capital and CBC shall have complied
in all material respects with all federal and state laws and regulations
applicable to the transactions described herein and where the violation of or
failure to comply with any such law or regulation is reasonably likely to have a
Material Adverse Effect on the financial condition or results of operations of
Capital or CBC.
C. CAPITAL'S AND CBC'S REPRESENTATIONS AND WARRANTIES AND
PERFORMANCE OF AGREEMENTS; OFFICERS' CERTIFICATE. Unless waived in writing by
Home as provided in Paragraph 9.02 below, each of the representations and
warranties of Capital and CBC contained in this Agreement shall have been true
and correct as of the date hereof and shall remain true and correct in all
material respects on and as of the Effective Time with the same force and effect
as though made on and as of such date, except (i) representations and warranties
that speak as of a specific date, (ii) for changes which are not, in the
aggregate, material and adverse to the financial condition and results of
operations of Capital or CBC, and (iii) as otherwise contemplated by this
Agreement; and Capital and CBC shall have performed in all material respects all
their respective obligations, covenants, and agreements hereunder to be
performed by them on or before the Closing Date. Home shall have received a
certificate dated
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as of the Closing Date and executed by Capital's and CBC's President and Chief
Financial Officer to the foregoing effect and as to any other matter as Home may
reasonably request.
D. LEGAL OPINION OF CAPITAL'S AND CBC'S COUNSEL. Home shall
have received from Capital's and CBC's counsel, Smith, Anderson, Blount,
Dorsett, Mitchell & Jernigan LLP, a written opinion, dated as of the Closing
Date in the form of Exhibit C attached hereto.
E. OTHER DOCUMENTS AND INFORMATION FROM CAPITAL AND CBC.
Capital and CBC shall have provided to Home correct and complete copies of their
respective Bylaws, Articles of Incorporation and board resolutions (all
certified by their respective secretaries), together with a certificate of the
incumbency of its officers and such other closing documents and information as
may be reasonably requested by Home or its counsel.
F. ACCEPTANCE BY HOME'S COUNSEL. The form and substance of all
legal matters described herein or related to the transactions contemplated
herein shall be reasonably acceptable to Home's legal counsel.
7.03 ADDITIONAL CONDITIONS TO CAPITAL'S AND CBC'S OBLIGATION.
Notwithstanding any other provision of this Agreement to the contrary, Capital's
and CBC's obligation to consummate the transactions described herein shall be
conditioned upon the satisfaction of each of the following conditions precedent
on or prior to the Closing Date:
A. MATERIAL ADVERSE CHANGE. There shall not have occurred any
Material Adverse Change in the financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties, or
operations of Home or any Home Subsidiary, and there shall not have occurred any
event or development and there shall not exist any condition or circumstance
which, with the lapse of time or otherwise, is reasonably likely to cause,
create, or result in any such Material Adverse Change.
B. COMPLIANCE WITH LAWS. Home and each Home Subsidiary shall
have complied in all material respects with all federal and state laws and
regulations applicable to the transactions described herein and where the
violation of or failure to comply with any such law or regulation is reasonably
likely to have a Material Adverse Effect on Home.
C. HOME'S REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
AGREEMENTS; OFFICERS' CERTIFICATE. Unless waived in writing by Capital or CBC as
provided in Paragraph 9.02 below, each of the representations and warranties of
Home contained in this Agreement shall have been true and correct in all
material respects as of the date hereof and shall remain true and correct on and
as of the Effective Time with the same force and effect as though made on and as
of such date, except (i) representations and warranties that speak as of a
specific date, (ii) for changes which do not, in the aggregate, result in a
Material Adverse Effect on the financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties, or
operations of Home or any Home Subsidiary, and (iii) as otherwise contemplated
by this Agreement; and Home shall have
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performed in all material respects all its obligations, covenants, and
agreements hereunder to be performed by it on or before the Closing Date.
Capital and CBC shall have received a certificate dated as of
the Closing Date and executed by Home's President and Chief Financial Officer to
the foregoing effect and as to such other matters as may be reasonably requested
by Capital or CBC.
D. LEGAL OPINION OF HOME'S COUNSEL. Capital and CBC shall have
received from Home's counsel, Moore & Van Allen, PLLC, a written opinion, dated
as of the Closing Date in the form of Exhibit D attached hereto.
E. OTHER DOCUMENTS AND INFORMATION FROM HOME. Home shall have
provided to Capital and CBC correct and complete copies of its Articles of
Incorporation, Bylaws, and board and shareholder resolutions (all certified by
Home's Secretary), together with certificates of the incumbency of Home's
officers and such other closing documents and information as may be reasonably
requested by Capital, CBC or their counsel.
F. CONSENTS TO ASSIGNMENT OF LEASES. Home shall have obtained
all required consents to the Exchange as may be required under the Real Property
Leases and all other leases, under the same terms, rates, and conditions of such
Real Property Leases and all other leases in effect as of the date of this
Agreement, and such consents shall be in such form and substance as shall be
satisfactory to CBC; and each of Home's and each of Home Subsidiary's lessors
shall have confirmed in writing that Home or such Subsidiary, as the case may
be, is not in material default under the terms and conditions of the Real
Property Lease or any other lease between such lessor and Home or such
Subsidiary.
G. ACCEPTANCE BY CAPITAL'S AND CBC'S COUNSEL. The form and
substance of all legal matters described herein or related to the transactions
contemplated herein shall be reasonably acceptable to Capital's and CBC's legal
counsel.
H. EXERCISE OF DISSENTERS RIGHTS. The aggregate number of
shares of Home Stock as to which cash is required to be paid as the result of
the exercise of any dissenters rights pursuant to the NCBCA, when coupled with
any other shares of Capital Stock, CBC Stock and Home Stock deemed tainted for
"pooling-of-interest" purposes, shall not exceed 10% of the total number of
shares of Home Stock outstanding at the date of this Agreement or at the
Effective Time.
I. EMPLOYMENT AND NON-COMPETE AGREEMENT. Edwin E. Bridges
("Bridges") shall enter into an amended and restated employment and non-compete
agreement with Home substantially in the form of Exhibit B attached hereto or
otherwise in form and substance satisfactory to Capital and CBC. Such amended
and restated employment and non-compete agreement shall amend, restate, replace
and supersede any prior employment agreement between Bridges and Home.
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J. CAPITAL REORGANIZATION INTO A HOLDING COMPANY STRUCTURE.
Prior to the Effective Time, Capital shall have reorganized into a holding
company structure such that Capital is a wholly-owned Subsidiary of CBC (the
"Reorganization"), and (i) the Reorganization shall have been approved, to the
extent required by law, by the FDIC, the Commissioner and the North Carolina
State Banking Commission, the Federal Reserve, and by all other governmental or
regulatory agencies or authorities having jurisdiction over such transaction,
(ii) no governmental or regulatory agency or authority shall have withdrawn its
approval of the Reorganization or imposed any condition on the Reorganization or
conditioned its approval thereof, which condition is reasonably deemed by
Capital or CBC to be materially disadvantageous or burdensome or to impact so
adversely the economic or business benefits of the Reorganization as to render
it inadvisable for Capital or CBC to consummate the Reorganization; (iii) all
waiting periods required following necessary approvals by governmental or
regulatory agencies or authorities shall have expired, and, in the case of any
waiting period imposed by law or regulation following approval by the Federal
Reserve, the FDIC, or other governmental or regulatory authority, no unwithdrawn
objection to the Reorganization shall have been raised by the U.S. Department of
Justice; and (iv) all other consents, approvals, and permissions, and the
satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the Reorganization shall have been procured.
The Reorganization shall be structured such that each share of Capital's common
stock outstanding as of the date of this Agreement shall be exchanged for or
converted into one share of CBC's common stock. Notwithstanding the foregoing,
at Capital's option, in the event the Reorganization is not consummated prior to
the Effective Time, the transactions contemplated by this Agreement may be
restructured such that Home is merged into Capital in consideration for the
distribution by Capital to Home Shareholders of 1.280 shares of Capital's common
stock for each share of Home Stock (other than any shares held by Capital or as
to which rights of dissent and appraisal are properly exercised). In the event
Capital exercises such option, the provisions of this Agreement shall be
modified to the extent necessary to effect such a restructuring.
K. ACCOUNTING TREATMENT. (i) Capital and CBC shall have
received assurances from PricewaterhouseCoopers LLP, in form and content
satisfactory to them, to the effect that the Exchange will qualify to be treated
as a "pooling-of-interests" for accounting purposes; (ii) if requested by the
Capital or CBC, Home's independent public accountants shall have delivered to
Capital and CBC a letter in form and content satisfactory to them to the effect
that such accountants are not aware of any fact or circumstance that might cause
the Exchange not to qualify for such treatment; (iii) it shall not have come to
the attention of management of Capital or CBC that any event has occurred or
that any condition or circumstance exists that makes it likely that the Exchange
may not so qualify.
L. RESIGNATIONS. Capital and CBC shall have received the
written resignation, satisfactory in form and substance to Capital and CBC, from
each director of Home, effective as of the Effective Time.
M. AFFILIATES' AGREEMENTS. Capital and CBC shall have received
an Affiliates Agreement executed by each person who is an Affiliate of Home (as
defined in
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Paragraph 2.26 above) at least five (5) days prior to the Closing in form and
content reasonably satisfactory to Capital and CBC.
ARTICLE VIII
TERMINATION; BREACH
8.01 MUTUAL TERMINATION. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of Capital or Home),
this Agreement may be terminated by the mutual agreement of Capital, CBC and
Home. Upon any such mutual termination, all obligations of Capital, CBC and Home
hereunder shall terminate and each party shall pay costs and expenses as
provided in Paragraph 6.04 above.
8.02 UNILATERAL TERMINATION. This Agreement may be terminated by either
Capital, CBC or Home (whether before or after approval hereof by Home's or
Capital's shareholders) upon written notice to the other parties and under the
circumstances described below.
A. TERMINATION BY CAPITAL OR CBC. This Agreement may be
terminated by Capital or CBC by action of either of their Board of Directors:
(i) if Home shall have violated or failed to fully
perform any of its obligations, covenants, or agreements contained in Article IV
or Article VI herein in any material respect;
(ii) if Capital or CBC determines at any time that
any of Home's representations or warranties contained in Article II or in any
other certificate or writing delivered pursuant to this Agreement shall have
been false or misleading in any material respect when made, or that there has
occurred any event or development or that there exists any condition or
circumstance which has caused or, with the lapse of time or otherwise, is
reasonably likely to cause any such representations or warranties to become
false or misleading in any material respect;
(iii) if Home's shareholders do not ratify and
approve this Agreement and the transactions contemplated herein or Capital's
shareholders do not approve the Reorganization;
(iv) if any of the conditions of the obligations of
Capital or CBC (as set forth in Paragraph 7.01 or 7.03 above) shall not have
been satisfied or effectively waived in writing, or if the transactions
contemplated herein shall not have become effective, on or before June 30, 1999,
unless such date is extended as evidenced by the written mutual agreement of the
parties hereto;
(v) if the number of shares dissenting from the
Exchange, when coupled with any other shares of Capital Stock, CBC Stock and
Home Stock deemed tainted
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from "pooling-of-interest" purposes, precludes accounting for the Exchange as a
pooling of interests pursuant to APB Opinion No. 16; or
(vi) if the Board of Directors of Home (x) fails to
convene a meeting of the Home shareholders to approve the Exchange on or before
December 31, 1998 (the "Meeting Date"), or postpones the date scheduled for the
meeting of the Home shareholders to approve the Exchange beyond the Meeting
Date, except with the written consent of Capital or CBC, (y) fails to recommend
the approval of this Agreement and the Exchange to the Home shareholders in
accordance with Section 6.01.D. hereof, or (z) withdraws or amends or modifies
in a manner adverse to Capital or CBC its recommendation or approval in respect
of this Agreement and the Exchange or fails to reconfirm such recommendation
within two business days of a written request for such confirmation by Capital
or CBC.
However, before Capital or CBC may terminate
this Agreement for any of the reasons specified above in clause (i) or (ii) of
this Paragraph 8.02.A., it shall give written notice to Home as provided herein
stating its intent to terminate and a description of the specific breach,
default, violation, or other condition giving rise to its right to so terminate,
and, such termination by Capital or CBC shall not become effective if, within
thirty (30) days following the giving of such notice, Home shall cure such
breach, default, or violation or satisfy such condition to the reasonable
satisfaction of Capital and CBC.
B. TERMINATION BY HOME. This Agreement may be terminated by
Home by action of its Board of Directors:
(i) if Capital or CBC shall have violated or failed
to fully perform any of its obligations, covenants, or agreements contained in
Article V or VI herein in any material respect;
(ii) if Home determines at any time that any of
Capital's or CBC's representations and warranties contained in Article III
herein or in any other certificate or writing delivered pursuant to this
Agreement shall have been false or misleading in any material respect when made,
or that there has occurred any event or development or that there exists any
condition or circumstance which has caused or, with the lapse of time or
otherwise, is reasonably likely to cause any such representations or warranties
to become false or misleading in any material respect;
(iii) if, notwithstanding Home's compliance with its
obligations contained in this Agreement, Home's shareholders do not ratify and
approve this Agreement;
(iv) if any of the conditions of the obligations of
Home (as set forth in Paragraph 7.01 or 7.02 above) shall not have been
satisfied or effectively waived in writing, or if the transactions contemplated
herein shall not have become effective, on or before June 30, 1999, unless such
date is extended as evidenced by the written mutual agreement of the parties
hereto.
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However, before Home may terminate this
Agreement for any of the reasons specified above in clause (i) or (ii) of this
Paragraph 8.02.B., it shall give written notice to Capital and CBC as provided
herein stating its intent to terminate and a description of the specific breach,
default, violation, or other condition giving rise to its right to so terminate,
and, such termination by Home shall not become effective if, within thirty (30)
days following the giving of such notice, Capital or CBC shall cure such breach,
default, or violation or satisfy such condition to the reasonable satisfaction
of Home.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 "PREVIOUSLY DISCLOSED" INFORMATION; "MATERIAL ADVERSE EFFECT" AND
"MATERIAL ADVERSE CHANGE"
A. "Previously Disclosed" shall mean, as to Home, Capital or
CBC, the disclosure of information in a letter delivered by such party to the
others prior to the date of this Agreement and which specifically refers to this
Agreement and is arranged in paragraphs corresponding to the Paragraphs,
subparagraphs, and items of this Agreement applicable thereto, all of which
documents are incorporated herein by reference.
Information disclosed in any party's letter described above
shall be deemed to have been Previously Disclosed by such party for the purpose
of any given Paragraph, subparagraph, or item of this Agreement only to the
extent that information is expressly set forth in such party's letter described
above and that, in connection with such disclosure, a specific reference is made
in the letter to that Paragraph, subparagraph, or item.
B. Where used in this Agreement, the terms "Material Adverse
Effect" and "Material Adverse Change" shall mean an event, matter, item or
circumstance (other than as a result of (i) changes in GAAP, (ii) changes in
banking and similar laws of general application or interpretations thereof by
courts or governmental authorities, or (iii) any non-recurring merger-related
expense of any kind) that in and of itself, or when combined with all similar
events, matters, items or circumstances, reasonably would be expected to have,
now or in the future, a material adverse effect on the business, financial
condition, operations, results of operations or prospects of either party.
9.02 WAIVER. Any term or condition of this Agreement may be waived
(except as to matters of regulatory approvals and approvals required by law),
either in whole or in part, at any time by the party which is, and whose
shareholders are, entitled to the benefits thereof; provided, however, that any
such waiver shall be effective only upon a determination by the waiving party
(through action of its Board of Directors) that such waiver would not adversely
affect the interests of the waiving party or its shareholders; and, provided
further, that no waiver of any term or condition of this Agreement by any party
shall be effective unless such waiver is in writing and signed by the waiving
party, or be construed to be a waiver of any succeeding breach of the same term
or condition. No failure or delay of any party to exercise any power, or to
insist
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upon a strict compliance by any other party of any obligation, and no custom or
practice at variance with any terms hereof, shall constitute a waiver of the
right of any party to demand a full and complete compliance with such terms.
9.03 AMENDMENT. This Agreement may be amended, modified, or
supplemented at any time or from time to time prior to the Effective Time, and
either before or after its approval by the shareholders of Home, by an agreement
in writing approved by a majority of the Board of Directors of CBC, Capital and
Home executed in the same manner as this Agreement; provided, however, that,
except with the further approval of Home's shareholders of that change or as
otherwise provided herein, following approval of this Agreement by the
shareholders of Home no change may be made in the number of shares of CBC Stock
into which each share of Home Stock will be converted.
9.04 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or by courier, or mailed by certified mail, postage prepaid, as follows:
A. If to Home, to:
Home Savings Bank of Siler City, Inc., SSB
300 East Raleigh Street
Siler City, North Carolina 27344
Attention: Mr. Edwin E. Bridges
With copy to:
Anthony Gaeta, Esq.
Moore & Van Allen, PLLC
1 Hannover Square
Raleigh, North Carolina 27601
B. If to CBC or Capital, to:
Capital Bank
4400 Falls of Neuse Road
Raleigh, North Carolina 27609
Attention: James A. Beck
With copy to:
John L. Jernigan
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, LLP
2500 First Union Capitol Center
Raleigh, North Carolina 27601
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9.05 FURTHER ASSURANCES. Home, CBC and Capital each agree to furnish to
the others such further assurances with respect to the matters contemplated
herein and their respective agreements, covenants, representations, and
warranties contained herein, including the opinion of legal counsel, as such
other parties may reasonably request.
9.06 HEADINGS AND CAPTIONS. Headings and captions of the articles,
sections, and paragraphs of this Agreement have been inserted for convenience of
reference only and do not constitute a part hereof.
9.07 ENTIRE AGREEMENT. This Agreement (including all schedules and
exhibits attached hereto and all documents incorporated herein by reference)
contains the entire agreement of the parties with respect to the transactions
described herein and supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
any agreements between, any of the parties hereto other than those contained
herein in writing.
9.08 SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of
any term, phrase, clause, paragraph, restriction, covenant, agreement, or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.
9.09 ASSIGNMENT. This Agreement may not be assigned by any party hereto
except with the prior written consent of the other parties hereto.
9.10 ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court located in the State of
North Carolina, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 COUNTERPARTS. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
9.12 GOVERNING LAW. This Agreement is made in and shall be construed
and enforced in accordance with the internal laws (and not the laws of conflict)
of the State of North Carolina.
9.13 INSPECTION. Any right of CBC and Capital hereunder to investigate
or inspect the assets, books, records, files, and other information of Home and
Home's Subsidiaries in no way shall establish any presumption that CBC or
Capital should have conducted any investigation or that such right has been
exercised by CBC or Capital or their respective agents, representatives, or
others. Any investigations or inspections that have been made by CBC, Capital or
their respective agents, representatives, or others prior to the Closing Date
shall not be
51
<PAGE>
deemed in any way in derogation or limitation of the covenants, representations,
and warranties made by or on behalf of Home and Home's Subsidiaries in this
Agreement.
9.14 SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNIFICATION AND OTHER
AGREEMENTS.
A. REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. None of
the representations, warranties or agreements herein shall survive the
effectiveness of the Exchange, and no party shall have any right after the
Effective Time to recover damages or other relief from any other party to this
Agreement by reason of any breach of representation or warranty, any
nonfulfillment or nonperformance of any agreement contained herein, or
otherwise; provided, however, that the parties' agreements contain in Paragraphs
5.02, 6.07 and 6.08 and Article VIII hereof, and CBC's representations and
warranties contained in Paragraph 3.02, shall survive the effectiveness of the
Exchange.
B. INDEMNIFICATION AND OTHER AGREEMENTS. CBC's indemnification
and all other agreements and obligations pursuant to Paragraph 5.02 above shall
become effective only at the Effective Time, and CBC shall not have any
obligation under that Paragraph prior to the Effective Time or in the event of
or following termination of this Agreement prior to the Effective Time.
[remainder of page intentionally left blank; signatures appear on next page]
52
<PAGE>
IN WITNESS WHEREOF, Home, Capital and CBC have each caused this
Agreement to be executed in its name by its duly authorized officers as of the
date first above written.
HOME SAVINGS BANK OF SILER CITY, INC., SSB
By: /s/ Edwin E. Bridges
------------------------------------
Name: Edwin E. Bridges
Title: President
ATTEST:
/s/
- ------------------------
______ Secretary
[CORPORATE SEAL]
CAPITAL BANK
By: /s/ James A. Beck
------------------------------------
Name:
Title:
ATTEST:
/s/ Allen T. Nelson, Jr.
- ------------------------
_______ Secretary
[CORPORATE SEAL]
CAPITAL BANK CORPORATION
By: /s/ James A. Beck
------------------------------------
Name:
Title:
ATTEST:
/s/ Allen T. Nelson, Jr.
- ------------------------
_______ Secretary
[CORPORATE SEAL]
53
<PAGE>
APPENDIX III
(BAXTER
FENTRISS
AND COMPANY logo)
9100 ARBORETUM PARKWAY SUITE 280 RICHMOND, VIRGINIA 23236
(804) 323-7540 FAX (804) 323-7457
September 29, 1998
The Board of Directors of
Home Savings Bank of Siler City, Inc., SSB
and
Edwin E. Bridges, Trustee for the
Employee Stock Ownership Plan of
Home Savings Bank of Siler City, Inc., SSB
300 East Raleigh Street
Siler City, NC 27344
Dear Ladies and Gentlemen:
Home Savings Bank of Siler City, Inc., SSB, Siler City, North Carolina ("Home")
has entered into an agreement with Capital Bank, Raleigh, North Carolina and
Capital Bank Corporation, Raleigh, North Carolina (a new bank holding company to
be formed by Capital Bank)(collectively referred to herein as "Capital")
providing for the acquisition of HOME by Capital ("Acquisition"). The terms of
the Acquisition are set forth in the Agreement and Plan of Reorganization and
Share Exchange dated September 29, 1998.
The terms of the Acquisition provide that, with the possible exception of those
shares as to which dissenter's rights may be perfected, each outstanding share
of Home ($1.00 par value) shall be converted into the right to receive 1.28
Capital ($5.00 par value) shares ("Consideration").
You have asked our opinion as to whether the proposed transaction pursuant to
the terms of the Acquisition are fair to the respective shareholders of Home
from a financial point of view.
In rendering our opinion, we have evaluated the financial statements of Home and
Capital available to us from published sources. In addition, we have, among
other things: (a) to the extent deemed relevant, analyzed selected public
information of certain other financial institutions and compared Home and
Capital from a financial point of view to the other financial institutions; (b)
considered the historical market price of the common stock of Home and Capital;
(c) compared the terms of the Acquisition with the terms of certain other
comparable transactions to the extent information concerning such acquisitions
was publicly available; (d) reviewed the drafts of the Agreement and Plan of
Reorganization and related documents; and (e) made such other analyses
<PAGE>
and examinations as we deemed necessary. We also met with various senior
officers of Home and Capital to discuss the foregoing as well as other matters
that may be relevant.
We have not independently verified the financial and other information
concerning Home, or Capital, or other data which we have considered in our
review. We have assumed the accuracy and completeness of all such information;
however, we have no reason to believe that such information is not accurate and
complete. Our conclusion is rendered on the basis of securities market
conditions prevailing as of the date hereof and on the conditions and prospects,
financial and otherwise, of Home and Capital as they exist and are known to us
as of June 30, 1998.
We have acted as financial advisor to Home in connection with the Acquisition
and will receive from Home a fee for our services, a significant portion of
which is contingent upon the consummation of the Acquisition.
It is understood that this opinion may be included in its entirety in any
communication by Home or the Board of Directors to the stockholders of Home. The
opinion may not, however, be summarized, excerpted from or otherwise publicly
referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the Consideration is fair to the shareholders of Home from a
financial point of view.
Sincerely,
/s/
Baxter Fentriss and Company
<PAGE>
1998
APPENDIX IV
Board of Directors
Capital Bank Corporation
4400 Falls of Neuse Road
Post Office Box 18949
Raleigh, North Carolina 27619-8949
Members of the Board:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, of the consideration to be received by the shareholders
of Capital Bank Corporation ("Capital Bank") under the terms of a certain Joint
Proxy Statement (the "Agreement") by and between Capital Bank and Home Savings
Bank of Siler City, Inc., SSB ("Home Savings") pursuant to which Home Savings
will merge with and into Capital Bank (the "Merger"). Under the terms of the
Agreement, each of the outstanding shares of Home Savings common stock shall be
converted into the right to receive 1.28 shares of Capital Bank common stock.
The foregoing summary of the Merger is qualified in its entirety by reference to
the Agreement.
Interstate/Johnson Lane Corporation ("IJL") is one of the largest
independent investment banking firms headquartered in the Southeast. As part of
its regular investment banking business, IJL evaluates securities in connection
with negotiated underwritings, leveraged buyouts, secondary distributions,
private placements, estate and gift valuations, mergers and acquisitions,
employee stock ownership plan purchases and other activities.
We have developed our Opinion on the basis of the findings and conclusions
arising from our conduct of due diligence with respect to Capital Bank and Home
Savings. In arriving at our Opinion, we have, among other things:
1) reviewed the terms and conditions of the Agreement;
2) analyzed certain historical business and financial information
relating to Capital Bank and Home Savings;
3) conducted discussions with members of the senior management of
Capital Bank and Home Savings with respect to the business and
prospects of Capital Bank and Home Savings and the strategic
objectives of the Merger;
<PAGE>
Board of Directors
Capital Bank Corporation
1998
Page 2
4) reviewed financial and market information as to certain
other publicly traded companies believed by us to be reasonably
similar to Home Savings;
5) considered the financial terms of selected merger and
acquisition transactions in the thrift industry believed by us to
be reasonably similar to the proposed Merger;
6) performed a pro forma dilution analysis using financial projections
for Capital Bank and Home Savings in calendar years 1999 and 2000,
including potential cost savings, merger costs and synergies, to
estimate the impact to the shareholders of Capital Bank; and
7) conducted, as appropriate and relevant, such other financial
studies, analyses and investigations as the basis for the
conclusions set forth in this Opinion.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information furnished to us
by Capital Bank and Home Savings including, without limitation, all financial
projections of Capital Bank and Home Savings. Accordingly, we do not make any
warranties, nor do we express any opinion regarding the accuracy of such
projections. We have also relied upon the assurances of management of Capital
Bank and Home Savings that they are unaware of any facts that would make the
information provided to us incomplete or misleading.
Based upon and subject to the foregoing and such other matters as we
considered relevant, it is our opinion that as of the date hereof, the
consideration provided for in the Agreement is fair, from a financial point of
view, to the shareholders of Capital Bank.
Our fees for rendering our Opinion are not contingent upon the Opinion
expressed herein, and neither IJL nor any of its affiliates or employees has a
present or intended material financial interest in the Company. Further, IJL is
independent of all parties participating in the proposed Merger.
<PAGE>
Board of Directors
Capital Bank Corporation
1998
Page 3
This Opinion is furnished pursuant to our engagement letter dated July 16,
1998. Our Opinion is directed to the Board of Directors of Capital Bank and does
not constitute a recommendation to any shareholder of Capital Bank as to how
such a shareholder should vote in connection with the Merger. This Opinion is a
summary discussion of our underlying analyses and may be included in
communications to the shareholders of Capital Bank provided that IJL approves of
such disclosures prior to publication.
Very truly yours,
/s/
INTERSTATE/JOHNSON LANE CORPORATION
<PAGE>
APPENDIX V
DISSENTERS' RIGHTS
N.C. GEN. STAT. CHAPTER 55, ARTICLE 13 WITH 1997 AMENDMENTS
GENERAL STATUTES OF NORTH CAROLINA
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
N.C. Gen. Stat. ss.55-13-01 (1996)
ss.55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
N.C. Gen. Stat. ss.55-13-02 (1996)
ss.55-13-02. Right to dissent
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
<PAGE>
(1) Consummation of a plan of merger to which the corporation (other than
a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, unless such shares are
then redeemable by the corporation at a price not greater than the cash to be
received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed in cash to the shareholders within one
year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates, alters, or
abolishes a right in respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the shares; (iii) alters or
abolishes a preemptive right of the holder of the shares to acquire shares or
other securities; (iv) excludes or limits the right of the shares to vote on any
matter, or to cumulate votes; (v) reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under G.S. 55-6-04; or (vi) changes the corporation into a
nonprofit corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this Article may not challenge the corporate action creating his entitlement,
including without limitation a merger solely or partly in exchange for cash or
other property, unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be no
right of dissent in favor of holders of shares of any class or series which, at
the record date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share exchange or
the sale or exchange of property is to be acted on, were (i) listed on a
national securities exchange or (ii) held by at least 2,000 record shareholders,
unless in either case:
(1) The articles of incorporation of the corporation issuing the shares
provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for the shares anything except:
a. Cash;
<PAGE>
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which, at
the record date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting at which the plan of merger or share
exchange is to be acted on, were either listed subject to notice of issuance
on a national securities exchange or held of record by at least 2,000 record
shareholders; or
c. A combination of cash and shares as set forth in sub-subdivisions
a. and b. of this subdivision.
N.C. Gen. Stat. ss.55-13-03 (1996)
ss.55-13-03. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(1) He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
N.C. Gen. Stat. ss.55-13-04 (1996)
ss.55-13-04 through 55-13-19
Reserved for future codification purposes.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
N.C. Gen. Stat. ss.55-13-20 (1996)
ss.55-13-20. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no longer than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
<PAGE>
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
ss.55-13-21. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand payment
for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this Article.
N.C. Gen. Stat. ss.55-13-22 (1996)
ss.55-13-22. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S.
55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating dissenters'
rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
<PAGE>
N.C. Gen. Stat. ss.55-13-23 (1996)
ss.55-13-23. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
N.C. Gen. Stat. ss.55-13-24 (1996)
ss.55-13-24. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
N.C. Gen. Stat. ss.55-13-25 (1996)
ss.55-13-25. Payment
(a) As soon as the proposed corporate action is taken, or within 30 days after
receipt of a payment demand, the corporation shall pay each dissenter who
complied with G.S. 55-13-23 the amount the corporation estimates to be the fair
value of his shares, plus interest accrued to the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the end of
a fiscal year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of cash flows for that year, and
the latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
<PAGE>
N.C. Gen. Stat. ss.55-13-26 (1996)
ss.55-13-26. Failure to take action
(a) If the corporation does not take the proposed action within 60 days after
the date for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
N.C. Gen. Stat. ss.55-13-27 (1996)
ss.55-13-27
Reserved for future codification purposes.
N.C. Gen. Stat. ss.55-13-28 (1996)
ss.55-13-28. Procedure if shareholder dissatisfied with corporation's
payment or failure to perform
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
the amount in excess of the payment by the corporation under G.S. 55-13-25 for
the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing (i) under subdivision
(a)(1) within 30 days after the corporation made payment for his shares or (ii)
under subdivisions (a)(2) and (a)(3) within 30 days after the corporation has
failed to perform timely. A dissenter who fails to notify the corporation of his
demand under subsection (a) within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
N.C. Gen. Stat. ss.55-13-29 (1996)
ss.55-13-29
<PAGE>
Reserved for future codification purposes.
PART 3. JUDICIAL APPRAISAL OF SHARES
N.C. Gen. Stat. ss.55-13-30 (1996)
ss.55-13-30. Court action
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i) the
date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's
payment demand under G.S. 55-13-28 by filing a complaint with the Superior Court
Division of the General Court of Justice to determine the fair value of the
shares and accrued interest. A dissenter who takes no action within the 60-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(a1) Repealed by Session Laws 1997-202, s.4, effective October 1, 1997.
(b) [Reserved for future codification purposes.]
(c) The court shall have the discretion to make all dissenters (whether or not
residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The proceeding
shall be tried as in other civil actions. However, in a proceeding by a
dissenter in a corporation that was a public corporation immediately prior to
consummation of the corporate action giving rise to the right of dissent under
G.S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment for
the amount, if any, by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by the corporation.
ss.55-13-31. Court action
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court, and shall assess the costs as it
finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable.
<PAGE>
(1)Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2)Against either the corporation or a dissenter, in favor of either or
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina General Statutes
permit a corporation to indemnify its directors, officers, employees or agents
under either or both a statutory or nonstatutory scheme of indemnification.
Under the statutory scheme, a corporation may, with certain exceptions,
indemnify a director, officer, employee or agent of the corporation who was, is,
or is threatened to be made, a party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because of the fact that such person was a director, officer,
agent or employee of the corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (a) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (b) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described
above under the statutory scheme, Section 55-8-57 of the North Carolina General
Statutes permits a corporation to indemnify or agree to indemnify any of its
directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
on account of activities that were, at the time taken, known or believed by the
person to be clearly in conflict with the best interests of the corporation. The
Bylaws provide for indemnification to the fullest extent permitted under North
Carolina law for persons who serve as directors or officers of Capital Bank
Corporation, or at the request of Capital Bank Corporation serve as an officer,
director, agent, partner, trustee, administrator or employee for any other
foreign or domestic entity, except to the extent such activities were at the
time taken known or believed by the potential indemnities to be clearly in
conflict with the best interests of Capital Bank Corporation. Accordingly,
Capital Bank Corporation may indemnify its directors, officers or employees in
accordance with either the statutory or non-statutory standards.
Sections 55-8-52 and 55-8-56 of the North Carolina General Statutes
require a corporation, unless its articles of incorporation provide otherwise,
to indemnify a director or officer who has been wholly successful, on the merits
or otherwise, in the defense of any proceeding to which such director or officer
was a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification as provided in Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina General Statutes provides
that a corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation against certain liabilities incurred by such persons, whether or not
the corporation is otherwise authorized by the North Carolina Business
Corporation Act to indemnify such party. Capital Bank
II-1
<PAGE>
has purchased a standard directors' and officers liability policy which will,
subject to certain limitations, indemnify Capital Bank and its officers and
directors for damages they become legally obligated to pay as a result of any
negligent act, error, or omission committed by directors or officers while
acting in their capacity as such. Capital Bank Corporation may also purchase
such a policy.
As permitted by North Carolina law, Article 5 of Capital Bank
Corporation's Articles limits the personal liability of directors for monetary
damages for breaches of duty as a director arising out of any legal action
whether by or in the right of Capital Bank Corporation or otherwise, provided
that such limitation will not apply to (i) acts or omissions that the director
at the time of such breach knew or believed were clearly in conflict with the
best interests of Capital Bank Corporation, (ii) any liability under Section
55-8-33 of the General Statutes of North Carolina, or (iii) any transaction from
which the director derived an improper personal benefit (which does not include
a director's reasonable compensation or other reasonable incidental benefit for
or on account of his service as a director, officer, employee, independent
contractor, attorney, or consultant of Capital Bank Corporation).
ITEM 21. EXHIBITS
The following documents are filed herewith and made a part of this
Registration Statement.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------
2.1 Agreement and Plan of Reorganization and Share Exchange dated as of
August 12, 1998, by and between Capital Bank and Capital Bank
Corporation included as Appendix I hereto
2.2 Agreement and Plan of Reorganization and Share Exchange dated as of
September 29, 1998, by and between Capital Bank, Capital Bank
Corporation and Home Savings Bank of Siler City, Inc. SSB included
as Appendix II hereto
3.1 Articles of Incorporation of Capital Bank Corporation
3.2 Bylaws of Capital Bank Corporation
4.1 Specimen Common Stock Certificate of Capital Bank Corporation
5.1 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
LLP regarding legality of securities being registered
8.1 Form of Opinion of PricewaterhouseCoopers LLP regarding certain
federal income tax consequences
10.1 Lease Agreement, dated January 4, 1994, between Buchanan Properties
Joint Venture and Triangle East Bank, together with assignment to
Capital Bank
10.2 Lease Agreement, dated February 1, 1992, between Moretti
Construction, Incorporated and Triangle Bank, together with
assignment to Capital Bank
10.3 Sublease, dated January 30, 1997, between Centura Bank and NB
Acquisition Corp., predecessor to Capital Bank
10.4 Agreement of Sublease, dated June 3, 1997, between Medical Records
Corporation and Capital Bank
II-2
<PAGE>
10.5 Lease Agreement, dated July 10, 1997, between Forty-Four Hundred F-N
Associates and Dixon-Odom Company and Capital Bank
10.6 Amended and Restated Employment Agreement, dated May 22, 1997,
between NB Acquisition Corp., as predecessor to Capital Bank, and
James A. Beck
10.7 Capital Bank Corporation Incentive Stock Option Plan
10.8 Capital Bank Corporation Non-Qualified Stock Option Plan
10.9 Deferred Compensation Plan for Outside Directors
10.10 Agreement, dated May 5, 1997, between Alphanumeric Systems, Inc. and
Capital Bank
10.11 Master Service Agreement, dated June 23, 1997, between Central
Service Corporation and Capital Bank
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP (Capital Bank Financial
Statements)
23.2 Consent of PricewaterhouseCoopers LLP (Home Savings Financial
Statements)
23.3 Consent of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P. (included with Exhibit 5.1 hereto)
23.4 Consent of Edwin E. Bridges
23.5 Consent of John Grimes
27 Financial Data Schedule
99.1 Form of Proxy Card (Capital Bank)
99.2 Form of Proxy Card (Home Savings)
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file during, any period in which offers and sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered
II-3
<PAGE>
would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering
range may be reflected in the form of the prospectus filed
with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form and that every prospectus (i) that is filed pursuant to the
paragraph immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. The undersigned registrant hereby undertakes to
respond to requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
II-4
<PAGE>
registration statement through the date of responding to the request. The
undersigned registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Raleigh, State of North Carolina, on October 16,
1998.
CAPITAL BANK CORPORATION
By: /s/ James A. Beck
-------------------------------
James A. Beck
President and Chief Executive Officer
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James A. Beck and Allen T. Nelson, Jr., or either
of them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, to
sign any related abbreviated Registration Statement filed pursuant to Rule
462(b) of the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on
October 16, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
---------- ----------
<S> <C>
/s/ James A. Beck President, Chief Executive Officer and Director
- --------------------------
James A. Beck
/s/ Allen T. Nelson, Jr. Senior Vice President and Chief Financial Officer
- --------------------------
Allen T. Nelson, Jr.
/s/ Charles F. Atkins Director
- --------------------------
Charles F. Atkins
/s/ Lamar Beach Director
- --------------------------
Lamar Beach
/s/ William C. Burkhardt Director
- --------------------------
William C. Burkhardt
/s/ L. I. Cohen, Jr. Director
- --------------------------
L. I. Cohen, Jr.
/s/ David G. Gospodarek Director
- --------------------------
David G. Gospodarek
/s/ Carolyn W. Grant Director
- --------------------------
Carolyn W. Grant
__________________________ Director
Darleen M. Johns
/s/ Robert L. Jones Director
- --------------------------
Robert L. Jones
/s/ Oscar A. Keller, III Chairman of the Board of Directors
- --------------------------
Oscar A. Keller, III
/s/ Oscar A. Keller, Jr. Director
- --------------------------
Oscar A. Keller, Jr.
/s/ Vernon Malone Director
- --------------------------
Vernon Malone
/s/ George R. Perkins, III Director
- --------------------------
George R. Perkins, III
/s/ Donald W. Perry Director
- ---------------------------
Donald W. Perry
/s/ J. Rex Thomas Director
- ---------------------------
J. Rex Thomas
/s/ Bruce V. Wainright Director
- ---------------------------
Bruce V. Wainright
/s/ Samuel J. Wornom, III Director
- ----------------------------
Samuel J. Wornom, III
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -----------------------
2.1 Agreement and Plan of Reorganization and Share Exchange dated as of
August 12, 1998, by and between Capital Bank and Capital Bank
Corporation included as Appendix I hereto
2.2 Agreement and Plan of Reorganization and Share Exchange dated as of
September 29, 1998, by and between Capital Bank, Capital Bank
Corporation and Home Savings Bank of Siler City, Inc. SSB included
as Appendix II hereto
3.1 Articles of Incorporation of Capital Bank Corporation
3.2 Bylaws of Capital Bank Corporation
4.1 Specimen Common Stock Certificate of Capital Bank Corporation
5.1 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
LLP regarding legality of securities being registered
8.1 Opinion of PricewaterhouseCoopers LLP regarding certain federal
income tax consequences
10.1 Lease Agreement, dated January 4, 1994, between Buchanan Properties
Joint Venture and Triangle East Bank, together with assignment to
Capital Bank
10.2 Lease Agreement, dated February 1, 1992, between Moretti
Construction, Incorporated and Triangle Bank, together with
assignment to Capital Bank
10.3 Sublease, dated January 30, 1997, between Centura Bank and NB
Acquisition Corp., predecessor to Capital Bank
10.4 Agreement of Sublease, dated June 3, 1997, between Medical Records
Corporation and Capital Bank
10.5 Lease Agreement, dated July 10, 1997, between Forty-Four Hundred F-N
Associates and Dixon-Odom Company and Capital Bank
10.6 Amended and Restated Employment Agreement, dated May 22, 1997,
between NB Acquisition Corp., as predecessor to Capital Bank, and
James A. Beck
10.7 Capital Bank Corporation Incentive Stock Option Plan
10.8 Capital Bank Corporation Non-Qualified Stock Option Plan
10.9 Deferred Compensation Plan for Outside Directors
10.10 Agreement, dated May 5, 1997, between Alphanumeric Systems, Inc. and
Capital Bank
10.11 Master Service Agreement, dated June 23, 1997, between Central
Service Corporation and Capital Bank
<PAGE>
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP (Capital Bank Financial
Statements)
23.2 Consent of PricewaterhouseCoopers LLP (Home Savings Financial
Statements)
23.3 Consent of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P. (included with Exhibit 5.1 hereto)
23.4 Consent of Edwin E. Bridges
23.5 Consent of John Grimes
27 Financial Data Schedule
99.1 Form of Proxy Card (Capital Bank)
99.2 Form of Proxy Card (Home Savings)
ARTICLES OF INCORPORATION
OF
CAPITAL BANK CORPORATION
The undersigned, being of the age of eighteen years or more, does
hereby execute and acknowledge these Articles of Incorporation, for the purpose
of forming a business corporation under and by virtue of the laws of the State
of North Carolina:
1. The name of the corporation is Capital Bank Corporation.
2. The location of the corporation's principal office in this State
shall be 4400 Falls of Neuse Road, Raleigh, Wake County, North Carolina 27609.
3. The period of duration of the corporation shall be perpetual.
4. The corporation shall have authority to issue twenty million
(20,000,000) shares of common stock with no par value per share (the "Common
Stock").
5. No individual serving as a director of this corporation shall be
personally liable in an action whether by or in the right of the corporation or
otherwise for monetary damages for the breach of such person's duty as a
director of the corporation; provided, however, the foregoing clause shall not
apply to any liability of a director with respect to (i) acts or omissions that
the director at the time of such breach knew or believed were clearly in
conflict with the best interests of the corporation; (ii) any liability under
Section 55-8-33 of the North Carolina General Statutes; or (iii) any transaction
from which the director derived an improper personal benefit (which does not
include a director's reasonable compensation or other reasonable incidental
benefit for or on account of his service as a director, officer, employee,
independent contractor, attorney, or consultant of the corporation). If the
North Carolina Business Corporation Act is amended after the filing of these
Articles to authorize corporate action further eliminating or
<PAGE>
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the North Carolina Business Corporation Act, as so amended. No
amendment or repeal of the provisions of this Article 5, nor the adoption of any
provision to these Articles inconsistent with this Article 5, shall eliminate or
reduce the protection granted herein with respect to any matter that occurred
prior to such amendment, repeal or adoption. This provision shall not affect any
charter or bylaw provision or contract or resolution of the corporation
indemnifying or agreeing to indemnify a director against personal liability
pursuant to and in accordance with the North Carolina Business Corporation Act.
6. The street address of the initial registered office of the
corporation is 4400 Falls of Neuse Road, Raleigh, Wake County, North Carolina
27609; and the name of its initial registered agent at such address is James A.
Beck. The mailing address of the initial registered office of the corporation is
P.O. Box 18949, Raleigh, North Carolina 27619-8949.
7. The provisions of the North Carolina Business Corporation Act
entitled "The North Carolina Shareholders Protection Act" and "The North
Carolina Control Share Acquisition Act" shall not be applicable to the
corporation.
8. The number of directors of the corporation may be fixed by the
bylaws and, if the number is at least nine (9), the terms of directors shall be
staggered in accordance with Section 55-8-06 of the North Carolina General
Statutes and as described below.
The board of directors shall be divided into three (3) classes, Class
I, Class II, and Class III, which shall be as nearly equal in number as
possible. The term of office of each director in Class I shall expire at the
third annual meeting of shareholders of the Corporation following the
effectiveness of these Articles of Incorporation. The term of office of each
director in Class II
2
<PAGE>
shall expire at the first annual meeting of shareholders of the Corporation
following the effectiveness of these Articles of Incorporation. The term of
office of each director in Class III shall expire at the second annual meeting
of shareholders of the Corporation following the effectiveness of these Articles
of Incorporation. Each director shall serve until the election and qualification
of a successor or until such director's earlier resignation, death, or removal
from office. Upon expiration of the terms of office for each class of directors,
the directors of such class shall be elected for a term of three (3) years, to
serve until the election and qualification of their successors or until their
earlier resignation, death, or removal from office.
The number of directors constituting the initial board of directors
shall be one (1), and the name and address of the person who is to serve as the
corporation's sole director until the first meeting of the shareholders, or
until his successor(s) is (are) elected and qualified, is:
Name Address
---- --------
James A. Beck 4400 Falls of Neuse Road
Raleigh, North Carolina 27609
9. The name and address of the incorporator is D. Scott Coward, 2500
First Union Capitol Center, Raleigh, Wake County, North Carolina 27601.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal, as
of the date set forth below.
/s/ D. Scott Coward (SEAL)
-------------------------------------
Dated: August 7, 1998
-------------------------------
BYLAWS OF
CAPITAL BANK CORPORATION
ARTICLE I
DEFINITIONS
In these bylaws, unless otherwise provided, the following terms shall
have the following meanings:
(1) "Act" shall mean the North Carolina Business Corporation
Act as codified in Chapter 55 of the North Carolina General Statutes effective
July 1, 1990, and as amended from time to time;
(2) "Articles of incorporation" shall mean the Corporation's
articles of incorporation, including amended and restated articles of
incorporation and articles of merger;
(3) "Corporation" shall mean Capital Bank Corporation.
(4) "Distribution" shall mean a direct or indirect transfer of
money or other property (except the Corporation's own shares) or incurrence of
indebtedness by the Corporation to or for the benefit of its shareholders in
respect of any of its shares. A distribution may be in the form of a declaration
or payment of a dividend, a purchase, redemption, or other acquisition of
shares, a distribution of indebtedness, or otherwise;
(5) "Emergency" shall mean a catastrophic event which prevents
a quorum of the board of directors from being readily assembled;
(6) "Shares" shall mean the units into which the proprietary
interests in the Corporation are divided; and
(7) "Voting group" shall mean all shares of one or more
classes or series that under the articles of incorporation or the Act are
entitled to vote and be counted together collectively on a matter at a meeting
of shareholders. All shares entitled by the articles of incorporation or the Act
to vote generally on a matter are for that purpose a single voting group.
ARTICLE II
OFFICES
SECTION 1. Principal Office: The principal office of the Corporation
shall be located at 4400 Falls of Neuse Road, Raleigh, Wake County, North
Carolina 27609, or at such other place as may be determined from time to time by
the directors.
<PAGE>
SECTION 2. Registered Office: The registered office of the Corporation
shall be located at 4400 Falls of Neuse Road, Raleigh, Wake County, North
Carolina 27609. The mailing address of the registered office of the Corporation
shall be P.O. Box 18949, Raleigh, North Carolina 27619-8949.
SECTION 3. Other Offices: The Corporation may have offices at such
other places, either within or without the State of North Carolina, as the board
of directors may from time to time determine, or as the affairs of the
Corporation may require.
ARTICLE III
MEETINGS OF SHAREHOLDERS
SECTION 1. Place of Meetings: All meetings of shareholders shall be
held at the principal office of the Corporation, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or as may be agreed upon by a majority of the shareholders
entitled to vote at the meeting.
SECTION 2. Annual Meeting: The annual meeting of shareholders for the
election of directors and the transaction of other business shall be held
annually, on any day (except Saturday, Sunday or a legal holiday) not later than
the thirtieth (30th) day of June in each year as fixed by the board of
directors.
SECTION 3. Substitute Annual Meeting: If the annual meeting shall not
be held on the day designated pursuant to these bylaws, a substitute annual
meeting may be called in accordance with the provisions of Section 4 of this
Article. A meeting so called shall be designated and treated for all purposes as
the annual meeting.
SECTION 4. Special Meetings: Special meetings of the shareholders may
be called at any time by the chief executive officer, president, secretary, or
board of directors. In addition, special meetings may be called at any time by
the shareholders if the holders of at least ten percent (10%) of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date, and deliver to the secretary a written demand for
the meeting describing the purpose or purposes for which it is to be held;
provided, however, the shareholders shall not have such right to call a special
meeting if the Corporation has a class of shares registered under Section 12 of
the Securities Exchange Act of 1934, as amended. Only business within the
purpose or purposes described in the meeting notice specified in Section 5 of
this Article may be conducted at a special meeting of shareholders.
SECTION 5. Notice of Meeting: Written or printed notice stating the
time and place of the meeting shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of any shareholders' meeting, either
personally, by mail, by telegraph, by teletype, or by facsimile transmission, by
or at the direction of the chief executive officer, the president, the
secretary, or other person calling the meeting to each shareholder of record
entitled to vote at such meeting. If
2
<PAGE>
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his address as it appears on the
record of the shareholders of the Corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is called. In
the case of an annual or substitute annual meeting, the notice of meeting need
not specifically state the business to be transacted unless such a statement is
required by the Act.
When an annual or special meeting is adjourned to a different date,
time, and place, it is not necessary to give any notice of the adjourned meeting
other than by announcement at the meeting at which the adjournment is taken;
provided, however, that if a new record date for the adjourned meeting is or
must be set, notice of the adjourned meeting must be given to persons who are
shareholders as of the new record date.
The record date for determining the shareholders entitled to notice of
and to vote at an annual or special meeting shall be fixed as provided in
Section 3 of Article VIII.
SECTION 6. Waiver of Notice: A shareholder may waive notice of any
meeting either before or after such meeting. Such waiver shall be in writing,
signed by the shareholder, and filed with the minutes or corporate records. A
shareholder's attendance at a meeting: (i) waives objection to lack of notice or
defective notice of the meeting, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting;
and (ii) waives objection to consideration of a particular matter at the meeting
that is not within the purpose or purposes described in the meeting notice,
unless the shareholder objects to considering the matter before it is voted
upon.
SECTION 7. Shareholder List: Commencing two (2) business days after
notice of a meeting of shareholders is given and continuing through such
meeting, the secretary of the Corporation shall maintain at the principal office
of the Corporation an alphabetical list of the shareholders entitled to vote at
such meeting, arranged by voting group, with the address of and number of shares
held by each. This list shall be subject to inspection by any shareholder or his
agent or attorney at any time during usual business hours and may be copied at
the shareholder's expense.
SECTION 8. Quorum: A majority of the votes entitled to be cast on a
matter by any voting group, represented in person or by proxy, shall constitute
a quorum of that voting group for action on that matter. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a majority of
the votes voting on the motion to adjourn; and at any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the original meeting.
3
<PAGE>
SECTION 9. Proxies: Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or by his
duly authorized attorney in fact. A proxy may take the form of a telegram,
telex, facsimile or other form of wire or wireless communication which appears
to have been transmitted by a shareholder. A proxy is effective when received by
the secretary or other officer or agent authorized to tabulate votes. A proxy is
not valid after the expiration of eleven (11) months from the date of its
execution, unless the person executing it specifies therein the length of time
for which it is to continue in force or limits its use to a particular meeting.
SECTION 10. Voting of Shares: Subject to the provisions of Section 4 of
Article IV, the articles of incorporation, and the Act, each outstanding voting
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders.
Except for the election of directors, which is governed by the
provisions of Section 3 of Article IV, if a quorum is present, action on a
matter by a voting group is approved if the votes cast within the voting group
favoring the action exceed the votes cast against the action, unless the vote of
a greater number is required by the Act, the articles of incorporation, or these
bylaws.
Shares of the Corporation are not entitled to vote if: (i) they are
owned, directly or indirectly, by the Corporation, unless they are held by it in
a fiduciary capacity; (ii) they are owned, directly or indirectly, by a second
corporation in which the Corporation owns a majority of the shares entitled to
vote for directors of the second corporation; or (iii) they are redeemable
shares and (x) notice of redemption has been given and (y) a sum sufficient to
redeem the shares has been deposited with a bank, trust company, or other
financial institution under an irrevocable obligation to pay the holders the
redemption price upon surrender of the shares.
SECTION 11. Informal Action by Shareholders: Any action which may be
taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all of the
persons who would be entitled to vote upon such action at a meeting and is
delivered to the Corporation to be included in the minutes or to be kept as part
of the corporate records.
SECTION 12. Corporation's Acceptance of Votes: If the name signed on a
vote, consent, waiver, or proxy appointment corresponds to the name of a
shareholder, the Corporation is entitled to accept the vote, consent, waiver, or
proxy appointment and to give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the Corporation is
nevertheless entitled to accept the vote, consent, waiver, or proxy appointment
and to give it effect as the act of the shareholder if: (i) the shareholder is
an entity and the name signed purports to be that of an officer or agent of the
entity; (ii) the name signed purports to be that of an administrator, executor,
guardian, or conservator representing the shareholder and, if the Corporation
requests, evidence of fiduciary status acceptable to the Corporation has
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been presented with respect to the vote, consent, waiver, or proxy appointment;
(iii) the name signed purports to be that of a receiver or trustee in bankruptcy
of the shareholder and, if the Corporation requests, evidence of its status
acceptable to the Corporation has been presented with respect to the vote,
consent, waiver, or proxy appointment; (iv) the name signed purports to be that
of a beneficial owner or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the signatory's
authority to sign for the shareholder has been presented with respect to the
vote, consent, waiver, or proxy appointment; or (v) two or more persons are the
shareholder as co-tenants or fiduciaries and the name signed purports to be the
name of at least one of the co-owners and the person signing appears to be
acting on behalf of all the co-owners.
The Corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the secretary or other officer or agent authorized to tabulate
votes has a reasonable basis for doubt about the validity of the signature on it
or about the signatory's authority to sign for the shareholder.
SECTION 13. Number of Shareholders: The following persons or entities
identified as a shareholder in the Corporation's current record of shareholders
constitute one shareholder for purposes of these bylaws: (i) all co-owners of
the same shares; (ii) a corporation, partnership, trust, estate, or other
entity; (iii) the trustees, guardians, custodians, or other fiduciaries of a
single trust, estate, or account. Shareholdings registered in substantially
similar names constitute one shareholder if it is reasonable to believe that the
names represent the same person.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 1. General Powers: All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, its board of directors. The board of
directors may delegate powers as provided in these bylaws.
SECTION 2. Number, Term and Qualifications: The number constituting the
board of directors shall be not less than one (1) nor more than twenty-five
(25). The number of directors within this variable range may be fixed or changed
from time to time by the shareholders or the board of directors. So long as the
number of directors is at least nine (9), the board of directors shall be
divided into three (3) classes as provided for in the articles of incorporation.
Each director shall hold office until his death, resignation, retirement,
removal, disqualification, or until his successor is elected and qualified.
Directors need not be residents of the State of North Carolina or shareholders
of the Corporation.
SECTION 3. Election of Directors: Except as provided in Section 6 of
this Article and in the articles of incorporation, the directors shall be
elected at the annual meeting of shareholders, and those persons who receive the
highest number of votes shall be deemed to have been elected. If any shareholder
so demands, the election of directors shall be by ballot.
SECTION 4. No Cumulative Voting: The shareholders of the Corporation
shall have no right to cumulate their votes for the election of directors.
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SECTION 5. Removal: Any director, or the entire board of directors, may
be removed from office at any time, with or without cause, but only if the
number of votes cast to remove him exceeds the number of votes cast not to
remove him. If a director is elected by a voting group of shareholders, only
members of that voting group may participate in the vote to remove him. A
director may not be removed by the shareholders at a meeting unless the notice
of the meeting specifies such removal as one of its purposes. If any directors
are removed, new directors may be elected at the same meeting.
SECTION 6. Vacancies: Any vacancy occurring in the board of directors,
including, without limitation, a vacancy resulting from an increase in the
number of directors or from the failure by the shareholders to elect the full
authorized number of directors, shall be filled by the shareholders or the board
of directors. If such vacancy is to be filled by the board of directors, and if
the directors remaining in office constitute fewer than a quorum of the board,
such vacancy may be filled by the affirmative vote of a majority of the
remaining directors or by the sole remaining director. If the vacant office was
held by a director elected by a voting group of shareholders, only the remaining
director or directors elected by that voting group or the holders of shares of
that voting group are entitled to fill the vacancy. The term of a director
elected to fill a vacancy shall expire at the next shareholders' meeting at
which directors (or directors of that class, if the directors have been divided
into Classes as described in Article IV, Section 2 above) are elected.
SECTION 7. Chairman of the Board: There may be a chairman of the board
of directors elected by the directors from their number at any meeting of the
board. The chairman shall preside at all meetings of the board of directors and
perform such other duties as may be directed by the board.
SECTION 8. Compensation: The board of directors may compensate
directors for their services as such and may provide for the payment of all
expenses incurred by directors in attending regular and special meetings of the
board.
SECTION 9. Committees: The board of directors may create an executive
committee and other committees of the board, each of which shall have at least
two (2) members, all of whom shall be directors. The creation of a committee and
the appointment of members to it must be approved by a majority of all the
directors in office when the action is taken. Each committee may, as specified
by the board of directors, exercise some or all of the authority of the board
except that a committee may not: (i) authorize distributions; (ii) approve or
propose to shareholders action that the Act requires be approved by
shareholders; (iii) fill vacancies on the board of directors or on any of its
committees; (iv) amend the articles of incorporation pursuant to N.C. Gen. Stat.
Section 55-10-02 or its successor; (v) adopt, amend, or repeal bylaws; (vi)
approve a plan of merger not requiring shareholder approval; (vii) authorize or
approve a reacquisition of shares, except according to a formula or method
prescribed by the board of directors; or (viii) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences, and limitations of a class or series of
shares, except that the board of directors may authorize a committee to do so
within limits specifically prescribed by the board of directors. The provisions
of Article V, which govern meetings of the board of directors, shall likewise
apply to meetings of any committee of the board.
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ARTICLE V
MEETINGS OF DIRECTORS
SECTION 1. Regular Meetings: A regular meeting of the board of
directors shall be held immediately before or after, and at the same place as,
the annual meeting of the shareholders, or at another place that may be
designated in advance of the meeting by the chairman of the board or the chief
executive officer. In addition, the board of directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.
SECTION 2. Special Meetings: Special meetings of the board of directors
may be called by or at the request of the chairman of the board or the chief
executive officer. Such meetings may be held either within or without the State
of North Carolina, as fixed by the person or persons calling the meeting.
SECTION 3. Notice of Meetings: Regular meetings of the board of
directors may be held without notice. The person or persons calling a special
meeting of the board of directors shall, at least two (2) days before the
meeting, give notice of the meeting by any usual means of communication,
including by telephone, telegraph, teletype, mail, private carrier, facsimile
transmission, or other form of wire or wireless communication. Such notice may
be oral and need not specify the purpose for which the meeting is called.
SECTION 4. Waiver of Notice: Any director may waive notice of any
meeting either before or after such meeting. Such waiver shall be in writing,
signed by the director, and filed with the minutes or corporate records;
provided, however, that a director's attendance at or participation in a meeting
waives any required notice to him unless the director at the beginning of the
meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
SECTION 5. Quorum: A majority of the directors fixed by or pursuant to
these bylaws shall constitute a quorum for the transaction of business at any
meeting of the board of directors, or if no number is so fixed, a majority of
directors in office immediately before the meeting begins shall constitute a
quorum.
SECTION 6. Manner of Acting: The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is required by the articles of
incorporation or these bylaws.
SECTION 7. Presumption of Assent: A director of the Corporation who is
present at a meeting of the board of directors or a committee of the board of
directors when corporate action is taken is deemed to have assented to the
action taken unless: (i) he objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting business at the meeting; (ii) his
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (iii) he files written notice of his dissent or abstention with the
presiding officer of the meeting before its
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adjournment or with the Corporation immediately after adjournment of the
meeting. This right of dissent or abstention is not available to a director who
votes in favor of the action taken.
SECTION 8. Participation in Meetings: Any or all of the directors may
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting.
SECTION 9. Action Without Meeting: Action which may be taken at a board
of directors meeting may be taken without a meeting if the action is taken by
all members of the board and is evidenced by one or more written consents signed
by each director before or after such action, which describes the action taken
and is included in the minutes or filed with the corporate records. Such action
is effective when the last director signs the consent, unless the consent
specifies a different effective date.
ARTICLE VI
OFFICERS
SECTION 1. Officers of the Corporation: The officers of the Corporation
may consist of a chief executive officer, president, secretary, treasurer, and
such vice presidents, assistant secretaries, assistant treasurers, and other
officers as the board of directors may from time to time appoint. Any two or
more offices may be held by the same person, but no officer may act in more than
one capacity where action of two or more officers is required.
SECTION 2. Appointment and Term: The officers of the Corporation shall
be appointed by the board of directors. A duly appointed officer may appoint one
or more officers or assistant officers if authorized by the board of directors.
Each officer shall hold office until his or her death, resignation, retirement,
removal, disqualification or until his or her successor is appointed and
qualifies. The appointment of an officer does not itself create contract rights
for either the officer or the Corporation.
SECTION 3. Compensation of Officers: The compensation of officers of
the Corporation shall be fixed by the board of directors. No officer shall
receive compensation for serving the Corporation in any other capacity unless
such additional compensation be authorized by the board of directors.
SECTION 4. Resignation and Removal: An officer may resign at any time
by communicating his or her resignation to the Corporation. A resignation is
effective when it is communicated unless it specifies in writing a later date.
If a resignation is made effective as of a later date and the Corporation
accepts the future effective date, the board of directors may fill the pending
vacancy before the effective date if the board provides that the successor does
not take office until the effective date. An officer's resignation does not
affect the Corporation's contract rights, if any, with the officer. Any officer
or agent appointed by the board of directors may be
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removed by the board at any time, with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
SECTION 5. Bonds: The board of directors may by resolution require any
officer, agent, or employee of the Corporation to give bond to the Corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of his respective office or position, and to comply with such other conditions
as may from time to time be required by the board of directors.
SECTION 6. Chief Executive Officer: The chief executive officer shall
be the chief executive officer of the Corporation and, subject to the control of
the board of directors, shall supervise and control the management of the
Corporation in accordance with these bylaws.
The chief executive officer shall sign, with any other proper officer,
certificates for shares of the Corporation and any deeds, mortgages, bonds,
contracts, or other instruments which may be lawfully executed on behalf of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
delegated by the board of directors to some other officer or agent; and, in
general shall perform all duties incident to the office of chief executive
officer and such other duties as may be prescribed by the board of directors
from time to time. In addition, the chief executive officer may perform all of
the duties of treasurer if at the time of performance, the Corporation does not
have a treasurer.
SECTION 7. President: The authority and powers of the president in
respect to the execution of contracts or instruments pertaining to assets of the
Corporation shall be the same as the authority and powers of the chief executive
officer except as otherwise provided by statute or limited by the board of
directors or by the chief executive officer. The president shall have such other
authority and shall perform such other duties as may from time to time be
conferred upon him or her by the board of directors or by the chief executive
officer.
SECTION 8. Vice President: Vice presidents shall be designated as
senior executive vice president, executive vice presidents, senior vice
presidents and vice presidents, or otherwise as specified by the board of
directors. In the absence of the president or in the event of his or her death,
inability, or refusal to act, the senior executive vice president or in the
event of his or her death, inability, or refusal to act, the vice presidents in
the order determined by the board of directors, or in the absence thereof, in
the order of seniority of executive vice presidents, senior vice presidents, and
vice presidents, respectively, shall perform the duties of the president, and
when so acting shall have all the powers of and be subject to all the
restrictions upon the president. Any vice president may sign, with the secretary
or an assistant secretary, certificates for shares of the Corporation; and shall
perform such other duties as from time to time may be assigned to him or her by
the chief executive officer, the president, or board of directors.
SECTION 9. Secretary: The secretary shall: (i) keep the minutes of the
meetings of shareholders, of the board of directors, and of all committees of
the board in one or more books provided for that purpose; (ii) see that all
notices are duly given in accordance with the provisions of these bylaws or as
required by law; (iii) be custodian of the seal of the Corporation and see that
the seal of the Corporation is affixed to all documents the execution of which
on behalf of the Corporation under its seal is duly authorized; (iv) keep a
register of the mailing address of each
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shareholder which shall be furnished to the secretary by such shareholder; (v)
sign, with the chief executive officer, the president, or a vice president,
certificates for shares, the issuance of which shall have been authorized by
resolution of the board of directors; (vi) have general charge of the stock
transfer books of the Corporation; (vii) keep or cause to be kept in the State
of North Carolina at the Corporation's principal office a record of the
Corporation's shareholders, giving the names and addresses of all shareholders
and the number and class of shares held by each, and prepare or cause to be
prepared a shareholder list prior to each meeting of shareholders as required by
the Act; (viii) maintain and authenticate the books and records of the
Corporation; (ix) with the assistance of the treasurer and other officers,
prepare and deliver to the Corporation's shareholders such financial statements,
notices, and reports as may be required by N.C. Gen. Stat. ss.ss. 55-16-20 and
55-16-21 (or their successors); (x) prepare and file with the North Carolina
Secretary of State the annual report required by N.C. Gen. Stat. ss. 55-16-22
(or its successor); and (xi) in general perform all duties incident to the
office of secretary and such other duties as from time to time may be assigned
to him by the president or the board of directors.
SECTION 10. Assistant Secretaries: In the absence of the secretary or
in the event of his or her death, inability, or refusal to act, the assistant
secretaries in the order of their length of service as assistant secretary,
unless otherwise determined by the board of directors, shall perform the duties
of the secretary, and when so acting shall have all the powers of and be subject
to all the restrictions upon the secretary. They shall perform such other duties
as may be assigned to them by the secretary, the chief executive officer, the
president, or the board of directors. Any assistant secretary may sign, with the
chief executive officer, president, or a vice president, certificates for
shares.
SECTION 11. Treasurer: The treasurer shall: (i) have charge and custody
of and be responsible for all funds and securities of the Corporation; (ii)
receive and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in accordance with the provisions
of Section 4 of Article VII; (iii) prepare, or cause to be prepared, an annual
financial statement in accordance with Section 3 of Article IX; and (iv) in
general, perform all of the duties incident to the office of treasurer and such
other duties as from time to time may be assigned to him or her by the chief
executive officer, the president, or the board of directors, or by these bylaws.
The treasurer may sign, with the chief executive officer, president, or a vice
president, certificates for shares.
SECTION 12. Assistant Treasurer: In the absence of the treasurer or in
the event of his or her death, inability, or refusal to act, the assistant
treasurers, in the order of their length of service as assistant treasurer,
unless otherwise determined by the board of directors, shall perform the duties
of the treasurer, and when so acting shall have all the powers of and be subject
to all the restrictions upon the treasurer. They shall perform such other duties
as may be assigned to them by the treasurer, the chief executive officer, the
president, or the board of directors. Any assistant treasurer may sign, with the
chief executive officer, president, or a vice president, certificates for
shares.
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ARTICLE VII
CONTRACTS, CHECKS, AND DEPOSITS
SECTION 1. Contracts: The board of directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
SECTION 2. Loans: No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 3. Checks and Drafts: All checks, drafts, or other orders for
payment of money issued in the name of the Corporation shall be signed by such
officers or agents of the Corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
SECTION 4. Deposits: All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such depositories as the board of directors shall direct.
ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares: Shares may, but need not, be
represented by certificates. If certificates are issued, they shall be in such
form as the board of directors shall determine; provided that, at a minimum,
each certificate shall state on its face: (i) the name of the Corporation and
that it is organized under the laws of North Carolina; (ii) the name of the
person to whom issued; and (iii) the number and class of shares and the
designation of the series, if any, the certificate represents. If the
Corporation issues certificates for shares of preferred stock, the designations,
relative rights, preferences, and limitations applicable to that class, and the
variations in rights, preferences, and limitations for each series within that
class (and the authority of the board of directors to determine variations for
future series) must be summarized on the front or back of each certificate;
alternatively, each certificate may state conspicuously on its front or back
that the Corporation will furnish the shareholder this information in writing
and without charge. These certificates shall be signed, either manually or in
facsimile, by the chief executive officer, president, or any vice president, and
the secretary or any assistant secretary, the treasurer or any assistant
treasurer. They shall be consecutively numbered or otherwise identified and the
name and address of the persons to whom they are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation.
SECTION 2. Transfer of Shares: Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record, by his legal representative (who shall furnish proper evidence of
authority to transfer), or by his attorney (whose authority shall
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be evidenced by a power of attorney duly executed and filed with the secretary),
and only upon surrender for cancellation of the certificates for such shares.
SECTION 3. Fixing Record Date: For the purpose of determining
shareholders entitled to receive notice of a meeting of shareholders, to demand
a special meeting, to vote, to take any other action, or to receive payment, or
for any other purpose, the board of directors may fix in advance a date as the
record date for any such determination of shareholders, such record date in any
case to be not more than seventy (70) days, and, in case of a meeting of
shareholders, not less than ten (10) days, before the date on which the
particular action requiring such determination of shareholders is to be taken.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment of such meeting unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
SECTION 4. Lost Certificates: The board of directors may authorize the
issuance of a new share certificate in place of a certificate claimed to have
been lost or destroyed, upon receipt of an affidavit of such fact from the
person claiming the loss or destruction. When authorizing the issuance of a new
certificate, the board of directors may require the claimant to give the
Corporation a bond in such sum as it may direct to indemnify the Corporation
against loss from any claim with respect to the certificate claimed to have been
lost or destroyed; or the board of directors may, by resolution reciting that
the circumstances justify such action, authorize the issuance of the new
certificate without requiring such a bond.
SECTION 5. Reacquired Shares: The Corporation may acquire its own
shares and shares so acquired constitute authorized but unissued shares.
ARTICLE IX
GENERAL PROVISIONS
SECTION 1. Distributions: The board of directors may from time to time
declare, and the Corporation may make, distributions on its outstanding shares
in the manner and subject to the terms and conditions provided by the Act and by
the articles of incorporation.
SECTION 2. Seal: The corporate seal of the Corporation shall consist of
two concentric circles between which is the name of the Corporation and in the
center of which is inscribed "CORPORATE SEAL" or "SEAL," and which shall have
such other characteristics as the board of directors may determine.
SECTION 3. Records and Reports: All of the Corporation's records shall
be maintained in written form or in another form capable of conversion into
written form within a reasonable time.
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The Corporation shall keep as permanent records minutes of all meetings
of its incorporators, shareholders, and board of directors, a record of all
actions taken by the shareholders or board of directors without a meeting, and a
record of all actions taken by a committee of the board of directors in place of
the board of directors.
The Corporation shall keep a copy of the following records at its
principal office: (i) the articles of incorporation and all amendments to them
currently in effect; (ii) these bylaws and all amendments to them currently in
effect; (iii) resolutions adopted by its board of directors creating one or more
classes or series of shares and fixing their relative rights, preferences, and
limitations (if shares issued pursuant to those resolutions are outstanding);
(iv) the minutes of all meetings of shareholders and records of all actions
taken by shareholders without a meeting during the past three (3) years; (v) all
written communications to shareholders generally within the past three (3)
years; (vi) the annual financial statements described below, prepared during the
past three (3) years; (vii) a list of the names and business addresses of its
current directors and officers; and (viii) its most recent annual report
delivered to the North Carolina Secretary of State.
The Corporation shall prepare and make available to its shareholders
annual financial statements for the Corporation and its subsidiaries that: (i)
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for the year; and (ii) is
accompanied by either (x) a report of a public accountant on the annual
financial statements, or (y) a statement by the treasurer stating his reasonable
belief whether the annual financial statements were prepared on the basis of
generally accepted accounting principles (and, if not, describing the basis of
preparation) and describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year. These annual financial statements, or a written notice of
their availability, shall be mailed to each shareholder within 120 days after
the close of each fiscal year of the Corporation. On written request from a
shareholder who was not mailed the annual financial statements, the Corporation
shall mail to him the latest such statements.
The Corporation shall also prepare and file with the North Carolina
Secretary of State an annual report in such form as required by N.C. Gen. Stat.
ss. 55-16-22, or its successor.
SECTION 4. Indemnification: Any person who at any time serves or has
served as a director or officer of the Corporation, or at the request of the
Corporation is or was serving as an officer, director, agent, partner, trustee,
administrator, or employee for any other foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
shall be indemnified by the Corporation to the fullest extent from time to time
permitted by law in the event he is made, or is threatened to be made, a party
to any threatened, pending or completed civil, criminal, administrative,
investigative or arbitrative action, suit or proceeding and any appeal therein
(and any inquiry or investigation that could lead to such action, suit or
proceeding), whether or not brought by or on behalf of the Corporation, seeking
to hold him liable by reason of the fact that he is or was acting in such
capacity. In addition, the board may provide such indemnification for the
employees and agents of the Corporation as it deems appropriate.
The rights of those receiving indemnification hereunder shall, to the
fullest extent from time to time permitted by law, cover (i) reasonable
expenses, including without limitation all attorneys'
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fees actually and necessarily incurred by him in connection with any such
action, suit or proceeding, (ii) all reasonable payments made by him in
satisfaction of any judgment, money decree, fine (including an excise tax
assessed with respect to an employee benefit plan), penalty, or settlement for
which he may have become liable in such action, suit, or proceeding; and (iii)
all reasonable expenses incurred in enforcing the indemnification rights
provided herein.
Expenses incurred by anyone entitled to receive indemnification under
this section in defending a proceeding may be paid by the Corporation in advance
of the final disposition of such proceeding as authorized by the board of
directors in the specific case or as authorized or required under any provisions
in the bylaws or by any applicable resolution or contract upon receipt of an
undertaking by or on behalf of the director to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
Corporation against such expenses.
The board of directors of the Corporation shall take all such action as
may be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this bylaw, including without limitation, to the
extent needed, making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due him.
Any person who at any time serves or has served in any of the aforesaid
capacities for or on behalf of the Corporation shall be deemed to be doing or to
have done so in reliance upon, and as consideration for, the right of
indemnification provided herein. Any repeal or modification of these
indemnification provisions shall not affect any rights or obligations existing
at the time of such repeal or modification. The rights provided for herein shall
inure to the benefit of the legal representatives of any such person and shall
not be exclusive of any other rights to which such person may be entitled apart
from the provisions of this bylaw.
The rights granted herein shall not be limited by the provisions
contained in N.C. Gen. Stat. ss. 55-8-51 (or its successor).
SECTION 5. Fiscal Year: The fiscal year of the Corporation shall be
fixed by the board of directors.
SECTION 6. Amendments: (a) The board of directors may amend or repeal
these bylaws, except to the extent otherwise provided in the articles of
incorporation, a bylaw adopted by the shareholders, or the Act, and except that
a bylaw adopted, amended, or repealed by the shareholders may not be readopted,
amended, or repealed by the board of directors if neither of the articles of
incorporation nor a bylaw adopted by the shareholders authorizes the board of
directors to adopt, amend, or repeal that particular bylaw or the bylaws
generally.
(b) The Corporation's shareholders may adopt, amend, alter,
change, or repeal any of these bylaws consistent with the provisions of Section
10 of Article III.
(c) A bylaw that fixes a greater quorum or voting requirement
for the board of directors may be amended or repealed: (i) if originally adopted
by the shareholders, only by the shareholders, unless the bylaw permits
amendment or repeal by the board of directors; or (ii) if originally adopted by
the board of directors, either by the shareholders or by the board of directors.
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(d) A bylaw referred to in Subsection (c) above: (i) may not
be adopted by the board of directors by a vote of less than a majority of the
directors then in office; and (ii) may not itself be amended by a quorum or vote
of the directors less than the quorum or vote therein prescribed or prescribed
by a bylaw adopted or amended by the shareholders.
(e) A bylaw adopted or amended by the shareholders that fixes
a greater voting or quorum requirement for the board of directors may provide
that it may be amended or repealed only by a specified vote of either the
shareholders or the board of directors.
SECTION 7. Emergencies: In anticipation of or during an emergency, the
board of directors may: (i) modify lines of succession to accommodate the
incapacity of any director, officer, employee, or agent; and (ii) relocate the
principal office or designate alternative principal or regional offices, or
authorize the officers to do so.
During an emergency: (i) notice of a meeting of the board of directors
need be given only to those directors whom it is practicable to reach and may be
given in any practicable manner, including by publication and radio; and (ii)
one or more officers present at a meeting of the board of directors may be
deemed to be directors for the meeting, in order of rank and within the same
rank in order of seniority, as necessary to achieve a quorum.
SECTION 8. Severability: Should any provision of these bylaws become
ineffective or be declared to be invalid for any reason, such provision shall be
severable from the remainder of these bylaws and all other provisions of these
bylaws shall continue to be in full force and effect.
ATTESTED:
/s/ Allen T. Nelson, Jr.
- ------------------------------ Date: August 11, 1998
Secretary
EXHIBIT 4.1
[SPECIMEN COMMON STOCK CERTIFICATE]
INCORPORATED UNDER THE LAWS OF
STATE OF NORTH CAROLINA
NUMBER SHARES
CAPITAL BANK CORPORATION
Common Stock
No Par Value Per Share
This Certifies that SPECIMEN is the owner of
--------------- ---------------------------
Shares of the Capital Stock of
Capital Bank Corporation
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this__________day of_________ , A.D. 19__
______________________________ ________________________________
President Secretary
<PAGE>
CAPITAL BANK CORPORATION
Certificate
for
-------
Shares
of
Capital Stock
Issued To
SPECIMEN
Dated
--------------
For Value Received, ________ hereby sell, assign and transfer unto _______
_________ Shares of the Capital Stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint ___________________________________
________________________________________________________________________________
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________ 19 ___
In the presence of
___________________________________ ______________________________
SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.
Lawyers
2500 First Union Capitol Center
Raleigh, North Carolina 27601
Phone: 919-821-1220
Fax: 919-821-6800
October 16, 1998
Capital Bank Corporation
4400 Falls of Neuse Road
Raleigh, North Carolina 27609
Re: Registration Statement of Form S-4
Gentlemen:
We have acted as counsel to Capital Bank Corporation (the "Company"), in
connection with the preparation of a Registration Statement on Form S-4 (the
"Registration Statement") to be filed by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
relating to the registration of up to 3,693,651 shares (the "Shares") of the
Company's common stock, no par value per share ("Common Stock"). This opinion is
furnished pursuant to the requirement of Item 601(b)(5) of the Regulation S-K
under the Act.
We have examined the Articles of Incorporation filed by the Company with
the North Carolina Secretary of State, the Bylaws of the Company, minutes of
meetings of its Board of Directors, and such other corporate records of the
Company and other documents and have made such examinations of law as we have
deemed necessary for purposes of this opinion.
Based on and subject to the foregoing and to the additional qualifications
set forth below, it is our opinion that the Shares that are being offered and
sold by the Company pursuant to the Registration Statement, when issued by the
Company as contemplated by the Registration Statement, will be legally issued,
fully paid and nonassessable.
We hereby consent to the reference to our firm in the Registration
Statement under the heading "Legal Matters" and to the filing of this opinion as
an exhibit to the Registration Statement. Such consent shall not be deemed to be
an admission that this firm is within the category of persons whose consent is
required under Section 7 of the Act or the regulations promulgated pursuant to
the Act.
<PAGE>
This opinion is limited to the laws of the State of North Carolina and no
opinion is expressed as to the laws of any other jurisdiction.
The opinion expressed herein does not extend to compliance with federal
and state securities law relating to the sale of the Shares.
This opinion is rendered solely for your benefit in connection with the
transaction described above and may not be used or relied upon by any other
person without prior written consent in each instance.
Sincerely yours,
SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P.
By: /s/ John L. Jernigan
-------------------------------
John L. Jernigan
EXHIBIT 8.1
FORM OF OPINION
Capital Bank
c/o Mr. James A. Beck
4400 Falls of Neuse Road
Raleigh, North Carolina 27609
Re: Agreement and Plan of Reorganization and Share
Exchange by and among Capital Bank, Capital Bank
Corporation, and Home Savings Bank of Siler City,
Inc., SSB.
Dear Mr. Beck:
Pursuant to your request and as required by Article VII, Section 7.01.F of the
Agreement and Plan of Reorganization and Share Exchange by and among Capital
Bank, Capital Bank Corporation, and Home Savings Bank of Siler City, Inc., SSB
dated as of September 29, 1998 (the "Agreement"), we are providing you our
opinion of certain federal income tax consequences of the transaction described
herein. Unless otherwise noted, all section references herein shall be to the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder.
Facts
A. Parties to the Proposed Transaction
1. Capital Bank Corporation ("CBC")
CBC is a North Carolina corporation with its principal office
and place of business located at 4400 Falls of Neuse Road,
Raleigh, North Carolina. CBC is authorized by its Articles of
Incorporation to issue 20,000,000 shares of voting common
stock, each of no par value (the "CBC Common Stock"), of which
there was 1 share issued and outstanding as of August 31,
1998.
<PAGE>
Mr. James A. Beck Page 2
2. Capital Bank ("Capital")
Capital is a North Carolina commercial bank with its principal
office and place of business located at 4400 Falls of Neuse
Road, Raleigh, North Carolina. Capital is authorized by its
Articles of Incorporation to issue 20,000,000 shares of common
stock, each of $5.00 par value (the "Capital Stock"), of which
there were 2,477,651 shares issued and outstanding as of June
30, 1998.
3. Home Savings Bank of Siler City, Inc., SSB ("Home")
Home is a North Carolina savings bank with its principal
office and place of business located at 300 East Raleigh
Street, Siler City, North Carolina. Home is authorized by its
Articles of Incorporation to issue 5,000,000 shares of common
stock, each of $1.00 par value (the "Home Stock"), of which
there were 922,686 shares issued and outstanding as of August
31, 1998.
4. Shareholders of Home Savings Bank of Siler City, Inc., SSB
("Home Shareholders")
Home is a publicly owned company. Home stock is reported
over-the-counter in the "pink sheets" by the National Daily
Quotation System published by the National Quotation
Bureau, Inc.
B. Proposed Transaction Between the Parties
Prior to the Effective Time (as defined below) of the Agreement, each
share of Capital Stock outstanding shall be exchanged for or converted
into one share of CBC's Common Stock. As a result, Capital will be a
wholly owned subsidiary of CBC.
Pursuant to the Agreement and in accordance with North Carolina law, Home
Shareholders and CBC shall consummate a share exchange (the "Exchange")
whereby each of the outstanding shares of Home's common stock will be
exchanged solely for shares of CBC Common Stock. The separate corporate
existence of Home and CBC shall continue unaffected and unimpaired by the
Exchange.
Upon consummation of the Exchange, Home shall continue to operate under
the name "Home Savings Bank of Siler City, Inc., SSB" as a wholly-owned
subsidiary of CBC and will continue to conduct the business of a North
Carolina savings bank at the then legally established branch and main
office of Home. The duration of the corporate existence of Home shall be
perpetual and unlimited.
<PAGE>
Mr. James A. Beck Page 3
The Exchange is expected to provide CBC with certain business advantages
in comparison to CBC's current structure, including increased ability to
expand the business and economies of scale.
Pursuant to the Agreement, the Home Shareholders will receive (through a
designated transfer agent) 1.28 shares of the CBC Common Stock, rounded to
the nearest whole share, for each share of Home Stock held immediately
prior to the Effective Time (as defined below) of the Exchange. No
fractional shares of CBC Common Stock will be issued to the Home
Shareholders. Instead, CBC shares to be issued will be rounded to the
nearest whole share and any shareholder of Home who would otherwise be
entitled to receive five-tenths (.5) or more of a share will instead
receive an additional whole share; and any shareholder who would otherwise
be entitled to less than five-tenths (.5) of a share will not receive any
consideration for such fractional interest.
Pursuant to the Agreement, Home and Capital have entered into a certain
Stock Option Agreement (the "Stock Option Agreement") whereby Capital has
the option to acquire 183,615 shares of Home common stock at a price of
$11.75 per share payable in cash (the "Option"). Capital may exercise the
Option, in whole or in part, at any time or from time to time if a
Purchase Event (as defined in the Stock Option Agreement) shall have
occurred and be continuing; provided that to the extent the Option shall
not have been exercised, it shall terminate and be of no further force or
effect upon the earliest to occur of (i) the Effective Time of the
Exchange or (ii) termination of the Agreement in accordance with the
provisions thereof prior to the occurrence of a Purchase Event (other than
a termination resulting from a breach by Home of any covenant contained
therein) or (iii) six months after termination of the Agreement if such
termination follows the occurrence of a Purchase Event or is due to a
breach by Home of any covenant contained therein.
Any shareholder of Home who has and properly exercises the right of
dissent and appraisal with respect to the Exchange as provided in Article
13 of the North Carolina Business Corporation Act ("Dissenters Rights")
shall be entitled to receive cash payment of the fair value of all of his
or her shares of Home Stock from the Escrow Fund (defined below) in the
manner and pursuant to the procedures provided therein, subject further to
the conditions set forth in Article VII, Section 7.03H of the Agreement.
Shares of Home Stock held by persons who exercise Dissenters Rights shall
not be exchanged for CBC Common Stock as provided above. However, if any
shareholder of Home who exercises Dissenters Rights shall fail to perfect
his or her right to receive cash payment as provided above, or effectively
shall waive or lose such right, then each of his or her shares of Home
Stock, at CBC's sole option, shall be deemed to have been converted into
the right to receive CBC Common Stock as of the Effective Time (as defined
below).
Upon its receipt of any notice of a Home Shareholder's intent to assert
Dissenters Rights pursuant to the North Carolina Business Corporation Act,
Home shall establish an escrow fund (the "Escrow Fund") with an
independent third party (the "Escrow Agent")
<PAGE>
Mr. James A. Beck Page 4
reasonably satisfactory to Capital and CBC, from which the Escrow Agent
shall make all payments, whether before or after the Effective Time,
necessary with respect to the exercise of such Dissenters Rights.
Neither CBC nor Capital nor any entity affiliated with either CBC or
Capital shall, directly or indirectly, contribute any funds to the Escrow
Fund. Home shall deposit in the Escrow Fund an amount, subject to
Capital's and CBC's approval, that Home reasonably believes is sufficient
to pay fully the claims of all Home Shareholders asserting Dissenters
Rights, and shall make additional deposits to the Escrow Fund as Home,
Capital, or CBC may reasonably determine to be necessary to satisfy such
claims. In the event funds remain in the Escrow Fund after all claims for
payment pursuant to Dissenters Rights have finally expired, terminated, or
have been finally satisfied or settled, then any balance remaining in the
Escrow Fund shall be returned to Home.
The "Effective Time" of the Exchange is defined in Article I, Section 1.04
of the Agreement as the date and time when the Exchange becomes effective
as set forth in the Articles of Share Exchange filed with the North
Carolina Secretary of State in accordance with North Carolina law. The
Articles of Share Exchange will be filed once the Agreement has been
approved by the required governmental and regulatory authorities.
Opinion
In rendering our opinion, we have relied upon (i) the Agreement; (ii) the
written representations given by the parties, which are annexed hereto; and
(iii) such other documents as we have deemed necessary or appropriate. We have
assumed the genuiness of all signatures, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies, and the authenticity of the originals of such
copies. We have also assumed that the Agreement reflects all the material facts
relating to CBC, Capital, and Home. Our opinion is expressly conditioned on,
among other things, the accuracy as of the date hereof, and the continuing
accuracy, of all such facts and representations. If any of the representations
annexed hereto are incorrect in whole or in part, or if the terms of the
Agreement are altered before consummation of the Exchange, such inaccuracies or
alterations may have a material effect upon our opinion expressed in this
letter.
Based upon the foregoing, and taking into consideration the statements contained
in the Section marked "Caveat" below, it is our opinion that:
1. The Exchange will qualify as a reorganization under Section
368(a)(1)(B) of the Code;
2. No gain or loss will be recognized by the Home Shareholders upon receipt
of the CBC Common Stock solely in exchange for shares of Home Stock;
3. The aggregate federal income tax basis of the CBC Common Stock received by
each
<PAGE>
Mr. James A. Beck Page 5
Home Shareholder will be the same as the aggregate federal income tax
basis of the Home Stock surrendered in exchange therefor;
4. The holding period of the CBC Common Stock received by each Home
Shareholder will include the period for which the exchanged Home Stock was
held, provided the exchanged Home Stock was held as a capital asset by
each Home Shareholder on the date of the exchange;
Caveat
The foregoing opinion addresses only the four items set forth herein and,
therefore, no tax opinion is hereby expressed regarding any other federal,
state, local, or other tax issues or about any other matter not specifically
mentioned herein.
No opinion is expressed regarding any tax consequences should Capital exercise
its option pursuant to Article VII, Section 7.03.J of the Agreement to merge
Home into Capital.
No opinion is expressed regarding the exchange if either CBC or Capital
exercises any rights to acquire Home Stock pursuant to the Stock Option
Agreement discussed above.
No opinion is expressed regarding the tax consequences of the conversion of
outstanding options to purchase common stock of Home into options to purchase
common stock of CBC. Holders of Home's outstanding options should consult their
own tax advisors regarding the effect of the proposed Exchange.
No opinion is expressed regarding any tax consequences affecting recapture of
loan loss reserves and the related bad debt reserves for any of the parties to
the Exchange which may arise from the application of Section 585 of the Code.
Our opinion is based on the relevant provisions of the Code, the regulations
thereunder, and the judicial and administrative interpretations thereof. There
are no assurances that the conclusions reached herein will be accepted by the
Internal Revenue Service or judicial authorities if challenged. Any legislative,
regulatory, administrative, or judicial decisions subsequent to the date of this
opinion may have an impact on the validity of our conclusions. Unless you
specifically request otherwise, we will not update our opinion for changes to
the law, regulations, or the judicial and administrative interpretations
thereof.
<PAGE>
Mr. James A. Beck Page 6
This opinion is being furnished in connection with the Registration Statement on
Form S-4 to be filed by CBC. We hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and to the reference to our name in the
Agreement and Plan of Reorganization and Share Exchange. This opinion may not be
circulated, quoted, or otherwise referred to for any other purpose without our
express written consent.
Very truly yours,
EXHIBIT 10.1
STATE OF NORTH CAROLINA
COUNTY OF LEE LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into as of the 4th day of
January, 1994, by and between BUCHANAN PROPERTIES JOINT VENTURE, a North
Carolina general partnership, party of the first part (hereinafter called
"Lessor"), and TRIANGLE EAST BANK, a North Carolina banking corporation, party
of the second part (hereinafter called "Lessee"),
WITNESSETH:
In consideration of the rents hereinafter agreed to be paid and in
consideration of the mutual covenants and agreements hereinafter recited, Lessor
does hereby lease and demise unto Lessee and Lessee does hereby lease and take
as tenant from Lessor those certain premises (hereinafter called the "Premises")
and being more particularly described in Exhibit "A" attached hereto and
incorporated herein by reference and being referred to as 2800 Williams Street,
in the City of Sanford, North Carolina. No easement for light or air is granted
hereunder. Lessor shall have no obligation to make any improvements in the
Premises whatsoever and Lessee hereby agrees to accept the building,
improvements, and any equipment on or in the premise, in their existing
condition, "as is". No representation, statement, or warranty, express or
implied, has been made by or on behalf of the Lessor as to such condition, or as
to the use that may be made of such property.
TO HAVE AND TO HOLD the said Premises unto the Lessee upon the
following terms and conditions:
<PAGE>
1. TERM. The term of this Lease shall begin on the 1st day of January,
1994, and shall end at 12:00 midnight on the 31st day of December, 1995,
("initial term"). It is agreed that, at the expiration of the initial term of
this Lease, if Lessee is not in default of any of the terms and conditions of
this Lease, Lessee shall have the right and option to renew this Lease for one
additional three-year term (first renewal term). Such first renewal term shall
commence as of January 1, 1996 and shall be subject to and in accordance with
all terms and conditions set forth in this Lease with the rental to remain at
Seven Hundred Fifty Dollars ($750.00) per month. It is further agreed that at
the expiration of the first renewal term of this Lease (December 31, 1998), if
Lessee is not in default of any of the terms and conditions of this Lease, then
this Lease may be extended for an additional five (5) year term (second renewal
term) with the rent for said second renewal term to be mutually agreed upon
between the Lessor and Lessee. In the event Lessor and Lessee are unable to
agree, prior to October 1, 1998, upon the rent during the second renewal term
then this lease shall terminate at midnight on December 31, 1998. All other
charges shall remain in effect as if the initial term of this Lease had included
such renewal terms. If Lessee shall desire to exercise these rights and options,
it shall give Lessor notice in writing not less than thirty (30) days prior to
the expiration of the current term of this Lease. If Lessee shall fail to
provide such notice to Lessor within such tine period, it shall be conclusively
deemed that Lessee has elected not to renew and extend the term of this Lease as
aforesaid, time being of the essence.
2. RENT.
A. Lessee shall pay to Lessor the sum of Seven Thousand Two
Hundred Dollars ($7,200.00) per annum (hereinafter sometimes referred to as the
"Base Rent"), payable in monthly installments of Six Hundred Dollars ($600.00)
each due on the first day of each month,
2
<PAGE>
in advance, during the first twelve (12) months of this Lease and shall increase
to Nine Thousand Dollars ($9,000.00) per annum and Seven Hundred Fifty Dollars
($750.00) per month for the second twelve (12) months of the initial term, and
payment for the first month of leasing shall be made upon the date Lessor shall
have made the Premises available for possession by Lessee. Rent for any partial
month shall be paid in advance at that daily rate equal to the monthly Base Rent
divided by the number of days in the month for which such rent is due.
B. Interest on unpaid amounts and No Set-Off. If any monthly
installment of the Base Rent is not paid within ten (10) days of its due date or
if any other sum due Lessor in accordance with any provision of this Lease shall
not be paid immediately when due, the same shall, unless Lessor shall waive the
same, bear interest at the rate of eighteen percent (18%) per annum (or, if
less, the highest rate allowed by law) from such due date until such sum and all
such interest accrued thereon shall have been paid. Interest accrued as
aforesaid shall be deemed to be additional rent hereunder due on demand and
failure to pay the same shall constitute an Event of Default (hereafter
defined). All Base Rent and any other sum due Lessor in accordance with any
provisions of this Lease shall be paid without notice or demand and without
set-off or deduction of any kind, except as otherwise expressly provided in this
Lease.
3. DEFAULT. The occurrence of one or more of the following events
(herein called "Events of Default") shall constitute a default by the Lessee:
A. Failure to pay rent within fifteen (15) days after its due
date;
3
<PAGE>
B. Failure to perform any other provision of this Lease if the
failure to perform is not cured, or reasonable efforts began to cure such
default, within thirty (30) days after notice thereof has been given to Lessee.
C. If Lessee shall be adjudged bankrupt or file for bankruptcy
or if a receiver shall be appointed for Lessee.
4. END OF TERM, HOLDING OVER AND ATTORNEY'S FEES. Upon the expiration
of the term or other termination of this Lease, Lessee shall quit and surrender
to Lessor the Premises, broom clean, in good order and condition, ordinary wear
and tear excepted and Lessee shall remove from the Premises all of its property.
If Lessee shall hold over after the expiration of the term or other termination
of this Lease, such holding over shall not be deemed to be a renewal of this
Lease but shall be deemed to create a tenancy-at-will and by such holding over
Lessee shall be deemed to have agreed to be bound by all of the terms and
conditions of this Lease except those as to the term hereof and except that
during such tenancy-at-will, Lessee shall pay Base Rent at the rate of One
Hundred Twenty-five percent (125%) of the rent in effect at the conclusion of
the Lease term. If any rent or other sum owing under this Lease is collected by
or through an attorney-at-law, Lessee agrees to pay Lessor's reasonable
attorney's fees not in excess of fifteen (15%) percent (or if the statutes or
other laws of the State of North Carolina in effect at the time of such
collection limit the amount so payable as attorney's fees, then the maximum
percentage allowed by such laws or statutes) of the amount so collected.
5. USE OF PREMISES. The Premises may be used and occupied by Lessee for
any legal purpose. Lessee shall not use the Premises or any portion thereof for
any illegal or unlawful
4
<PAGE>
purpose and will not cause or permit a nuisance to be created or maintained
therein. Lessee, shall not fix, print, paint or display any sign, name, legend,
notice or advertisement on any part of the Premises unless such conforms and
complies with the ordinances of the City of Sanford.
6. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this Lease or
sublet the Premises or any part thereof without the prior written consent of
Lessor which consent shall not be unreasonably withheld. Consent by Lessor to
one assignment or subletting shall not operate as a waiver as to future
assignments or subleases. If this Lease shall be assigned or the Premises or any
portion thereof sublet by Lessee at a rental that exceeds all rentals to be paid
to Lessor hereunder, attributable to the Premises or portion thereof so assigned
or sublet, then and in such event any such excess shall be paid over to Lessor
by Lessee. If Lessee shall request Lessor's consent to an assignment of this
Lease or a subletting of the Premises, Lessor shall, at its election upon notice
to Lessee and without limitation, have the right to enter into a direct lease
with the proposed assignee or subtenant, in which event this Lease shall
automatically terminate as of the date of such new lease.
7. TAXES AND UTILITIES. The Lessee, in addition to the fixed rent
provided for herein, shall reimburse Lessor for all taxes and assessments upon
the Premises, and upon the buildings and improvements thereon, which are
assessed during the lease term. All taxes assessed prior to but payable in whole
or in installments after the effective date of the lease term, and all taxes
assessed during the tern but payable in whole or in installments after the lease
term, shall be adjusted and prorated, so that the Lessor shall pay their
prorated share for the period prior to and for the period subsequent to the
lease term and the Lessee shall pay its prorated share for the lease term. The
Lessee shall have the right to protest any tax assessment or valuation
5
<PAGE>
made on the Premises by the taxing authorities to the same extent as if it were
the owner of the Premises. Reimbursement of these said taxes and assessments
shall be made to Lessor within fifteen (15) days after presentation from Lessor
to Lessee of a paid receipt for said taxes and assessments. Upon receipt of said
funds Lessor shall then pay the appropriate tax authorities.
It is further understood and agreed that Lessee shall be responsible
for and shall pay all utility charges incurred in and connected with use of the
Premises, including but not limited to electricity and telephone, and water
services.
8. ALTERATIONS BY LESSEE. Lessee shall make no alterations, additions
or improvements to the Premises without the prior written consent of Lessor
which consent shall not be unreasonably withheld. All alterations, additions and
improvements made by, for or at the direction of Lessee shall, when made become
the property of Lessor and shall remain upon and be surrendered with the
Premises as a part, thereof at the expiration or earlier termination of this
Lease. Upon the expiration or any earlier termination of this Lease, Lessee
shall promptly reimburse Lessor for any expense or cost incurred by Lessor in
restoring the Premises to the condition in which the Premises were at the time
Lessee shall have occupied the same, ordinary wear and tear, fire or other
casualty not caused by Lessee, additions and improvements to the Premises
consented to in writing by Lessor excepted. Lessee shall promptly pay and
discharge any and all licensees, imposts, liens or other charges arising out of
or in connection with the performance of any act required of or permitted Lessee
hereunder and shall keep the Premises free and clear from any and all such liens
or charges.
9. PROPERTY OF LESSEE. All property placed on the Premises by, at the
direction of or with the consent of the Lessee, its employees, agents, licensees
or invitees, shall be at the risk of the Lessee or the owner thereof and Lessor
shall not be liable for any loss of or
6
<PAGE>
damage to said property resulting from any cause whatsoever unless such loss or
damage is the result of Lessor's proven acts of negligence.
10. REPAIRS AND MAINTENANCE. Lessor shall repair and maintain the roof
and outer walls of the building on the Premises. The Lessee shall, at its own
expense, make all other necessary repairs and replacements to the Premises
including but not limited to interior walls and ceilings and to the pipes,
heating system, plumbing system, glass fixtures, and all other appliances and
appurtenances belonging thereto and all equipment used in connection with the
Premises. Such repairs and replacements, interior and exterior, ordinary as well
as extraordinary, and structural as well as non-structural, shall be made
promptly by Lessee, as and when necessary. All repairs and replacements shall be
in quality and class at least equal to the original work. On default of the
Lessee in making any such repairs or replacements it is required to make or
perform hereunder, the Lessor may, but shall not be required to, make such
repairs and replacements for the Lessee's account and the expense thereof shall
constitute and be collectable as additional rent.
11. LESSOR'S RIGHT OF ENTRY. Lessor shall have the right to enter and
to grant licenses to enter the Premises, during the Lessee's business hours and
upon 24 hours prior notice to Lessee, except in the case of an emergency (a) to
inspect the Premises, (b) to exhibit the Premises to Prospective tenants or
purchasers of the Building, (c) to make alterations or repairs to the Premises
or to the Building and to store necessary materials, tools and equipment for
such alterations or repairs, (d) for any purpose which Lessor shall deem
necessary for the operation and maintenance of the Premises, (e) for the purpose
of removing from the Premises any placards, signs, fixtures, alterations or
additions not permitted by this agreement, or (f) to abate any condition which
constitutes a violation of any covenant or condition of this Lease. No such
7
<PAGE>
entry by Lessor shall in any manner affect Lessee's obligation and covenants
under this Lease and no such entry shall of itself without affirmative proof of
negligence on the part of Lessor render Lessor liable for any loss of or damage
to the property of Lessee.
12. INDEMNIFICATION OF LESSOR. Lessee agrees to indemnify and defend
Lessor and to save harmless Lessor, and the tenants, licensees, invitees,
agents, servants and employees of Lessor against and from any and all claims by
or on behalf of any person, firm or corporation arising by reason of injury to
person or property occurring on the Premises occasioned in whole or in part by
any act or omission on the part of Lessee or any employee, agent, assignee or
subtenant of Lessee, or by reason of any unlawful use of the Premises or by
reason of any breach, violation or non-performance of any covenant in this Lease
on the part of Lessee to be observed or performed, and also by reason of any
matter or thing growing out of the occupancy or use of the Premises by Lessee or
any one holding under Lessee. Lessee agrees to pay Lessor promptly for all
damage to the Premises and for all damage to occupants of Premises caused by
Lessee's misuse or neglect of the Premises or of its or their apparatus and
appurtenances and Lessee agrees in any event to reimburse and compensate Lessor
as additional rent within five (5) days of rendition of any statement to Lessee
by Lessor for expenditures made by Lessor or for fines sustained or incurred by
Lessor due to non-performance or non-compliance with or breach or failure to
observe any term, covenant or condition of this Lease upon Lessee's part to be
kept, observed, performed or complied with.
Neither party herein shall be liable to the other for any damage by or
from any act or negligence of or by any owner or occupant of adjoining or
contiguous property. Neither Lessor nor its agents shall be liable to Lessee or
to any person, firm or corporation claiming through or under Lessee for any
injury or damage to persons or property resulting from fire, explosion,
8
<PAGE>
falling plaster, steam, glass, electricity, water, rain or snow or leaks from
any part of the Premises or from the pipes, appliances or plumbing works or from
the roof, street or subsurface or from any other place or by dampness or by any
other cause of whatever nature, unless caused by or due to proven acts of
negligence of Lessor or its agents, servants and employees. Lessor shall not be
liable to Lessee or to any person, firm or corporation claiming through or under
Lessee for any latent defect in the Premises other than pertains to the roof and
outer walls of the Premises.
13. INSURANCE AND INSURANCE RATES. Throughout the term of this Lease,
Lessor shall carry such insurance as it deems appropriate to protect its
interest in the Premises. Throughout the term of this Lease, Lessee shall carry
fire and extended coverage insurance insuring its interest, if any, in
improvements to or in the Premises and its interest in its office furniture,
equipment, supplies, inventory and all its other property located on the
Premises and Lessee shall carry public liability insurance insuring against all
liability of Lessee and its authorized representatives arising out of and in
connection with Lessee's use or occupancy of the Premises. Each party herein
hereby waives any claim or right of action which it may have against the other
for any loss or damage covered by such insurance. Lessee shall at its own
expense, obtain and maintain in force public liability insurance which shall
insure Lessor against liability for injury or death of persons or loss or damage
to property occurring in or about the insurance shall have coverage in the
minimum amount of Five Hundred Thousand - One Million Dollars ($500,000.00 -
$1,000,000.00).
Lessee shall not do or cause to be done or permit on the Premises
anything deemed extra hazardous on account of fire and Lessee shall not use the
Premises in any manner which will cause an increase in the premium rate for any
insurance in effect on the Premises or a part thereof. If, because of anything
done, caused to be done, permitted or omitted by Lessee or its
9
<PAGE>
agents, servants or employees the premium rate for any kind of insurance in
effect on the Premises or any part thereof shall be raised, Lessee shall pay
Lessor on demand the amount of any such increase in premium which Lessor shall
pay for such insurance and if Lessor shall demand that Lessee remedy the
condition which caused any such increase in an insurance premium rate, Lessee
shall remedy such condition within five days after receipt of such demand,
provided, however, that if Lessee can obtain the same insurance coverage, but
for a lesser premium, (approved by Lessor which approval shall not be
unreasonably withheld) from another company then it may present such information
to Lessor and Lessor shall then have the option in regard to which insurance
coverage shall be used. In the event Lessor chooses to use the insurance company
with the higher premium then Lessee shall be responsible and shall pay for only
the lesser premium.
14. FIRE OR OTHER CASUALTY. In the event that before or during the term
of this Lease, the Premises or the Building shall be damaged by fire or other
casualty which renders the Building, the Premises or any part of the Building or
the Premises untenantable, Lessor within twenty (20) days of such fire or
casualty or of receipt of written notice from Lessee of such damage (whichever
shall last occur) shall have the right to either (i) serve written notice upon
Lessee of Lessor's intent to repair said damage or (ii) if said damage renders
so much of either of the Premises or of the Building untenantable that repair
would not be feasible, or if said damage shall have been occasioned by the act
or omission of Lessee, its servants, agents or employees, serve written notice
upon Lessee that its Lease is terminated, provided, however, that Lessor shall
not so terminate this Lease unless such repairs cannot be made within a period
of sixty (60) days or unless at the time such notice is given there remains less
than one hundred eighty (180) days during the unexpired current term of this
Lease and Lessee, upon request from
10
<PAGE>
Lessor advises Lessor that it does not intend to renew the Lease for an
additional term. If Lessor shall, is required, or elects, to repair such damage,
such repairs shall be commenced within fifteen (15) days of notice to Lessee of
such election and such repairs shall be completed within one hundred eighty
(180) days of notice to Lessee of such election or within sixty (60) days if
applicable. During the period of repair the Base Rent shall be reduced to an
amount which bears the same ratio to the Base Rent the portion of the Premises
then available for use bears to the entire Premises. Upon completion of such
repair, the rent shall thereafter be paid as if no fire or other casualty had
occurred.
The other provisions of this paragraph 14 notwithstanding, Lessor shall
have no obligation to replace or repair any property on the Premises belonging
to Lessee or to any one claiming through or under Lessee nor shall Lessor have
any obligation hereunder to replace or repair any property on the Premises which
Lessor shall have the right to require Lessee to remove from the Premises or any
alteration, addition or improvement made to the Premises by, for or at the
direction of Lessee unless such fire or other casualty was caused by or due to
proven acts of negligence of Lessor or its, agents, servants and employees.
15. SUBORDINATION. Lessee agrees that this Lease may be assigned as
additional security for all mortgages or deeds of trust which may now or
hereafter be in effect in regard to the premises and for all renewals,
modifications, consolidations, replacements and extensions thereof. This clause
shall be self-operative and no further instrument shall be necessary to effect
such subordination; however, Lessee shall execute promptly and deliver to Lessor
any such certificate or certificates in writing as Lessor may request evidencing
the subordination of this Lease to or the assignment of this Lease as additional
security for such mortgage or deed of trust;
11
<PAGE>
provided however, Lessor shall reimburse Lessee for any reasonable costs
incurred by Lessee for more than one such certificate per calendar year.
16. CONDEMNATION. If a part of the Premises be taken for any public or
quasipublic use, under any statute or by right of eminent domain, or private
purchase in lieu thereof, such as to render them unsuitable for the business of
the Lessee, then this lease, at the option of the Lessee, shall be canceled and
declared null and void, and of no effect and the Lessee shall be liable for the
rent only up to such time as of partial taking. In the event of a partial taking
which is not extensive enough to render the Premises unsuitable for the business
of the Lessee, the Lessors shall promptly restore the Premises to a condition
comparable to their condition at the time of said condemnation and the lease
shall continue, but starting with the date of such restoration, the rental shall
be reduced proportionately. In the event of the occurrence of the contingencies
above mentioned or of complete condemnation, rent shall abate corresponding with
the time during which the Premises may not by used by the Lessee and the Lessee:
shall be entitled to receive a pro rata refund of any advance rental paid by it
for the rental period during which the Premises were wholly or partially taken.
Nothing herein contained shall be deemed or construed to prevent Lessor
or Lessee from enforcing and prosecuting in any condemnation proceedings for the
value of their respective interest.
17. QUIET ENJOYMENT AND TRANSFER OF TENANTS. Lessor agrees that Lessee
on paying the rent and performing all the terms and conditions of this Lease
shall quietly have, hold and enjoy the Premises for the term aforesaid.
18. NOTICES. Any notice or demand which by any provision on this
agreement is required or allowed to be given by either party to the other shall
be deemed to have been
12
<PAGE>
sufficiently given for all purposes when made in writing and sent in the United
States mail as certified or registered mail, return receipt requested, postage
prepared and addressed: (a) if to Lessee, to 4800 Six Forks Road, Post Office
Box 19178, Raleigh, NC 27619 ATTN: President and (b) if to Lessor, to Buchanan
Properties Joint Venture, Attention: Keith Buchanan, Post Office Box 2126,
Sanford, N.C. 27330, or to such other place as Lessor or Lessee may from time to
time designate in a notice to the other.
19. OPTION TO PURCHASE. In the event Lessee has fully complied with all
the terms and conditions of this agreement and is not in default in any of its
terms then Lessee shall have the option, by written notice given to Lessor at
any time prior to thirty (30) days before the expiration of the lease term then
in effect, to purchase the Premises for the purchase price of one Hundred
Eighty-five Thousand Dollars ($185,000.00). The purchase price shall be paid in
cash at closing with no credit given for rent previously paid with said closing
to take place within thirty (30) days of the date of the receipt of said notice
by Lessor.
20. HEIRS AND ASSIGNS. The provisions of this Lease shall bind and
inure to the benefit of Lessor and Lessee, and their respective successors,
heirs, legal representatives and assigns. It is understood and agreed, however,
that the term "Lessor", as used in this Lease, means only the owner or the
lessor for the time being of Premises, so that in the event of any sale or sales
including, without limitation, any judicial sale, any sale in foreclosure and
any sale pursuant to a power of sale contained in a mortgage or deed of trust.
affecting all or any part of the Premises of said property or of any lease
thereof, the Lessor named herein shall be and hereby is entirely freed and
relieved of all covenants and obligations of Lessor hereunder accruing after
such sale, and it shall be deemed without further agreement that the purchaser
or the Lessee, as the case may be, has assumed and agreed to carry out any and
all covenants and obligations of
13
<PAGE>
Lessor hereunder accruing after such sale. Lessee shall from time to time upon
request of Lessor execute and deliver to Lessor a certificate or certificates
stating that this Lease is unmodified and in full force and effect as modified
and stating the modifications; provided, Lessor shall reimburse Lessee for any
reasonable costs incurred by Lessee for more than one such certificate per
calendar year. Such certificates shall also state the amount of Base Rent then
in effect, the dates to which rent has been paid in advance, the amount of any
security deposit, and shall specify any default in Lessor's performance claimed
by Lessee.
21. INTEGRATION AND BINDING EFFECT. The entire agreement, intent and
understanding between Lessor and Lessee is contained in the provisions of this
Lease and any stipulations, representations, promises or agreements, written or
oral, made prior to or contemporaneously with this Lease shall have no legal or
equitable effect or consequence unless reduced to writing herein. This Lease
shall be governed by and construed pursuant to the laws of the State of North
Carolina.
22. COMPLIANCE BY LESSEE WITH GOVERNMENTAL REGULATIONS. In the
performance of any acts required of or permitted Lessee under paragraph 8 of any
other provision of this Lease, Lessee shall obey and comply with all lawful
requirements, rules, regulations, and ordinances of all legally constituted
authorities, existing at any time during the continuance of such performance in
any way affecting the Premises or the use of the Premises by Lessee. Such
compliance shall include compliance by Lessee with requirements of the
Occupational Safety and Health Act, and all amendments thereto, as the same
applies to the Lessee's use of the Premises.
23. MISCELLANEOUS. This lease shall be modified only by written
agreement signed by Lessor and Lessee. Lessee shall contemporaneously with the
execution and delivery of
14
<PAGE>
this Lease also deliver to Lessor a copy of the Resolution of the Board of
Directors of the Lessee authorizing the execution of this Lease.
24. ENVIRONMENTAL CONDITION OF PREMISES. The current ENVIRONMENTAL and
ecological condition of the Premises are such that the Premises do not violate
any law, ordinance, notice, requirement, rule or regulation applicable thereto
and: (i) Lessor neither knows of, nor has it been advised of, any legal or
administrative proceedings, claims or alleged claims, volitions or alleged
volitions, infractions of alleged infractions or any laws, rules, regulations
relating to the condition of the Premises; (ii) there is not now pending, or
threatened, any action, suit, investigation or proceeding against Lessor or the
Premises seeking to enforce any right or remedy under any ENVIRONMENTAL or
ecological law; (iii) Lessor neither knows, nor has been advised or has any
reason to believe, that the soil, surface water and ground water of, on, under
or about the Premises is not now free from solid waste, hazardous waste, or any
other toxic or hazardous substances or contaminants ("hazardous materials");
(iv) during Lessor's ownership and, to the best of its knowledge, during the
ownership of prior owners; the Premises has not been used for the treatment,
storage, or disposal of any hazardous materials; (v) Lessor shall immediately
give Lessee notice in the event it receives any notice from any party with
regard to hazardous materials affecting the Premises; (vi) Lessor shall complete
all remedial, removal, and other actions necessary to clean up and remove all
hazardous materials on, from affecting the Premises as of December 31, 1993, in
accordance with all applicable laws; and, (vii) Lessor shall indemnify and hold
harmless Lessee against any and all liabilities including, without limitation,
the payment of any costs and attorney's fees, arising from or in connection with
the treatment, storage, handling and disposal of any hazardous materials on the
15
<PAGE>
Premises prior to January 1, 1994, or any breach of Lessor's warranty of
ENVIRONMENTAL and ecological condition of the Premises as herein contained.
Lessee shall not during any time under this lease engage in any
activities which create nor shall it store, maintain or dispose of any solid
waste, hazardous waste, or any other toxic or hazardous substances or
contaminants (hazardous materials) on the Premises. In the event Lessee is the
source of any hazardous materials found on the Premises then it shall complete
all remedial, removal and other actions necessary to clean up and remove all
such hazardous materials on, from or affecting the Premises and shall indemnify
and hold harmless Lessor against any and all liabilities including, without
limitation, the payment of any costs and attorneys fees, arising from or in
connection with the treatment, storage, handling and disposal of any hazardous
materials on the Premises during any term under this lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease
Agreement and have hereunto set their seals as of the day and year first above
written.
LESSEE:
Triangle East Bank,
a North Carolina banking
corporation
By: /s/ (SEAL)
----------------------
President
ATTEST:
By: /s/
------------------------
Assist. Secretary
(Corporate Seal)
16
<PAGE>
17
<PAGE>
LESSOR:
Buchanan Properties Joint Venture
/s/ (SEAL)
--------------------------
P. Keith Buchanan, General Partner
/s/ (SEAL)
--------------------------
Kay P. Janovich, General Partner
/s/ (SEAL)
--------------------------
Bonnie W. Buchanan, General Partner
/s/ (SEAL)
--------------------------
P. Keith Buchanan, Trustee for
Phyliss Ann Medlin Brown
STATE OF North Carolina
COUNTY OF Wake
I , Deborah C. Birkenmeyer, a Notary Public, for the aforesaid County
and State, hereby certify that Michael S. Patterson personally came before me
this day and acknowledged that he is President of Triangle East Bank, and that
by authority duly given and as the act of the corporation, the foregoing
instrument was signed by him as its President, and sealed with its corporate
seal and attested by Susan C. Gilbert as its Asst. Secretary.
Witness my hand and notarial seal this 21st day of January, 1994.
/s/
-----------------------------
Notary Public
My commission expires: 7-2-95
18
<PAGE>
NORTH CAROLINA
LEE COUNTY
I, Frankie M. Wallace, a Notary Public for the aforesaid County and
State do hereby certify that P. Keith Buchanan, general partner of Buchanan
Properties Joint Venture personally appeared before me this day and acknowledged
the execution of the foregoing instrument as said general partner for the
purposes therein expressed.
Witness my hand and notarial seal this the 13th day of January, 1994.
/s/
----------------------------------
Notary Public
My commission expires:
Jan. 26, 1998
NORTH CAROLINA
LEE COUNTY
I, Frankie M. Wallace, a Notary Public for the aforesaid County and
State do hereby certify that Kay B. Janovich, general partner of Buchanan
Properties Joint Venture personally appeared before me this day and acknowledged
the execution of the foregoing instrument as said general partner for the
purposes therein expressed.
Witness my hand and notarial seal, this the 12th day of January, 1994.
/s/
-----------------------------
Notary Public
My commission expires:
January 26, 1998
19
<PAGE>
NORTH CAROLINA
LEE COUNTY
I, Frankie M. Wallace, a Notary Public for the aforesaid County and
State do hereby certify that Bonnie W. Buchanan, general partner of Buchanan
Properties Joint Venture personally appeared before me this day and acknowledged
the execution of the foregoing instrument as said general partner for the
purposes therein expressed.
Witness my hand and notarial seal, this the 12th day of January, 1994.
/s/
-----------------------------
Notary Public
My commission expires:
January 26, 1998
NORTH CAROLINA
LEE COUNTY
I, Frankie M. Wallace, a Notary Public for the aforesaid County and
State do hereby certify that P. Keith Buchanan, Trustee for Phyllis Ann Medlin
Brown, general partner of Buchanan Properties Joint Venture personally appeared
before me this day and acknowledged the execution of the foregoing instrument as
said general partner for the purposes therein expressed.
Witness my hand and notarial seal, this the 13th day of January, 1994.
/s/
-----------------------------
Notary Public
My commission expires:
January 26, 1998
20
<PAGE>
EXHIBIT "A" to Lease between
Buchanan Properties Joint Venture
and
Triangle East Bank
Beginning at an iron pipe located at the intersection of the easterly
right-of-way line of Industrial Drive and the southerly right-of-way line of
Williams Street in Jonesboro Township, Sanford, Lee County, North Carolina and
running thence as the said easterly right-of-way line of Industrial Drive, South
25 degs. 28 mins. 00 secs. East, 100 feet; thence South 62 degs. 57 mins. 35
secs. West, 211.00 feet is a set iron stake; thence North 27 degs. 45 mins. 32
secs. West, 99.97 feet to an iron stake in the southerly right-of-way line of
Williams Street; thence as said southerly right-of-way line of Williams Street,
North 62 degs. 57 mins. 33 secs. East, 215 feet to the point of BEGINNING, and
being all of tracts 1 and 2 containing 21,295 square feet as shown on the map
entitled "Survey for P.K. Buchanan Heirs, Jonesboro Township, Lee County, North
Carolina", completed January 6, 1992, by Thomas J. Matthews, RLS # L-1255 which
map is recorded in Plat Cabinet 7, slide 73A, Lee County Registry, and to which
map reference is hereby made.
21
<PAGE>
R. KEITH BUCHANAN, JR.
2733 Lee Avenue
P. O. Box 2126
Sanford, NC -17331-2126
Office Phone Residence Phone
919-776-4204 919-775-5842
December 1, 1994
Triangle East Bank Certified Mail #Z 274 245 844
4800 Six Forks Road
P. 0. Box 19178
Raleigh, NC 27619
Attention: President
RE: 2800 Williams Street - Sanford, North Carolina
Lease between Buchanan Properties Joint Venture and Triangle
East Bank
Dear Sir/Madam:
According to paragraph 2, subsection A of the above mentioned lease, the rental
amount for the above mentioned property will increase to Seven Hundred Fifty
Dollars ($750.00) per month for the second twelve month period of the initial
lease term. This rental amount will be effective January 1, 1995.
Please make sure your accounts payable department is aware of this change.
We appreciate the opportunity you have given us to serve you. Please let us know
if you have any questions.
Sincerely,
BUCHANAN PROPERTIES JOINT VENTURE
P. Keith Buchanan, Jr.
General Partner
fmw
22
<PAGE>
FIRST AMENDMENT OF LEASE AGREEMENT
THIS FIRST AMENDMENT OF LEASE AGREEMENT, made and entered into this the
24th day of January, 1996 by and between BUCHANAN PROPERTIES JOINT VENTURE, a
North Carolina general partnership, (hereinafter referred to as "Lessor") and
TRIANGLE BANK, formerly Triangle East Bank, a North Carolina banking
corporation, (hereinafter referred to as "Lessee"):
W I T N E S E T H:
WHEREAS, Lessor and Lessee, entered into a Lease Agreement dated the
4th day of January, 1994 for the lease of certain premises (the "Demised
Premises") located in 2800 Williams Street, in the City of Sanford, State of
North Carolina, all as more particularly described in the Lease, and WHEREAS,
Lessor and Lessee now desire to amend the said Lease, NOW, THEREFORE, in
consideration of the premises and in consideration of the covenants and
conditions set forth herein and in the Lease Agreement, the parties hereby amend
and modify the aforesaid Lease Agreement as follows:
1. This amendment and its provisions shall be effective upon
signing.
2. Lessor elects to extend the term of the Lease for one (1)
year, January 1, 1996 through December 31, 1996.
3. All other terms and conditions of the Lease Agreement dated
January 4, 1994, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed the day and year first above written.
<PAGE>
LESSEE: TRIANGLE BANCORP.
By: /s/
------------------------
______ President
ATTEST:
By: /s/
----------------------
_______ Secretary
(Affix Corporate Seal)
LESSOR: BUCHANAN PROPERTIES JOINT
VENTURE
By: /s/ (SEAL)
-----------------------------------
P. Keith Buchanan, General Partner
By: /s/ (SEAL)
-----------------------------------
Kay B. Janovich, General Partner
By: /s/ (SEAL)
-----------------------------------
Bonnie W. Buchanan, General Partner
By: /s/ (SEAL)
-----------------------------------
P. Keith Buchanan, Trustee for
Phyllis Ann Medlin Brown
2
<PAGE>
STATE OF North Carolina
COUNTY OF Wake
I, Deborah C. Birkkenmeyer, a Notary Public for said County and State,
do hereby certify that Susan C. Gilbert personally appeared before me this day
and being duly sworn, acknowledged that he is Secretary of Triangle Bank, a
North Carolina Corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name by its Sr. Vice
Pres. and sealed with its corporate seal.
Witness my hand and notarial seal this the 5th day of January, 1996.
(OFFICIAL SEAL) /s/
-------------------------------------
Notary Public
My Commission Expires: 7-2-00
STATE OF NORTH CAROLINA
COUNTY Lee
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 24th day of January, 1996.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission expires: January 26, 1998
3
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF LEE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Kay B. Janovich, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this 26th day of January, 1996.
(OFFICIAL SEAL) /s/
-----------------------------------
Notary Public
My Commission expires: January 26, 1998
STATE OF NORTH CAROLINA
COUNTY OF LEE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Bonnie W. Buchanan, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this 24th day of January, 1996.
(OFFICIAL SEAL) /s/
-----------------------------------
Notary Public
My Commission expires: January 26, 1998
4
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF LEE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, Trustee for Phyllis Ann Medlin Brown,
general partner of Buchanan Properties Joint Venture personally appeared before
me on this day and acknowledged the execution of the foregoing instrument as
said general partner for the purposes therein expressed.
Witness my hand and notarial seal this 24th day of January, 1996.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission expires: January 26, 1998
5
<PAGE>
SECOND AMENDMENT OF LEASE AGREEMENT
THIS SECOND AMENDMENT OF LEASE AGREEMENT, made and entered into this
the 27th day of September, 1996 by and between BUCHANAN PROPERTIES JOINT
VENTURE, a North Carolina general partnership, (hereinafter referred to as
"Lessor) and TRIANGLE BANK, formerly Triangle East Bank, a North Carolina
banking corporation, (hereinafter referred to as "Lessee"):
W I T N E S S E T H:
WHEREAS, Lessor and Lessee, entered into a Lease Agreement dated the
4th day of January, 1994 for the lease of certain premises (the "Demised
Premises located in 2800 Williams Street in the City of Sanford, State of North
Carolina, all as more particularly described in the Lease, and WHEREAS, Lessor
and Lessee now desire to amend the said Lease, NOW, THEREFORE, in consideration
of the premises and in consideration of the covenants and conditions set forth
herein and in the Lease Agreement, the parties hereby amend and modify the
aforesaid Lease Agreement as follows:
1. This amendment and its provisions shall be effective upon
signing.
2. Lessor elects to extend the term of the Lease for one (1)
year, January 1, 1997 through December 31, 1997.
3. All other term and conditions of the Lease Agreement dated
January 4, 1994, shall remain in full force and effect
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed the day and year first above written.
LESSEE: TRIANGLE BANK
By: /s/
-----------------------------------
EV President
ATTEST:
By: /s/
-------------------
____ Secretary
(Affix Corporate Seal)
LESSOR: BUCHANAN PROPERTIES JOINT
VENTURE
By: /s/ (SEAL)
-----------------------------------
P. Keith Buchanan, General Partner
By: /s/ (SEAL)
-----------------------------------
Kay B. Janovich, General Partner
By: /s/ (SEAL)
-----------------------------------
Bonnie W. Buchanan, General Partner
By: /s/ (SEAL)
-----------------------------------
P. Keith Buchanan, Trustee for
Phyllis Ann Medlin Brown
2
<PAGE>
STATE OF North Carolina
COUNTY OF Wake
I, Deborah C. Birkenmeyer, a Notary Public for said County and State,
do hereby certify that Susan C. Gilbert personally appeared before me this day
and being duly sworn, acknowledged that she is Secretary of TRIANGLE BANK, a
North Carolina Banking Corporation; and that by authority duty given and as the
act of the corporation, the foregoing instrument was signed in its name by its
Exec. V.P., and sealed with its corporate seal.
Witness my hand and notarial seal this the 5th day of September, 1996.
(OFFICIAL SEAL) /s/
---------------------------
Notary Public
My Commission Expires: 7-2-2000
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 23rd day of Saturday, 1996.
(OFFICIAL SEAL) /s/
--------------------------
Notary Public
My Commission Expires: 7-2-2000
3
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Kay B. Janovich, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 25th day of September, 1996.
(OFFICIAL SEAL) /s/
-------------------------
Notary Public
My Commission expires: January 26, 1998
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Bonnie W. Buchanan, general partner of Buchanan Properties
Joint Venture personally appeared before me on this day and acknowledged the
execution of the foregoing instrumentas said general partner for the purposes
therein expressed.
Witness my hand notarial seal this the 25th day of September, 1996.
(OFFICIAL SEAL) /s/
------------------------
Notary Public
My Commission expires: January 26, 1998
4
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, Trustee for Phyllis Ann Medlin Brown,
general partner of Buchanan Properties Joint Venture personally appeared before
me on this day and acknowledged the execution of the foregoing instrument as
said general partner for the purposes therein expressed.
Witness my hand notarial seal this the 25th day of September, 1996.
(OFFICIAL SEAL) /s/
-----------------------
Notary Public
My Commission expires: January 26, 1998
5
<PAGE>
Prepared by and return to: Smith, Anderson, Blount Dorsett,
Mitchell & Jernigan, L.L.P. (DSC)
P.O. Box 2611, Raleigh, NC 27602
NORTH CAROLINA
LEE COUNTY
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE ("Assignment") is made and entered into
effective as of June 20, 1997, by TRIANGLE BANK, a North Carolina banking
corporation ("Assignor"), and CAPITAL BANK, a North Carolina banking corporation
("Assignee"), and joined in by BUCHANAN PROPERTIES JOINT VENTURE, a North
Carolina general partnership ("Landlord").
WITNESSETH:
WHEREAS, Landlord and Assignor have entered into a Lease dated January
4, 1994, as amended as of January 24, 1996, and September 27, 1996 (the
"Lease"), a memorandum of which was recorded on February 2, 1994, in Book 525,
Page 352, Lee County Registry, for premises located in Sanford, Lee County,
North Carolina and specified in the Lease (the "Premises"); and,
WHEREAS Assignor and Assignee have reached an agreement whereby
Assignor will assign the Lease, including without limitation all of Assignor's
rights and options contained therein, to Assignee, and Assignee will accept the
Lease from Assignor; and,
WHEREAS, Landlord has agreed to such assignment of the Lease by
Assignor to Assignee, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Assignment of Lease, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor and Assignee hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys unto Assignee all of
Assignor's right, title and interest as tenant in, to and under the
lease, upon the following terms and conditions.
A. The effective date of this Assignment shall be the
date hereof (the "Effective Date") and possession of
the Premises will be delivered by Assignor to
Assignee as the Effective Date;
<PAGE>
B. Assignee shall be liable for the payment of the
monthly rent and for the payment of any and all other
costs and expenses which accrue under the Lease from
and after the Effective Date and continuing for the
remainder of the term of the Lease, provided,
however, that it is expressly agreed by the parties
hereto that Assignor shall be and remain solely
responsible for all costs and expenses due Landlord
under the Lease which are due and owing as of the
Effective Date, or which arise out of any breach by
Assignor of any terms or conditions of the Lease
prior to the Effective Date;
C. The Premises, including leasehold improvements, are
being assigned to Assignee in their existing
condition, AS IS, WHERE IS AND WITH ALL FAULTS,
without representation or warranty, express or
implied, as to the condition or erchantability
thereof or the fitness thereof for any particular use
or purpose; and the Premises are subject to any
easements, rights-of-way, restrictions or other
matters affecting title to the Premises.
2. Assignee hereby agrees as follows:
A. Assignee accepts the assignment of the Lease, assumes
and agrees to perform directly any and all of the
duties and obligations of Assignor as tenant under
the Lease which accrue from and after the Effective
Date, and agrees to abide by the terms and conditions
of the Lease; and
B. Assignee agrees to defend, indemnify and hold
harmless Assignor from and against any and all
claims, damages and liabilities arising from or
relating to the Lease as to matters occurring, after
the Effective Date.
3. Assignor hereby confirms and agrees as follows:
A. Assignor is the sole tenant under the Lease and is
the sole owner of the tenant's interest thereunder,
and Assignor has not previously assigned the Lease or
any interest therein or sublet the Premises, or
otherwise encumbered Assignor's leasehold interest
thereunder, in whole or in part;
B. The Lease has not been modified or amended except as
noted above, and the Lease is in full force and
effect as of the date hereof;
C. Assignor is not in default under any of the terms,
covenants or conditions of the Lease, and all rent
and other payments due and payable under the Lease as
of the date hereof have been paid; and
D. Assignor agrees to defend, indemnify and hold
harmless Assignee from and against any and all
claims, damages and liabilities arising from or
2
<PAGE>
relating to the Lease as to matters occurring prior
to and as of the Effective Date.
4. Landlord hereby agrees to and accepts the assignment of the Lease by
Assignor to Assignee and hereby releases and discharges Assignor from
any duties and obligations as tenant under the Lease which accrue from
and after the Effective Date.
5. This Assignment shall not be changed, modified, discharged or
terminated orally or in any other manner other than by a written
agreement signed by the parties hereto or their respective successors
or assigns.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
effective as of the date first above written.
LANDLORD: BUCHANAN PROPERTIES
JOINT VENTURE
BY: /s/ (SEAL)
----------------------------
P. Keith Buchanan, General Partner
BY: /s/ (SEAL)
----------------------------
Kay B. Janovich, General Partner
BY: /s/ (SEAL)
----------------------------
Bonnie W. Buchanan, General Partner
BY: /s/ (SEAL)
----------------------------
P. Keith Buchanan, Trustee for
Phyllis Ann Medlin Brown
3
<PAGE>
ASSIGNOR: TRIANGLE BANK
BY: /s/
---------------------------
Senior Vice President
(CORPORATE SEAL)
ATTESTED:
BY: /s/
------------------------
Asst. Secretary
ASSIGNEE: CAPITAL BANK
BY: /s/
---------------------------
________________ President
(CORPORATE SEAL)
ATTESTED:
BY: /s/
-----------------------
____________ Secretary
4
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF LEE
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, general partner of Buchanan Properties
Joint Venture, personally appeared before me this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 12th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 1-26-98
STATE OF NORTH CAROLINA
COUNTY OF Lee
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Kay B. Janovich, general partner of Buchanan Properties
Joint Venture, personally appeared before me this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 11th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 1-26-98
5
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF Lee
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that Bonnie W. Buchanan, general partner of Buchanan Properties
Joint Venture, personally appeared before me this day and acknowledged the
execution of the foregoing instrument as said general partner for the purposes
therein expressed.
Witness my hand and notarial seal this the 12th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 1-26-98
STATE OF NORTH CAROLMA
COUNTY OF
I, Frankie M. Wallace, a Notary Public for said County and State, do
hereby certify that P. Keith Buchanan, trustee for Phyllis Ann Medlin Brown,
general partner of Buchanan Properties Joint Venture, personally appeared before
me this day and acknowledged the instrument as said general partner for the
purposes therein expressed.
Witness my hand and notarial seal this the 12th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 1/26/98
6
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Susan B. Mennard, a Notary Public for said County and State, do
hereby certify that Stephen R. Salisbury personally appeared before me this day
and being duly sworn, acknowledged that he is Assistant Secretary of Triangle
Bank, a North Carolina banking corporation, and that by authority duly given and
as the act of the corporation, the foregoing instrument was signed in its name
by its President, and sealed with its corporate seal.
Witness my hand and notarial seal this the 9th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 11/29/97
STATE OF NORTH CAROLINA
COUNTY OF WAKE
I, Cathi Taylor, a Notary Public for said County and State, do hereby
certify that David A. Ehmig, personally appeared before me this day and being
duly sworn, acknowledged that he is Secretary of Capital Bank, a North Carolina
banking corporation, and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its President,
and sealed with its corporate seal.
Witness my hand and notarial seal this the 20th day of June, 1997.
(OFFICIAL SEAL) /s/
------------------------------------
Notary Public
My Commission Expires: 3-24-2001
7
STATE OF NORTH CAROLINA )
) L E A S E
COUNTY OF LEE )
THIS LEASE, Made and entered into this 1st day of February, 1992, by and
between __________________, Incorporated, a North Carolina Corporation with its
principal office and place of business at 4118 Triangle Drive, Charlotte, North
Carolina, party of the first part, hereinafter called "LANDLORD"; and TRIANGLE
BANK AND TRUST COMPANY, with an office in Raleigh, Wake County, North Carolina,
party of the second part hereinafter called "TENANT";
WITNESSETH:
THAT subject to the terms and conditions hereinafter set for Landlord
hereby grants, leases, and demises to the Tenant, all of that certain building
and parcel of land in, the City of Sanford, WestSanford Township, Lee County,
North Carolina, and more particularly described as follows, viz:
On the northeast side of Steele Street, on the Southeast side of a 16 foot
alley and east of Carthage Street, BEGINNING at the point of intersection
of the northeast line of Steele Street and the southeast line of a 16 foot
alley, said beginning point being 208 feet southeast of Cartage Street
measured along the northeast line of Steele Street from the point of
intersection of the northeast line of Steele Street and the southeast line
of Carthage Street, and runs thence with the southeast line of said 16
foot alley North 56 degrees 50 minutes East 100 feet to the intersection
of said alley with another alley; thence with the line of said second
alley. South 33 degrees 10 minutes East 40 feet 8-1/2 inches to a point in
the party wall; thence with the said party wall. South 56 degrees 50
minutes West 100 feet to the northeast line of Steele Street; thence with
said northeast line of Steele Street. North 33 degrees 10 minutes West 40
feet 8-1/2 inches to the BEGINNING. Being one of the tracts described in
deed dated November 30, 1965 to Southern National Realty Corporation
recorded in Lee County Registry.
Together with all vaults and fixtures presently situate on said premises.
<PAGE>
Together with the appurtenances thereunto belonging and Landlord's use,
right of access, ingress and egress in, to, from, and over any premises,
street or way abutting or adjacent to said property; and all of Landlord's
rights and easements appurtenant to or used in connection with said
premises.
TO HAVE AND TO HOLD said premises for the term and upon the conditions
hereinafter set forth:
ONE. DURATION OF LEASE
A. Term. The term of this lease shall be for one (1) year commencing on
the date of occupancy by Tenant and terminating twelve (12) months thereafter,
unless extended under the provisions here in.
B. Holdover. If the Tenant should remain in possession of the demised
premises after the expiration of said term, it shall be the Tenant's option to
renew the Lease for two (2) additional one (1) year terms and be subject to all
other terms and conditions of this lease, in the absence of a written agreement
to the contrary.
TWO. RENTAL
A. Amount. Tenant is to pay to the Landlord option money of ONE THOUSAND
($1,000.00) commencing on the date of execution of this Lease. This option
payment is non-refundable. Thereafter the rent shall be ONE THOUSAND FIVE
HUNDRED ($1,500.00) DOLLARS PER MONTH. Option money of ONE THOUSAND ($1,000.00)
DOLLARS shall be applied toward the first month rent if the lease is exercised
within 90 days from the date of signing of this lease.
B. Due Date. All rent hereunder shall be payable in advance on the fifth
(5th) day of each month for that month's rental, during the term of this lease.
2
<PAGE>
C. If Tenant exercises renewal provision, rent shall increase by Five Per
Cent (5%) per renewal period.
THREE. USE OF PREMISES
A. Authorized use. It is expressly agreed that the demised building shall,
during the term of this lease, be used exclusively for the operation of banking
operations.
B. Unauthorized Practices. Tenant covenants and agrees that it will make
no unlawful or immoral use of said premises,
FOUR. ASSIGNMENT AND SUBLETTING
Tenant shall not assign this lease or sublet any part of the demised
premises without the prior written consent of the Landlord.
FIVE. MAINTENANCE AND REPAIR
A. Tenant. Tenant covenants to return said building at the termination or
expiration of this lease in the same condition as at the time occupancy for
rental purposes begins, fair wear and tear excepted. Maintenance of equipment
and building shall be the responsibility of the Tenant.
B. Landlord. Landlord warrants all mechanical equipment to be operable and
in good condition as of the date of the commencement of this Lease.
C. Destruction by Fire. Should the demised building be destroyed or
rendered totally unfit for use and occupancy by fire or other casualty, this
lease shall thereupon terminate. Should the demised building be partially
destroyed or rendered partially unfit for use and occupancy by fire or other
casualty, the rental shall be reduced proportionately thereto until the same are
rendered for use and occupancy.
3
<PAGE>
D. Alterations, Additions and Improvements.
1) Subject to the limitations that no substantial portion of the
building on the demised premises shall be demolished or removed by Tenant
without the prior written consent of Landlord, and, if necessary, of any
mortgagee, Tenant may at any time during the lease term, subject to the
conditions set forth below and at its own expense, make any alterations,
additions, or improvements in and to the demised premises and the building.
Alterations shall be performed in a workmanlike manner and shall not weaken or
impair the structural strength, or lessen the value of the building on the
premises, or change the purposes for which the building, or any part thereof may
be used.
2) Conditions with respect to alterations or improvements are as
follows: Before commencement of any work all plans and specifications shall be
filed with and approved by all governmental departments or authorities having
jurisdiction and any public utility company having interest therein, and all
works shall be done in accordance with the requirements of local regulations.
3) All alterations, additions, and improvements on or in the demised
premises at the commencement of the term and that may be erected or installed
during the term, shall be part of the demised premises and sole property of the
Landlord, except that all movable trade fixtures installed by the Tenant shall
be and remain the property of the Tenant.
SIX. TAXES
A. Tenant. Tenant shall pay all ad valorem taxes and assessments imposed
on the demised premises.
4
<PAGE>
B. Tenant. Tenant shall pay all taxes and assessments imposed upon the
personal property maintained on the demised premises, and all business and
privilege licenses and taxes incidental to the operation of said business.
SEVEN. INSURANCE
A. Tenant. The Tenant, at its sole costs and expense, shall keep the
premises and the building and improvements thereon, insured to the extent of the
full replacement costs thereof against loss or damage by fire with extended
coverage.
B. Tenant. The Tenant will carry insurance on its personal property and
will carry public liability insurance. Tenant will upon request furnish proof of
public liability insurance to Landlord.
EIGHT. UTILITIES
Tenant shall provide and pay for all lights, water, heat, and utility
charges used in the operation of said business and the enjoyment of said
premises.
NINE. CONDEMNATION
If during the term of this lease or any extension thereof, the whole of
the demised premises shall be taken by condemnation or the threat of
condemnation by competent public authority, this lease shall terminate as of the
date of vesting of title. If a portion of the demised premises is taken by
condemnation or the threat of condemnation and the remaining portion cannot be
reasonably used by Tenant for the purpose for which they were leased, Tenant may
at its option, terminate this lease, or may continue this lease as to the
remaining portion on the same terms hereof, except the rental shall be reduced
in proportion to the reduction in area and in usefulness of the demised premises
by reason of such taking. All proceeds of any such taking shall belong solely to
Landlord.
5
<PAGE>
TEN. SUBORDINATION OF LEASEHOLD ESTATE
The rights of the Tenant hereunder are expressly subordinate to any
encumbrance that the Landlord now has or may hereafter place on said premises
during the life of this lease; provided, however, Tenant shall have the right of
paying such portion of said rental to the holder of said encumbrance as shall be
necessary to avoid forfeiture on the part of the Landlord.
ELEVEN. TERMINATION OF LEASE
A. Option of Landlord. The Landlord shall have the right and option to
declare this lease terminated and cancelled upon the happening of the following
(but failure to exercise said option shall not constitute a waiver thereof):
1) If any monthly installment of rent as herein called for remains
overdue and unpaid for ten (10) days;
2) If any Tenant shall fail, neglect, or refuse to do or perform any
matter or thing herein agreed to be done and performed by said Tenant;
3) If Tenant should be adjudged bankrupt or insolvent by any Federal
or State Court;
B. Rights Upon Termination. Upon termination or cancellation of this
lease, Landlord, without any other notice or demand, may require the Tenant to
vacate the premises and may enter the premises and expel the Tenant therefrom;
or the Landlord may in lieu of the above or in conjunction therewith, pursue any
other lawful right or remedy incidental to the relation-ship created by this
lease.
6
<PAGE>
TWELVE. OPTION TO TERMINATE
It is understood and agreed that the Tenant shall have the right to
terminate this lease at the end of ninety (90) days; provided that the Tenant
has not received from all regulatory agencies the required permits authorizing
Tenant to operate a bank in Sanford, North Carolina. Such notice is to be given
in writing and shall be deemed received on the date same is mailed to Landlord
at the address as shown herein by certified mail postage prepaid. Such notice
may be given at any time during said ninety (90) day period and shall be
effective to terminate said Lease after the expiration of the ninety (90) day
period, then this lease shall extend for the one year period as set out herein.
THIRTEEN. NOTICES
All notices to be given with respect to this lease, shall be in writing
and shall be sent to the following addresses unless and until a party designates
a new address.
LANDLORD: Moretti Construction, Incorporated
P. 0. Box 668696
Charlotte, North Carolina 28266
TENANT: Triangle Bank & Trust Company
P. 0. Box 31828
Raleigh, North Carolina 27622
FOURTEEN. QUIET ENJOYMENT
Tenant, upon paying the rent, and subject to all of the terms and
covenants of this lease, on Tenant's part to be kept, observed, and performed
shall quietly have and enjoy the leased premises during the term of this Lease
without hinderance or melestation by any person. Landlord for itself, its
successors and assigns, agrees that Tenant, its successors and assigns, quiet
enjoyment of the entire premises during the term of this lease. The Landlord
covenants that
7
<PAGE>
at the time of the execution of this lease, Landlord is in 1egal possession of
the demised premises, has full right to lease the same for the term aforesaid ,
and will put Tenant in actual possession of the premises hereinbefore provided.
FIFTEEN. TOTAL AGREEMENT
This lease contains the entire agreement between the parties and cannot be
changed or terminated except by written instrument subsequently executed by the
parties hereto. This lease and the terms and conditions hereof apply to and are
binding on the heirs, legal representative successors and assigns of the
parties.
SIXTEEN. APPLICABLE LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina.
SEVENTEEN. PARAGRAPH HEADINGS
Paragraph headings are for convenience of reference and shall not limit
the content of such paragraphs nor in any way affect the interpretation thereof.
IN TESTIMONY WHEREOF, MORETTI CONSTRUCTION, INCORPORATED and TRIANGLE BANK
AND TRUST COMPANY, have each caused these presents to be signed in their
corporate names by duly authorized officers and their corporate seal to be
affixed, this Lease being executed in duplicate originals, one of which is
retained by each of the parties.
Accepted this 1st day of February, 1992.
---
MORETTI CONSTRUCTION, INCORPORATED
BY.___________/s/__________________________
President
(Corporate Seal)
8
<PAGE>
ATTEST :
BY:______/s/_______________
Secretary
TRIANGLE BANK AND TRUST COMPANY
BY:____________/s/_______________________
President
(Corporate Seal)
ATTEST:
By:__________/s/_________________
Secretary
9
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF Mecklenburg
I, Kim Etters, a Notary Public, of the County and State aforesaid, certify
that Edna Moretti personally came before me this day and acknowledged that
he/she is SHE Secretary of MORETTI CONSTRUCTION, INCORPORATED, and that by
authority duly given and as the act of the corporation, the foregoing instrument
was signed in its name by its ____ President, sealed with its corporate seal and
attested by him/her as its Secretary.
WITNESS my hand and notarial seal, this the 1st day of February, 1992.
_________/s/____________________
NOTARY PUBLIC
My commission expires.
April 1992
- ----------
STATE OF NORTH CAROLINA
COUNTY OF LEE
I, Linda A. Fouchee, a Notary Public, of the County and State aforesaid,
certify that Stephen R. Salisbury personally came before me this day and
acknowledged that he/she is Secretary of TRIANGLE BANK AND TRUST COMPANY, and
that by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its ____ President, sealed with its
corporate seal and attested by him/her as its _____ Secretary.
WITNESS my hand and notarial seal, this the 4th day of February, 1992.
_____Linda A. Fouchee_______________
NOTARY PUBLIC
My commission expires:
9/26/94
10
<PAGE>
Addendum to the lease made and entered into this 1st day of February, 1992, by
and between Moretti Construction, incorporated, a North Carolina corporation
with its principal office and place of business at 4118 Triangle Drive,
Charlotte, North Carolina, party of the first part, hereinafter called
"Landlord"; and Triangle Bank and Trust Company, with an office in Raleigh, Wake
County, North Carolina, party of the second part, hereinafter called "Tenant";
Page 3
Section Five. Maintenance and Repair
B. Landlord.
Sentence to be added will be the following:
Landlord will keep all outside walls, including plate glass windows,
and roof of the building in proper and substantial repair.
Accepted this 7th day of February, 1992.
Moretti Construction, Incorporated by: (Corporate Seal)
__________/s/_______________ Attested by:
Fred Moretti, President
____/s/_______________
Robert Putze
Triangle Bank and Trust Company by: (Corporate Seal)
___________/s/___________________ Attested by:
Michael S. Patterson, President
______/s/___________________
Stephen R. Salisbury, Secretary
11
<PAGE>
Check from Triangle Bank and Trust Company
No. 13793
Pay to the Order of: Moretti Construction, Inc.
$1,000.00
12
<PAGE>
RE: Lease, made and entered into the first day of February 1992 by and between
Moretti Construction, Inc. and Triangle Bank and Trust Company.
Whereas, the Triangle Bank and Moretti Construction have agreed to amend the
lease as follows:
ONE. Duration of Lease
A. Term.
The term of this lease shall be for two (2) years commencing on the date
of occupancy by tenant and terminating twenty four (24) months thereafter,
unless extended under the provision herein.
B. Hold Over.
Tenant's option to renew the lease for three (3) additional years.
TWO. Rental
A. Amount.
Tenant is to pay landlord $1,500.00 per month until and including March
1994.
The rent shall be $1,700.00 (One Thousand Seven Hundred dollars per month)
as of April 1, 1994.
The above amendments are subject to all other terms and conditions of lease
dated February 1, 1992.
Accepted By:
TRIANGLE BANK & TRUST COMPANY
___________/s/_____________________ 3/11/93
Charlie T. Bowers, Jr. Date
MORETTI CONSTRUCTION, INC.
___________/s/_____________________ 9 March 93
Fred Moretti, President Date
13
<PAGE>
FIRST AMENDMENT OF LEASE AGREEMENT
THIS FIRST AMENDMENT OF LEASE AGREEMENT, made and entered into this the
22nd day of October , 1996 by and between MORETTI CONSTRUCTION INCORPORATED, a
North Carolina Corporation, (hereinafter referred to as "Lessor") and, TRIANGLE
BANK, a North Carolina Banking Corporation, (hereinafter referred to as
"Lessee"):
W I T N E S S E T H:
WHEREAS, Lessor and Lessee, entered into a Lease Agreement dated the 1st
day of February, 1992, for the lease of certain premises (the "Demised
Premises") located in 129 South Steele Street, in the City of Sanford, State of
North Carolina all as more particularly described in the Lease, and WHEREAS,
Lessor and Lessee now desire to amend the said Lease, NOW, THEREFORE, in
consideration of the premises and in consideration of the covenants and
conditions set forth herein and in the Lease Agreement, the parties hereby amend
and modify the aforesaid Lease Agreement as follows:
1. This amendment and its provisions shall be effective April 1, 1997.
2. Lessor elects to extend the term of the Lease through March 31, 1998.
3. Effective April 1, 1997, the rent shall be as follows:
$ 1,832.77 per month
$21,992.25 per annum
4. All other terms and conditions of the Lease Agreement dated February 1,
1992, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed the day and year first above written.
14
<PAGE>
LESSEE: TRIANGLE BANK
By:_______/s/___________________
__EV_____ President
ATTEST:
By: ____/s/__________________
_____ Secretary
LESSOR: MORETTI CONSTRUCTION
INCORPORATED
BY:_________/s/___________________
_____ President
ATTEST:
By: ________/s/______________
_____ Secretary
(Affix Corporate Seal)
STATE OF North Carolina
COUNTY OF Wake
I, Deborah C. Birkenmeyer, a Notary Public for said County and State, do
hereby certify that Susan C. Gilbert personally appeared before me this day and
being duly sworn, acknowledged that she is Secretary of TRIANGLE BANK, a North
Carolina Banking Corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name by its Exec.
V.P., and sealed with its corporate seal.
Witness my hand and notarial seal this the 22nd day of October, 1996.
(OFFICIAL SEAL) Deborah C. Birkenmeyer
Notary Public
My Commission Expires: 7-2-2000
15
<PAGE>
STATE OF North Carolina
COUNTY OF Mecklenburg
I, Judy Strickland, a Notary Public for said County and State, do hereby
certify that Fred Moretti personally appeared before me this day and being duly
sworn, acknowledged that he is President of MORETTI CONSTRUCTION, INCORPORATION,
a North Carolina Corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name by its
Secretary, and sealed with its corporate seal.
Witness my hand and notarial seal this the 29th day of October, 1996.
---- -------
(OFFICIAL SEAL) Judy Strickland
---------------
Notary Public
My Commission Expires: 9-1-98
------
16
<PAGE>
Prepared by and return to: Smith, Anderson, Blount, Dorsett
Mitchell & Jernigan, L.L.P. (DSC)
P. 0. Box 2611, Raleigh, NC 27602
NORTH CAROLINA
LEE COUNTY
ASSIGNMENT OF LEASE
THIS ASSIGNMENT OF LEASE ("Assignment") is made and entered into effective
as of June 20, 1997, by TRIANGLE BANK, a North Carolina banking corporation
("Assignor"), and CAPITAL BANK, a North Carolina banking corporation
("Assignee"), and joined in by MORETTI CONSTRUCTION, INCORPORATED, a North
Carolina corporation ("Landlord").
WITNESSETH:
WHEREAS, Landlord and Assignor have entered into a Lease dated February 1,
1992, as amended as of February 7, 1992, March 11, 1993 and October 22, 1996
(the "Lease"), a memorandum of which was recorded on __________, 199__, in Book
______, Page ____, Lee County Registry, for premises located in Sanford, Lee
County, North Carolina and specified in the Lease (the "Premises"); and,
WHEREAS, Assignor and Assignee have reached an agreement whereby Assignor
will assign the Lease, including without limitation all of Assignor's rights and
options contained therein, to Assignee, and Assignee will accept the Lease from
Assignor; and,
WHEREAS, Landlord has agreed to such assignment of the Lease by Assignor
to Assignee, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Assignment of Lease, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor and Assignee hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys unto Assignee all of
Assignor's right, title and interest as tenant in, to and under the Lease, upon
the following terms and conditions.
A. The effective date of this Assignment shall be the date hereof
(the "Effective Date") and possession of the Premises will be
delivered by Assignor to Assignee as the Effective Date;
B. Assignee shall be liable for the payment of the monthly rent and
for the payment of any and all other costs and expenses which accrue
under the Lease from and after the Effective Date and continuing for
the remainder of the term of
17
<PAGE>
the Lease, provided, however, that it is expressly agreed by the
parties hereto that Assignor shall be and remain solely responsible
for all costs and expenses due Landlord under the Lease which are
due and owing as of the Effective Date, or which arise out of any
breach by Assignor of any terms or conditions of the Lease prior to
the Effective Date;
C. The Premises are subject to any easements, rights-of-way,
restrictions or other matters affecting title to the Premises.
2. Assignee hereby agrees as follows:
A. Assignee accepts the assignment of the Lease, assumes and agrees
to perform directly any and all of the duties and obligations of
Assignor as tenant under the Lease which accrue from and after the
Effective Date, and agrees to abide by the terms and conditions of
the Lease; and
B. Assignee agrees to defend, indemnify and hold harmless Assignor
from and against any and all claims, damages and liabilities arising
from or relating to the Lease as to matters occurring after the
Effective Date.
3. Assignor hereby confirms and agrees as follows:
A. Assignor is the sole tenant under the Lease and is the sole owner
of the tenant's interest thereunder, and Assignor has not previously
assigned the Lease or any interest therein or sublet the Premises,
or otherwise encumbered Assignor's leasehold interest thereunder, in
whole or in part;
B. The Lease has not been modified or amended except as noted above,
and the Lease is in full force and effect as of the date hereof;
C. Assignor is not in default under any of the terms, covenants or
conditions of the Lease, and all rent and other payments due and
payable under the Lease as of the date hereof have been paid; and
D. Assignor agrees to defend, indemnify and hold harmless Assignee
from and against any and all claims, damages and liabilities arising
from or relating to the Lease as to matters occurring prior to and
as of the Effective Date.
4. Landlord hereby agrees to and accepts the assignment of the Lease by
Assignor to Assignee and hereby releases and discharges Assignor from any
duties and obligations as tenant under the Lease which accrue from and
after the Effective Date.
18
<PAGE>
5. This Assignment shall not be changed, modified, discharged or
terminated orally or in any other manner other than by a written agreement
signed by the parties hereto or their respective successors or assigns.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
effective as of the date first above written.
LANDLORD: MORETTI CONSTRUCTION,
INCORPORATED
BY:_________/s/_________________________
____________ President
(CORPORATE SEAL)
ATTESTED:
BY: /s/ Edna S. Moretti
---------------------
____________ Secretary
ASSIGNOR: TRIANGLE BANK
BY:_______/s/____________
_Senior Vice__ President
(CORPORATE SEAL)
ATTESTED:
BY: ___/s/_________________
__Asst._____ Secretary
ASSIGNEE: CAPITAL BANK
BY:________/s/___________________
_________ President
(CORPORATE SEAL)
ATTESTED:
BY:________/s/______________
_________ Secretary
19
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF Mecklenburg
I, Richard H. Bruce, a Notary Public for said County and State, do hereby
certify that Fred Moretti personally appeared before me this day and being duly
sworn, acknowledged that he/she is ____ President of Moretti Construction,
Incorporated, a North Carolina corporation, and that by authority duly given and
as the act of the corporation, the foregoing instrument was signed in its name
by its President, and sealed with its corporate seal.
Witness my hand and notarial seal this the 13th day of June, 1997.
----
(OFFICIAL SEAL) /s/ Richard H. Bruce
---------------------
Notary Public
My Commission Expires: 3/28/98
-------
STATE OF NORTH CAROLINA
COUNTY OF Wake
I, Susan B. Mennard, a Notary Public for said County and State, do hereby
certify that Stephen R. Salisbury personally appeared before me this day and
being duly sworn, acknowledged that he/she is Assist. Secretary of Triangle
Bank, a North Carolina banking corporation, and that by authority duly given and
as the act of the corporation, the foregoing instrument was signed in its name
by its Senior Vice President, and sealed with its corporate seal.
Witness my hand and notarial seal this the 9th day of June, 1997.
(OFFICIAL SEAL) /s/ Susan B. Mennard
--------------------
Notary Public
My Commission Expires: 11-29-97
--------
20
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF Wake
I, Cathi Taylor, a Notary Public for said County and State, do hereby
certify that David A. Ehmig personally appeared before me this day and being
duly sworn, acknowledged that he/she is Secretary of Capital Bank, a North
Carolina banking corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name by its
President, and sealed with its corporate seal.
Witness my hand and notarial seal this the 20th day of June, 1997.
----
(OFFICIAL SEAL) /s/ Cathi Taylor
----------------
Notary Public
My Commission Expires: 3-24-2007
----------
21
SUBLEASE
THIS SUBLEASE, made and entered into this 30th day of January, 1997, by
and between Centura Bank, as successor in interest to Peoples Bank & Trust
Company, hereinafter referred to as Tenant, and NB Acquisition Corp., a North
Carolina corporation, hereinafter referred to as Sublessee.
W I T N E S S E T H:
WHEREAS, Forty Four Hundred F - N Associates, a North Carolina general
partnership, as successor in interest to Falls North Associates, a North
Carolina partnership, hereinafter referred to as Landlord, entered into a lease
agreement with Tenant dated January 30, 1980, and amended pursuant to the terms
of that Amendment to Lease dated November 25, 1980, and that Second Amendment to
Lease dated March 10, 1988 (hereinafter collectively referred to as "Prime
Lease") pertaining to approximately 2827 square feet of office space as outlined
on Exhibit A to this Sublease which is attached hereto and incorporated herein,
in 4400 Falls of Neuse Road in Raleigh, North Carolina (hereinafter referred to
as "Premises"), and,
WHEREAS, Sublessee desires to sublet the Premises from Tenant, and Tenant
is willing to sublet the Premises to Sublessee, subject to the written consent
of Landlord,
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Tenant and Sublessee agree as follows:
1. Sublessee, with execution of this Sublease, has deposited with Tenant
the sum of Three Thousand Six Hundred Fifty One Dollars and Fifty Four Cents
($3,651.54), which sum shall be applied to Sublessee's first month rent pursuant
to Paragraph 2 of this Sublease Agreement.
2. Tenant shall sublease the Premises as outlined on the attached Exhibit
A. Said Sublease will be for the term of thirty one (31) months and twenty nine
(29) days to begin on February 1, 1997, and to terminate on September 29, 2000,
with rent payable in advance on or before the tenth day of each and every month
in the amount of Three Thousand Six Hundred Fifty One Dollars and Fifty Four
Cents ($3,651.54). On each anniversary date of this Sublease, the monthly rent
shall increase by three percent (3%).
3. Sublessee agrees and covenants to pay all rent and any other sums due
to Tenant at Centura Bank, Jackie Williams - #0009010115, P.O. Box 1220, Rocky
Mount, North Carolina 27801, payable to Centura Bank.
4. Tenant and Sublessee acknowledge that this Sublease shall not be
effective unless and until Landlord's written consent is granted hereon and
hereto.
<PAGE>
5. Sublessee agrees at its expense to keep and maintain the Premises in
good repair and in a good, sanitary and safe condition and to return the
Premises to Tenant at the end of the Sublease term in as good a condition as
received, normal wear and tear excepted.
6. Tenant does hereby agree to forward immediately to Sublessee a copy of
any and all written notices received by Tenant from the Landlord or from any
other party which pertains to the Premises. Tenant further agrees not to modify
or amend the Prime Lease prior to expiration of the Sublease in any manner that
affects this Sublease without prior written consent of Sublessee.
7. Except as otherwise herein provided, as between Sublessee and Tenant,
all of the terms, provisions, covenants and conditions contained in the Prime
Lease are made a part of this Sublease, Centura Bank being substituted for
"Lessor" and NB Acquisition Corp. for "Lessee" therein it being understood that
each such rights and obligations of Tenant and/or Sublessee as are contained in
the same, and as the same relate to the Premises, during the term of this
subletting, are hereby granted to or imposed on Tenant and Sublessee hereunder
in the same manner as if said parties had been Lessor and/or Lessee in same.
Notwithstanding the foregoing, this Sublease shall not release Tenant from an
existing or future duty, obligation or liability to Landlord under the Prime
Lease, nor shall this Sublease change, modify, or amend either the Prime Lease
in any manner. Tenant agrees to indemnify Sublessee against all claims, damages,
costs and expenses arising out of Tenant's failure to perform or observe any of
the terms or conditions of the Tenant's failure to perform or observe any of the
terms or conditions of the Prime Lease.
8. If any of the parties hereto fail or neglect to perform any of their
respective obligations under this Sublease or under the Prime Lease, then the
injured party may, if said default is not remedied within fifteen (15) days
after receipt of written notice to the other party, terminate this Sublease
without waiving any of its rights of action against the other party because of
said default. It is agreed that if said default cannot be remedied within
fifteen (15) days for reasons beyond control of the other party and such party
has commenced and is diligently pursuing the curing of said default, then in
that event this Sublease may not be terminated, unless such default has
continued and remains uncured for a period of ninety (90) days.
9. Sublessee agrees that it will not assign this Sublease or sublet the
Premises without prior written consent of both Landlord and Tenant. The parties
hereto acknowledge and agree that Sublessee may assign its interests hereunder
to a corporation tentatively named "Capital Bank" following the anticipated
receipt of a bank charter for such corporation.
10. During the term of this Sublease, Sublessee, at its sole cost and
expense and for the mutual benefit of the Tenant, Landlord and Sublessee, shall
carry and maintain comprehensive public liability insurance, including property
damage, insuring Tenant, Landlord, and Sublessee against liability for injury to
persons or property occurring in or about the Premises arising out of the
ownership, maintenance, use or occupancy thereof. Said liability insurance shall
be in amounts as called for in the Prime Lease, and a Certificate shall be
furnished to the Tenant evidencing that such insurance has been purchased and is
in effect.
<PAGE>
11. Sublessee agrees to exonerate, save harmless, protect, and indemnify
Tenant and Landlord from and against any and all losses, damages, claims, suits,
or actions for any damage or injury to person or property occurring on or about
the Premises.
12. The Premises shall be provided to Sublessee in as-is condition. Any
improvements to be performed within the Premises must have Tenant's and
Landlord's prior written consent. Tenant's consent shall not be unreasonably
withheld. Upon execution of this agreement, Tenant shall provide to Sublessee a
cash allowance in the amount of $2000.00 to be utilized by Sublessee for any
such improvements. Any cost of improvements in excess of $2000.00 shall be the
sole responsibility of Sublessee. Tenant agrees that Sublessee shall be entitled
to receipt and enjoyment of any services to be provided by Landlord to Tenant
under the Prime Lease. In the event Landlord fails to provide any such services,
Tenant agrees to assist and cooperate with Sublessee and to use reasonable
efforts (including litigation) to obtain such services for Sublessee.
13. Performance of all responsibilities of Sublessee provided for in the
Sublease shall be personally guaranteed by O. A. Keller III. The terms of such
guaranty are outlined in the attached Exhibit B "Personal Guaranty". All
obligations of O.A. Keller, III, as guarantor thereunder shall cease and
terminate upon receipt of a banking charter for the corporation referred to in
paragraph 9 above.
14. The Prime Lease between Landlord and Tenant is attached hereto as
Exhibit C "Prime Lease" and by reference made a part of hereof.
IN WITNESS THEREOF, the parties hereto have executed this Sublease the day
and year first written above.
NB ACQUISITION CORP.
(Sublessee)
Attest:____/s/_________________ By:__________ /s/______________
Asst. Secretary President
[corporate seal]
CENTURA BANK
(Tenant)
Attest:________ /s/_____________ By:__________ /s/_______________
Asst. Secretary Bank Officer
3
<PAGE>
CONSENT OF LANDLORD TO SUBLEASE
The Landlord, Forty Four Hundred F - N Associates, a North Carolina general
partnership, does hereby consent to this Sublease by and between Centura Bank
and NB Acquisition Corporation.
Forty Four Hundred F - N Associates, a North
Carolina
general partnership (SEAL)
(Landlord)
LANDLORD
Dixon, Odom Real Estate
Group, L.L.C.
By: By: /s/
/s/_________________(SEAL) __________________
Partner
2/1/97
Its: Managing Partner
----------------
Date: February 1, 1997
----------------
4
<PAGE>
EXHIBIT A
PREMISES
KEY PREMISES
[DIAGRAM]
4400 FALLS OF NEUSE ROAD
RALEIGH, NORTH CAROLINA
FIRST FLOOR
<PAGE>
EXHIBIT B
GUARANTY
In consideration of the execution by Centura Bank of this Sublease among
Centura bank ("Tenant") and NB Acquisition Corporation, a North Carolina
corporation ("Sublessee"), the undersigned (hereinafter referred to as
"Guarantor", whether there be one or more), intending to be legally bound
hereby, hereby jointly and severally become guarantor for the prompt and
faithful performance by Sublessee of this Sublease and all the terms, covenants,
and conditions thereof including, but not limited to, the payment by Sublessee
of the rental and all other sums to become due thereunder.
Guarantor agrees that (1) this obligation shall be binding upon Guarantor
without any further notice or acceptance hereof, but the same shall be deemed to
have been accepted by the execution of this Sublease; (2) immediately upon each
and every default by Sublessee, without any notice to or demand upon Guarantor,
Guarantor will pay to Tenant the sum or sums in default and will comply with or
perform all the terms, covenants, and conditions of this Sublease, which shall
be binding upon Sublessee as provided in this Sublease; (3) no extension,
forbearance or leniency extended by Tenant to Sublessee shall discharge
Guarantor, and Guarantor agrees that at all times it will be liable
notwithstanding same and notwithstanding the fact that Guarantor has had no
notice of any said default or of any said forbearance or extension; (4) Tenant
and Sublessee without notice to or consent by Guarantor may at any time or times
enter into such modifications, extensions, amendments or other covenants
relating to this Sublease and Guarantor shall not be released thereby, it being
intended any joinder, waiver, consent or agreement by sublessee by its own
operation shall be deemed to be a joinder, consent, waiver or agreement by
Guarantor with respect thereto, and Guarantor shall continue as Guarantor with
respect to this Sublease as so modified, extended, amended or otherwise
affected; and (5) neither Guarantor's obligation to make payment in accordance
with the terms of this agreement nor any remedy for the enforcement thereof
shall be impaired, modified, changed, released, or limited in any manner
whatsoever by any impairment, modifications, change, release or limitation of
the liability of Sublessee or its estate in bankruptcy or of any remedy for the
enforcement thereof, resulting from the operation of any present or future
provision of the Bankruptcy Act or other statute, or from the decision of any
court.
Guarantor agrees to be bound by each and every covenant, obligation, power
and authorization, without limitation, in this Sublease, with the same force and
effect as if it were designated in and had executed this Sublease as Sublessee
thereunder. Guarantor further agrees that this Guaranty shall survive any
assignments or sublettings and any transfer of the Premises by virtue of
foreclosure or deed in lieu thereof; provided, however, that the terms of, and
obligations under, this Guaranty shall cease and terminate upon receipt of a
banking charter for the corporation referred to in paragraph 9 above.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the
23rd day of January, 1997.
___/s/_______________________
signature
_D.A. Keller, III_______________
print name
_P.O. Box 130, Sanford, NC 27330
address
_###-##-####________________
social security number
7
<PAGE>
EXHIBIT C
PRIME LEASE
(20 PAGES)
STATE OF NORTH CAROLINA,
COUNTY OF WAKE. L E A S E
THIS LEASE, Made and entered into this 30 day of January, 1980, by and
between FALLS NORTH ASSOCIATES, A North Carolina Partnership, hereinafter
referred to as "Lessor", and PEOPLES BANK AND TRUST COMPANY, a North Carolina
banking corporation having its registered office in the City of Rocky Mount,
Nash County, North Carolina, hereinafter referred to as "Lessee";
W I T N E S S E T H
THAT WHEREAS, in consideration of the rents and mutual covenants herein
contained, Lessor and Lessee do hereby covenant, promise and agree as follows:
1. LEASED PREMISES: Lessor hereby leases to the Lessee, and Lessee hereby
leases from the Lessor the first floor of an office building to be constructed
by the Lessor consisting of 4,770 square feet and located on premises in the
County of Wake, State of North Carolina, and described in Exhibit A attached
hereto, together with all improvements now located thereon and together with all
rights And appurtenances thereto belonging.
2. TERM: To have and to hold the said leased premises unto Lessee, its
successors and assigns, for a term of 20 years commencing at 12 o'clock noon on
the day of completion of the improvements to be constructed on the leased
premises by Lessor as evidenced by a certificate of occupancy by the applicable
governmental authorities and terminating at 12 o'clock noon on the 20th
anniversary thereof.
3. OPTION TO EXTEND: Lessor does hereby grant to Lessee the right,
privilege and option to extend this Lease for a period of five (5) years from
the date of expiration hereof, upon the same terms and conditions as herein
contained upon notice in writing to the Lessor of Lessee's intention to exercise
said option, given at least 180 days prior to the expiration of the term hereof.
In the event that Lessee shall have exercised said option to extend the
term of this Lease, Lessor does hereby grant to Lessee the right, privilege and
option again to extend this Lease for three successive periods of five years
each upon the same terms and conditions as herein contained upon notice in
writing, to Lessor of Lessee's intention to exercise such said option, given at
least 180 days prior to the expiration of the preceding extension of the term
hereof.
4. RENTAL: In consideration of the aforesaid demise and lease, Lessee
hereby covenants and agrees to pay to Lessor during the term hereof an annual
rental for the leased
<PAGE>
premises of Thirty-Six Thousand Nine Hundred Sixty-Seven and 44/100 Dollars
($36,967.44) payable in monthly installments of Three Thousand Eighty and 62/100
Dollars ($3,080.62). Each rental installment shall be payable in advance on the
first day of each month during the initial term and any and all renewal terms.
The rent for the first month shall include prorated rent for the portion of the
month remaining after date of completion of the improvements.
5. ESCALATION OF RENT: At the end of each five (5) year period during the
initial term of this Lease and at the beginning of each renewal period hereof,
the annual rental shall be increased by ten percent (10%) of the total amount of
the preceding five (5) year period. The annual rental shall be payable in twelve
(12) equal monthly installments payable in advance on the first day of each
month.
6. CONSTRUCTION OF IMPROVEMENTS: Lessor agrees to construct on the
premises a two story office building including parking in accordance with plans
and specifications prepared by Boisseau Design Group, Architects, P.A., a copy
of which are attached hereto, and which plans and specifications have been
approved by Lessee. Lessor shall bear all cost of construction of the office
building with the exception of the following:
A. Lessee shall pay the excess for all carpet which exceeds the
price of Seven and 50/100 Dollars ($7.50) per square yard.
B . All wall covering installed in the leased premises other than
painting.
C. All ceiling tile, etc., which exceeds the cost of normal two feet
by four feet acoustical lay-in tiles.
D. All bank related equipment including vault, drive-in window
equipment, night depository, etc.
The improvements shall be completed as evidenced by a certificate of
authority from the applicable governmental authority on or before 270 days from
the date hereof. All risk of loss to the leased premises and to third persons
prior to completion of construction and acceptance of possession by Lessee shall
remain with Lessor and any damages or claims shall be promptly dissolved by
Lessor.
7. POSSESSION: Lessee shall have and is entitled to exclusive possession
of the leased promises as of the date of completion of the improvements. Lessee,
its successors or assigns, shall use the leased premises for a bank and
accompanying offices, and Lessee hereby agrees not to commit waste or suffer or
permit waste to be committed on the leased premises nor to permit a nuisance
thereon.
8. COMPLIANCE WITH ORDINANCES: Lessee hereby agrees to comply with all
provisions of any and all statutes, ordinances and regulations imposed by the
State of North Carolina, the federal government, the county, city or any other
governmental agency now or hereinafter in force relating to the use and
occupancy of the leased premises.
2
<PAGE>
9. ZONING: Lessor warrants that the leased premises are currently zoned to
permit the operation of a bank.
10. TAXES AND INSURANCE: Lessee agrees to pay its proportionate share of
all future general real estate taxes and insurance, charged or imposed upon the
demised premises or any improvements erected thereon by Lessor or Lessee or
anyone claiming by, through, or under it or upon the owner or occupier in
respect thereof during the term of this Lease or any extensions thereof.
The method of payment shall consist of the Lessor paying, when due and
payable, all real estate taxes assessed and all insurance premiums charged on
the demised promises during the term of this Lease or any extension thereof.
Lessor shall be responsible for any interest or penalty due to the lateness of
any payment. The Lessor will then send a photocopy of the paid tax receipt and
insurance premium receipt to Lessee with the request for reimbursement, and the
Lessee agrees to reimburse Lessor promptly for such payment. Lessee's tax
liability and charge for insurance premiums shall be only for that portion of
the building which it occupies which shall be determined by the ratio of square
footage of the demised premises as it bears to the square footage of the total
building less any increase in taxes resulting from improvements made to the
premises occupied by other tenants. Lessee's obligations hereunder shall be only
to the extent of actual occupancy it being agreed that the taxes and insurance
for the beginning and ending of the term shall be prorated.
11. FIRE INSURANCE: Lessor agrees to maintain during the term of this
Lease and any extension with a reputable insurance company licensed to do
business in the State of North Carolina for and on behalf of Lessor and Lessee,
as their interests appear, as named insured, casualty insurance including fire
and extended coverage on all improvements on the demised premises in an amount
not less than the replacement cost of said improvements so as to fully protect
the parties from becoming co-insurers within the terms of the applicable policy.
12. LIABILITY INSURANCE: Lessee agrees to maintain and pay the premiums
for general liability insurance covering the leased premises, the sidewalks,
alleys, passageways and parking lots contiguous or appurtenant thereto, in the
minimum limits of One Hundred Thousand Dollars ($100,000.00) for injury to any
one person, Three Hundred Thousand Dollars ($300,000.00) for injuries in any one
accident and Fifty Thousand Dollars ($50,000.00) for property damage.
13. DAMAGE OR DESTRUCTION: In case the building which is a part of the
leased premises shall be partially or totally destroyed by fire or other
casualty insurable under standard fire and extended coverage insurance, the
Lessee and the Lessor shall use every reasonable effort to settle and adjust as
quickly as possible the amount of the loss payable by the insurer.
If such damage or destruction occurs, this Lease shall remain in full
force and effect and the Lessee will assign and pay over to Lessor all of
Lessee's interest and share of casualty insurance proceeds for the purpose of
repair and restoration of the leased premises. Lessor agrees
3
<PAGE>
that it will commence the required repair or restoration within 90 days of the
date of damage and prosecute the work of repair or restoration to completion
promptly and with reasonable speed and diligence, said repair or restoration to
be completed within 270 days.
Lessee agrees during any period of repair and restoration to continue the
operation of its business in the leased premises to the extent reasonably
practicable from the standpoint of good business and shall, during such time,
pay a prorate portion of such rent apportioned to the part of the leased
premises which are in condition for occupancy or which may be actually occupied
during such repair period.
14. ASSIGNMENT - SUBLETTING: Lessee shall not assign, sublet or mortgage
all or any portion of its interest herein without the prior written approval of
Lessor. Any assignment or subletting of this Lease or of any interest herein
shall not operate to release or discharge Lessee from any of its duties or
obligations hereunder except to the extent such duties or obligations are
actually performed.
15. CONDEMNATION: If, during the term of this Lease or any extension
thereof, the whole or substantially all of the leased premises shall be taken as
a result of the exercise of the power of eminent domain, this Lease at the
option of the Lessee shall terminate as of the date of vesting of title of the
leased premises pursuant to such proceeding. For the purposes of this Article
15, "substantially all of the leased premises" shall be deemed to have been
taken if a taking under any such proceeding shall result in twenty percent (20%)
of the land or any portion of the building being taken as a result of such
condemnation. If the Lessee elects to continue the lease the rent thereafter due
and payable by Lessee shall be reduced in such proportion as the nature, value
and extent of the part so taken bears to the whole of the leased premises.
If, during the term of this Lease or any extension thereof, less than the
whole or less than substantially all of the leased premises shall be taken in
any such proceeding, this Lease shall not terminate. The rent thereafter due and
payable by Lessee shall be reduced in such proportion as the nature, value and
extent of the part so taken bears to the whole of the leased promises.
It is agreed by and between the parties hereto that in the event of the
taking of the whole or any part of the demised premises or the common area,
Lessor shall be entitled to the entire award for all land and buildings, but
nothing herein contained shall be construed to prevent the Lessee from asserting
against the comdemnor any claim for damages occurring by reason of said
condemnation to personal property, business fixtures, good will, cost of
removing fixtures, loss of future profits, or cost of any free standing
leasehold improvements erected by Lessee.
It is provided that, subject to the approval and waiver of Lessor and any
beneficiary under any deed of trust covering the leased premises, Lessee may
bring a separate action for any unexpired term of their lease. Such approval and
waiver shall be in the sole discretion of Lessor and any Beneficiary.
16. DEFAULT: Each of the following events shall constitute a default on
the part of Lessee with respect to its obligations hereunder and a breach of
this Lease:
4
<PAGE>
A. The failure to pay the rent herein reserved or any part thereof
within 10-days after the same shall become due, and the continuance of
such failure for a period of 10-days after written notice of such default
has been given by Lessor to Lessee.
B. The failure to observe or perform any of the other covenants,
agreements and obligations herein contained on the part of the Lessee to
be observed and performed, and the continuance of such failure for a
period of 30-days after written notice thereof has been given by Lessor to
Lessee.
C. The adjudication of Lessee as a bankrupt or insolvent; or an
assignment by Lessee for the benefit of its creditors; and the continuance
without dismissal of the bankruptcy, or assignment for benefit of
creditors for a period of 30 days after such occurrence.
In the event any default (other than the payment of rent and those events
of default described in subparagraph [c] above) for which notice has been given
as aforesaid, because of its nature, cannot be cured completely or is not cured
completely within the periods of grace heretofore allowed, such default shall be
deemed to have been remedied for the purpose of this article if the correction
thereof shall have been commenced within said grace period or periods and shall
when commenced be diligently prosecuted to completion.
Upon the occurrence of any such default and the expiration of the grace
period set forth above, Lessor may, at its option, terminate this Lease by
giving written notice thereof to Lessee, and upon such termination, Lessor may
then, or at anytime thereafter, re-enter the leased premises, or any part
thereof, and thereupon take possession of said premises and all improvement
thereon, without service of notice or resort to any legal proceeding, and
without being deemed guilty of any trespass which may be occasioned thereby, or
may then or at anytime thereafter bring an action for possession of the leased
premises, or any part thereof, as provided by law, and without prejudice to any
other remedy or right of action which Lessor may have for arrears of rent or for
damages sustained by reason of the aforesaid default.
In the event that the leased premises are at anytime abandoned, and Lessee
shall then be in default in payment of rental herein reserved, Lessor may, upon
expiration of the grace periods hereinabove set forth, without anywise being
obligated so to do and without terminating this Lease, retake possession of the
leased premises and rent the same for such rent and upon such conditions as
Lessor may deem best, giving the credit for the amount so received, less all
expenses of such repairs, and Lessee shall remain liable for the difference, if
any, between the amount so received by Lessor under such reletting and the
amounts of rentals herein reserved, until the expiration date of the term of the
Lease.
17. LIENS AND INDEMNITY OF LESSOR:
A. Liens: Whenever Lessee shall construct, repair or rebuild
leasehold improvements on the leased premises, Lessee covenants to
discharge every lien filed
5
<PAGE>
against the leased premises and Lessee agrees to indemnify and save Lessor
and Lessor's agents harmless from any and all liability, loss or expense
with respect thereto.
B. Indemnity: Lessee hereby covenants and agrees to indemnify and
protect and save Lessor and Lessor's agents harmless from any and all
claims for damages, whether to persons or property arising out of or in
connection with its use and occupancy of the demised premises. The Lessee
shall be relieved and discharged of and from the liability assumed by
virtue of this indemnity to the extent that the Lessor shall have
enforceable insurance with respect to the matter in question.
18. QUIET POSSESSION:
A. Covenant of Quiet Possession: Lessor hereby covenants and agrees
that he is the owner of the leased premises in fee simple and that Lessee,
its successors and assigns, upon payment of the rent herein reserved and
the performance and keeping of all of the other terms, covenants and
conditions hereof to be performed and kept by the Lessee, shall and may
peaceably and quietly hold and enjoy the leased premises during the term
hereof or any extension thereof.
B. Right of Lessee to Cure Defaults of Lessor: Lessee shall have the
right, but not the obligation, to cure any and all defaults of Lessor in
the payment of any general property taxes and district assessments levied
by any duly authorized governmental agency. To the extent such defaults
are actually cured by Lessee, the amount so expended by Lessee shall be
credited toward amounts due from Lessee to Lessor hereunder.
19. HOLDING OVER: Any holding over by Lessee beyond the date of
termination of this Lease, whether by expiration of time or otherwise, and
continued payment of rental by Lessee without written agreement, shall be deemed
as a holding from month to month and all other terms, covenants and conditions
hereof , except for the term, shall remain in full force and effect.
20. TITLES: It is understood that the titles to the articles and sections
herein are inserted only as a matter of convenience and for reference and in no
way define or limit the scope or intent of this Lease.
21. TIME OF THE ESSENCE: It is specifically understood and agreed that
time of the payment of each and every installment of rent and performance of
each and every one of the terms, covenants and conditions hereof is of the
essence of this Lease.
22. RIGHTS ON TERMINATION: All trade fixtures and personal property
installed on the leased premises by Lessee shall be and remain the property of
Lessee. Upon termination of this Lease by expiration of time or otherwise,
Lessee shall have the right to remove any and all of the said trade fixtures and
personal property from the leased premises, provided that Lessee repair any
damage to improvements on the leased premises caused by such removal, and
further provided that Lessee shall not be in default in any of the terms and
conditions of this Lease.
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<PAGE>
23. ESTOPPEL CERTIFICATE: Lessor and Lessee agree at any time and from
time to time, upon not less than 20-days' prior written request by either of
them to the other, to execute, acknowledge and deliver to the requesting party a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified, and stating the modifications), and the date to which
the rental and other charges have been paid in advance, if any, it being
intended that any such statement delivered pursuant to this Article 22 may be
relied upon by any prospective purchaser of the fee, or mortgagee or assignee of
any mortgage upon the fee or leasehold interest in the leased premises, or by
any assignee of the Lessee. Lessee agrees to execute a subordination and
attornment agreement in favor of any beneficiary under any deed of trust
covering the leased premises; provided, however, as a condition to this
subordination provision, the Lessor shall obtain from any such beneficiary an
agreement in writing, which shall be delivered to Lessee providing in substance
that, so long as Lessee shall faithfully discharge the obligations on its part
to be kept and performed under the terms of this Lease, its tenancy shall not be
disturbed, nor shall this Lease be affected by any default under such mortgage,
and in the event of foreclosure or any enforcement of any such mortgage, the
rights of Lessee hereunder shall expressly survive, and this Lease shall in all
respects continue in full force and effect, provided, however, that Lessee fully
performs all of its obligations hereunder.
24. INSPECTION OF PREMISES: Lessor or Lessor's agent shall have the right
to enter the premises at all reasonable hours for the purpose of (i) inspecting
same, (ii) performing obligations of Lessor under this Lease, (iii) performing
obligations of Lessee hereunder which Lessee may neglect or refuse to perform,
(iv) showing the premises to persons wishing to purchase Lessor's interest
therein, and (v) showing the leased premises to a prospective Lessee if Lessee
does not extend the lease term.
25. SHORT FORM LEASE: This Lease or any portion hereof shall not be
recorded, but the parties agree, at the request of either of them to execute a
short form lease for recording purposes, containing only the name of the
parties, the legal description of the leased premises, the term of the lease, a
reference to the option to extend, and Lessor's and Lessee's rights under the
Lease.
26. AMENDMENT OR MODIFICATION: Lessee acknowledges and agrees that it has
not relied upon any statement, representations, agreements or warranties except
such as are expressed herein and that no amendment or modification of this Lease
shall be valid or binding unless expressed in writing and executed by the
parties hereto in the same manner as the execution of this Lease.
27. SEVERABILITY: If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this Lease, then and in that event, it is the intention of the parties hereto
that the remainder of this Lease shall not be affected thereby, and it is also
the intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part of this
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<PAGE>
Lease a clause or provision as similar in terms to such illegal, invalid, or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
28. LESSEE'S SIGN: Lessee shall have the right to install, maintain and
remove from time to time on the leased premises any sign or signs which Lessee
deems necessary in the operation of its business.
29. NOTICES: Any notice which may be required to be given hereunder from
either of the parties to the other shall be in writing. Said notice may be
served personally or shall be deemed fully served if sent by United States
first-class mail, postage paid, certified, return receipt requested, addressed
as follows:
To Lessee: Peoples Bank and Trust Company
To Lessor: Falls North Associates
P. O. Box 18565
Raleigh, North Carolina 27619
or at such other address as either of the parties may hereafter designate in
writing.
30. UTILITIES AND MAINTENANCE: Lessee shall pay for all of its electricity
bills and shall provide its own janitorial services for the demised premises.
Lessee shall pay its proportionate share of the water use charges, the exterior
building maintenance expenses including maintenance of the parking lot and the
outside landscaping. Lessee also agrees to pay its proportionate share of the
electricity charge for outside area lights.
IN WITNESS WHEREOF, the parties have hereunto executed this Lease the day
and year first above written.
FALLS NORTH ASSOCIATES
A Partnership
By:____________ /s/_________________(SEAL)
W. Richard Royall, Partner
By:____________ /s/_________________(SEAL)
C. Brantley Tillman, Partner
By:____________ /s/_________________(SEAL)
John W. Winters, Partner
8
<PAGE>
PEOPLES BANK AND TRUST COMPANY
By:____________ /s/____________________
Vice President and Cashier
ATTEST:
__________/s/__________________
Secretary
[Corporate Seal]
9
<PAGE>
NORTH CAROLINA,
WAKE COUNTY.
I, ___R.W. Learoyd___________, a Notary Public, do hereby certify that W.
Richard Royal, Partner in the partnership known as Falls North Associates,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
WITNESS my hand and notarial seal, this the _25th___ day of _January___,
1998.
__________/s/________________
Notary Public
My commission expires: Nov. 4, 1984
--------------
NORTH CAROLINA,
WAKE COUNTY.
I, ___R.W. Learoyd___________, a Notary Public, do hereby certify that C.
Brantley Tillman, Partner in the partnership known as Falls North Associates,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
WITNESS my hand and notarial seal, this the _25_ day of _Jan._____, 1998.
____________/s/________________
Notary Public
My commission expires: Nov. 4, 1984
-------------
NORTH CAROLINA,
WAKE COUNTY.
I, ___R.W. Learoyd___________, a Notary Public, do hereby certify that
John W. Winters, Partner in the partnership known as Falls North Associates,
personally appeared before me this day and acknowledged the due execution of the
foregoing instrument.
WITNESS my hand and notarial seal, this the __25__ day of
___Jan._________, 1998.
__________/s/________________
Notary Public
My commission expires: Nov. 4, 1984
-------------
10
<PAGE>
NORTH CAROLINA,
____________ COUNTY.
I, a Notary Public of the County and State aforesaid, certify that __Sue
F. Downing_____ personally came before me this day and acknowledged that she is
___________ Secretary of PEOPLES BANK AND TRUST COMPANY, a North Carolina
banking corporation, and that by authority duly given and as the act of the
corporation, the foregoing instrument was signed in its name by its _Vice__
President, sealed with its corporate seal and attested by __Sue F.
Downing_ as its _______ Secretary.
WITNESS my hand and notarial seal, this the _30_ day of Jan. 1980.
___________/s/___________________
Notary Public
My commission expires: Oct. 17, 1982
--------------
11
<PAGE>
SCHEDULE A
Beginning at an existing iron pipe in the western property line of Old
Wake Forest Road, corner for property now or formerly owned by Yates; thence
along the western property line of Old Wake Forest Road, South 28(degree) 04'
07" West 369.50 feet to a stake in the northern property line for the
sight-distance line between Old Wake Forest Road and a new road (new Falls of
Neuse Road); thence along said sight-distance line, South 72(degree) 28' 04"
West 334.44 feet to a stake, cornering; thence continuing along said
single-distance line North 58(degree) 54' 30" West 47.16 feet to a stake in the
eastern property line of said new road; thence along the eastern property line
of said new road, said property line being the arc of a curve having a chord
bearing of North 17(degree) 08' 12" West a chord distance of 280.41 feet, a
radius of 1086.74 feet and an arc distance of 281.19 feet to a stake in the line
of property now or formerly owned by Yates; thence along the Yates line, South
72(degree) 49' 53" East 346.39 feet to a stake in the western property line of
Old Wake Forest Road, the point of beginning, held a portion of Tract No. 2,
according to a survey by Gerald A. Gamble entitled "Survey for E.B. Bryan" dated
December, 1971, and all of Parcel No. 2 in deed recorded in Book 2594, Page 139,
Wake County Registry.
<PAGE>
NORTH CAROLINA
WAKE COUNTY
THIS AMENDMENT TO LEASE, made this the _28th__ day of November, 1980, by
and between FORTY FOUR HUNDRED F-N ASSOCIATES, a North Carolina general
partnership, (hereinafter "F-N Associates"), and PEOPLES BANK AND TRUST COMPANY,
a North Carolina banking corporation, (hereinafter "Peoples Bank");
W I T N E S S E T H
THAT WHEREAS, Falls North Associates, a North Carolina partnership, did by
agreement dated January 30, 1980, a copy of which is attached hereto (the
"Lease"), lease to Peoples Bank the improvements and real estate described
therein; and
WHEREAS, Falls North Associates has by deed duly recorded in the Wake
County Registry conveyed its interest as owner of the real estate and Landlord
under the Lease to F-N Associates; and
WHEREAS, Peoples Bank has discovered a mistake in Paragraph 5 of the Lease
and Peoples Bank has requested and F-N Associates has agreed to execute this
amendment for the limited purpose of correcting and clarifying Paragraph 5 of
the Lease.
NOW, THEREFORE, in consideration of the sum of One Dollar to F-N
Associates paid by Peoples Bank, the receipt of which is hereby acknowledged,
F-N Associates and Peoples Bank hereby agree as follows:
1. Paragraph 5 of the Lease is hereby deleted, and the following language
shall be substituted in its place and stead.
<PAGE>
5. ESCALATION OF RENT: At the end of each five (5) year period
during the term of this Lease and at the beginning of each renewal period
hereof, the annual rental then in effect shall be increased ten percent
(10%). This increased annual rental shall be payable in twelve (12) equal
monthly installments, in advance, on the first day of each month.
2. Except as hereinabove amended, all terms, covenants, and conditions of
the Lease shall be and remain in full force and effect.
IN WITNESS WHEREOF, F-N Associates has executed this agreement through its
duly authorized partner, his seal affixed hereto, and Peoples Bank has executed
the same through its duly authorized corporate officers, its corporate seal
affixed hereto, this the day and year first above written.
FORTY FOUR HUNDRED F-N ASSOCIATES
By:_____________/s/___________________(SEAL)
C. Gilbert Smith, Partner
PEOPLES BANK AND TRUST COMPANY
ATTEST: By:_____________ /s/___________________(SEAL)
(Vice) President
__________/s/_________________
Secretary
(CORPORATE SEAL)
2
<PAGE>
NORTH CAROLINA
SECOND AMENDMENT TO LEASE
WAKE COUNTY
THIS AMENDMENT TO LEASE, made this 10th day of March, 1988, by and between
FORTY FOUR HUNDRED F-N ASSOCIATES, a North Carolina general partnership,
(hereinafter "F-N Associates"), and PEOPLES BANK AND TRUST COMPANY, a North
Carolina banking corporation, (hereinafter "Peoples Bank");
W I T N E S S E T H:
THAT WHEREAS, Falls North Associates, a North Carolina partnership, did by
Lease Agreement dated January 30, 1980, lease to Peoples Bank the improvements
and real estate described therein; and
WHEREAS, F-N Associates has succeeded to the interest of Falls North
Associates as lessor and in such capacity did execute a First Amendment to said
Lease dated November 28, 1980; and
WHEREAS, Peoples Bank and F-N Associates have now agreed to reduce the
square footage of the leased premises as called for in the Lease and to adjust
the rents accordingly.
NOW, THEREFORE, in consideration of the sum of One Dollar each to the
other paid, the receipt of which is hereby acknowledged, F-N Associates and
Peoples Bank hereby agree as follows:
1. Paragraph 1 of said Lease entitled "LEASED PREMISES" is amended,
reducing the number of square feet leased from 4,770 to 2,827 as more fully
described on Exhibit A attached to this Amendment.
<PAGE>
2. Paragraph 4 of said Lease entitled "RENTAL" is amended, reducing the
rental payments to $29,174.64 per year payable in monthly installments of
$2,431.22 each beginning
Page Two
on the first day of April, 1988 and continuing on the first day of each and
every month thereafter until October 1, 1990 at which time the rents shall be
escalated as provided in paragraph 5 of said Lease as amended by the First
Amendment to said Lease.
3. Except as hereinabove amended, all terms, covenants, and conditions of
the Lease and of the First Amendment shall be and remain in full force and
effect.
IN WITNESS WHEREOF, F-N Associates has executed this agreement through its
duly authorized partner, his seal affixed hereto, and Peoples Bank has executed
the same through its duly authorized corporate officers, its corporate seal
affixed hereto, all as of the day and year first above written.
FORTY FOUR HUNDRED F-N ASSOCIATES
By ___________/s/___________________(SEAL)
C. Gilbert Smith, Partner
PEOPLES BANK AND TRUST COMPANY
By_____________/s/__________________
ATTEST: _Vice__ President
__________/s/____________
______ Secretary
(CORPORATE SEAL)
2
<PAGE>
EXHIBIT A
[DIAGRAM OF BANK APPEARS HERE]
AGREEMENT OF SUBLEASE
AGREEMENT OF SUBLEASE made and entered into as of this 3rd day of June,
1997 by and between Medical Records Corporation, an Ohio corporation
("Sublessor") and Capital Bank (Proposed), a North Carolina corporation
("Sublessee").
WITNESSETH:
WHEREAS, Forty-Four Hundred F-N Associates and Dixon Odom and Company
("Lessor"), and Sublessor, entered into that certain Lease Agreement dated as of
December 1, 1995 (the "Lease") a copy of which is attached hereto as EXHIBIT A
and made a part hereof, pursuant to which Sublessor, as the Lessee thereunder,
leased approximately 2,199 square feet of office space designated as Suite 210
and located at 4400 Falls of the Neuse Road, Raleigh, North Carolina 27609 (the
"Subleased Premises") and situated on the real property (sometimes referred to
as the "Land") more particularly described in EXHIBIT A-2 to the Lease. (Terms
used and not otherwise defined herein shall have the meaning ascribed to them in
the Lease); and
WHEREAS, Sublessee desires to sublet and Sublessor desires to sublease the
Subleased Premises pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, rent, mutual covenants
and conditions contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Sublessor and Sublessee
hereby agree as follows:
1. Subleased Premises. Sublessor hereby sublets to Sublessee, and
Sublessee hereby leases from Sublessor, the Subleased Premises, as more
particularly described in EXHIBIT B attached hereto and incorporated herein by
reference in its entirety.
2. Term of Sublease. The term of this Agreement of Sublease shall commence
on the 1st day of June 1997, and shall end on the 31st day of December, 2000,
(or until such term shall sooner cease or expire as hereinafter provided;
provided, however, that the effectiveness of this Agreement of Sublease shall be
contingent upon Sublessee filing its Articles of Incorporation (the "Articles")
with the Banking Commission of the State of North Carolina on or before May 30,
1997. If Sublessee does not file such Articles on or before May 30, 1997, then
this Agreement of Sublease shall automatically terminate at 11:59 p.m. on May
31, 1997, and shall no longer be of force or effect. Sublessee and its promoters
and directors covenant and agree that after Sublessee becomes incorporated to
cause the Board of Directors of Sublessee to expressly adopt at their first
Board of Directors meeting, the terms and conditions of this Agreement of
Sublease and to promptly forward a copy of such resolutions to Sublessor.
3. The Lease.
(a) Sublessee acknowledges that it has reviewed and is familiar with
all of the terms, covenants and conditions of the Lease, which are hereby
incorporated herein by reference in their entirety. Sublessee assumes and
agrees, except as otherwise provided herein, to perform,
1
<PAGE>
observe and comply with all of the terms, covenants and conditions on the
Lessee's part to be performed, observed and complied with under the Lease as the
same may or shall relate to the occupancy or use of the Subleased Premises.
Sublessor represents that it has full right, power and authority under the Lease
and otherwise to enter into this Agreement of Sublease.
(b) This Agreement of Sublease is expressly made subject to all of
the terms, covenants and conditions of the Lease. In the event of a conflict
between the terms of the Lease and this Agreement of Sublease, the terms of the
Sublease shall control.
(c) This Agreement of Sublease shall not release Sublessor from an
existing or future duty, obligation or liability to Lessor under the Lease, nor
shall this Agreement of Sublease change, modify, or amend the Lease in any
manner. During the term hereof, Sublessor shall immediately deliver to Sublessee
copies of any notices of default of any kind or nature delivered to or received
from the Lessor. So long as Sublessee is not in default under this Agreement of
Sublease beyond any applicable cure period, Sublessor agrees that it will
fulfill or perform all existing or future duties, obligations, or liabilities to
the Lessor under the Lease, and Sublessor shall indemnify Sublessee against all
claims, damages, costs, and expenses arising out of Sublessor's failure to
perform or observe any of the terms or conditions of the Lease.
4. Occupancy.
(a) Sublessee shall use and occupy the Subleased Premises solely for
general office use, including a bank office.
(b) Sublessee covenants that it will occupy the Subleased Premises
in accordance with the terms of the Lease and will not suffer to be done or omit
to do any act that may result in a violation of or a default under any of the
terms and conditions of the Lease, or render Sublessor liable for any charge or
expense. Sublessee further covenants and agrees to indemnify Sublessor against
and hold Sublessor harmless from any loss or liability arising out of, by reason
of, or resulting from, Sublessee's failure to perform or observe any of the
terms and conditions of the Lease pertaining to the Subleased Premises, as the
same may be required hereunder. Any other provision in this Agreement of
Sublease to the contrary notwithstanding, Sublessee shall pay to Sublessor as
additional rent any and all sums that Sublessor may be required to pay to Lessor
arising out of, by reason of, or resulting from Sublessee's failure to perform
or observe one or more of the terms and conditions of the Lease pertaining to
the Subleased Premises.
(c) Sublessee agrees that Sublessor shall not be required to perform
any of the covenants and obligations of Lessor under the Lease and, insofar as
any of the covenants and obligations of Sublessor hereunder are required to be
performed under the Lease by Lessor thereunder, Sublessee acknowledges that
Sublessor shall be entitled to look to Lessor for such performance. Any default
or failure of performance by Lessor shall not affect this Sublease or waive or
defer any of Sublessee's obligations hereunder; provided, however, that in the
event of any such default or failure of performance by Lessor, Sublessor shall
take such action as may
2
<PAGE>
reasonably be required under the circumstances, including without limitation,
litigation, to secure such performance upon Sublessee's written request
therefor.
(d) If any event described in Section 9 of the Lease shall occur
with respect to Sublessee or Sublessee's property or if Sublessee shall default
in the payment of rent or additional rent hereunder or in the performance or
observance of any of the terms, covenants and conditions of this Agreement of
Sublease or of the Lease on the part of Sublessee to be performed or observed,
Sublessor shall be entitled to the rights and remedies herein provided or
reserved by Lessor in the Lease; provided, however, that Sublessee shall not be
in default hereunder due to the non-payment of any rent or other fees or charges
unless Sublessee fails to pay any such rent or other charge within five (5) days
of written notice from Sublessor or Lessor specifying such overdue rent or other
charge or fee.
5. Rent. Sublessee shall pay to Sublessor an annual Base Rent of
Thirty-one Thousand Seven Hundred Six Dollars and Fifty-two Cents ($31,706.52)
in equal monthly installments of Two Thousand Six Hundred Forty-two Dollars and
Twenty-one Cents ($2,642.21) each, payable in advance on the first day of each
month. Sublessee shall also pay to Sublessor such Additional Rent as is set
forth in the Lease. At Sublessor's option, Sublessor may direct Sublessee to
make its payment of Base Rent and Additional Rent on the date and in the amounts
described above, directly to Lessor. Lessor's acceptance of payments of Base
Rent or Additional Rent shall be for the convenience of Sublessor only and
Sublessee hereby acknowledges that Lessor and Sublessee shall not be legally
bound, and no lease shall be created between Lessor and Sublessee, by virtue of
Lessor's acceptance of rent payments from Sublessee.
6. Sublessee's Improvements. Sublessee agrees to accept the Subleased
Premises "AS IS" "WHERE IS" and "WITH ALL FAULTS", and has had an opportunity to
inspect and satisfy itself as to the condition of the Subleased Premises. Any
alterations, decorations, installations, additions or improvements in or to the
Subleased Premises shall be made by Lessor at Sublessee's expense and shall be
subject to the prior written consent of Sublessor and Lessor, which consent
shall not be unreasonably withheld. At the request of Sublessor or Lessor, any
such alterations, decorations, installations, additions or improvements made by
Sublessee shall be removed by Sublessee and Sublessee shall restore the
Subleased Premises to its condition at the time possession thereof was delivered
to Sublessee, ordinary wear and tear excepted, at Sublessee's cost and expense,
at or prior to the expiration or sooner termination of the term hereof.
7. Security Deposit. On the date of execution of this Agreement of
Sublease by Sublessee, there shall be due and payable by Sublessee a security
deposit in the amount of Two Thousand Five Hundred Sixty-five Dollars and Fifty
Cents ($2,565.50) to be held by Sublessor for the performance by Sublessee of
Sublessee's covenants and obligations under this Agreement of Sublease, it being
expressly understood that the deposit shall not be considered an advance payment
of rental or a measure of Sublessor's or Lessor's damage in case of default by
Sublessee. Upon the occurrence of any event of default by Sublessee or breach by
Sublessee of Sublessee's covenants under this Agreement of Sublease, Sublessor
may, from time to time, without prejudice to any other remedy, use the security
deposit to the extent necessary to make good any
3
<PAGE>
arrears of rent and/or damage, injury, expense or liability caused to Sublessor
by the event of default or breach of covenant, any remaining balance of the
security deposit to be returned by Sublessor to Sublessee upon termination of
the Agreement of Sublease.
8. Condemnation and/or Termination. If the whole or any part of the
Subleased Premises shall be taken or condemned in any manner by any competent
authority for any public or quasi-public use, or if the Lessor under the Lease
or Sublessor as Lessee thereunder shall terminate the Lease as provided in the
Lease, in any such event, the term of this Agreement of Sublease shall cease and
terminate as of the date of vesting of title or such condemnation or termination
as the case may be. Sublessee shall not participate in any compensation awarded
upon a total or partial taking of the Subleased Premises.
9. No Assignment or Subletting. Sublessee, for itself, its successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
Agreement of Sublease, nor sublet, nor suffer or permit the Subleased Premises
or any part thereof to be used by others, without the prior written consent of
Sublessor in each instance, which consent shall not be unreasonably withheld.
10. Expansion/Renewal Options. Any expansion, renewal or other option
provided to Sublessor in the Lease shall not be extended to or exercised by
Sublessee.
11. Quiet Enjoyment. Sublessor covenants and agrees with Sublessee that,
provided Sublessee pays and performs all of its covenants, agreements and
obligations under this Sublease, Sublessee may peaceably and quietly enjoy the
Subleased Premises, subject, nevertheless, to the terms and conditions of this
Agreement of Sublease and the Lease.
12. "Sublessor". The term "Sublessor" as used in this Agreement of
Sublease refers to the Lessee under the Lease at the time in question, so that
if the Lease shall be assigned, such covenants, conditions and agreements shall
be binding upon each successor assignee.
13. Indemnity. Each party hereto does hereby agree to indemnify the other
and hold the other harmless, of and from any claim, damage, liability, cost or
expense, including reasonable attorney's fees, which either may suffer or incur
by reason of the failure of the other to perform, observe and comply with any of
the terms, covenants and conditions of this Agreement of Sublease or the Lease,
as such terms, covenants and conditions may affect the Subleased Premises.
14. Broker's Commission. Sublessor and Sublessee represent that the
brokers with whom they have dealt in connection with this transaction are
Capital Associates Limited Partnership and Thomas Commercial Inc. Sublessor will
pay any commission due such brokers to Capital Associates Limited Partnership
and will indemnify Sublessee and hold Sublessee harmless from and against any
and all claims of Capital Associates Limited Partnership and Thomas Commercial
Inc. Sublessee will indemnify Sublessor and hold Sublessor harmless from and
against any and all claims of any broker engaged by Sublessee other than Capital
Associates Limited Partnership and Thomas Commercial Inc. for a commission or
fee.
4
<PAGE>
15. Consent of Lessor Under Lease. This Agreement of Sublease is executed
subject to the written consent of the Lessor as set forth in the Consent to
Sublease Agreement.
16. Notices. Sublessee shall pay Rent to Sublessor at the address set
forth below. Any and all notices that are or may be required to be given
pursuant to the terms of this Agreement of Sublease or the Lease shall be sent
by Registered or Certified Mail, Return Receipt Requested, to the parties hereto
at their respective addresses.
SUBLESSOR: SUBLESSEE:
---------- -----------
Medical Records Corporation Capital Bank (Proposed)
3637 Green Road 4400 Falls of the Neuse Road, Suite 102
Cleveland, OH 44122 Raleigh, North Carolina 27609
17. Binding Effect. The covenants, conditions and agreements contained
herein shall be binding upon and inure to the benefit of Sublessor and Sublessee
and their respective heirs, executors, administrators, successors and permitted
assigns.
18. Governing Law. This Agreement of Sublease is entered into in the State
of North Carolina, and its validity and interpretation shall be construed in
accordance with the laws of that State.
19. Representations. Sublessor hereby represents and warrants to Sublessee
as follows, which shall be deemed true and restated upon the commencement date
of the term hereof:
(a) The Lease is in full force and effect and Sublessor is unaware of any
uncured default thereunder by Sublessor or the Lessor, and there exists no
circumstances, conditions, or act that would entitle or permit either party
under the Lease to declare a default thereunder or to terminate the Lease;
(b) The Lease has not been amended or modified in any respect except as
indicated in the recitals set forth in this Agreement of Sublease; and
(c) Notwithstanding Sublessee's acceptance of the Subleased Premises in
its "as is" condition, Sublessee shall be entitled to ordinary services as
outlined in this Section 5 of the Lease.
20. Notwithstanding anything herein to the contrary, Sublessee shall not
be liable for any liabilities, damages, claims, judgments, costs or expenses
accruing under the Lease with respect to the Subleased Premises on or before the
date of its occupation thereof.
21. Counterparts. This Agreement of Sublease may be executed in any number
of counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Agreement of Sublease to be executed by its duly authorized partner or officer
and the appropriate corporate seals have been hereunto affixed all as of the day
and year first written above.
SUBLESSOR:
Medical Records Corporation, an Ohio corporation
(Corporate Seal) By: _/s/_________________________________
Name: Greg Marcus_________________________
ATTEST:
Title: Vice President_____________________
By: /s/_______________
SUBLESSEE:
Capital Bank (Proposed), a North Carolina corporation
(Corporate Seal)
By: /s/_________________________________
Name: James A.Beck________________________
ATTEST:
Title: President__________________________
By:/s/_______
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EXHIBIT A TO AGREEMENT OF SUBLEASE
THE "LEASE"
LEASE AGREEMENT DATED DECEMBER 1, 1995
IS ATTACHED HERETO AND REFERRED TO AS THE "LEASE".
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LEASE AGREEMENT
by and between
FORTY-FOUR HUNDRED F-N ASSOCIATES
and
DIXON ODOM AND COMPANY
LESSOR
and
MEDICAL RECORDS CORPORATION
LESSEE
Dated as of: December _____, 1995
(C) 1995 Capital Associates. All rights reserved.
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ARTICLE I
LEASED PREMISES
1.01 Leased Premises
ARTICLE 2
BASIC LEASE PROVISIONS
2.01 Basic Lease Provisions
ARTICLE 3
TERM AND POSSESSION
3.01 Term
3.02 Commencement
3.03 Lessee's Delay
3.04 Lessee's Possession
3.05 Confirmation of Dates
3.06 Holdover
ARTICLE 4
RENT AND SECURITY DEPOSIT
4.01 Base Rent
4.02 Payment of Rent
4.03 Additional Rent
4.04 Operating Expense Adjustment
4.05 Cost of Living Adjustment
4.06 Security Deposit
4.07 Late Charge
ARTICLE 5
SERVICES
5.01 Services
ARTICLE 6
USE AND OCCUPANCY
6.01 Use
6.02 Care of the Leased Premises
6.03 Entry for Repairs and Inspection
6.04 Compliance with Laws; Rules of Building
6.05 Access to Building
6.06 Peaceful Enjoyment
6.07 Relocation
ARTICLE 7
ALTERATIONS AND REPAIRS
7.01 Alterations
7.02 Repairs by Lessor
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7.03 Repairs by Lessee
ARTICLE 8
CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY
8.01 Condemnation
8.02 Damages from Certain Causes
8.03 Fire Clause
8.04 Lessee's Insurance Policies
8.05 Hold Harmless
8.06 Waiver of Subrogation Rights
8.07 Limitation of Lessor's Personal Liability
ARTICLE 9
LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION
9.01 Lien for Rent
9.02 Default by Lessee
9.03 Non Waiver
9.04 Attorney's Fees
9.05 Subordination; Estoppel Certificate
9.06 Attornment
ARTICLE 10
ASSIGNMENT AND SUBLEASE
10.01 Assignment or Sublease
10.02 Assignment by Lessor
ARTICLE 11
NOTICES AND MISCELLANEOUS
11.01 Notices
11.02 Miscellaneous
ARTICLE 12
ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
12.01 ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
EXHIBITS
A-1 - Floor Plan(s) of the Leased Premises
A-2 - The Land
B - Acceptance of Leased Premises
C - Pricing Plan
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D - Building Rules
E - Form of Estoppel Certificate
11
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LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into on this 1st
day of December, 1995, by and between Forty-Four Hundred F-N Associates. a North
Carolina general partnership , and Dixon Odom a Company, a North Carolina
corporation, as joint tenants in common ("Lessor"), and Medical Records
Corporation, an Ohio corporation ("Lessee"), on the terms and conditions set
forth below.
ARTICLE I
LEASED PREMISES
1.01 Leased Premises. Lessor leases to Lessee and Lessee leases from
Lessor the space (the "Leased Premises") set forth in Subsections (a) and (b) of
the Basic Lease Provisions below and shown on the floor plan(s) attached hereto
as Exhibit A-1 upon the terms and conditions set forth in this Lease. The office
building in which the Leased Premises are located, the land on which the office
building is located (described on Exhibit A-2 attached hereto), the parking
facilities and all improvements and appurtenances to the building are
collectively referred to as the "Building". The Building and any larger complex
of which the Building is a part are collectively referred to as the "Project".
ARTICLE 2
BASIC LEASE PROVISIONS
2.01 BASIC LEASE PROVISIONS. The following provisions set forth various
basic terms of this Lease and are sometimes referred to as the "Basic Lease
Provisions".
(a) Building Name: Centura Bank Building
Address: 4400 Falls of the Neuse
Raleigh, North Carolina 27609
(b) Floor(s) Second
Suite #: 210
Square Feet Area: 2,199
(c) Total Area of Building: 12,897 square feet
(d) Annual Base Rent: $30,786.00 ($14.00 per square foot)
Monthly Base Rent: $2,565.50
(e) Base Operating Expense Factor: 1996 actual operating expenses per
square foot
(f) Parking: n/a
Monthly Rent per Parking Space: n/a
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(g) Term: 5 Year(s) 0 Month(s) 0 Day(s)
- - -
(h) Target Commencement Date: January 1, 1996
Target Expiration Date: December 31, 2000
(See Exhibit B; for confirmation of the actual Commencement Date and
Expiration Date of this Lease.)
(i) Security Deposit: $0.00
(j) Permitted Use: Medical Records Office
(k) Addresses for notices and other communications under this Lease:
Lessor Lessee
Forty-four Hundred F-N Associates Medical Records Corporation
Post Office Box 19044 3637 Green Road
Raleigh, North Carolina 27619 Cleveland, OH 44122
Attn: Gilbert Smith
Dixon Odom and Company
4400 Falls of the Neuse, Ste. 200
Raleigh, North Carolina 27609
Attn: Bobby Rice
(l) Outside Broker(s): None
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ARTICLE 3
TERM AND POSSESSION
3.01 TERM. This Lease shall be and continue in full force and effect for
the term set forth in Subsection 2.01(g) Subject to the remaining provisions of
this Article, the Term shall commence on the Target Commencement Date shown in
Subsection 2.01(h) and shall expire, without notice to Lessee, on the Target
Expiration Date shown in Subsection 2.01(h). Such term, as it may he modified,
renewed and extended, is herein called the "Term".
3.02 COMMENCEMENT. Subject to Section 3.03 hereof, if on the Target
Commencement Date any of the work described in this Lease that is required to be
performed by Lessor at Lessor's expense to prepare the Leased Premises for
occupancy has not been substantially completed, or if Lessor is unable to tender
possession of the Leased Premises to Lessee on the specified date due to any
other reason beyond the reasonable control of Lessor, the hereinafter defined
Commencement Date (and commencement of installments of Base Rent) shall be
postponed until the work to be performed in the Leased Premises at Lessor's
expense is substantially completed, and the postponement shall operate to extend
the Expiration Date in order to give full effect to the stated duration of the
Term. The deferment of installments of Base Rent shall be Lessee's exclusive
remedy for postponement of the Commencement Date, and Lessee shall have no, and
waives any, claim against Lessor because of any such delay.
3.03 LESSEE'S DELAY. No delay in the completion of the Leased Premises
resulting from delay or failure on the part of Lessee in furnishing information
or other matters required in this Lease, and no delay resulting from the
completion of work, if any, that is to be performed at Lessee's expense pursuant
to this Lease, shall delay the Commencement Date, Expiration Date or
commencement of payment of Rent (as defined in Subsection 4.02 below).
3.04 LESSEE'S POSSESSION. If, prior to the Commencement Date, Lessee shall
enter into possession of all or any part of the Leased Premises, the Term, the
payment of monthly installments of Base Rent and all other obligations of Lessee
to be performed during the Term shall commence on, and the Commencement Date
shall be deemed to be, the date of such entry; provided, no such early entry
shall operate to change the Expiration Date.
3.05 CONFIRMATION OF DATES. The actual commencement date ("Commencement
Date") and actual expiration date ("Expiration Date") shall be confirmed by
Lessor and Lessee by execution of the Acceptance of Leased Premises Memorandum
attached hereto as Exhibit B. If the Memorandum is not executed, the
Commencement Date and Expiration Date shall he conclusively deemed to be the
Target Commencement Date and the Target Expiration Date set forth in Subsection
2.01(h).
3.06 HOLDOVER. If Lessee shall remain in possession of the Leased Premises
after the expiration or earlier termination of this Lease, Lessee shall be
deemed a tenant-at-sufferance, terminable at any time upon thirty (30) days
written notice, and shall pay one hundred twenty-five percent (125%) of the per
day Rent payable with respect to the last full calendar month
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immediately prior to the end of the Term or termination of this Lease, but
otherwise shall be subject to all of the obligations of Lessee under this Lease.
ARTICLE 4
RENT AND SECURITY DEPOSIT
4.01 BASE RENT. Lessee agrees to pay to Lessor rent ("Base Rent")
throughout the Term in the amount of the Annual Base Rent set forth in
Subsection 2.01(d), subject to adjustment as provided in this Lease. Base Rent
shall be payable in monthly installments in the amount set forth in Subsection
2.01(d) ("Monthly Base Rent") in advance and without demand, on the first day of
each calendar month during the Term. If the Commencement Date is not the first
day of a month, Lessee shall be required to pay on the Commencement Date a pro
rata portion of the Monthly Base Rent for the first partial month of the Term.
4.02 PAYMENT OF RENT. As used in this Lease, "Rent" shall mean the Base
Rent, Additional Rent (defined below) and all other amounts required to be paid
by Lessee in this Lease. The Rent shall be paid at the times and in the amounts
provided herein in legal tender of the United States of America to Lessor at its
address specified in Subsection 2.01(k) above, or to such other person or at
such other address as Lessor may from time to time designate in writing. The
Rent shall be paid without notice, demand, abatement, deduction or offset except
as may be expressly set forth in this Lease.
4.03 ADDITIONAL RENT. The term "Additional Rent" shall mean the total of
the "Operating Expense Adjustment" and the "Cost of Living Adjustment" as those
terms are defined below.
4.04 OPERATING EXPENSE ADJUSTMENT. If the Operating Expenses (defined
below) for the Building for any calendar year, expressed on a per square foot
basis, exceed the Base Operating Expense Factor specified in Subsection 2.01(e),
Lessee shall pay to Lessor increased Rent (an "Operating Expense Adjustment") in
an amount equal to the product of such excess times the square feet of the
Leased Premises as stated in Subsection 2.01(b). The Operating Expense
Adjustment shall be payable in monthly installments on the first day of each
calendar month based on Lessor's estimate of the Operating Expenses for the then
current year. Lessor may at any time give Lessee written notice specifying
Lessor's estimate of the Operating Expenses for the then current calendar year
or the subsequent calendar year and specifying the Operating Expense Adjustment
to be paid by Lessee for each such year. Within one hundred twenty (120) days
after the end of each calendar year, Lessor shall give written notice to Lessee
specifying the actual Operating Expenses for the prior calendar year and any
necessary adjustment to the Operating Expense Adjustment paid by Lessee for that
calendar year. Lessee shall pay any deficit amount to Lessor within fifteen (15)
days after receipt of Lessor's written notice. Any excess payment by Lessee for
the prior calendar year shall educe the Operating Expense Adjustment for the
following calendar year. The provisions of this paragraph shall survive the
cancellation or termination of this Lease.
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The term "Operating Expenses" shall mean, except as otherwise specified in
this definition, all expenses, costs, and disbursements of every kind and
nature, computed on an accrual basis, which Lessor shall pay or become obligated
to pay because of or in connection with the ownership and operation of the
Building, including, without limitation: (1) wages and salaries of all employees
to an extent commensurate with such employees' involvement in the operation,
repair, replacement, maintenance, and security of the Building, including,
without limitation, amounts attributable to the employer's Social Security Tax,
unemployment taxes, and insurance, and any other amount which may be levied on
such wages and salaries, and the cost of all insurance and other employee
benefits related thereto; (2) all supplies and materials used in the operation,
maintenance, repair, replacement and security of the Building; (3) the rental
costs of any and all leased capital improvements and the annual costs of any and
all capital improvements made to the Building which, although capital in nature,
can reasonably be expected to reduce the normal operating costs of the Building,
to the extent of the lesser of such expected reduction in operating expenses or
the annual cost of such capital improvements, as well as all capital
improvements made in order to comply with any legal requirement hereafter
promulgated by any governmental authority relating to the environment, energy,
conservation, public safety, access for the disabled or security, as amortized
over the useful life of such improvements by Lessor for federal income tax
purposes; (4) the cost of all utilities, other than the cost of electricity
supplied to tenants of the Building which is separately metered and reimbursed
to Lessor by such tenants; (5) the cost of all maintenance and service
agreements with respect to the operation of the Building or any part thereof,
including, without limitation, alarm service, equipment, window cleaning,
elevator maintenance, landscape maintenance, and parking area maintenance and
operation; (6) the cost of all insurance relating to the Building, including,
without limitation, casualty and liability insurance applicable to the Building
and Lessor's personal property used in connection therewith; (7) all taxes and
assessments and governmental charges, whether federal, state, county, or
municipal, and whether by taxing districts or authorities presently taxing or by
others, subsequently created or otherwise, including all taxes levied or
assessed against or for leasehold improvements and any other taxes and
assessments attributable to the Building and/or the operation thereof,
excluding, however, federal and state taxes on Lessor's income, but including
all rental, sales, use and occupancy taxes or other similar taxes, if any,
levied or imposed by any city, state, county, or other governmental body having
jurisdiction; and (8) the cost of all repairs, replacements, removals and
general maintenance with respect to the Building. Specifically excluded from
Operating Expenses are expenses for capital improvements made to the Building,
other than capital improvements described in clause (3) of this definition and
except for items which, though capital for accounting purposes, are properly
considered maintenance and repair items, such as painting of common areas,
replacement of carpet in elevator lobbies and like items; expenses for repair,
replacement and general maintenance paid by proceeds of insurance or by Lessee
or other third parties; alterations attributable solely to tenants of the
Building other than Lessee; depreciation of the Building; leasing commissions;
and federal and state income taxes imposed on Lessor.
4.05 COST OF LIVING ADJUSTMENT. At the end of each calendar year during
the Term, commencing at the end of calendar year 1996, the Monthly Base Rent for
the following calendar year shall be increased based on the percentage change in
the Consumer Price Index - U.S. City Average - All Items -Clerical and Wage
Earner (1982-84=100), as published by the Bureau of
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Labor Statistics, United States Department of Labor ("CPI"), in accordance with
the following formula:
CPI 1 = CPI for the month of September in the current calendar year
CPI 0 = CPI for the month of September in the prior calendar year
Cost of Living Adjustment = [(CPI 1 - CPI 0)/CPI 0 times
[Monthly Base Rent for current calendar year]
The resulting figure will be the Cost of Living Adjustment for the following
calendar year; provided, the Monthly Base Rent shall never he reduced below the
Monthly Base Rent specified in Subsection 2.01 (d), and provided further that in
no event shall the Cost of Living Adjustment in any year exceed five percent
(5%) of the Monthly Base Rent payable in the immediately preceding calendar
year. Lessor shall use its best efforts to give Lessee written notice no later
than the first day of December of each calendar year, specifying the amount of
the Cost of Living Adjustment for the following calendar year and Lessee shall
adjust its payments of Monthly Base Rent accordingly beginning on the first day
of January in the following calendar year. If (a) the CPI cases using the
1982-84=100 base, or (b) a substantial change is made in the number of items
used in determining the CPI and Lessor and Lessee agree that the CPI no longer
accurately reflects the purchasing power of the US dollar, or (c) the
publication of the CPI shall be discontinued for any reason, the Bureau of Labor
Statistics shall be requested to furnish a new index comparable to the CPI
together with information which will make possible the conversion to the new
index in computing future Cost of Living Adjustments under this Section. If for
any reason the Bureau of Labor Statistics does not furnish such an index and
such information, Lessor shall select and thereafter use such other index, or
comparable statistics on the cost of living, as shall be computed and published
by an agency of the United States, or by a responsible financial periodical or
recognized authority.
4.06 INTENTIONALLY DELETED.
4.07 LATE CHARGE. If Lessee fails or refuses to pay any installment of
Rent within ten (10) days of its due date, Lessor, at Lessor's option, shall be
entitled to collect a late charge of five percent (5%) of the amount of the late
payment to compensate Lessor for the additional expense involved in handling
delinquent payments and not as interest. If the payment of a late charge
required by this Section is found to constitute interest notwithstanding the
contrary intention of Lessor and Lessee, the late charge shall be limited to the
maximum amount of interest that lawfully may be collected by Lessor under
applicable law, and if any payment is determined to exceed such lawful amount,
the excess shall be applied to any unpaid Rent then due and payable hereunder
and/or credited against the next succeeding installment of Rent payable
hereunder. If all Rent payable hereunder has been paid in full, any excess shall
be refunded to Lessee. Lessee shall reimburse Lessor for any processing fees
charged to Lessor as a result of Lessee's checks having been returned for
insufficient funds.
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ARTICLE 5
SERVICES
5.01 Services.
(a) Lessor shall furnish elevator service and routine maintenance and
electric lighting service for all public areas and special service areas of the
Building in the manner and to the extent deemed by Lessor to be standard. Lessor
will furnish janitor service on a five (5) day week basis at no extra charge.
Failure by Lessor to any extent to furnish these services, or any cessation
thereof, resulting from causes beyond the control of Lessor shall not render
Lessor liable in any respect for damages to either person or property, nor be
construed as an eviction of Lessee, nor work an abatement of rent, nor relieve
Lessee from its obligation to fulfill any covenant or agreement hereof. Should
any of Lessor's equipment or machinery break down, or for any cause cease to
function properly, Lessor shall use reasonable diligence during normal business
hours to repair same promptly, but Lessee shall have no claim for rebate of rent
or damages on account of any interruptions in service occasioned thereby or
resulting therefrom.
(b) Lessor shall furnish proper electrical facilities to furnish
sufficient power for typewriters, voice writers, calculating machines and other
machines of similar low electrical consumption, but not including electricity
required for electronic data processing equipment which (singly) consumes more
than 0.25 kilowatts per hour at a rated capacity or requires a voltage other
than 120 volts single phase. Lessee shall pay to Lessor, monthly as billed, such
charges as may be separately metered or as Lessor's engineer shall reasonably
compute for any electrical service usage in excess of that stated above. If
Lessee uses any heat generating machines, equipment, fixtures or other devices
of any nature whatsoever in the Leased Premises which affect the temperature
otherwise maintained by the Building standard air conditioning, Lessee shall pay
the additional cost necessitated by Lessee's use of such machines, equipment,
fixtures or other devices, including the cost of installation of any necessary
additional air conditioning equipment and the cost of operation and maintenance
thereof in addition to the unit supplied by Lessor in Exhibit A.
(c) From and after the Commencement Date, Lessee covenants and agrees to
pay or cause to be paid directly to the supplier all rents, charges and rates
for the separate HVAC system installed in the Leased Premises. If Lessee fails
to pay any such bills when due, Lessor shall have the right after giving Lessee
ten (10) days written notice of its failure to pay such bills, to thereafter pay
such delinquent bills. Lessee shall reimburse Lessor, within ten (10) days of
receipt of Lessor's invoice, for the amount of such delinquent bills paid by
Lessor together with interest on the sums advanced at the rate of the lesser of
eighteen percent (18%) per annum or the highest rate allowed by applicable laws.
Such sums shall be added to the Rent next due hereunder and shall become
Additional Rent for the purposes hereof.
(d) Lessor shall operate the lights in the parking lot from dusk until
dawn on a seven (7) pay per week basis.
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ARTICLE 6
USE AND OCCUPANCY
6.01 USE. The Leased Premises are to be used and occupied by Lessee (and
its permitted assignees and subtenants) solely for the purpose specified in
Subsection 2.01 (j) and for no other purpose; provided, however, that Lessee may
change such purpose upon Lessor's prior written agreement. Lessee agrees not to
occupy or use, or permit any portion of the Leased Premises to be occupied or
used for any business or purpose which is unlawful, disreputable or deemed to be
extra-hazardous on account of fire or exposure to or interference from
electromagnetic rays and/or fields, or permit anything to be done which would in
any way increase the rate of fire insurance coverage on the Building and/or its
contents. Lessee further agrees to conduct its business and control its agents,
employees, invitees and visitors in such manner as not to create any nuisance,
or interfere with, annoy or disturb any other tenant or Lessor in its operation
of the Building.
6.02 CARE OF THE LEASED PREMISES. Lessee shall not commit or allow to be
committed any waste or damage to any portion of the Leased Premises or the
Building and, at the termination of this Lease, by lapse of time or otherwise,
Lessee shall deliver up the Leased Premises to Lessor in as a good condition as
existed on the date of possession by Lessee, ordinary wear and tear excepted.
Upon such termination of this Lease, Lessor shall have the right to re-enter and
resume possession of the Leased Premises.
6.03 ENTRY FOR REPAIRS AND INSPECTION. Lessee shall permit Lessor and its
contractors, agents and representatives to enter into and upon any part of the
Leased Premises at all reasonable hours to inspect and clean the same, make
repairs, alterations and additions thereto, show the same to prospective tenants
or purchasers, and for any other purpose as Lessor may deem necessary or
desirable. Lessor shall not be entitled to any abatement or reduction of Rent by
reason of any such entry.
6.04 COMPLIANCE WITH LAWS; RULES OF BUILDING. Lessee shall comply with and
Lessee shall cause its visitors, employees, contractors, agents and invitees to
comply with, all laws, ordinances, orders, rules and regulations (state,
federal, municipal and other agencies or bodies having any jurisdiction thereof)
relating to the use, condition or occupancy of the Leased Premises, including,
without limitation, all local, state and federal environmental laws, and the
rules of the Building reasonably adopted and altered by Lessor from time to
time, all of which Building rules will be sent by Lessor to Lessee in writing
and shall thereafter be carried out and observed by Lessee, its employees,
contractors, agents, invitees and visitors. The initial rules of the Building
are attached hereto as EXHIBIT D.
6.05 ACCESS TO BUILDING. Lessor shall have the right to limit access to
the Building after normal business hours, provided, Lessor shall have no
responsibility to prevent, and shall not be liable to Lessee for, and shall be
indemnified by Lessee against, liability and loss to Lessee, its agents,
employees and visitors, arising out of losses due to theft, burglary and damage
and injury to persons and property caused by persons gaining access to the
Building or Leased Premises, and Lessee waives and releases Lessor from all
liability relating thereto. Lessor
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expressly reserves the right, in its sole discretion, to temporarily or
permanently change the location of, close, block and otherwise alter any
entrances, corridors, skywalks, tunnels, doorways and walkways leading to or
providing access to the Building or any part thereof and otherwise restrict the
use of same provided such activities do not unreasonably impair Lessee's access
to the Leased Premises. Lessor shall not incur any liability whatsoever to
Lessee as a consequence thereof. Such activities shall not be deemed to be a
breach of any of Lessor's obligations hereunder. Lessor agrees to exercise good
faith in notifying Lessee a reasonable time in advance of any alterations,
modifications or other actions of Lessor under this Section. [additional
handwritten language inserted.]
6.06 PEACEFUL ENJOYMENT. Lessor covenants that Lessee shall and may
peacefully have, hold and enjoy the Leased Premises, subject to the terms of
this Lease, provided Lessee pays the Rent and other sums required to be paid by
Lessee and performs all of Lessee's covenants and agreements herein contained.
It is understood and agreed that this covenant and any and all other covenants
of Lessor contained in this Lease shall be binding upon Lessor and its
successors only with respect to breaches occurring during its and their
respective ownership of Lessor's interest in the Building. Lessor shall not be
responsible for the acts or omissions of any other lessee or third party that
may interfere with Lessee's use and enjoyment of the Leased Premises; provided,
however, that Lessor shall use its best efforts to enforce the rules and
regulations of the Building.
6.07 RELOCATION. Lessor shall have the option to relocate the Lessee to
alternative space in the Project in accordance with this Section. The
alternative space shall be of comparable size to the Leased Premises, or larger,
and have approximately the same number of windows. Lessor shall give Lessee not
less than sixty (60) days prior written notice of any such relocation, which
notice shall include the date on which Lessee shall be required to relocate or
move and a description of the space to which Lessee will be relocated. Lessor
shall pay all out-of-pocket costs and expenses of relocating Lessee, including
the cost of reconstruction of all Lessee furnished and Lessor furnished
improvements. In the event of such relocation, the alternative space shall be
deemed the Leased Premises hereunder and this Lease shall continue in full force
and effect without any change in the other terms and conditions hereof,
provided, however, that upon Lessor's request, Lessee shall execute an amendment
to this Lease substituting such alternative space for the space previously
occupied by Lessee.
ARTICLE 7
ALTERATIONS AND REPAIRS
7.01 ALTERATIONS. Prior to the Commencement Date, Lessor shall, at its
expense, make the alterations and complete the work including any work required
on Lessee's separate HVAC system but not any other appliances or equipment of
Lessee, using Building standard materials and finishes, shown on the Pricing
Plan attached hereto as Exhibit C and the construction drawings to be prepared
by Lessor's designer, agreed to by the parties and made a part hereof by
reference. Any changes or modifications to the approved plan and drawings shall
be made and accepted by written change order signed by Lessor and Lessee and
shall constitute an amendment to this Lease. All additional costs necessitated
by any such change order shall be paid by Lessee.
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Lessee shall make no alterations, installations, additions or improvements in,
on or to the Leased Premises without Lessor's prior written consent. All such
work shall be designed and made in a manner, and by architects, engineers,
workmen and contractors, satisfactory to Lessor. All alterations, installations,
additions and improvements (including, without limitation, paneling, partitions,
millwork and fixtures) made by or for Lessee to the Leased Premises shall remain
upon and be surrendered with the Leased Premises and become the property of
Lessor at the expiration or termination of this Lease or the termination of
Lessee's right to possession of the Leased Premises; provided, Lessor may
require Lessee to remove any or all of such items that are not Building standard
upon the expiration or termination of this Lease or the termination of Lessee's
right to possession of the Leased Premises in order to restore the Leased
Premises to the condition existing at the time Lessee took possession. Lessee
shall bear the costs of removal of Lessee's property from the Building and of
all resulting repairs thereto. All work performed by Lessee with respect to the
Leased Premises shall: (a) not alter the exterior appearance of the Building or
adversely affect the structure, safety, systems or services of the Building; (b)
comply with all Building safety, fire and other codes and governmental and
insurance requirements; (c) not result in any usage in excess of Building
standard of water, electricity, gas, heating, ventilating or air conditioning,
(either during or after such work) unless prior written arrangements
satisfactory to Lessor are entered into; (d) be completed promptly and in a good
and workmanlike manner; (e) be performed in such a manner that does not cause
interference or disharmony with any labor used by Lessor, Lessor's contractors
or mechanics or by any other tenant or such other tenant's contractors or
mechanics; and (f) not cause any mechanic's, materialman's or other similar
liens to attach to Lessee's leasehold estate. Lessee shall not permit, or be
authorized to permit, any liens (valid or alleged) or other claims to be
asserted against Lessor or Lessor's rights, estates and interests with respect
to the Building or this Lease in connection with any work done by or on behalf
of Lessee, and Lessee shall indemnify and hold Lessor harmless against any such
liens.
7.02 REPAIRS BY LESSOR. Unless otherwise expressly stipulated herein,
Lessor shall not be required to make any improvements or repairs of any kind or
character to the Leased Premises during the Term, except such repairs to
Building standard improvements as may be deemed necessary by Lessor for normal
maintenance operations, provided, non-Building standard leasehold improvements
will, at Lessee's written request, be maintained by Lessor at Lessee's expense,
at a cost or charge equal to the costs incurred in such maintenance plus an
additional charge of fifteen percent (15%). Notwithstanding any provisions of
this Lease to the contrary, all repairs, alterations or additions to the base
Building and its systems (as opposed to those involving only Lessee's leasehold
improvements), and all repairs, alterations and additions to Lessee's
non-Building standard leasehold improvements which affect the Building's
structural components or major mechanical, electrical or plumbing systems, made
by, for or on behalf of Lessee and any other tenants in the Building shall be
made by Lessor or its contractor only, and, if on behalf of Lessee, shall be
paid for by Lessee in an amount equal to Lessor's costs plus fifteen percent
(15%). Lessor shall not be liable to Lessee, except as expressly provided in
this Lease, for any damage or inconvenience, and Lessee shall not he entitled to
any abatement or reduction of rent by reason of any repairs, alterations or
additions made by Lessor under this Lease.
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7.03 REPAIRS BY LESSEE. Lessee shall, at its own cost and expense, repair
or replace any damage or injury done to its leasehold improvements or any other
part thereof caused by Lessee or Lessee's agents, contractors, employees,
invitees, and visitors. If Lessee fails to make such repairs or replacements to
its leasehold improvements promptly, Lessor may, at its option, make such
repairs or replacements, and Lessee shall repay the cost thereof plus a charge
of fifteen percent (15%) to the Lessor on demand. Any damage or injury to the
Leased Premises or the base Building and its systems (as opposed to) those
involving only Lessee's leasehold improvements) and any damage or injury to
Lessee's leasehold improvements which affects the Building's structural
components or major mechanical, electrical or plumbing systems caused by Lessee,
its agents, contractors, employees, invitees and visitors, shall be repaired or
replaced by Lessor, but at Lessee's expense plus a charge of fifteen percent
(15%).
ARTICLE 8
CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY
8.01 CONDEMNATION. If all or substantially all of the Leased Premises is
taken by virtue of eminent domain of for any public or quasi-public use or
purpose, this Lease shall terminate on the date the condemning authority takes
possession. If only a part of the Leased Premises is so taken, or if a portion
of the Building not including the Leased Premises is taken, this Lease shall, at
the election of Lessor, either (i) terminate on the date the condemning
authority takes possession by giving notice thereof to Lessee within thirty (30)
days after the date of such taking of possession or (ii) continue in full force
and effect as to that part of the Leased Premises not so taken and Rent with
respect to any portion of the Leased Premises taken or condemned shall be
reduced or abated on a square footage basis. All proceeds payable from any
taking or condemnation of all or any portion of the Leased Premises and the
Building shall belong to and be paid to Lessor, and Lessee hereby expressly
assigns to Lessor any and all right, title and interest of Lessee now or
hereafter arising in and to any such awards. Lessee shall have no, and waives
any, claim against Lessor and the Condemnor for the value of any unexpired term.
8.02 DAMAGES FROM CERTAIN CAUSES. Lessor shall not be liable or
responsible to Lessee for any loss or damage to any property or person
occasioned by theft, fire, act of God, public enemy, injunction, riot, strike,
insurrection, war, court order, requisition order of governmental body or
authority, or any cause beyond Lessor's control, or for any damage or
inconvenience which may arise through repair or alteration of any part of the
Building.
8.03 FIRE CLAUSE. In the event of a fire or other casualty in the Leased
Premises, Lessee shall immediately give notice thereof to Lessor. If the Leased
Premises or if the Building is uninhabitable by cause of fire or other casualty,
Lessor shall have the right to terminate this Lease or to repair the Leased
Premises within sixty (60) days of the date of Lessee's notice if Lessor cannot
locate alternate space for Lessee during the reconstruction of the Leased
Premises or the Building, as the case may be, subject to delays resulting from
adjustment of the loss and any other cause beyond Lessor's reasonable control,
provided, Lessor shall not be required to repair or replace any furniture,
furnishings or other personal property which Lessee may be entitled to remove
from the Leased Premises or any installations in excess of Building standard.
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Until Lessor's repairs are completed the Rent shall be abated in proportion to
the portions of the Leased Premises, if any, which are untenantable or unsuited
for the conduct of Lessee's business. If Lessor cannot complete the repairs
within sixty (60) days of the date of Lessee's written notice and if Lessor
cannot locate alternate space for Lessee during the reconstruction of the Leased
Premises or the Building, as the case may be, then Lessee shall have the right
to terminate this Lease at any time thereafter. Notwithstanding anything
contained in this Section, Lessor shall only be obligated to restore or rebuild
the Leased Premises to a Building standard condition and Lessor shall not be
required to expend more funds than the amount received by Lessor from the
proceeds of any insurance carried by Lessor.
8.04 LESSEE'S INSURANCE POLICIES. Lessee shall, at its expense, maintain
(i) standard fire and extended coverage insurance on all of its personal
property, including removable trade fixtures, located in the Leased Premises and
on its non-Building standard leasehold improvements and all other additions and
improvements (including fixtures) made by Lessee; (ii) a policy or policies of
comprehensive general liability insurance, such insurance to afford minimum
protection (which may be effected by primary and/or excess coverage) of not less
than $3,000,000 for personal injury or death in any one occurrence and of not
less than $1,000,000 for property damage in any one occurrence, provided, Lessee
shall carry such greater limits of liability coverage as Lessor may reasonably
request from time to time; and (iii) a policy or policies, if available,
insuring against injury or damage from exposure to or interference from
electromagnetic rays and/or fields. All insurance policies required to be
maintained by Lessee shall (a) be issued by and binding upon solvent insurance
companies licensed to conduct business in the State of North Carolina, (b) have
all premiums fully paid on or before the due dates, (c) name Lessor as an
additional insured, and (d) provide that they shall not be cancelable and/or the
coverage thereunder shall not be reduced without at least ten (10) days advance
written notice to Lessor. Lessee shall deliver to Lessor certified copies of all
policies or certificates of insurance in a form satisfactory to Lessor not less
than fifteen (15) days prior to the Commencement Date or the expiration of
current policies.
8.05 HOLD HARMLESS. Lessor shall not be liable to Lessee, its agents,
servants, employees, contractors, customers or invitees, for any damage to
person or property caused by any act, omission or neglect of Lessee, its agents,
servants, employees, contractors, customers or invitees, including any claims
which may be made for compensation or damages based upon exposure to or
interference from electromagnetic rays and/or fields emanating from the Leased
Premises, and Lessee agrees to indemnify and hold harmless Lessor and its
partners, agents, directors, officers, and employees from all liability and
claims for any such damage, including, without limitation, court costs,
attorneys' fees and costs of investigation.
8.06 WAIVER OF SUBROGATION RIGHTS. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee each hereby waives to the extent that such
waiver will not invalidate any insurance policy maintained by Lessor or Lessee
nor increase any premiums thereon, any and all rights of recovery, claims,
actions or causes of action, against the other, its agents, servants, partners,
shareholders, officers and employees, for any loss or damage that may occur to
the Leased Premises or the Building, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the elements, and
any other cause which is
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insured against under the terms of the standard fire and extended coverage
insurance policies referred to in Section 8.04 hereof, to the extent that such
loss or damage is recovered under said insurance policies, regardless of cause
or origin, including negligence of the other party hereto, its agents, officers,
partners, shareholders, servants or employees, and covenants that no insurer
shall hold any right of subrogation against such other party. If the respective
insurers of Lessor and Lessee do not permit such a waiver without an appropriate
endorsement to such party's insurance policy, Lessor and Lessee covenant and
agree to notify the insurers of the waiver set forth herein and to secure from
each such insurer an appropriate endorsement to its respective insurance policy
concerning such waiver.
8.07 LIMITATION OF LESSOR'S PERSONAL LIABILITY. Lessee agrees to look
solely to Lessor's interest in the Building and the Land for the recovery of any
judgment against Lessor, and Lessor, its partners, officers, directors and
employees, shall never be personally liable for any such judgment. The
provisions contained in the foregoing sentence are not intended to, and shall
not, limit any right that Lessee might otherwise have to obtain injunctive
relief against Lessor or Lessor's successors in interest or any suit or action
in connection with enforcement or collection of amounts which may become owing
or payable under or on account of liability insurance maintained by Lessor.
ARTICLE 9
LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION
9.01 INTENTIONALLY DELETED.
9.02 DEFAULT BY LESSEE. If Lessee shall default in the payment of any Rent
or other sum to be paid by Lessee under this Lease when due; or Lessee shall
default in the performance of any of the other covenants or conditions which
Lessee is required to observe and to perform under this Lease and such default
shall continue for twenty (20) days after written notice to Lessee; or the
interest of Lessee under this Lease shall be levied on under execution or other
legal process; or any petition shall be filed by or against Lessee to declare
Lessee a bankrupt or to delay, reduce or modify Lessee's debts or obligations;
or
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any petition shall be filed or other action taken to reorganize or modify
Lessee's debts or obligations; or any petition shall be filed or other action
taken to reorganize or modify Lessee's capital structure; or Lessee is declared
insolvent according to law or any assignment of Lessee's property shall be made
for the benefit of creditors; or if a receiver or trustee is appointed for
Lessee or its property; or Lessee shall vacate or abandon the Leased Premises or
any part thereof at any time during the Term for a period of fifteen (15) or
more continuous days; or Lessee is a corporation and Lessee shall cease to exist
as a Corporation in good standing in the state of its incorporation; or Lessee
is a partnership or other entity and Lessee shall be dissolved or otherwise
liquidated; then Lessor may treat the occurrence of any one or more of the
foregoing events as a breach of this Lease (provided, no such levy, execution,
legal process or petition filed against Lessee shall constitute a breach of this
Lease if Lessee shall vigorously contest the same by appropriate proceedings and
shall remove or vacate the same within thirty (30) days from the date of its
creation, service or filing). Thereupon, at Lessor's option and in addition to
all other rights and remedies provided at law or in equity, Lessor may terminate
this Lease and repossess the Leased Premises and be entitled to recover as
damages a sum of money equal to the total of (a) the cost of recovering the
Leased Premises (including attorneys' fees and costs of suit), (b) the unpaid
rent earned at the time of termination, (c) the present value (discounted at the
rate of eight percent (8%) per annum) of the balance of the rent for the
remainder of the Term less the present value (discounted at the same rate) of
the fair market rental value of the Leased Premises for said period, (d) the
amount of any unamortized leasing commissions or any allowances or concessions
previously made by Lessor to Lessee, (e) any other sum of money, and damages
owed by Lessee to Lessor and (f) interest on (a) (b) (c) (d) and (e) above at
the rate of the lesser of eighteen percent (18%) per annum or the highest rate
allowed by applicable law.
9.03 NON WAIVER. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default and Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either in law or in equity.
9.04 ATTORNEYS' FEES. Should either party hereto institute any action or
proceeding in court to enforce any provision hereof or for damages by reason of
any alleged breach of any provisions of this Lease or for any other judicial
remedy, the prevailing party shall be entitled to receive from the
non-prevailing party all actual reasonable attorneys' fees and all court costs
in connection with said proceeding.
9.05 SUBORDINATION; ESTOPPEL CERTIFICATE. This Lease is and shall be
subject and subordinate to any and all ground or similar leases affecting the
Building, and to all mortgages which may now or hereafter encumber or affect the
Building and to all renewals, modifications, consolidations, replacements and
extensions of any such leases and mortgages; provided, at the option of any such
lessor or mortgagee, this Lease shall be superior to the lease or mortgage of
such lessor or mortgagee. The provisions of this Section shall be self-operative
and shall require no further consent or agreement by Lessee. Lessee agrees,
however, to execute and return any estoppel certificate, consent or agreement
reasonably requested by any such lessor or mortgagee, or by Lessor, within ten
(10) days after receipt of same, including, without limitation, an estoppel
certificate in the form attached hereto as Exhibit E. Lessee shall, at the
request of Lessor or any
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mortgagee of Lessor secured by a lien on the Building or any lessor to Lessor
under a ground Lease of the Building, furnish such mortgagee and/or lessor with
written notice of any default or breach by Lessor at least sixty (60) days prior
to the exercise by Lessee of any rights and/or remedies of Lessee hereunder
arising out of such default or breach.
9.06 ATTORNMENT. If any ground or similar lease or mortgage is terminated
or foreclosed, Lessee shall, upon request, attorn to the lessor under such lease
or the mortgagee or purchaser at such foreclosure sale, as the case may be, and
execute instrument(s) confirming such attornment. In the event of such a
termination or foreclosure and upon Lessee's attornment as aforesaid, Lessee
will automatically become the tenant of the successor to Lessor's interest
without change in the terms or provisions of this Lease; provided, such
successor to Lessor's interest shall not be bound by (i) any payment of rent for
more than one month in advance except prepayments for security deposits, if any,
or (ii) any amendments or modifications of this Lease made without the prior
written consent of such lessor or mortgagee.
ARTICLE 10
ASSIGNMENT AND SUBLEASE
10.01 ASSIGNMENT OR SUBLEASE. Lessee shall not, voluntarily, by operation
of law, or otherwise, assign, transfer, mortgage, pledge, or encumber this Lease
or sublease the Leased Premises or any part thereof, or allow any person other
than Lessee, its employees, agents, servants and invitees, to occupy or use the
Leased Premises or any portion thereof, without the express prior written
consent of Lessor, such consent not to be unreasonably withheld, and any attempt
to do any of the foregoing without such written consent shall be null and void
and shall constitute a default under this Lease. Lessor's consent to any
assignment or sublease hereunder does not constitute a waiver of its right to
consent to any further assignment or sublease. If Lessee desires to assign this
Lease or sublet the Leased Premises or any part thereof, Lessee shall give
Lessor written notice of such desire at least sixty (60) days in advance of the
date on which Lessee desires to make such assignment or sublease. Lessor shall
then have a period of thirty (30) days following receipt of such notice within
which to notify Lessee in writing that Lessor elects (a) to terminate this Lease
as to the space so affected as of, the date so specified by Lessee, in which
event Lessee shall be relieved of all further obligations hereunder as to such
space, or (b) to permit Lessee to assign this Lease or sublet such space
(provided, however, if the rent agreed upon between Lessee and Sublessee is
greater than the Monthly Base Rent that Lessee must pay Lessor, such excess rent
shall be deemed additional rent owed by Lessee and payable to Lessor in the same
manner that Lessee pays the Rent hereunder), or (c) to refuse to consent to
Lessee's assignment or subleasing such space and to continue this Lease in full
force and effect as to the entire Leased Premises. If Lessor should fail to
notify Lessee in writing of such election within the thirty (30) day period,
Lessor shall be deemed to have elected option (c) above. Lessee agrees to pay
Lessor's actual reasonable attorney's fees associated with Lessor's review and
documentation of any requested assignment or sublease hereunder regardless of
whether Lessor consents to any such assignment or sublease. No assignment or
subletting by Lessee shall relieve Lessee of any obligations under this Lease,
and Lessee shall remain fully liable hereunder. If Lessee is not a public
company that is registered on a national stock exchange or that is required to
register its stock with the Securities and Exchange Commission under Section
12(g) of the
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Securities and Exchange Act of 1934, any change in a majority of the voting
rights or other controlling rights or interests of Lessee shall be deemed an
assignment for the purposes hereof.
10.02 ASSIGNMENT BY LESSOR. Lessor shall have the right to transfer and
assign, in whole or in part, all its rights and obligations hereunder and in the
Building and all other property referred to herein, and in such event and upon
such transfer (any such transferee to have the benefit of, and be subject to,
the provisions of Section 6.06 and Section 8.07 hereof) no further liability or
obligation shall thereafter accrue against Lessor under this Lease.
ARTICLE 11
NOTICES AND MISCELLANEOUS
11.01 NOTICES. Except as otherwise provided in this Lease, any statement,
notice, or other communication which Lessor or Lessee may desire or is required
to give to the other shall be in writing and shall be deemed sufficiently given
or rendered if hand delivered, or if sent by registered or certified mail,
postage prepaid, return receipt requested, to the addresses for Lessor and
Lessee set forth in Subsection 2.01 (k) or at such other address(es) as either
party shall designate from time to time by ten (10) days prior written notice to
the other party.
11.02 MISCELLANEOUS. (a) This Lease shall be binding upon and inure to the
benefit of the legal representatives, successors and assigns of Lessor, and
shall be binding upon and inure to the benefit of Lessee, its legal
representatives and successors, and, to the extent assignment may be approved by
Lessor hereunder, Lessee's assigns. Pronouns of any gender shall include the
other genders, and either the singular or the plural shall include the other.
(b) All rights and remedies of Lessor under this Lease shall be
cumulative and none shall exclude any other rights or remedies allowed by law.
This Lease is declared to be a North Carolina contract, and all of the terms
thereof shall be construed according to the laws of the State of North Carolina.
(c) This Lease may not be altered changed or amended, except by an
instrument in writing executed by all parties hereto. Further, the terms and
provisions of this Lease shall not be construed against or in favor of a party
hereto merely because such party is the "Lessor" or the "Lessee" hereunder or
such party or its counsel is the draftsman of this Lease.
(d) The terms and provisions of Exhibits A-E described herein and
attached hereto are hereby made a part hereof for all purposes; provided,
however, that, unless otherwise expressly stated, in the event of a conflict
between the terms of this Lease and the terms of any Exhibit attached hereto,
the terms of this Lease shall control.
(e) If Lessee is a corporation, partnership or other entity, Lessee
warrants that all consents and approvals required of third parties (including,
without limitation, its Board of Directors or partners) for the execution,
delivery and performance of this Lease have been obtained and that Lessee has
the right and authority to enter into and perform its covenants contained in
this Lease.
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(f) Whenever in this Lease there is imposed upon Lessor the
obligation to use its best efforts, reasonable efforts or diligence, Lessor
shall be required to do so only to the extent the same is economically feasible
and otherwise will not impose upon Lessor extreme financial or other business
burdens.
(g) If any term or provision of this Lease, or the application
thereof to any person or circumstance, shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each provision of this Lease
shall be valid and shall be enforceable to the extent permitted by law.
(h) If applicable in the jurisdiction where the Leased Premises are
situated, Lessee shall pay and be liable for all rental, sales and use taxes or
other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Lessor by Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
(i) Lessor and Lessee each agrees not to handle, store or dispose of
any hazardous or toxic waste or substance at the Project which is prohibited by
any federal, state, or local statutes, ordinances or regulations. Lessor and
Lessee each hereby covenants to indemnify and hold the other party, its
successors and assigns, harmless from any loss, damage, claims, costs,
liabilities or cleanup costs arising out of Lessor's or Lessee's, as the case
may be, use, handling, storage or disposal of any such hazardous or toxic wastes
or substances at the Project.
(j) Lessee is prohibited from recording this Lease or any memorandum
thereof without the prior written consent of Lessor.
(k) Lessor agrees to provide Lessee with n/a parking spaces per 1,000
square feet of space within the Leased Premises at no additional charge. Lessee
agrees to notify Lessor promptly of any additional parking needs which shall be
handled on a case-by-case basis.
(1) "Square feet" or "square foot" as used in this Lease includes the
area contained within the space occupied by Lessee together with a common area
percentage factor of Lessee's space proportionate to the total Building area.
(m) Lessor and Lessee each hereby represent and warrant to the other
that they have not employed any other agents, brokers or other parties in
connection with this Lease, and each agrees that it shall hold the other
harmless from and against any and all claims of all other agents, brokers or
other parties claiming by, through or under the respective indemnifying party.
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ARTICLE 12
ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
12.01 ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES. LESSEE AGREES THIS
LEASE AND THE EXHIBITS ATTACHED HERETO CONSTITUTE THE ENTIRE AGREEMENT OF THE
PARTIES AND ALL PRIOR CORRESPONDENCE, MEMORANDA AGREEMENTS AND UNDERSTANDINGS
(WRITTEN AND ORAL) ARE MERGED INTO AND SUPERSEDED BY THIS LEASE, AND THERE ARE
AND WERE NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS,
AGREEMENTS OR PROMISES MADE BY LESSOR IN CONNECTION WITH THIS LEASE. LESSEE
FURTHER AGREES THAT THERE ARE NO, AND LESSEE EXPRESSLY WAIVES ANY AND ALL
WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS LEASE OR
IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as of
the date aforesaid.
Forty-Four Hundred F-N Associates (seal)
By: _________________________(SEAL)
Name: _________________________
Title: _________________________(SEAL)
Dixon Odom and Company
By: _________________________(SEAL)
Name: _________________________
Title: _________________________
LESSEE
Medical Records Corporation (SEAL)
By: _________________________(SEAL)
Name: _________________________
Title: _________________________
Attest: (Corporate Seal)
By: ____________________
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EXHIBIT A-1
[FLOOR PLAN(S)]
MEDICAL RECORDS
4400 FALLS OF NEUSE
SUITE 210
Improvements by Lessor pursuant to Plan
1. Install building standard carpet
2. Repaint painted walls with building standard paint
3. Install VCT In break room
4. Make wall modifications per plan Exhibit A-1
5. Provide separate HVAC controls to control suite
6. No additional electrical requirements
[Diagram of break room attached]
2,199 usable square feet
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EXHIBIT A-2
[DESCRIPTION OF THE LAND AND THE BUILDING
AND ANY LARGER COMPLEX OF WHICH THE BUILDING IS A PART]
BEGINNING at an existing iron pipe in the western property line of Old Wake
Forest Road, corner for property now or formerly owned by Rabil, Fleming,
Hunter; thence along the western property line or Old Wake Forest Road, South 28
degrees 04' 07" West 169.50 feet to a stake in the northern property line for
the sight-distance line between Old Wake Forest Road and Falls of the Neuse
Road; thence along said sight-distance line, South 72 degrees, 28' 04" West
134.44 feet to a stake, cornering; thence continuing along said sight-distance
line North 58 degrees 54' 30" West 47.16 feet to a stake in the eastern property
line of Falls of Neuse Road thence along the eastern property line of said Fall
of Neuse Road, said property line being the arc of a curve having a chord
bearing of North 17 degrees 08' 12" West a chord distance of 280.41 feet, a
radius of 1086.74 feet and an arc distance of 2381.19 feet to a stake in the
line of property now or formerly owned by Rabil, Fleming, Hunter; thence along
said line, south 72 degrees 49' 53" East 346.39 feet to a stake in the western
property line of Old Wake Forest Road, the point of beginning, being the
property shown on survey map entitled Property of Forty-Four Hundred F-N
Associates, a partnership - as built survey," prepared by Castleberry-Edgerton
Co. dated August 22, 1986.
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EXHIBIT B
ACCEPTANCE OF LEASED PREMISES MEMORANDUM
Lessor and Lessee hereby agree that:
1. Except for those items shown on the attached "punch list", which
Lessor shall use reasonable efforts to remedy within _____ (___)
days after the date hereof, Lessor has fully completed the
construction work required of Lessor under the terms of the Lease.
2. The Leased Premises are tenantable, Lessor has no further obligation
for construction (except as specified above), Lessee acknowledges
that the Leased Premises are satisfactory in all respects.
3. The Commencement Date of the Lease is hereby agreed to be
__________, 19__.
4. The Expiration Date of the Lease is hereby agreed to be ___________,
19__.
All other terms and conditions of the Lease are hereby ratified and
acknowledged to be unchanged.
Agreed and Executed this ___ day of ___________, 19__.
Forty-Four Hundred F-N Associates (seal)
By: _________________________(SEAL)
Name: _________________________
Title: _________________________
Dixon Odom and Company
By: _________________________(SEAL)
Name: _________________________
Title: _________________________
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LESSEE
Medical Records Corporations (SEAL)
By: _________________________(SEAL)
Name: _________________________
Title: _________________________
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EXHIBIT C
PRICING PLAN
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EXHIBIT D
BUILDING RULES
(1) The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators shall not be obstructed or used by Lessee,
or the employees, agents, servants, visitors or licensees of Lessee, for any
purpose other than ingress and egress to and from the Leased Premises. No
bicycle or motorcycle shall be brought into the Building or kept on the Leased
Premises without the prior written consent of Lessor.
(2) No freight, furniture or bulky matter of any description shall be
received into the Building or carried into the elevators except in such a
manner, during such hours and using such elevators and passageways as may be
approved by Lessor, and then only upon having been scheduled in advance. Any
hand trucks, carryalls or similar appliances used for the delivery or receipt of
merchandise or equipment shall be equipped with rubber tires, side guards and
such other safeguards as Lessor shall require.
(3) Lessor shall have the right to prescribe the weight, position and
manner of installation of safes, concentrated filing/storage systems or other
heavy equipment which shall, if considered necessary by Lessor, be installed in
a manner which shall insure satisfactory weight distribution. All damage done to
the Building by reason of a safe or any other article of Lessee's office
equipment being on the Leased Premises shall be repaired at the expense of
Lessee. The time, routing and manner of moving safes or other heavy equipment
shall be subject to prior written approval by Lessor.
(4) Only persons authorized by Lessor shall be permitted to furnish
newspaper, ice, drinking water, towels, barbering, shoe shining, janitorial
services, floor polishing and other similar services and concessions to Lessee,
and only at hours and under regulations fixed by Lessor. Lessee shall use no
other method of heating or cooling than that supplied by Lessor.
(5) Lessee, and the employees, agents, servants, visitors or licensees of
Lessee, shall not at any time place, leave or discard any rubbish, paper,
articles or objects of any kind whatsoever outside the doors of the Leased
Premises or in the corridors or passageways of the Building. No animals, except
for dogs trained to assist disabled persons, shall be brought or kept in or
about the Leased Premises or the Building without the prior written consent of
Lessor.
(6) Lessor shall have the right to prohibit any advertising by Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability for offices, and, upon written notice from Lessor, Lessee shall
refrain from or discontinue such advertising. Lessor shall have the right to use
Lessee's name in advertising announcements.
(7) Lessee shall not place, or cause or allow to be placed, any sign or
lettering whatsoever, in or about the Leased Premises except in and at such
places as may be designated by Lessor and consented to by Lessor in writing. All
lettering and graphics on corridor doors and walls shall conform to the Building
standard prescribed by Lessor. No trademark shall be
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displayed on corridor doors and walls in any event, except on any floor fully
leased by Lessee. Lessee may display trademarks on interior walls and doors of
the Leased Premises. Lessor shall provide and maintain an alphabetical directory
board in the ground floor lobby of the Building.
(8) Canvassing, soliciting or peddling in the Building is prohibited and
Lessee shall cooperate to prevent same.
(9) Lessor shall have the right to exclude any person from the Building
other than during customary business hours, and any person in the Building shall
be subject to identification by employees and agents of Lessor. All persons in
or entering the Building shall be required to comply with the security policies
of the Building. If Lessee desires any additional security services for the
Leased Premises, Lessee shall have the right (only with the advance written
consent of Lessor) to obtain such additional services at Lessee's sole cost and
expense. Lessee shall keep doors to unattended areas locked and shall otherwise
exercise reasonable precautions to protect property from theft, loss, or damage.
Lessor shall not be responsible for the theft, loss or damage of any property.
(10) Only workmen employed, designated or approved by Lessor may be
employed for repairs, installations, alterations, painting, material moving and
other similar work that may be done in or on the Leased Premises.
(11) Lessee shall not do any cooking or conduct any restaurant,
luncheonette, automat or cafeteria for the sale or service of food or beverages
to its employees or to others, nor shall Lessee provide any vending machines
without the prior written consent of Lessor. Lessee may, however, operate coffee
bars by and for its employees and invites.
(12) Lessee shall not bring or permit to be brought or kept in or on the
Leased Premises any inflammable, combustible, corrosive, caustic, poisonous,
toxic or explosive substance or any substance deemed to be a hazardous substance
under applicable environmental laws, or cause or permit any odors to permeate or
emanate from the Leased Premises.
(13) Lessee shall not mark, paint, drill into or in any way deface any
part of the Building or the Leased Premises. No boring, driving of nails or
screws, cutting or stringing of wires shall be permitted, except with the prior
written consent of Lessor, and as Lessor may direct. Lessee shall not install
coat hooks or identification plates on doors nor any resilient tile or similar
floor covering in the Leased Premises except with the prior written approval of
Lessor. The use of cement or other similar adhesive material is expressly
prohibited. Notwithstanding the foregoing, Lessee may make holes in the walls of
the Leased Premises so long as such holes are repaired prior to the expiration
of the Term.
(14) Lessee shall not place any additional locks or bolts of any kind on
any door in the Building or the Leased Premises or change or alter any lock on
any door therein in any respect. Lessor shall furnish two (2) keys for each lock
on exterior doors to the Leased Premises and shall, on Lessee's request and at
Lessee's expense, provide additional duplicate keys. Lessee shall not make any
duplicate keys. All keys shall be returned to Lessor upon the termination of the
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Lease, and Lessee shall give to Lessor the explanation of the combination of all
safes, vaults and combination locks in the Leased Premises. Lessor may at all
times keep a pass key to the Leased Premises. An entrance doors to the Leased
Premises shall be left locked when the Leased Premises are not in use.
(15) Lessee shall give immediate notice to Lessor in case of theft,
unauthorized solicitation or accident in the Leased Premises or in the Building
or of defects therein or in any fixtures or equipment, or of any known emergency
in the Building.
(16) Lessee shall place a water-proof tray under all plants in the Leased
Premises and shall be responsible for any damage to the floors and/or carpets
caused by over-watering such plants.
(17) Lessee shall not use the Leased Premises or permit the Leased
Premises to be used for photographic, multilith or multigraph reproductions,
except in connection with its own business and not as a service for others,
without Lessor's prior written permission.
(18) Lessee shall not use or permit any portion of the Leased Premises to
be used as an office for a public stenographer or typist, offset printing, the
sale of liquor or tobacco, a barber or manicure shop, an employment bureau, a
labor union office, a doctor's or dentist's office, a dance or music studio, any
type of school, or for any use other than those specifically granted in this
Lease.
(19) Lessee shall not advertise for laborers giving the Leased Premises as
an address, nor pay such laborers at a location in the Leased Premises.
(20) Employees of Lessor shall not perform any work or do anything outside
of their regular duties, unless under special instructions from the management
office in the Building.
(21) Lessee shall not place a load upon any floor of the Leased Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Business machines and mechanical and electrical
equipment belonging to Lessee which cause noise, vibration, electrical or
magnetic interference, or any other nuisance that may be transmitted to the
structure or other portions of the Building or to the Leased Premises to such a
degree as to be objectionable to Lessor or which interfere with the use or
enjoyment by other tenants of their leased premises or the public portions of
the Building, shall be placed and maintained by Lessee, at Lessee's expense, in
settings of cork, rubber, spring type or other vibration eliminators sufficient
to eliminate noise or vibration.
(22) Lessee shall furnish and install a chair mat for each desk chair in
the Leased Premises.
(23) No solar screen materials, awnings, draperies, shutters or other
interior or exterior window coverings that are visible from the exterior of the
Building or from the exterior of the Leased Premises within the Building may be
installed by Lessee.
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(24) Lessee shall not place, install or operate within the Leased Premises
or any other part of the Building any engine, stove or machinery, or conduct
mechanical operations therein, without the written consent of Lessor.
(25) No portion of the Leased Premises or any other part of the Building
shall at any time be used or occupied as sleeping or lodging quarters.
(26) For purposes of the Lease, holidays shall be deemed to mean and
include the following: (a) New Year's Day; (b) Good Friday; (c) Memorial Day,
(d) Independence Day; (e) Labor Day; (f) Thanksgiving Day and the Friday
following; (g) Christmas Day; and (h) any other holidays taken by tenants
occupying at least one-half (1/2) of the Square Footage of office space in the
Building.
(27) Lessee shall at all times keep the Leased Premises neat and orderly.
(28) Intentionally Deleted.
(29) Lessor reserves the right to rescind, add to and amend any rules or
regulations, to add new rules or regulations, and to waive any rules or
regulations with respect to any tenant or tenants.
(30) Corridor doors, when not in use, shall be kept closed.
(31) All permitted alterations and additions to the Leased Premises must
conform to applicable building and fire codes. Lessee shall obtain approval from
the office of the Building with respect to any such modifications and shall
deliver as-built plans therefor to the office of the Building on completion.
(32) It is the intent of both Lessor and Lessee that any portion of the
Leased Premises visible to the public hold a high quality professional image at
all times. If, at any time during the Term, Lessor or Lessor's agent deems such
visible area to hold less than a high quality professional image, Lessor will
advise Lessee of desired changes to be made to such area to conform to the
intent of this paragraph. Within three working days, Lessee will cause the
desired changes to be made, or present Lessor with a plan for accomplishing such
changes. Lessee shall have such additional time as is reasonably required to
implement the plan, not to exceed 2 months; provided, however, that if Lessee is
not diligently pursuing the plan for accomplishing such changes within ten
working days, Lessor will provide draperies or blinds for the glassed area at
Lessee's expense; Lessee will keep such draperies or blinds closed at all times.
(33) The Building has been designated a "non-smoking" building. Lessee and
its employees, agents, servants, visitors and licensees are prohibited from
smoking in the common areas both inside and outside of the Building. Lessee may
designate the Leased Premises a "non-smoking" area, upon such terms as may be
approved in advance by Lessor at any time during the Term.
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(34) Lessee shall not play nor permit the playing of loud music in the
Leased Premises or common areas.
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EXHIBIT E
FORM OF ESTOPPEL CERTIFICATE
The undersigned _______________________________ "Lessee", in consideration
of One Dollar ($1.00) and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, hereby certifies to
__________________________ ("Lessor"), [the holder or prospective holder of any
mortgage covering the property (the "Mortgagee") and the vendee under any
contract of sale with respect to the Property] (the "Purchaser") as follows:
1. Lessee and Lessor executed a certain Lease Agreement (the "Lease"),
dated ____________, 19__ covering the floor(s) shown attached on the plan
annexed hereto as Exhibit A-1 (the "Leased Premises") in the building located in
the known as and by the street number the "Building"), for a term commencing on
__________19__ , and expiring on _________________.
2. The Lease is in full force and effect and has not been modified,
changed, altered or amended in any respect.
3. Lessee has accepted and is now in possession of the Leased Premises and
is paying the full Rent under the Lease.
4. The Base Rent payable under the Lease is $______________ per month. The
Base Rent and all Additional Rent and other charges required to be paid under
the Lease have been paid for the period up to and including ______________.
5. No Rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
6. All work required under the Lease to be performed by Lessor has been
completed to the full satisfaction of Lessee.
7. There are no defaults existing under the Lease on the part of either
Lessor or Lessee.
8. There is no existing basis for Lessee to cancel or terminate the Lease.
9. As of the date hereof, there exist no valid defenses, offsets, credits,
deductions in rent or claims against the enforcement of any of the agreements,
terms, covenants or conditions of the Lease.
10. Lessee affirms that any dispute with Lessor giving rise to a claim
against Lessor is a claim under the Lease only and is subordinate to the rights
of the holder of all first lien mortgages on the Building and shall be subject
to all the terms, conditions and provisions thereof. Any such claims are not
offsets to or defenses against enforcement of the Lease.
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11. Lessee affirms that any dispute with Lessor giving rise to a claim
against Lessor is a claim under the Lease only and is subordinate to the rights
of the Purchaser pursuant to any contract of sale. Any such claims are not
offsets to or defenses against enforcement of the Lease.
12. Lessee affirms that any claims pertaining to matters in existence at
the time Lessee took possession and which are known to or which were then
readily ascertainable by Lessee shall be enforced solely by money judgment
and/or specific performance against the Lessor named in the Lease and may not be
enforced as an offset to or defense against enforcement of the Lease.
13. There are no actions, whether voluntary or otherwise, pending against
or contemplated by Lessee under the bankruptcy laws of the United States or any
state thereof.
14. There has been no material adverse change in Lessee's financial
condition between the date hereof and the date of the execution and delivery of
the Lease.
15. Lessee acknowledges that Lessor has informed Lessee that an assignment
of Lessor's interest in the Lease has been or will be made to the Mortgagee and
that no modification, revision, or cancellation of the Lease or amendments
thereto shall be effective unless a written consent thereto of the Mortgagee is
first obtained, and that until further notice payments under the Lease may
continue as heretofore.
16. Lessee acknowledges that Lessor has informed Lessee that Lessor has
entered into a contract to sell the Property to Purchaser and that no
modification, revision or cancellation of the Lease or amendments thereto shall
be effective unless a written consent thereto of the Purchaser has been
obtained.
17. This certification is made to induce Purchaser to consummate a
purchase of the Property and to induce Mortgagee to make and maintain a mortgage
loan secured by the Property and/or to disburse additional funds to Lessor under
the terms of its agreement with Lessor, knowing that said Purchaser and
Mortgagee rely upon the truth of this certificate in making and/or maintaining
such purchase or mortgage or disbursing such funds, as applicable.
18. Except as modified herein, all other provisions of the Lease are
hereby ratified and confirmed.
LESSEE:
Medical Records Corporation(SEAL)
By: __________________________(SEAL)
Name: __________________________
Title: __________________________
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Date: __________________________
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EXHIBIT B TO AGREEMENT OF SUBLEASE
SUBLEASED PREMISES
43
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into on this __
day of ____________1997, by and between Forty-Four Hundred F-N Associates, a
North Carolina general partnership, and Dixon-Odom a North Carolina corporation,
as joint tenants-in-common ("Lessor"), and Capital Bank, a North Carolina
corporation "Lessee"). On the terms and conditions set forth below.
ARTICLE I - LEASED PREMISES
1.01 LEASED PREMISES.
Lessor leases to Lessee and Lessee leases from Lessor the space (the
"Leased Premises") set forth in Subsections (a) and (b) of the Basic Lease
Provisions below and shown on the floor plan(s) attached hereto as Exhibit A-1
upon the terms and conditions set forth in this Lease. The office building in
which the Leased Premises are located, the land on which the office building is
located (described on Exhibit A-2 attached hereto), the parking facilities and
all improvements and appurtenances to the building, are collectively referred to
as the "Building". The Building and any larger complex of which the Building is
a part are collectively referred to as the "Project".
ARTICLE 2 - BASIC LEASE PROVISIONS
2.01 BASIC LEASE PROVISIONS.
The following provisions set forth various basic terms of this Lease and
are sometimes referred to as the "Basic Lease Provisions".
(a) Building Name: Dixon-Odom Building
Address: 4400 Falls of the Neuse
Raleigh, North Carolina 27609
(b) Floor(s) First
Suite #: 101
Square Feet Area: 668
(c) Total Area of Building: 12,897
(d) Rent: See schedule below:
<TABLE>
<CAPTION>
<S> <C>
DATE (S) RATE PER SQ. FT. SQ. FT. ANNUAL BASE RENT MONTHLY BASE RENT
- ------------------- ---------------- ------- ---------------- -----------------
9/1/97 to 11/30/97 $15.50 668 $10,353.96 $862.83
12/1/97 to 12/31/97 $15.50 1,302 $20,181.00 $1,681.75
1/1/98 to 12/31/98 $16.00 1,302 $20,832.00 $1,736.00
1/1/99 to 12/31/99 $16.50 1,302 $21,483.00 $1,790.25
1/1/00 to 12/31/00 $17.00 1,302 $22,134.00 $1,844.50
<PAGE>
(e) Base Operating Expense Factor: $5.40
(f) Parking: 3.5 spaces per 1,000 square feet of space
Monthly Rent per Parking Space: N/A
(g) Term: 3 Year(s) 4 Month(s) 0 Day(s)
(h) Target Commencement Date: September 1, 1997
Target Expiration Date: December 31, 2000
(See Exhibit B for confirmation of the actual Commencement Date and Expiration
Date of this Lease.)
(i) Intentionally Deleted.
(j) Permitted Use: General office including bank office
(k) Addresses for notices and other communications under this Lease:
Lessor Lessee
------ ------
Forty-Four Hundred F-N Associates Capital Bank
c/o Mr. C. Gilbert Smith 4400 Falls of the Neuse, Suite 101
Thomas, Judy & Tucker Raleigh, North Carolina 27609
16 E. Rowan Street, Suite 100 Attn: James Beck
Raleigh, North Carolina 27609
with a copy to: with a copy to:
Mr. Bobby Rice Mr. Stephen Parascandola
Dixon-Odom & Company Smith, Anderson, Blount, Dorsett,
4400 Falls of the Neuse Road, #200 Mitchell & Jernigan, LLP
Raleigh, North Carolina 27609 P.O. Box 2611
Raleigh, North Carolina 27602-2611
(l) Broker(s): Capital Associates and Thomas
Commercial Inc.
</TABLE>
ARTICLE 3 - TERM AND POSSESSION
3.01 TERM.
Subject to the conditions set forth below, this Lease shall be and
continue in full force and effect for the term set forth in Subsection 2.01(g).
Subject to the remaining provisions of this Article, the Term shall commence on
the Target Commencement Date shown in Subsection 2.01(h) and shall expire,
without notice to Lessee, on the Target Expiration Date shown in Subsection
2.01(h); provided, however, that if the Commencement Date is other than the
first (1st) day of the month, the Expiration Date shall nevertheless be the last
day of the last month of the Term. Such term, as it may be modified, renewed and
extended, is herein called the "Term".
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3.02 COMMENCEMENT.
Lessee hereby acknowledges that the Leased Premises are currently being
leased by another tenant whose lease expires on November 30, 2000. Lessor has
been advised by such tenant that it is diligently seeking another location for
its offices. Lessee and Lessor hereby agree that this Lease shall be subject to
the execution of a Lease Termination Agreement (the "Termination Agreement") by
and between Lessor and Protective Agency, Inc. ("Protective Agency") pursuant to
which Protective Agency shall terminate its lease on or before August 31, 1997.
If Protective Agency does not vacate the Leased Premises on or before 11:58 p.m.
on August 31, 1997, then Lessee shall have the right to terminate this Lease
effective as of 11:59 p.m. on August 31, 1997 (the "Termination Date") and this
Lease shall thereafter be of no force or effect. After such termination, Lessee
shall have no, and waives any, claims against Lessor because of or arising out
of this Lease. If Protective Agency vacates the Leased Premises prior to the
Target Commencement Date, then Lessor shall notify Lessee that the Leased
Premises have been vacated and Lessee shall promptly take occupancy thereof in
accordance with the terms of Section 3.04. Lessor and Lessee hereby agree that
each of the Target Commencement Date and the Termination Date may be extended
upon mutual written agreement by Lessor and Lessee (the date to which the
Termination Date is extended shall be deemed the "Extended Termination Date").
If Lessor and Lessee extend the Termination Date the date on which Protective
Agency shall be required to vacate the Leased Premises shall also be extended
until the day before the Extended Termination Date.
3.03 LESSEE'S DELAY.
No delay in the completion of the Leased Premises directly resulting from
delay or failure on the part of Lessee in furnishing information or other
matters required in this Lease, and no delay resulting from the completion of
work, if any, that is to be performed at Lessee's expense pursuant to this
Lease, shall delay the Commencement Date, Expiration Date or commencement of
payment of Rent (as defined in Subsection 4.02 below).
3.04 LESSEE'S POSSESSION.
If, prior to the Commencement Date, Lessee shall enter into possession of
all or any part of the Leased Premises, the Term, the payment of proportionate
monthly installments of Base Rent and all other obligations of Lessee to be
performed during the Term shall commence on, and the Commencement Date shall be
deemed to be, the date of such entry; provided, no such early entry shall
operate to change the Expiration Date.
3.05 CONFIRMATION OF DATES.
The actual commencement date ("Commencement Date") and actual expiration
date ("Expiration Date") shall be confirmed by the parties by execution of the
Acceptance of Leased Premises Memorandum attached hereto as EXHIBIT B. If Lessee
fails in bad faith to execute the Memorandum, the Commencement Date and
Expiration Date shall be conclusively deemed to be the Target Commencement Date
and the Target Expiration Date set forth in Subsection 2.01 (h).
3.06 HOLDOVER.
If Lessee shall remain in possession of the Leased Premises after the
expiration or earlier termination of this Lease, Lessee shall be deemed a
tenant-at-sufferance, terminable at any time
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on one (1) day's notice, and shall pay daily rent at double the per day Rent
payable with respect to the last full calendar month immediately prior to the
end of the Term or termination of this Lease, but otherwise shall be subject to
all of the obligations of Lessee under this Lease. Additionally, Lessee shall
pay to Lessor all damages (including consequential damages) sustained by Lessor
as a result of the holding over by Lessee.
ARTICLE 4 - RENT AND SECURITY DEPOSIT
4.01 BASE RENT.
Lessee agrees to pay to Lessor rent ("Base Rent") throughout the Term in
the amount of the Annual Base Rent set forth in Subsection 2.01(d), subject to
adjustment as provided in this Lease. Base Rent shall be payable in monthly
installments in the amount set forth in Subsection 2.01(d) ("Monthly Base Rent")
in advance and without demand, on the first day of each calendar month during
the Term. If the Commencement Date is not the first day of a month, Lessee shall
be required to pay on the Commencement Date a pro rata portion of the Monthly
Base Rent for the first partial month of the Term.
4.02 PAYMENT OF RENT.
As used in this Lease, "Rent" shall mean the Base Rent. Additional Rent
(defined below) and all other amounts required to be paid by Lessee in this
Lease. The Rent shall be paid at the times and in the amounts provided herein in
legal tender of the United States of America to Lessor at its address specified
in Subsection 2.01(k) above, or to such other person or at such other address as
Lessor may from time to time designate in writing. The Rent shall be paid
without notice, demand, abatement, deduction or offset except as may be
expressly permitted under applicable law or as set forth in this Lease.
4.03 ADDITIONAL RENT.
The term "Additional Rent" shall mean the "Operating Expense Adjustment"
as that term is defined below.
4.04 OPERATING EXPENSE ADJUSTMENT.
If the Operating Expenses (defined below) for the Building for any
calendar year, expressed on a per square foot basis, exceed the Base Operating
Expense Factor specified in Subsection 2.01(e), Lessee shall pay to Lessor
increased Rent (an "Operating, Expense Adjustment") in an amount equal to the
product of such excess times the square feet of the Leased Premises as stated
if) Subsection 2.01(b). The Operating Expense Adjustment shall be payable in
monthly installments on the first day of each calendar month based on Lessor's
reasonable estimate of the Operating Expenses for the then current year. Lessor
may at any time give Lessee written notice specifying Lessor's estimate of the
Operating Expenses for the then current calendar year or the subsequent calendar
year and specifying the Operating Expense Adjustment to be paid by Lessee for
each such year. Within one hundred twenty (120) days after the end of each
calendar year, Lessor shall give written notice to Lessee specifying the actual
Operating Expenses for the prior calendar year and any necessary adjustment to
the Operating Expense Adjustment paid by Lessee for that calendar year. Lessee
shall pay any deficit amount to Lessor within fifteen (15) days after receipt of
Lessor's written notice. Any excess payment by Lessee for the prior calendar
year shall reduce the Operating Expense Adjustment for the
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<PAGE>
following calendar year. The provisions of this paragraph shall survive the
cancellation or termination of this Lease.
The term "Operating Expenses" shall mean, except as otherwise specified in
this definition, all expenses, costs, and disbursements of every kind and
nature, computed on an accrual basis, which Lessor shall pay or become obligated
to pay because of or in connection with the ownership and operation of the
Building, including, without limitation: (1) wages and salaries of all employees
to an extent commensurate with such employees' involvement in the operation,
repair, replacement, maintenance, and security of the Building, including,
without limitation, amounts attributable to the employer's Social Security Tax,
unemployment taxes, and insurance, and any other amount which may be levied on
such wages and salaries, and the cost of all insurance and other employee
benefits related thereto; (2) all supplies and materials used in the operation,
maintenance, repair, replacement and security of the Building; (3) the rental
costs of any and all leased capital improvements and the annual costs of any and
all capital improvements made to the Building which, although capital in nature,
can reasonably be expected to reduce the normal operating costs of the Building,
to the extent of the lesser of such expected reduction in operating expenses or
the annual cost of such capital improvements, as well as all capital
improvements made in order to comply with any legal requirement hereafter
promulgated by any governmental authority relating to the environment, energy,
conservation, public safety, access for the disabled or security, as amortized
over the useful life of such improvements by Lessor for federal income tax
purposes; (4) the cost of all utilities, other than the cost of electricity
supplied to tenants of the Building which is separately metered and reimbursed
to Lessor by such tenants; (5) the cost of all maintenance and service
agreements with respect to the operation of the Building or any part thereof,
including, without limitation, alarm service, equipment, window cleaning,
elevator maintenance, landscape maintenance, and parking area maintenance and
operation; (6) the cost of all insurance relating to the Building, including,
without limitation, casualty and liability insurance applicable to the Building
and Lessor's personal property used in connection therewith; (7) all taxes and
assessments and governmental charges, whether federal, state, county, or
municipal, and whether by taxing districts or authorities presently taxing or by
others, subsequently created or otherwise, including all taxes levied or
assessed against or for leasehold improvements and any other taxes and
assessments attributable to the Building and/or the operation thereof,
excluding, however, federal and state taxes oil Lessor's income, but including
all rental, sales, use and occupancy taxes or other similar taxes, if any,
levied or imposed by any city, state, county, or other governmental body having
jurisdiction; and (8) the cost of all repairs, replacements, removals and
general maintenance with respect to the Building. Specifically excluded from
Operating Expenses are expenses for capital improvements made to the Building,
other than capital improvements described in clause (3) of this definition and
except for items which, though capital for accounting purposes, are properly
considered maintenance and repair items, such as painting of common areas,
replacement of carpet in elevator lobbies and like items; expenses for repair,
replacement and general maintenance paid by proceeds of insurance or by Lessee
or other third parties; alterations attributable solely to tenants of the
Building other than Lessee; depreciation of the Building; leasing commissions;
and federal and state income taxes imposed on Lessor.
Lessee shall have the right, upon written notice to Lessor, to have
Lessor's books and records relating solely to Operating Expenses audited by a
qualified accounting professional
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selected by Lessee. If Lessor's calculation of Operating Expenses fails to
comply with the requirements of this Section 4.04 or contains any other error,
as determined by the audit, Lessee's past payments of its proportionate share of
Operating Expenses shall be adjusted in accordance with the results of the
audit, and appropriate payments shall be made by Lessor or Lessee, as the case
may be, within forty-five (45) days after completion of the audit. All books and
records necessary to accomplish any audit permitted under this Section shall be
retained by Lessor for a period of one (1) year, and shall be made available to
the person conducting the audit at the Building or Project during normal
business hours. All costs of the audit shall be paid by Lessee unless the audit
reveals that total Operating Expenses were overstated by ten percent (10%) or
more in the calendar year audited, in which case Lessor shall reimburse Lessee
for all costs of the audit. Lessor's and Lessee's rights under this Section 4.04
shall survive the expiration or earlier termination of this Lease.
4.05 INTENTIONALLY DELETED.
4.06 INTENTIONALLY DELETED.
4.07 LATE CHARGE.
If Lessee fails or refuses to pay any installment of Rent when due,
Lessor, at Lessor's option, shall be entitled to collect a late charge of five
percent (5%) of the amount of the late payment to compensate Lessor for the
additional expense involved in handling delinquent payments and not as interest;
provided, however, that Lessee shall be entitled to one (1) late payment of Rent
in each calendar year of the Term, which late payment shall not be subject to a
late charge hereunder so long as the Rent then due is paid within five (5) days
of the due date. If the payment of a late charge required by this Section is
found to constitute interest notwithstanding the contrary intention of Lessor
and Lessee, the late charge shall be limited to the maximum amount of interest
that lawfully may be collected by Lessor under applicable law, and if any
payment is determined to exceed such lawful amount, the excess shall be applied
to any unpaid Rent then due and payable hereunder and/or credited against the
next succeeding installment of Rent payable hereunder. If all Rent payable
hereunder has been paid in full, any excess shall be refunded to Lessee. Lessee
shall reimburse Lessor for any processing fees charged to Lessor as a result of
Lessee's checks having been returned for insufficient funds.
ARTICLE 5 - SERVICES
5.01 SERVICES.
Lessor shall furnish Lessee while occupying the Leased Premises:
(a) Subject to curtailment as required by governmental laws, rules or
regulations, central heat and air conditioning in season, at such times as
Lessor normally furnishes these services to other tenants in the Building and at
such temperatures and in such amounts as are considered by Lessor to be
standard, but such service on Saturday afternoons, Sundays and holidays to be
furnished only upon request of Lessee, who shall bear the entire cost thereof as
provided in EXHIBIT F attached hereto; elevator service; and routine maintenance
and electric lighting service for all public areas and special service areas of
the Building in the manner and to the extent reasonably deemed by Lessor to be
standard. Lessor will furnish janitor service on a
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five (5) day week basis at no extra charge. Failure by Lessor to any extent to
furnish these services, or any cessation thereof, resulting from causes beyond
the control of Lessor shall not render Lessor liable in any respect for damages
to either person or property, nor be construed as an eviction of Lessee, nor
work an abatement of rent, nor relieve Lessee from its obligation to fulfill any
covenant or agreement hereof. Should any of Lessor's equipment or machinery
break down, or for any cause cease to function properly, Lessor shall use
reasonable diligence during normal business hours to repair same promptly, but
Lessee shall have no claim for rebate of rent or damages on account of any
interruptions in service occasioned thereby or resulting therefrom.
(b) Proper electrical facilities to furnish sufficient power for
typewriters, voice writers, calculating machines and other machines of similar
low electrical consumption, but not including electricity required for
electronic data processing equipment which (singly) consumes more than 0.25
kilowatts per hour at a rated capacity or requires a voltage other than 120
volts single phase. Lessee shall pay to Lessor, monthly as billed, such charges
as may be separately metered or as Lessor's engineer shall reasonably compute
for any electrical service usage in excess of that stated above. If Lessee uses
any heat generating machines, equipment, fixtures or other devices of any nature
whatsoever in the Leased Premises which affect the temperature otherwise
maintained by the Building standard air conditioning, Lessee shall pay the
additional cost necessitated by Lessee's use of such machines, equipment,
fixtures or other devices, including the cost of installation of any necessary
additional air conditioning equipment and the cost of operation and maintenance
thereof.
ARTICLE 6 - USE AND OCCUPANCY
6.01 USE.
The Leased Premises are to be used and occupied by Lessee (and its
permitted assignees, subtenants, invitees, customers, and guests) solely for the
purpose specified in Subsection 2.01(j) with no more than one (1) person per two
hundred fifty (250) square feet of space; provided, however, that Lessee may
change such purpose upon Lessor's prior written agreement, which agreement shall
not be unreasonably withheld. Lessee agrees not to occupy or use, or permit any
portion of the Leased Premises to be occupied or used for any business or
purpose which is unlawful, disreputable or deemed to be extra-hazardous on
account of fire or exposure to or interference from electromagnetic rays and/or
fields, or permit anything to be done which would in any way increase the rate
of fire insurance coverage on the Building and/or its contents. Lessee further
agrees to conduct its business and control its agents, employees, invitees and
visitors in such manner as not to create any nuisance, or interfere with, annoy
or disturb any other tenant or Lessor in its operation of the Building.
6.02 CARE OF THE LEASED PREMISES.
Lessee shall not commit or allow to be committed any waste or damage to
any portion of the Leased Premises or the Building and, at the termination of
this Lease, by lapse of time or otherwise, Lessee shall deliver up the Leased
Premises to Lessor in as a good condition as existed on the date of possession
by Lessee, ordinary wear and tear excepted. Upon such termination of this Lease,
Lessor shall have the right to re-enter and resume possession of the Leased
Premises.
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6.03 ENTRY FOR REPAIRS AND INSPECTION.
Lessee shall, upon reasonable notice by Lessor, except in the case of an
emergency permit Lessor and its contractors, agents and representatives to enter
into and upon any part of the Leased Premises during reasonable business hours
to inspect and clean the same, make repairs, alterations and additions thereto,
show the same to prospective tenants or purchasers, and for any other purpose as
Lessor may reasonably deem necessary. Lessee shall not be entitled to any
abatement or reduction of Rent by reason of any such entry. In an emergency,
Lessor shall be permitted to enter into any part of the Leased Premises at any
time.
6.04 COMPLIANCE WITH LAWS; RULES OF BUILDING.
Lessee shall comply with and Lessee shall cause its visitors, employees,
contractors, agents and invitees to comply with, all laws, ordinances, orders,
rules and regulations (state, federal, municipal and other agencies or bodies
having any jurisdiction thereof) relating to the use, condition or occupancy of
the Leased Premises, including, without limitation, all local, state and federal
environmental laws, and the rules of the Building reasonably adopted and altered
by Lessor from time to time, all of which Building rules will be sent by Lessor
to Lessee in writing and shall thereafter be carried out and observed by Lessee,
its employees, contractors, agents, invitees and visitors. The initial rules of
the Building are attached hereto as EXHIBIT D.
6.05 ACCESS TO BUILDING.
Lessor shall have the right to limit access to the Building after normal
business hours; provided, Lessor shall have no responsibility to prevent, and
shall not be liable to Lessee for, and shall be indemnified by Lessee against,
liability and loss to Lessee, its agents, employees and visitors, arising out of
losses due to theft, burglary and damage and injury to persons and property
caused by persons gaining access to the Building or Leased Premises as a result
of Lessee's negligence, and Lessee waives and releases Lessor from all liability
relating thereto. Lessor expressly reserves the right, in its reasonable
discretion, to temporarily or permanently change the location of, close, block
and otherwise alter any entrances, corridors, skywalks, tunnels, doorways and
walkways leading to or providing access to the Building or any part thereof and
otherwise restrict the use of same provided such activities do not unreasonably
impair Lessee's access to the Leased Premises. Lessor shall not incur any
liability whatsoever to Lessee as a consequence thereof. Such activities shall
not be deemed to be a breach of any of Lessor's obligations hereunder. Lessor
agrees to exercise good faith in notifying Lessee a reasonable time in advance
of any alterations, modifications or other actions of Lessor under this Section.
6.06 PEACEFUL ENJOYMENT.
Lessor covenants that Lessee shall and may peacefully have, hold and enjoy
the Leased Premises, subject to the terms of this Lease, provided Lessee pays
the Rent and other sums required to be paid by Lessee and performs all of
Lessee's covenants and agreements herein contained. It is understood and agreed
that this covenant and any and all other covenants of Lessor contained in this
Lease shall be binding upon Lessor and its successors only with respect to
breaches occurring during its and their respective ownership of Lessor's
interest in the Building. Lessor shall not be responsible for the acts or
omissions of any other lessee or third party that may interfere with Lessee's
use and enjoyment of the Leased Premises; provided, however, that Lessor shall
use its best efforts to enforce the rules and regulations of the Building.
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ARTICLE 7 - ALTERATIONS AND REPAIRS
7.01 ALTERATIONS.
Lessee shall make no alterations, installations, additions or improvements
in, on or to the Leased Premises without Lessor's prior written consent, which
consent shall not be unreasonably withheld. All such work shall be designed and
made in a manner, and by architects, engineers, workmen and contractors,
satisfactory to Lessor. All alterations, installations, additions and
improvements (including, without limitation, paneling, partitions, millwork and
fixtures) made by or for Lessee to the Leased Premises shall remain upon and be
surrendered with the Leased Premises and become the property of Lessor at the
expiration or termination of this Lease or the termination of Lessee's right to
possession of the Leased Premises; provided, Lessor may require Lessee to remove
any or all of such items that are not Building standard upon the expiration or
termination of this Lease or the termination of Lessee's right to possession of
the Leased Premises in order to restore the Leased Premises to the condition
existing at the time Lessee took possession. Lessee shall bear the costs of
removal of Lessee's property from the Building and of all resulting repairs
thereto. All work performed by Lessee with respect to the Leased Premises shall:
(a) not alter the exterior appearance of the Building or adversely affect the
structure, safety, systems or services of the Building; (b) comply with all
Building safety, fire and other codes and governmental and insurance
requirements; (c) not result in any usage in excess of Building standard of
water, electricity, gas, heating, ventilating or air conditioning, (either
during or after such work) unless prior written arrangements satisfactory to
Lessor are entered into; (d) be completed promptly and in a good and workmanlike
manner; (e) be performed in such a manner that does not cause interference or
disharmony with any labor used by Lessor, Lessor's contractors or mechanics or
by any other tenant or such other tenant's contractors or mechanics; and (f) not
cause any mechanic's, materialman's or other similar liens to attach to Lessee's
leasehold estate. Lessee shall not permit, or be authorized to permit, any liens
(valid or alleged) or other claims to be asserted against Lessor or Lessor's
rights, estates and interests with respect to the Building or this Lease in
connection with any work done by or on behalf of Lessee, and Lessee shall
indemnify and hold Lessor harmless against any such liens.
7.02 REPAIRS BY LESSOR.
Lessee agrees to accept the Leased Premises "AS IS", "WHERE IS" and "WITH
ALL FAULTS", and has had an opportunity to inspect and satisfy itself as to the
condition of the Leased Premises. Unless otherwise expressly stipulated herein,
Lessor shall not be required to make any improvements or repairs of any kind or
character to the Leased Premises during the Term except such repairs to Building
standard improvements as may be deemed necessary by Lessor for normal
maintenance operations. Non-Building standard leasehold improvements will, at
Lessee's written request, be maintained by Lessor at Lessee's expense, at a cost
or charge equal to the costs incurred in such maintenance plus an additional
charge of fifteen percent (15%). Notwithstanding any provisions of this Lease to
the contrary, all repairs, alterations or additions to the base Building and its
systems (as opposed to those involving only Lessee's leasehold improvements),
and all repairs, alterations and additions to Lessee's non-Building standard
leasehold improvements which affect the Building's structural components or
major mechanical, electrical or plumbing systems, made by, for or on behalf of
Lessee and any other tenants in the Building shall be made by Lessor or its
contractor only, and, if on behalf of Lessee, shall be paid
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for by Lessee in an amount equal to Lessor's costs plus fifteen percent (15%).
Lessor shall not be liable to Lessee, except as expressly provided in this
Lease, for any damage or inconvenience, and Lessee shall not be entitled to any
abatement or reduction of rent by reason of any repairs, alterations or
additions made by Lessor under this Lease.
7.03 REPAIRS BY LESSEE.
Lessee shall, at its own cost and expense, repair or replace any damage or
injury done to its leasehold improvements or any other part thereof caused by
Lessee or Lessee's agents, contractors, employees, invitees, and visitors. If
Lessee fails to make such repairs or replacements to its leasehold improvements
promptly, Lessor may, at its option, make such repairs or replacements, and
Lessee shall repay the cost thereof plus a charge of fifteen percent (15%) to
the Lessor on demand. Any damage or injury to the Leased Premises or the base
Building and its systems (as opposed to those involving only Lessee's leasehold
improvements) and any damage or injury to Lessee's leasehold improvements which
affects the Building's structural components or major mechanical, electrical or
plumbing systems caused by Lessee, its agents, contractors, employees, invitees
and visitors, shall be repaired or replaced by Lessor, but at Lessee's expense
plus a charge of fifteen percent (15%).
ARTICLE 8 - CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY
8.01 CONDEMNATION.
If all or substantially all of the Leased Premises is taken by virtue of
eminent domain or for any public or quasi-public use or purpose, this Lease
shall terminate on the date the condemning authority takes possession. If only a
part of the Leased Premises is so taken, or if a portion of the Building not
including the Leased Premises is taken, this Lease shall, at the election of
Lessor, either (i) terminate on the date the condemning authority takes
possession by giving notice thereof to Lessee within thirty (30) days after the
date of such taking of possession or (ii) continue in full force and effect as
to that part of the Leased Premises not so taken and Rent with respect to any
portion of the Leased Premises taken or condemned shall be reduced or abated on
a square footage basis. All proceeds payable from any taking or condemnation of
all or any portion of the Leased Premises and the Building shall belong to and
be paid to Lessor, and Lessee hereby expressly assigns to Lessor any and all
right, title and interest of Lessee now or hereafter arising in and to any such
awards. Lessee shall have no, and waives any, claim against Lessor and the
Condemnor for the value of any unexpired term.
8.02 DAMAGES FROM CERTAIN CAUSES.
Lessor shall not be liable or responsible to Lessee for any loss or damage
to any property or person occasioned by theft, fire, act of God, public enemy,
injunction, riot, strike, insurrection, war, court order, requisition order of
governmental body or authority, or any cause beyond Lessor's control, or for any
damage or inconvenience which may arise through repair or alteration of any part
of the Building.
8.03 FIRE CLAUSE.
In the event of a fire or other casualty in the Leased Premises, Lessee
shall immediately give notice thereof to Lessor. If the Leased Premises or any
portion of the Building is damaged by fire or other casualty, Lessor shall have
the right to terminate this Lease or to repair the
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Leased Premises with reasonable dispatch, subject to delays resulting from
adjustment of the loss and any other cause beyond Lessor's reasonable control;
provided, Lessor shall not be required to repair or replace any furniture,
furnishings or other personal property which Lessee may be entitled to remove
from the Leased Premises or any installations in excess of Building standard.
Until Lessor's repairs are completed the Rent shall be abated in proportion to
the portions of the Leased Premises, if any, which are untenantable or unsuited
for the conduct of Lessee's business. Notwithstanding anything contained in this
Section, Lessor shall only be obligated to restore or rebuild the Leased
Premises to a Building standard condition and Lessor shall not be required to
expend more funds than the amount received by Lessor from the proceeds of any
insurance carried by Lessor.
8.04 LESSEE'S INSURANCE POLICIES.
Lessee shall, at its expense, maintain (i) standard fire and extended
coverage insurance on all of its personal property, including removable trade
fixtures, located in the Leased Premises and on its non-Building standard
leasehold improvements and all other additions and improvements (including
fixtures) made by Lessee; (ii) a policy or policies of comprehensive general
liability insurance, such insurance to afford minimum protection (which may be
effected by primary and/or excess coverage) of not less than $3,000,000. for
personal injury or death in any one occurrence and of not less than $1,000,000.
for property damage in any one occurrence, provided, Lessee shall carry such
greater limits of liability coverage as Lessor may reasonably request from time
to time; and (iii) a policy or policies, if available, insuring against injury
or damage from exposure to or interference from electromagnetic rays and/or
fields. All insurance policies required to be maintained by Lessee shall (a) be
issued by and binding upon solvent insurance companies licensed to conduct
business in the State of North Carolina, (b) have all premiums fully paid on or
before the due dates, (c) name Lessor as an additional insured to the extent of
Lessee's interest in the Leased Premises, and (d) provide that they shall not be
cancelable and/or the coverage thereunder shall not be reduced without at least
ten (10) days advance written notice to Lessor. Lessee shall deliver to Lessor
certified copies of all policies or certificates of insurance in a form
satisfactory to Lessor not less than fifteen (15) days prior to the Commencement
Date or the expiration of current policies.
8.05 HOLD HARMLESS.
Lessor shall not be liable to Lessee, its agents, servants, employees,
contractors, customers or invitees, for any damage to person or property caused
by any act, omission or neglect of Lessee, its agents, servants, employees,
contractors, customers or invitees, including any claims which may be made for
compensation or damages based upon exposure to or interference from
electromagnetic rays and/or fields emanating from the Leased Premises, and
Lessee agrees to indemnify and hold harmless Lessor and its partners, agents,
directors, officers, and employees from all liability and claims for any such
damage, including, without limitation, court costs, attorneys' fees and costs of
investigation.
8.06 WAIVER OF SUBROGATION RIGHTS.
Anything in this Lease to the contrary notwithstanding, Lessor and Lessee
each hereby waives to the extent that such waiver will not invalidate any
insurance policy maintained by Lessor or Lessee nor increase any premiums
thereon, any and all rights of' recovery, claims, actions or causes of action,
against the other, its agents, servants, partners, shareholders, officers
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and employees, for any loss or damage that may occur to the Leased Premises or
the Building, or any improvements thereto, or any personal property of' such
party therein, by reason of fire, the elements, and any other cause which is
insured against under the terms of the standard fire and extended coverage
insurance policies referred to in Section 8.04 hereof, to the extent that such
loss or damage is recovered under said insurance policies, regardless of cause
or origin, including negligence of the other party hereto, its agents, officers,
partners, shareholders, servants or employees, and covenants that no insurer
shall hold any right of subrogation against such other party. If the respective
insurers of Lessor and Lessee do not permit such a waiver without an appropriate
endorsement to such party's insurance policy, Lessor and Lessee covenant and
agree to notify the insurers of the waiver set forth herein and to secure from
each such insurer an appropriate endorsement to its respective insurance policy
concerning such waiver.
8.07 LIMITATION OF LESSOR'S PERSONAL LIABILITY.
Lessee agrees to look solely to Lessor's interest in the Building and the
Land for the recovery of any judgment against Lessor, and Lessor, its partners,
officers, directors and employees, shall never be personally liable for any such
judgment. The provisions contained in the foregoing sentence are not intended
to, and shall not, limit any right that Lessee might otherwise have to obtain
injunctive relief against Lessor or Lessor's successors in interest or any suit
or action in connection with enforcement or collection of amounts which may
become owing or payable under or on account of liability insurance maintained by
Lessor.
ARTICLE 9 - LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION
9.01 LIEN FOR RENT.
9.02 DEFAULT BY LESSEE.
If Lessee shall default in the payment of any Rent or other sum to be paid
by Lessee under this Lease when due; provided that Lessee shall be allowed one
(1) late payment of Rent in each calendar year of the Term, which late payment
shall not be deemed a default hereunder so long as such Rent is paid within five
(5) days of the due date; or Lessee shall default in the performance of any of
the other covenants or conditions which Lessee is required to observe and to
perform under this Lease and such default shall continue for twenty (20) days
after written notice to Lessee; or the interest of Lessee under this Lease shall
be levied on under execution or other legal process; or any petition shall be
filed by or against Lessee to declare Lessee a bankrupt or to delay, reduce or
modify Lessee's debts or obligations; or any petition shall be filed or other
action taken to reorganize or modify Lessee's debts or obligations; or any
petition shall be filed or other action taken to reorganize or modify Lessee's
capital structure; or Lessee is declared insolvent according to law; or any
assignment of Lessee's property shall be made for the benefit of creditors; or
if a receiver or trustee is appointed for Lessee or its property; or Lessee
shall vacate or abandon the Leased Premises or any part thereof at any time
during the Term for a period of fifteen (15) or more continuous days; or Lessee
is a corporation and Lessee shall cease to exist as a corporation in good
standing in the state of its incorporation, or Lessee fails to incorporate in
the State of North Carolina; or Lessee is a partnership or other entity and
Lessee shall be dissolved or otherwise liquidated; then Lessor may treat the
occurrence of any one or more of the foregoing events as a breach of this Lease
(provided, no such levy, execution, legal process or petition filed against
Lessee shall constitute a breach of this Lease if Lessee shall
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vigorously contest the same by appropriate proceedings and shall remove or
vacate the same within thirty (30) days from the date of its creation, service
or filing). Thereupon, at Lessor's option and in addition to all other rights
and remedies provided at law or in equity, Lessor may terminate this Lease and
repossess the Leased Premises and be entitled to recover as damages a sum of
money equal to the total of (a) the cost of recovering the Leased Premises
(including attorneys' fees and costs of suit), (b) the unpaid rent earned at the
time of termination, (c) the present value (discounted at the rate of eight
percent (8%) per annum) of the balance of the rent for the remainder of the Term
less the present value (discounted at the same rate) of the fair market rental
value of the Leased Premises for said period, (d) the amount of any unamortized
leasing commissions or any allowances or concessions previously made by Lessor
to Lessee, (e) any other sum of money, and damages owed by Lessee to Lessor and
(f) interest on (a) (b) (c) (d) and (e) above at the rate of the lesser of
eighteen percent (18%) per annum or the highest rate allowed by applicable law.
9.03 NON WAIVER.
Failure of Lessor to declare any default immediately upon occurrence
thereof, or delay in taking any action in connection therewith, shall not waive
such default and Lessor shall have the right to declare any such default at any
time and take such action as might be lawful or authorized hereunder, either in
law or in equity.
9.04 ATTORNEY'S FEES.
Should either party hereto institute any action or proceeding in court to
enforce any provision hereof or for damages by reason of any alleged breach of
any provisions of this Lease or for any other judicial remedy, the prevailing
party shall be entitled to receive from the non-prevailing party all actual
reasonable attorneys' fees and all court costs in connection with said
proceeding.
9.05 SUBORDINATION; ESTOPPEL CERTIFICATE.
This Lease is and shall be subject and subordinate to any and all ground
or similar leases affecting the Building, and to all mortgages which may now or
hereafter encumber or affect the Building and to all renewals, modifications,
consolidations, replacements and extensions of any such leases and mortgages;
provided, at the option of any such lessor or mortgagee, this Lease shall be
superior to the lease or mortgage of such lessor or mortgagee. The provisions of
this Section shall be self-operative and shall require no further consent or
agreement by Lessee. Lessee agrees, however, to execute and return any estoppel
certificate, consent or agreement reasonably requested by any such lessor or
mortgagee, or by Lessor, within ten (10) days after receipt of same, including,
without limitation, an estoppel certificate in the form attached hereto as
EXHIBIT E. Lessee shall, at the request of Lessor or any mortgagee of Lessor
secured by a lien on the Building or any lessor to Lessor under a ground Lease
of the Building, furnish such mortgagee and/or lessor with written notice of any
default or breach by Lessor at least sixty (60) days prior to the exercise by
Lessee of any rights and/or remedies of Lessee hereunder arising out of such
default or breach.
9.06 ATTORNMENT.
If any ground or similar lease or mortgage is terminated or foreclosed,
Lessee shall , upon request, attorn to the lessor under such lease or the
mortgagee or purchaser at such foreclosure
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sale, as the case may be, and execute instrument(s) confirming such attornment.
In the event of such a termination or foreclosure and upon Lessee's attornment
as aforesaid, Lessee will automatically become the tenant of the successor to
Lessor's interest without change in the terms or provisions of this Lease;
provided, such successor to Lessor's interest shall not be bound by (i) any
payment of rent for more than one month in advance except prepayments for
security deposits, if any, or (ii) any amendments or modifications of this Lease
made without the prior written consent of such lessor or mortgagee.
Notwithstanding anything to the contrary contained in this Lease, Lessee shall
only be obligated to subordinate its rights and interests under the Lease
(including, but not limited to, accepting this Lease subject and subordinate to
any, recorded first mortgage or deed of trust lien presently existing or
hereafter created upon the Leased Premises) if the holder of any recorded first
mortgage or deed of trust lien grants Lessee a non-disturbance agreement
providing that Lessee shall have the right to remain in possession of the Leased
Premises in accordance with the terms of the Lease so long as Lessee is not in
default hereunder.
ARTICLE 10 - ASSIGNMENT AND SUBLEASE
10.01 ASSIGNMENT OR SUBLEASE.
Lessee shall not, voluntarily, by operation of law, or otherwise, assign,
transfer, mortgage, pledge, or encumber this Lease or sublease the Leased
Premises or any part thereof, or allow any person other than Lessee, its
employees, agents, servants and invitees, to occupy or use the Leased Premises
or any portion thereof, without the express prior written consent of Lessor,
such consent not to be unreasonably withheld, and any attempt to do any of the
foregoing without such written consent shall be null and void and shall
constitute a default under this Lease. Notwithstanding the foregoing, in no
event shall Lessee assign this Lease or sublease the Leased Premises to any
entity engaged in the commercial real estate business, including, without
limitation, property management or the brokerage, ownership or development of
competitive properties. Lessor's consent to any assignment or sublease hereunder
does not constitute a waiver of its right to consent to any further assignment
or sublease. If Lessee desires to assign this Lease or sublet tile Leased
Premises or any part thereof, Lessee shall give Lessor written notice of such
desire at least thirty (30) days in advance of the date on which Lessee desires
to make such assignment or sublease. Lessor shall then have a period often (10)
days following receipt of such notice within which to notify Lessee in writing
that Lessor elects (a) to terminate this Lease as to the space so affected as of
the date so specified by Lessee, in which event Lessee shall be relieved of all
further obligations hereunder as to such space, or (b) to permit Lessee to
assign this Lease or sublet such space (provided, however, if the rent agreed
upon between Lessee and Sublessee is greater than the Monthly Base Rent that
Lessee must pay Lessor, such excess rent shall be deemed additional rent owed by
Lessee and payable to Lessor in the same manner that Lessee pays the Rent
hereunder), or (c) to refuse to consent to Lessee's assignment or subleasing
such space and to continue this Lease in full force and effect as to the entire
Leased Premises. If Lessor should fail to notify Lessee in writing of such
election within the ten (10) day period, Lessor shall be deemed to have elected
option (c) above. Lessee agrees to pay Lessor's actual reasonable attorney's
fees associated with Lessor's review and documentation of any requested
assignment or sublease hereunder regardless of whether Lessor consents to any
such assignment or sublease. No assignment or subletting by Lessee shall relieve
Lessee of any obligations under this Lease, and Lessee shall remain fully liable
hereunder. If Lessee is not a public company that
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is registered on a national stock exchange or that is required to register its
stock with the Securities and Exchange Commission under Section 12(g) of the
Securities and Exchange Act of 1934, any change in a majority of the voting
rights or other controlling rights or interests of Lessee shall be deemed an
assignment for the purposes hereof.
10.02 ASSIGNMENT BY LESSOR.
Lessor shall have the right to transfer and assign, in whole or in part,
all its rights and obligations hereunder and in the Building and all other
property referred to herein, and in such event and upon such transfer (any such
transferee to have the benefit of, and be subject to, the provisions of Section
6.06 and Section 8.07 hereof) no further liability or obligation shall
thereafter accrue against Lessor under this Lease.
ARTICLE 11 - NOTICES AND MISCELLANEOUS
11.01 NOTICES.
Except as otherwise provided in this Lease, any statement, notice, or
other communication which Lessor or Lessee may desire or is required to give to
the other shall be in writing and shall be deemed sufficiently given or rendered
if hand delivered, or if sent by registered or certified mail, postage prepaid,
return receipt requested, to the addresses for Lessor and Lessee set forth in
Subsection 2.01(k), or at such other address(es) as either party shall designate
from time to time by ten (10) days prior written notice to the other party.
11.02 MISCELLANEOUS.
(a) This Lease shall be binding upon and inure to the benefit of the legal
representatives, successors and assigns of Lessor, and shall be binding upon and
inure to the benefit of Lessee, its legal representatives and successors, and,
to the extent assignment may be approved by Lessor hereunder, Lessee's assigns.
Pronouns of any gender shall include the other genders, and either the singular
or the plural shall include the other.
(b) All rights and remedies of Lessor under this Lease shall be cumulative
and none shall exclude any other rights or remedies allowed by law. This Lease
is declared to be a North Carolina contract, and all of the terms thereof shall
be construed according to the laws of the State of North Carolina.
(c) This Lease may not be altered changed or amended, except by an
instrument in writing executed by all parties hereto. Further, the terms and
provisions of this Lease shall not be construed against or in favor of a party
hereto merely because such party is the "Lessor" or the "Lessee" hereunder or
such party or its counsel is the draftsman of this Lease.
(d) The terms and provisions of EXHIBITS A-G-1 described herein and
attached hereto are hereby made a pan hereof for all purposes; provided,
however, that, unless otherwise expressly stated, in the event of a conflict
between the terms of this Lease and the terms of any Exhibit attached hereto,
the terms of this Lease shall control.
(e) If Lessee is a corporation, partnership or other entity, Lessee
warrants that all consents and approvals required of third parties (including,
without limitation, its Board of
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Directors or partners) for the execution, delivery and performance of this Lease
have been obtained and that Lessee has the right and authority to enter into and
perform its covenants contained in this Lease.
(f) Whenever in this Lease there is imposed upon Lessor the obligation to
use its best efforts, reasonable efforts or diligence, Lessor shall be required
to do so only to the extent the same is economically feasible and otherwise will
not impose upon Lessor extreme financial or other business burdens.
(g) If any term or provision of this Lease, or the application thereof to
any person or circumstance, shall to any extent be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and
shall be enforceable to the extent permitted by law.
(h) If applicable in the jurisdiction where the Leased Premises are
situated, Lessee shall pay and be liable for all rental, sales and use taxes or
other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid to Lessor by Lessee under the terms of this
Lease. Any such payment shall be paid concurrently with the payment of the rent
upon which the tax is based as set forth above.
(i) Lessor and Lessee each agrees not to handle, store or dispose of any
hazardous or toxic waste or substance at the Project which is prohibited by any
federal, state, or local statutes, ordinances or regulations. Lessor and Lessee
each hereby covenants to indemnify and hold the other party, its successors and
assigns, harmless from any loss, damage, claims, costs, liabilities or cleanup
costs arising out of Lessor's or Lessee's, as the case may be, use, handling,
storage or disposal of any such hazardous or toxic wastes or substances at the
Project.
(j) Lessee is prohibited from recording this Lease or any memorandum
thereof without the consent of Lessor, such consent not to be unreasonably
withheld.
(k) Lessor agrees to provide Lessee with 3.5 parking spaces per 1,000
square feet of space within the Leased Premises at no additional charge. Lessee
agrees to notify Lessor promptly of any additional parking needs which shall be
handled on a case-by-case basis.
(l) "Square feet" or "square foot" as used in this Lease includes the area
contained within the space occupied by Lessee together with a common area
percentage factor of Lessee's space proportionate to the total Building area.
(m) Lessor shall not be required to install Lessee's name on the monument
sign in front of the Building. Lessee may install its name on the monument sign
in front of the Building, with Lessor's prior approval, at its sole cost and
expense.
(n) Lessee agrees to pay to the Broker(s) named in Subsection 2.01(l), a
real estate brokerage commission only as set forth in separate listing and/or
commission agreement(s)
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between Lessor and the named Broker(s). Lessor and Lessee each hereby represent
and warrant to the other that they have not employed any other agents, brokers
or other parties in connection with this Lease, and each agrees that it shall
hold the other harmless from and against any and all claims of all other agents,
brokers or other parties claiming by, through or under the respective
indemnifying party.
(o) Lessee understands and agrees that the Property Manager for the
Building is the agent of Lessor and is acting at all times in the best interest
of Lessor. Any and all information pertaining to this Lease that is received by
the Property Manager shall be treated as though received directly by Lessor.
(p) The effectiveness of this Lease is contingent upon the complete
execution and delivery on or before August 31, 1997, of the following agreement:
Lease Termination Agreement by and between Forty-Four Hundred F-N
Associates, a North Carolina general partnership and Dixon-Odom and
Company, a North Carolina corporation, as joint tenants-in-common, and
David S. Brown, an individual.
(q) This Lease may be executed in any number of counterparts, each of
which shall be an original, but all of which taken together shall constitute one
and the same instrument.
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ARTICLE 12 - ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES
12.01 ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES.
LESSEE AGREES THAT THIS LEASE AND THE EXHIBITS ATTACHED HERETO
CONSTITUTE THE ENTIRE AGREEMENT OF THE PARTIES AND ALL PRIOR CORRESPONDENCE,
MEMORANDA, AGREEMENTS AND UNDERSTANDINGS (WRITTEN AND ORAL) ARE MERGED INTO AND
SUPERSEDED BY THIS LEASE AND THERE ARE AND WERE NO VERBAL REPRESENTATIONS,
WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES MADE BY LESSOR
IN CONNECTION WITH THIS LEASE. LESSEE FURTHER AGREES THAT THERE ARE NO, AND
LESSEE EXPRESSLY WAIVES ANY AND ALL WARRANTIES WHICH EXTEND BEYOND THOSE
EXPRESSLY SET FORTH IN THIS LEASE OR IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT
OF THIS LEASE.
IN TESTIMONY WHEREOF, the parties hereto have executed this Lease as of
the date aforesaid.
LESSOR:
Forty-Four Hundred F-N Associates,
a North Carolina general partnership (SEAL)
By: /s/ (SEAL)
------------------------------
C. Gilbert Smith, Partner
Dixon-Odom and Company, a North Carolina corporation
By: /s/
------------------------------
Robert C. Rice, Partner
LESSEE:
Capital Bank, a North Carolina corporation
By: /s/
------------------------------
James A. Beck, President
(Corporate Seal)
Attest:
By: /s/
--------------------------
Asst. Sec.
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EXHIBIT A-1
FLOOR PLAN(S)
4400 Falls of the Neuse Road, Suite 101
Raleigh, North Carolina 27609
[DIAGRAM]
607 Occupied Square Feet
x 1.10 Common Area Percentage Factor
668 Square Feet
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EXHIBIT A-2
THE LAND
Located in the County of Wake, State of North Carolina:
BEGINNING at an existing iron pipe in the western property line of Old Wake
Forest Road, corner for property now or formerly owned by Rabil, Fleming,
Hunter; thence along the western property line of Old Wake Forest Road, South 28
degrees 04' 07" West 169.50 feet to a stake in the northern property line for
the sight-distance line between Old Wake Forest Road and Falls of Neuse Road;
thence along said sight-distance line, South 72 degrees 28' 04" West 134.44 feet
to a stake, cornering; thence continuing along said sight-distance line North 58
degrees 54' 30" West 47.16 feet to a stake in the eastern property line of Falls
of Neuse Road; thence along the eastern property line of Falls of Neuse Road,
said property line being the arc of a curve having a chord bearing of North 17
degrees 08' 12" West a chord distance of 280.41 feet, a radius of 1086.74 feet
and an arc distance of 281.19 feet to a stake in the line of property now or
formerly owned by Rabil, Fleming, Hunter; thence along the said line, South 72
degrees 49' 53" East 346.39 feet to a stake in the western property line of Old
Wake Forest Road, the point of beginning, being the property shown on survey map
entitled "Property of Forty-Four Hundred F-N Associates, a partnership - as
built survey," prepared by Castleberry-Edgerton Co., dated August 22, 1986.
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EXHIBIT B
ACCEPTANCE OF LEASED PREMISES MEMORANDUM
Lessor and Lessee hereby agree that:
1. Except for those items shown on the attached "punchlist", which Lessor
shall use reasonable efforts to remedy within ________ (___) days after
the date hereof, Lessor has fully completed the construction work required
of Lessor under the terms of the Lease.
2. The Leased Premises are tenantable, Lessor has no further obligation for
construction (except as specified above), and Lessee acknowledges that the
Leased Premises are satisfactory in all respects.
3. The Commencement Date of the Lease is hereby agreed to be __________,
19__.
4. The Expiration Date of the Lease is hereby agreed to be ____________,
19__.
All other terms and conditions of the Lease are hereby ratified and
acknowledged to be unchanged.
Agreed and Executed this ___ day of __________, 19__.
LESSEE:
Capital Bank, a North Carolina corporation
By: _____________________________
James A. Beck, President
(Corporate Seal)
Attest:
By: _______________________
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EXHIBIT C
INTENTIONALLY DELETED
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EXHIBIT D
BUILDING RULES
(1) The sidewalks, walks, plaza entries, corridors, concourses, ramps,
staircases, escalators and elevators shall not be obstructed or used by Lessee,
or the employees, agents, servants, visitors or licensees of Lessee, for any
purpose other than ingress and egress to and from the Leased Premises. No
bicycle or motorcycle shall be brought into the Building or kept on the Leased
Premises without the prior written consent of Lessor.
(2) No freight, furniture or bulky matter of any description shall be
received into the Building or carried into the elevators except in such a
manner, during such hours and using such elevators and passageways as may be
approved by Lessor, and then only upon having been scheduled in advance. Any
hand trucks, carryalls or similar appliances used for the delivery or receipt of
merchandise or equipment shall be equipped with rubber tires, side guards and
such other safeguards as Lessor shall require.
(3) Lessor shall have the right to prescribe the weight, position and
manner of installation of safes, concentrated filing/storage systems or other
heavy equipment which shall, if considered necessary by Lessor, be installed in
a manner which shall insure satisfactory weight distribution. All damage done to
the Building by reason of a safe or any other article of Lessee's office
equipment being on the Leased Premises shall be repaired at the expense of
Lessee. The time, routing and manner of moving safes or other heavy equipment
shall be subject to prior written approval by Lessor.
(4) Only persons authorized by Lessor shall be permitted to furnish
newspaper, ice, drinking water, towels, barbering, shoe shining, janitorial
services, floor polishing and other similar services and concessions to Lessee,
and only at hours and under regulations fixed by Lessor. Lessee shall use no
other method of heating or cooling than that supplied by Lessor.
(5) Lessee, and the employees, agents, servants, visitors or licensees of
Lessee, shall not at any time place, leave or discard any rubbish, paper,
articles or objects of any kind whatsoever outside the doors of the Leased
Premises or in the corridors or passageways of the Building. No animals, except
for dogs trained to assist disabled persons, shall be brought or kept in or
about the Leased Premises or the Building without the prior written consent of
Lessor.
(6) Lessor shall have the right to prohibit any advertising by Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability for offices, and, upon written notice from Lessor, Lessee shall
refrain from or discontinue such advertising. Lessor shall have the right to use
Lessee's name in advertising announcements.
(7) Lessee shall not place, or cause or allow to be placed, any sign or
lettering whatsoever, in or about the Leased Premises except in and at such
places as may be designated by Lessor and consented to by Lessor in writing. All
lettering and graphics on corridor doors and walls shall conform to the Building
standard prescribed by Lessor. No trademark shall be displayed on corridor doors
and walls in any event, except on any floor fully leased by Lessee.
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Lessee may display trademarks on interior walls and doors of the Leased
Premises. Lessor shall provide and maintain an alphabetical directory board in
the ground floor lobby of the Building.
(8) Canvassing, soliciting or peddling in the Building is prohibited and
Lessee shall cooperate to prevent same.
(9) Lessor shall have the right to exclude any person from the Building
other than during customary business hours, and any person in the Building shall
be subject to identification by employees and agents of Lessor. All persons in
or entering the Building shall be required to comply with the security policies
of the Building. If Lessee desires any additional security services for the
Leased Premises, Lessee shall have the right (only with the advance written
consent of Lessor) to obtain such additional services at Lessee's sole cost and
expense. Lessee shall keep doors to unattended areas locked and shall otherwise
exercise reasonable precautions to protect property from theft, loss, or damage.
Lessor shall not be responsible for the theft, loss or damage of any property.
(10) Only workmen employed, designated or approved by Lessor may be
employed for repairs, installations, alterations, painting, material moving and
other similar work that may be done in or on the Leased Premises.
(11) Lessee shall not do any cooking or conduct any restaurant,
luncheonette, automat or cafeteria for the sale or service of food or beverages
to its employees or to others, nor shall Lessee provide any vending machines
without the prior written consent of Lessor. Lessee may, however, operate coffee
bars by and for its employees and invitees.
(12) Lessee shall not bring or permit to be brought or kept in or on the
Leased Premises any inflammable, combustible, corrosive, caustic, poisonous,
toxic or explosive substance or any substance deemed to be a hazardous substance
under applicable environmental laws, or cause or permit any odors to permeate or
emanate from the Leased Premises.
(13) Lessee shall not mark, paint, drill into or in any way deface any
part of the Building or the Leased Premises. No boring, driving of nails or
screws, cutting or stringing of wires shall be permitted, except with the prior
written consent of Lessor, and as Lessor may direct. Lessee shall not install
coat hooks or identification plates on doors nor any resilient tile or similar
floor covering in the Leased Premises except with the prior written approval of
Lessor. The use of cement or other similar adhesive material is expressly
prohibited.
(14) Lessee shall not place any additional locks or bolts of any kind on
any door in the Building or the Leased Premises or change or alter any lock on
any door therein in any respect. Lessor shall furnish two (2) keys for each lock
on exterior doors to the Leased Premises and shall, on Lessee's request and at
Lessee's expense, provide additional duplicate keys. Lessee shall not make any
duplicate keys. All keys shall be returned to Lessor upon the termination of the
Lease, and Lessee shall give to Lessor the explanation of the combination of all
safes, vaults and combination locks in the Leased Premises. Lessor may at all
times keep a pass key to the Leased Premises. All entrance doors to the Leased
Premises shall be left locked when the Leased Premises are not in use.
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(15) Lessee shall give immediate notice to Lessor in case of theft,
unauthorized solicitation or accident in the Leased Premises or in the Building
or of defects therein or in any fixtures or equipment, or of any known emergency
in the Building.
(16) Lessee shall place a water-proof tray under all plants in the Leased
Premises and shall be responsible for any damage to the floors and/or carpets
caused by over-watering such plants.
(17) Lessee shall not use the Leased Premises or permit the Leased
Premises to be used for photographic, multilith or multigraph reproductions,
except in connection with its own business and not as a service for others,
without Lessor's prior written permission.
(18) Lessee shall not use or permit any portion of the Leased Premises to
be used as an office for a public stenographer or typist, offset printing, the
sale of liquor or tobacco, a barber or manicure shop, an employment bureau, a
labor union office, a doctor's or dentist's office, a dance or music studio, any
type of school, or for any use other than those specifically granted in this
Lease.
(19) Lessee shall not advertise for laborers giving the Leased Premises as
an address, nor pay such laborers at a location in the Leased Premises.
(20) Employees of Lessor shall not perform any work or do anything outside
of their regular duties, unless under special instructions from the management
office in the Building.
(21) Lessee shall not place a load upon any floor of the Leased Premises
which exceeds the load per square foot which such floor was designed to carry
and which is allowed by law. Business machines and mechanical and electrical
equipment belonging to Lessee which cause noise, vibration, electrical or
magnetic interference, or any other nuisance that may be transmitted to the
structure or other portions of the Building or to the Leased Premises to such a
degree as to be objectionable to Lessor or which interfere with the use or
enjoyment by other tenants of their leased premises or the public portions of
the Building, shall be placed and maintained by Lessee, at Lessee's expense, in
settings of cork, rubber, spring type or other vibration eliminators sufficient
to eliminate noise or vibration.
(22) Lessee shall furnish and install a chair mat for each desk chair in
the Leased Premises.
(23) No solar screen materials, awnings, draperies, shutters or other
interior or exterior window coverings that are visible from the exterior of the
Building or from the exterior of the Leased Premises within the Building may be
installed by Lessee.
(24) Lessee shall not place, install or operate within the Leased Premises
or any other part of the Building any engine, stove or machinery, or conduct
mechanical operations therein, without the written consent of Lessor.
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(25) No portion of the Leased Premises or any other part of the Building
shall at any time be used or occupied as sleeping or lodging quarters.
(26) For purposes of the Lease, holidays shall be deemed to mean and
include the following: (a) New Year's Day; (b) Good Friday; (c) Memorial Day;
(d) Independence Day; (e) Labor Day; (f) Thanksgiving Day and the Friday
following; (g) Christmas Day; and (h) any other holidays taken by tenants
occupying at least one-half (1/2) of the Square Footage of office space in the
Building.
(27) Lessee shall at all times keep the Leased Premises neat and orderly
(28) All requests for overtime air conditioning or heating should be
submitted in writing to the Building management office by 2:00 P.M. on the last
prior business day.
(29) Lessor reserves the right to rescind, add to and amend any rules or
regulations, to add new rules or regulations, and to waive any rules or
regulations with respect to any tenant or tenants.
(30) Corridor doors, when not in use, shall be kept closed.
(31) All permitted alterations and additions to the Leased Premises must
conform to applicable building and fire codes. Lessee shall obtain approval from
the office of the Building with respect to any such modifications and shall
deliver "as-built" plans therefor to the office of the Building on completion.
(32) It is the intent of both Lessor and Lessee that any portion of the
Leased Premises visible to the public hold a high quality professional image at
all times. If, at any time during the Term, Lessor or Lessor's agent deems such
visible area to hold less than a high quality professional image, Lessor will
advise Lessee of desired changes to be made to such area to conform to the
intent of this paragraph. Within three working days, Lessee will cause the
desired changes to be made, or present Lessor with a plan for accomplishing such
changes. Lessee shall have such additional time as is reasonably required to
implement the plan, not to exceed 2 months; provided, however, that if Lessee is
not diligently pursuing the plan for accomplishing such changes within ten
working days, Lessor will provide draperies or blinds for the glassed area at
Lessee's expense; Lessee will keep such draperies or blinds closed at all times.
The carpet and wall coverings, which are to be located in the lobby
of any Leased Premises that are visible to the public, must be consistent in
color and style with the carpet and wall coverings located in the lobby area of
the Building, and must be approved by Lessor prior to installation.
(33) The Building has been designated a "non-smoking" building. Lessee and
its employees, Agents, servants, visitors and licensees are prohibited from
smoking in the common areas both inside and outside of the Building, except in
those areas designated as smoking areas. Lessee may designate the Leased
Premises a "non-smoking" area, upon such terms as may be approved in advance by
Lessor, at any time during the Term.
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(34) Lessee shall not play nor permit the playing of loud music in the
Leased Premises or common areas.
(35) No firearms, whether concealed or otherwise, shall be allowed in the
Building at any time.
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EXHIBIT E
FORM OF ESTOPPEL CERTIFICATE
The undersigned ______________________________________________ "Lessee",
in consideration of One Dollar ($1.00) and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, hereby certifies to
__________________________________ ("Lessor"), [the holder or prospective holder
of any mortgage covering the property] (the "Mortgagee") and [the vendee under
any contract of sale with respect to the Property] (the "Purchaser") as follows:
1. Lessee and Lessor executed a certain Lease Agreement (the "Lease"),
dated ____________,19__, covering the floor(s) shown attached on the plan
annexed hereto as Exhibit A-1 (the "Leased Premises") in the building located in
the _______________________________ known as and by the street number (the
"Building"), for a term commencing on _____________, 19_, and expiring on
_____________________.
2. The Lease is in full force and effect and has not been modified,
changed, altered or amended in any respect.
3. Lessee has accepted and is now in possession of the Leased Premises and
is paying the full Rent under the Lease.
4. The Base Rent payable under the Lease is $________ per month. The Base
Rent and all Additional Rent and other charges required to be paid under the
Lease have been paid for the period up to and including
_____________________________.
5. No Rent under the Lease has been paid for more than thirty (30) days in
advance of its due date.
6. All work required under the Lease to be performed by Lessor has been
completed to the full satisfaction of Lessee There are no defaults existing
under the Lease on the part of either Lessor or Lessee.
7. There are no defaults existing under the Lease on the part of either
Lessor or Lessee.
8. There is no existing basis for Lessee to cancel or terminate the Lease.
9. As of the date hereof, there exist no valid defenses, offsets, credits,
deductions in rent or claims against the enforcement of any of the agreements,
terms, covenants or conditions of the Lease.
10. Lessee affirms that any dispute with Lessor giving rise to a claim
against Lessor is a claim under the Lease only and is subordinate to the rights
of the holder of all first lien
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mortgages on the Building and shall be subject to all the terms, conditions and
provisions thereof. Any such claims are not offsets to or defenses against
enforcement of the Lease.
11. Lessee affirms that any dispute with Lessor giving rise to a claim
against Lessor is a claim under the Lease only and is subordinate to the rights
of the Purchaser pursuant to any contract of sale. Any such claims are not
offsets to or defenses against enforcement of the Lease.
12. Lessee affirms that any claims pertaining to matters in existence at
the time Lessee took possession and which are known to or which were then
readily ascertainable by Lessee shall be enforced solely by money judgment
and/or specific performance against the Lessor named in the Lease and may not be
enforced as an offset to or defense against enforcement of the Lease.
13. There are no actions, whether voluntary or otherwise, pending against
or contemplated by Lessee under the bankruptcy laws of the United States or any
state thereof.
14. There has been no material adverse change in Lessee's financial
condition between the date hereof and the date of the execution and delivery of
the Lease.
15. Lessee acknowledges that Lessor has informed Lessee that an assignment
of Lessor's interest in the Lease has been or will be made to the Mortgagee and
that no modification, revision, or cancellation of the Lease or amendments
thereto shall be effective unless a written consent thereto of the Mortgagee is
first obtained, and that until further notice payments under the Lease may
continue as heretofore.
16. Lessee acknowledges that Lessor has informed Lessee that Lessor has
entered into a contract to sell the Property to Purchaser and that no
modification, revision or cancellation of the Lease or amendments thereto shall
be effective unless a written consent thereto of the Purchaser has been
obtained.
17. This certification is made to induce Purchaser to consummate a
purchase of the Property and to induce Mortgagee to make and maintain a mortgage
loan secured by the Property and/or to disburse additional funds to Lessor under
the terms of its agreement with Lessor, knowing that said Purchaser and
Mortgagee rely upon the truth of this certificate in making and/or maintaining
such purchase or mortgage or disbursing such funds, as applicable.
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18. Except as modified herein, all other provisions of the Lease are
hereby ratified and confirmed.
LESSEE:
Capital Bank, a North Carolina corporation
By: _____________________________
James A. Beck, President
Date: _____________________________
(Corporate Seal)
Attest:
By: _____________________________
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EXHIBIT F
HVAC SCHEDULE
Subject to the provisions of Section 5.01 of the Lease and excluding
holidays, Lessor will furnish Building standard heating, ventilating and air
conditioning between 8:00 a.m. and 6:00 p.m. on weekdays (from Monday through
Friday, inclusive) and Saturdays between 8:00 a.m. and 1:00 p.m. Upon request of
Lessee made in accordance with the rules and regulations for the Building.
Lessor will furnish air conditioning and heating at other times (that is, at
times other than the times specified above), in which event Lessee shall
reimburse Lessor for furnishing such services on the following basis:
Lessee shall reimburse Lessor at the rate of Thirty-Five and No/100
Dollars ($35.00) per hour per air handling unit which is activated to provide
the requested air conditioning or heating service; provided, such rate is based
upon the "Kilowatt Hour rate" (as hereinafter defined) for electricity as of
January 1, 1995 (the "Base Rate"), and if and when the Kilowatt Hour Rate
increases over the Base Rate, the aforesaid rate of Thirty-Five and No/100
Dollars ($35.00) per hour per air handling unit thereof shall automatically
increase proportionately. For example, if the Kilowatt Hour Rate increases by
10% over the Base Rate, said rate shall automatically increase by 10%. The
"Kilowatt Hour Rate" shall mean the actual average cost per kilowatt hour
charged by the public utilities providing electricity to the Building, or if
said public utilities shall cease charging for electricity on the basis of a
kilowatt hour, the Kilowatt Hour Rate shall mean the actual average cost per
equivalent unit of measurement substituted therefor by said public utilities.
The Base Rate is hereby stipulated to be $.0600 per kilowatt hour.
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EXHIBIT G
AUTOMATIC EXPANSION
Effective as of December 1, 1997, and as long as Lessee is not in default
of in any of the terms, conditions or provisions of this Lease as of such date,
Lessee shall expand its original Leased Premises to include within the Leased
Premises an additional 634 square feet of space currently located in Suite 104
of the Building (the "Expansion Space") as shown on the attached Exhibit G-1
attached hereto and incorporated herein by reference; provided, however, that if
the tenant currently occupying the Expansion Space has not vacated the Expansion
Space on or before December 1, 1997, Lessor shall only be obligated to deliver,
and Lessee shall only be obligated to expand into, the Expansion Space on the
date that the existing tenant vacates the Expansion Space and Lessor shall
diligently pursue all available remedies to ensure that the existing tenant
vacates the Expansion Space on or before December 1, 1997.
Provided that the existing tenant vacates the Expansion Space on or before
December 1, 1997, Rent for the Expansion Space will commence on December 1,
1997. If the existing tenant does not vacate the Expansion Space on or before
December 1, 1997, Rent for the Expansion Space shall commence on the date that
Lessee uses, occupies or commences business in the Expansion Space. The Base
Rent for the Expansion Space will be at the same rate which Lessee is then
paying for the original Leased Premises and the Base Rent for the Expansion
Space will be subject to the same Additional Rent as defined in Article 4 of the
Lease. Lessee agrees to accept the Expansion Space "AS IS", "WHERE IS" and "WITH
ALL FAULTS" and has had an opportunity to satisfy itself as to the condition of
the Expansion Space.
32
<PAGE>
EXHIBIT G-1
AUTOMATIC EXPANSION SPACE
4400 Falls of the Neuse Road, Suite 104
Raleigh, North Carolina 27609
[DIAGRAM]
551 Occupied Square Feet
x 1.15 Common Area Percentage Factor
- ------
634 Square Feet
33
<PAGE>
LEASE AGREEMENT
by and between
FORTY-FOUR HUNDRED F-N ASSOCIATES
and
DIXON-ODOM AND COMPANY
LESSOR
and
CAPITAL BANK
LESSEE
Dated as of July 10, 1997
@ 1996 Capital Associates. All rights reserved.
<PAGE>
ARTICLE 1 - LEASED PREMISES 1
1.01 Leased Premises. 1
ARTICLE 2 - BASIC LEASE PROVISIONS 1
2.01 Basic Lease Provisions. 1
ARTICLE 3 - TERM AND POSSESSION 2
3.01 Term. 2
3.02 Commencement. 2
3.03 Lessee's Delay. 2
3.04 Lessee's Possession. 2
3.05 Confirmation of Dates. 2
3.06 Holdover. 2
ARTICLE 4 - RENT AND SECURITY DEPOSIT 2
4.01 Base Rent. 2
4.02 Payment of Rent. 3
4.03 Additional Rent. 3
4.04 Operating Expense Adjustment. 3
4.05 Intentionally Deleted. 4
4.06 Intentionally Deleted. 4
4.07 Late Charge. 4
ARTICLE 5 - SERVICES 4
5.01 Services. 4
ARTICLE 6 - USE AND OCCUPANCY 4
6.01 Use. 4
6.02 Care of the Leased Premises. 4
6.03 Entry for Repairs and Inspection. 5
6.04 Compliance with Laws; Rules of Building. 5
6.05 Access to Building. 5
6.06 Peaceful Enjoyment. 5
ARTICLE 7 - ALTERATIONS AND REPAIRS 5
7.01 Alterations. 5
7.02 Repairs by Lessor. 5
7.03 Repairs by Lessee. 6
<PAGE>
ARTICLE 8 - CONDEMNATION, CASUALTY, INSURANCE AND INDEMNITY 6
8.01 Condemnation. 6
8.02 Damages from Certain Causes. 6
8.03 Fire Clause. 6
8.04 Lessee's Insurance Policies. 6
8.05 Hold Harmless. 7
8.06 Waiver of Subrogation Rights. 7
8.07 Limitation of Lessor's Personal Liability. 7
ARTICLE 9 - LESSOR'S LIEN, DEFAULT, REMEDIES AND SUBORDINATION 7
9.01 Lien for Rent. 7
9.02 Default by Lessee. 7
9.03 Non Waiver. 7
9.04 Attorney's Fees. 8
9.05 Subordination; Estoppel Certificate. 8
9.06 Attornment. 8
ARTICLE 10 - ASSIGNMENT AND SUBLEASE 8
10.01 Assignment or Sublease. 8
10.02 Assignment by Lessor. 8
ARTICLE 11 - NOTICES AND MISCELLANEOUS 9
11.01 Notices. 9
11.02 Miscellaneous. 9
ARTICLE 12 - ENTIRE AGREEMENT AND LIMITATION OF WARRANTIES 11
12.01 Entire Agreement and Limitations of Warranties. 11
EXHIBITS
A-1 - Floor Plan(s) of the Leased Premises
A-2 - The Land
B - Acceptance of Leased Premises Memorandum
C - Intentionally Deleted
D - Building Rules
E - Form of Estoppel Certificate
F - HVAC Schedule
G - Automatic Expansion
G-1 - Automatic Expansion Space
<PAGE>
STATE OF NORTH CAROLINA CONSENT TO SUBLEASE AGREEMENT
WAKE COUNTY
This Consent to Sublease Agreement is made an entered into as of this 8th
day of July, 1997, by and among Forty-Four Hundred F-N Associates, a North
Carolina general partnership and Dixon-Odom and Company, a North Carolina
corporation as joint tenants-in-common ("Lessor"), Medical Records Corporation,
an Ohio corporation ("Lessee") and Capital Bank (Proposed), a North Carolina
corporation ("Sublessee").
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement dated
December 1, 1995 (the "Lease") pursuant to which Lessee leased approximately
2,199 square feet of office space designated as Suite 210 and located at 4400
Falls of the Neuse Road, Raleigh, North Carolina 27609 (the "Subleased
Premises") which Subleased Premises are more particularly described in the
Lease. (The Lease is incorporated herein by reference in its entirety; terms
used and not otherwise defined herein shall have the meaning ascribed to them in
the Lease); and
WHEREAS, Lessee desires to sublet the Subleased Premises to Sublessee and
Lessor is willing to consent to the same pursuant to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the premises, and the sum of Ten
Dollars ($10.00) each to the other paid, the receipt and adequacy of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Notwithstanding the sublease of the Subleased Premises from Lessee to
Sublessee or Lessor's consent thereto or Lessor's acceptance of payments from
Sublessee, Lessee shall remain liable to Lessor for all payments due Lessor
under the Lease and for the performance of all obligations to be performed by
Lessee under the Lease and the consent given hereinbelow shall not be construed
as relieving Lessee from obtaining the express written consent of Lessor to any
further assignment or sublease or as releasing Lessee from any liability or
obligation whatsoever under the Lease. It is expressly understood and agreed
that no lease exists or is made hereby between Lessor and Sublessee and that all
rights of Sublessee regarding the Subleased Premises or any portion thereof are
derivative through Lessee and that if Lessee's rights under the Lease shall for
any reason terminate, so also shall Sublessee's rights terminate.
2. Lessee and Sublessee each hereby agree for the benefit of Lessor that
hereafter they shall each be jointly and severally liable to Lessor for the
payment of all sums due to be paid Lessor under the Lease and for the
performance of all obligations to be performed by Lessee under the Lease;
provided, however, Sublessee shall have no liability hereunder except such as
shall arise out of its use or occupancy or right to use or occupy the Subleased
Premises subleased by it from Lessee, and such liability of Sublessee shall,
without limitation, include liability for payments of all rents and other
charges relating to the Subleased Premises subleased by it from Lessee.
<PAGE>
Henceforth any notice required or permitted to be given by Lessor to
Lessee under the Lease shall be deemed to have been sufficiently given for all
purposes when made by personal delivery or sent in the United States mail as
certified or registered mail, return receipt requested, postage prepaid and
addressed as follows:
LESSEE: SUBLESSEE:
Medical Records Corporation (Capital Bank Proposed)
3637 Green Road 4400 Falls of the Neuse Road, Suite 102
Cleveland, OH 44122 Raleigh, North Carolina 27609
3. Lessee shall pay to Lessor as Additional Rent, all Rents received by
Lessee from Sublessee in excess of the Rent payable by Lessee to Lessor under
the Lease.
4. Sublessee shall indemnify and hold Lessor harmless from and against any
and all claims arising out of (a) Sublessee's use of the Subleased Premises or
any part thereof, (b) any activity, work, or other thing done, permitted or
suffered by Sublessee in or about the Subleased Premises or the Building, or any
part thereof, (c) any breach or default by Sublessee in the performance of any
of its obligations under the Sublease, or (d) any act or negligence of
Sublessee, or any officer, agent, employee, contractor, servant, invitee or
guest of Sublessee; and in each case from and against any and all damages,
losses, liabilities, lawsuits, costs and expenses (including attorneys' fees at
all tribunal levels) arising in connection with any such claim or claims as
described in (a) through (d) above, or any action brought thereon. If such
action be brought against Lessor, Sublessee upon notice from Lessor shall defend
the same through counsel selected by Sublessee's insurer or other counsel, in
each case acceptable to Lessor, in its reasonable discretion. Sublessee assumes
all risk of damage or loss to its property or injuries or death to persons, in,
on, or about the Subleased Premises, from all causes except those for which the
law imposes liability on Lessor regardless of any attempted waiver thereof, and
Sublessee hereby waives such claims in respect thereof against Lessor. The
provisions of this paragraph shall survive the termination of the Agreement of
Sublease.
5. Provided that Sublessee files its Articles of Incorporation with the
Banking Commission of the State of North Carolina on or before May 30, 1997,
Lessor hereby consents to the Agreement of Sublease from Lessee to Sublessee
dated June 3, 1997.
(Signatures on the following page)
<PAGE>
LESSOR:
Forty-Four Hundred F-N Associates, a North
Carolina general partnership (SEAL)
By: /s/ (SEAL)
------------------------------
C. Gilbert Smith, Partner
Dixon-Odom and Company, a North Carolina
corporation
By: /s/ (SEAL)
------------------------------
Robert C. Rice, Partner
LESSEE:
Medical Records Corporation, an Ohio corporation
(Corporate Seal) By: /s/
------------------------------
Greg Marcus
ATTEST: Name: /s/
------------------------------
By: /s/ Title: Vice President
--------------------- ------------------------------
SUBLESSEE:
Capital Bank (Proposed), a North Carolina
corporation
(Corporate Seal) By: /s/
------------------------------
James A. Beck
ATTEST: Name: /s/
------------------------------
By: /s/ Title: President
--------------------- ------------------------------
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is made and
entered into by NB Acquisition Corp., a North Carolina corporation (hereinafter
the "Corporation") and James A. Beck (hereinafter the "Employee").
WHEREAS, the shareholders and directors of the Corporation intend to
organize a North Carolina chartered commercial bank, which will have its
principal offices in Raleigh, North Carolina (the "Bank"); and
WHEREAS, the Corporation and Employee desire that, and intend for, this
Agreement to be assigned to the Bank immediately upon the Bank's becoming fully
chartered and authorized under applicable law to accept such assignment; and
WHEREAS, once the Bank is fully chartered and has received all necessary
authorizations to commence business as a commercial bank, the Corporation shall
be dissolved; and
WHEREAS, the Corporation desires to employ Employee and Employee desires
to accept such employment on the terms set forth below.
In consideration of the mutual promises set forth below and other good and
valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the Corporation and Employee agree as follows:
1. Employment. The Corporation employs Employee and Employee accepts
employment on the terms and conditions set forth in this Agreement.
2. Nature Of Employment.
(a) For Corporation. Employee shall serve as the President and Chief
Executive Officer of the Corporation and shall perform all duties consistent
with such position assigned to him by the Corporation in respect to the
formation, organization, and capitalization of the Bank. Employee shall devote
his full time and attention and best efforts to perform successfully his duties
and advance the Corporation's interests. Employee shall abide by Corporation
policies, procedures, and practices as they may exist from time to time.
(b) For Bank. Once the Bank becomes fully chartered, Employee shall
serve as its President and Chief Executive Officer and have such
responsibilities and authority consistent with such positions as may from time
to time be reasonably assigned by the Bank. Employee shall also be a member of
the Board of Directors of the Bank. The Bank shall provide liability insurance
for its officers and directors. Employee shall devote his full time and
attention and best efforts to perform successfully his duties and advance the
Bank's interests. Employee shall abide by Bank policies, procedures, and
practices as they may exist and be in force from time to time.
<PAGE>
Employee shall be based in Raleigh, North Carolina, and it is anticipated
that his duties and responsibilities shall not require relocation except for
reasonably required travel on Corporation or Bank business.
During this employment, Employee shall have no other employment of any
nature whatsoever without the prior consent of Corporation or Bank; provided,
however, this Agreement shall not prohibit Employee from personally owning and
dealing in stocks, bonds, securities, real estate, commodities or other
investment properties for his own benefit and Employee may participate in civic,
association, and social matters which do not interfere with Employee's duties
hereunder, including the matters identified in Exhibit A.
3. Compensation.
(a) Signing Bonus. Employee shall receive a signing bonus of Fifty
Thousand Dollars ($50,000) which shall be paid by the later of February 1, 1997
or within five days of execution of this Agreement.
(b) Salary. Compensation for Employee's services under this
Agreement initially shall be One Hundred and Thirty Thousand Dollars ($130,000)
per year, payable in accordance with the Corporation and Bank's reasonable
policies, procedures, and practices as they may exist from time to time. The
Employee's salary shall be reviewed annually by the Bank's Board of Directors by
January 31 of each year and may be increased in the Board's discretion based on
Employee's performance and market factors, provided that such salary shall not
be reduced below One Hundred and Thirty Thousand Dollars ($130,000).
(c) Benefits. Employee may participate in any medical, dental,
disability, life insurance, 401(k) plan, and other employee benefit plans and
programs which may be made available from time to time to other Corporation or
Bank employees at Employee's level; provided, however, that Employee's
participation in such benefit plans and programs is subject to the applicable
terms, conditions, and eligibility requirements of those plans and programs,
some of which are within the plan administrator's discretion, as they may exist
from time to time. Benefits to be initially provided by the Corporation and
subsequently the Bank include health insurance, long-term disability insurance,
term life insurance and participation in a 401(k) plan, general terms of such
benefits are set forth on Exhibit B. The Corporation or the Bank shall pay
Employee's COBRA payments for continuation of health insurance coverage under
any plan he may have with his prior employer until such time as the Corporation
or the Bank may institute a health insurance plan or program in which Employee
may participate as set forth above.
(d) Automobile. The Corporation or the Bank shall provide Employee
with the use of an automobile in a price category equivalent to a Buick LeSabre.
The Corporation or Bank shall pay fuel and reasonable maintenance expenses for
such automobile. Employee shall reimburse the Corporation or the Bank for
personal use of such automobile.
2
<PAGE>
(e) Mobile Telephone. The Corporation or the Bank shall provide
Employee with the use of a mobile telephone and shall pay all reasonable
business expenses related to the use of such telephone.
(f) Vacation. Employee shall be entitled to three (3) weeks of paid
vacation annually.
(g) Country Club Dues. The Corporation or the Bank shall pay the
monthly or annual dues for Employee's membership in one local country club and
for the Capital City Club.
(h) Performance Bonus. Employee shall be entitled to an annual
performance bonus which shall be based on budgets and goals set by Bank
management, approved by the Bank's Board of Directors, and communicated to
Employee by January 31 of each year. Such bonus shall be in an amount up to 100%
of Employee's base salary in any year. For the year 1997, Employee shall receive
a bonus in an amount of not less than $20,000 and up to $50,000, with the
precise amount to be set by the Bank's Board of Directors in its sole discretion
based on an evaluation of performance and goals and to be paid by January 31,
1998.
(i) Stock Purchase and Stock Options. Employee agrees to purchase a
minimum of One Thousand (1,000) shares of stock in the Bank upon the initial
issuance of such shares at the issue price of such shares.
Subject to, and to the extent permitted by, applicable federal and state
law, the Board of Directors of the Bank shall adopt an incentive stock option
plan within thirty (30) days of receiving its charter and will grant Employee
the option to purchase twenty-five thousand (25,000) shares of stock of the Bank
under such plan with an option price to be equal to the fair market purchase
price at which the Bank's stock is initially offered to investors and an option
term of ten years. Subject to, and to the extent permitted by, applicable
federal and state law, the option to purchase five thousand (5,000) shares
subject to such option shall be vested at the time of the grant and the
remainder shall vest on a schedule of four thousand (4,000) per year commencing
on the anniversary date hereof. If Employee's employment is terminated for
"cause" as defined in Section 5(c) or because Employee terminates by giving
written notice pursuant to the first sentence of Section 5(b), then all unvested
options shall be canceled.
The Bank will also make available options to purchase ten thousand
(10,000) shares under the incentive stock option plan to be granted in
Employee's discretion, subject to approval by the Board, to key employees of the
Bank.
4. Term Of Employment. Subject to Section 5 (Termination) below, the
original term of employment under this Agreement shall be for three (3) years,
commencing upon the date of the termination of Employee's employment
relationship with his prior employer, but, in any event, no later than February
4, 1997. On the first annual anniversary of the date employment commences
hereunder, and on each annual anniversary thereafter, the term of employment
shall be extended by an additional one year period, unless the Bank gives at
least sixty (60) days written
3
<PAGE>
notice prior to such first annual anniversary or any subsequent annual
anniversary that the employment will end at the expiration of the then existing
term.
In the event that the Bank gives such notice of non-extension, then
Employee shall be entitled, within sixty (60) days of such notice, to terminate
his employment hereunder and the Bank shall nevertheless remain obligated to pay
Employee's then current salary and bonus (based on the average of the preceding
two (2) years) and to continue his then current benefits and perquisites for the
then remaining term of this Agreement, provided that Employee complies with the
non-competition provisions to the extent applicable under Section 7.
5. Termination of Employment.
(a) Upon Failure to Obtain Bank's Charter. If the Bank has not
received authorization to commence business from the Commissioner of Banks of
North Carolina pursuant to North Carolina General Statute ss. 53-8 by December
31, 1997, then the Corporation may terminate this Agreement on December 31, 1997
or at any time thereafter, and neither the Corporation nor the Bank shall have
any further obligation to Employee except for payment of any compensation due as
of the date of termination, and Employee shall have no further obligation to the
Corporation or the Bank.
(b) With Notice. Either the Bank or Employee may terminate this
Agreement during the original or any extension term of employment by giving one
hundred and twenty (120) days notice to the other party. If the Bank terminates
this Agreement with such notice, then the Bank shall nevertheless remain
obligated to pay Employee's then current salary and bonus (based on the average
of the preceding two (2) years) and to continue his then current benefits and
perquisites for the then remaining term of this Agreement, provided that
Employee complies with the non-competition provisions to the extent applicable
under Section 7. If the Bank materially breaches this Agreement, then, after
giving the Bank notice and a sixty (60) day opportunity to cure such breach,
Employee may elect to terminate this Agreement and the Bank shall nevertheless
remain obligated to pay Employee's then current salary and bonus (based on the
average of the preceding two (2) years) and to continue his then current
benefits and perquisites for the then remaining term of this Agreement, provided
that Employee complies with the non-competition provisions to the extent
applicable under Section 7 unless such breach results from the requirement of
compliance by the Bank with any applicable laws, including, specifically,
banking regulations. If the Bank terminates with notice or the Employee
terminates because of the Bank's material breach or non-extension as set forth
above, then all unvested options shall immediately vest and must be exercised
within three (3) months.
(c) Cause, Disability, or Death. The Corporation or the Bank may
terminate Employee's employment immediately for "Disability," "Cause," or in the
event of Employee's death. For purposes of this Agreement, Disability shall mean
a mental or physical condition, or both, that substantially interferes with
Employee's ability to perform satisfactorily his usual duties for the
Corporation or the Bank for a period of more than six (6) consecutive months
upon the certificate of a qualified physician approved by the Corporation or the
Bank. For purposes of this Agreement, Cause shall mean: (i) any act of
Employee's in connection with his employment and relating to the
4
<PAGE>
Corporation's or the Bank's business including, but not limited to, misconduct,
negligence, unlawfulness or dishonesty, which is materially detrimental to the
Corporation's or the Bank's interests; (ii) Employee's unsatisfactory job
performance which is materially detrimental to the Corporation's or the Bank's
business or failure to comply with the Corporation's or the Bank's Board of
Directors' reasonable directions; or (iii) Employee's material breach of this
Agreement. Employee shall be given notice and a sixty (60) day opportunity to
cure any deficiencies arising under Sections 5(i), (ii) and (iii) above. In the
event of termination for Cause or for Disability, the Corporation or Bank's
obligation to compensate Employee ceases on the termination date except as to
the amounts due at that time.
6. Change in Control. For purposes of this Agreement, "Change in Control"
shall mean:
(a) The acquisition by any entity or person, which theretofore
beneficially owned less than 50% of the Bank's common stock in a transaction or
series of transactions which results in such entity or person beneficially
owning 50% or more of the Bank's common stock or voting power, where beneficial
ownership and the percentages of shares outstanding are determined pursuant to
Sections 13(d) and (g) of the Securities Act of 1934 and the rules and
regulations promulgated thereunder; or
(b) The merger or consolidation of the Bank with one or more
corporations in a transaction or series of transactions where the common stock
of the Bank is exchanged for less than 50% of the voting stock of the resulting
or surviving corporation, including, without limitation, an exchange of the
common stock of the Bank for cash; or
(c) The sale, assignment, transfer, pledge, hypothecation or other
disposition of assets (except a pledge, hypothecation or other similar
disposition made at the time the Bank enters into a bona fide financing
transaction with a party which at the time of such transaction is not an
affiliate of the Bank) of the Bank having a value in excess of 50% of the
consolidated total assets of the Bank.
A Change in Control shall not include a transaction, or series of
transactions, whereby the Bank becomes a subsidiary of a holding company if the
shareholders of the holding company are substantially the same as the
shareholders of the Bank prior to such transaction or series of series of
transactions.
Within sixty (60) days following the event constituting a Change in
Control, Employee may elect to terminate his employment hereunder. If Employee
so elects, then, subject to all applicable legal and regulatory requirements or
restrictions, he shall be entitled to receive an amount equal to two and
nine/tenths (2.9) years of his then current salary and bonuses (calculated as
the average bonus for the prior five (5) years), such payments to be made in
equal monthly payments over the course of a two and nine/tenths (2.9)-year
period (the "Severance Period"); in addition, Employee shall be entitled to a
continuation of all benefits and perquisites he is then receiving under this
Agreement and all unvested options to purchase shares of stock in the Bank shall
immediately vest and must be exercised within three (3) months. If Employee's
continued participation in any benefit
5
<PAGE>
plan or program is barred, the Bank shall arrange, upon comparable terms, and at
no greater cost to Employee than the cost he bore for such plan or program prior
to termination, to provide Employee with benefits substantially similar to, or
greater than, those which he is entitled to receive under any such plan or
program during the Severance Period.
7. Covenant Not to Compete. Employee acknowledges that by virtue of his
employment relationship, he shall have access to and control of confidential and
proprietary information concerning the Corporation's and the Bank's business and
that the Corporation and the Bank's business depends, to a considerable extent,
on the individual skills, efforts, and leadership of Employee. Accordingly and
in consideration of the Corporation's and the Bank's commitments to Employee
under this Agreement, Employee expressly covenants and agrees that during the
term of employment and for the longer of two (2) years following the termination
of his employment with the Bank or any period during which Employee is receiving
post-termination payments from the Bank, Employee will not, without the prior
consent of Bank:
(a) on Employee's own or another's behalf, whether as an officer,
director, stockholder, partner, associate, owner, employee, consultant or
otherwise, directly or indirectly:
(i) within the geographical areas set forth below, solicit or
do business which is the same, similar to, or otherwise in competition
with the business engaged in by the Bank and for which Employee was
primarily responsible, from or with persons or entities who are customers
of the Bank, who were customers of the Bank at any time during the last
year of Employee's employment with the Bank, or to whom the Bank had made
proposals for business at any time during the last year of Employee's
employment with the Bank; or
(ii) offer employment to, or otherwise solicit for employment,
any employee or other person who had been employed by the Bank during the
last year of Employee's employment with the Bank.
(b) within the geographical areas set forth below be employed (or
otherwise engaged) in a management capacity, other capacity which, in respect to
each of the foregoing, is providing the same or similar services which Employee
provided to the Bank, or any capacity connected with the then primary banking
activities of the Bank, by any person or entity that engages in the then primary
banking activities of the Bank provided that, he may engage in such activities
or be employed by any such person or entity after the expiration of the period
of two (2) years from the termination of employment, and in such event he shall
waive all bonuses, benefits and perquisites to which he may otherwise be
entitled hereunder and the Bank shall be relieved of the obligation to continue
to pay any salary he may be entitled to hereunder to the extent that Employee's
annual salary and bonus compensation received from such activity or employment
exceeds the salary to which he would otherwise be entitled to receive from the
Bank hereunder and, in any event, the amount payable by the Bank as continuation
of salary shall be reduced by 50%;
(c) directly or indirectly take action which is primarily intended
to be materially detrimental to the Bank's goodwill, name, business relations,
prospects and operations.
6
<PAGE>
The restrictions set forth in this Section 7 apply to the following
geographical areas:
(i) Lee County, North Carolina and Wake County, North Carolina; or
(ii) any city, metropolitan area, or county in which the Bank
maintains an office at the date employment hereunder terminates or did maintain
an office during Employee's employment with the Bank.
The restrictions in this Section 7 shall not apply if the termination of
employment is by the Corporation or the Bank without cause or by the Employee
following a material breach by the Bank as described in Section 5(b) and the
Employee elects to waive all post-termination payments, benefits, and
perquisites and so notifies the Bank at any time during such post-termination
period.
Employee further acknowledges that the covenants contained in this Section
7 are reasonably necessary to protect the legitimate business interests of the
Bank and are reasonable with respect to scope, time, and territory and are
described with sufficient accuracy and definiteness to enable him to understand
the scope of the restrictions imposed on him. The terms and conditions of this
Section 7 shall survive expiration or termination of this Agreement or
Employee's employment and shall not be affected by any change or modification of
this Agreement unless specific reference is made to this Section 7.
8. Proprietary Information And Property. Employee shall not, at any time
during or following employment with the Corporation or the Bank, disclose or
use, except in the course of his employment with the Corporation or the Bank as
may be required by law, any confidential or proprietary information of the
Corporation or the Bank received by Employee while employed hereunder, whether
such information is in Employee's memory or embodied in writing or other
physical form.
Confidential or proprietary information is information which is not
generally available to the general public, or Bank's competitors, or
ascertainable through common sense or general business knowledge; including, but
not limited to data, compilations, methods, financial data, financial plans,
business plans, products plans, lists of actual or potential customers,
marketing information regarding executives and employees.
All records, files or other objects maintained by or under the control,
custody or possession of the Bank or its agents in their capacity as agents
shall be and remain the Bank's property. Upon termination of his employment,
Employee shall return to the Bank all property (including, but not limited to,
equipment, records, files, documents, credit cards, and keys) which he received
in connection with his employment. At the Bank's request, Employee shall bring
current all such records, files or documents before returning them.
Upon notice of cessation of his employment with the Bank, Employee shall
fully cooperate with the Bank in winding up his pending work and transferring
his work to those individuals designated by the Bank.
7
<PAGE>
The terms and conditions of this Section 8 shall survive expiration or
termination of this Agreement or Employee's employment and shall not be affected
by any change or modification of this Agreement unless specific reference is
made to this Section 8.
9. Remedies. Employee agrees that his breach or violation of Sections 7
and 8, will result in immediate and irreparable harm to the Bank for which legal
remedies would be inadequate. Therefore, in addition to any legal or other
relief to which the Bank may be entitled, the Bank may seek legal and equitable
relief, including but not limited to, preliminary and permanent injunctive
relief.
10. Employee Representation. Employee represents and warrants that his
employment and obligations under this Agreement will not breach any duty or
obligation he owes to another person or entity.
11. Waiver Of Breach. The Bank's or Employee's waiver of any breach of a
provision of this Agreement shall not waive any subsequent breach by the other
party.
12. Entire Agreement. This Agreement including any exhibit or attachment
hereto: (i) supersedes all other understandings and agreements, oral or written,
between the parties with respect to the subject matter of this Agreement
including any exhibit or attachment hereto; and (ii) constitutes the sole
agreement between the parties with respect to this subject matter. Each party
acknowledges that: (i) no representations, inducements, promises or agreements,
oral or written, have been made by any party or by anyone acting on behalf of
any party, which are not embodied in this Agreement including any exhibit or
attachment hereto; and (ii) no agreement, statement or promise not contained in
this Agreement shall be valid. No change or modification of this Agreement shall
be valid or binding upon the parties unless such change or modification is in
writing and is signed by the parties.
13. Severability. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases in the Non-Competition (Section 7) and Proprietary
Information and Property (Section 8) provisions set forth in this Agreement are
held unenforceable by a court of competent jurisdiction, then the parties desire
that they be "blue-penciled" or rewritten by the court to the extent necessary
to render them enforceable.
14. Parties Bound. The terms, provisions, covenants and agreements
contained in this Agreement shall apply to, be binding upon and inure to the
benefit of the Corporation's or the Bank's successors and assigns. Employee may
not assign this Agreement without the Corporation's or the Bank's prior written
consent. This Agreement shall automatically and without further action or notice
be assigned from the Corporation to the Bank upon the Bank's becoming fully
chartered and authorized under applicable law to accept such assignment.
8
<PAGE>
15. Governing Law. This Agreement and the employment relationship created
by it shall be governed by North Carolina law.
9
<PAGE>
IN WITNESS WHEREOF, the parties have amended and restated this Agreement
on the day and year written below.
_______/s/_________________________ _5/22/97____
Employee Date
NB ACQUISITION CORP.
By:______/s/_____________________ __5-22-97__
Date
CAPITAL BANK CORPORATION
INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Capital Bank Corporation Incentive Stock
Option Plan (the "Plan") is to advance the interests of Capital Bank Corporation
(the "Corporation") by making shares of the Corporation's common stock ("Common
Stock") available for purchase by certain officers and other key employees of
the Corporation in order to give such persons an additional incentive to
continue their relationship with the Corporation and promote the Corporation's
success. This purpose will be carried out through the granting of certain stock
options which are intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration of Plan. The Board of Directors of the Corporation (the
"Board") shall designate a committee of at least two "Nonemployee Directors" as
defined in Rule 16b-3(b)(3) promulgated under Section 16 of the Securities and
Exchange Act of 1934 (the "Committee") to administer the Plan. The Committee
shall report its actions to the Board. The Board may from time to time remove
members from the Committee and appoint their successors. The Board shall fill
all vacancies on the Committee however caused. Except as otherwise expressly
provided in the Plan, the Committee shall have full discretionary authority to:
(a) determine the employees to whom options shall be granted (the "Optionees");
(b) determine the time and times at which options shall be granted; (c)
determine the number of shares subject to each option; (d) determine the option
price of the shares subject to each option; (e) determine the time or times when
each option shall become exercisable and the duration of the exercise period;
(f) interpret the Plan and prescribe, amend, and rescind rules and regulations
relating to it; (g) determine the terms and provisions (and amendments of the
terms and provisions) of the option agreements to be entered into between the
Corporation and each Optionee (which option agreements need not be identical),
including such terms and provisions as shall be required in the Committee's
judgment to conform to any change in any applicable law or regulation; and (h)
make all other determinations the Committee shall deem necessary or advisable
for the Plan's administration. The interpretation and construction of any
provision of the Plan by the Committee shall be final and conclusive. No member
of the Committee or the Board shall be liable to any person for any action or
determination which he or she makes in good faith.
3. Eligibility. Subject to the provisions of Section 2, any officer or
employee designated by the Committee shall be eligible to receive options under
the Plan. In determining the eligibility of an employee to receive an option and
the number of shares to be granted to such employee, the Committee may take into
account the position and responsibilities of the employee, the nature of the
services rendered by the employee, the employee's present and potential
contributions to the success of the Corporation and such other factors as the
Committee in its discretion may deem relevant; provided, however, that in no
event shall the fair market value of Common Stock with respect to which options
are exercisable for the first time by any Optionee in any one calendar year
exceed $100,000 (the fair market value of the Common Stock shall be determined
at the time an option is granted). To the extent that the fair market value of
Common Stock with respect to which options are exercisable for the first time by
an Optionee in one calendar year exceeds $100,000, such options shall be treated
as nonqualified stock options.
<PAGE>
4. Shares of Stock Subject to the Plan. Subject to the provisions of
Section 6, the Board shall reserve an aggregate of 200,000 authorized and
unissued shares of the no par value Common Stock of the Corporation for issuance
upon exercise of the options. The Board may from time to time reserve additional
shares of authorized and unissued Common Stock for issuance upon exercise of the
options; provided, however, that any such additional reservation is approved by
the shareholders within the prescribed 12-month period. If any option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares of Common Stock subject to the expired
or terminated option shall again be available for options under the Plan.
5. Option Price. The purchase price of the shares of Common Stock covered
by each option shall be determined by the Committee at the time the option is
granted, but in no event shall such purchase price be less than 100% (or 110%,
in the case of a 10% shareholder as described in Code section 422(b)(6) (a "10%
Shareholder")) of the fair market value of the Corporation's shares on the date
of grant. If the shares are traded in the over-the-counter market, such fair
market value shall be deemed to be the mean between the asked and the bid prices
on such day as reported by NASDAQ. If the stock is traded on an exchange, such
fair market value shall be deemed to be the mean of the high and low prices at
which it is quoted or traded on such day on the exchange on which it generally
has the greatest trading volume.
6. Adjustment Upon Changes in Capitalization. In the event of a change in
the Corporation's Common Stock by reason of any stock dividend, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of property or stock, separation, reorganization, liquidation or
similar action, the Committee shall make an appropriate adjustment of the number
and class of shares of Common Stock subject to and the purchase price for each
then outstanding option, consistent with and as provided in the corresponding
option agreement under the Plan. In the event of any such change in the
outstanding Common Stock, the Committee shall adjust appropriately the aggregate
number and class of shares of Common Stock reserved and available under the Plan
appropriately, and the Committee's determination on adjustment shall be
conclusive. Any fractional shares from the computations pursuant to this Section
6 shall be eliminated, and no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares or other
securities.
7. Duration and Exercise of Options. The period during which an option may
be exercised shall be determined by the Committee at the time the option is
granted and shall not extend more than ten (10) years from the date on which the
option is granted (or five (5) years, in the case of a 10% Shareholder). The
term of each option, once it is granted, may be reduced only as outlined in
Sections 9 and 10 hereof. Except as provided in the option agreement relating to
such option, an option may be exercised in whole or part at any time during its
term. The Committee may impose vesting or other restrictions on the
exercisability or conditions of the option. Except as provided in the option
agreement relating to such option, the purchase price of the shares of Common
Stock subject to the option shall be paid in full in cash upon the exercise of
the option. If the option agreement so provides, the purchase price may be paid
in whole or in part with: (1) other shares of Common Stock (in the case of
shares acquired on exercise of an option, such shares must have been owned by
the Optionee for more than six months on the date of surrender); (2)
consideration received by the Corporation under a cashless exercise program
implemented by the Corporation in connection with the Plan; or (3) such other
consideration and method of payment as may be permitted by law. If the purchase
price is paid in whole or in part with shares, the cash and any shares
surrendered must have a fair market value (determined as of the day preceding
the date of exercise) that is not less than the purchase price for the number of
shares for which the option is being exercised. An Optionee shall not have any
of the rights of a shareholder with respect to the Common Stock subject to the
option until such shares shall be issued to him or her upon the
2
<PAGE>
exercise of the option and the payment of the purchase price. Except as provided
in Section 9, no option may be exercised after termination of the Optionee's
employment with the Corporation. In no event may an option be exercised after
the expiration of its term.
8. Assignability. Each option granted under this Plan shall be
transferable only by will or by the laws of descent and distribution and shall
be exercisable, during an Optionee's lifetime, only by the Optionee and his or
her duly appointed legal representatives.
9. Termination of Employment. The times and conditions upon which an
option will terminate where an Optionee terminates, or the Corporation
terminates, his or her employment relationship with the Corporation shall be
determined by the Committee at the time the option is granted; provided,
however, that in no event shall the period for exercise following termination
exceed three months unless: (a) the Optionee's employment shall have terminated
as a result of death or disability (within the meaning of Section 22(e)(3) of
the Code), in which case such period shall not exceed one year after the date of
death or disability, or (b) the Optionee shall have died following termination
while the option was still exercisable, in which case, such period shall not
exceed one year after the date of death; provided, further, that in no event
shall a period for exercise following termination extend an option's original
term. Nothing in the Plan or any option agreement granted pursuant to the Plan
shall confer on any individual any right to continue in the employ of the
Corporation or interfere in any way with the Corporation's right to terminate
such individual's employment.
10. Acceleration of Vesting Upon a Change in Control. Upon the date of a
Change in Control, all outstanding options shall become fully vested and
exercisable. If a Change in Control occurs on account of a series of
transactions, the date of the Change in Control shall be the date of the last of
such transactions. For purposes of this Section, "Change in Control" means the
occurrence of any of the following events:
(a) Any "person" (as such term is used in Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"))
acquires "beneficial ownership" (as such term is used in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power represented by the
Corporation's then outstanding voting securities (the "Voting Power"), but
excluding for this purpose an acquisition by the Corporation or an "affiliate"
(as defined in Rule 12b-2 under the Act) or by an employee benefit plan of the
Corporation or an affiliate.
(b) The individuals who constitute the Board on the effective date
hereof (individually, an "Incumbent Director" and, collectively, the "Incumbent
Board") cease to constitute at least a majority of the Board, provided that any
director whose nomination was approved by a majority of the Incumbent Board will
be considered a member of the Incumbent Board, but excluding for this purpose
any such individual not otherwise an Incumbent Director whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of the directors of the Corporation.
(c) The shareholders of the Corporation approve a reorganization,
merger or consolidation, in each case, in which the owners of the Voting Power
of the Corporation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 50% of the
Voting Power of the corporation resulting from such reorganization, merger or
consolidation.
3
<PAGE>
(d) The shareholders of the Corporation approve a complete
liquidation or dissolution of the Corporation or a sale or other disposition of
all or substantially all of the assets of the Corporation.
11. Effectiveness of Plan. The exercise of each option granted pursuant to
the Plan shall be subject to the requirement that if at any time the Corporation
shall determine, in its discretion, that (a) the listing on any securities
exchange or the registration or qualification under any state or federal law of
any shares of Common Stock otherwise deliverable upon its exercise, or (b) the
consent or approval of any regulatory body or the shareholders is necessary or
desirable as a condition of, or in connection with, such exercise or delivery or
purchase of shares of Common Stock pursuant to such exercise, then, in any
event, such exercise shall not be effective unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions unacceptable to the Corporation.
12. Termination and Expiration of the Plan. The Plan may be abandoned or
terminated at any time by the Board except with respect to any options then
outstanding under the Plan. Unless terminated earlier in accordance with this
Section, the Plan shall terminate when all shares of Common Stock reserved for
issuance under the Plan have been issued. No option shall be granted pursuant to
the Plan after ten years from effective date of the Plan.
13. Amendment of the Plan. The Board may at any time and from time to time
modify and amend the Plan (including the form of any option agreement to be
executed pursuant hereto) in such respects as the Board may deem advisable;
provided, however, that no such amendment shall change the number of shares of
Common Stock reserved under the Plan (except in accordance with Section 6
hereof) or the class of employees eligible to participate in the Plan unless the
amendment shall have received the approval of the shareholders of the
Corporation and such other approval as may be required by applicable law. No
termination, modification or amendment of the Plan shall, without the consent of
the Optionee, affect such Optionee's rights under an option previously granted
to him or her.
14. Effective Date of Plan. This Plan shall become effective upon adoption
by the Board, subject to approval by the shareholders of the Corporation and
such other approval as may be required by applicable law. This Plan shall not
become effective unless such shareholder approval shall be obtained within
twelve months before or after the adoption of the Plan by the Board.
15. Applicable Law. Except as otherwise provided herein, the Plan shall be
construed and enforced according to the laws of the State of North Carolina.
4
CAPITAL BANK CORPORATION
NONQUALIFIED STOCK OPTION PLAN
1. Purpose. This purpose of the Capital Bank Corporation Nonqualified
Stock Option Plan (the "Plan") is to advance the interests of Capital Bank
Corporation (the "Corporation") by making shares of the Corporation's common
stock ("Common Stock") available for purchase by certain directors, local board
members, officers, and employees of the Corporation in order to give such
persons an additional incentive to continue their relationship with the
Corporation and promote the Corporation's success. This purpose will be carried
out through the granting of certain stock options which are not intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Administration of Plan. The Board of Directors of the Corporation
(the "Board") shall designate a committee of at least two "Nonemployee
Directors" as defined in Rule 16b-3(b)(3) promulgated under Section 16 of the
Securities and Exchange Act of 1934 (the "Committee") to administer the Plan.
The Committee shall report its actions to the Board. The Board may from time to
time remove members from the Committee and appoint their successors. The Board
shall fill all vacancies on the Committee however caused. Except as otherwise
expressly provided in the Plan, the Committee shall have full discretionary
authority to: (a) determine the persons to whom options shall be granted (the
"Optionees"); (b) determine the time and times at which options shall be
granted; (c) determine the number of shares subject to each option; (d)
determine the option price of the shares subject to each option; (e) determine
the time or times when each option shall become exercisable and the duration of
the exercise period; (f) interpret the Plan and prescribe, amend, and rescind
rules and regulations relating to it; (g) determine the terms and provisions
(and amendments of the terms and provisions) of the option agreements to be
entered into between the Corporation and each Optionee (which option agreements
need not be identical), including such terms and provisions as shall be required
in the Committee's judgment to conform to any change in any applicable law or
regulation; and (h) make all other determinations the Committee shall deem
necessary or advisable for the Plan's administration. The interpretation and
construction of any provision of the Plan by the Committee shall be final and
conclusive. No member of the Committee or the Board shall be liable to any
person for any action or determination which he or she makes in good faith.
3. Eligibility.
(a) Subject to the provisions of Section 2, any member of the
Board, member of a local board of directors, officer or employee designated by
the Committee shall be eligible to receive options under the Plan. In
determining the eligibility of an individual to receive an option and the number
of shares to be granted to such individual, the Committee may take into account
the position and responsibilities of the individual, the nature of the services
rendered by the individual, the individual's present and potential contributions
to the success of the Corporation and such other factors as the Committee in its
discretion may deem relevant.
(b) Members of the Committee shall be entitled to receive options
under the Plan to the same extent as other members of the Board. However, any
grant of an option to a member of the Committee must be approved by a
disinterested majority of the remaining members of the Committee; such member
must be excused from any consideration of a grant of such option and must not
participate in any manner in such decision.
4. Shares of Stock Subject to the Plan. Subject to the provisions of
Section 6, the Board shall reserve initially an aggregate of 200,000 authorized
and unissued shares of the no par
<PAGE>
value Common Stock of the Corporation for issuance upon the exercise of the
options. The Board may from time to time reserve additional shares of authorized
and unissued Common Stock for issuance upon exercise of options. If any option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares of Common Stock subject to the
expired or terminated option shall again be available for options under the
Plan.
5. Option Price. The purchase price of the shares of Common Stock
covered by each option shall be determined by the Committee at the time the
option is granted.
6. Adjustment Upon Changes in Capitalization. In the event of a change
in the Corporation's Common Stock by reason of any stock dividend, split-up,
recapitalization, combination or exchange of shares, merger, consolidation,
acquisition of property or stock, separation, reorganization, liquidation or
similar action, the Committee shall make an appropriate adjustment of the number
and class of shares of Common Stock subject to and the purchase price for each
then outstanding option, consistent with and as provided in the corresponding
option agreement under the Plan. In the event of any such change in the
outstanding Common Stock, the Committee shall adjust appropriately the aggregate
number and class of shares of Common Stock reserved and available under the Plan
appropriately, and the Committee's determination on adjustment shall be
conclusive. Any fractional shares from the computations pursuant to this Section
6 shall be eliminated, and no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares or other
securities.
7. Duration and Exercise of Options. The period during which an option
may be exercised shall be determined by the Committee when the option is granted
and shall not extend more than ten (10) years from the date on which the option
is granted. The term of each option, once it is granted, may be reduced only as
outlined in Sections 9 and 10 hereof. Except as provided in the option agreement
relating to such option, an option may be exercised in whole or part at any time
during its term. The Committee may impose vesting or other restrictions on the
exercisability or conditions of the option. Except as provided in the option
agreement relating to such option, the purchase price of the shares of Common
Stock subject to the option shall be paid in full in cash upon the exercise of
the option. If the option agreement so provides, the purchase price may be paid
in whole or in part with: (1) other shares of Common Stock (in the case of
shares acquired on exercise of an option, such shares must have been owned by
the Optionee for more than six months on the date of surrender); (2)
consideration received by the Corporation under a cashless exercise program
implemented by the Corporation in connection with the Plan; or (3) such other
consideration and method of payment as may be permitted by law. If the purchase
price is paid in whole or in part with shares, the cash and any shares
surrendered must have a fair market value (determined as of the day preceding
the date of exercise) that is not less than the purchase price for the number of
shares for which the option is being exercised. An Optionee shall not have any
of the rights of a shareholder with respect to the Common Stock subject to the
option until such shares shall be issued to him or her upon the exercise of the
option and the payment of the purchase price. Except as provided in Section 9,
no option may be exercised after termination of the Optionee's employment with
the Corporation. In no event may an option be exercised after the expiration of
its term.
8. Assignability. Each option granted under this Plan shall be
transferable only by will or by the laws of descent and distribution and shall
be exercisable, during an Optionee's lifetime, only by the Optionee and his or
her duly appointed legal representatives.
9. Termination of Relationship with Corporation. The times and
conditions upon which an option will terminate where an Optionee terminates, or
the Corporation terminates, his or her director or employment relationship with
the Corporation shall be determined by the Committee at
2
<PAGE>
the time the option is granted; provided, however, that in no event shall an
option be exercised more than then (10) years from the date it was granted.
Nothing in the Plan or any option agreement granted pursuant to the Plan shall
confer on any individual any right to continue in the employ of the Corporation
or interfere in any way with the Corporation's right to terminate such
individual's employment.
10. Acceleration of Vesting Upon a Change in Control. Upon the date of a
Change in Control, all outstanding options shall become fully vested and
exercisable. If a Change in Control occurs on account of a series of
transactions, the date of the Change in Control shall be the date of the last of
such transactions. For purposes of this Section, "Change in Control" means the
occurrence of any of the following events:
(a) Any "person" (as such term is used in Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"))
acquires "beneficial ownership" (as such term is used in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Corporation representing
fifty percent (50%) or more of the combined voting power represented by the
Corporation's then outstanding voting securities (the "Voting Power"), but
excluding for this purpose an acquisition by the Corporation or an "affiliate"
(as defined in Rule 12b-2 under the Act) or by an employee benefit plan of the
Corporation or an affiliate.
(b) The individuals who constitute the Board on the effective
date hereof (individually, an "Incumbent Director" and, collectively, the
"Incumbent Board") cease to constitute at least a majority of the Board,
provided that any director whose nomination was approved by a majority of the
Incumbent Board will be considered a member of the Incumbent Board, but
excluding for this purpose any such individual not otherwise an Incumbent
Director whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Corporation.
(c) The shareholders of the Corporation approve a reorganization,
merger or consolidation, in each case, in which the owners of the Voting Power
of the Corporation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more than 50% of the
Voting Power of the corporation resulting from such reorganization, merger or
consolidation.
(d) The shareholders of the Corporation approve a complete
liquidation or dissolution of the Corporation or a sale or other disposition of
all or substantially all of the assets of the Corporation.
11. Effectiveness of Plan. The exercise of each option granted pursuant
to the Plan shall be subject to the requirement that if at any time the
Corporation shall determine, in its discretion, that (a) the listing on any
securities exchange or the registration or qualification under any state or
federal law of any shares of Common Stock otherwise deliverable upon its
exercise, or (b) the consent or approval of any regulatory body or the
shareholders is necessary or desirable as a condition of, or in connection with,
such exercise or delivery or purchase of shares of Common Stock pursuant to such
exercise, then, in any event, such exercise shall not be effective unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions unacceptable to the Corporation.
12. Termination and Expiration of the Plan. The Plan may be abandoned or
terminated at any time by the Board except with respect to any options then
outstanding under the Plan. Unless terminated earlier in accordance with this
Section, the Plan shall terminate when all shares
3
<PAGE>
of Common Stock reserved for issuance under the Plan have been issued. No option
shall be granted pursuant to the Plan after ten years from effective date of the
Plan.
13. Amendment of the Plan. The Board may at any time and from time to
time modify and amend the Plan (including the form of any option agreement to be
executed pursuant hereto) in such respects as the Board may deem advisable.
Modifications or amendments to the Plan are not required to be approved by the
Corporation's shareholders, except to the extent required by applicable law. No
termination, modification or amendment of the Plan shall, without the consent of
the Optionee, affect such Optionee's rights under an option previously granted
to him or her.
14. Effective Date of Plan. This Plan shall become effective upon
adoption by the Board subject to approval by the shareholders of the Corporation
and such other approval as may be required by applicable law. This Plan shall
not become effective unless such shareholder approval shall be obtained within
twelve months before or after the adoption of the Plan by the Board.
15. Applicable Law. Except as otherwise provided herein, the Plan shall
be construed and enforced according to the laws of the State of North Carolina.
4
CAPITAL BANK
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
ARTICLE I
DEFINITIONS
1.1 "Account" means the memorandum account for each Participant detailing
the Stock Units credited to the Participant.
1.2 "Bank" means Capital Bank, a North Carolina banking corporation.
1.3 "Beneficiary" means the person or persons, including estates and
trusts, entitled to receive any benefits under this Plan which become payable as
a result of a Participant's death.
1.4 "Board" means the Bank's Board of Directors.
1.5 "Common Stock" means the common stock of the Bank.
1.6 "Compensation" means each Participant's compensation paid by the Bank
for services as a Director, including retainer payments and amounts paid for
attendance at Board and Board committee meetings.
1.7 "Deferral Date" means January 1, 1998 and January 1 of each
calendar year thereafter.
1.8 "Director" means a member of the Bank's Board of Directors.
1.9 "Disability" is any physical or mental condition which in the opinion
of the Board makes continued service as a Director inadvisable.
1.10 "Plan" means this Deferred Compensation Plan for Outside
Directors.
1.11 "Participant" means an eligible Director who participates in the Plan
pursuant to Article III.
1.12 "Stock Units" means the amounts credited to the Account of a
Participant as described in Section 3.2.
ARTICLE II
ELIGIBILITY
Any individual who is a member of the Bank's Board on or after June 19,
1997 and who is not also an employee of the Bank, is eligible to participate in
the Plan.
<PAGE>
ARTICLE III
DEFERRAL OF COMPENSATION
3.1 Deferral Election. The individuals described in Article II shall be
eligible to participate in the Plan and may do so by filing a written election
with the Bank in the form attached or other form approved by the Bank. Elections
shall state the amount of deferred Compensation to be credited to the
Participant's Account as Stock Units. In the first year in which a Director
becomes eligible to participate in the Plan, the newly eligible Director may
make an election within 30 days after the date the Director becomes eligible to
defer Compensation for services to be performed subsequent to the election.
Except as otherwise provided herein, elections to defer payment of compensation
must be made before the beginning of the calendar year for which the
Compensation is payable and shall be irrevocable for such calendar year.
Any election made pursuant to this Section shall remain in effect for all
subsequent calendar years unless the Participant amends or revokes the election
by delivering a revised written election to the Bank by December 31 of the
calendar year preceding the calendar year to which the revised election applies.
3.2 Crediting of Account. The amount of Compensation that is deferred by a
Participant under the Plan will be credited to his or her Account on the dates
such Compensation would otherwise have been paid to the Participant. The amount
so credited shall be expressed as Stock Units. Each whole Stock Unit shall be
deemed equivalent to one share of Common Stock, as constituted on the Deferral
Date. The number of Stock Units to be credited to a Participant's Account shall
be the number of whole and fractional shares of Common Stock determined by
dividing 125% of the dollar amount of the deferred Compensation by the value of
such Common Stock as of the Deferral Date. For such purposes, the value of such
Common Stock shall be the last trading price of such Common Stock on the last
trading day immediately preceding the Deferral Date. Effective as of the date
the Bank shall pay any cash dividend in respect of its then outstanding shares
of Common Stock, the number of Stock Units credited to each Participant's
Account shall be increased by the number of whole and fractional shares of
Common Stock determined by dividing (a) the last trading price of the Common
Stock on the last trading day immediately preceding the dividend payment date
into (b) the amount of cash dividend which would have been paid by the Bank on
the dividend payment date in respect of the whole and fractional shares of
Common Stock credited to the Participant's Account immediately prior to such
dividend payment date had such Common Stock been issued and outstanding on the
record date for such dividend.
ARTICLE IV
PAYMENT OF BENEFITS
4.1 Right to Benefits. Subject to the provisions of Article VI, a
Participant (or his or her Beneficiary in the case of the Participant's death)
shall be entitled to payment of benefits hereunder upon the first to occur of
the Participant's death, Disability or retirement as a Director.
2
<PAGE>
4.2 Payment of Stock Units. Benefits represented by Stock Units shall be
paid, in the Bank's sole discretion, either in stock or in cash. Benefits paid
in stock shall be paid by the Bank by issuing an equivalent number of shares,
rounded up to the next whole number, of authorized and unissued shares of Common
Stock. Benefits paid in cash shall be paid at the value of the shares
represented by the Stock Units on the date the Participant becomes eligible to
receive benefits and shall be paid by the Bank, unless the Bank, in its sole
discretion establishes a trust in connection with this Plan, in which case, such
benefits may be paid by the trustee of such trust. For all such purposes, the
value of such Common Stock shall be the last trading price of such Common Stock
on the last trading day immediately preceding the date on which the Participant
becomes eligible to receive such benefits. Payment shall be made to the
Participant within 60 days after the Participant becomes eligible to receive
such benefits.
ARTICLE V
BENEFICIARIES
5.1 Designation of Beneficiary. A Participant may designate a Beneficiary
to receive benefits under the Plan upon the Participant's death by filing a
written designation with the Bank in the form attached or other form approved by
the Bank. If more than one Beneficiary is named, the share and precedence of
each Beneficiary shall be indicated. A Participant shall have the right to
change the Beneficiary by submitting a revised written designation to the Bank
but no such change shall be effective until acknowledged in writing by the Bank.
If no Beneficiary is named pursuant to this Section 5.1, the Participant's
Beneficiary will be the Participant's spouse, if any, or the Participant's
estate, if the Participant has no spouse.
5.2 Payment to Beneficiary. If the Bank has any doubt as to the proper
Beneficiary to receive payments under the Plan, the Bank shall have the right to
withhold those payments until the matter is finally determined to the
satisfaction of the Bank. Any payment made by the Bank in good faith and in
accordance with this Plan shall fully discharge the Bank from all further
obligations with respect to such payment.
In making any payment to or for the benefit of any minor or incompetent
Beneficiary, the Board, in its sole and absolute discretion, may make a
distribution to a legal or natural guardian or other relative of a minor or a
court appointed committee of such incompetent. The Board may also, in its sole
and absolute discretion, make a payment to any adult with whom the minor or
incompetent temporarily or permanently resides. The receipt by a guardian,
committee, relative or other person shall be a complete discharge to the Bank.
Neither the Board nor the Bank shall have any responsibility to see to the
proper application of any payments so made.
ARTICLE VI
RECAPITALIZATION; REORGANIZATION
6.1 Recapitalization or Stock Dividend. The number of Stock Units shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Bank resulting from a subdivision or consolidation
of shares or the payment of a
3
<PAGE>
stock dividend (but only on the Common Stock) or any other increase or decrease
in the number of such shares effected without receipt of consideration by the
Bank.
6.2 Reorganization. Notwithstanding any other provision of the Plan, in
the event of a dissolution or liquidation of the Bank or a merger or a
consolidation in which the Bank is not the surviving corporation, other than a
merger effected for the purpose of changing the Bank's domicile, each
Participant shall be entitled to all benefits hereunder immediately prior to
such dissolution, liquidation, merger or consolidation.
6.3 Change in Control. In the event that any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) other
than the Bank commences a tender or exchange offer for the issued and
outstanding shares of the Bank's Common Stock that, if successful, would result
in the acquisition by such person of more than 50% of the total voting power of
all issued and outstanding Common Stock entitled to vote on the election of
Directors (when the shares of Common Stock to which such offer extends are
aggregated with any other shares of Common Stock owned by such person at the
time of commencement of such offer or otherwise acquired by such person during
the pendency of such offer), each Participant shall be immediately entitled to
all benefits hereunder.
6.4 Administration by Board. To the extent that the adjustments relate to
Common Stock or securities of the Bank, the adjustments described in this
Article VI shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive.
ARTICLE VII
NATURE OF BANK'S OBLIGATION
The Bank's obligation under this Plan shall be an unfunded and unsecured
promise to pay benefits in the form of Common Stock. The Bank shall not be
obligated under any circumstances to fund its financial obligations under this
Plan. The Plan at all times shall be entirely unfunded both for tax purposes and
for purposes of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Bank may, however, in its sole discretion at any time make
provision for segregating assets of the Bank for payment of any benefits
hereunder by establishing a trust to hold such assets.
All assets which the Bank may acquire to help cover its financial
liabilities, whether or not held in trust, are and remain general assets of the
Bank subject to the claims of its creditors. The Bank does not give, and the
Plan does not give, any beneficial ownership interest in any asset of the Bank
to a Participant or his or her Beneficiary. All rights of ownership in any
assets are and remain in the Bank.
The Bank's liability for payment of benefits shall be determined only
under the provisions of this Plan as it may be amended from time to time.
4
<PAGE>
ARTICLE VIII
RIGHTS TO ASSETS
8.1 Unsecured General Creditor Status. The rights of a Participant,
Beneficiary or any other person claiming through the Participant or Beneficiary
shall be solely those of an unsecured general creditor of the Bank. Such persons
shall have the right to receive payments specified under this Plan only from the
Bank or from any trust established in connection with the Plan and have no right
to look to any specific or special property separate from the Bank to satisfy a
claim for benefit payments.
8.2 No Right to Specific Assets. A Participant, Beneficiary, or any other
person claiming through the Participant or Beneficiary shall have no right,
claim, security interests, or any beneficial ownership interest whatsoever in
any general asset that the Bank may acquire or use to help support its financial
obligations under this Plan. Any asset used or acquired by the Bank in
connection with the liabilities it has assumed under this Plan shall not be
deemed to be held under a funded trust for the benefit of the Participant or his
Beneficiary, and no general asset shall be considered security for the
performance of the obligations of the Bank. Any such asset shall remain a
general unpledged and unrestricted asset of the Bank. Notwithstanding the above,
a Participant or Beneficiary may assert his or her rights under the Plan against
a nonqualified trust established by the Bank in connection with the Plan,
subject to the terms of such trust.
A Participant's participation in the acquisition of any asset of the Bank
shall not constitute a representation to the Participant, Beneficiary or any
person claiming through the Participant or Beneficiary that any of them has a
special or beneficial interest in any asset.
ARTICLE IX
VOTING RIGHTS
No Participant or Beneficiary shall be deemed to receive any voting rights
or any other rights and privileges enjoyed by shareholders of the Bank by reason
of Stock Units being credited to his Account.
ARTICLE X
TERMINATION, AMENDMENT, MODIFICATION OR
SUPPLEMENTATION OF THE PLAN
The Board retains the sole and unilateral right to terminate, amend,
modify or supplement this Plan, in whole or in part, at any time, but only with
respect to future calendar years.
ARTICLE XI
RESTRICTION ON ALIENATION OF BENEFITS
No right or benefit under the Plan shall be subject to anticipation,
alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be
void. No right or benefit hereunder shall in any
5
<PAGE>
manner be liable for or subject to the debts, contracts, liabilities, or torts
of the person entitled to the benefit. If any Participant or Beneficiary under
the Plan should become bankrupt or attempt to anticipate, alienate, sell,
assign, pledge, encumber or charge any right to a benefit under this Plan, then
such right or benefit, in the discretion of the Board, shall cease. In these
circumstances, the Board may hold or apply the benefit, or any part of it, for
the benefit of the Participant or Beneficiary, spouse, children, or other
dependents of the Participant or Beneficiary, or any of them, in such manner and
in such portion as the Board may deem proper.
ARTICLE XII
ARBITRATION
In the event a Participant or Beneficiary disagrees with the amount of
benefit to be paid as determined by the Bank and no satisfactory settlement can
be reached, the claimant may submit the dispute to binding arbitration under the
rules of the American Arbitration Association then in effect for Charlotte,
North Carolina. The decisions of the arbitrator(s) shall be binding on all
parties to the arbitration, and their heirs, successors and assigns.
ARTICLE XIII
GOVERNING LAW
This Plan shall be governed by the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Bank does hereby adopt the Plan as of this the
19th day of June, 1997.
CAPITAL BANK
By: /s/ James A. Beck
--------------------------------
James A. Beck
President and Chief Executive
Officer
ATTEST:
By: /s/ David A. Ehmig
-------------------------
Secretary
6
<PAGE>
CAPITAL BANK
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
* * * * * * *
DEFERRAL ELECTION FORM
To: Capital Bank
From: _____________________________________, Director
Pursuant to Section 3.1 of the Capital Bank Deferred Compensation Plan for
Outside Directors, I hereby elect to defer _____% of my Compensation (as defined
in Section 1.6 of the Plan) for the current calendar year and for all subsequent
calendar years. All such deferred Compensation shall be credited as Stock Units
and shall be distributed to me when I cease to be a director of Capital Bank, or
to my beneficiary in the event of my death, all in accordance with the terms of
the Plan. This election shall be effective until the calendar year next
beginning after the date on which I notify the Bank in writing to change or
suspend future deferrals pursuant to the terms of the Plan.
This election is signed this ____ day of __________, 19__.
---------------------------------
Director
<PAGE>
CAPITAL BANK
DEFERRED COMPENSATION PLAN FOR OUTSIDE DIRECTORS
* * * * * * *
BENEFICIARY DESIGNATION FORM
Name _____________________________ Social Security No. ----------------
Address __________________________________________________________________
__________________________________________________________________
Upon my death the total value of my account in the Capital Bank Deferred
Compensation Plan for Outside Directors shall be paid to the following
designated beneficiary(ies) pursuant to the Plan:
A. Primary Beneficiary(ies):
Name (% share) Address Birth Date Relationship SS#
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
B. Contingent Beneficiary(ies):
Name (% share) Address Birth Date Relationship SS#
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Note: Unless specified otherwise, Contingent Beneficiaries will share in
the death benefit only if none of the Primary Beneficiaries are living at the
Participant's death. Eligible beneficiaries living at the Participant's death
shall share in proportion to the relative share percentages specified or, if no
percentages are specified, they shall share equally. If no designated
beneficiaries are named or if none of the designated beneficiaries are living,
benefits will be paid to the Participant's (1) spouse or (2) estate, in the
order given.
This designation is signed this ____ day of ______________, 19__.
--------------------------------
Participant
<TABLE>
<CAPTION>
ALPHANUMERIC SYSTEMS, INC.
<S> <C>
WAN - MICROSOFT NT ENTERPRISE SERVER AND 2 BRANCH SERVER CONFIGURATION
CAPITAL BANK PROPOSED
MR. DAVE EHMIG
FILE SERVER - MAIN OFFICE ENTERPRISE SERVER - RALEIGH
Compaq ProLiant 2500 Pentium Pro 200, 128MB RAM, CD-ROM, $ 18,255
4.3GB Hot Pluggable Fast-Wide SCSI Hard Drive (2 ea. Mirrored), Netflex 10/100 Adapter,
15" Color Monitor, Compaq 4/16 GB Turbo DAT Tape Drive, 20 Maxell Tapes,
APC Smart UPS 1100 Network Bundle with Power Chute Software,
Microsoft NT Server 4.0, 25 User
Cheyenne ArcServe Tape Back-up Inoculan Anti-virus Server, Inoculan Client 25 Users
NOTE: THE COMPAQ PROLIANT 2500 IS THE MAIN ADMINISTRATION FILE SERVER; THE 2500 IS DESIGNED TO
EXPAND WITH THE ADDITION OF ANOTHER PENTIUM PRO 200 PROCESSOR AS YOUR NEEDS GROW. ALSO, THE 2500
USES HOT PLUGGABLE HARD DRIVES FOR REPLACEMENT WITHOUT BRINGING DOWN THE NETWORK.
BRANCH FILE SERVERS FOR SANFORD AND KENDALE $ 17,750
- -------------------------------------------
Compaq ProSignia 200 Pentium 166, 64MB RAM, CD-ROM (2 ea. @ $8875)
2.1GB Fast-Wide SCSI Hard Drive (2 ea. Mirrored), Netflex 100 Adapter, 15" Color Monitor, Compaq
2/8 GB DAT Tape Drive, 20 Maxell Tapes
APC Smart UPS 1100 Network Bundle with Power Chute Software
Microsoft NT Server 4.0, 10 User
Cheyenne ArcServe Tape Back-up, Inoculan Anti-virus Server, Inoculan Client 10 Users
NOTE: THE COMPAQ PROSIGNIA 200'S ARE DESIGNED AS FILE SERVERS FOR A BRANCH OFFICE.
INFRASTRUCTURE
- --------------
Cisco 3620 Router w/4 Serial Ports (Raleigh), 2524 Router (2 ea. branches), Software & Cables. $ 12,030
Baystack 10 Base T 24 Port Hub (for Main Office), 12 Port Hub (2 ea. For branches), and Cables $ 2,300
NOTES THE CISCO 3620 WILL BE THE MAIN ROUTER (MORE PORTS AND HIGHER PERFORMANCE THAN THE OLDER
2501 ROUTER) WITH CONNECTIONS TO THE 2 BRANCHES AND CBC IN GREENSBORO. THE 3620 AND THE 2524
ROUTERS ARE THE LATEST FROM CISCO AND WILL ACCOMMODATE FRAME RELAY OR T1 (OR FRACTIONAL T1) DATA
LINES.
WORKSTATIONS
- ------------
Compaq DeskPro 2000, Pentium 133, 32MB RAM, 1.6GB Hard Drive, 15" SVGA Monitor (19 ea.) $ 33,440
Intel 10/100 Base-T Ethernet Network Interface Card (21 ea.) $ 1,890
Microsoft Office Professional 97, 1 License w/Documentation and 20 License only. $ 8,380
Premier II GUI Software N/C
TELLER WORKSTATIONS
- -------------------
Compaq DeskPro 2000, Pentium 133, 32MB RAM, 1.6GB Hard Drive, 15" SVGA Monitor (9 ea.) $ 15,840
Intel 100/100 Base-T Ethernet Network Interface Card (9 ea.) $ 810
PRINTERS
- --------
HP LaserJet 4V 16ppm, Duplex, 8MB Upgrade, Legal Tray, Jet Direct Card (4 ea.) $ 8,715
SURGE PROTECTORS
- ----------------
APC Net7 Surge Protector/Power Strip for Workstations and Printers (32 ea. @ $30)
Add one modem to server - no charge - on server. J.W. $ 960
Capital Bank
AS NT Proposal Rev. 4 5/5/97 1
<PAGE>
UNISYS HOST CONNECTION
Attachmate InfoConnect Intercom (30 ea. @ $475) $ 14,250
(INCLUDES OPEN SYSTEMS TRANSPORT)
WIRING
Wiring (parts and labor) of Raleigh, Sanford, and Kendale offices $ 5,690
Communication Racks, Rack Hardware, Port Panels, Wire Managers, Faceplates, CAT5 Cable, Patch
Cables and Patch Panel Cables for 40 drops
ASI INSTALLATION SERVICES
Configuration & On-site Installation (See statement of work for detail) $ 17,300
NOTE: THIS CHARGE IS CALCULATED WITH THE ASSUMPTION THAT ALL EQUIPMENT IS PURCHASED FROM ASI.
COMPAQ HARDWARE COMES WITH A 3 YR. LIMITED WARRANTY; OTHER HARDWARE 1 YR. LIMITED WARRANTY.
PROJECT MANAGER
- ---------------
Project Manager to act as coordinator of activities between ASI and Capital Bank $ 2,500
E-MAIL
Microsoft Exchange Messaging Software, Admin. And Client, 30 User $ 5,055
NOTE: EXCHANGE INCLUDES E-MAIL, CALENDARING, SCHEDULING, DOCUMENT MANAGEMENT, ETC.
Includes additional 128MB memory for server and Labor to Install Exchange
TOTAL PROJECT PRICE $ 165,165
MAINTENANCE AND SUPPORT
40 Hour Block of Engineering Support Hours (Support by telephone, modem, and/or on-site) $ 3,800
ASI 1 Year On-site Service Contract for Main Server
ASI 1 Year On-site Service Contract for Branch Servers (2 ea.) $ 1,600
NOTE: ALL COMPAQ SERVERS COMES WITH A 3 YEAR ON-SITE WARRANTY. THE ASI SERVICE UPGRADES COMPAQ $ 1,800
SERVER WARRANTIES FROM A 48 HOUR RESPONSE TO A 4 HOUR RESPONSE.
ASI 1 Year On-site Service Contract for Cisco Routers $ 1,900
NOTE: UPGRADES CISCO WARRANTIES TO 8 HOUR RESPONSE
TOTAL ANNUAL MAINTENANCE $ 9,100
NOTE: THE ABOVE INFORMATION IS BASED ON THE ASSUMPTION THAT THE CAPITAL BANK WILL HAVE 21 PC'S,
10 AT THE MAIN OFFICE, 6 IN SANFORD AND 5 IN KENDALE. IN ADDITION, CAPITAL BANK WILL HAVE 9
TELLER STATIONS
PREPARED BY JOEL WALLS, NETWORKING AND DOCUMENT IMAGING SPECIALIST
ALPHANUMERIC SYSTEMS INC. 3700 BARRETT DRIVE RALEIGH, NC 27609 (919) 781-7575
Capital Bank
AS NT Proposal Rev. 4 5/5/97 2
</TABLE>
EXHIBIT 10.11
NORTH CAROLINA
MASTER SERVICE AGREEMENT
GUILFORD COUNTY
THIS MASTER SERVICE AGREEMENT, made and entered into this 23 day of June,
1997 by and between CENTRAL SERVICE CORPORATION, a North Carolina corporation,
hereinafter referred to as "CSC", and Capital Bank (Proposed), with its
principal office in Raleigh, North Carolina, hereinafter referred to as
"Customer".
1. SERVICES SCHEDULE. Subject to the other provisions of this Agreement,
CSC shall provide to the Customer, and the Customer shall obtain exclusively
from CSC, the services referred to in the Schedule of Services made by the
parties contemporaneously herewith, as such Schedule of Services may be amended
from time to time, and any services required or contemplated by other Sections
of this Agreement (collectively, the "Services"). The Schedule of Services,
including all Addendums thereto, as it may be so amended (the "Services
Schedule") are hereby incorporated into, and shall be deemed a part of, this
Agreement for all purposes.
2. TERM.
(a) General Term. The initial term of this Agreement shall be for 5
years commencing on June 23, 1997, subject to successive extensions as provided
in this Section 2(a). The term of this Agreement shall automatically extend for
another 5 years at the end of the then current term, unless at least one hundred
twenty (120) days prior to the end of the then current term either party gives
written notice to the other party that there shall be no extension.
Notwithstanding the foregoing, the term of this Agreement shall be subject to
early termination under Sections 7(e) and 7(f). The term of this Agreement, as
it may be extended from time to time as provided in this Section 2(a) or
terminated as provided in Sections 7(e) and 7(f), is hereinafter referred to as
the "General Term".
(b) Service Term. The "Service Term" for a Service shall mean the
term for which the Service is to be provided, as it may be extended from time to
time by agreement of the parties. A Service Term may be shorter than, but not
exceed, the General Term. If no particular Service Term is provided for a
Service in the Services Schedule, the Service Term for the Service shall be
coextensive with the General Term. Notwithstanding the foregoing, a Service Term
shall be subject to early termination under Section 7(e).
3. CHANGES IN SERVICES. The Customer acknowledges that CSC provides to
other customers services the same as or similar to the Services, and that
updating and modifying its services (including the Services) from time to time
is an appropriate part of CSC's business. Accordingly, the Customer agrees that
the format and nature of any Service may be changed by CSC upon sixty (60) days'
advance written notice to the Customer, provided that, except when mandated by
law or regulation, said changes do not unreasonably alter the Customer's
business practices and operations. In addition, the parties acknowledge that CSC
may not be able to provide Services in a manner to accommodate the particular
practices, designs or formats of the
<PAGE>
Customer, and therefore agree that before the Customer adopts or changes any of
the Customer's practices, designs or formats (including without limitation to
the extent relevant for the Services or those relating to calculating or
reporting interest rates, fees, charges, loan terms, and account terms), the
Customer shall determine that such adoption or change will be consistent with
the manner in which CSC provides the Services.
4. CSC PROPERTY. Except as the parties may hereafter agree in writing, all
programs, specifications, tapes and other materials used in connection with the
Services are and remain the sole and absolute property of CSC. The Customer
shall not use, cause to be used, sell, rent, loan or otherwise disclose, any
such material to any other person or entity. CSC shall have the right to obtain
an injunction to prevent such breach and shall have such further rights as are
available at law or in equity.
5. CUSTOMER'S DATA RESPONSIBILITIES.
(a) Customer Information. The Customer shall furnish to CSC all
records, data and other information necessary to enable CSC to perform its
obligations under this Agreement, all of which shall be provided in the manner,
in the form, and at the times, reasonably required by CSC. The Customer shall
ensure that all records, data and other information provided to CSC are complete
and accurate, and CSC shall have no responsibility for errors resulting from
incomplete or incorrect records, data (whether electronic or paper items) or
other information provided by the Customer.
(b) Remote Transmission Facility. Without limiting its obligations
under Section 5(a), the Customer shall comply with all security procedures which
CSC may prescribe from time to time to protect the data transmitted through the
Remote Transmission Facility. Customer shall indemnify, defend, and hold
harmless CSC and CSC's directors, officers, shareholders, employees, and agents
for, from and against, any and all liability, loss, cost, damage or expense,
including without limitation reasonable attorneys' fees, arising out of the
Customer's, its employees' or agent's unauthorized use or handling of data
resulting from transmission of any data through the Remote Transmission
Facility.
(c) Customer Review. The Customer shall promptly review all reports,
data and other information provided or returned to it by CSC, and shall in any
event notify CSC in writing of any errors or omissions in such reports, data or
other information within seven (7) business days of receipt from CSC.
Notwithstanding the provisions of Section 8, CSC shall not be liable to the
Customer for damages or corrections resulting from the Customer's failure to
give such timely written notification.
(d) Compliance with Applicable Laws. The Customer shall be solely
responsible for ensuring that this Agreement and all Services, reports and forms
provided pursuant to this Agreement comply with all applicable laws and
regulations and the terms of the Customer's contracts with its customers,
including without limitation all applicable laws, regulations and contractual
provisions concerning the Customer's operations or consumers. The Customer shall
indemnify, defend. and hold harmless CSC and CSC's directors, officers,
shareholders, employees, and agents for, from, and against any and all
liability, loss, cost, damage or expense, including without limitation
reasonable attorneys' fees, arising out of any such violation of applicable laws
or regulations or the Customer's contractual obligations.
6. CONFIDENTIALITY & PRESERVATION OF CUSTOMER DATA.
(a) Confidentiality. CSC shall use reasonable care to maintain the
confidentiality of any confidential information provided to CSC by the Customer.
For purposes of the foregoing, CSC's delivery of materials to the Customer by
means of the United States Postal Service or insured or bonded carriers shall be
deemed to constitute reasonable care. In addition to any and all rights and
remedies available to the Customer at law or in equity, CSC shall indemnify,
defend and hold harmless the Customer, Customer's shareholders, directors,
officers, employees and agents for, from and against any and all liability,
loss, cost,
2
<PAGE>
damage or expense, including without limitation reasonable attorney's fees,
arising out of any breach of the confidentiality of any information provided to
CSC by or on behalf of the Customer.
(b) Preservation. Subject to Section 8, CSC shall use reasonable
care (i) to protect Customer's records in CSC's possession from loss or damage
through fire, power failure, and other accidental causes, and (ii) to provide
the equipment and/or procedures necessary to maintain the integrity of such
records while in CSC's possession.
7. CHARGES FOR SERVICES.
(a) Charges. The Customer shall pay CSC its charges for the Services
and for expenses incurred in rendering Services, in accordance with the Services
Schedule and the other terms of this Agreement. Upon at least ninety (90) days
written notice, CSC may change any or all of the terms of this Agreement
relating to such charges including without limitation the amounts thereof;
provided (i) that any increase in charges for a Service set forth in the
Services Schedule shall become effective on the date specified in the notice,
but in any event no earlier than the later of the beginning of the next
extension of the Service Term for the Service or 90 days after the notice is
given, and (ii) that any decrease in charges for a Service set forth in the
Services Schedule shall be effective on the date specified in the notice.
(b) Billing. Following the end of each calendar month during the
General Term CSC shall submit its statement charges for each Service rendered
and expenses incurred in connection therewith during that month. Additional
charges pursuant to Section 11 may be reflected in the monthly invoices.
Invoices are due and payable within fifteen (15) days from the date of the
receipt of the invoice by the Customer. Any portion of the invoice not paid by
such fifteenth (15th) day shall bear interest, payable on demand, after such day
at a per diem rate equal to the lesser of (i) .06575% or (ii) the maximum rate
allowed to be charged by controlling law. If the Customer determines in good
faith that an invoice contains an error, the Customer shall give written
notification of the same to CSC within fifteen (15) days from the date of the
receipt of the invoice. Notwithstanding any such notification, the undisputed
portion of the invoice shall be paid as provided above on any portion thereof
which is mutually agreed to have not been in error. After any error is resolved,
any remaining amounts determined to be due shall be payable on demand, with
interest as provided above on any portion thereof which is mutually agreed to
have not been in error.
3
<PAGE>
(c) Sales, etc. Taxes. Except to the extent expressly otherwise
provided therein, the charges contained in the Services Schedule do not include
any sales, use, gross receipt or other taxes, and the Customer agrees to pay
such taxes if any apply.
(d) Telephone Services. Any private long-line telephone services
provided by CSC pursuant to this Agreement will remain under the control of CSC.
If the Customer requires special telephone line configurations due to its
terminal requirements, CSC reserves the right to charge for this service.
(e) Termination for Customer Breach. If the Customer breaches this
Agreement by failing to timely pay any charge or other amount due to CSC, or
otherwise is in breach of this Agreement, and the breach continues uncured for
ten (10) days following the Customer's receipt of written notice by CSC noting
the breach and demanding its cure, CSC may discontinue any or all of the
Services to the Customer until the breach is cured. If such breach continues for
thirty (30) days following receipt of such notice, CSC may terminate the Service
Term of any one or more of the Services and/or terminate the General Term.
(f) Termination for CSC Breach. If CSC breaches this Agreement by
failing to perform any of its obligations hereunder, and the breach continues
uncured for ten (10) days following the CSC's receipt of written notice by the
Customer noting the breach and demanding its cure, the Customer may withhold
payment until the breach is cured. If such breach continues for thirty (30) days
following receipt of such notice, the Customer may terminate the Service Term of
any one or more of the Services and/or terminate the General Term.
8. CSC LIABILITY FOR ERRORS OR DELAYS; LIMITATION OF REMEDIES.
(a) Errors or Omissions by CSC.
(1) In the event any error or omission in CSC's performance of
Services ("Error") results from the negligence or willful misconduct
of CSC's employees following the timely, accurate, and complete
submission of the relevant records, data, and other information by
Customer to CSC, and the Customer notifies CSC of the Error in
accordance with Section 5, as soon as practicable following receipt
of such notice given CSC's obligations to others at that time, CSC
shall correct such Error by reprocessing the data without any
additional charge to the Customer for such correction. Any other
Errors shall be corrected by CSC reprocessing the data at the
Customer's expense based on CSC's then prevailing rates, as soon as
practicable following receipt of such written notice of such Error
from the Customer given CSC's obligations to others at that time,
provided that CSC shall in no event have any obligation with respect
to any Error if Customer does not provide CSC with such written
notice within one year of the Customer's receipt of the material
containing the Error.
(2) Notwithstanding Sections 8(a)(1) and (2), CSC shall not be
liable to the Customer for Errors resulting from defects in, or
malfunctions of, the
4
<PAGE>
mechanical or electronic equipment used by CSC in performing
Services. If the Customer desires to obtain insurance protection
against any such Errors, or desires coverage of fidelity losses
through an endorsement to its own blanket bond coverage, CSC agrees
to cooperate with the Customer in obtaining such insurance or
endorsement. It is understood that all costs and expenses of such
insurance or endorsement shall be paid by the Customer.
(b) Delays. CSC shall not be responsible for delays in processing or
in the delivery of reports, data, or other information, that are caused by
strikes, lockouts, riots, epidemics, war, government regulations, fire, acts of
God, failure of transmission or power supply, mechanical difficulties with
equipment, or other causes beyond CSC's reasonable control.
(c) LIABILITY AND REMEDIES LIMITATIONS; INDEMNIFICATION. THE
PROVISIONS OF SECTION 8(a) ARE IN LIEU OF ALL EXPRESS OR IMPLIED WARRANTIES OF
ANY KIND WHATSOEVER, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE REMEDIES SPECIFIED IN
SECTION 8(a) FOR ERRORS ARE EXCLUSIVE, AND THE CUSTOMER HEREBY WAIVES ALL OTHER
REMEDIES. CSC SHALL IN NO EVENT BE LIABLE TO THE CUSTOMER OR ANY OTHER PERSON OR
ENTITY FOR LOST PROFITS OR OTHER SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES WITH RESPECT TO THIS AGREEMENT (REGARDLESS OF WHETHER CSC HAS NOTICE OF
THE POSSIBILITY OF SUCH DAMAGES), ANY ERROR, OR ANY OTHER ACTION OR OMISSION IN
CONNECTION WITH THIS AGREEMENT, AND CUSTOMER SHALL INDEMNIFY, DEFEND AND HOLD
HARMLESS CSC AND CSC'S DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES AND AGENTS
FOR, FROM AND AGAINST ANY AND ALL LIABILITY, LOSS, COST, DAMAGE OR EXPENSE
INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, ARISING OUT OF ANY
CLAIM BY ANY PERSON OR ENTITY RELATING TO THIS AGREEMENT, ANY ERROR OR ANY SUCH
OTHER ACTION OR OMISSION.
9. REGULATORY AGENCY REQUIREMENTS.
(a) Examinations. The records produced, maintained, and magnetically
stored on premise at CSC and at other off-site locations by CSC for the Customer
in the performance of this Agreement shall be subject to examination by such
Federal and State regulatory agencies as may have jurisdiction over the
Customer's business, including without limitation (as applicable) the Federal
Reserve Board, the Office of Thrift Supervision ("OTS"), the Federal Deposit
Insurance Corporation ("FDIC"), the Office of the Comptroller of the Currency,
to the same extent as such records would be subject if they were maintained and
produced by the Customer itself on its own premises. By entering into this
Agreement CSC agrees that OTS will have the authority and responsibility
provided to the other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. ss.1867(C) relating to services performed by contract
or otherwise.
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(b) Notices. CSC agrees to provide adequate notice to any
appropriate regulatory agency of any termination of this Agreement, if such
termination is initiated by CSC. The Customer, however, is responsible for all
other notices and communications with regulatory agencies relative to this
Agreement.
(c) CSC Financial Statements. A copy of CSC's current audited
financial statements and service auditor's report will be sent annually to the
District Directors of OTS, OCC, FDIC, and/or the state regulatory agency that
has jurisdiction over the Customer's business, as applicable, and to the
managing officer of the Customer.
(d) Disaster Contingency Plans. CSC shall remain in compliance with
the existing guidelines of OCC and OTS regarding disaster coverage. CSC shall
release all information reasonably requested to permit the Customer to develop a
disaster contingency plan that will work in concert with CSC's plan.
10. DECONVERSION.
(a) Deconversion Services. Upon termination of any Service (whether
or not such termination is in connection with termination of this Agreement)
("Deconversion"), CSC shall provide information available within the on-line
computer record relating to the terminated Service, in magnetic tape or in
printout form, for the Customer's use under some other system and shall provide
all other reasonable assistance for the Customer's conversion to such other
system, provided that CSC reserves the right to charge in accordance with its
then prevailing rates for programming, personnel time and/or computer time used
in the Deconversion. In accordance with Section 4, all data files and programs
maintained by CSC shall remain the property of CSC. If the Customer desires CSC
to continue providing a Service temporarily following the end of the Service
Term for the Service, CSC on a temporary basis may provide such Service at its
then prevailing rates for providing such Service on a temporary basis. After one
hundred eighty (180) days following termination of a Service, the records, data
and information files maintained for the Customer by CSC for the Service may be
destroyed by CSC unless other satisfactory written arrangements are made by the
parties prior to that time.
(b) Payment of Deconversion Charges. All amounts payable to CSC
pursuant to Section 9(a) shall be paid, on demand by CSC, by the Customer in the
form of a certified or official check; CSC may require payment in advance of the
Service or action for which it is to be paid pursuant to Section 10(a).
6
<PAGE>
11. MINIMUM SERVICES AND LIQUIDATED DAMAGES.
(a) In General. The parties agree that at the time of execution of
this Agreement, it is difficult or impossible to accurately assess the damages
that would be sustained by CSC as a result of a significant reduction in the
volume of any Service prior to the end of the full Service Term. Among other
things, CSC amortizes the cost of programs, equipment, and personnel training
for a Service over the Service Term and plans its future commitments based on
the expectation that each Service will continue at a consistent volume
throughout its full Service Tenn. The Customer acknowledges and agrees that CSC
would suffer great financial harm if the volume of a Service were significantly
reduced prior to the end of the full Service Term, because CSC would not be able
to recover its start-up costs or realize its anticipated future revenues with
respect to the Service.
(b) Minimum Service Requirements. With respect to each Service shown
on the Services Schedule (as it may be amended from time to time), the Customer
shall utilize the Service throughout the full Service Term (as it may be
extended from time to time) such that the charges due to CSC pursuant to Section
7 for the Service rendered for each calendar month (an "Applicable Month")
beginning with the fifth full month following the month in which the Service is
initiated, shall equal or exceed the greater of (i) eighty percent (80%) of the
average monthly charges for the Service for the four calendar months immediately
preceding the Applicable Month or (ii) eighty percent (80%) of the average
monthly charges for the Service for the first full four calendar months
following the initiation of the Service (the greater of (i) or (ii) determined
with respect to an Applicable Month shall be the "Monthly Minimum" for the
Applicable Month). In the event that the charges for a Service for an Applicable
Month, determined before application of this Section 11(b), are less than the
Monthly Minimum for such Applicable Month, the charges for the Service for such
Applicable Month shall be increased to the Monthly Minimum for such Applicable
Month, regardless of the actual amount of the Service rendered or expenses
incurred by CSC during such Applicable Month.
In determining the Monthly Minimum for an Applicable Month, that portion
of the charges in the relevant four-month periods that is attributable to the
Service rendered for a portion of the Customer's operations that the Customer
has discontinued as a result of a Qualified Reduction in the Customer's
Operations occurring prior to the Applicable Month, shall not be counted. For
purposes of the foregoing, (i) a "Qualified Reduction in the Customer's
Operations" shall mean and be limited to a reduction in the Customer's
operations directly resulting from an arms' length sale or other arms' length
disposition of Customer assets that is not motivated in whole or in part by a
desire to reduce the volume of Service, all as determined by CSC in the good
faith exercise of its sole discretion, and (ii) the portion of the charges that
is attributable to the Service rendered for any portion of the Customer's
operations shall be determined by CSC in the good faith exercise of its sole
discretion.
The operation of this Section 11(b) may be illustrated by the following
examples.
Example 1. Assume that the Applicable Month is the seventh full calendar
month following the initiation of the Service, and that the charges for the
Service for such Applicable Month, determined before application of this Section
10(b), are $700. Assume further (i) that the
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<PAGE>
average monthly charges for the Service for the immediately preceding four
calendar months are $700 and (ii) that the average monthly charges for the first
full four calendar months following the initiation of the Service are $1,000.
The Monthly Minimum would be $800, which is the greater of (i) 80% of $700 or
(ii) 80% of $1,000. Since the Monthly Minimum exceeds the charges for the
Applicable Month (determined before application of this Section 11(b)), the
charges for the Applicable Month would be the Monthly Minimum of $800.
Example 2. Assume that the charges for the first Applicable Month for a
Service (i.e., the fifth full calendar month following the initiation of the
Service), determined before application of this Section 11(b), are $700.00.
Assume further that the average monthly charges for the Service for the
immediately preceding four calendar months are $1,000.00. The Monthly Minimum
would be 80% of $1,000, or $800. Since the Monthly Minimum exceeds the charges
for the Applicable Month (determined before application of this Section 11(b)),
the charge for the Applicable Month would be the Monthly Minimum of $800.
Example 3. Assume the same facts as in Example 2, and (i) that the
Customer sold a branch office in one of the four months preceding the Applicable
Month in an arms' length transaction not motivated in whole or in part by a
desire to reduce the volume of the Service, (ii) that the sale of the branch
office is determined by CSC in the good faith exercise of its sole discretion,
to be a Qualified Reduction in the Customer's Operations, and (iii) that the
average monthly charges for such four months, excluding the charges for the
Service attributable to the branch office as determined by CSC in the good faith
exercise of its sole discretion, are $900. The Monthly Minimum would be 80% of
$900, or $720. Since the Monthly Minimum exceeds the charges for the Applicable
Month (determined before application of this Section 11(b)), the charges for the
Applicable Month would be the Monthly Minimum of $720.
(c) Liquidated Damages for Termination. In the event (i) a party
hereto in breach of this Agreement terminates a Service shown on the Services
Schedule prior to the expiration of the full Service Term of the Service as
provided in Section 2 (whether before or after commencement of the Service Term)
or (ii) pursuant to Section 7(e) or 7(f), terminates a Service prior to the
expiration of the full Service Term of the Service as provided in Section 2
(whether before or after commencement of the Service Term) because of the other
party's breach of this Agreement, the breaching party shall pay the other
liquidated damages calculated by first determining the average monthly charges,
before discounts, for the Service for the twelve (12) full calendar months
preceding the calendar month in which such early termination ("Early
Termination") occurs. If the Service has not been provided by CSC to the
Customer for at least twelve (12) fall calendar months prior to the month of
termination, the average monthly charges shall be determined by using the actual
monthly charges, before discounts, for the full calendar months, if any, in
which the Service was provided and the non-breaching party's good faith estimate
of the charges for the number of month(s) less than twelve in which the Service
was not provided, based on said party's good faith projection of the volume of
the Service the Customer would have required during such month(s) but for the
Early Termination.
The average monthly charge as so determined pursuant to the preceding
paragraph shall be multiplied by fifty percent (50%). The resulting product
shall then be multiplied by the number of calendar months in the Service Term
(determined without regard to the Early
8
<PAGE>
Termination) for the Service following the month of the Early Termination, with
any fractional months counted as full months for this purpose. The result of the
preceding sentence shall be the amount of liquidated damages; such amount shall
be paid in full by the breaching party to the non-breaching party prior to any
Deconversion or termination with respect to the Service.
12. NOTICES. All notices contemplated by this Agreement shall be deemed
sufficiently given and effective if sent by means of certified or registered
mail; and if intended for CSC, the notice shall be sent to Central Service
Corporation, P. 0. Box 10305, Greensboro, North Carolina 27404; if intended for
the Customer, the notice shall be sent to the Customer's business address
recorded at CSC. Either party may change the address to which it wants notice
sent by means of a notice of the change given to the other party.
13. ASSIGNMENT/MERGER.
(a) Assignment. No right or obligation of either party may be
assigned or delegated to, or otherwise vested in, another person or entity,
whether by operation of law or otherwise, without the express written consent of
the other party, which consent shall not be unreasonably withheld. Subject to
the foregoing, all of the terms of this Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective successors and
assigns.
(b) Merger, Etc. In the event the Customer merges with another
entity, or all or a portion of the Customer's assets are otherwise in any way
combined with the assets of another entity, and in either case such other entity
has already in place an agreement pursuant to which CSC renders any service to
such other entity, this Agreement and such other agreement shall each continue
in effect subject, if CSC so elects, to any such amendments as CSC in the good
faith exercise of its sole discretion may determine to be appropriate to
eliminate duplication or conflicting terms.
14. MISCELLANEOUS.
(a) Entire Agreement; Amendments; Nonwaiver. This Agreement,
including the Services Schedule and all Addendums thereto, contains the entire
agreements between the parties with respect to the subject matter hereof, in
which all prior agreements, understandings, or negotiations are merged. Any
additions to or other amendments of this Agreement must be in a writing signed
by both parties. The failure of either party at any time or times to require
strict performance of any term of this Agreement shall not waive, affect or
diminish the right to demand strict performance of such term at any time or
times thereafter.
(b) Governing Law; Severability. The laws of the State of North
Carolina shall govern the validity, interpretation, performance and enforcement
of this Agreement. If any of the terms of this Agreement or the application
thereof to any entity or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such terms
to any entity or circumstance other than those to which it is held invalid and
unenforceable, shall not be affected thereby, and each term of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers under seal effective as of the date first
above written.
CUSTOMER: CENTRAL SERVICE CORPORATION
Capital Bank (Proposed)
By: /s/ By: /s/
------------------------------- ------------------------------
Its Its
------------------ ------------------
Attest: /s/ Attest: /s/
------------------------------- ------------------------------
Its Its
------------------ ------------------
[Corporate Seal] [Corporate Seal]
10
<PAGE>
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
Pursuant to the Master Service Agreement (the "Agreement") between Central
Service Corporation ("CSC") and Capital Bank (Proposed) (the "Customer"), the
Services selected below shall be provided by CSC to the Customer pursuant to the
terms of the Agreement and the terms of the applicable Addendum(s).
This Schedule of Services including all such Addendums as they may be
amended from time to time ("Services Schedule") constitutes a part of the
Agreement for all purposes. Capitalized terms used but not otherwise defined in
this Services Schedule shall have the meanings given in the main text of the
Agreement.
The terms of this Schedule of Services, including its Addendums, shall be
interpreted in a manner consistent with, and so as to avoid conflict with, the
terms in the main body of the Agreement.
Selection of Services
The Service(s) to be provided are indicated below by initialing by both
the Customer and CSC. If no expiration is specified below for the Service Term
for a Service, the Service Term for the Service shall be the General Term
provided in the Agreement.
A. Dollar System Data Processing
Service. If this Services selected,
the Service shall be subject to the
additional terms provided in the
Customer ______ Addendum entitled "Data Processing
Service", as it may be amended from
CSC ______ time to time.
Service Term begins June 23, 1997 and
expires June 22, 2002.
B. Item Processing Service. If
this Service is selected, the
Service shall be subject to the
additional terms provided in the
Customer ______ Addendum entitled "Item Processing
Service", as it may be amended from
CSC ______ time to time.
Service Term begins 6/23/97 and
expires 6/22/02.
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C. Locbox Service. If this
Service is selected, the Service
shall be subject to the additional
Customer ______ terms provided in the Addendum
entitled "Locbox Service", as it
CSC ______ may be amended from time to time.
Service Term begins _______ and
expires _____________.
D. Premier Banking System
Service. If this Service is
selected, the Service shall be
subject to the additional terms
Customer ______ provided in the Addendum entitled
"Premier Service", as it may be
CSC ______ amended from time to time.
Service Term begins 6/23/97 and
expires 6/22/02.
E. Automated Teller Machine
Service. If this Service is
selected, the Service shall be
subject to the additional terms
Customer ______ provided in the Addendum entitled
"ATM Service", as it may be amended
CSC ______ from time to time.
Service Term begins 6/23/97 and
expires 6/22/02
CUSTOMER CENTRAL SERVICE CORPORATION
Capital Bank (Proposed)
By: /s/ By: /s/
------------------------ -------------------------
Its Its
------------ --------------
Attest: /s/ Attest: /s/
------------------------ -------------------------
[Corporate Seal] [Corporate Seal]
12
<PAGE>
Addendum A
a. This addendum specifies pricing to be in effect for the Customer during
the initial term of this Agreement, and as such supersedes paragraph 6 (a),
Exhibit B of the Premier System Schedule, and Exhibit B of the Items Processing
Schedule.
b. The following discounts will be applied against the Customer's total
Premier and Items Processing charges:
Months 1 through 6 .......... 64.00%
Months 7 through 12 ......... 49.00%
Months 13 through 18 ........ 34.00%
Months 19 through 24 ........ 19.00%
Months 25 and over .......... 0.00%
This monthly discount applies to all Premier and Item Processing services except
those specifically noted in this Addendum A.
c. The Customer shall be charged at the standard rate for IRS 1099 forms.
The Customer shall also be charged for postage and handling incurred in the
mailing of IRS 1099 forms.
d. Costs incurred by CSC on behalf of the Customer for Data Communications
equipment and Data Communications line installation shall be paid by the
Customer.
e. The Customer shall pay the costs for custom forms (e.g., envelopes,
checks, etc.), all postage, and couriers (other than those between CSC and the
Federal Reserve Bank).
f. Charges for services or products purchased by CSC for resale to the
Customer are excluded from this Addendum A.
g. Initial Fees are modified as detailed below, and as such supersede
paragraph 6(a), Exhibit B of the Premier System Schedule, Exhibit B of the Item
Processing Schedule, Exhibit B of the ATM Schedule, the TELEBANC Schedule, and
the VISA Check Schedule. The Customer shall pay CSC a one-time Initial Fee of
$15,000.00, which covers the following:
Premier System Conversion Fee
ATM System Initial Fee(per ATM)
VISA Check Initial Fee
TELEBANC Initial Fee
Platform System Interface Fee
Imaging Implementation Fee
Data Line Installation (one site)
Data Communications DAP (modem, one)
h. The following miscellaneous prices are guaranteed for the term of this
agreement.
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Data Line Installation (per line) 500.00
ATM Data Line Installation (per ATM) 500.00
DataComm Equipment (1 DSU, 1 Splitter per office) 1,000.00
ATM DSU 1,000.00
LOGO/Signature Digitization 400.00
Documentation Manuals (per set) 1,000.00
i. CSC agrees to maintain the following minimum service levels:
1. Encoding errors not to exceed 2 per 10,000 items processed in a
month. It is the Customer's responsibility to document such errors and notify
CSC of them. CSC is only responsible for errors committed by CSC's staff and
cannot be held accountable for encoding errors made by others. Likewise, CSC is
not responsible for encoding errors resulting from incorrect or improper forms
supplied by the Customer.
2. Commercial and Personal Checking to be mailed within two business
days of the statement date, except in the case of "crippled" statements, or if
CSC has implemented its Disaster Recovery plan, or for causes outside CSC's
control.
3. Incidents of statements containing incorrect check images,
missing pages, etc. not to exceed one twentieth of one percent (0.05%) of
statements mailed during any given calendar month.
4. The online system will be available no later than 7:30am, unless
CSC has implemented its Disaster Recovery plan, or for causes outside CSC's
control.
5. The online system will be available no less than 95% of scheduled
business hours during any month, unless CSC has implemented its Disaster
Recovery plan, or for causes outside CSC's control.
If the Customer feels that CSC has unreasonably failed to meet these
performance standards in any given month, the Customer will so notify CSC in
writing within ten days following the end of the month in question, said
notification to contain documented evidence of the failure. The Customer will be
entitled to an additional five percent (5%) discount on all Premier and Item
Processing charges for the month identified.
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<PAGE>
PREMIER SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description CSC shall provide the services referred to in the
attached Exhibit A, subject to Section 3 and the other provisions of the Master
Service Agreement.
2. Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof shall be as provided in the attached Exhibit
B, subject to Section 7 and the other provisions of the Master Service
Agreement.
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<PAGE>
EXHIBIT A
TO
PREMIER SERVICE ADDENDUM
List of Services
Central Information System
Demand Deposit Accounting
Savings Accounting
Certificate of Deposit Accounting
Loan Accounting
Financial Management System
Item Entry System
Express Exceptions
Retirement Accounting
Credit Reporting
Check Reconciliation System
Federal Call Reporting
Bond Accounting
Accounts Payable
Asset/Liability Management
On-Line Loan Collection
Premier Reference System
Paperless Item Module (PIM)
Currency Transaction Reporting Module
16
<PAGE>
EXHIBIT B
TO
PREMIER SERVICE ADDENDUM
CATEGORY PRICE
- -------- -----
Central Information System
Demand Deposit Accounting
Savings Accounting
Certificate of Deposit Accounting
Loan Accounting
Financial Management System
Item Entry System
Express Exceptions
Premier Reference System
Paperless Item Module (PDA)
Initial Conversion Fee $30,000.00
- ---------------------- ----------
Monthly Fees:
- -------------
Accounts
- --------
First 5,000 $0.270
Next 5,000 $0.250
Over 10,000 $0.200
Transaction Account Supplement
- ------------------------------
First 5,000 $0.250
Next 5,000 $0.200
Over 10,000 $0.150
Loan and G.L. Account Supplement
- --------------------------------
First 5,000 $0.270
Next 5,000 $0.250
Over 10,000 $0.200
Closed Accounts $0.040
- ---------------
DataComm Site Charge $350.00
Additional Modules (monthly)
- ----------------------------
Retirement Accounting $0.00
Credit Reporting $0.00
Check Reconciliation System $0.00
Federal Call Reporting $0.00
Bond Accounting $0.00
Accounts Payable $0.00
17
<PAGE>
Asset/Liability Management $0.00
On-Line Loan Collection $0.00
Currency Transaction Reporting Module $0.00
Platform System Interface $4,000.00
(Initial Fee)
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<PAGE>
ITEM PROCESSING SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description. CSC shall process the items of the Customer and
the Customer's customers, including performing items processing, data
transmissions, daily service functions and bookkeeping, as more particularly
described in the attached Exhibit A subject to Section 3 and the other
provisions of the Master Service Agreement.
2. Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof shall be as provided in the attached Exhibit
B, subject to Section 7, Addendum A, and the other provisions of the Master
Service Agreement.
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<PAGE>
EXHIBIT A
TO
ITEM PROCESSING ADDENDUM
1. CHECK PROCESSING OPERATIONS
(a) GENERAL DESCRIPTION. CSC will receive the Customer's inclearing checks
and teller work (items) from the Customer and the Federal Reserve Bank. CSC will
read and sort the items, transcribing the data onto magnetic media for
subsequent processing. Items will be balanced to the Federal Reserve cash
letters for the Customer. After posting, the institution will notify CSC of
items to be returned to Federal Reserve. Settlement with the Federal Reserve
will be made by the Client. Periodic statements will be prepared by CSC for
matching with items and mailing.
(b) RECEIVING ITEMS FROM THE FEDERAL RESERVE BANK. CSC will designate a
point to which inclearing checks of the Customer are to be delivered. The
Customer will notify the Federal Reserve of this delivery point. Each business
day, beginning at approximately 6:00 am., the Federal Reserve will deliver to
the designated delivery point all Customer items, together with all other items
being sent to that delivery point and covering cash letter(s).
(c) CAPTURE AND BALANCE. Upon receipt of all debit items from the Federal
Reserve, CSC will read and sort ("capture") inclearing items and transcribe the
item data onto magnetic media, including transit/routing number, account number,
dollar amount, and check serial number. Any MICR reject items will be manually
processed. Each inclearing item will be endorsed with a "paid" endorsement,
which will be canceled if the item is returned. Paid items will be bulk filed at
the CSC facility in Greensboro.
CSC will balance the tape total of captured items to the total(s)
furnished by the cash letter(s) from the Federal Reserve. During this process,
CSC will identify missing items (listed but not included), free items (included
but not listed), listing errors (discrepancies between MICR line and cash letter
line for a given item), and other conditions contributing to an imbalance
between the cash letter total and the tape total. Once all imbalance conditions
have been accounted for, CSC will adjust the tape as required and prepare
adjustment entries for return to the Federal Reserve.
(d) RECEIVING ITEMS FROM CUSTOMER. CSC will designate a point to which
Customer shall deliver transactions generated at Customer offices. These items
will be inscribed by CSC to insure that full MICR data is encoded on each item,
and that all transactions are in balance. CSC will establish dollar control
totals for subsequent balancing after the capture and reject reentry process.
Imbalances detected will be resolved according to Customers instructions.
Capture and balance functions will occur as (in "c") above.
(e) RETURN ITEMS. CSC will process overnight the transactions received
from CSC and make the results of that processing available to the Customer. The
Customer will identify items to be returned to the Federal Reserve (for
insufficient funds, stop payment, etc.). According to a schedule established by
CSC, and in no event later that 2:00 p.m. of the business day
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<PAGE>
following posting of the transaction, the Customer will advise CSC of all items
to be returned to the Federal Reserve according to Federal Reserve operating
rules.
(f) EXCEPTION ITEMS. All decisions to pay or return exception items,
including, but not limited to, stop pay suspects, drafts on uncollected or
insufficient funds, drafts on closed, blocked, or dormant accounts, will be made
by the Customer, and CSC will have no right, duty or obligation to make any
decision with regard to whether any items should be honored by the Customer.
(g) STATEMENTS. CSC will match retained items or images with statements,
count and compare the items with the number of items shown on the statement, and
prepare statement for mailing. The cycle dates for the preparation of statement
will be as mutually agreed upon. CSC will have a minimum of two (2) business
days after printing of statement to complete the processing of a statement of
accounts in each cycle.
(h) SETTLEMENT. The Customer will select and notify CSC and the Federal
Reserve of the financial institution and the account number at that institution
to be used for settlement of the Customer's items. The Federal Reserve will
charge that account for the total of checks presented each day and make
adjustments for return items and cash letter discrepancies. CSC will assume no
responsibility for accuracy of settlement.
2. CHECK MICR REQUIREMENTS. CSC will employ specialized equipment to read the
check MICR characters for the purpose of physically sorting the items, capturing
the data on magnetic media for computer processing and listing the checks. The
Customer will ensure that the MICR line specifications are compatible with CSC
processing requirements. Customer will provide CSC with a description of account
number structure, a list of valid account number ranges, check digit formulas,
and sample checks to facilitate validation of account number formats by CSC.
The Customer will provide to its customers only checks compatible with CSC
processing equipment meeting reasonable quality standards. Upon request, CSC
will provide the Customer with a list of check vendors who furnish checks with
formats compatible with CSC equipment.
3. SIGNATURE CARDS. The Customer will retain on file a signature verification
card for each account. CSC will assist with signature verification but assumes
no responsibility for the accuracy of any signature verification as requested by
the Customer.
4. RECORD RETENTION. During the read/sort process, all inclearing items of the
Customer will be recorded and will be retained in retrievable form by CSC for a
period as required by law. During this period, CSC will provide the Customer
with copies of such items upon request with a corresponding service charge to
the Customer under the fee schedule in effect at the time of the request. CSC
will maintain an indexed history of return items and paid items in account
number sequence to assist the institution when it requests copies of checks.
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<PAGE>
EXHIBIT B
TO
ITEM PROCESSING ADDENDUM
PROOF ENCODING
First 50,000 $0.040
Next 50,000 $0.035
Over 100,000 $0.030
Teller/Customer Corrections $1.000
PER ITEM, PRIME ENTRY
First 50,000 $0.025
Next 50,000 $0.020
Over 100,000 $0.015
IMAGING IMPLEMENTATION FEE $2,500.00
IMAGING SUPPLEMENT (PER ITEM)
Negative-Only Implementation $0.010
Positive Implementation $0.015
CUSTOMER SERVICE OPTIONS
Returns $2.00
Large Dollar Returns $4.00
Returns Qualification $0.35
Federal Reserve Adjustments $2.00
Null/Account Number Rejects $2.00
Large Dollar Item Notification $2.00
Item Search $2.00
Photocopy $2.00
STATEMENT SERVICE OPTIONS
DDA Statement Rendering-Traditional Accounts $0.350
Image DDA, Savings/CD Statement Rendering $0.100
Inserts (per stmt) $0.020
Enclosure Photocopies $10.00 / hour + $1.00 per copy
Serial Sort (Check #) $0.020
(Commercial or special accounts only)
Mailing (other than checking accounts) $0.040
22
<PAGE>
SERVICE EXPLANATION/NOTES
Postage and any item delivery expenses will be charged to the institution.
23
<PAGE>
ATM SERVICE
ADDENDUM
TO
SCHEDULE OF SERVICES
FOR
MASTER SERVICE AGREEMENT
1. Service Description. CSC shall process data supplied by the Customer to
CSC through telecommunication from automated teller machines ("ATM"). The
following standard terms shall apply, subject to the Master Service Agreement
and any contrary agreement made in writing from time to time by the Customer and
CSC:
(a) CSC's ATM system will be in operation 24 hours per day, every
day of the year, except for those times during which maintenance must be
performed.
(b) CSC shall make available to the Customer at the office of CSC
daily reports on the morning of the working day following the day on which the
reported transaction occurred.
(c) The Customer shall pay the cost of transportation for any
reports delivered to the Customer, whether via ground transportation, electronic
data transmission or otherwise. Additional copies, special preprinted forms
including but not limited to PIN mailers and audit confirmations, and any
mailing and handling service, shall be provided under the terms set forth in the
attached Exhibit A. The design and format of any such forms to be used on the
CSC computer system must be approved by CSC.
2. Charges for Service. The charges for the Service and CSC's expenses
incurred in the performance thereof, shall be as provided in the attached
Exhibit A.
24
<PAGE>
EXHIBIT A
TO ATM SERVICE ADDENDUM
ATM SYSTEM PRICING
Initial Charges:
Client Admission Fee $5,000.00
Each ATM $1,500.00
Monthly Charges:
Transaction Fee $ 0.080
ATM Charge per ATM $ 300.00
COMMUNICATION INSTALLATION COSTS
Any cost incurred for installation of new or alteration of existing
communication lines from the telephone company will be billed at the rate from
the telephone company plus twelve percent (12%).
COMPUTER OUTPUT MICROFICHE (COM) CHARGES
Original $1.375
Copies $0.275
SPECIAL PROGRAMMING AND CONSULTING
If any special or custom programming becomes necessary for the Customer for
reports, transactions, services, or additional applications, the programming
charges shall be borne by the Customer and billed based upon CSC's then
prevailing rates. If additional processing time is required due to such
programming, the Customer shall be required to pay for such additional time at
CSC's then prevailing rates. CSC reserves the right to decline Customer requests
for special programming if the changes would adversely affect the overall system
or if the resources are not available to accomplish the request. Charges for CSC
consulting services will be based upon CSC's then prevailing rates plus
out-of-pocket expenses.
COSTS INCURRED BY CSC
Costs incurred by CSC for any special preprinted forms, mailing service, or
special handling will be charged to the Customer on a time and materials basis
and will be included in the monthly invoice.
25
<PAGE>
Note 1 CSC can presently provide files to the following plastic card
vendors in their requested format:
1. First Data Resources (FDR)
2. Deluxe
3. EFT Source
4. Faraday
5. Specialty Network Services
A charge shall be assessed for the conversion of any data files to any other
format not listed above. In addition, a conversion fee shall be assessed for the
conversion of other types of data files, account balances, etc., as necessary
for CSC to provide such services.
26
<PAGE>
June 23, 1997
- -------------
DATE
Central Service Corporation
P. O. Box 10305
Greensboro, North Carolina 27404
Dear CSC,
Please accept this letter as authorization to set us up on the TELEBANC
Interactive Voice Response system.
The attached Schedule N, which outlines the charges for the TELEBANC System,
will become a part of my existing contract.
Sincerely,
/s/
- -----------------------------
(SIGNATURE)
James A. Beck
- -----------------------------
(NAME)
President
- -----------------------------
(TITLE)
Capital Bank (Proposed)
- -----------------------------
(INSTITUTION)
27
<PAGE>
SCHEDULE N
CENTRAL SERVICE CORPORATION
TELEBANC VOICE RESPONSE SYSTEM
CLIENT CHARGES:
STANDARD
PRICE
-----
1. INITIAL LICENSE FEE $ 12,000.00
(Includes custom greeting,
closing, and 800 number)
2. MONTHLY FEES
MONTHLY BASE FEE $ 250.00
PER CALL $ 0.10
PER FAX $ 0.25
3. TELEPHONE COMPANY CHARGES $ 0.10 per minute
4. CUSTOM MESSAGE RECORDING $ 500.00 per hour
28
<PAGE>
6/23/97
- -------
DATE
Central Service Corporation
P. O. Box 10305
Greensboro, North Carolina 27404
Dear CSC,
Please accept this letter as authorization to set us up on the VISA CHECK debit
card program.
The attached Schedule O, which outlines the charges for the VISA CHECK program,
will become a part of my existing contract.
Sincerely,
/s/
- -----------------------------
(SIGNATURE)
David A. Ehmig
- -----------------------------
(NAME)
Senior Vice President
- -----------------------------
(TITLE)
Capital Bank (Proposed)
- -----------------------------
(INSTITUTION)
29
<PAGE>
SCHEDULE O
CENTRAL SERVICE CORPORATION
VISA CHECK CARD SERVICE
BY SPECIAL ARRANGEMENT WITH
SPECIALTY NETWORK SERVICES, INC.
MAITLAND, FLORIDA
CLIENT CHARGES:
1. ONE TIME SET-UP FEE $ 2,500.00
2. MONTHLY FEES
MONTHLY BASE FEE $ 100.00
AUTHORIZATION FEES $ 0.10 per authorization
SETTLEMENT FEES $ 0. 10 per settlement
MONTHLY FILE RESIDENCY $ 0. 15 per card
LOST/STOLEN CARDS $ 12.00 each
NEGATIVE FILE UPDATES $ 1.25 each
CHARGEBACKS/DISPUTES $ 2.00 each
3. VISA AND SES FEES, DUES, ASSESSMENTS variable
(assessed directly by VISA and SES)
30
Subsidiaries of Capital Bank Corporation
Capital Bank
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Capital Bank on
Form S-4 (File No.______________) of our report dated February 27, 1998, (and
September 29, 1998 as to Note 13) on our audit of the financial statements of
Capital Bank as of December 31, 1997, and for the period from June 20, 1997 to
December 31, 1997. We also consent to the references to our firm under the
captions "Experts," "Selected Historical and Unaudited Pro Forma Combined
Financial Data - Selected Financial Data of Capital Bank," "Conditions to
Consummation of the Exchange," and "Accounting Treatment."
PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
October 16, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Capital Bank on
Form S-4 (File No. _________) of our report dated October 24, 1997 (and
September 29, 1998 as to Note 14), on our audits of the consolidated financial
statements of Home Savings Bank of Siler City, Inc., SSB and Subsidiary as of
September 30, 1997 and 1996, and for each of the three years in the period ended
September 30, 1997. We also consent to the reference to our firm under the
caption "Experts" and "Selected Historical and Unaudited Pro Forma Combined
Financial Data - Selected Consolidated Financial Data of Home Savings."
PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
October 16, 1998
CONSENT OF EDWIN E. BRIDGES
The undersigned hereby consents to being named in Capital Bank
Corporation's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission as a person about to become a director of Capital Bank
Corporation.
/s/ Edwin E. Bridges
---------------------
Edwin E. Bridges
October 15, 1998
CONSENT OF JOHN GRIMES
The undersigned hereby consents to being named in Capital Bank
Corporation's Registration Statement on Form S-4 filed with the Securities and
Exchange Commission as a person about to become a director of Capital Bank
Corporation.
/s/ John F. Grimes
---------------------
John F. Grimes
October 15, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001071992
<NAME> Capital Bank Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 2,641,000 2,558,000
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 16,787,000 4,300,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 11,377,000 13,963,000
<INVESTMENTS-CARRYING> 8,155,000 7,000,000
<INVESTMENTS-MARKET> 8,157,000 7,017,000
<LOANS> 27,065,000 53,248,000
<ALLOWANCE> 427,000 766,000
<TOTAL-ASSETS> 68,904,000 85,297,000
<DEPOSITS> 43,386,000 60,270,000
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 562,000 641,000
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 12,388,000 12,388,000
<OTHER-SE> 12,568,000 11,998,000
<TOTAL-LIABILITIES-AND-EQUITY> 68,904,000 85,297,000
<INTEREST-LOAN> 815,000 1,764,000
<INTEREST-INVEST> 407,000 650,000
<INTEREST-OTHER> 595,000 251,000
<INTEREST-TOTAL> 1,817,000 2,665,000
<INTEREST-DEPOSIT> 663,000 1,231,000
<INTEREST-EXPENSE> 669,000 1,231,000
<INTEREST-INCOME-NET> 1,148,000 1,434,000
<LOAN-LOSSES> 270,000 345,000
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 1,746,000 1,888,000
<INCOME-PRETAX> (722,000) (615,000)
<INCOME-PRE-EXTRAORDINARY> (722,000) (615,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (722,000) (615,000)
<EPS-PRIMARY> (0.29) (0.25)
<EPS-DILUTED> (0.29) (0.25)
<YIELD-ACTUAL> 4.24 4.05
<LOANS-NON> 0 0
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 164,000 427,000
<CHARGE-OFFS> 6,000 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 427,000 766,000
<ALLOWANCE-DOMESTIC> 427,000 766,000
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
********************************************************************************
CAPITAL BANK
FORM OF PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints O.A. Keller, III and James A. Beck, and
each of them, as attorney and proxy of the undersigned, with the full power of
substitution, to represent the undersigned and to vote all of the shares of
stock in Capital Bank which the undersigned is entitled to vote at the Special
Meeting of Shareholders to be held at , on Monday, December __, 1998 at _____
a.m., local time, and any adjournments or postponements thereof (1) as specified
below and as more particularly described in the accompanying Joint Proxy
Statement-Prospectus, receipt of which is hereby acknowledged; and (2) in their
discretion upon such other matters as may properly come before the meeting and
any adjournment or postponement thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSALS
LISTED BELOW.
1. Approval of the Agreement and Plan of Reorganization and Share
Exchange, dated as of August 12, 1998, between Capital Bank and Capital Bank
Corporation, by which Capital Bank will reorganize into a bank holding company
by exchanging all of Capital Bank's outstanding shares of common stock, $5.00
per value per share, for shares of Capital Bank Corporation, no par value per
share, as more fully described in the accompanying Joint Proxy
Statement-Prospectus
|_| FOR |_| AGAINST |_| ABSTAIN
2. Approval of the issuance by Capital Bank Corporation of up to _________
shares of common stock, no par value per share, of Capital Bank Corporation to
the shareholders of Home Savings Bank of Siler City, Inc., SSB, in connection
with the Exchange Agreement, as more fully described in the accompanying Joint
Proxy Statement-Prospectus.
|_| FOR |_| AGAINST |_| ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE REVERSE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
By signing the proxy, a shareholder will be authorizing the proxy holder
to vote in his discretion regarding any procedural motions which may come before
the Special Meeting. For example, this authority could be used to adjourn the
meeting if Capital Bank believes it is desirable to do so. Adjournment or other
procedural matters could be used to obtain more time before a vote is taken in
order to solicit additional proxies or to provide additional information to
shareholders. Capital Bank has no current plans to adjourn the meeting, but
would attempt to do so if it believes adjournment would promote shareholder
interests.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN.
Date____________________________, 1998
(Be sure to date Proxy)
______________________________________
Signature and title, if applicable
______________________________________
Signature if held jointly
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN THE
PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
********************************************************************************
HOME SAVINGS BANK OF SILER CITY, INC., SSB
FORM OF PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Edwin E. Bridges and John F. Grimes, and
each of them, as attorney and proxy of the undersigned, with the full power of
substitution, to represent the undersigned and to vote all of the shares of
stock in Home Savings Bank of Siler City, Inc., SSB, which the undersigned is
entitled to vote at the Special Meeting of Shareholders to be held at 300 East
Raleigh Street, Siler City, North Carolina 27344, on Monday, December __, 1998
at ____ p.m., local time, and any adjournments or postponements thereof (1) as
specified below and as more particularly described in the accompanying Joint
Proxy Statement-Prospectus, receipt of which is hereby acknowledged; and (2) in
their discretion upon such other matters as may properly come before the meeting
and any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL LISTED BELOW.
1. Approval of the Agreement and Plan of Reorganization and Share
Exchange, dated as of September 29, 1998, among Capital Bank, Capital Bank
Corporation and Home Savings Bank of Siler City, Inc., SSB, by which Capital
Bank Corporation will acquire Home Savings Bank of Siler City, Inc., SSB ,by
exchanging shares of Capital Bank Corporation, no par value per share, for all
of the shares of Home Savings, as more fully described in the accompanying Joint
Proxy Statement-Prospectus.
|_| FOR |_| AGAINST |_| ABSTAIN
(CONTINUED AND TO BE SIGNED ON THE REVERSE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
By signing the proxy, a shareholder will be authorizing the proxy holder
to vote in his discretion regarding any procedural motions which may come before
the Special Meeting. For example, this authority could be used to adjourn the
meeting if the Bank believes it is desirable to do so. Adjournment or other
procedural matters could be used to obtain more time before a vote is taken in
order to solicit additional proxies or to provide additional information to
shareholders. The Bank has no current plans to adjourn the meeting, but would
attempt to do so if the Bank believes adjournment would promote shareholder
interests.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS BELOW. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN.
Date____________________________, 1998
(Be sure to date Proxy)
______________________________________
Signature and title, if applicable
______________________________________
Signature if held jointly
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN THE FULL
CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN THE
PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
