<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------------------------------------
LSB BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------------------------------------------------
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6712 56-1348147
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(910) 248-6500
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
ROBERT F. LOWE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(910) 248-6500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
DAVID E. JOHNSTON JOHN W. BABCOCK
HUNTON & WILLIAMS BELL, DAVIS & PITT, P.A.
ONE NATIONSBANK PLAZA, SUITE 2650 635 WEST FOURTH STREET
101 SOUTH TRYON STREET WINSTON-SALEM, NORTH CAROLINA 27101
CHARLOTTE, NORTH CAROLINA 28280 (910) 722-3700
(704) 378-4700
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed merger (the "Merger")
described herein have been satisfied or waived.
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. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of Registration
Registered Registered (1) Share (2) Price Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $5 per share 1,826,350 $17.00 $31,047,950 $9,409
</TABLE>
(1) This Registration Statement covers (i) the maximum number of shares of
the common stock of the Registrant expected to be issued in connection
with the Merger and (ii) the maximum number of shares of common stock of
the Registrant reserved for issuance under various option and other plans
of Old North State Bank ("ONSB"), the obligations under which will be
assumed by the Registrant upon consummation of the Merger but which may be
issued prior to consummation of the Merger.
(2) Estimated solely for the purpose of calculating the registration fee on
the basis of the average bid and asked price of the common stock of ONSB
reported on the OTC Bulletin Board System on May 9, 1997, pursuant to Rule
457(c) under the Securities Act of 1933, as amended, in accordance with
Rule 457(f)(1).
THIS REGISTRATION STATEMENT COVERS ADDITIONAL SHARES OF THE COMMON STOCK OF THE
REGISTRANT THAT MAY BE ISSUED TO PREVENT DILUTION RESULTING FROM A STOCK SPLIT,
STOCK DIVIDEND OR SIMILAR TRANSACTION INVOLVING THE COMMON STOCK OF THE
REGISTRANT, PURSUANT TO RULE 416.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
LSB BANCSHARES, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE
LOCATION IN THE JOINT PROXY STATEMENT-PROSPECTUS OF THE RESPONSES TO THE ITEMS
OF PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN PROXY
NUMBER CAPTION STATEMENT-PROSPECTUS
- ------ ------- ----------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration Outside Front Cover of Joint Proxy
Statement and Outside Front Statement; Facing Page of
Cover Page of Prospectus......... Registration Statement
2. Inside Front and Outside Back
Cover of Prospectus.............. Available Information; Documents
Incorporated by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information...................... Summary; Comparative Market Prices
and Dividends; Comparative Per Share
Data
4. Terms of the Transaction......... Summary; Description of the Merger;
Effect of the Merger on Rights of
Shareholders; Description of LSB
Capital Stock
5. Pro Forma Financial Information.. Documents Incorporated by Reference;
Pro Forma Condensed Financial
Information
6. Material Contracts with Company
Being Acquired................... Summary; Description of the Merger
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... Not applicable
8. Interest of Named Experts and
Counsel.......................... Opinions
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities....... Not applicable
B. INFORMATION ABOUT THE
REGISTRANT
10. Information with Respect to S-3
Registrants...................... Available Information; Documents
Incorporated by Reference; Summary;
Information About LSB
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ITEM CAPTION OR LOCATION IN PROXY
NUMBER CAPTION STATEMENT-PROSPECTUS
- ------ ------- ----------------------------
<S> <C> <C>
11. Incorporation of Certain
Information by Reference......... Documents Incorporated by Reference
12. Information with Respect to S-2
or S-3 Registrants............... Not Applicable
13. Incorporation of Certain
Information by Reference......... Not Applicable
14. Information with Respect to
Registrants Other Than S-2 or
S-3 Registrants.................. Not Applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3
Companies........................ Not Applicable
16. Information with Respect to S-2
or S-3 Companies................. Available Information; Documents
Incorporated by Reference; Summary;
Information About ONSB
17. Information with Respect to
Companies Other Than S-2 or S-3
Companies........................ Not Applicable
D. VOTING AND MANAGEMENT
INFORMATION
18. Information if Proxies,
Consents, or Authorizations are
to be Solicited.................. Documents Incorporated by Reference;
Summary; Special Meeting of ONSB
Shareholders; Special Meeting of LSB
Shareholders; Description of the
Merger; Information About ONSB;
Information About LSB; Description
of LSB Capital Stock
19. Information if Proxies,
Consents, or Authorizations are
not to be Solicited or in an
Exchange Offer................... Not Applicable
</TABLE>
<PAGE> 5
OLD NORTH STATE BANK
161 SOUTH STRATFORD ROAD
WINSTON-SALEM, NORTH CAROLINA 27104
June___, 1997
To the Shareholders of
Old North State Bank:
You are cordially invited to attend a Special Meeting of the Shareholders
(the "Special Meeting") of Old North State Bank to be held at the Holiday Inn
North, 3050 University Parkway, Winston-Salem, North Carolina, at 9:00 A.M.,
local time, on Monday, July 21, 1997, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Reorganization and Merger, dated
as of March 14, 1997 (the "Agreement"), which provides for the merger (the
"Merger") of Old North State Bank with and into Lexington State Bank ("LSB
Bank"), with LSB Bank the surviving corporation resulting from the Merger. LSB
Bank is a wholly-owned subsidiary of LSB Bancshares, Inc. ("LSB"). Upon
consummation of the Merger, each share of Old North State Bank common stock
issued and outstanding will be exchanged for 0.948 of a share of LSB common
stock (subject to adjustment as described in the accompanying Joint Proxy
Statement/Prospectus), with cash being paid in lieu of issuing fractional
shares.
Enclosed are the (i) Notice of Special Meeting, (ii) Joint Proxy
Statement/Prospectus, (iii) Proxy for the Special Meeting, (iv) Old North State
Bank's Annual Report on Form 10-KSB for the year ended December 31, 1996, and
(v) Old North State Bank's Quarterly Report on Form 10-QSB for the three months
ended March 31, 1997. The Joint Proxy Statement/Prospectus describes in more
detail the Agreement and the proposed Merger, including a description of the
conditions to consummation of the Merger and the effects of the Merger on the
rights of Old North State Bank shareholders. Please read these materials
carefully and consider thoughtfully the information set forth in them.
The Board of Directors has approved the Agreement and consummation of the
Merger contemplated thereby, and recommends that you vote FOR approval of the
Agreement.
It is important to understand that approval of the Agreement will require
the affirmative vote of two-thirds of the votes entitled to be cast at the
Special Meeting by the holders of the issued and outstanding shares of Old North
State Bank common stock. Accordingly, whether or not you plan to attend the
Special Meeting, you are urged to complete, sign, and return promptly the
enclosed proxy card. If you attend the Special Meeting, you may vote in person
if you wish, even if you previously have returned your proxy card. The proposed
Merger with LSB Bank is a significant step for Old North State Bank and your
vote on this matter is of great importance.
On behalf of the Board of Directors, we urge you to vote FOR approval of
the Agreement by marking the enclosed proxy card "FOR" item one.
<PAGE> 6
We look forward to seeing you at the Special Meeting.
Sincerely,
Nicholas A. Daves Robert E. Marziano
Chairman of the Board President and Chief Executive Officer
<PAGE> 7
OLD NORTH STATE BANK
161 SOUTH STRATFORD ROAD
WINSTON-SALEM, NORTH CAROLINA 27104
(910) 631-3900
-----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 9:00 A.M. ON JULY 21, 1997
-----------------------------------------
To the Shareholders of
Old North State Bank:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Old North State Bank will be held at the Holiday Inn
North, 3050 University Parkway, Winston-Salem, North Carolina, on Monday, July
21, 1997, at 9:00 A.M., local time, for the following purposes:
1. MERGER. To consider and vote upon a proposal to approve an Agreement
and Plan of Reorganization and Merger, dated as of March 14, 1997 (the
"Agreement"), by and among Old North State Bank, Lexington State Bank ("LSB
Bank") and LSB Bancshares, Inc., the holding company of LSB Bank ("LSB"),
pursuant to which (i) Old North State Bank will merge (the "Merger") with and
into LSB Bank, with LSB Bank the surviving corporation, (ii) each share of the
$5.00 par value common stock of Old North State Bank ("Old North State Bank
Stock") issued and outstanding at the effective time of the Merger will be
exchanged for 0.948 of a share of the $5.00 par value common stock of LSB,
subject to possible adjustment, and cash in lieu of any fractional share, and
(iii) LSB will assume the obligations of Old North State Bank under certain
warrants and various stock plans and adopt substitute plans where appropriate,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Agreement is set forth in Appendix A to the
accompanying Joint Proxy Statement/Prospectus and is hereby incorporated by
reference herein.
2. OTHER BUSINESS. To transact such other business as may come properly
before the Special Meeting or any adjournments or postponements of the Special
Meeting.
NOTICE OF APPRAISAL RIGHTS. If Proposal 1 above is approved and the Merger
contemplated thereby is consummated, each holder of shares of Old North State
Bank Stock would have the right to demand appraisal of such holder's shares of
Old North State Bank Stock and would be entitled to the rights and remedies of
Article 13 of the North Carolina Business Corporation Act ("NCBCA"). The right
of any such shareholder to any such rights and remedies is contingent upon
consummation of the Merger. In addition, the right of any such shareholder to
such rights and remedies is contingent upon strict compliance with the
requirements set forth in Article 13 of the NCBCA, the full text of which is
attached as Appendix B to the accompanying Joint Proxy Statement/Prospectus. For
a summary of the requirements of Article 13 of the NCBCA, see "DESCRIPTION OF
THE MERGER--Dissenters' Rights" in the accompanying Joint Proxy
Statement/Prospectus.
Only shareholders of record at the close of business on June 2, 1997, will
be entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Approval of the Agreement requires the
affirmative vote of two-thirds of the votes entitled to be cast at the Special
Meeting by holders of the issued and outstanding shares of Old North State Bank
Stock.
<PAGE> 8
THE BOARD OF DIRECTORS OF OLD NORTH STATE BANK RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
Nicholas A. Daves
Chairman
Winston-Salem, North Carolina
June ___, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL
BE REPRESENTED AT THE SPECIAL MEETING.
<PAGE> 9
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
June___, 1997
To the Shareholders of
LSB Bancshares, Inc.:
You are cordially invited to attend a Special Meeting of the Shareholders
(the "Special Meeting") of LSB Bancshares, Inc. ("LSB") to be held at the
offices of LSB at One LSB Plaza, Lexington, North Carolina, at 1:00 P.M., local
time, on Monday, July 21, 1997, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote on a
proposal to issue shares of LSB common stock, $5.00 par value per share ("LSB
Stock"), pursuant to the terms of an Agreement and Plan of Reorganization and
Merger, dated as of March 14, 1997 (the "Agreement"), which provides for the
merger (the "Merger") of Old North State Bank with and into Lexington State
Bank ("LSB Bank"), with LSB Bank the surviving corporation resulting from the
Merger. Upon consummation of the Merger, each share of Old North State Bank
common stock issued and outstanding will be exchanged for 0.948 of a share of
LSB Stock (subject to adjustment as described in the accompanying Joint Proxy
Statement/Prospectus), with cash being paid in lieu of issuing fractional
shares.
Enclosed are the (i) Notice of Special Meeting, (ii) Joint Proxy
Statement/Prospectus, and (iii) Proxy for the Special Meeting. The Joint Proxy
Statement/Prospectus describes in more detail the Agreement and the proposed
Merger, including a description of the conditions to consummation of the
Merger. Please read these materials carefully and consider thoughtfully the
information set forth in them.
The Board of Directors has approved the Agreement, consummation of the
Merger contemplated thereby, and the related issuance of shares of LSB Stock,
and recommends that you vote FOR approval of the issuance of LSB Stock in
connection with the Merger.
Approval of the issuance of LSB Stock will require the affirmative vote of
a majority of the total votes cast on the proposal in person or by proxy at the
Special Meeting. Whether or not you plan to attend the Special Meeting, you are
urged to complete, sign, and return promptly the enclosed proxy card. If you
attend the Special Meeting, you may vote in person if you wish, even if you
previously have returned your proxy card. The proposed Merger with Old North
State Bank is a significant step for LSB and your vote on this matter is of
great importance.
On behalf of the Board of Directors, we urge you to vote FOR approval of
the issuance of shares of LSB Stock in connection with the Merger by marking
the enclosed proxy card "FOR" item one.
<PAGE> 10
We look forward to seeing you at the Special Meeting.
Sincerely,
Robert F. Lowe
Chairman, President and Chief Executive
Officer
<PAGE> 11
LSB BANCSHARES, INC.
ONE LSB PLAZA
LEXINGTON, NORTH CAROLINA 27292
(910) 248-6500
-----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT 1:00 P.M. ON JULY 21, 1997
-----------------------------------------
To the Shareholders of
LSB Bancshares, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of LSB Bancshares, Inc. ("LSB") will be held at the offices
of LSB at One LSB Plaza, Lexington, North Carolina, on Monday, July 21, 1997,
at 1:00 P.M., local time, for the following purposes:
1. PROPOSED ISSUANCE OF COMMON STOCK. To consider and vote upon a proposal
to issue shares of LSB common stock, $5.00 par value per share ("LSB Stock"),
pursuant to the terms of an Agreement and Plan of Reorganization and Merger,
dated as of March 14, 1997 (the "Agreement"), by and among Old North State
Bank, Lexington State Bank ("LSB Bank") and LSB, pursuant to which (i) Old
North State Bank will merge (the "Merger") with and into LSB Bank, with LSB
Bank the surviving corporation, (ii) each share of the $5.00 par value common
stock of Old North State Bank ("Old North State Bank Stock") issued and
outstanding at the effective time of the Merger will be exchanged for 0.948 of
a share of LSB Stock, subject to possible adjustment, and cash in lieu of any
fractional share, and (iii) LSB will assume the obligations of Old North State
Bank under certain warrants and various stock plans and adopt substitute plans
where appropriate, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Agreement is set forth in Appendix A to the
accompanying Joint Proxy Statement/Prospectus and is hereby incorporated by
reference herein.
2. OTHER BUSINESS. To transact such other business as may come properly
before the Special Meeting or any adjournments or postponements of the Special
Meeting.
Only shareholders of record at the close of business on June 17, 1997,
will be entitled to receive notice of and to vote at the Special Meeting or any
adjournment or postponement thereof. Approval of the issuance of LSB Stock in
connection with the Merger requires the affirmative vote of a majority of the
total votes cast on the proposal in person or by proxy at the Special Meeting.
<PAGE> 12
THE BOARD OF DIRECTORS OF LSB RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE ISSUANCE OF SHARES OF LSB STOCK IN CONNECTION WITH THE MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
Robert F. Lowe
Chairman
Lexington, North Carolina
June ___, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL
BE REPRESENTED AT THE SPECIAL MEETING.
<PAGE> 13
PROSPECTUS
LSB BANCSHARES, INC.
AN ESTIMATED 1,826,350 SHARES OF
COMMON STOCK, $5.00 PAR VALUE PER SHARE
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS OF SHAREHOLDERS OF
OLD NORTH STATE BANK AND LSB BANCSHARES, INC.
This Prospectus of LSB Bancshares, Inc., a bank holding company organized
and existing under the laws of the State of North Carolina ("LSB"), relates to
up to 1,826,350 shares of common stock, $5.00 par value per share, of LSB ("LSB
Stock"), including shares to be subject to assumed options and warrants, which
are issuable to the shareholders of Old North State Bank ("ONSB"), a bank
corporation organized and existing under the laws of the State of North
Carolina, upon consummation of the proposed merger (the "Merger") described
herein by which ONSB will merge with and into Lexington State Bank ("LSB
Bank"), a bank corporation organized and existing under the laws of the State
of North Carolina and a wholly-owned subsidiary of LSB, pursuant to the terms
of the Agreement and Plan of Reorganization and Merger, dated as of March 14,
1997 (the "Agreement"), by and among ONSB, LSB Bank and LSB. The full text of
the Agreement is attached as Appendix A hereto.
At the effective time of the Merger (the "Effective Time"), except as
described herein, each issued and outstanding share of common stock, par value
$5.00 per share, of ONSB ("ONSB Stock") will be converted into and exchanged
for 0.948 of a share of LSB Stock (the "Exchange Rate"), assuming an Average
Closing Price (as defined herein) of LSB Stock of $20.00 per share. This would
yield a dollar value of LSB Stock received by ONSB shareholders of $18.96 per
share of ONSB Stock. The Exchange Rate could be greater or less than 0.948,
depending upon the Average Closing Price. To the extent that the Average
Closing Price of LSB Stock is between $20.00 and $24.00, the Exchange Rate
shall be adjusted so that the dollar value of LSB Stock received by the
shareholders of ONSB will range from $18.96 to $19.59, respectively, per share
of ONSB Stock. To the extent that the Average Closing Price of LSB Stock is
between $15.00 and $20.00, the Exchange Rate shall be adjusted so that the
dollar value of LSB Stock received by the shareholders of ONSB will range from
$15.80 to $18.96, respectively, per share of ONSB Stock. The Average Closing
Price was $ ______ on June ___, 1997, which would have required an adjustment
of the Exchange Rate to _______, yielding a dollar value of $_______ per share
of ONSB Stock. See "DESCRIPTION OF THE MERGER--Possible Adjustment of Exchange
Rate."
The "Average Closing Price" is defined in the Agreement as the average of
the daily closing sale prices of LSB Stock on the Nasdaq National Market System
(as reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as selected by LSB) for the 15 consecutive trading days
immediately preceding the ten-day period ending on the closing date of the
Merger (the "Closing Date"). If the Average Closing Price of LSB Stock is
greater than $24.00 or less than $15.00, the Board of Directors of both LSB and
ONSB each has the right to terminate the Agreement. See "DESCRIPTION OF THE
MERGER--Waiver, Amendment, and Termination."
This Prospectus also serves as the Proxy Statement of ONSB, and is being
furnished to the shareholders of ONSB in connection with the solicitation of
proxies by the Board of Directors of ONSB for use at its special meeting of
shareholders (including any adjournment or postponement thereof, the
<PAGE> 14
"ONSB Special Meeting"), to be held on July 21, 1997, to consider and vote upon
the Agreement. This Joint Proxy Statement/Prospectus ("Proxy Statement") and
related materials enclosed herewith are being mailed to shareholders of ONSB on
or about June 2, 1997.
Each holder of shares of ONSB Stock has the right to dissent from the
Merger and to demand appraisal and payment of the fair value of such holder's
shares of ONSB Stock if the Merger is approved and consummated. The right of
any such shareholder to such rights and remedies is contingent upon strict
compliance with the requirements set forth in Article 13 of the North Carolina
Business Corporation Act ("NCBCA"), the full text of which is attached as
Appendix B hereto. A shareholder of ONSB who wishes to dissent from the Merger
(i) must give ONSB written notice of his intent to demand payment for his
shares if the Merger is effectuated, which notice must be actually received by
ONSB before the vote is taken at the ONSB Special Meeting, and (ii) must not
vote any shares of ONSB Stock in favor of the Merger. See "DESCRIPTION OF THE
MERGER--Dissenters' Rights."
This Prospectus also constitutes the Proxy Statement of LSB. It is being
provided to LSB shareholders in connection with the solicitation of proxies by
the Board of Directors of LSB for use at its special meeting of shareholders
(including any adjournment or postponement thereof, the "LSB Special Meeting"),
to be held on July 21, 1997, to consider and vote upon the issuance of shares
of LSB Stock in connection with the Merger. This Proxy Statement and related
materials enclosed herewith are being mailed to shareholders of LSB on or about
June 17, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR OTHER
OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY. THE SECURITIES ARE NOT OBLIGATIONS OF NOR ARE THE SECURITIES
GUARANTEED BY LEXINGTON STATE BANK OR LSB BANCSHARES, INC. THE SECURITIES ARE
SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
The date of this Joint Proxy Statement is June ___, 1997.
ii
<PAGE> 15
AVAILABLE INFORMATION
LSB is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, is
required to file reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "SEC"). Copies of
such reports, proxy and information statements, and other information can be
obtained, at prescribed rates, from the SEC by addressing written requests for
such copies to the Public Reference Section at the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports, proxy
and information statements, and other information can be inspected at the
public reference facilities referred to above and at the regional offices of
the SEC at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The SEC maintains a World Wide Web site on the Internet at
"http://www.sec.gov" that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC, including LSB. The shares of LSB Stock are listed on the Nasdaq National
Market ("Nasdaq"), and reports, proxy and information statements, and other
information concerning LSB also may be inspected at the offices of Nasdaq, 1735
K Street, N.W., Washington, D.C. 20006.
ONSB also is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Federal Reserve Board (the "Federal Reserve"). Copies of
such reports, proxy statements and other information filed by ONSB may be
obtained from the Federal Reserve at prescribed rates by written requests for
such copies to the Federal Reserve, Records Office, 20th and C Streets, N.W.,
Washington, D.C. 20551, or the Federal Reserve Bank of Richmond, 701 East Byrd
Street, Richmond, Virginia 23219. In addition, such documents are exhibits to
the Registration Statement (as defined herein) and may be inspected and copied
at the public reference facilities maintained by the SEC at the addresses set
forth above.
This Proxy Statement constitutes part of the Registration Statement on
Form S-4 of LSB (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Proxy Statement does not include all of the information in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the SEC. For further information about LSB and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed
rates, at the SEC's public reference facilities at the addresses set forth
above.
All information contained in this Proxy Statement or incorporated herein
by reference with respect to LSB was supplied by LSB and all information
contained in this Proxy Statement or incorporated herein by reference with
respect to ONSB was supplied by ONSB.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED
iii
<PAGE> 16
PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF LSB OR ONSB OR THE
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN SINCE THE DATE OF THIS
PROXY STATEMENT.
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<PAGE> 17
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by LSB pursuant to
the Exchange Act are hereby incorporated by reference herein:
(a) LSB's Annual Report on Form 10-K for the year ended December 31, 1996;
(b) LSB's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997;
(c) LSB's Current Report on Form 8-K dated March 14, 1997; and
(d) The description of LSB Stock contained in LSB's Registration Statement
on Form 8-A filed November 17, 1992, under the Exchange Act and any other
amendment or report filed for the purpose of updating such description.
The following documents previously filed with the Federal Reserve by ONSB
pursuant to the Exchange Act are hereby incorporated by reference herein:
(a) ONSB's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996;
(b) ONSB's Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 1997; and
(c) ONSB's Current Report on Form 8-K dated March 21, 1997.
All documents filed by LSB pursuant to Sections 13(a), 13(c), 14, or 15(d)
of the Exchange Act after the date of this Proxy Statement and prior to final
adjournment of the ONSB Special Meeting and LSB Special Meeting shall be deemed
to be incorporated by reference in this Proxy Statement and to be a part hereof
from the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed to constitute a part hereof, except as so modified or superseded.
LSB will provide without charge, upon the written or oral request of any
person, including any beneficial owner, to whom this Proxy Statement is
delivered a copy of any and all information (excluding certain exhibits)
relating to LSB that has been incorporated by reference in the Registration
Statement. Such requests should be directed to Monty J. Oliver, Secretary and
Treasurer, LSB Bancshares, Inc., One LSB Plaza, Lexington, North Carolina 27292
(telephone (910) 248-6500). ONSB will provide without charge, upon the written
or oral request of any person, including any beneficial owner, to whom this
Proxy Statement is delivered, a copy of any and all information (excluding
certain exhibits) relating to ONSB that has been incorporated by reference in
the Registration Statement of which this Proxy Statement is a part. Such
requests should be directed to Charles V. Darnell, Senior Vice President and
Chief Financial Officer, Old North State Bank, 161 South Stratford Road,
Winston-Salem, North Carolina 27104 (telephone (910) 983-0682). In order to
ensure timely delivery of the documents, any request should be made by July 1,
1997.
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<PAGE> 18
ONSB'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996, AND ONSB'S QUARTERLY REPORT ON FORM 10-QSB FOR THE FISCAL QUARTER ENDED
MARCH 31, 1997, ACCOMPANY THIS PROXY STATEMENT.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF LSB FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS
RELATING TO THE COST SAVINGS AND REVENUE ENHANCEMENTS THAT ARE EXPECTED TO BE
REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE MERGER ON LSB FINANCIAL
PERFORMANCE (SEE "DESCRIPTION OF THE MERGER-BACKGROUND OF AND REASONS FOR THE
MERGER"). THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS,
THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT
BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS
FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE PRESSURE IN THE
BANKING INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO
THE INTEGRATION OF THE BUSINESS OF LSB AND ONSB ARE GREATER THAN EXPECTED; (5)
REQUIRED OPERATIONAL DIVESTITURES ARE GREATER THAN EXPECTED; (6) CHANGES IN THE
INTEREST RATE ENVIRONMENT REDUCE MARGINS; (7) GENERAL ECONOMIC CONDITIONS,
EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING
IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY; (8) CHANGES OCCUR IN
THE REGULATORY ENVIRONMENT; (9) CHANGES OCCUR IN BUSINESS CONDITIONS AND
INFLATION; AND (10) CHANGES OCCUR IN THE SECURITIES MARKETS.
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<PAGE> 19
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY...................................................................1
The Parties...........................................................1
Meeting Of ONSB Shareholders..........................................1
Meeting Of LSB Shareholders...........................................2
The Merger............................................................2
Comparative Market Prices Of Common Stock.............................7
Comparative Per Share Data............................................7
SELECTED FINANCIAL DATA...................................................9
PRO FORMA CONDENSED FINANCIAL INFORMATION................................14
COMPARATIVE MARKET PRICES AND DIVIDENDS..................................20
SPECIAL MEETING OF ONSB SHAREHOLDERS.....................................22
Date, Place, Time, And Purpose.......................................22
Record Dates, Voting Rights, Required Votes, And
Revocability Of Proxies..............................................22
Solicitation Of Proxies..............................................23
Recommendation.......................................................23
SPECIAL MEETING OF LSB SHAREHOLDERS......................................24
Date, Place, Time, And Purpose.......................................24
Record Dates, Voting Rights, Required Votes, And
Revocability Of Proxies..............................................24
Solicitation Of Proxies..............................................25
Recommendation.......................................................25
DESCRIPTION OF THE MERGER................................................26
General..............................................................26
Possible Adjustment Of Exchange Rate.................................26
Effect Of The Merger On Stock Options And Warrants...................27
Background Of And Reasons For The Merger.............................28
Opinion Of ONSB's Financial Advisor..................................32
Opinion Of LSB's Financial Advisor...................................35
Effective Time Of The Merger.........................................40
Distribution Of LSB Stock Certificates...............................41
Conditions To Consummation Of The Merger.............................42
Regulatory Approvals.................................................42
Waiver, Amendment, And Termination...................................43
Dissenters' Rights...................................................44
Conduct Of Business Pending The Merger...............................46
Management And Operations After The Merger...........................47
Interests Of Certain Persons In The Merger...........................48
Option Agreement.....................................................50
Certain Federal Income Tax Consequences..............................51
Accounting Treatment.................................................52
Expenses And Fees....................................................52
Resales Of LSB Stock.................................................53
</TABLE>
vii
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C>
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS...........................54
Anti-Takeover Provisions Generally..................................54
Authorized Capital Stock............................................54
Amendment Of Articles Of Incorporation And Bylaws...................55
Classified Board Of Directors And Absence Of Cumulative Voting......56
Removal Of Directors................................................57
Limitations On Director Liability...................................57
Indemnification.....................................................58
Special Meeting Of Shareholders.....................................60
Constituency And Stakeholder Provisions.............................60
Actions By Shareholders Without A Meeting...........................60
Shareholder Nominations And Proposals...............................60
Fair Price Provisions...............................................61
Business Combinations...............................................61
Dissenters' Rights of Appraisal.....................................62
Shareholders' Rights To Examine Books And Records...................62
Dividends...........................................................62
INFORMATION ABOUT ONSB..................................................64
General.............................................................64
Security Ownership Of Management....................................64
INFORMATION ABOUT LSB...................................................65
General.............................................................65
Security Ownership Of Management....................................65
CERTAIN REGULATORY CONSIDERATIONS.......................................66
General.............................................................66
Community Reinvestment..............................................67
Payment Of Dividends................................................69
Capital Adequacy....................................................70
Support Of Subsidiary Banks.........................................71
Prompt Corrective Action............................................71
FDIC Insurance Assessments..........................................73
Safety And Soundness Standards......................................74
Depositor Preference................................................74
DESCRIPTION OF LSB CAPITAL STOCK........................................75
OTHER MATTERS...........................................................75
EXPERTS.................................................................75
OPINIONS................................................................75
SHAREHOLDER PROPOSALS...................................................76
APPENDICES
Appendix A: Agreement and Plan of Reorganization and Merger
Appendix B: Article 13 of the North Carolina Business Corporation Act
Appendix C: Form of Opinion of Scott & Stringfellow, Inc.
Appendix D: Opinion of The Carson Medlin Company
</TABLE>
viii
<PAGE> 21
SUMMARY
Following is a summary of certain information contained in this Proxy
Statement and the documents incorporated herein by reference. This summary is
not intended to be a complete description of the matters covered in this Proxy
Statement and is qualified in its entirety by the more detailed information
appearing elsewhere or incorporated by reference in this Proxy Statement.
Shareholders are urged to read carefully the entire Proxy Statement, including
the appendices. As used in this Proxy Statement, the terms "LSB" and "ONSB"
refer to those entities, respectively, and, where the context requires, to LSB
and its subsidiaries and ONSB and its subsidiary, respectively.
THE PARTIES
ONSB. ONSB is a North Carolina bank corporation headquartered in
Winston-Salem, North Carolina that operates seven banking offices in Forsyth
County and Stokes County. ONSB offers a broad range of banking and
banking-related services. As of March 31, 1997, ONSB had total consolidated
assets of approximately $137.3 million, total consolidated deposits of
approximately $112.2 million, and total consolidated shareholders' equity of
approximately $11.4 million. The principal executive offices of ONSB are
located at 161 South Stratford Road, Winston-Salem, North Carolina 27104, and
its telephone number at such address is (910) 631-3900. Additional information
with respect to ONSB is included in documents incorporated by reference in this
Proxy Statement. See "AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY
REFERENCE" and "INFORMATION ABOUT ONSB."
LSB. LSB, a North Carolina corporation, is a bank holding company
registered with the Federal Reserve under the federal Bank Holding Company Act
of 1956, as amended (the "BHC Act"). LSB owns all of the outstanding shares of
LSB Bank, a North Carolina bank corporation that operates 14 banking offices
located in Davidson County, North Carolina. LSB, through LSB Bank and its
subsidiaries, offers a full range of financial services related to commercial
banking, savings and trusts, including the acceptance of deposits, corporate
cash management, discount brokerage, IRA plans, secured and unsecured loans and
trust functions. As of March 31, 1997, LSB had total consolidated assets of
approximately $431.6 million, total consolidated deposits of approximately
$362.0 million, and total consolidated shareholders' equity of approximately
$52.6 million.
The principal executive offices of LSB and LSB Bank are located at One LSB
Plaza, Lexington, North Carolina 27292, and its telephone number at such address
is (910)248-6500. Additional information with respect to LSB and its subsidiary
is included in documents incorporated by reference in this Proxy Statement. See
"AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY REFERENCE" and "INFORMATION
ABOUT LSB."
MEETING OF ONSB SHAREHOLDERS
This Proxy Statement is being furnished to the holders of ONSB Stock in
connection with the solicitation by the ONSB Board of Directors of proxies for
use at the ONSB Special Meeting at which ONSB shareholders will be asked to
vote upon (i) a proposal to approve the Agreement and (ii) such other business
as may properly come before the meeting. The ONSB Special Meeting will be held
at the Holiday Inn North, 3050 University Parkway, Winston-Salem, North
Carolina, at 9:00 A.M., local time, on Monday, July 21, 1997. See "SPECIAL
MEETING OF ONSB SHAREHOLDERS--Date, Place, Time, and Purpose."
<PAGE> 22
ONSB's Board of Directors has fixed the close of business on June 2, 1997,
as the record date (the "ONSB Record Date") for determination of the
shareholders entitled to notice of and to vote at the ONSB Special Meeting.
Only holders of record of shares of ONSB Stock on the ONSB Record Date will be
entitled to notice of and to vote at the ONSB Special Meeting. Each share of
ONSB Stock is entitled to one vote. Shareholders who execute proxies retain the
right to revoke them at any time prior to being voted at the ONSB Special
Meeting. On the ONSB Record Date, ________ shares of ONSB Stock were issued and
outstanding. See "SPECIAL MEETING OF ONSB SHAREHOLDERS--Record Dates, Voting
Rights, Required Votes, and Revocability of Proxies."
Approval of the Agreement requires the affirmative vote of two-thirds of
the votes entitled to be cast at the ONSB Special Meeting by the holders of the
issued and outstanding shares of ONSB Stock. As of March 31, 1997, directors
and executive officers of ONSB and their affiliates were entitled to vote
239,504 shares (excluding options) or approximately 15.1% of the outstanding
shares of ONSB Stock. See "SPECIAL MEETING OF ONSB SHAREHOLDERS--Record Dates,
Voting Rights, Required Votes, and Revocability of Proxies."
MEETING OF LSB SHAREHOLDERS
This Proxy Statement is being provided to the holders of LSB Stock in
connection with the solicitation by the LSB Board of Directors of proxies for
use at the LSB Special Meeting at which LSB shareholders will be asked to vote
upon (i) a proposal to issue shares of LSB Stock in connection with the Merger
and (ii) such other business as may properly come before the meeting. The LSB
Special Meeting will be held at the offices of LSB at One LSB Plaza, Lexington,
North Carolina, at 1:00 P.M., local time, on Monday, July 21, 1997. See "SPECIAL
MEETING OF LSB SHAREHOLDERS--Date, Place, Time, and Purpose."
The Board of Directors of LSB has fixed the close of business on June 17,
1997, as the record date (the "LSB Record Date") for determination of the
shareholders entitled to notice of and to vote at the LSB Special Meeting. Only
holders of record of shares of LSB Stock on the LSB Record Date will be
entitled to notice of and to vote at the LSB Special Meeting. Each share of LSB
Stock is entitled to one vote. Shareholders who execute proxies retain the
right to revoke them at any time prior to being voted at the LSB Special
Meeting. On the LSB Record Date, ________ shares of LSB Stock were issued and
outstanding. See "SPECIAL MEETING OF LSB SHAREHOLDERS--Record Dates, Voting
Rights, Required Votes, and Revocability of Proxies."
Approval of the issuance of shares of LSB Stock in connection with the
Merger requires the affirmative vote of a majority of the total votes cast on
the proposal in person or by proxy at the LSB Special Meeting. As of March 31,
1997, directors and executive officers of LSB and their affiliates were
entitled to vote 316,520 shares (excluding options) or approximately 5.8% of
the outstanding shares of LSB Stock. In addition, at March 31, 1997, the LSB
Bank Trust Department held approximately 163,849 shares, or 3.0%, of the then
outstanding shares of LSB Stock. See "SPECIAL MEETING OF LSB
SHAREHOLDERS--Record Dates, Voting Rights, Required Votes, and Revocability of
Proxies."
THE MERGER
GENERAL. The Agreement provides for the acquisition of ONSB by LSB
pursuant to the merger of ONSB with and into LSB Bank. At the Effective Time,
each share of ONSB Stock then issued and outstanding will be converted into and
exchanged for 0.948 of a share of LSB Stock, assuming an Average Closing Price
of LSB Stock of $20.00 per share. This would yield a dollar value of LSB Stock
received by ONSB shareholders of $18.96 per share of ONSB Stock. The Exchange
Rate could be greater or less than 0.948, depending upon the Average Closing
Price. To the extent that the Average
2
<PAGE> 23
Closing Price of LSB Stock is between $20.00 and $24.00, the Exchange Rate
shall be adjusted so that the dollar value of LSB Stock received by the
shareholders of ONSB will range from $18.96 to $19.59, respectively, per share
of ONSB Stock. To the extent that the Average Closing Price of LSB Stock is
between $15.00 and $20.00, the Exchange Rate shall be adjusted so that the
dollar value of LSB Stock received by the shareholders of ONSB will range from
$15.80 to $18.96, respectively, per share of ONSB Stock. The Average Closing
Price was $________ on June ___, 1997, which would have required an adjustment
of the Exchange Rate to _______, yielding a dollar value of $________ per share
of ONSB Stock. See "DESCRIPTION OF THE MERGER--Possible Adjustment of Exchange
Rate."
The "Average Closing Price" is defined in the Agreement as the average of
the daily closing sale prices of LSB Stock quoted on the Nasdaq National Market
System (as reported by The Wall Street Journal or, if not reported thereby,
another authoritative source as selected by LSB) for the 15 consecutive trading
days immediately preceding the ten-day period ending on the Closing Date. If
the Average Closing Price of LSB Stock is greater than $24.00 or less than
$15.00, the Board of Directors of both LSB and ONSB each has the right to
terminate the Agreement. See "DESCRIPTION OF THE MERGER--Waiver, Amendment,
and Termination."
No fractional shares of LSB Stock will be issued. Rather, cash (without
interest) will be paid in lieu of any fractional share interest to which any
ONSB shareholder would be entitled upon consummation of the Merger, in an
amount equal to such fractional part of a share of LSB Stock multiplied by the
market value of one share of LSB Stock at the Effective Time. The market value
of one share of LSB Stock at the Effective Time shall be the Average Closing
Price. See "DESCRIPTION OF THE MERGER--General."
The Agreement also contemplates that at the Effective Time, each option to
acquire shares of ONSB Stock pursuant to stock options ("ONSB Options") granted
by ONSB under the ONSB Stock Plans, as that term is defined in the Agreement,
which are outstanding at the Effective Time, whether or not exercisable, will
be converted into and become rights with respect to LSB Stock on a basis
adjusted to reflect the Exchange Rate. The Agreement also provides that at the
Effective Time, each warrant to purchase shares of ONSB Stock (the "ONSB
Warrants") outstanding at the Effective Time will be converted into and become
a warrant to purchase LSB Stock on a basis adjusted to reflect the Exchange
Rate. See "DESCRIPTION OF THE MERGER--Effect of the Merger on Stock Options
and Warrants."
As of the ONSB Record Date, ONSB had _______ shares of ONSB Stock
issued and outstanding and ________ additional shares of ONSB Stock that could
be purchased upon exercise of the ONSB Options and ONSB Warrants. Assuming an
Exchange Rate of 0.948 of a share of LSB Stock for each share of ONSB Stock, it
is anticipated that upon consummation of the Merger, LSB would issue
approximately ________ shares of LSB Stock, excluding shares subject to assumed
warrants and options. Accordingly, LSB would then have issued and outstanding
approximately ________ shares of LSB Stock based on the number of shares of LSB
Stock issued and outstanding on March 31, 1997.
REASONS FOR THE MERGER AND RECOMMENDATIONS OF THE BOARDS OF DIRECTORS. The
Boards of Directors of ONSB and LSB believe that the Agreement and the Merger
are in the best interests of ONSB and LSB and their respective shareholders.
THE ONSB BOARD OF DIRECTORS RECOMMENDS THAT ONSB SHAREHOLDERS VOTE FOR APPROVAL
OF THE AGREEMENT. THE LSB BOARD OF DIRECTORS RECOMMENDS THAT LSB SHAREHOLDERS
VOTE TO APPROVE THE ISSUANCE OF SHARES OF LSB STOCK IN CONNECTION WITH THE
MERGER. The Boards of Directors of ONSB and LSB believe that the Merger will
result in a company with expanded opportunities for profitable growth and that
the
3
<PAGE> 24
combined resources and capital of ONSB and LSB will provide an enhanced ability
to compete in the changing and competitive financial services industry. See
"DESCRIPTION OF THE MERGER--Background of and Reasons for the Merger."
In approving the Agreement, the Boards of Directors of ONSB and LSB
considered, among other things, ONSB's and LSB's respective financial
conditions, the financial terms and income tax consequences of the Merger, the
likelihood of the Merger being approved by regulatory authorities without undue
conditions or delay, legal advice concerning the proposed Merger, the opinions
of Scott & Stringfellow, Inc. ("Scott & Stringfellow") and The Carson Medlin
Company ("Carson Medlin"), respectively, as to the fairness of the Exchange
Rate, from a financial point of view, to the shareholders of ONSB and LSB,
respectively, and in general the fairness of the terms of the Merger to the
shareholders of the respective banks. See "DESCRIPTION OF THE
MERGER--Background of and Reasons for the Merger."
OPINIONS OF FINANCIAL ADVISORS. Scott & Stringfellow has rendered an
opinion to ONSB that, based on and subject to the procedures, matters and
limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the Exchange Rate is fair, from a
financial point of view, to the shareholders of ONSB. Carson Medlin has
rendered an opinion to LSB that, based on and subject to the procedures, matters
and limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the Exchange Rate is fair, from a
financial point of view, to the shareholders of LSB. The opinions of Scott &
Stringfellow and Carson Medlin, dated as of June ___, 1997 and May 9, 1997,
respectively, are attached as Appendices C and D, respectively, to this Proxy
Statement. Shareholders are urged to read the opinions in their entirety for a
description of the procedures followed, matters considered, and limitations on
the reviews undertaken in connection therewith. See "DESCRIPTION OF THE
MERGER--Opinion of ONSB's Financial Advisor" and "--Opinion of LSB's Financial
Advisor."
EFFECTIVE TIME. Subject to the conditions to the obligations of the
parties to effect the Merger, the Effective Time will occur on the date and at
the time that the Articles of Merger become effective with the North Carolina
Secretary of State. Unless otherwise agreed upon by ONSB and LSB, the
Effective Time is expected to occur as soon as practicable after approval of
the Merger by ONSB shareholders and LSB shareholders and the effective date
(including expiration of all applicable waiting periods) of all required
consents of any regulatory authority having jurisdiction over the Merger. See
"DESCRIPTION OF THE MERGER--Effective Time of the Merger," "--Conditions to
Consummation of the Merger," and "--Waiver, Amendment, and Termination."
No assurance can be provided that the necessary shareholder and regulatory
approvals can be obtained or that the other conditions precedent to the Merger
can or will be satisfied. ONSB and LSB anticipate that all conditions to the
consummation of the Merger will be satisfied so that the Merger can be
consummated during the third quarter of 1997. Delays in the consummation of
the Merger could occur, however.
EXCHANGE OF STOCK CERTIFICATES. Promptly after the Effective Time, LSB
will cause Wachovia Bank of North Carolina, N.A., Winston-Salem, North
Carolina, acting in its capacity as exchange agent for LSB (the "Exchange
Agent"), to mail to each holder of record of a certificate or certificates
(collectively, the "Certificates") which, immediately prior to the Effective
Time, represented outstanding shares of ONSB Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of LSB Stock.
Cash will be paid to the holders of ONSB Stock in lieu of the issuance of any
fractional shares of LSB Stock. In no event will the holder of any surrendered
Certificate(s) be entitled to receive interest on any cash to be paid to such
holder, and in no event will ONSB, LSB, LSB Bank or the Exchange Agent be
liable to any
4
<PAGE> 25
holder of ONSB Stock for any LSB Stock or dividends thereon or cash delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat, or similar law.
REGULATORY APPROVALS AND OTHER CONDITIONS. The Merger is subject to
approval by the Federal Deposit Insurance Corporation (the "FDIC") and the
North Carolina Commissioner of Banks (the "Commissioner"). Applications for the
requisite approvals have been filed with each of these agencies. The FDIC is
expected to approve the Merger in mid-July 1997, and the Commissioner is
expected to approve the Merger at the meeting of the North Carolina State
Banking Commission on July 23, 1997. THERE CAN BE NO ASSURANCE THAT SUCH
REGULATORY APPROVALS WILL BE OBTAINED OR AS TO THE TIMING OF ANY SUCH
APPROVALS. THERE ALSO CAN BE NO ASSURANCE THAT ANY SUCH APPROVALS WILL NOT
IMPOSE CONDITIONS THAT ARE DEEMED BY ONSB OR LSB TO MATERIALLY ADVERSELY IMPACT
THE ECONOMIC OR BUSINESS ASSUMPTIONS OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
Consummation of the Merger is subject to various other conditions,
including receipt of the required approval of ONSB shareholders and LSB
shareholders, receipt of an opinion of counsel as to the tax-free nature of
certain aspects of the Merger, and certain other conditions. See "DESCRIPTION
OF THE MERGER--Regulatory Approvals" and "--Conditions to Consummation of the
Merger."
WAIVER, AMENDMENT, AND TERMINATION. The Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time (i) by mutual
consent of the Boards of Directors of ONSB and LSB, (ii) by the action of the
Board of Directors of either company under certain circumstances, including if
the Merger is not consummated by September 30, 1997, unless the failure to
consummate by such time is due to a breach of the Agreement by the party
seeking to terminate, or if the Average Closing Price is either less than
$15.00 or more than $24.00, or (iii) in certain circumstances, by one of the
parties in the event that the other defaults in the performance of its
representations, warranties and agreements contained in the Agreement. If for
any reason the Merger is not consummated, ONSB shall continue to operate as a
bank under its present management. To the extent permitted by law, the
Agreement may be amended upon the written agreement of LSB and ONSB without the
approval of shareholders; provided, however, that the provisions of the
Agreement relating to the manner or basis in which shares of LSB Stock will be
exchanged for ONSB Stock may not be amended after the ONSB Special Meeting
without the requisite approval of the holders of the issued and outstanding
shares of ONSB Stock entitled to vote thereon. See "DESCRIPTION OF THE
MERGER--Possible Adjustment of Exchange Rate" and "--Waiver, Amendment, and
Termination."
DISSENTERS' RIGHTS. Pursuant to Article 13 of the NCBCA, the holders of
ONSB Stock have dissenters' rights with respect to the Merger. Any ONSB
shareholder who does not vote in favor of the proposal to approve the Agreement
and the Merger contemplated thereby and who complies with certain requirements
of the applicable provisions of the NCBCA may have the right to an appraisal
and payment for such person's shares of ONSB Stock.
TO PERFECT DISSENTERS' RIGHTS OF APPRAISAL, A HOLDER OF ONSB STOCK MUST
STRICTLY COMPLY WITH THE APPLICABLE STATUTORY PROVISIONS, A COPY OF WHICH
PROVISIONS IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B. A SHAREHOLDER OF
ONSB WHO WISHES TO DISSENT FROM THE MERGER (I) MUST GIVE ONSB WRITTEN NOTICE OF
HIS INTENT TO DEMAND PAYMENT FOR HIS SHARES IF THE MERGER IS EFFECTUATED, WHICH
NOTICE MUST BE ACTUALLY RECEIVED BY ONSB BEFORE THE VOTE IS TAKEN AT THE ONSB
SPECIAL MEETING AND (II) MUST NOT VOTE ANY SHARES OF ONSB STOCK IN FAVOR OF THE
MERGER. ANY HOLDER OF ONSB STOCK WHO RETURNS A SIGNED PROXY BUT WHO FAILS TO
PROVIDE VOTING
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<PAGE> 26
INSTRUCTIONS WITH RESPECT TO THE PROPOSAL TO APPROVE THE AGREEMENT WILL BE
DEEMED TO HAVE VOTED IN FAVOR OF SUCH PROPOSAL AND WILL NOT BE ENTITLED TO
ASSERT DISSENTERS' RIGHTS OF APPRAISAL. See "DESCRIPTION OF THE
MERGER--Dissenters' Rights."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of ONSB's
management and Board of Directors have interests in the Merger in addition to
their interests as shareholders or option holders of ONSB generally. Those
interests relate to, among other things, the right of ONSB under the Agreement
to recommend candidates to fill two additional directorships on the LSB and LSB
Bank Boards of Directors, change in control provisions in existing employment
agreements with ONSB, appointment of certain current officers of ONSB as
officers of LSB Bank, provisions in the Agreement regarding indemnification and
eligibility for certain LSB employee benefits, and amendment of an existing
employment agreement between ONSB and the President of ONSB. See "DESCRIPTION
OF THE MERGER--Interests of Certain Persons in the Merger."
OPTION AGREEMENT. In addition to the Agreement, ONSB and LSB have entered
into an option agreement (the "Option Agreement"), pursuant to which ONSB has
granted an option to LSB to purchase under certain conditions 265,675 shares of
ONSB Stock at an exercise price of $8.00 in cash per share (the "Lock-Up
Option"). The Lock-Up Option is exerciseable only if: (i) an offer to acquire
ONSB has been received by ONSB, or solicited by ONSB, from a person or entity
other than LSB, and (ii) ONSB and such person or entity have entered into an
agreement concerning any merger, sale of substantial assets, tender offer, sale
of shares of stock or similar transaction involving ONSB. LSB's right to
exercise the Lock-Up Option has not been triggered as of the date of this Proxy
Statement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. It is intended that
the Merger will be treated as a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code"). Consummation of
the Merger is conditioned upon receipt by ONSB and LSB of a written opinion of
Bell, Davis & Pitt, P.A., substantially to this effect. If the Merger qualifies
as a tax-free reorganization, no gain or loss will be recognized by an ONSB
shareholder upon the exchange of such shareholder's ONSB Stock solely for shares
of LSB Stock. Subject to the provisions and limitations of Section 302(a) of
the Code, gain or loss will be recognized with respect to cash received in lieu
of fractional shares. Gain recognition, if any, will not be in excess of the
amount of cash received. TAX CONSEQUENCES OF THE MERGER FOR INDIVIDUAL TAXPAYERS
CAN VARY, HOWEVER, AND ALL ONSB SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS TO DETERMINE THE EFFECT OF THE MERGER ON THEM UNDER FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS. For a further discussion of the federal income tax
consequences of the Merger, see "DESCRIPTION OF THE MERGER--Certain Federal
Income Tax Consequences."
ACCOUNTING TREATMENT. It is intended that the Merger will be accounted for
as a pooling-of-interests for accounting and financial reporting purposes. See
"DESCRIPTION OF THE MERGER--Accounting Treatment."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS. At the Effective Time, ONSB
shareholders, whose rights are governed by ONSB's Articles of Incorporation and
Bylaws, will automatically become LSB shareholders, and their rights as LSB
shareholders will be determined by LSB's Articles of Incorporation and Bylaws
and by the NCBCA.
The rights of LSB shareholders differ from the current rights of ONSB
shareholders in certain respects. After the Merger, ONSB shareholders will
have the same rights as LSB shareholders. See "EFFECT OF THE MERGER ON RIGHTS
OF SHAREHOLDERS."
6
<PAGE> 27
CONDUCT OF BUSINESS PENDING THE MERGER. Each party has agreed in the
Agreement to, among other things, operate its business only in the ordinary
course and to take no action that would adversely affect its or the other
party's ability to perform its covenants and agreements under the Agreement.
In addition, ONSB has agreed not to take certain actions relating to the
operation of ONSB pending consummation of the Merger, except as otherwise
permitted by the Agreement. See "DESCRIPTION OF THE MERGER--Conduct of
Business Pending the Merger," for a description of these limitations on the
conduct of ONSB's business.
COMPARATIVE MARKET PRICES OF COMMON STOCK
Shares of LSB Stock are traded over-the-counter and quoted electronically
through the Nasdaq National Market System under the symbol "LXBK." Shares of
ONSB Stock are traded on the OTC Bulletin Board System under the symbol "ONSB."
ONSB Stock quotes are listed in the Charlotte Observer. Scott & Stringfellow,
Interstate/Johnson Lane and Legg Mason Wood Walker, registered broker-dealers,
have been listed as market makers for ONSB Stock. The following table sets
forth the reported closing prices per share for LSB Stock, the last bid
quotation for ONSB Stock (as reported in the Charlotte Observer) and the
equivalent per share prices (as explained below) for ONSB Stock on January 17,
1997, the last full business day preceding the public announcement of the
intention of the parties to effect the Merger, and on June ___, 1997, the latest
practicable date prior to the mailing of this Proxy Statement.
<TABLE>
<CAPTION>
EQUIVALENT PER
MARKET PRICE PER SHARE AT: ONSB STOCK LSB STOCK SHARE PRICE
- -------------------------- ---------- --------- --------------
<S> <C> <C> <C>
January 17, 1997 $14.25 $20.50 $19.43
June ___, 1997 $_____ $_____ $_____
</TABLE>
The equivalent per share price of a share of ONSB Stock at each specified
date represents the closing sale price of a share of LSB Stock on such date
multiplied by the assumed Exchange Rate of 0.948. See "COMPARATIVE MARKET
PRICES AND DIVIDENDS."
There can be no assurance as to what the market price of LSB Stock will be
if and when the Merger is consummated.
COMPARATIVE PER SHARE DATA
The following table sets forth: (a) selected comparative per share data
for each of LSB and ONSB on an historical basis; (b) unaudited pro forma
comparative per share data assuming that the Merger had been effective during
the periods presented for LSB and ONSB combined; and (c) ONSB pro forma
equivalent amounts, using the Exchange Rate of 0.948 shares of LSB Stock for
each share of ONSB Stock. The Exchange Rate is subject to upward adjustment
under certain circumstances. See "THE MERGER--Exchange Rate." The unaudited
pro forma data has been prepared giving effect to the Merger as a
pooling-of-interests. For a description of the effect of pooling-of-interests
accounting on the Merger and the historical financial statements of LSB, see
"THE MERGER--Accounting Treatment."
7
<PAGE> 28
The comparative per share data presented are based on and derived from,
and should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of each of LSB and ONSB incorporated by
reference herein. See "DOCUMENTS INCORPORATED BY REFERENCE" and "--Selected
Financial Data."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Earnings per share
LSB historical $1.08 $0.89 $0.84
ONSB historical 0.65 0.50 0.44
LSB and ONSB pro forma 1.00 0.85 0.79
ONSB pro forma equivalent 0.95 0.81 0.75
Cash dividends declared per share
LSB historical $0.40 $0.38 $0.35
ONSB historical 0.00 0.00 0.04
LSB and ONSB pro forma 0.31 0.34 0.31
ONSB pro forma equivalent 0.29 0.32 0.29
Shareholders' equity per share (end of period)
LSB historical $9.57 $8.95 $8.32
ONSB historical 7.07 6.52 5.33
LSB and ONSB pro forma 9.00 8.39 7.88
ONSB pro forma equivalent 8.53 7.95 7.47
</TABLE>
NOTES TO COMPARATIVE SHARE DATA
(UNAUDITED)
Certain material, nonrecurring adjustments of approximately $900 thousand
(pre-tax) will be recorded in conjunction with the Merger. These adjustments
include amounts to effect the settlement of obligations under existing
employment contracts and amounts associated with the conversion of ONSB
branches. It is estimated that approximately $450 thousand of the expenses
will be directly related to effecting the Merger and therefore will not be
deductible for income tax purposes. The impact of these adjustments has been
reflected in the calculation of shareholders' equity per common share. The
earnings per share calculations do not reflect the impact of these adjustments.
Pro forma cash dividends declared per common share represent historical
dividends per share paid by LSB.
LSB pro forma equivalent amounts are calculated by multiplying the LSB
and ONSB pro forma combined amounts by the Exchange Rate of 0.948 shares of LSB
Stock for each share of ONSB Stock. As provided in the Agreement, the Exchange
Rate may change due to changes in the LSB Stock price.
8
<PAGE> 29
SELECTED FINANCIAL DATA
The following selected historical financial information has been derived
from historical consolidated financial statements of LSB and ONSB,
respectively, and should be read in conjunction with such historical financial
statements and the notes thereto, which are incorporated herein by reference.
See "AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE."
9
<PAGE> 30
LSB
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $ 30,292 $ 28,051 $ 24,393 $ 22,916 $ 24,468
Interest expense 12,152 11,448 8,695 8,048 9,931
-------- -------- -------- -------- --------
Net interest income 18,140 16,603 15,698 14,868 14,537
Provision for loan and lease losses 562 252 219 941 843
-------- -------- -------- -------- --------
Net interest income after provision
for loan and lease losses 17,578 16,351 15,479 13,927 13,694
Noninterest income 4,113 3,244 2,603 3,214 2,612
Noninterest expense 13,529 13,112 12,198 11,436 10,166
-------- -------- -------- -------- --------
Income before income taxes 8,162 6,483 5,884 5,705 6,140
Provision for income taxes 2,323 1,701 1,422 1,349 1,736
-------- -------- -------- -------- --------
Net income $ 5,839 $ 4,782 $ 4,462 $ 4,356 $ 4,404
======== ======== ======== ======== ========
Per Share Data (1)
Earnings $ 1.08 $ 0.89 $ 0.84 $ 0.82 $ 0.83
Cash dividends declared 0.40 0.38 0.35 0.33 0.31
Book value 9.57 8.95 8.32 7.90 7.40
Average Balance Sheets
Securities at carrying value $102,550 $106,728 $ 99,475 $ 91,532 $ 95,098
Loans and leases (2) 246,998 214,380 202,589 189,773 177,561
Other assets 46,072 45,731 49,355 49,434 45,632
-------- -------- -------- -------- --------
Total assets $395,620 $366,839 $351,419 $330,739 $318,291
======== ======== ======== ======== ========
Deposits $336,210 $317,450 $303,919 $286,155 $277,379
Other liabilities 5,363 3,144 4,147 3,824 3,011
Long-term debt 4,258 - - - -
Shareholders' equity 49,789 46,245 43,353 40,760 37,901
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $395,620 $366,839 $351,419 $330,739 $318,291
======== ======== ======== ======== ========
Period End Balances
Total assets $421,600 $375,026 $357,092 $342,980 $323,490
Deposits 354,820 323,289 309,906 296,903 281,291
Long-term debt 9,167 - - - -
Shareholders' equity 51,687 48,110 44,475 42,036 39,289
Selected Ratios
Rate of return on:
Average total assets 1.48 % 1.30 % 1.27 % 1.32 % 1.38 %
Average common shareholders' equity 11.73 10.34 10.29 10.69 11.62
Dividend payout 36.96 43.09 42.05 40.52 36.78
Average equity to average assets 12.59 12.61 12.34 12.32 11.91
</TABLE>
- ----------------------------
(1) Per share data have been restated to give retroactive effect to the five-
for-four stock splits paid February 15, 1996, March 31, 1994, and March 31,
1992.
(2) Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
10
<PAGE> 31
ONSB
SELECTED HISTORICAL FINANCIAL DATA(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
-----------------------------------------------------------------------
1996 1995 1994 1993(2) 1992
-------- ------- ------ ------- ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income $ 9,891 $ 4,282 $ 2,945 $ 2,294 $ 2,032
Interest expense 4,389 1,978 1,163 957 959
-------- ---------- --------- ------- ---------
Net interest income 5,502 2,304 1,782 1,337 1,073
Provision for loan and lease losses 243 115 63 120 123
-------- ---------- --------- ------- ---------
Net interest income after provision
for loan and lease losses 5,259 2,189 1,719 1,217 950
Noninterest income 719 355 248 234 183
Noninterest expense 4,558 1,979 1,512 1,237 1,028
-------- ---------- --------- ------- ---------
Income before income taxes 1,420 565 455 214 105
Provision (benefit) for income taxes 394 187 156 (30) -
-------- ---------- --------- ------- ---------
Net income $ 1,026 $ 378 $ 299 $ 244 $ 105
======== ========== ========= ======= =========
Per Share Data (4)
Earnings $ 0.65 $ 0.50 $ 0.44 $ 0.36 $ 0.16
Cash dividends declared - - 0.04 - -
Book value 7.07 6.52 5.33 5.35 4.98
Average Balance Sheets
Securities at carrying value $ 38,236 $ 18,881 $ 11,373 $ 8,159 $ 6,844
Loans and leases (3) 76,192 30,279 24,725 20,822 17,137
Other assets 9,851 4,270 3,607 3,090 2,586
-------- ---------- --------- ------- ---------
Total assets $124,279 $ 53,430 $ 39,705 $32,071 $ 26,567
======== ========== ========= ======= =========
Deposits $106,063 $ 47,964 $ 35,146 $28,298 $ 22,981
Other liabilities 2,950 682 456 294 260
Long-term debt 4,620 397 370 - -
Shareholders' equity 10,646 4,387 3,733 3,479 3,326
-------- ---------- --------- ------- ---------
Total liabilities and
shareholders' equity $124,279 $ 53,430 $ 39,705 $32,071 $ 26,567
======== ========== ========= ======= =========
Period End Balances
Total assets $130,245 $ 118,407 $ 46,748 $36,221 $ 30,105
Deposits 110,101 104,743 41,681 32,267 26,425
Long-term debt 4,908 - 375 - -
Shareholders' equity 11,176 10,245 3,962 3,615 3,370
Selected Ratios
Rate of return on:
Average total assets 0.82 % 0.71 % 0.75 % 0.76 % 0.40 %
Average common shareholders' equity 9.64 8.62 8.00 7.02 3.16
Dividend payout - - 9.19 - -
Average equity to average assets 8.57 8.21 9.40 10.85 12.52
</TABLE>
- --------------------------
(1) On December 28, 1995, ONSB consummated a merger with Piedmont BancShares
Corpooration and its consolidated subsidiary, Enterprise Bank and Trust
Company. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the consolidated financial statements reflect the
results of operations of the acquired companies since the date of acquisition.
(2) Effective January 1, 1993, ONSB adopted SFAS No. 109, "Accounting for
Income Taxes," resulting in a one-time tax benefit. The cumulative
effect of this accounting change on periods prior to and including December 31,
1992 was to increase net deferred tax assets at January 1, 1993, and increase
1993 net income by $102 thousand. Earnings per share in 1993 increased $.31 as
a result of this change in accounting principle.
(3) Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
(4) Per share data have been restated to give retroactive effect to the 5%
stock dividend in 1994 and the 1.922-for-1 stock split in 1995.
11
<PAGE> 32
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Pro Forma Condensed Financial Information and explanatory
notes are presented to show the impact of the Merger on LSB's historical
financial position and results of operations. The Merger is reflected in the
Pro Forma Condensed Financial Information under the pooling-of-interests method
of accounting.
The Pro Forma Condensed Balance Sheet presented assumes that the Merger
was consummated on December 31, 1996, and the Pro Forma Condensed Income
Statements assume that the Merger was consummated at the beginning of each
period presented.
ONSB acquired Piedmont BancShares Corporation and its consolidated
subsidiary, Enterprise Bank and Trust Company, in the fourth quarter of 1995.
The acquisition was accounted for under the purchase method of accounting, and,
accordingly, the consolidated financial statements of LSB reflected in the
following pro forma condensed financial information include the results of
operations of the acquired companies since the date of acquisition.
The pro forma earnings are not necessarily indicative of the results of
operations had the Merger occurred at the beginning of the periods presented,
nor are they necessarily indicative of the results of future operations.
12
<PAGE> 33
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS LSB AND ONSB
---------------------------- PRO FORMA
LSB ONSB LSB ONSB DEBIT
-------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 20,611 $ 4,564 $ $ 25,175
Federal funds sold and securities 26,720 -- 26,720
purchased under resale agreements
or similar arrangements
Securities at carrying value 90,617 37,484 128,101
Loans and leases, net of unearned income 272,044 83,849 355,893
Allowance for loan and lease losses (3,075) (1,000) (4,075)
-------- -------- -------- -------- --------
Loans and leases, net 268,969 82,849 351,818
-------- -------- -------- -------- --------
Premises and equipment, net 8,840 2,424 11,264
Other assets 5,843 2,924 8,767
-------- -------- -------- -------- --------
Total assets $421,600 $130,245 $ -- $ -- $551,845
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing demand deposits $ 43,987 18,532 $ $ $ 62,519
Interest-bearing deposits 310,833 91,569 402,402
-------- -------- -------- -------- --------
Total deposits 354,820 110,101 464,921
Short-term borrowed funds 3,285 2,825 6,110
Long-term debt 9,167 4,908 14,075
Accounts payable and other liabilities 2,641 1,235 758 (1) 4,634
-------- -------- -------- -------- --------
Total liabilities 369,913 119,069 -- 758 489,740
-------- -------- -------- -------- --------
Shareholders' equity:
Common stock, $5 par, 10,000,000 27,018 7,905 403 (2) 34,520
shares authorized, 5,403,539 issued
and outstanding at December 31,
1996, 5,403,539 shares and 6,902,306
shares pro forma issued and
outstanding
Additional paid-in capital 11,331 2,850 403 (2) 14,584
Retained earnings 13,337 529 758 (1) 13,108
Net unrealized appreciation 1 (108) (107)
(depreciation) on securities
available for sale
-------- -------- -------- -------- --------
Total shareholders' equity 51,687 11,176 1,161 403 62,105
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $421,600 $130,245 $ 1,161 $ 1,161 $551,845
======== ======== ======== ======== ========
</TABLE>
See Notes for Pro Forma Condensed Financial Information.
13
<PAGE> 34
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LSB AND ONSB
PRO FORMA
LSB ONSB COMBINED (3)
---------------- ---------------- --------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 23,104 $ 7,468 $ 30,572
Interest and dividends on securities 6,132 2,329 8,461
Interest on short-term investments 1,056 94 1,150
---------------- ---------------- --------------
Total interest income 30,292 9,891 40,183
---------------- ---------------- --------------
INTEREST EXPENSE
Interest on deposits 11,776 4,047 15,823
Interest on short-term borrowed funds 104 77 181
Interest on long-term debt 272 265 537
---------------- ---------------- --------------
Total interest expense 12,152 4,389 16,541
---------------- ---------------- --------------
NET INTEREST INCOME 18,140 5,502 23,642
Provision for loan losses 562 243 805
---------------- ---------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 17,578 5,259 22,837
---------------- ---------------- --------------
NONINTEREST INCOME
Service charges on deposit accounts 2,032 525 2,557
Other noninterest income 2,081 194 2,275
---------------- ---------------- --------------
Total noninterest income 4,113 719 4,832
---------------- ---------------- --------------
NONINTEREST EXPENSE
Personnel expense 7,656 2,502 10,158
Occupancy and equipment expense 1,500 771 2,271
Other noninterest expense 4,373 1,284 5,657
---------------- ---------------- --------------
Total noninterest expense 13,529 4,557 18,086
---------------- ---------------- --------------
EARNING
Income before income taxes 8,162 1,421 9,583
Income tax expense 2,323 395 2,718
---------------- ---------------- --------------
NET INCOME $ 5,839 $ 1,026 $ 6,865
================ ================ ==============
PER SHARE
Net income $ 1.08 $ 0.65 $ 1.00
================ ================ ==============
AVERAGE SHARES OUTSTANDING 5,393,813 1,576,623 6,888,452
================ ================ ==============
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
14
<PAGE> 35
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LSB AND ONSB
PRO FORMA
LSB ONSB COMBINED (3)
--------- ------- ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 20,290 $ 3,071 $ 23,361
Interest and dividends on securities 6,695 1,115 7,810
Interest on short-term investments 1,066 96 1,162
---------- -------- ----------
Total interest income 28,051 4,282 32,333
---------- -------- ----------
INTEREST EXPENSE
Interest on deposits 11,402 1,947 13,349
Interest on short-term borrowed funds 46 4 50
Interest on long-term debt -- 27 27
---------- -------- ----------
Total interest expense 11,448 1,978 13,426
---------- -------- ----------
NET INTEREST INCOME 16,603 2,304 18,907
Provision for loan losses 252 115 367
---------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 16,351 2,189 18,540
---------- -------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 1,816 314 2,130
Other noninterest income 1,428 41 1,469
========== ======== ==========
Total noninterest income 3,244 355 3,599
========== ======== ==========
NONINTEREST EXPENSE
Personnel expense 7,469 1,057 8,526
Occupancy and equipment expense 1,444 304 1,748
Other noninterest expense 4,199 618 4,817
========== ======== ==========
Total noninterest expense 13,112 1,979 15,091
========== ======== ==========
EARNINGS
Income before income taxes 6,483 565 7,048
Income tax expense 1,701 187 1,888
---------- -------- ----------
NET INCOME 4,782 $ 378 $ 5,160
========== ======== ==========
PER SHARE
Net income $ 0.89 $ 0.50 $ 0.85
========== ======== ==========
AVERAGE SHARES OUTSTANDING 5,365,497 750,659 6,077,122
========== ======== ==========
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
15
<PAGE> 36
PRO FORMA CONDENSED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LSB AND ONSB
PRO FORMA
LSB ONSB COMBINED (3)
---------- -------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 17,245 $ 2,278 $ 19,523
Interest and dividends on securities 6,205 633 6,838
Interest on short-term investments 943 34 977
---------- -------- ----------
Total interest income 24,393 2,945 27,338
---------- -------- ----------
INTEREST EXPENSE
Interest on deposits 8,622 1,137 9,759
Interest on short-term borrowed funds 73 3 76
Interest on long-term debt -- 23 23
---------- -------- ----------
Total interest expense 8,695 1,163 9,858
---------- -------- ----------
NET INTEREST INCOME 15,698 1,782 17,480
Provision for loan and lease losses 219 63 282
---------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES 15,479 1,719 17,198
---------- -------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 1,812 230 2,042
Other noninterest income 791 18 809
---------- -------- ----------
Total noninterest income 2,603 248 2,851
---------- -------- ----------
NONINTEREST EXPENSE
Personnel expense 6,946 802 7,748
Occupancy and equipment expense 1,374 225 1,599
Other noninterest expense 3,878 485 4,363
---------- -------- ----------
Total noninterest expense 12,198 1,512 13,710
---------- -------- ----------
EARNINGS
Income before income taxes 5,884 455 6,339
Income tax expense 1,422 156 1,578
---------- -------- ----------
NET INCOME $ 4,462 299 $ 4,761
========== ======== ==========
PER SHARE $ 0.84 $ 0.44 $ 0.79
========== ======== ==========
Net income
AVERAGE SHARES OUTSTANDING 5,338,545 686,611 5,989,452
========== ======== ==========
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
16
<PAGE> 37
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
Note 1. Certain material, nonrecurring adjustments of approximately $900
thousand (pre-tax) will be recorded in conjunction with the Merger.
These adjustments include amounts to effect the settlement of
obligations under existing employment contracts and amounts associated
with the conversion of ONSB branches. It is estimated that
approximately $450 thousand of the expenses will be directly related
to effecting the Merger and therefore will not be deductible for
income tax purposes. The impact of these adjustments has been
reflected in the Pro Forma Condensed Balance Sheet as of December 31,
1996.
Note 2. Based on an Exchange Rate of 0.948 for the conversion of ONSB Stock
into LSB Stock. At December 31, 1996, ONSB had 1,580,978 shares of
stock outstanding.
Note 3. No pro forma adjustments relating to the Merger are reflected in the
Pro Forma Condensed Income Statements.
17
<PAGE> 38
COMPARATIVE MARKET PRICES AND DIVIDENDS
LSB Stock is traded over-the-counter and quoted electronically through the
Nasdaq National Market System under the symbol "LXBK." Shares of ONSB Stock
are traded on the OTC Bulletin Board System under the symbol "ONSB." Stock
quotes are listed in the Charlotte Observer. Scott & Stringfellow,
Interstate/Johnson Lane and Legg Mason Wood Walker, registered broker-dealers,
have been listed as market makers for ONSB Stock. The following table sets
forth, for the indicated periods, (i) the high and low sales prices for LSB
Stock as reported on the Nasdaq National Market System, (ii) the high and low
bid quotations of ONSB Stock, as reported by the Charlotte Observer, and (iii)
the cash dividends declared per share of LSB Stock and ONSB Stock for the
periods indicated. The following quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
LSB
---
PRICE RANGE(1) CASH DIVIDENDS
------------ PAID
HIGH LOW PER SHARE(1)
------ ------ ---------
<S> <C> <C> <C>
1995
First Quarter $16.00 $14.40 $0.095
Second Quarter 16.00 14.40 0.095
Third Quarter 16.40 14.60 0.095
Fourth Quarter 16.80 14.80 0.095
1996
First Quarter 15.75 15.25 0.10
Second Quarter 17.00 15.00 0.10
Third Quarter 16.75 15.00 0.10
Fourth Quarter 20.75 14.75 0.10
1997
First Quarter 20.75 18.00 0.11
Second Quarter
through June ___, 1997
------ ------ ------
</TABLE>
- --------------------------
(1) Price and dividend amounts have been adjusted for a five-for-four
stock split that occurred on February 15, 1996.
18
<PAGE> 39
ONSB(2)
<TABLE>
<CAPTION>
PRICE RANGE CASH DIVIDENDS
----------- PAID
HIGH LOW PER SHARE
------ ------ --------------
<S> <C> <C> <C>
1996
First Quarter $10.00 $ 9.50 $--
Second Quarter 10.75 10.00 --
Third Quarter 11.75 10.75 --
Fourth Quarter 14.25 11.75 --
1997 --
First Quarter 17.00 14.25 --
Second Quarter through June ___, 1997
------ ------ ---
</TABLE>
- ------------------------
(2) Prior to January 1996, an active trading market for ONSB Stock
did not exist and shares traded on an infrequent basis. The following table
therefore does not include the price range of ONSB Stock prior to that time.
19
<PAGE> 40
SPECIAL MEETING OF ONSB SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
This Proxy Statement is being furnished to the holders of ONSB Stock in
connection with the solicitation by the ONSB Board of Directors of proxies for
use at the ONSB Special Meeting at which ONSB shareholders will be asked to
vote upon a proposal to approve the Agreement. The ONSB Special Meeting will
be held at the Holiday Inn North, 3050 University Parkway, Winston-Salem, North
Carolina, at 9:00 A.M., local time, on Monday, July 21, 1997. See "DESCRIPTION
OF THE MERGER."
RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
The close of business on June 2, 1997, has been fixed as the ONSB Record
Date for determining holders of outstanding shares of ONSB Stock entitled to
notice of and to vote at the ONSB Special Meeting. Only holders of ONSB Stock
of record on the books of ONSB at the close of business on the ONSB Record Date
are entitled to notice of and to vote at the ONSB Special Meeting. As of the
ONSB Record Date, ______ shares of ONSB Stock were issued and outstanding and
held by approximately _______ holders of record.
Holders of ONSB Stock are entitled to one vote on each matter considered
and voted upon at the ONSB Special Meeting for each share of ONSB Stock held of
record as of the ONSB Record Date. To hold a vote on any proposal, a quorum
must be assembled, which is a majority of the shares of ONSB Stock issued and
outstanding and entitled to vote, present in person or represented by proxy. In
determining whether a quorum exists at the ONSB Special Meeting for purposes of
all matters to be voted on, all votes "for" or "against," as well as all
abstentions, with respect to the proposal receiving the most such votes, will
be counted. The vote required for the approval of the Agreement is two-thirds
of the shares of ONSB Stock entitled to be cast at the ONSB Special Meeting by
holders of the issued and outstanding shares of ONSB Stock. Accordingly, with
respect to the proposal to approve the Agreement, abstentions and broker
non-votes will be counted as part of the base number of votes to be used in
determining if the proposal has received the requisite number of base votes for
approval. Thus, an abstention and a broker non-vote will have the same effect
as a vote against the proposal.
Shares of ONSB Stock represented by properly executed proxies, if such
proxies are received in time and not revoked, will be voted in accordance with
the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND, IN THE DISCRETION
OF THE PROXY HOLDER, AS TO ANY OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE
ONSB SPECIAL MEETING. IF NECESSARY, THE PROXY HOLDER MAY VOTE IN FAVOR OF A
PROPOSAL TO ADJOURN THE ONSB SPECIAL MEETING IN ORDER TO PERMIT FURTHER
SOLICITATION OF PROXIES IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO APPROVE
THE FOREGOING PROPOSAL AT THE TIME OF THE ONSB SPECIAL MEETING.
FAILURE BOTH TO RETURN THE PROXY CARD AND TO VOTE IN PERSON AT THE ONSB
SPECIAL MEETING WILL HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE
AGREEMENT.
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<PAGE> 41
An ONSB shareholder who has given a proxy may revoke it at any time prior
to its exercise at the ONSB Special Meeting by (i) giving written notice of
revocation to the Secretary of ONSB, (ii) properly submitting to ONSB a duly
executed proxy bearing a later date or (iii) attending the ONSB Special Meeting
and voting in person. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Old North State Bank, 161 South Stratford Road, Winston-Salem, North
Carolina 27104; Attention: Cathy B. Marion, Secretary.
As of March 31, 1997, the directors and executive officers of ONSB and
their affiliates were entitled to vote 239,504 shares of ONSB Stock, excluding
options, or approximately 15.1% of the issued and outstanding shares of ONSB
Stock.
SOLICITATION OF PROXIES
Proxies may be solicited by the directors, officers and employees of ONSB
by mail, in person, or by telephone or telegraph. Such persons will receive no
additional compensation for such services. ONSB may make arrangements with
brokerage firms and other custodians, nominees, and fiduciaries, if any, for
the forwarding of solicitation materials to the beneficial owners of ONSB Stock
held of record by such persons. Any such brokers, custodians, nominees, and
fiduciaries will be reimbursed for the reasonable out-of-pocket expenses
incurred by them for such services. All expenses associated with the
solicitation of proxies, other expenses associated with the ONSB Special
Meeting, and expenses related to the printing and mailing of this Proxy
Statement, will be shared by LSB and ONSB as provided in the Agreement. See
"DESCRIPTION OF THE TRANSACTION--Expenses and Fees."
RECOMMENDATION
The Board of Directors of ONSB has approved the Agreement and the Merger
contemplated thereby, believes that the proposal to approve the Agreement is
in the best interests of ONSB and its shareholders, and recommends that the
ONSB shareholders vote FOR approval of the proposal to approve the Agreement.
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<PAGE> 42
SPECIAL MEETING OF LSB SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
This Proxy Statement is being provided to the holders of LSB Stock in
connection with the solicitation by the LSB Board of Directors of proxies for
use at the LSB Special Meeting at which LSB shareholders will be asked to vote
upon a proposal to approve the issuance of shares of LSB Stock in connection
with the Merger. The LSB Special Meeting will be held at the offices of LSB at
One LSB Plaza, Lexington, North Carolina, at 1:00 P.M., local time, on Monday,
July 21, 1997. See "DESCRIPTION OF THE MERGER."
RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
The close of business on June 17, 1997, has been fixed as the LSB Record
Date for determining holders of outstanding shares of LSB Stock entitled to
notice of and to vote at the LSB Special Meeting. Only holders of LSB Stock of
record on the books of LSB at the close of business on the LSB Record Date are
entitled to notice of and to vote at the LSB Special Meeting. As of the LSB
Record Date,____________ shares of LSB Stock were issued and outstanding and
held by approximately__________ holders of record.
Holders of LSB Stock are entitled to one vote on each matter considered
and voted upon at the LSB Special Meeting for each share of LSB Stock held of
record as of the LSB Record Date. To hold a vote on any proposal, a quorum must
be assembled, which is a majority of the shares of LSB Stock issued and
outstanding and entitled to vote, present in person or represented by proxy. In
determining whether a quorum exists at the LSB Special Meeting for purposes of
all matters to be voted on, all votes "for" or "against," as well as all
abstentions, with respect to the proposal receiving the most such votes, will
be counted. The vote required for the approval of the issuance of shares of LSB
Stock in connection with the Merger is a majority of the total votes cast on
the proposal in person or by proxy at the LSB Special Meeting.
Shares of LSB Stock represented by properly executed proxies, if such
proxies are received in time and not revoked, will be voted in accordance with
the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE ISSUANCE OF SHARES OF LSB STOCK
IN CONNECTION WITH THE MERGER AND, IN THE DISCRETION OF THE PROXY HOLDER, AS TO
ANY OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE LSB SPECIAL MEETING.
An LSB shareholder who has given a proxy may revoke it at any time prior
to its exercise at the LSB Special Meeting by (i) giving written notice of
revocation to the Secretary of LSB, (ii) properly submitting to LSB a duly
executed proxy bearing a later date or (iii) attending the LSB Special Meeting
and voting in person. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: LSB Bancshares, Inc., One LSB Plaza, Lexington, North Carolina 27292;
Attention: Monty J. Oliver, Secretary.
As of March 31, 1997, the directors and executive officers of LSB and
their affiliates were entitled to vote 316,520 shares of LSB Stock, excluding
options, or approximately 5.8% of the issued and outstanding shares of LSB
Stock. In addition, at March 31, 1997, the LSB Bank Trust Department held
approximately 163,849 shares, or 3.0%, of the then outstanding shares of LSB
Stock.
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<PAGE> 43
SOLICITATION OF PROXIES
Proxies may be solicited by the directors, officers and employees of LSB
by mail, in person, or by telephone or telegraph. Such persons will receive no
additional compensation for such services. LSB may make arrangements with
brokerage firms and other custodians, nominees, and fiduciaries, if any, for
the forwarding of solicitation materials to the beneficial owners of LSB Stock
held of record by such persons. Any such brokers, custodians, nominees, and
fiduciaries will be reimbursed for the reasonable out-of-pocket expenses
incurred by them for such services. All expenses associated with the
solicitation of proxies, other expenses associated with the LSB Special
Meeting, and expenses related to the printing and mailing of this Proxy
Statement, will be shared by LSB and ONSB as provided in the Agreement. See
"DESCRIPTION OF THE TRANSACTION--Expenses and Fees."
RECOMMENDATION
The Board of Directors of LSB has approved the Agreement, the Merger
contemplated thereby, and the related issuance of shares of LSB Stock. The LSB
Board of Directors believes that the proposal to approve the issuance of shares
of LSB Stock in connection with the Merger is in the best interests of LSB and
its shareholders, and recommends that the LSB shareholders vote FOR approval of
the proposal to approve the issuance of shares of LSB Stock in connection with
the Merger.
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<PAGE> 44
DESCRIPTION OF THE MERGER
THE FOLLOWING INFORMATION DESCRIBES CERTAIN ASPECTS OF THE MERGER. THIS
DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE APPENDICES HERETO, INCLUDING THE AGREEMENT, WHICH IS ATTACHED
AS APPENDIX A TO THIS PROXY STATEMENT AND INCORPORATED HEREIN BY REFERENCE. ALL
SHAREHOLDERS ARE URGED TO READ THE APPENDICES IN THEIR ENTIRETY.
GENERAL
The Agreement provides for the acquisition of ONSB by LSB pursuant to the
merger of ONSB with and into LSB Bank. At the Effective Time, each share of
ONSB Stock then issued and outstanding (excluding shares held by ONSB, LSB, or
their respective subsidiaries, in each case other than shares held in a
fiduciary capacity or in satisfaction of debts previously contracted, and
excluding shares held by shareholders who perfect their statutory rights of
appraisal) will be converted into and exchanged for 0.948 of a share of LSB
Stock, subject to adjustment as described below.
No fractional shares of LSB Stock will be issued. Rather, cash (without
interest) will be paid in lieu of any fractional share interest to which any
ONSB shareholder would be entitled upon consummation of the Merger, in an
amount equal to such fractional part of a share of LSB Stock multiplied by the
market value of one share of LSB Stock at the Effective Time. The market value
of one share of LSB Stock at the Effective Time shall be the Average Closing
Price.
As of the ONSB Record Date, ONSB had ______ shares of ONSB Stock issued and
outstanding and ________ additional shares of ONSB Stock subject to ONSB
Options and ONSB Warrants. Assuming the Exchange Rate of 0.948 of a share of
LSB Stock for each share of ONSB Stock, it is anticipated that upon
consummation of the Merger, LSB would issue approximately ________ shares of
LSB Stock, excluding shares subject to assumed warrants and options.
Accordingly, LSB would then have issued and outstanding approximately ________
shares of LSB Stock based on the number of shares of LSB Stock issued and
outstanding on March 31, 1997.
POSSIBLE ADJUSTMENT OF EXCHANGE RATE
At the time of negotiation of the Agreement, it was the agreement of the
parties that in connection with the Merger ONSB shareholders would receive LSB
Stock with an equivalent dollar value (which equals the market price of LSB
Stock multiplied by the Exchange Rate) of $18.96 per share of ONSB Stock,
assuming a market value of LSB Stock of $20.00. Because the market price of
LSB Stock is subject to change between the date of execution of the Agreement
and consummation of the Merger, however, the parties agreed that they would
share the risk of such change by adjusting the equivalent per share dollar
value received by ONSB shareholders to the extent of changes in the market
price of LSB Stock. The ONSB shareholders would receive a higher equivalent
per share dollar value if the market price of LSB Stock was higher at the time
of consummation of the Merger than at the time the Agreement was executed, and
would receive a lower equivalent per share dollar value if the market price of
LSB Stock was lower at the time of consummation of the merger than at the time
of execution of the Agreement. The Agreement therefore provides that if the
Average Closing Price of LSB Stock is between $20.00 and $24.00, the Exchange
Rate will be adjusted in accordance with a formula set forth
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<PAGE> 45
in the Agreement so that the dollar value of LSB Stock received by ONSB
shareholders will range from $18.96 to $19.59, respectively, per share of ONSB
Stock. If the Average Closing Price of LSB Stock is between $15.00 and $20.00,
the Exchange Rate will be adjusted in accordance with another formula set forth
in the Agreement so that the dollar value of LSB Stock received by ONSB
shareholders will range from $15.80 to $18.96, respectively, per share of ONSB
Stock.
The "Average Closing Price" is defined in the Agreement as the average of
the daily closing sale prices of LSB Stock on the Nasdaq National Market System
(as reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as selected by LSB) for the 15 consecutive trading days
immediately preceding the ten-day period ending on the Closing Date. If the
Average Closing Price of LSB Stock is greater than $24.00 or less than $15.00,
the Board of Directors of both LSB and ONSB each has the right to terminate the
Agreement. If the Average Closing Price of LSB Stock is greater than $24.00 or
less than $15.00 and the Agreement is not terminated, the Exchange Rate will be
adjusted in accordance with the same formulas used to adjust the Exchange Rate
when the Average Closing Price is between $15.00 and $24.00. Those formulas
are set forth in Section 3.1 of the Agreement, which is attached as Appendix A
to this Proxy Statement/Prospectus.
The Average Closing Price was $ ______ on June ___, 1997. The Exchange
Rate therefore would have been adjusted to _______, which would have yielded an
equivalent dollar value to ONSB shareholders of ______$ per share of ONSB
Stock.
ONSB shareholders should be aware that the actual market value of a share
of LSB Stock at the Effective Time and at the time certificates for those
shares are delivered following surrender and exchange of certificates for
shares of ONSB Stock may be more or less than the Average Closing Price. ONSB
shareholders are urged to obtain information on the trading value of LSB Stock
that is more recent than that provided in this Proxy Statement. See
"COMPARATIVE MARKET PRICES AND DIVIDENDS."
EFFECT OF THE MERGER ON STOCK OPTIONS AND WARRANTS
The Agreement contemplates that at the Effective Time, each ONSB Option
granted by ONSB under the 1990 Incentive Stock Option Plan of Old North State
Bank and the 1989 Employee Stock Option Plan of Piedmont BancShares Corporation
(which ONSB assumed in connection with its merger with Piedmont BancShares
Corporation in December 1995) (collectively, the "ONSB Stock Plans") and each
ONSB Warrant, which are outstanding at the Effective Time, whether or not
exercisable, will be converted into and become rights with respect to LSB Stock,
and LSB will assume each ONSB Option, in accordance with the terms of the ONSB
Stock Plans and stock option agreement by which it is evidenced, and each ONSB
Warrant, except that from and after the Effective Time, (i) LSB and its
Compensation Committee will be substituted for ONSB and the Committee of ONSB's
Board of Directors (including, if applicable, the entire Board of Directors of
ONSB) administering such ONSB Stock Plans and ONSB Warrants, (ii) each ONSB
Option and ONSB Warrant assumed by LSB may be exercised solely for shares of LSB
Stock, (iii) the number of shares of LSB Stock subject to such ONSB Option or
ONSB Warrant will be equal to the number of shares of ONSB Stock subject to such
ONSB Option or ONSB Warrant immediately prior to the Effective Time multiplied
by the Exchange Rate, and (iv) the per share exercise price under each such ONSB
Option or ONSB Warrant will be adjusted by dividing the per share exercise price
under each such ONSB Option or ONSB Warrant by the Exchange Rate and rounding up
to the nearest cent. Notwithstanding the provisions of clause (iii) of the
preceding sentence, LSB will not be obligated to issue any fraction of a share
of LSB Stock upon exercise of
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<PAGE> 46
ONSB Options or ONSB Warrants and any fraction of a share of LSB Stock that
otherwise would be subject to a converted ONSB Option or ONSB Warrant will
represent the right to receive a cash payment equal to the product of such
fraction and the difference between the market value of one share of LSB Stock
at the time of exercise and the per share exercise price of such option or
warrant. The market value of one share of LSB Stock at the time of exercise
will be the closing price of LSB Stock on the Nasdaq National Market System (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by LSB) on the last trading day preceding the
date of exercise. In addition, notwithstanding any other term in the Agreement,
each ONSB Option which is an "incentive stock option" will be adjusted as
required by Section 424 of the Code so as not to constitute a modification,
extension, or renewal of the option, within the meaning of Section 424(h) of
the Code.
BACKGROUND OF AND REASONS FOR THE MERGER
ONSB BACKGROUND. In October 1996, the ONSB Board of Directors, in
conjunction with management and as part of its strategic planning, began
analyzing ONSB's historical and anticipated results of operations, its markets
and prospects for growth, its ability to consummate acquisitions of other
financial institutions, its ability to respond to increasing competitive
pressures, near-term economic factors and the possibility of a decline in the
valuation by capital markets of commercial banks generally having the size and
other characteristics of ONSB, in order to determine the most effective means
of enhancing shareholder value. After careful consideration of all relevant
factors, the ONSB Board of Directors decided to solicit indications of interest
in the acquisition of ONSB from several geographically compatible community
banks. Management was instructed to compile confidential information
memorandum and submit them to the selected financial institutions with a
request for an indication of interest to be received by late November.
In response to ONSB's solicitation of interest, three institutions
expressed interest, and their written proposals were shared with ONSB's
accounting advisors and Scott & Stringfellow, the financial advisor of the ONSB
Board of Directors. In December 1996, senior executives from the three
potential acquirers made presentations to the ONSB Board of Directors and its
financial advisor. The ONSB Board of Directors subsequently met with its
accounting and financial advisors to evaluate the three proposals. After a
thorough discussion of the merits of each offer and following the recommendation
of the ONSB Board of Director's financial advisor, the ONSB Board of Directors
instructed management to negotiate a merger agreement with LSB according to the
terms proposed by LSB. On January 20, 1997, ONSB executed a letter of intent
and option agreement with LSB. This was announced to regulatory authorities on
January 21, 1997, and to the public through a joint news release on January 22,
1997. Additional discussions and negotiations with LSB, supplemented by
appropriate consultations with the ONSB Board of Director's financial,
accounting and legal advisors, resulted in the signing on March 14, 1997 of a
definitive agreement to merge ONSB into LSB Bank.
ONSB REASONS FOR THE MERGER. A number of factors were considered by the
ONSB Board of Directors in approving the terms of the Merger, including,
without limitation, information concerning the financial condition, results of
operations and prospects of LSB, LSB Bank and ONSB; the ability of the combined
entity to compete in the relevant banking market; the market price of ONSB
Stock; the anticipated tax-free nature of the Merger to ONSB and its
shareholders for federal income tax purposes; the financial terms of other
business combinations in the banking industry; and certain non-financial
factors. The ONSB Board of Directors concluded that the Merger with LSB Bank
would be in the best interests of the ONSB shareholders because it furthers the
ONSB Board of Director's long-term business strategy to enhance shareholder
value by increasing earnings, broadening product lines, expanding
26
<PAGE> 47
distribution and diversifying geographically, all without sacrificing asset
quality. Of particular significance to the ONSB Board of Directors in deciding
to engage in the Merger were the financial terms of the Merger, including the
Exchange Rate and the history of cash dividends paid by LSB, the future
prospects for the surviving bank, financial and otherwise; and other factors
that the ONSB Board of Directors believed could have a favorable impact on
financial performance and long-term shareholder value.
In weighing the various considerations with respect to the Merger, the
primary goals of the ONSB Board of Directors were to realize a gain in
shareholder value and provide additional liquidity for shareholders. The
material factors considered by the Board of Directors with respect to the
Merger included the following:
(i) financial and philosophical considerations, including (a) the
business, operations, earnings and financial condition, including the
capital levels and asset quality, of LSB Bank on an historical,
prospective and pro forma basis; (b) product overlap between ONSB and LSB
Bank; (c) the compatibility of corporate goals, systems and organizations
and the respective contributions each party would make to a combined
entity; (d) the potential for enhanced shareholder value through
increased deposit market share in the Triad area of North Carolina; (e)
the enhanced opportunities for growth that the Merger would make possible
as a result of the increased capitalization of the combined entity; (f)
the opportunities for cost savings and synergies expected to result from
the Merger; and (g) the ability, as a larger financial institution, to
invest in more sophisticated technology to serve the needs of its
customers;
(ii) the terms of the Agreement, including the Exchange Rate. In
deciding to approve and recommend the terms of the Merger, the ONSB Board
of Directors considered the Exchange Rate in relation to (a) the
respective book values and earnings per share of ONSB Stock and LSB
Stock, and (b) the expected trading range of the stock of the two
companies on a combined basis;
(iii) the financial advice rendered by Scott & Stringfellow
regarding the terms of the Agreement. In considering such financial
advice, the ONSB Board of Directors reviewed the methodology and
appropriateness of the assumptions used by Scott & Stringfellow
in its analysis of the fairness of the transaction;
(iv) the expectation that the Merger would be tax-free for federal
income tax purposes to ONSB and its shareholders;
(v) the current and prospective economic environment facing
financial institutions generally and ONSB in particular;
(vi) the belief of the ONSB Board of Directors that annuities,
mutual funds and life insurance products currently sold through a
subsidiary of ONSB may be sold in greater volume through a three county
branch network; and
(vii) the combination of officers from both of the parties in the
surviving bank and the representation of ONSB on the Board of Directors
and committees thereof of the surviving bank.
The ONSB Board of Directors believes that each of ONSB and LSB currently
is well-managed and possesses management philosophies and a strategic focus
that are compatible with those of the other, and that each institution would
contribute complementary business strengths resulting in a well-
27
<PAGE> 48
diversified combined institution. In addition, both ONSB and LSB Bank are
considered "well-capitalized" under banking regulatory standards and the strong
capitalization of the combined entity should allow it to take advantage of
future opportunities that otherwise might not be available to either
institution individually. The ONSB Board of Directors also believes that the
Merger will enhance the ability of the combined institution to compete
effectively in the rapidly changing marketplace for banking and financial
services and to take advantage of opportunities for growth and diversification
that might not be otherwise available. There can be no assurance, however,
that the results anticipated by the ONSB Board of Directors in approving the
Merger will be achieved.
For a discussion of the ownership of ONSB Stock by the Board of Directors
and executive officers of ONSB, see "INFORMATION ABOUT ONSB--Security Ownership
of Management."
ONSB'S BOARD OF DIRECTORS RECOMMENDS THAT ONSB SHAREHOLDERS VOTE FOR
APPROVAL OF THE AGREEMENT.
LSB BACKGROUND. The Board of Directors of LSB adopted a strategic plan in
November 1996, one directive of which is to evaluate appropriate opportunities
to acquire other financial institutions. In November 1996, LSB received a
confidential information memorandum soliciting LSB's interest in an
affiliation/acquisition transaction with ONSB. Upon its receipt of ONSB's
confidential information memorandum, LSB selected the Carson Medlin investment
banking firm to assist LSB in exploring the acquisition transaction with ONSB.
In response to ONSB's solicitation of interest, the LSB Board of Directors
approved a summary term sheet with respect to an offer to acquire ONSB. The
summary term sheet was presented to ONSB soon thereafter.
On December 31, 1996, LSB delivered to ONSB a draft letter of intent,
together with an option agreement, to acquire ONSB. On January 20, 1997, LSB
and ONSB executed a letter of intent and the Option Agreement, which in general
terms had already been approved by the LSB Board of Directors and ONSB Board of
Directors.
On January 30, 1997, LSB presented an initial draft of the Agreement to
ONSB. Management of LSB and ONSB undertook negotiations and agreed upon
mutually acceptable modifications thereto. On March 11, 1997, LSB's and LSB
Bank's Boards of Directors, together with management, reviewed and considered
the provisions of the proposed Agreement after consulting with LSB's advisors.
After a review of the Agreement and based on their prior analyses and
conclusions, the advice of legal counsel, and the advice of Carson Medlin, the
Boards of Directors of LSB and LSB Bank concluded that a combination of ONSB
and LSB, upon the general terms set forth in the proposed Agreement, would be
in the best interests of LSB, LSB Bank and LSB's shareholders. The Boards of
Directors of LSB and LSB Bank approved and authorized the Agreement on March
11, 1997.
On March 14, 1997, the ONSB Board of Directors, together with management,
reviewed and considered the provisions of the proposed Agreement after
consulting with ONSB's advisors. After a review of the Agreement and based on
its prior analyses and conclusions, the advice of legal counsel, and the advice
of Scott & Stringfellow, the Board of Directors concluded that a combination of
ONSB and LSB, upon the general terms set forth in the proposed Agreement, would
be in the best interests of ONSB and its shareholders. On March 14, 1997, LSB,
LSB Bank and ONSB entered into the Agreement.
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<PAGE> 49
LSB REASONS FOR THE MERGER. The LSB Board of Directors, as part of its
long-range strategic plan to increase shareholder value, has sought growth in
LSB's business by expanding its geographic markets and increasing presence in
its existing markets. LSB's Board of Directors believes that the acquisition of
profitable, well-managed financial institutions is the most effective means of
expanding LSB's markets and market presence. The LSB Board of Directors has
concluded that the acquisition of ONSB would be consistent with LSB's strategic
plan because ONSB is profitable and adds complementary geographic markets. ONSB
currently operates seven banking offices in the counties of Forsyth and Stokes,
North Carolina, which are contiguous to Davidson County, North Carolina, in
which LSB Bank currently operates 14 banking offices. In addition, LSB's Board
of Directors believes opportunities exist to reduce certain operating costs
subsequent to the Merger as a result of economies of scale and elimination of
certain duplicate functions. There can be no assurance, however, that such
reductions in operating costs will be achieved, or that the results anticipated
by the LSB Board of Directors in approving the Merger will be achieved.
In approving the Agreement and the Merger, the LSB Board considered a
number of additional factors concerning the benefits of the Merger, including
the following:
(i) the information presented to the directors by the management
of LSB concerning the business, operations, earnings, asset quality, and
financial condition of ONSB, including the composition of the earning
assets portfolio of ONSB;
(ii) the financial terms of the Merger, including the relationship
of the value of the consideration issuable in the Merger to the market
value, tangible book value, and earnings per share of ONSB Stock;
(iii) the non-financial terms of the Merger, including the treatment
of the Merger as a tax-free exchange of ONSB Stock for LSB Stock for
federal income tax purposes;
(iv) the likelihood of the Merger being approved by applicable
regulatory authorities without undue conditions or delay;
(v) the opportunity for reducing the noninterest expense of the
operations of ONSB and the ability of the operations of ONSB after the
Effective Time to contribute to the earnings of LSB through its existing
products and services and additional services offered by LSB;
(vi) the attractiveness of the ONSB franchise, the market position
of ONSB in each of the markets in which it operates and the compatibility
of the franchise of ONSB with the operations of LSB in the Piedmont area
of the North Carolina economy;
(vii) the compatibility of the community bank orientation of the
operations of ONSB with that of LSB; and
(viii) the financial advice rendered by Carson Medlin.
The LSB Board of Directors did not quantify or otherwise attempt to assign
relative or specific weights to the factors considered by the Board in
determining that the Merger is in the best interests of LSB shareholders.
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<PAGE> 50
LSB'S BOARD OF DIRECTORS RECOMMENDS THAT LSB SHAREHOLDERS VOTE FOR
APPROVAL OF THE ISSUANCE OF SHARES OF LSB STOCK IN CONNECTION WITH THE MERGER.
OPINION OF ONSB'S FINANCIAL ADVISOR
GENERAL. The ONSB Board of Directors retained Scott & Stringfellow to act
as its financial advisor in connection with rendering a fairness opinion with
respect to the Merger. Scott & Stringfellow is a full service investment
banking and brokerage firm headquartered in Richmond, Virginia that provides a
broad array of services to corporations, financial institutions, individuals
and state and local governments. The Financial Institutions Group of Scott &
Stringfellow actively works with financial institutions in North Carolina,
Virginia, the District of Columbia, Maryland and West Virginia on these and
other matters. As part of its investment banking practice, it is continuously
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions, negotiated underwritings and
secondary distributions of listed and unlisted securities. Scott &
Stringfellow was selected by ONSB's Board of Directors based upon its expertise
and reputation in providing valuation and merger and acquisition and advisory
services to financial institutions.
At a meeting held on March 14, 1997, the ONSB Board of Directors approved
and adopted the Agreement. At that meeting, Scott & Stringfellow delivered an
opinion to the ONSB Board of Directors that as of such date the Exchange Rate,
which is used to calculate the consideration to be received by ONSB
shareholders in the form of LSB Stock or in cash (subject to limitations on the
cash component of the consideration), was fair to the ONSB shareholders from a
financial point of view. Scott & Stringfellow's opinion was updated as of the
date of this Proxy Statement. No instructions or limitations were given or
imposed by the ONSB Board of Directors upon Scott & Stringfellow with respect
to the investigation made or procedures followed by Scott & Stringfellow in
rendering the opinion.
The full text of Scott & Stringfellow's opinion, which sets forth the
assumptions made, matters considered and limits on the review undertaken by
Scott & Stringfellow, is set forth and attached hereto as Appendix C. ONSB
shareholders are urged to read the opinion in its entirety. The following is a
summary of certain analyses performed by Scott & Stringfellow that were the
basis of its opinion.
Scott & Stringfellow has rendered its opinion to the Board of Directors of
ONSB that the terms of the Agreement are fair from a financial point of view. In
developing its opinion, Scott & Stringfellow reviewed and analyzed: (1) the
Agreement; (2) the Form S-4 Registration Statement to be filed with the SEC in
connection with the Merger; (3) ONSB's audited financial statements, Annual
Reports on Form 10-KSB, and annual Proxy Statements to shareholders for the
three years ended December 31, 1996; (4) other financial and non-financial
internal information relating to ONSB prepared by ONSB's management; (5)
information regarding the trading markets for ONSB Stock and LSB Stock and the
price ranges within which the respective stocks have traded; (6) the
relationship of prices paid to relevant financial data, such as net worth,
earnings, deposits, and assets, in certain bank and bank holding company mergers
and acquisitions in North Carolina in recent years; (7) LSB's annual reports to
shareholders and its financial statements, Annual Reports on Form 10-K, and
annual Proxy Statements to shareholders for the three years ended December 31,
1996; (8) other financial and non-financial internal information relating to LSB
prepared by LSB's management, including but not limited to asset
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quality, reserve adequacy, margin analysis, interest rate sensitivity, internal
controls, loan policies, budgets, regulatory matters and legal matters; and (9)
such other financial studies, analyses, inquiries and other matters as Scott &
Stringfellow deemed necessary. Scott & Stringfellow has discussed with members
of ONSB's and LSB's management past and current business operations, prospects
for the future, the background of the Merger, the reasons and basis for the
Merger, results of regulatory examinations, and the business and future
prospects of ONSB and LSB individually and as a combined entity, as well as
other matters relevant to its inquiry. Scott & Stringfellow has conducted such
other studies, analyses and investigations, particularly of the banking
industry, and considered such other information as it deemed appropriate, the
material portion of which is described below. Scott & Stringfellow also took
into account its assessment of general economic, market and financial conditions
and its expertise in other transactions, as well as its experience in securities
valuations and knowledge of the commercial banking industry generally.
Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and conducted discussions with management of ONSB and LSB for purposes of
developing its opinion. With respect to financial forecasts reviewed by Scott &
Stringfellow for purposes of developing its opinion, Scott & Stringfellow
assumed that such financial forecasts were reasonably prepared on the basis
reflecting the best currently available estimates and judgment of the management
of ONSB and LSB as to the future financial performance of ONSB and LSB,
respectively. Any estimates contained in Scott & Stringfellow's analyses are
not necessarily indicative of future results or values, nor do they purport to
be appraisals or reflect prices at which securities could actually be bought or
sold. Scott & Stringfellow is not an expert in the evaluation of loan
portfolios or allowances for loans losses with respect thereto and has assumed
without independent verification that such allowances for ONSB and LSB are
adequate to cover such losses. In addition, Scott & Stringfellow has not
reviewed individual credit files nor did it make an independent evaluation or
appraisal of the assets or liabilities of ONSB or LSB or any of their
subsidiaries nor was it furnished with any such appraisal. Scott and
Stringfellow's Opinion is directed to the Board of Directors of ONSB and does
not constitute a recommendation to any shareholders of ONSB as to how such
shareholder should vote with respect to the Merger.
Scott & Stringfellow used the information gathered to evaluate the
financial terms of the Merger using standard valuation methods, including a
discounted cash flow analysis, a comparable acquisition analysis, a peer group
market comparable analysis, and a dilution analysis.
DISCOUNTED CASH FLOW ANALYSIS. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of the ONSB Stock. Among other things, Scott & Stringfellow
considered a range of asset and earnings growth for ONSB of between 6.0% and
10.0% and a required equity capital level of 8.0%. A range of discount rates
from 11.2% to 13.2% was applied to the cash flows resulting from the
projections during the first five years and residual values. The residual
values were estimated by capitalizing the projected final year earnings by the
discount rates less the projected long-term growth rate of the ONSB's earnings.
The discount rates, growth rates and capital levels were chosen based on what
Scott & Stringfellow, in its judgment, considered appropriate, considering,
among other things, ONSB's past and current financial performance and
condition, the general level of inflation, rates of return for fixed income and
equity securities in the market generally and particularly in the banking
industry. The discounted cash flow analysis indicated a reference range of
$8.17 to $13.73 per share of ONSB Stock. These values compare to the value of
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$18.96 of consideration share of ONSB Stock pursuant to the Exchange Rate.
Accordingly, the present value of the ONSB Stock was calculated at less than the
value of the consideration to be received from LSB pursuant to the Agreement.
COMPARABLE ACQUISITION ANALYSIS. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data, such as net worth,
tangible net worth, earnings, deposits, assets, and tangible book premium to
core deposits, in 15 bank and bank holding company mergers and acquisitions in
North Carolina since June 30, 1994, representing all such transactions known to
Scott & Stringfellow to have occurred during this period, with the proposed
ONSB Merger and found the consideration to be received from LSB to be within
the relevant pricing ranges acceptable for such recent transactions.
Specifically, based upon the most recent transactions announced in North
Carolina since June 30, 1994, excluding the ONSB Merger, the average price to
book value ratio in those transactions was 2.29, compared to 2.68 for the ONSB
Merger; the average price to tangible book value ratio was 2.37, compared to
2.85 for the ONSB Merger; the average price to earnings ratio was 22. 58,
compared to 29.24 for the ONSB Merger; the average price to assets was 22.64%,
compared to 23.03% for the ONSB Merger; and the average tangible book premium
to core deposits was 17.29%, compared to 32.34% for the ONSB Merger. For
purposes of computing the information with respect to the ONSB Merger, $18.96
per share consideration for each share of ONSB Stock was used.
PEER GROUP MARKET COMPARABLE ANALYSIS. Scott & Stringfellow analyzed the
performance and financial condition of LSB relative to the North Carolina Bank
Group (the "Bank Group"), which includes the following financial institutions:
Carolina First Bancshares, First Bancorp, First Charter Corporation, FNB
Financial Services Corporation, FNB Corporation, Bank of Granite Corporation,
Peoples Bank, and Triangle Bancorp, Inc. Among the financial information
compared was information relating to tangible equity to assets, loans to
deposits, net interest margin, non-performing assets, total assets, reserves to
non-performing assets, and efficiency ratio. Additional valuation information
compared for the trailing twelve-month period ended March 31, 1997 was: (i)
price to book value ratio, which was 2.1 for LSB, compared to an average of 2.2
for the Bank Group; (ii) price to trailing earnings ratio, which was 18.5 for
LSB, compared to an average of 18.0 for the Bank Group; (iii) return on average
assets, which was 1.47% for LSB, compared to an average of 1.36% for the Bank
Group; (iv) return on average equity, which was 11.73% for LSB, compared to an
average of 13.65% for the Bank Group; and (v) a dividend yield of 2.20% for LSB,
compared to an average of 2.03% for the Bank Group. For purposes of calculating
the average for the Bank Group, Scott & Stringfellow excluded the high and low
data points. Overall, in the opinion of Scott & Stringfellow, LSB's operating
performance and financial condition were slightly better than the Bank Group
average and LSB's market value was reasonable when compared to the Bank Group.
Accordingly, ONSB shareholders will receive LSB Stock that is reasonably valued
when compared to the Bank Group.
DILUTION ANALYSIS. Based upon publicly available financial information on
1996 performance of ONSB and LSB, Scott & Stringfellow considered the effect of
the transaction on the book value, earnings, and market value of ONSB and LSB.
The immediate effect on LSB, assuming 15.1% cost savings of ONSB's non-interest
expense, was to decrease 1996 earnings by $0.02 per share, or 1.87%, and to
decrease 1996 year end book value by $0.46 per share, or 4.80%. The effect on
ONSB under the same assumption is to increase reported earnings $0.36 per
share, or 55.0%, to increase book value by $1.57 per share, or 22.22%, to
receive dividends of $0.38 per share, when historically no dividends have been
paid by ONSB, and to increase the pre-announcement market value of ONSB Stock
by $5.52 per
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share to $18.96 per share. This dilution analysis does not take into
account the longer term benefits for the combined companies resulting from the
combination. Scott & Stringfellow concluded from this analysis that the
transaction would have a positive effect on ONSB and the ONSB shareholders in
that net income per share, book value per share, dividends per share and market
value per share of LSB Stock to be received by the ONSB shareholders, after
giving effect to the Exchange Rate, would represent a substantial increase in
each of these factors.
The summary set forth above includes the material factors considered, but
does not purport to be a complete description of the presentation by Scott &
Stringfellow to the ONSB Board of Directors or of the analyses performed by
Scott & Stringfellow. 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. Accordingly, notwithstanding the separate factors
summarized above, Scott & Stringfellow believes that its analysis must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the process underlying the preparation of Scott &
Stringfellow's opinion. As a whole, these various analyses contributed to
Scott & Stringfellow's opinion that the terms of the Agreement are fair from a
financial point of view to the ONSB shareholders.
Pursuant to an engagement letter dated January 2, 1997 between ONSB and
Scott & Stringfellow, in exchange for its services, Scott & Stringfellow will
receive a fee of $35,000, which is payable at closing, will be indemnified
against certain liabilities, and will be reimbursed for up to $2,000 of
out-of-pocket expenses. Scott & Stringfellow has worked with ONSB on various
projects in the past for which it was compensated on an hourly basis and a
fixed fee for service basis.
THE FULL TEXT OF SCOTT & STRINGFELLOW'S OPINION, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS
ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT, IS INCORPORATED HEREIN BY
REFERENCE, AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. SCOTT & STRINGFELLOW'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE EXCHANGE RATE TO THE SHAREHOLDERS OF ONSB AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF ONSB AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE ON THE AGREEMENT.
OPINION OF LSB'S FINANCIAL ADVISOR
GENERAL. The Board of Directors of LSB retained Carson Medlin to act as
its financial advisor in connection with a potential acquisition of ONSB,
pursuant to an engagement letter dated November 15, 1996. As part of that
engagement, Carson Medlin has rendered its opinion as to the fairness of the
Exchange Rate resulting from the terms of the Merger to the shareholders of LSB
from a financial point of view. Carson Medlin will be compensated for its
services. Carson Medlin is a National Association of Securities Dealers, Inc.
member investment banking firm that specializes in the securities of
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southeastern United States financial institutions. As part of its investment
banking activities, Carson Medlin is regularly engaged in the valuation of
southeastern United States financial institutions and transactions relating to
their securities, including mergers and acquisitions.
Carson Medlin delivered its opinion on May 9, 1997 to the Board of
Directors of LSB stating that the Exchange Rate resulting from the terms of the
Merger is fair to the shareholders of LSB from a financial point of view. The
full text of Carson Medlin's written opinion is attached as Appendix D to this
Proxy Statement 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 Carson Medlin in connection
therewith. The consideration to be received by ONSB shareholders and option
holders in connection with the Merger is the result of negotiations between LSB
and ONSB. Carson Medlin's opinion is addressed to LSB's Board of Directors
only, and the opinion does not constitute a recommendation to any LSB
shareholder as to how such shareholder should vote at the LSB Special Meeting
or as to any other matter. The summary of the opinion of Carson Medlin set
forth in this Proxy Statement is qualified in its entirety by reference to the
full text of such opinion attached as Appendix D.
Carson Medlin has relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of LSB or ONSB, nor was it
furnished with any such appraisals. Carson Medlin assumed that the financial
forecasts reviewed by it have been reasonably prepared on a basis reflecting the
best currently available judgments and estimates of the managements of LSB and
ONSB, and that such projected financial results will be realized in the amounts
and at the times contemplated thereby. Carson Medlin is not an expert in the
evaluation of loan portfolios, underperforming or nonperforming assets, net
charge-offs of such assets or the adequacy of allowances for losses with respect
thereto; has not reviewed any individual credit files; and has assumed that the
loan loss allowances for each of LSB and ONSB are in the aggregate adequate to
cover such losses. Carson Medlin assumed that the Merger will be recorded as a
pooling of interests under generally accepted accounting principles. Carson
Medlin's opinion is necessarily based on economic, market and other conditions
as in effect on the date of its analysis and on information made available to it
dated as of various earlier dates.
In connection with rendering its opinion, Carson Medlin performed a
variety of financial analyses. The preparation of a fairness opinion of this
nature 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, is not readily susceptible to partial
analysis or summary description. Carson Medlin believes that its analyses must
be considered together as a whole and that selecting portions of such analyses
and the facts considered therein, without considering all other factors and
analyses, could create an incomplete view of the analyses and the process
underlying Carson Medlin's opinion. In its analyses, Carson Medlin made
numerous assumptions with respect to industry performance, business and
economic conditions and other matters, many of which are beyond the control of
LSB and ONSB and which may not be realized. Any estimates contained in Carson
Medlin's analyses are not necessarily predictive of actual future results or
values, which may be significantly more or less favorable than such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which such companies or their securities may actually be
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sold. None of the analyses performed by Carson Medlin was assigned a greater
significance by Carson Medlin than any other.
In connection with rendering its opinion dated March 9, 1997, Carson
Medlin reviewed (i) the Agreement; (ii) the annual reports to shareholders of
LSB, including audited financial statements, for the five years ended December
31, 1996; (iii) the annual reports to shareholders of ONSB, including audited
financial statements, for the five years ended December 31, 1996; (iv) the
Proxy Statement of LSB dated March 14, 1997 for the annual meeting of the
shareholders of LSB held on April 16, 1997; (v) the Proxy Statement of ONSB
dated April 12, 1997 for the annual meeting of the shareholders of ONSB held on
May 12, 1997; (vi) interim financial statements of LSB and ONSB through March
31, 1997; (vii) a preliminary copy of the Joint Proxy Statement prepared in
connection with the respective special meetings of the shareholders of LSB and
ONSB to consider the Merger; and (viii) certain other financial and operating
information with respect to the business, operations and prospects of LSB and
ONSB.
Carson Medlin also (i) held discussions with members of the senior
management of LSB and ONSB regarding their respective historical and current
business operations, financial conditions and future prospects; (ii) reviewed
the historical market prices and trading activity for LSB Stock and ONSB Stock
and compared them with those of certain publicly traded companies that it
deemed to be relevant; (iii) compared the results of operations of LSB and ONSB
with those of certain publicly traded companies that it deemed to be relevant;
(iv) compared the proposed financial terms of the Merger with the financial
terms, to the extent publicly available, of certain other recent business
combinations of commercial banking organizations; (v) analyzed the pro forma
financial impact of the Merger on LSB; and (vi) conducted such other studies,
analyses, inquires and examinations as Carson Medlin deemed appropriate.
The following is a summary of the principal analyses performed by Carson
Medlin in connection with rendering its opinion.
SUMMARY OF TRANSACTION CONSIDERATION. Carson Medlin reviewed the terms of
the proposed transaction, including the Exchange Rate and the aggregate
transaction value. Carson Medlin considered the implied value of the
consideration offered, which, based on the $20.00 per share closing price of LSB
Stock on April 30, 1997, was approximately $18.96 per share of ONSB Stock,
representing a 29% premium over the closing price of ONSB Stock at the end of
the month (December 31, 1996) immediately preceding the public announcement of
the Merger. This represents total consideration of approximately $30.0 million
to be exchanged for the approximately 1,582,678 shares of ONSB Stock outstanding
and approximately $32.9 million to be exchanged for the ONSB Stock outstanding
and the approximately 151,636 options to purchase ONSB Stock outstanding.
Carson Medlin calculated that, as of April 30, 1997, the total consideration to
be exchanged for ONSB Stock outstanding represented 265% of ONSB's stated book
value at December 31, 1996 and 261% of ONSB's stated book value at March 31,
1997, adjusted pro forma for the conversion of stock options; 24.0 times ONSB's
net income for the quarter ended March 31, 1997 (annualized), adjusted pro forma
for the conversion of stock options; a 21.3% premium on ONSB's March 31, 1997
core deposits (defined as the aggregate transaction value minus stated book
value, as a percentage of core deposits), adjusted pro forma for the conversion
of stock options; and 23.7% of the total assets of ONSB at March 31, 1997,
adjusted pro forma for the conversion of stock options.
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COMPARABLE TRANSACTION ANALYSIS. Carson Medlin reviewed certain
information relating to the mergers of 16 selected North Carolina commercial
banks announced between September 1993 and December 1996 in which the acquired
banks had total assets of from $55 million to $900 million (the "Comparable
Transactions"). The Comparable Transactions are (acquiree/acquiror): First
Charlotte Financial/Centura Banks, Central State Bank/First Bancorp, Bank of
Iredell/United Carolina Bancshares, State Bank of Fayetteville/First Citizens
BancShares, Standard Bank & Trust/Triangle Bancorp, Columbus National
Bank/Triangle Bancorp, Security Capital Corp./CCB Financial Corp., Village
Bank/Triangle Bancorp, Bank of Union/First Charter Corp., Triad Bank/United
Carolina Bancshares, First Commercial Holding Co./Centura Banks, First
Community Bank/Centura Banks, Salem Trust Bank/CCB Financial Corp., FirstSouth
Bank/Centura Banks, Granville United Bank/Triangle Bancorp, and Carolina State
Bank/Bank of Granite Corp. Carson Medlin considered, among other factors, the
earnings, capital level, asset size and quality of assets of the acquired
financial institutions. Carson Medlin compared the transaction prices to the
then recently reported annual earnings, stated book values, total assets and
core deposits.
On the basis of the Comparable Transactions, Carson Medlin calculated a
range of purchase prices as a percentage of stated book value for the
Comparable Transactions of from a low of 167% to a high of 304%, with a mean of
228%. These transactions indicated a range of values for ONSB of from $21.0
million to $38.3 million, with a mean of $28.7 million (based on ONSB's stated
book value of $11.35 million at March 31, 1997, adjusted for the pro forma
exercise of stock options). The aggregate consideration to be exchanged for
the outstanding ONSB Stock and options to purchase ONSB Stock implied by the
terms of the Merger is approximately $32.9 million or 265% of ONSB's stated
book value at March 31, 1997, adjusted for the pro forma exercise of stock
options, which is above the mean for the Comparable Transactions.
Carson Medlin calculated a range of purchase prices as a multiple of
annual earnings for the Comparable Transactions from a low of 16.4 times to a
high of 29.8 times, with a mean of 21.2 times. These transactions indicted a
range of values for ONSB of from $22.5 million to $40.8 million, with a mean of
$29.0 million (based on ONSB's net income for the quarter ended March 31, 1997
(annualized), adjusted for the pro forma exercise of stock options). The
aggregate consideration to be exchanged for the outstanding ONSB Stock and
options to purchase ONSB Stock implied by the terms of the Merger is
approximately $32.9 million or 24.0 times ONSB's net income for the quarter
ended March 31, 1997 (annualized), adjusted for the pro forma exercise of stock
options, which is above the mean for the Comparable Transactions.
Carson Medlin calculated the core deposit premiums for the Comparable
Transactions and found a range of values of from a low of 9.3% to a high of
28.9%, with a mean of 18.1%. The aggregate consideration to be exchanged for
the outstanding ONSB Stock and options to purchase ONSB Stock implied by the
terms of the Merger is approximately $32.9 million, implying a premium on
ONSB's core deposits as of March 31, 1997 of 21.3%, which is above the mean for
the Comparable Transactions.
Finally, Carson Medlin calculated a range of purchase prices as a
percentage of total assets for the Comparable Transactions of from a low of
15.2% to a high of 31.0%, with a mean of 22.2%. The aggregate consideration to
be exchanged for the outstanding ONSB Stock and options to purchase ONSB Stock
implied by the terms of the Merger is approximately $32.9 million or 23.7% of
ONSB's assets at March 31, 1997, which is above the mean for the Comparable
Transactions.
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INDUSTRY COMPARATIVE ANALYSIS. In connection with rendering its opinion,
Carson Medlin compared selected operating results of LSB and ONSB to those of
50 publicly-traded community commercial banks in Alabama, Florida, Georgia,
North Carolina, South Carolina, Virginia and West Virginia (the "SIBR Banks")
as contained in the Southeastern Independent Bank Review(TM), a proprietary
research publication prepared by Carson Medlin quarterly since 1991. The SIBR
Banks range in asset size from approximately $97 million to $2.3 billion and in
shareholders' equity from approximately $9 million to $231 million. Carson
Medlin considers this group of financial institutions more comparable to LSB
and ONSB than larger, more widely traded regional financial institutions.
Carson Medlin compared, among other factors, the profitability,
capitalization, and asset quality of LSB to those of the SIBR Banks. Carson
Medlin noted that (i) LSB had a return on average assets (ROA) for the year
ended December 31, 1996 of 1.48% compared to 1.23% on average for the SIBR
Banks; (ii) LSB had a return on average equity (ROE) for the year ended December
31, 1996 of 11.7% compared to 12.6% on average for the SIBR Banks; (iii) LSB had
common equity to total assets at December 31, 1996 of 12.3% compared to 9.6% on
average for the SIBR Banks; and (iv) LSB's ratio of nonperforming assets
(defined as loans 90 days past due, nonaccrual loans and other real estate
owned) to total loans and other real estate owned at December 31, 1996 was 0.6%
compared to 1.0% for the SIBR Banks. This comparison indicated that LSB's 1996
financial performance was generally higher than that of the average for the SIBR
Banks for most of the factors considered.
Carson Medlin compared, among other factors, the profitability,
capitalization and asset quality of ONSB to those of the SIBR Banks. Carson
Medlin noted that (i) ONSB had a return, when adjusted for certain nonrecurring
expenses, on average assets (ROA) for the year ended December 31, 1996 of 1.0%
compared to 1.2% on average for the SIBR Banks; (ii) ONSB had a return on
average equity (ROE) for the year ended December 31, 1996 of 11.7% compared to
12.6% on average for the SIBR Banks; (iii) ONSB had common equity to total
assets at December 31, 1996 of 8.6% compared to 9.6% on average for the SIBR
Banks; and (iv) ONSB's ratio of nonperforming assets (defined as loans 90 days
past due, nonaccrual loans and other real estate owned) to total loans and
other real estate owned at December 31, 1996 was 0.5% compared to 1.0% for the
SIBR Banks. This comparison indicated that ONSB's 1996 financial performance
was lower than that of the average for the SIBR Banks for some of the factors
considered and higher for other factors considered.
No company or transaction used in the preceding industry comparative or
comparable transaction analyses is identical to LSB, ONSB or the Merger.
Accordingly, evaluating the results of these analyses necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of LSB, ONSB and other factors that could affect the
value of the companies to which they are being compared. Mathematical analysis
(such as determining the average or median) is not, in itself, a meaningful
method of evaluating comparable industry or transaction data.
CONTRIBUTION ANALYSIS. Carson Medlin reviewed the relative contributions
in terms of various balance sheet and income statement factors to be made by LSB
and ONSB to the combined institution based on (i) balance sheet data at December
31, 1996 and (ii) income statement data for the year ended December 31, 1996.
The income statement and balance sheet components analyzed included total
assets, total loans, total deposits, shareholders' equity, and net income
(adjusted for extraordinary items). This analysis showed that, while ONSB
shareholders and option holders would own approximately
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21.7% of the aggregate outstanding shares and approximately 22.7% of the shares
and options of the combined institution based on the Exchange Rate and assuming
an Average Closing Price of LSB Stock of $20.00 per share, ONSB is contributing
23.6% of total assets, 23.4% of total loans, 23.7% of total deposits, 17.8% of
shareholders' equity, and 17.6% of annual net income.
DILUTION ANALYSIS. Carson Medlin analyzed the impact on LSB, on a pro
forma basis, of consolidating the results of operations of ONSB in future
periods. In particular, Carson Medlin compared LSB's results of future
operations on the basis of a combination with ONSB to the results of LSB's
future operations on a stand alone basis. Carson Medlin estimated, assuming an
Average Closing Price of LSB Stock of $20.00 per share and consummation of the
Merger in 1997, that as a result of the Merger, LSB per share earnings (before
nonrecurring expenses related to the Merger) would be diluted by less than 10%
for the initial year of combined operations, by approximately 1% in the second
year, and that the Merger would be accretive to LSB per share earnings
thereafter. Carson Medlin estimated that, as a result of the Merger, dilution
to LSB stated book value per share would be approximately 7.0% in the initial
year of combined operations, and that such dilution would decline by
approximately 0.5% annually thereafter. Carson Medlin considers the magnitude
and duration of such impact on the results of LSB's operations to be typical
of, and within the range of acceptable industry standards for, transactions
such as the Merger.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and have been evaluated as of the
date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities
markets, the results of operations or material changes in the assets or
liabilities of LSB or ONSB, could materially affect the assumptions used in
preparing the opinion.
THE FULL TEXT OF CARSON MEDLIN'S OPINION, WHICH SETS FORTH
CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX D TO THIS PROXY STATEMENT, IS INCORPORATED
HEREIN BY REFERENCE, AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS
PROXY STATEMENT. THE SUMMARY OF THE OPINION SET FORTH IN THIS PROXY STATEMENT
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. CARSON MEDLIN'S
OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF
THE EXCHANGE RATE TO THE SHAREHOLDERS OF LSB AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF LSB AS TO HOW SUCH SHAREHOLDER SHOULD VOTE
ON THE AGREEMENT.
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time that the
Articles of Merger relating to the Merger become effective with the North
Carolina Secretary of State. Unless otherwise agreed upon by LSB and ONSB, the
Effective Time is expected to occur as soon as practicable after approval of
the Merger by the shareholders of ONSB and shareholders of LSB and the
effective date (including expiration of all applicable waiting periods) of all
required consents of any regulatory authority having jurisdiction over the
Merger.
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No assurance can be provided that the necessary shareholder and regulatory
approvals can be obtained or that other conditions precedent to the Merger can
or will be satisfied. ONSB and LSB anticipate that all conditions to
consummation of the Merger will be satisfied so that the Merger can be
consummated during the third quarter of 1997. Delays in the consummation of
the Merger could occur, however.
The Board of Directors of either ONSB or LSB generally may terminate the
Agreement if the Merger is not consummated by September 30, 1997, unless the
failure to consummate by that date is the result of a breach of the Agreement
by the party seeking termination, or if the Average Closing Price of LSB Stock
is less than $15.00 or more than $24.00. See "--Conditions to Consummation of
the Merger" and "--Waiver, Amendment, and Termination."
DISTRIBUTION OF LSB STOCK CERTIFICATES
Promptly after the Effective Time, LSB will cause Wachovia Bank of North
Carolina, N.A., acting in its capacity as Exchange Agent, to mail a letter of
transmittal, together with instructions for the exchange of the Certificates
representing shares of ONSB Stock for certificates representing shares of LSB
Stock, to the former shareholders of ONSB.
ONSB SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of certificates for ONSB Stock,
together with a properly completed letter of transmittal, there will be issued
and mailed to each holder of ONSB Stock surrendering such items a certificate
or certificates representing the number of shares of LSB Stock to which such
holder is entitled, if any, and a check for the amount to be paid in lieu
of any fractional share (without interest), together with all undelivered
dividends or distributions in respect of such shares (without interest
thereon). In no event will ONSB, LSB, LSB Bank, or the Exchange Agent be
liable to any holder of ONSB Stock for any LSB Stock or dividends thereon or
cash delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat, or similar law. After the Effective Time, to the
extent permitted by law, ONSB shareholders of record as of the Effective Time
will be entitled to vote at any meeting of LSB shareholders the number of whole
shares of LSB Stock into which their shares of ONSB Stock have been converted,
regardless of whether such shareholders have surrendered their ONSB Stock
certificates. Whenever a dividend or other distribution is declared by LSB on
LSB Stock, the record date for which is at or after the Effective Time, the
declaration will include dividends or other distributions on all shares of LSB
Stock issuable pursuant to the Agreement, but no dividend or other distribution
payable after the Effective Time with respect to LSB Stock will be paid to the
holder of any unsurrendered ONSB Stock certificate until the holder duly
surrenders such certificate. Upon surrender of such ONSB Stock certificate,
however, both the LSB Stock certificate, together with all undelivered
dividends or other distributions (without interest) and any undelivered cash
payments to be paid in lieu of fractional shares (without interest), will be
delivered and paid with respect to each share represented by such certificate.
After the Effective Time, there will be no transfers of shares of ONSB
Stock on ONSB's stock transfer books. If Certificates representing shares of
ONSB Stock are presented for transfer after the Effective Time, they will be
canceled and exchanged for the shares of LSB Stock and a check for the amount
due in lieu of fractional shares and undelivered dividends, if any, deliverable
in respect thereof.
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CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including (i)
receipt of the approval of the Agreement by the shareholders of ONSB as
required by North Carolina law and LSB shareholders as required under Nasdaq
rules, (ii) receipt of certain regulatory approvals required for consummation
of the Merger; (iii) receipt of all consents required for consummation of the
Merger or for the preventing of any default under any contract or permit which,
if not obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect on the defaulting party; (iv) the absence
of any law or order or any action taken by any court, governmental, or
regulatory authority prohibiting, restricting, or making illegal the
consummation of the Merger; (v) the Registration Statement being declared
effective and all necessary SEC and state approvals relating to the issuance or
trading of the shares of LSB Stock issuable pursuant to the Merger shall have
been received; (vi) receipt of approval of the shares of LSB Stock issuable
pursuant to the Merger for listing on the Nasdaq National Market, subject to
official notice of issuance; (vii) receipt of letters from Turlington and
Company, L.L.P. and Larrowe, Cardwell & Company, LC to the effect that the
Merger will qualify for "pooling-of-interests" accounting treatment; (viii)
receipt of a favorable opinion of Bell, Davis & Pitt, P.A. that the Merger will
constitute a "reorganization" under Section 368 of the Code and the exchange of
ONSB Stock for LSB Stock will not result in taxable gain or loss to ONSB
shareholders, except to the extent of any cash received; (ix) receipt of the
fairness opinions of Carson Medlin and Scott & Stringfellow; and (x)
satisfaction of certain other conditions, including the receipt of agreements
of affiliates of ONSB, certain legal opinions and various certificates from the
officers of ONSB and LSB and the accuracy of all representations and
warranties, the performance of all agreements and compliance with all covenants
made in the Agreement. See "--Regulatory Approvals" and "--Waiver, Amendment,
and Termination".
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not consummated by September 30,
1997, the Agreement may be terminated and the Merger abandoned by the Board of
Directors of either ONSB or LSB, unless the failure to consummate the Merger is
caused by a breach of the Agreement by the terminating party. See "--Waiver,
Amendment, and Termination."
REGULATORY APPROVALS
The Merger may not be consummated in the absence of receipt of the
requisite regulatory approvals. Applications for the approvals described below
have been submitted to the appropriate regulatory agencies. The Merger and the
establishment of additional branch banking offices resulting from the Merger
will require the prior approval of the FDIC. In evaluating the Merger, the
FDIC must consider, among other factors, the financial and managerial resources
and future prospects of LSB, LSB Bank and ONSB and the convenience and needs of
the communities to be served. The relevant statutes prohibit the FDIC from
approving the Merger 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 may be to substantially lessen competition or to tend
to create a monopoly, or (iii) it would be a restraint of trade in any other
manner, unless the FDIC finds that the anticompetitive effects of the Merger
are clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated until 30 days (which the FDIC may
reduce with the concurrence of the Attorney General of the United States to 15
days) following the date of the FDIC approval, during which time the United
States Department of Justice may challenge the
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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 specifically orders otherwise. The FDIC is expected to
approve the Merger in mid-July 1997.
The Merger also is subject to the approval of the North Carolina
Commissioner of Banks (the "Commissioner"). In its evaluation, the Commissioner
will take into account considerations similar to those applied by the FDIC.
The Commissioner is expected to approve the Merger at the meeting of the North
Carolina State Banking Commission on July 23, 1997.
THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED
OR AS TO THE TIMING OF ANY SUCH APPROVALS. There also can be no assurance that
any such approvals will not impose conditions or be restricted in a manner
(including requirements relating to the raising of additional capital or the
disposition of assets) which in the reasonable judgment of the Board of
Directors of either LSB or ONSB would so materially adversely impact the
economic or business benefits of the transactions contemplated by the Agreement
that, had such condition or requirement been known, such party would not in its
reasonable judgment have entered into the Agreement.
ONSB and LSB are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
above. Should any other approval or action be required, it presently is
contemplated that such approval or action would be sought.
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by applicable law, ONSB and LSB, with the approval
of their respective Boards of Directors, may amend the Agreement by written
agreement at any time before or after shareholder approval of the Agreement has
been obtained; provided, however, that after the ONSB Special Meeting, no
amendment may alter the manner or basis in which shares of ONSB Stock will be
exchanged for LSB Stock without the requisite approval of the holders of the
issued and outstanding shares of ONSB Stock entitled to vote thereon. In
addition, prior to or at the Effective Time, either ONSB or LSB, or both,
acting through their respective Boards of Directors or chief executive officers
or other authorized officers may waive any default in the performance of any
term of the 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 Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Agreement, except any condition which, if
not satisfied, would result in the violation of any applicable law or
governmental regulation. No such waiver will be effective unless written and
executed by a duly authorized officer of ONSB or LSB, as the case may be.
Notwithstanding approval of the Agreement by the shareholders of ONSB and
LSB, the Agreement may be terminated and the Merger abandoned at any time prior
to the Effective Time (i) by mutual consent of the Boards of Directors of ONSB
and LSB; (ii) by the Board of Directors of ONSB or LSB (a) in the event of any
inaccuracy of any representation or warranty of the other party contained in
the Agreement which cannot be or has not been cured within 30 days after
receipt of written notice by the breaching party of such inaccuracy and which
inaccuracy would provide the terminating party the ability to refuse to
consummate the Merger under the Agreement (provided that the terminating party
is not then in breach of any representation or warranty or in material breach
of any covenant or other agreement contained in the Agreement), (b) in the
event of a material breach by the other party of any
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covenant or agreement contained in the Agreement which cannot be or has
not been cured within 30 days after the receipt of written notice by the
breaching party of such breach, (c) if (1) any approval or consent of any
regulatory authority required for consummation of the Merger has been denied by
final nonappealable action or is not appealed within the time limit for appeal,
or (2) the shareholders of ONSB or LSB fail to vote their approval of the
matters submitted for their approval, (d) if the Merger is not consummated by
September 30, 1997, provided that the failure to consummate is not due to the
breach of the Agreement by the party electing to terminate, (e) if any
of the conditions precedent to the obligations of such party to consummate the
Merger have not been satisfied or fulfilled by the appropriate party by
September 30, 1997 (provided that the terminating party is not then in breach
of any representation or warranty or in material breach of any covenant or
other agreement contained in the Agreement), or (f) if the Average Closing
Price of LSB Stock is either below $15.00 or above $24.00, provided such
termination occurs during the seven-day period after determination of the final
Exchange Rate.
If the Merger is terminated as described above, the Agreement will become
void and have no effect, except that certain provisions of the Agreement,
including those relating to the obligations to share certain expenses, maintain
the confidentiality of certain information obtained, and return all documents
obtained from the other party under the Agreement, will survive such
termination. In addition, termination of the Agreement under certain
circumstances will not relieve any breaching party from liability for any
uncured willful breach of a representation, warranty, covenant, or agreement
giving rise to such termination. See "--Expenses and Fees" and "--Option
Agreement."
DISSENTERS' RIGHTS
Under the provisions of Article 13 of the NCBCA, any shareholder of ONSB
who (i) gives ONSB notice of his intent to demand payment for his shares if the
Merger is effectuated, which notice is actually received by ONSB before the
vote is taken at the ONSB Special Meeting and (ii) does not vote his shares at
the ONSB Special Meeting in favor of the proposal to approve the Agreement,
shall be entitled if the Agreement is approved and the Merger effectuated, to
receive payment in cash of the fair value of his shares upon compliance with
the procedural requirement of the Article. A shareholder of ONSB who does not
satisfy such requirements is not entitled to payments for his shares under
Article 13 of the NCBCA.
Specifically, Section 55-13-22 of the NCBCA provides that if proposed
corporate action creating dissenters' rights is authorized at a shareholders'
meeting, a corporation shall mail by registered or certified mail, return
receipt requested, a written dissenters' notice to all shareholders who
satisfied the requirements set forth above. The dissenters' notice must be sent
no later than 10 days after the corporate action was taken, and must supply a
form for demanding payment, state where the payment demand must be sent and
where and when certificates for certificated shares must be deposited, and 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 dissenters'
notice is mailed. Under Section 55-13-23 of the NCBCA, a shareholder who sends
a dissenters' notice must demand payment and deposit his share certificates in
accordance with the terms of the notice. A shareholder who demands payment and
deposits his share certificates in accordance with the terms of the notice
retains all other rights of a shareholder until such rights are canceled or
modified by the taking of the proposed corporate action. 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.
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As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenting shareholder
who complied with the requirements of Section 55-13-23 the amount the
corporation estimates to be the fair value of his shares, plus interest accrued
to the date of payment, and shall pay this amount to each dissenting
shareholder who agrees in writing to accept it in full satisfaction of his
demand. However, pursuant to Section 55-13-28 of the NCBCA, a dissenting
shareholder 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 such
estimate, or reject the corporation's offer and demand payment of the fair
value of his shares and interest due, if: (i) the dissenting shareholder
believes that the amount offered by the corporation is less than the fair value
of his shares or that the interest due is incorrectly calculated; (ii) the
corporation fails to make payment to a dissenting shareholder who accepts the
corporation's offer within 30 days after the dissenting shareholders'
acceptance; or (iii) the corporation, having failed to take the proposed
action, does not return the deposited certificates within 60 days after the
date set for demanding payment.
A dissenting shareholder waives his right to demand payment unless he
notifies the corporation of his demand in writing under subparagraph (i) above
within 30 days after the corporation offered payment for his shares or under
subparagraphs (ii) or (iii) above within 30 days after the corporation has
failed to perform its required actions in a timely fashion. A dissenting
shareholder who fails to notify the corporation of his demand under
subparagraph (i) above within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment.
If a demand for payment remains unsettled, the dissenting shareholder may
commence a proceeding within 60 days after the date of his payment demand and
petition the court to determine the fair value of the shares and accrued
interest. Upon service upon it of the petition filed with the court, the
corporation shall pay to the dissenting shareholder the amount previously
offered by the corporation. If the dissenting shareholder does not commence the
proceeding within the 60-day period, the dissenting shareholder shall have an
additional 30 days to either (i) accept in writing the amount offered by the
corporation, upon which acceptance the corporation shall pay such amount to the
dissenting shareholder in full satisfaction of his demand, or (ii) withdraw his
demand for payment and resume the status of a nondissenting shareholder. A
dissenting shareholder who takes no action within such 30-day period shall be
deemed to have withdrawn his dissent and demand for payment.
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 such partial dissenting shareholder are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if: (i) he submits to the corporation the record
shareholder's written consent to dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and (ii) he does so with respect to all
shares of which he is the beneficial shareholder.
A failure to vote against approval of the Agreement will not constitute a
waiver of a shareholder's appraisal rights, provided that notice in writing of
the shareholder's intent to demand payment for his shares if the Merger is
effectuated is given to ONSB, which notice is actually received by ONSB before
the vote is taken at the ONSB Special Meeting. Voting against approval of the
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Agreement will not entitle a shareholder to receive cash for his shares unless
such shareholder complies with all of the procedural requirements discussed
above. Any holder of ONSB Stock who returns a signed proxy but who fails to
provide voting instructions with respect to the proposal to approve the
Agreement will be deemed to have voted in favor of the Agreement and will not
be entitled to assert dissenters' rights of appraisal.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF DISSENTING HOLDERS OF
ONSB STOCK. ANY HOLDER OF ONSB STOCK WHO INTENDS TO DISSENT SHOULD CAREFULLY
REVIEW THE TEXT OF THE NORTH CAROLINA STATUTORY LAW SET FORTH IN APPENDIX B TO
THIS PROXY STATEMENT AND SHOULD ALSO CONSULT WITH HIS OR HER ATTORNEY. THE
FAILURE OF A ONSB SHAREHOLDER TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED
ABOVE AND SET FORTH IN APPENDIX B TO THIS PROXY STATEMENT MAY RESULT IN LOSS OF
APPRAISAL RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO APPRAISAL
RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF ONSB
STOCK, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
In general, any dissenting shareholder who perfects such holder's right to
be paid the "fair value" of such holder's ONSB Stock in cash will recognize
taxable gain or loss for federal income tax purposes upon receipt of such cash.
See "--Certain Federal Income Tax Consequences."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Agreement, ONSB has agreed that, except as otherwise
expressly contemplated in the Agreement, ONSB will (a) operate its business
only in the usual, regular, and ordinary course; (b) preserve its business
organization and assets and maintain its rights and franchises; (c) take no
action which would (i) adversely affect the ability of any party to obtain any
consents required for the transactions contemplated in the Agreement without
imposition of a materially adverse condition or restriction or (ii) adversely
affect the ability of any party to perform its covenants and agreements under
the Agreement and to consummate the Merger; and (d) work with LSB to achieve
appropriate operating efficiencies, and to conform the accounting policies and
practices of ONSB to those of LSB.
In addition, ONSB has agreed that, except as expressly contemplated or
permitted by the Agreement, it will not agree or commit to do any of the
following without the prior written consent of LSB: (i) amend its Articles of
Incorporation, Bylaws or other governing instruments; (ii) incur, guarantee, or
otherwise become responsible for, any additional debt in excess of an aggregate
of $100,000 except in the ordinary course of business consistent with past
practices, or forgive any indebtedness of any person owed to ONSB in excess of
$10,000, or permit the imposition on an asset of any additional lien (other
than those required in the ordinary course of business), or (iii) repurchase,
redeem, or otherwise acquire or exchange (other than exchanges in
the ordinary course under employee benefit plans) any shares of the capital
stock of ONSB, or declare or pay any dividend or make any other distribution in
respect of ONSB's capital stock; or (iv) except pursuant to the exercise of
outstanding stock options or warrants, issue, sell, pledge, encumber, authorize
the issuance of, or otherwise permit to become outstanding, any additional
shares of ONSB Stock or any other right to acquire any such stock; or (v)
adjust, split, combine, or reclassify any capital stock of ONSB or issue or
authorize the issuance of any other securities in respect of or in substitution
for shares of ONSB Stock, or sell, lease, mortgage or otherwise dispose of or
otherwise encumber (a) any shares of capital stock of any ONSB subsidiary, or
(b) any asset other than in the ordinary course of business for reasonable and
adequate consideration; or
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(vi) except for purchases of U.S. government agency securities, purchase any
securities or make any material investment in any person other than a
wholly-owned ONSB subsidiary, or otherwise acquire direct or indirect control
over any person, other than in connection with (a) foreclosures in the ordinary
course of business, or (b) acquisitions of control by ONSB in its fiduciary
capacity; or (vii) grant any increase in compensation or benefits to the
employees or officers of ONSB, except in accordance with past practice or as
required by applicable law; pay any severance or termination pay or any bonus
other than pursuant to written policies or contracts in effect on the date of
the Agreement, or enter into or amend any severance agreements with any officer
of ONSB; grant any increase in compensation or other benefits to directors of
ONSB; or voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits; or (viii) enter into or amend
any employment contract between ONSB and any person (unless such amendment is
required by law) that ONSB does not have the unconditional right to terminate
without liability (other than liability for services already rendered); or (ix)
adopt any new employee benefit plan or make any change in or to any existing
employee benefit plans other than that required by applicable law or that, in
the opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or (x) make any significant change in any tax or
accounting methods, principles, or practices or systems of internal accounting
controls, except as may be necessary to conform to changes in tax laws or
regulatory accounting requirements or generally accepted accounting principles;
or (xi) commence any litigation other than in accordance with past practice,
settle any litigation involving any liability of ONSB for money damages in
excess of $10,000 or restrictions upon the operations of ONSB; or (xii) except
in the ordinary course of business, enter into, modify, amend or terminate any
material contract or waive, release, compromise or assign any material rights
or claims thereunder.
Pursuant to the Agreement, LSB has agreed that, except as otherwise
expressly contemplated by the Agreement, it shall (i) continue to conduct its
business in a manner that enhances the long-term value of the LSB Stock and the
business prospects of LSB and, to the extent consistent therewith, use its
reasonable best efforts to preserve intact LSB's core businesses and goodwill
with its employees and the communities it serves, and (ii) take no action that
would (a) materially adversely affect the ability of any party to obtain any
consents required for the transactions contemplated in the Agreement without
imposition of a materially adverse condition or restriction, or (b) materially
adversely affect the ability of any party to perform its covenants and
agreements under the Agreement; provided, that the foregoing shall not prevent
LSB from acquiring any other company or discontinuing or disposing of any of its
assets or business if such action is, in the judgment of LSB, desirable in the
conduct of the business of LSB. LSB also agreed that it will not: (x) without
the prior written consent of ONSB, amend the Articles of Incorporation or Bylaws
of LSB, in each case, in any manner adverse to the holders of ONSB Stock, or (y)
declare and pay any cash dividends on the LSB Stock except for regular cash
dividends with record and payment dates in accordance with LSB's past record
dates for cash dividends.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The current directors and officers of LSB and LSB Bank will continue to
hold the same positions after consummation of the Merger as they held prior to
the Merger. Under the Agreement, ONSB has the right to recommend candidates
to fill two additional directorships on the Board of Directors of LSB and LSB
Bank effective as of the consummation of the Merger. In addition, under the
Agreement, LSB will appoint Nicholas A. Daves to the office of Senior Vice
President of LSB Bank, Charles V. Darnell to the office of Senior Vice
President of LSB Bank, Suzanne J. Bullotta to the office of Senior Vice
President of LSB Bank, and all other officers of ONSB to offices at LSB Bank
that carry titles equivalent to the titles held by such officers at ONSB
(except for the corporate secretary of ONSB who
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will be appointed as an assistant corporate secretary of LSB Bank), all
effective as of consummation of the Merger. See "--Interests of Certain
Persons in the Merger." Information concerning the management of LSB and LSB
Bank is included in the documents incorporated herein by reference. See
"DOCUMENTS INCORPORATED BY REFERENCE."
LSB Bank will be the surviving corporation resulting from the Merger and
shall continue to be governed by the laws of the State of North Carolina and
operate in accordance with its Articles of Incorporation and Bylaws as in
effect on the date of the Agreement until otherwise amended or repealed after
the Effective Time. ONSB will cease to be a separate entity.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Certain members of ONSB management and of the ONSB Board of
Directors have interests in the Merger that are in addition to any interests
they may have as shareholders of ONSB generally. These interests include,
among other things, provisions in the Agreement relating to director and
officer insurance coverage for ONSB directors and officers, and certain
severance and other employee benefits, as described below.
INSURANCE. The Agreement provides that LSB will use its reasonable best
efforts to maintain in effect for a period of three years after the Merger
director and officer liability insurance, of at least the same coverage and
amounts as provided by ONSB's current director and officer liability insurance,
with respect to claims arising from events that occur prior to the Effective
Time and covering persons who currently are covered by such insurance.
LSB DIRECTORSHIPS. Under the Agreement, ONSB has the right to recommend
candidates to fill two additional directorships on the Board of Directors of LSB
as of the Effective Time, which two directorships expire at the 1998 annual
meeting of LSB shareholders, and to specify one of those candidates to be
renominated upon expiration of his term to fill an additional directorship with
a term expiring in 1999 and the other candidate to fill an additional
directorship with a term expiring in 2000. Under the Agreement, the LSB Board
of Directors will elect to the LSB Board two of the candidates recommended to
fill the two additional directorships expiring in 1998 and, upon expiration of
the terms of those candidates, will recommend to LSB shareholders the election
of the candidates recommended to fill the two additional directorships expiring
in 1999 and 2000. The additional directors nominated by ONSB and elected to the
LSB Board will also be elected to the Board of Directors of LSB Bank.
ONSB EXECUTIVE ARRANGEMENTS. Nicholas A. Daves serves as Chairman of the
Board of Directors of ONSB and Robert E. Marziano serves as President and Chief
Executive Officer of ONSB under employment contracts dated September 29, 1995,
and April 10, 1995, respectively. Each contract has a rolling three-year term,
with automatic renewal unless the contract is otherwise terminated. The base
annual salaries of Mr. Daves and Mr. Marziano currently are fixed at $112,400
and $135,000, respectively, with annual merit increases. Mr. Daves' contract
also provides for a deferred compensation package. If the employment contracts
are terminated without "cause," as defined in the contracts, ONSB must pay all
compensation and benefits due under the terminated contract for a period of
three years following the termination. The employment contracts also contain
"change in control" provisions that permit Mr. Daves and Mr. Marziano to
terminate their individual employment contracts in the event that their job
titles or responsibilities are significantly diminished. In the event of such
termination, each individual is entitled to a severance payment of three times
his then current annual base salary. In the absence of such termination, the
employment contracts continue without interruption,
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and the employee's base annual salary is increased on each subsequent
anniversary date of the employment agreement by the greater of 10% or the
increase in the Consumer Price Index.
Charles V. Darnell serves as Senior Vice President and Chief Financial
Officer of ONSB under an employment contract dated July 10, 1996. The contract
expires June 30, 1997, subject to automatic one-year extensions unless either
party gives written notice to the other, at least 60 days prior to expiration
of the term, of intent to terminate the contract. The base annual salary for
Mr. Darnell is $75,000, with annual merit increases. Mr. Darnell's employment
contract also contains a "change in control" provision that permits Mr. Darnell
to terminate the contact within six months of the "change in control"
transaction and receive a severance payment equal to his then current annual
base salary. If the contract is not terminated, it is automatically extended
for a term of three years.
The acquisition of ONSB by LSB will be deemed a "change in control" under
all three of the employment contracts with ONSB officers. Accordingly, Messrs.
Daves and Marziano would have the option of terminating their employment
contracts and receiving the severance amounts provided for in such contracts in
the event that their job titles or responsibilities are significantly
diminished. Mr. Darnell would have the option of terminating his contract
within six months of the Merger and receiving the severance amount provided for
in his contract. If Messrs. Daves, Marziano and Darnell elected to terminate
their employment contracts, the severance payment estimated to be due to each
of them, assuming such termination occurred at the time of the Merger, would be
approximately $337,200, $405,000, and $75,000, respectively.
On May 1, 1997, however, Mr. Marziano, ONSB and LSB Bank entered into an
amendment to his existing employment contract, effective upon the Merger. The
amendment modifies the change in control provision to provide that at the
Effective Time, Mr. Marziano's employment will terminate and LSB Bank will pay
Mr. Marziano a $285,000 severance payment in cash. The amendment also
eliminates provisions concerning Mr. Marziano's duties, term of employment,
compensation and right to severance payment in the event of changes in current
office or status as a director of ONSB and modifies the non-compete provisions.
In exchange for the non-compete provision, LSB Bank will pay Mr. Marziano,
during his lifetime, 60 equal monthly cash payments of $2,000.
Under the Agreement, Messrs. Daves and Darnell are being appointed to the
offices of Senior Vice President of LSB Bank. LSB expects to negotiate new
employment contracts with Messrs. Daves and Darnell to replace their existing
employment contracts, although no assurance can be given that such contracts
will be executed before or after the Effective Time, or that such persons will
not elect to terminate their existing employment contracts and seek the
severance payments provided for in such contracts.
DIRECTOR AND OFFICER STOCK OPTIONS. ONSB has granted stock options to
Messrs. Daves and Marziano and certain other executive officers and directors
under the ONSB Stock Plans. The following table sets forth with respect to
Messrs. Daves and Marziano, all executive officers as a group, all outside
directors as a group, and all executive officers and directors as a group: (i)
the number of shares covered by options held by such persons, (ii) the weighted
average exercise price of all such options held by such persons, and (iii) the
aggregate value (i.e., stock price less option exercise price) of all such
options based upon the closing bid price of ONSB Stock of $16.75 on March 31,
1997 (as reported in the Charlotte Observer). All of the ONSB Options set forth
below are currently exercisable.
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<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE AGGREGATE
PRICE PER VALUE OF
OPTIONS HELD OPTION OPTIONS
------------ --------- ---------
<C> <C> <C> <C>
Nicholas A. Daves 20,498 $9.09 $157,015
Robert E. Marziano 24,698 5.45 279,087
Executive officers as a group (4 persons) 61,324 7.01 597,296
Outside directors (15 persons) -- -- --
All executive officers and directors as a
group (19 persons) 61,324 7.01 597,296
</TABLE>
Based on the closing price of LSB Stock ($20.00) on the Nasdaq National
Market System on March 27, 1997 (as reported by the Wall Street Journal),
assuming the Exchange Rate is 0.948, the aggregate value of the options to Mr.
Daves, Mr. Marziano, the executive officers as a group, the 15 outside
directors as a group and all executive officers and directors as a group would
be $202,315, $333,670, $732,822, $0 and $732,822, respectively.
OTHER MATTERS RELATING TO ONSB EMPLOYEE BENEFIT PLANS. The Agreement also
provides that, after the Effective Time, LSB will provide generally to officers
and employees of ONSB who, at or after the Effective Time, become officers or
employees of a LSB company (other than Messrs. Daves, Marziano and Darnell, who
will have rights to employee benefits as provided in their respective employment
contracts), employee benefits under employee benefit plans (other than stock
option or other plans involving the potential issuance of LSB Stock, except as
set forth in the Agreement) on terms and conditions substantially similar to
those currently provided by the LSB companies to their similarly situated
officers and employees. For purposes of participation and vesting (but not
accrual of benefits) under such employee benefit plans, the service of the
employees of ONSB under any ONSB employee benefit plan prior to the Effective
Time shall be treated as service with LSB under a similar employee benefit plan
maintained by LSB. LSB also will honor all employment, consulting and other
compensation contracts between ONSB and any current or former director, officer
or employee disclosed to LSB at the execution of the Agreement and all
provisions for vested benefits or other vested amounts earned or accrued through
the Effective Time under ONSB benefit plans disclosed to LSB at the execution of
the Agreement. Any employee of ONSB (other than those serving pursuant to
employment contracts) who, following the Merger and at LSB's discretion, is
terminated by LSB for reasons other than "cause" (as defined in the Agreement)
within six months following the Effective Time shall be entitled to a severance
payment in an amount equal to one week's salary or wages for each full year of
prior continuous service with ONSB prior to the Merger; provided that any
severance payment shall equal at least two weeks' salary or wages.
OPTION AGREEMENT
In addition to the Agreement, ONSB and LSB have entered into an option
agreement dated as of January 20, 1997 (the "Option Agreement"), pursuant to
which ONSB has granted an option to LSB to purchase under certain conditions
265,675 shares of ONSB Stock (subject to adjustment to ensure that at least
13.28% of the issued and outstanding shares of ONSB Stock at the time of
exercise are subject to the option) at an exercise price of $8.00 in cash per
share (the "Lock-Up Option").
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The Lock-Up Option is exerciseable only if: (i) an offer to acquire ONSB
has been received by ONSB, or solicited by ONSB, from a person or entity other
than LSB, and (ii) ONSB and such person or entity have entered into an
agreement concerning any merger, sale of substantial assets, tender offer, sale
of shares of stock or similar transaction involving ONSB. The Lock-Up Option
may be exercised by LSB on a date that is the earlier of (i) the consummation
of the Merger, (ii) the termination of the Merger Agreement in accordance with
the terms thereof or (iii) September 30, 1997. LSB's right to exercise the
Lock-Up Option has not been triggered as of the date of this Proxy Statement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO ONSB SHAREHOLDERS. THIS SUMMARY IS BASED ON THE
FEDERAL INCOME TAX LAWS AS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES
NOT TAKE INTO ACCOUNT POSSIBLE CHANGES TO SUCH LAWS OR INTERPRETATIONS,
INCLUDING AMENDMENTS TO APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN
JUDICIAL OR ADMINISTRATIVE RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT.
THIS SUMMARY DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY
PERSON. IN PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES
NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ONSB
SHAREHOLDERS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE,
AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES, DEALERS IN SECURITIES, INSURANCE
COMPANIES, AND CORPORATIONS, AMONG OTHERS). NOR DOES THIS SUMMARY ADDRESS ANY
CONSEQUENCES OF THE MERGER UNDER ANY STATE, LOCAL, ESTATE, OR FOREIGN TAX LAWS.
ONSB SHAREHOLDERS, THEREFORE, ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL , FOREIGN, STATE,
LOCAL, AND OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE
TAX LAWS.
The Merger is intended to constitute a "reorganization" within the meaning
of section 368(a) of the Code, with ONSB, LSB, and LSB Bank each intended to
qualify as a "party to a reorganization" under section 368(b) of the Code, in
which case the following tax consequences will generally result (subject to the
limitations and qualifications referred to herein): (a) no gain or loss will be
recognized by the ONSB shareholders upon the receipt of LSB Stock solely in
exchange for their shares of ONSB Stock; (b) the basis of the LSB Stock to be
received by ONSB shareholders will be the same as the basis of the ONSB Stock
surrendered in the exchange; (c) the holding period of the LSB Stock to be
received by ONSB shareholders will include the holding period of the ONSB Stock
surrendered in exchange therefor, provided that the ONSB Stock was held as a
capital asset on the date of the exchange; and (d) the payment of cash to ONSB
shareholders in lieu of issuing fractional share interests in LSB will be
treated for federal income tax purposes as if the fractional shares were
distributed as part of the exchange and then were redeemed by LSB. These cash
payments will be treated as having been received as a distribution in full
payment in exchange for the stock redeemed as provided in section 302(a) of the
Code. If the redemption meets one of the four tests set forth in section 302,
any gain or loss recognized will be a capital gain or loss. If none of the four
tests provided in section 302 is met, the redemption will be treated as payment
of a dividend.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service ("IRS"). Instead, Bell, Davis &
Pitt, P.A., counsel to ONSB, will render an opinion
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<PAGE> 70
concerning certain federal income tax consequences of the proposed Merger under
federal income tax law. It is such firm's opinion that, based upon the
assumption the Merger is consummated in accordance with North Carolina law and
in conformity with the representations made by the management of ONSB and LSB,
the transaction will constitute a "reorganization" within the meaning of
section 368(a) of the Code ("Tax Opinion"). The Tax Opinion addresses the tax
consequences of the Merger under North Carolina law, but does not address any
other state, local, or other tax consequences of the Merger. The Tax Opinion
does not bind the IRS nor preclude the IRS from adopting a contrary position.
In addition, the Tax Opinion will be subject to certain assumptions and
qualifications and will be based on the truth and accuracy of certain
representations made by the management of ONSB and LSB, as to, among other
things, the fact that there is no plan or intention by any of the shareholders
of ONSB who own one percent (1%) or more of the outstanding ONSB Stock, and to
the best of the knowledge of the management of ONSB, the remaining ONSB
shareholders have no plan or intention, to sell, exchange, or otherwise dispose
of a number of shares of LSB Stock that they will receive in the Merger that
will reduce on the part of the ONSB shareholders such shareholders' ownership
of LSB Stock to a number of shares having an aggregate value as of the date of
the Merger of less than 50% of the aggregate value of all of the stock of ONSB
outstanding immediately prior to the Merger.
A successful IRS challenge to the "reorganization" status of the Merger
would result in a ONSB shareholder recognizing gain or loss with respect to
each share of ONSB Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the
Effective Time of the Merger, of the LSB Stock received in exchange therefor.
In such event, a ONSB shareholder's aggregate basis in the LSB Stock received
would equal its fair market value and his or her holding period for such stock
would begin the day after the Merger.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a
pooling-of-interests. Under the pooling-of interests method of accounting, the
recorded amounts of the assets and liabilities of ONSB will be carried forward
at their previously recorded amounts, and prior period financial statements will
be restated for all periods as though ONSB and LSB had been combined at the
beginning of the earliest period presented.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding ONSB Stock must
be exchanged for LSB Stock with substantially similar terms. There are certain
other criteria that must be satisfied in order for the Merger to qualify as a
pooling-of-interests, some of which criteria cannot be satisfied until after
the Effective Time. In addition, it is a condition to closing that each party
receive assurances from Turlington and Company, L.L.P. and Larrowe, Cardwell &
Company, LC, in form and content satisfactory to such party, to the effect that
the Merger will qualify for pooling-of-interests accounting treatment.
For information concerning certain conditions to be imposed on the
exchange of ONSB Stock for LSB Stock in the Merger by affiliates of ONSB and
certain restrictions to be imposed on the transferability of the LSB Stock
received by those affiliates in the Merger in order, among other things, to
ensure the availability of pooling-of-interests accounting treatment, see
"--Resales of LSB Stock."
EXPENSES AND FEES
The Agreement provides, in general, that each of the parties will bear and
pay its own costs and expenses in connection with the transactions contemplated
by the Agreement, including filing, registration and application fees, printing
fees, and fees and expenses of its own financial or other consultants,
investment bankers, accountants, and legal counsel, except that each party will
pay one-half
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of (i) the SEC and Blue Sky filing fees incurred in connection with the
Registration Statement and this Proxy Statement/Prospectus and (ii) the
printing and distribution costs incurred in connection with the printing and
distribution of the Registration Statement and this Proxy statement/Prospectus.
RESALES OF LSB STOCK
LSB Stock to be issued to shareholders of ONSB in connection with the
Merger will be registered under the Securities Act. All shares of LSB Stock
received by holders of ONSB Stock and all shares of LSB Stock issued and
outstanding immediately prior to the Effective Time, will be freely
transferable upon consummation of the Merger by those shareholders of ONSB not
deemed to be "Affiliates" of ONSB or LSB. "Affiliates" generally are defined as
persons or entities who control, are controlled by, or are under common control
with ONSB or LSB at the time of the ONSB Special Meeting (generally, executive
officers and directors).
Rules 144 and 145 promulgated under the Securities Act restrict the sale
of LSB Stock received in the Merger by Affiliates and certain of their family
members and related interests. Generally speaking, during the year following
the Effective Time, Affiliates of ONSB or LSB may resell publicly the LSB Stock
received by them in the Merger within certain limitations as to the amount of
LSB Stock sold in any three-month period and as to the manner of sale. After
the one-year period, such Affiliates of ONSB who are not affiliates of LSB may
resell their shares without restriction. The ability of Affiliates to resell
shares of LSB Stock received in the Merger under Rule 144 or 145 as summarized
herein generally will be subject to LSB's having satisfied its Exchange Act
reporting requirements for specified periods prior to the time of sale.
Affiliates will receive additional information regarding the effect of Rules
144 and 145 on their ability to resell LSB Stock received in the Merger.
Affiliates also would be permitted to resell LSB Stock received in the Merger
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Proxy Statement does not cover any resales of LSB Stock received by persons who
may be deemed to be Affiliates of ONSB or LSB.
ONSB has agreed to use its reasonable best efforts to cause each person
who it reasonably believes to be an Affiliate of ONSB to execute and deliver to
LSB not less than thirty (30) days prior to the Effective Time, an agreement
providing that such Affiliate will not sell, pledge, transfer, or otherwise
dispose of any LSB Stock obtained as a result of the Merger, except in
compliance with Securities Act and the rules and regulations of the SEC
thereunder and, in any case, until such time as financial results covering at
least 30 days of combined operations of LSB and ONSB have been published.
Certificates representing shares of ONSB Stock surrendered for exchange by any
person who is an Affiliate of ONSB for purposes of Rule 145(c) under the
Securities Act shall not be exchanged for certificates representing shares of
LSB Stock until LSB has received such a written agreement from such person. The
stock certificates representing LSB Stock issued to Affiliates in the Merger may
bear a legend summarizing the foregoing restrictions. LSB will not be required
to maintain the effectiveness of the Registration Statement under the Securities
Act for purposes of resales of shares of LSB Stock by such affiliates. See
"--Conditions to Consummation of the Merger."
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EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of ONSB Stock will be exchanging their
shares of ONSB Stock for shares of LSB Stock. LSB is a North Carolina
corporation governed by the NCBCA and LSB's Articles of Incorporation and
Bylaws. Certain differences deemed material by ONSB and LSB exist between the
rights of ONSB shareholders and those of LSB shareholders. The differences are
summarized below. The following discussion is necessarily general; it is not
intended to be a complete statement of all differences affecting the rights of
shareholders and their respective entities, and it is qualified in its entirety
by reference to the NCBCA as well as to LSB's Articles and Bylaws and ONSB's
Articles of Incorporation and Bylaws.
ANTI-TAKEOVER PROVISIONS GENERALLY
The provisions of LSB's Articles of Incorporation and Bylaws described
below under the headings "--Authorized Capital Stock," "--Classified Board of
Directors and Absence of Cumulative Voting," "--Removal of Directors,"
"--Special Meeting of Shareholders," "--Actions by Shareholders Without a
Meeting," "--Shareholder Nominations and Proposals," and "--Business
Combinations" are referred to herein as the "Protective Provisions." In
general, the Protective Provisions make it more likely that LSB's Board of
Directors will play a central role if any group or person attempts to acquire
control of LSB, so that the Board can further the interests of LSB and its
shareholders as appropriate under the circumstances. For example, if the Board
determines that a sale of control of LSB is in the best interests of LSB and
its shareholders, the Protective Provisions enhance the Board's ability to
maximize the value to be received by the shareholders upon such a sale.
Although LSB's management believes the Protective Provisions are
beneficial to LSB's shareholders, the Protective Provisions also may tend to
discourage some takeover bids. As a result, LSB's shareholders may be deprived
of opportunities to sell some or all of their shares at prices that represent a
premium over prevailing market prices. On the other hand, defeating
undesirable acquisition offers can be a very expensive and time-consuming
process. To the extent that the Protective Provisions discourage undesirable
proposals, LSB may be able to avoid those expenditures of time and money.
The Protective Provisions also may discourage open market purchases by a
potential acquirer. Such purchases may increase the market price of LSB Stock
temporarily, enabling shareholders to sell their shares at a price higher than
that which otherwise would prevail. In addition, the Protective Provisions may
decrease the market price of LSB Stock by making the stock less attractive to
persons who invest in securities in anticipation of price increases from
potential acquisition attempts. The Protective Provisions also may make it more
difficult and time consuming for a potential acquirer to obtain control of LSB
through replacing the Board of Directors and management. Furthermore, the
Protective Provisions may make it more difficult for LSB's shareholders to
replace the Board of Directors or management, even if a majority of the
shareholders believe such replacement is in the best interests of LSB. As a
result, the Protective Provisions may tend to perpetuate the incumbent Board of
Directors and management of LSB.
AUTHORIZED CAPITAL STOCK
LSB. LSB's Articles of Incorporation authorize issuance of up to
10,000,000 shares of LSB Stock, of which 5,403,539 shares were issued and
outstanding as of March 31, 1997. LSB's Board of Directors may authorize the
issuance of additional shares of LSB Stock without further action by LSB's
shareholders, unless such action is required in a particular case by applicable
laws or regulations or by any stock exchange upon which LSB's capital stock may
be listed. LSB's shareholders do not have the
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preemptive right to purchase or subscribe to any unissued authorized shares of
LSB Stock or any option or warrant for the purchase thereof.
Subject to the rights of shareholders who perfect dissenters' rights of
appraisal and the payment of cash in lieu of fractional shares, assuming an
Exchange Rate of 0.948, LSB will issue an estimated 1,644,130 shares of LSB
Stock in connection with the Merger, including shares to be subject to assumed
options and warrants. Based on the number of shares of LSB Stock outstanding
on the LSB Record Date, it is anticipated that, following the consummation of
the Merger, a total of approximately _______ shares of LSB Stock will be
outstanding, excluding shares subject to assumed options and warrants.
The authority to issue additional shares of LSB Stock provides LSB with
the flexibility necessary to meet its future needs without the delay resulting
from seeking shareholder approval. The authorized but unissued shares of LSB
Stock will be issuable from time to time for any corporate purpose, including,
without limitation, stock splits, stock dividends, employee benefit and
compensation plans, acquisitions, and public or private sales for cash as a
means of raising capital. Such shares could be used to dilute the stock
ownership of persons seeking to obtain control of LSB. In addition, the sale of
a substantial number of shares of LSB Stock to persons who have an
understanding with LSB concerning the voting of such shares, or the
distribution or declaration of a dividend of shares of LSB Stock (or the right
to receive LSB Stock) to LSB shareholders, may have the effect of discouraging
or increasing the cost of unsolicited attempts to acquire control of LSB.
ONSB. ONSB's Articles of Incorporation authorize the issuance of up to
2,000,000 shares of ONSB Stock, of which _______ shares were issued and
outstanding as of the ONSB Record Date. ONSB's Board of Directors may authorize
the issuance of additional authorized shares of ONSB Stock without further
action by ONSB's shareholders, unless such action is required in a particular
case by applicable laws or regulations or by any stock exchange upon which
ONSB's capital stock may be listed. ONSB's shareholders do not have preemptive
right to purchase or subscribe to any unissued unauthorized shares of ONSB
Stock or any option or warrant for the purchase thereof.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
LSB. The Articles of Incorporation of LSB do not contain any provisions
governing amendments to the Articles. Under North Carolina law, the Articles
may be amended by action of the Board of Directors of LSB and without
shareholder action only for minor technical revisions. Any other amendment must
be approved by a majority of the shares voting except that if the proposed
amendment creates dissenters' rights, the vote required is a majority of the
total votes entitled to be cast.
Subject to certain restrictions set forth below, either the Board of
Directors or the shareholders of LSB may amend LSB's Bylaws. The Board of
Directors may amend or repeal the Bylaws and adopt new Bylaws except that: (i)
a bylaw adopted or amended by the shareholders may not be readopted, amended,
or repealed by the Board of Directors if neither the Articles of Incorporation
nor a bylaw adopted by the shareholders authorizes the Board of Directors to
adopt, amend, or repeal that particular bylaw; (ii) a bylaw that fixes a
greater quorum or voting requirement for the Board of Directors may not be
adopted by the Board of Directors by a vote of less than a majority of the
directors then in office and may not itself be amended by a quorum or vote of
directors less than the quorum or vote therein prescribed in such bylaw or
prescribed by the shareholders; and (iii) if a bylaw fixing a greater quorum or
voting requirement for the Board of Directors is originally adopted by the
shareholders, it may be amended or repealed only by the shareholders, unless
the Bylaws permit amendment or repeal by the Board of Directors. The
shareholders of LSB generally may adopt, amend, or repeal the Bylaws upon the
affirmative vote of a plurality of the shareholders voting on the matter for
which a quorum is present.
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ONSB. The Articles of Incorporation of ONSB do not contain any provisions
governing amendments to the Articles. Under North Carolina law, the Articles
may be amended by action of the Board of Directors of ONSB and without
shareholder action only for minor technical revisions. Any other amendment must
be approved by a majority of the shares voting except that if the proposed
amendment creates dissenters' rights, the vote required is a majority of the
total votes entitled to be cast.
The Board of Directors of ONSB may amend ONSB's Bylaws and adopt new
Bylaws, without shareholder approval, except as provided in the Bylaws. The
Bylaws provide that the Board of Directors of ONSB may not adopt a Bylaw (i)
requiring more than a majority of the voting shares for a quorum at a meeting
of shareholders or more than a majority of the votes cast to constitute action
by the shareholders, except where higher percentages are required by law, or
(ii) providing for the management of ONSB otherwise than by the Board of
Directors or its executive committee. In addition, no bylaw adopted or amended
by the shareholders of ONSB shall be altered or repealed by the Board of
Directors of ONSB.
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING
LSB. The Bylaws of LSB provide that LSB's Board of Directors shall
consist of not less than nine nor more than 24 directors divided into three
classes, with each class to be as nearly equal in number as possible. The
directors in each class serve three-year terms of office. The number of persons
comprising the LSB Board of Directors is currently set at 12. The effect of
LSB's having a classified Board of Directors is that only approximately
one-third of the members of the Board are elected each year, which effectively
requires two annual meetings for LSB's shareholders to change a majority of the
members of the Board. The purpose of dividing LSB's Board of Directors into
classes is to facilitate continuity and stability of leadership of LSB by
ensuring that experienced personnel familiar with LSB will be represented on
LSB's Board at all times, and to permit LSB's management to plan for the future
for a reasonable time. By potentially delaying the time within which an
acquirer could obtain working control of the Board, however, this provision may
discourage some potential mergers, tender offers, or takeover attempts.
Pursuant to the Bylaws, each shareholder generally is entitled to one vote
for each share of LSB Stock held and is not entitled to cumulative voting
rights in the election of directors. With cumulative voting, a shareholder has
the right to cast a number of votes equal to the total number of such holder's
shares multiplied by the number of directors to be elected. The shareholder has
the right to distribute all of his votes in any manner among any number of
candidates or to cumulate such shares in favor of one candidate. Directors are
elected by a plurality of the total votes cast by all shareholders. With
cumulative voting, it may be possible for minority shareholders to obtain
representation on the Board of Directors. Without cumulative voting, the
holders of more than 50% of the shares of LSB Stock generally have the ability
to elect 100% of the directors. As a result, the holders of the remaining LSB
Stock effectively may not be able to elect any person to the Board of
Directors. The absence of cumulative voting thus could make it more difficult
for a shareholder who acquires less than a majority of the shares of LSB Stock
to obtain representation on LSB's Board of Directors.
ONSB. The Bylaws of ONSB provide that ONSB's Board of Directors shall
consist of not less than seven nor more than 25 individuals, the exact number
of directors to be elected being determined by the Board of Directors.
Currently, the Board of Directors of ONSB has set the number of directors at
17. The Bylaws of ONSB provide that ONSB's Board of Directors be divided into
three classes, with each class to be as nearly equal in number as possible. The
directors in each class serve three-year terms of office. The effect of ONSB
having a classified Board of Directors is that only approximately one-third of
the members of the Board are elected each year, which effectively requires two
annual meetings for ONSB's shareholders to change a majority of the members of
the Board. The purpose of dividing
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ONSB's Board of Directors into classes is to facilitate continuity and
stability of leadership of ONSB by ensuring that experienced personnel familiar
with ONSB will be represented on ONSB's Board at all times, and to permit
ONSB's management to plan for the future for a reasonable time. By potentially
delaying the time within which an acquirer could obtain working control of the
Board, however, this provision may discourage some potential mergers, tender
offers, or takeover attempts. Pursuant to the Bylaws, each shareholder is
entitled to one vote for each share of ONSB Stock held.
REMOVAL OF DIRECTORS
LSB. LSB's Bylaws provide that a director may be removed only "for cause"
as such term is defined in the Bylaws. To remove a director for certain "for
cause" actions as described in the Bylaws, the Bylaws require the affirmative
vote of at least a majority of the total number of directors or a majority vote
of the total number of shares entitled to vote at an election for such
director. To remove a director for certain other "for cause" actions as
described in the Bylaws, the Bylaws require the affirmative vote of at least
two-thirds of the total number of directors. These provisions have the effect
of preventing a majority shareholder from circumventing the classified board
system by removing directors and filling the vacancies with new individuals
selected by that shareholder. Accordingly, the provision may have the effect
of impeding efforts to gain control of the Board of Directors by anyone who
obtains a controlling interest in LSB Stock. The term of a director appointed
to fill a vacancy expires at the end of the term of such director's
predecessor in office.
ONSB. ONSB's Bylaws provide that a director may be removed at any time,
with or without cause, by a vote of the shareholders holding a majority of the
outstanding shares entitled to vote at an election of directors. Unless the
entire Board is removed, however, an individual director shall not be removed
when the number of shares voting against the proposal for removal would be
sufficient to elect a director if such shares could be voted cumulatively at an
annual election. As a result, it would be more difficult to remove directors
representing minority shareholders.
LIMITATIONS ON DIRECTOR LIABILITY
LSB. LSB's Articles of Incorporation provide for the elimination of the
personal liability of each director arising out of an action by LSB or
otherwise for monetary damages for breach of his duty as a director, whether
such action is brought by or in the right of the corporation or otherwise,
except for liability 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 LSB, (ii) any liability under Section 55-8-33 of the NCBCA
(liability for unlawful distributions), (iii) any transaction from which the
director derived an improper personal benefit, or (iv) acts or omissions
occurring prior to the effective date of the provision.
Although this provision does not affect the availability of injunctive or
other equitable relief as a remedy for a breach of duty by a director, it does
limit the remedies available to a shareholder who has a valid claim that a
director acted in violation of his duties, if the action is among those as to
which liability is limited. This provision may reduce the likelihood of
shareholder derivative litigation against directors and may discourage or deter
shareholders or management from bringing a lawsuit against directors for breach
of their duties, even though such action, if successful, might have benefited
LSB and its shareholders. The SEC has taken the position that similar
provisions added to other corporations' certificates of incorporation would not
protect those corporations' directors from liability for violations of the
federal securities laws. Similarly, the federal banking laws may not allow
directors of banks and bank holding companies to avoid liability for
violations of federal banking law or to receive indemnification for such
violations.
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ONSB. ONSB's Articles of Incorporation provide for the elimination of the
personal liability of each director arising out of an action by ONSB or
otherwise for monetary damages for breach of his duty as a director, except
with respect to (i) acts or omissions not made in good faith that such director
at the time of such breach knew or believed were in conflict with the best
interests of the Corporation, (ii) any liability under Section 55-8-33 of the
NCBCA (liability for unlawful distributions) or any successor provision, (iii)
any transaction from which such director derived an improper personal benefit,
(iv) acts or omissions occurring prior to the effective date of the provision,
or (v) acts or omissions where the elimination of personal liability of
directors for monetary damages would be in violation of the provisions of
Chapter 53 of the North Carolina General Statutes.
INDEMNIFICATION
LSB. Under the NCBCA, subject to certain exceptions, a corporation may
indemnify an individual made a party to a proceeding, because he is or was a
director, against liability incurred in the proceeding if (i) he conducted
himself in good faith; (ii) he reasonably believed (a) in the case of conduct in
his official capacity with the corporation, that his conduct was in its best
interests, and (b) in all other cases, that his conduct was at least not opposed
to its best interests; and (iii) in the case of any criminal proceeding, he had
no reasonable cause to believe his conduct was unlawful. Moreover, unless
limited by its articles of incorporation, a corporation must indemnify a
director who was wholly successful, on the merits or otherwise, in the defense
of any proceeding to which he was a party because he is or was a director of the
corporation against reasonable expenses incurred by him in connection with the
proceeding. Expenses incurred by a director 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 provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an undertaking by or on
behalf of a director to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation against such
expenses. A director may also apply for court-ordered indemnification under
certain circumstances. Unless a corporation's articles of incorporation provide
otherwise, (i) an officer of a corporation is entitled to mandatory
indemnification and is entitled to apply for court-ordered indemnification to
the same extent as a director, (ii) the corporation may indemnify and advance
expenses to an officer, employee, or agent of the corporation to the same extent
as to a director and (iii) a corporation may also indemnify and advance expenses
to an officer, employee, or agent who is not a director to the extent,
consistent with public policy, that may be provided by its articles of
incorporation, bylaws, general or specific action of its board of directors, or
contract.
In addition and separate and apart from the indemnification rights
discussed above, the NCBCA further provides that a corporation may in its
articles of incorporation or bylaws or by contract or resolution indemnify or
agree to indemnify any one or more of its directors, officers, employees, or
agents against liability and expenses in any proceeding (including without
limitation a proceeding brought by or on behalf of the corporation itself)
arising out of their status as such or their activities in any of the foregoing
capacities; provided, however, that a corporation may not indemnify or agree to
indemnify a person against liability or expenses he may incur on account of his
activities which were at the time taken known or believed by him to be clearly
in conflict with the best interests of the corporation. A corporation may
likewise and to the same extent indemnify or agree to indemnify any person who,
at the request of the corporation, is or was serving as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise or as a
trustee or administrator under an employee benefit plan. Any such provision for
indemnification may also include provisions for recovery from the corporation
of reasonable costs, expenses, and attorneys' fees in connection with the
enforcement of rights to indemnification and may further include provisions
establishing reasonable procedures for determining and enforcing the rights
granted therein.
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LSB's Bylaws provide for the mandatory indemnification, to the fullest
extent permitted by law, of any person who at any time serves or has served as a
director or officer of LSB, or in such capacity at the request of LSB for any
other entity, or as a trustee or administrator under any employee benefit plan
of LSB, in the event a claim is made or threatened against such person in, or
such person is made or threatened to be made a party to, any threatened, pending
or completed civil, criminal, administrative or investigative action, suit or
proceeding, whether or not brought by or on behalf of LSB, arising out of such
person's status as such or that person's activities in such capacity. The
indemnification provision in the LSB Bylaws covers (i) liabilities, including
payments in satisfaction of any judgment, money decree, excise tax, fine or
penalty as a result of any proceeding; and (2) litigation expenses, including
reasonable costs and expenses and attorneys' fees incurred in connection with
any proceeding and reasonable costs and expenses and attorneys' fees incurred in
connection with the enforcement of indemnification rights. Furthermore, LSB
will advance to such person his reasonable expenses incurred in connection with
any such action, suit or proceeding as authorized by the Board of Directors in
the specific case or as authorized or required under any Bylaw upon receipt of
an undertaking by or on behalf of such person to repay such amount unless it is
ultimately determined that such person is entitled to be indemnified by LSB
against such expenses.
The LSB Board of Directors must take all such action as may be necessary
and appropriate to authorize LSB to pay the indemnification required by the
indemnification provision, 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 to such claimant.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling LSB
pursuant to the foregoing provisions, LSB has been informed that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ONSB. Under the NCBCA, directors and officers of ONSB would have the same
rights to indemnification as directors and officers of LSB. In addition, the
Bylaws of ONSB provide that any person who serves as a director or officer of
ONSB shall have the right to be indemnified by ONSB to the fullest extent
permitted by law against reasonable expenses, including attorney's fees,
actually and necessarily incurred in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, and whether or not brought by or on behalf of ONSB, and
reasonable payments made by such person in satisfaction of any judgment, money
decree, fine, penalty or settlement for which he may have become liable in any
such action, suit or proceeding.
Furthermore, under the NCBCA, ONSB may advance to such person his
reasonable expenses incurred in connection with any such action, suit or
proceeding as authorized by the Board of Directors of ONSB in the specific case
upon the receipt of an undertaking from the person to repay such expenses if it
is ultimately determined that such person is not entitled to be indemnified by
ONSB against such expenses. ONSB's Bylaws further provide that the Board of
Directors of ONSB must take all such action as may be necessary and appropriate
to authorize ONSB to pay the indemnification required by the indemnification
provision, subject to monetary limits as established by the Board of Directors,
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 such claimant.
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SPECIAL MEETING OF SHAREHOLDERS
LSB. LSB's Bylaws provide that special meetings of shareholders may be
called only by the Board of Directors or the President. Holders of LSB Stock do
not have the right to call a special meeting or to require that LSB's Board of
Directors call such a meeting. As a result, this provision, together with the
restriction on the removal of directors, would prevent a substantial
shareholder from compelling shareholder consideration of any proposal (such as
a proposal for a Business Combination) over the opposition of LSB's Board of
Directors by calling a special meeting of shareholders at which such
shareholder could replace the entire Board of Directors with nominees who were
in favor of such proposal.
ONSB. ONSB's Bylaws provide that special meetings of shareholders may be
called by the President, the Board of Directors, or at the written request of
the holders of not less than one-tenth of all shares entitled to vote at the
meeting.
CONSTITUENCY AND STAKEHOLDER PROVISIONS
LSB. Neither LSB's Articles of Incorporation nor its Bylaws contain any
constituency or stakeholder provision.
ONSB. ONSB's Bylaws provide that, in considering the advisability of ONSB
entering into any combination, merger or other affiliation with another
corporation, the Board of Directors shall weigh the effects such affiliation
would have on ONSB's shareholders, officers, employees, customers and public.
This constituency provision of the Bylaws of ONSB may discourage or make more
difficult certain acquisition proposals and, therefore, may adversely affect
the ability of shareholders to benefit from certain transactions opposed by the
ONSB Board of Directors. The constituency provision would permit the ONSB Board
of Directors to take into account the effects of an acquisition proposal on a
broad number of constituencies and to consider any potential adverse effects in
determining whether to accept or reject such proposal.
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
LSB. The Bylaws of LSB do not have provisions relating to actions by
shareholders without a meeting. The NCBCA provides, however, that any action
required or permitted to be taken by LSB shareholders at a meeting of
shareholders may be taken by the unanimous written consent of the shareholders
entitled to vote on such action.
ONSB. ONSB's Bylaws provide that any action that may be taken at a meeting
of the shareholders of ONSB 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.
SHAREHOLDER NOMINATIONS AND PROPOSALS
LSB. Neither LSB's Articles of Incorporation nor its Bylaws provide for a
manner in which shareholders may nominate individuals for election to the Board
of Directors. The procedure by which LSB shareholders may present proposals
for action by LSB shareholders, including nomination of individuals for
election to the Board of Directors, is governed by rules adopted under the
Exchange Act.
ONSB. ONSB's Bylaws provide that any shareholder of ONSB may bring a
matter, including nomination of individuals for election to the Board of
Directors, before a meeting of ONSB
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shareholders, provided that such shareholder is entitled to vote with respect
to such matter and such shareholder complies with the procedure set forth in
the Bylaws.
FAIR PRICE PROVISIONS
LSB. The Articles of Incorporation of LSB do not contain a fair price
provision. Fair price provisions are designed primarily to discourage attempts
to acquire companies in transactions utilizing two-tier pricing tactics, but
such provisions may affect and potentially discourage other transactions that
are not two-tier structured.
ONSB. The Articles of Incorporation of ONSB do not contain a fair price
provision.
BUSINESS COMBINATIONS
LSB. The Bylaws of LSB provide that, unless a greater vote is required by
the Articles of Incorporation or law, any merger, share exchange of the
corporation or sale of all or substantially all of the corporation's assets
shall be approved only upon the affirmative vote of three-fourths of the
outstanding shares of LSB. The requirement of a supermajority vote of
shareholders to approve certain business transactions may discourage a change
in control of LSB by allowing a minority of LSB's shareholders to prevent a
transaction favored by the majority of the shareholders. The primary purpose
of the supermajority vote requirement, however, is to encourage negotiations
with LSB's management by groups or corporations interested in acquiring
control of LSB and to reduce the danger of a forced merger or sale of assets.
The North Carolina Shareholder Protection Act requires, under certain
circumstances and subject to certain exceptions, the affirmative vote of at
least 95% of the voting shares of a corporation to adopt or authorize certain
business combinations with any other entity. The 95% vote requirement does not
apply if all of certain fair price and procedural requirements are satisfied.
The North Carolina Shareholder Protection Act applies to corporations that have
a class of shares registered under Section 12 of the Exchange Act (a "public
corporation") and that have not opted out of the provisions of the North
Carolina Shareholder Protection Act. LSB's Articles provide that LSB will not
be subject to the North Carolina Shareholder Protection Act.
The North Carolina Control Share Acquisition Act provides that in the
event any person or group acting in concert acquires certain designated
percentage interests of the total voting power of a corporation, the shares
acquired in the acquisition are not entitled to vote unless the right to vote
such shares is approved by a majority of all of the outstanding shares of the
corporation entitled to vote for the election of directors, excluding certain
"interested shares," as that term is defined by the statute. If voting rights
are granted to the control shares, other shareholders may have their shares
redeemed by the corporation at their fair value. The North Carolina Control
Share Acquisition Act applies only to a North Carolina public corporation with
certain required contacts with North Carolina (a "covered corporation"), the
bylaws or articles of incorporation of which do not opt out of the North
Carolina Control Share Acquisition Act, and does not apply to acquisitions of
stock pursuant to a merger or tender offer approved by the Board of Directors.
ONSB. Except for the constituency and stakeholder provision discussed
above, neither ONSB's Articles of Incorporation nor its Bylaws contain a
provision relating to shareholder or Board of Director votes on business
combinations. ONSB is subject to the North Carolina Shareholder Protection Act
and the North Carolina Control Share Acquisition Act. The Merger, however, is
not subject to the provisions of either Act.
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DISSENTERS' RIGHTS OF APPRAISAL
LSB. Under the NCBCA, a shareholder is generally entitled to dissent from,
and obtain payment of the fair value of his shares in the event of: (i)
consummation of a plan of merger to which the corporation is a party, unless
either (a) shareholder approval is not required by the NCBCA or (b) such shares
are then redeemable by the corporation at a price not greater than the
cash to be received in exchange for such shares; (ii) 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; (iii) consummation of a sale or exchange of substantially all of
the corporation's property other than in the usual and regular course of
business, including a sale in dissolution, but not including a sale pursuant to
court order or to a plan by which 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; (iv) an amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it (a) alters or abolishes a preferential right of the shares, (b)
creates, alters, or abolishes a right in respect of redemption of the shares,
(c) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities, (d) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, (e) 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 the NCBCA, or (f) changes the
corporation into a nonprofit corporation or cooperative organization; or (v)
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
provide that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares. LSB's Articles of Incorporation and Bylaws do
not provide for any such additional dissenters' rights.
ONSB. Under the NCBCA, an ONSB shareholder is entitled to dissent from,
and obtain fair payment of the value of his shares to the same extent discussed
above for LSB shareholders. ONSB's Articles of Incorporation and Bylaws do not
provide for any additional dissenters' rights.
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
LSB. The NCBCA provides that a shareholder may inspect the books and
records of a corporation upon a good faith written demand stating the purpose
of the inspection, if such purpose is reasonably related to such person's
interest as a shareholder.
ONSB. ONSB shareholders have the same rights as LSB shareholders under the
NCBCA to inspect the books and records of ONSB upon a good faith written demand
stating the purpose of the inspection, if such purpose is reasonably related to
such person's interest as a shareholder.
DIVIDENDS
LSB. Section 53-87 of the North Carolina General Statutes generally allows
LSB's subsidiary depository institution to pay cash dividends to LSB only out
of the subsidiary depository institution's undivided profits and only if such
subsidiary depository institution's surplus is equal to at least 50% of its
paid-in capital stock. Substantially all of the funds available for the payment
of dividends by LSB are derived from its subsidiary depository institution.
There are various other statutory limitations on the ability of LSB's
subsidiary depository institutions to pay dividends to LSB. See "CERTAIN
REGULATORY CONSIDERATIONS--Payment of Dividends."
ONSB. The ability of ONSB to pay dividends is subject to statutory and
regulatory restrictions on the payment of cash dividends, including the
requirement under North Carolina banking laws that
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cash dividends be paid only out of undivided profits and only if the bank has
surplus of a specified level as discussed above. Federal bank regulatory
authorities also have the general authority to limit the dividends paid by
insured banks if such payment may be deemed to constitute an unsafe or unsound
practice. See "CERTAIN REGULATORY CONSIDERATIONS--Payment of Dividends."
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INFORMATION ABOUT ONSB
GENERAL
ONSB is a North Carolina-chartered commercial bank headquartered in
Winston-Salem, North Carolina, with seven banking offices located in
Winston-Salem and the surrounding areas of Forsyth and Stokes Counties. As of
March 31, 1997, ONSB had total consolidated assets of approximately $137.3
million, total consolidated deposits of approximately $112.2 million, and total
consolidated shareholders' equity of approximately $11.4 million. ONSB offers a
broad range of banking and banking-related services.
ONSB was organized under the laws of the state of North Carolina and
commenced operations in 1989. In December 1995, ONSB acquired Piedmont
BancShares Corporation ("Piedmont") and its wholly-owned subsidiary, Enterprise
Bank and Trust Company ("Enterprise"), in a merger transaction pursuant to
which Piedmont and Enterprise merged into ONSB in exchange for shares of ONSB
Stock. The principal executive office of ONSB is located at 161 South
Stratford Road, Winston-Salem, North Carolina 27104, and its telephone number
at such address is (910) 631-3900. Additional information with respect to ONSB
is included in documents incorporated by reference in this Proxy Statement. See
"AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY REFERENCE" and "CERTAIN
REGULATORY CONSIDERATIONS."
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of securities of ONSB by management of
ONSB is incorporated by reference to ONSB's Annual Report on Form 10-KSB for
the year ended December 31, 1996. At March 31, 1997, directors and executive
officers of ONSB beneficially owned an aggregate of 239,504 shares of ONSB
Stock, which was 15.1% of the ONSB Stock then outstanding.
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INFORMATION ABOUT LSB
GENERAL
LSB, a North Carolina corporation, is a bank holding company registered
with the Federal Reserve under the BHC Act. LSB owns all of the outstanding
shares of LSB Bank, a North Carolina bank corporation. LSB, through LSB Bank
and its subsidiaries, offers a full range of financial services through 14
banking offices located in Davidson County, North Carolina. As of March 31,
1997, LSB had total consolidated assets of approximately $431.6 million, total
consolidated deposits of approximately $ 362.0 million, and total consolidated
shareholders' equity of approximately
$ 52.6 million.
LSB Bank is a North Carolina bank with deposits insured by the Bank
Insurance Fund of the FDIC. LSB Bank offers a wide range of financial services
in the areas of commercial banking, savings and trusts, including the
acceptance of deposits, corporate cash management, discount brokerage, IRA
plans, secured and unsecured loans and trust functions. LSB Bank operates the
only independent trust department in Davidson County, providing estate
planning, estate and trust administration, IRA trusts, personal investment
accounts and pension and profit-sharing trusts. LSB Bank also operates two
wholly-owned non-bank subsidiaries: Peoples Finance Company of Lexington, Inc.
("Peoples Finance") and LSB Financial Services, Inc. ("LSB Financial
Services"). Peoples Finance is a finance company licensed under the laws of
the State of North Carolina that offers secured and unsecured loans to
individuals up to a maximum of $10,000, as well as dealer originated loans.
LSB Financial Services is a North Carolina corporation that offers a full range
of uninsured, nondeposit investment products, including mutual funds,
annuities, stocks and bonds.
The principal executive offices of LSB and LSB Bank are located at One LSB
Plaza, Lexington, North Carolina 27292, and its telephone number at such
address is (910) 248-6500. Additional information with respect to LSB and its
subsidiaries is included in documents incorporated by reference in this Proxy
Statement. See "AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY REFERENCE,"
and "CERTAIN REGULATORY CONSIDERATIONS."
SECURITY OWNERSHIP OF MANAGEMENT
Information regarding the ownership of securities of LSB by management of
LSB is incorporated herein by reference to LSB's Annual Report on Form 10-K for
the year ended December 31, 1996. At March 31, 1997, directors and executive
officers of LSB beneficially owned an aggregate of 316,520 shares of LSB Stock,
which was 5.8 % of the LSB Stock then outstanding. In addition, at March 31,
1997, the LSB Bank Trust Department held approximately 163,849 shares, or 3.0%,
of the then outstanding shares of LSB Stock.
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CERTAIN REGULATORY CONSIDERATIONS
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to LSB and ONSB.
GENERAL
LSB is a bank holding company registered with the Federal Reserve under
the BHC Act. As such, LSB and its non-bank subsidiaries are subject to the
supervision, examination and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
acquisition, merger or consolidation that would result in a monopoly or would
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 the
effect of which may be substantially to lessen competition or to tend to create
a monopoly in any section of the country, or that in any other manner would be
in restraint of trade, unless it finds the anticompetitive effects of the
proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate
Banking Act), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that LSB and any other bank holding company located in North
Carolina may now acquire a bank located in any other state, and any bank
holding company located outside North Carolina may lawfully acquire any North
Carolina-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage limitations, aging requirements, and
other restrictions. The Interstate Banking Act also generally provides that,
after June 1, 1997, national and state-chartered banks may branch interstate
through acquisitions of banks in other states. By adopting legislation prior to
that date, a state has the ability either to "opt in" and accelerate the date
after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether. North Carolina has enacted "opt in"
legislation that permits interstate branching in North Carolina on a reciprocal
basis through June 1, 1997, and on an unlimited basis thereafter. Accordingly,
the banking subsidiary of LSB and ONSB are currently able to establish and
operate branches in other states that have also enacted "opt in" legislation.
The BHC Act generally prohibits LSB from engaging in activities other than
banking or managing or controlling banks or other permissible subsidiaries and
from acquiring or retaining direct or indirect control of any company engaged
in any activities other than those activities determined by the
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Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices.
For example, factoring accounts receivable, acquiring or servicing loans,
leasing personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in
selling credit life insurance and certain other types of insurance in
connection with credit transactions, and performing certain insurance
underwriting activities all have been determined by the Federal Reserve to be
permissible activities of bank holding companies. Despite prior approval, the
Federal Reserve has the power to order a holding company or its subsidiaries
to terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company and is inconsistent with sound banking principles.
LSB Bank and ONSB are both members of the FDIC, and as such, their
deposits are insured by the FDIC to the maximum extent provided by law. LSB
Bank and ONSB are both subject to numerous state and federal statutes and
regulations that affect their business, activities, and operations. As a North
Carolina-chartered bank that is not a member of the Federal Reserve System, LSB
Bank is supervised and examined by the FDIC and the Commissioner. ONSB, a North
Carolina-chartered bank and member of the Federal Reserve System, is supervised
and examined by the Federal Reserve and the Commissioner. The federal banking
agencies and the Commissioner regularly examine the operations of LSB Bank and
ONSB and are given authority to approve or disapprove mergers, consolidations,
the establishment of branches, and similar corporate actions, and to prevent
the commencement or continuation of unsafe or unsound banking practices or
other violations of law. The federal banking agencies and the Commissioner
regulate and monitor all areas of the operations of LSB Bank and ONSB,
including loans, mortgages, issuances of securities, capital adequacy, loss
reserves, and compliance with the Community Reinvestment Act of 1977, as
amended (the "CRA") and other laws and regulations. Interest and certain other
charges collected and contracted for by LSB Bank and ONSB are also subject to
state usury laws and certain federal laws concerning interest rates.
COMMUNITY REINVESTMENT
ONSB and LSB are subject to the provisions of the CRA and the federal
banking agencies' implementing regulations. Under the CRA, all financial
institutions have a continuing and affirmative obligation consistent with their
safe and sound operation to help meet the credit needs for their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's federal
regulator, in connection with its examination of the institution, to assess the
institution's record in assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. Further, such assessment is required of any institution which has
applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage
for a newly chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the
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Federal Reserve will assess the records of each subsidiary depository
institution of the applicant bank holding company, and such records may be the
basis for denying the application. Following their most recent CRA compliance
examinations, LSB Bank received an "Outstanding" CRA rating and ONSB received a
"Satisfactory" CRA rating.
In April 1995, the federal banking agencies adopted revised CRA
regulations in order to provide clearer guidance to depository institutions on
the nature and extent of their CRA obligations and the methods by which those
obligations would be assessed and enforced. Under the new CRA regulations, the
evaluation system used to judge an institution's CRA performance consists of
three tests: a lending test; an investment test; and a service test. Each of
these tests will be applied by the institution's federal regulator in an
assessment context that would take into account such factors as: (i) demographic
data about the community; (ii) the institution's capacity and constraints; (iii)
the institution's product offerings and business strategy; (iv) data on the
prior performance of the institution and similarly-situated lenders; and (v)
information about lending, investment and service opportunities in the
institution's assessment areas. The new lending test - the most important of the
three tests for all institutions other than wholesale and limited purpose (e.g.,
credit card) banks - will evaluate an institution's record of helping to meet
credit needs of its assessment areas through its lending activities as measured
by its home mortgage loans, small business and farm loans, community development
loans, and, at the option of the institution, its consumer loans. The
institution's regulator will weigh each of these lending categories to reflect
its relative importance to the institution's overall business and, in the case
of community development loans, the characteristics and needs of the
institution's service area and the opportunities available for this type of
lending. Assessment criteria for the lending test will include: (i) geographic
distribution of the institution's lending; (ii) distribution of the
institution's home mortgage, small business, farm and consumer loans among
different economic segments of the community; (iii) the number and amount of
home mortgage, consumer, small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding, and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low-to-moderate income individuals and
neighborhoods. At the election of an institution, or if particular circumstances
so warrant, the banking agencies will take into account in making their
assessments lending by the institution's affiliates as well as community
development loans made by the lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions will be required to report data on their small business and small
farm loans as well as their home mortgage loans, which are currently required to
be reported under the Home Mortgage Disclosure Act.
The focus of the investment test will be the degree to which the
institution is helping to meet the credit needs of its service area through
qualified investments that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test will be based upon the dollar amount of the institution's qualified
investments, its use of innovative or complex techniques to support community
development initiatives, the degree to which the qualified investments are
routinely provided by private investors, and its responsiveness to credit and
community development needs. The service test will evaluate an institution's
systems for delivering retail banking services, taking into account such
factors as (i) the geographic distribution of the institution's branch offices
and ATMs, (ii) the institution's record of opening and closing branch offices
and ATMs, and (iii) the availability of alternative product delivery systems
such as home banking and loan production offices in low-to-moderate income
areas. The federal regulators also will consider an institution's community
development service as part of the service test.
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A financial institution will have the option of having its CRA performance
evaluated based on a strategic plan of up to five years in length that it had
developed in cooperation with local community groups. In order to be rated
under a strategic plan, the institution will be required to obtain the prior
approval of its federal regulator.
The joint agency CRA regulations provide that an institution evaluated
under a given test will receive one of five ratings for that test: outstanding,
high satisfactory, low satisfactory, needs to improve, or substantial
noncompliance. An institution will then receive a certain number of points for
its rating on each test, and the points will be combined to produce an overall
composite rating of either outstanding, satisfactory, needs to improve, or
substantial noncompliance. Under the agencies' rating guidelines, an
institution that receives an "outstanding" rating on the lending test will
receive an overall rating of at least "satisfactory", and no institution can
receive an overall rating of "satisfactory" unless it receives a rating of at
least "low satisfactory" on its lending test. In addition, evidence of
discriminatory or other illegal credit practices would adversely affect an
institution's overall rating. Under the new regulations, an institution's CRA
rating would continue to be taken into account by its regulator in considering
various types of applications.
PAYMENT OF DIVIDENDS
LSB is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of cash flow of LSB, including cash flow to
pay dividends to its shareholders, is dividends from LSB Bank. There are
statutory and regulatory limitations on the payment of such dividends to LSB,
as well as by LSB and ONSB to their shareholders.
LSB is not subject to any direct legal or regulatory restrictions on
dividends (other than the requirements under the NCBCA that distributions may
not be made if, after giving them effect, the corporation would not be able to
pay its debts as they become due in the usual course of business or the
corporation's total assets would be less than its liabilities). LSB Bank and
ONSB, as North Carolina-chartered banks, are subject to North Carolina
statutory and regulatory restrictions on the payment of cash dividends,
including the requirement that cash dividends be paid only out of undivided
profits and only if the bank has surplus of a specified level. If a bank having
capital stock of $15,000 or more has surplus of less than 50% of its paid-in
capital stock, no cash dividend may be declared until the bank has transferred
from undivided profits to surplus 25% of its undivided profits or any lesser
percentage sufficient to raise the bank's surplus to an amount equal to 50% of
its paid-in capital stock.
If, in the opinion of the federal banking regulator, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "--Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that as a matter of prudent banking, bank holding companies and insured
banks should generally only pay dividends out of current operating earnings.
At March 31, 1997, under dividend restrictions imposed under federal and
state laws, LSB Bank and ONSB, without obtaining governmental approvals, could
declare aggregate dividends of approximately $39.3 million and $641,000,
respectively.
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The payment of dividends by LSB and ONSB may also be affected or limited
by other factors, such as the requirement to maintain adequate capital above
regulatory guidelines.
CAPITAL ADEQUACY
LSB, LSB Bank and ONSB are required to comply with the capital adequacy
standards established by the Federal Reserve in the case of LSB and ONSB and
the FDIC in the case of LSB Bank. There are two basic measures of capital
adequacy for bank holding companies and their banking subsidiaries that have
been promulgated by the Federal Reserve and the FDIC: a risk-based measure and
a leverage measure. All applicable capital standards must be satisfied for a
bank holding company or a bank to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The risk-based capital guidelines establish a minimum ratio ("Risk-Based
Capital Ratio") of total capital ("Total Capital") to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of credit)
of 8.0%. At least half of Total Capital must comprise common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less goodwill and certain other intangible assets ("Tier 1
Capital"). The remainder may consist of subordinated and other qualifying debt,
other preferred stock, and a limited amount of loan loss reserves ("Tier 2
Capital"). At March 31, 1997, LSB's consolidated Risk-Based Capital Ratio and
its Tier 1 Risk-Based Capital Ratio (i.e., the ratio of Tier 1 Capital to
risk-weighted assets) were 21.53% and 20.34%, respectively, and ONSB's
Risk-Based Capital and Tier 1 Risk-Based Capital Ratios were 12.3% and 11.2%,
respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. LSB's and ONSB's respective Leverage Ratios at March 31, 1997, were
12.34% and 7.9%. The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital
Leverage Ratio" (deducting all intangibles) and other indicia of capital
strength in evaluating proposals for expansion or new activities.
The risk-based and leverage capital requirements adopted by the FDIC and
the Federal Reserve for LSB Bank and ONSB, respectively, are substantially
similar to those adopted by the Federal Reserve for bank holding companies.
Both LSB Bank and ONSB were in compliance with applicable minimum capital
requirements as of March 31, 1997. Neither LSB, LSB Bank, nor ONSB has been
advised by any federal banking agency of any specific minimum capital ratio
requirement applicable to it.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition
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on the taking of brokered deposits, and certain other restrictions on its
business. As described below, substantial additional restrictions can be
imposed upon FDIC-insured depository institutions that fail to meet applicable
capital requirements. See "--Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the federal banking agencies have, pursuant to FDICIA,
adopted an amendment to the risk-based capital standards that incorporates a
measure for market risk, would calculate the change in an institution's net
economic value attributable to increases and decreases in market interest rates
and would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures. The effect of the
amendment is that any bank or bank holding company with significant exposure to
market risk must measure that risk using its own internal value at risk model
and hold a commensurate amount of capital. Compliance with the amended
procedure is required by January 1, 1998.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve policy, LSB is expected to act as a source of
financial strength for, and to commit resources to support, LSB Bank. This
support may be required at times when, absent such Federal Reserve policy, LSB
may not be inclined to provide it. In addition, any capital loans by a bank
holding company to any of its banking subsidiaries are subordinate in right of
payment to deposits and to certain other indebtedness of such banks. In the
event of a bank holding company's bankruptcy, any commitment by the bank
holding company to a federal bank regulatory agency to maintain the capital of
a banking subsidiary will be assumed by the bankruptcy trustee and entitled to
a priority of payment. In addition, the Federal Deposit Insurance Act provides
that any financial institution whose deposits are insured by the FDIC generally
shall be liable for any loss incurred by the FDIC in connection with the
default of, or any assistance provided by the FDIC to, a commonly controlled
financial institution.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system the federal
banking regulators have established five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized) and are required to take certain mandatory
supervisory actions, and are authorized to take other discretionary actions,
with respect to institutions in the three undercapitalized categories, the
severity of which will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, FDICIA
requires the banking regulator to appoint a receiver or conservator for an
institution that is critically undercapitalized.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a total Risk-Based Capital Ratio of 10%
or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. A depository institution
that has a total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be undercapitalized. A depository institution that has a total
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of
less than 3.0%, or a Leverage Ratio of less than 3.0%. is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1
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Capital for purposes of the risk-based capital standards, plus the amount of
outstanding cumulative perpetual preferred stock (including related surplus),
minus all intangible assets with certain exceptions. A depository institution
may be deemed to be in a capitalization category that is lower than is
indicated by its actual capital position if it receives a less than
satisfactory examination rating or if the agency has determined, after notice
and opportunity for a hearing, that the institution is in an unsafe or unsound
condition.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of the prompt
corrective provisions.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement in any material respect an approved capital
restoration plan, the appropriate federal banking agency must require the
institution to take one or more of the following actions: (i) sell enough
shares, including voting shares, to become adequately capitalized; (ii) merge
with (or be sold to) another institution (or holding company), but only if
grounds exist for appointing a conservator or receiver; (iii) restrict certain
transactions with banking affiliates as if the "sister bank" exception to the
requirements of Section 23A of the Federal Reserve Act did not exist; (iv)
otherwise restrict transactions with bank or non-bank affiliates; (v) restrict
interest rates that the institution pays on deposits to prevailing rates in the
institution's region as determined by the agency; (vi) restrict asset growth or
reduce total assets; (vii) alter, reduce, or terminate activities that pose
excessive risk; (viii) hold a new election of directors; (ix) dismiss any
director or senior executive officer who held office for more than 180 days
immediately before the institution became undercapitalized, provided that in
requiring dismissal of a director or senior officer, the agency must comply with
certain procedural requirements, including the opportunity for an appeal in
which the director or officer will have the burden of proving his or her value
to the institution; (x) employ "qualified'' senior executive officers; (xi)
cease accepting deposits from correspondent depository institutions; (xii)
divest certain non-depository affiliates that pose a significant risk to the
institution; (xiii) be divested by a parent holding company; (xiv) prohibit a
bank holding company from making a capital distribution without Federal Reserve
approval; or (xv) require the bank's parent to divest itself of the institution
if the appropriate federal agency for the company determines that divestiture
would improve the bank's financial condition and future prospects. In addition,
without the prior approval of the appropriate federal banking agency, a
significantly undercapitalized institution may not pay any bonus to any senior
executive officer or increase the rate of compensation for such an officer. The
appropriate federal agency has additional powers with regard to critically
undercapitalized institutions, which include the authority to appoint a receiver
or conservator for the institution.
At March 31, 1997, both LSB Bank and ONSB had the requisite capital levels
to qualify as well capitalized under the regulations implementing the prompt
corrective action provisions of FDICIA.
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FDIC INSURANCE ASSESSMENTS
FDIC insurance premiums are based on an assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (i) well
capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These
three categories are substantially similar to the prompt corrective action
categories described above, with the undercapitalized category including
institutions that are undercapitalized, significantly undercapitalized, and
critically undercapitalized for prompt corrective action purposes. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on the FDIC's consideration of a supervisory evaluation
provided to the FDIC by the institution's primary federal regulator. The FDIC
also considers information that it determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital group and supervisory subgroup to which it
is assigned. Under the risk-based assessment system there are nine assessment
risk classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied. Assessment rates
for members of both the Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF") for the first half of 1995, as they had been during
1994, ranged from 23 basis points (0.23% of deposits) for an institution in the
highest category (i.e., "well capitalized" and "healthy") to 31 basis points
(0.31% of deposits) for an institution in the lowest category (i.e.,
"undercapitalized" and "substantial supervisory concern"). These rates were
established for both funds to achieve a designated ratio of reserves to insured
deposits (i.e., 1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached during May 1995, the
FDIC was authorized to reduce the minimum assessment rate below 23 basis points
and to set future assessment rates at such levels that would maintain the BIF's
reserve ratio at the designated level. In August 1995, the FDIC adopted final
regulations reducing the assessment rates for BIF-member banks. Under the
revised schedule, BIF-insured banks, starting with the second half of 1995,
paid assessments ranging from 4.0 basis points to 31 basis points, with an
average assessment rate of 4.5 basis points. At the same time, the FDIC elected
to retain the pre-existing assessment rate of 23 to 31 basis points for SAIF
members for the foreseeable future given the undercapitalized nature of that
insurance fund. More recently, on November 14, 1995, the FDIC announced that,
beginning in 1996, it would further reduce the deposit insurance premiums for
BIF members in the highest capital and supervisory categories to $2,000 per
year, regardless of deposit size. Because the continued assessment of
BIF-insured institutions in accordance with the BIF rate schedule would have
resulted in a designated reserve ratio in excess of that regarded by the FDIC
as necessary, the FDIC has adopted a temporary adjustment to the BIF rate
schedule. The resulting adjusted rates, which are now in effect, range from 0
to 27 basis points.
In September 1996, Congress enacted the Deposit Insurance Funds Act to
recapitalize the SAIF. The legislation required SAIF-insured depository
institutions to pay a one time assessment of $4.7 billion to the SAIF in order
to raise its coverage to the "designated reserve ratio" of 1.25% prescribed by
the FDIA. As a result, SAIF premiums were reduced beginning in 1997. The
current rate schedule is identical to that of BIF-insured institutions and
ranges from 0 to 27 basis points. In addition, the legislation also requires
BIF-insured members to pay an assessment to the Financing Corporation (FICO).
This assessment, which is currently approximately 1.3 basis points, is separate
and apart from the BIF assessment.
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Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDICIA requires the federal bank regulatory agencies to prescribe
standards, by regulations or guidelines, relating to internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, asset quality,
earnings, stock valuation and compensation, fees and benefits and such other
operational and managerial standards as the agencies deem appropriate. The
federal bank regulatory agencies have adopted a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. The guidelines
establish operational and managerial standards relating to internal controls
and information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees, and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal shareholders. The
federal banking agencies determined that stock valuation standards were not
appropriate. In addition, the agencies adopted regulations that authorize, but
do not require, an agency to order an institution that has been given notice by
an agency that it is in violation of a safety and soundness standard to submit
a compliance plan. If, after being so notified, an institution fails to submit
an acceptable compliance plan, the agency must issue an order directing action
to correct the deficiency and may issue an order directing other actions of the
types to which an undercapitalized association is subject under the prompt
correction action provisions of FDICIA. See "--Prompt Corrective Action." If
an institution fails to comply with such an order, the agency may seek to
enforce such order in judicial proceedings and to impose civil money penalties.
The federal bank regulatory agencies also proposed guidelines for asset
quality and earnings standards, but have not yet adopted such standards.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
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DESCRIPTION OF LSB CAPITAL STOCK
LSB is authorized to issue 10,000,000 shares of LSB Stock, of which
5,403,539 shares were issued and outstanding as of March 31, 1997. The shares
of LSB Stock are nonassessable. In the event of the liquidation of LSB, holders
of LSB Stock would be entitled to share ratably in any of the assets or funds
of LSB that are available for distribution to LSB shareholders after the
satisfaction of LSB's liabilities (or after adequate provision is made
therefor) and after preferences of any outstanding preferred stock.
Holders of LSB Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor. The
ability of LSB to pay dividends is affected by the ability of its subsidiary
depository institution to pay dividends, which is limited by applicable
regulatory requirements and capital guidelines. At March 31, 1997, under such
requirements and guidelines, LSB's subsidiary depository institution had $39.3
million of undivided profits legally available for the payment of dividends.
See "CERTAIN REGULATORY CONSIDERATIONS--Payment of Dividends."
For a further description of LSB Stock, see "EFFECT OF THE MERGER ON
RIGHTS OF SHAREHOLDERS."
OTHER MATTERS
As of the date of this Proxy Statement, the Boards of Directors of ONSB
and LSB know of no matters that will be presented for consideration at the ONSB
Special Meeting or LSB Special Meeting other than as described in this Proxy
Statement. However, if any other matters shall properly come before the ONSB
Special Meeting or LSB Special Meeting or any adjournments thereof and be voted
upon, the enclosed respective proxies shall be deemed to confer discretionary
authority to the individuals named as proxies therein to vote the shares
represented by such proxies as to any such matters.
EXPERTS
The consolidated financial statements of LSB Bancshares, Inc. and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of
Turlington and Company, L.L.P., independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of ONSB as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31,
1996, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of Larrowe, Cardwell & Company, LC,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
OPINIONS
The legality of the shares of LSB Stock to be issued in the Merger will be
passed upon by Hunton & Williams, Charlotte, North Carolina.
Certain tax consequences of the transaction and certain legal matters
relating to ONSB will be passed upon by Bell, Davis & Pitt, P.A.,
Winston-Salem, North Carolina.
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As of the date of this Proxy Statement, certain members of Bell, Davis &
Pitt, P.A. owned an aggregate of approximately 2,561 shares of ONSB Stock. No
other expert or counsel retained by LSB or ONSB had, or is to receive in
connection with the Merger, a substantial interest, direct or indirect, in LSB
or ONSB or is otherwise connected with LSB or ONSB.
SHAREHOLDER PROPOSALS
If the Merger is not consummated for any reason, ONSB expects to hold its
1998 annual meeting of shareholders in April 1998. In such event, any proposal
of a shareholder that is intended to be presented at the 1998 annual meeting of
shareholders must be received by ONSB at its main office in Winston-Salem,
North Carolina no later than January 9, 1998 in order that any such proposal be
timely received for inclusion in the proxy statement and appointment of proxy
to be issued in connection with such meeting.
If the Merger is consummated, LSB expects to hold its 1998 annual meeting
of shareholders in April 1998. Any proposal of a shareholder of LSB that is
intended to be presented at the 1998 annual meeting must be received by LSB at
its principal executive office in Lexington, North Carolina not later than
January 13, 1998 in order to be included in LSB's proxy statement and
appointment of proxy to be issued in connection with that meeting.
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APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
LSB BANCSHARES, INC.,
LEXINGTON STATE BANK,
AND
OLD NORTH STATE BANK
DATED AS OF MARCH 14, 1997
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Preamble..................................................................................... 1
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER........................................... 2
1.1 Merger..................................................................... 2
1.2 Time and Place of Closing.................................................. 2
1.3 Effective Time............................................................. 2
ARTICLE 2 TERMS OF MERGER............................................................ 3
2.1 Business of Surviving Bank................................................. 3
2.2 Assumption of Rights....................................................... 3
2.3 Assumption of Liabilities.................................................. 3
2.4 Accounts and Deposits...................................................... 3
2.5 Articles of Incorporation.................................................. 3
2.6 Bylaws..................................................................... 4
2.7 Directors and Officers..................................................... 4
ARTICLE 3 MANNER OF CONVERTING SHARES................................................ 4
3.1 Conversion of Shares....................................................... 4
3.2 Anti-Dilution Provisions................................................... 5
3.3 Shares Held by ONSB or LSB................................................. 5
3.4 Dissenting Shareholders.................................................... 5
3.5 Fractional Shares.......................................................... 6
3.6 Conversion of Stock Options and Warrants; Restricted Stock................. 6
ARTICLE 4 EXCHANGE OF SHARES......................................................... 8
4.1 Exchange Procedures........................................................ 8
4.2 Rights of Former ONSB Shareholders......................................... 8
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ONSB..................................... 9
5.1 Organization, Standing and Power........................................... 9
5.2 Authority; No Breach By Agreement.......................................... 10
5.3 Capital Stock.............................................................. 11
5.4 ONSB Subsidiaries.......................................................... 11
5.5 Financial Statements; Regulatory Authority Filings......................... 12
5.6 Absence of Certain Changes or Events and Undisclosed Liabilities........... 12
5.7 Tax Matters................................................................ 13
5.8 Assets..................................................................... 14
5.9 Environmental Matters...................................................... 14
5.10 Compliance with Laws....................................................... 15
</TABLE>
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5.11 Labor Relations............................................................ 15
5.12 Employee Benefit Plans..................................................... 16
5.13 Material Contracts......................................................... 18
5.14 Legal Proceedings.......................................................... 19
5.15 Reports.................................................................... 19
5.16 Statements True and Correct................................................ 19
5.17 Accounting, Tax and Regulatory Matters..................................... 20
5.18 State Takeover Laws........................................................ 20
5.19 Charter Provisions......................................................... 20
5.20 Support Agreements......................................................... 20
5.21 Derivatives Contracts...................................................... 21
5.22 D&O Insurance.............................................................. 21
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF LSB...................................... 21
6.1 Organization, Standing and Power........................................... 21
6.2 Authority; No Breach By Agreement.......................................... 21
6.3 Capital Stock.............................................................. 22
6.4 SEC Filings; Financial Statements.......................................... 23
6.5 Absence of Certain Changes or Events and Undisclosed Liabilities........... 23
6.6 Tax Matters................................................................ 24
6.7 Compliance with Laws....................................................... 24
6.8 Legal Proceedings.......................................................... 25
6.9 Reports.................................................................... 25
6.10 Statements True and Correct................................................ 26
6.11 Accounting, Tax and Regulatory Matters..................................... 26
6.12 Authority of LSB Bank...................................................... 26
6.13 Environmental Matters...................................................... 27
6.14 Labor Relations............................................................ 28
6.15 Employee Benefit Plans..................................................... 28
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION................................... 30
7.1 Affirmative Covenants of ONSB.............................................. 30
7.2 Negative Covenants of ONSB................................................. 31
7.3 Covenants of LSB........................................................... 33
7.4 Adverse Changes in Condition............................................... 33
7.5 Reports.................................................................... 34
7.6 ONSB Right to Recommend Directors; Additional Officers..................... 34
7.7 ONSB's Disposition of Federal Reserve Bank Stock........................... 35
ARTICLE 8 ADDITIONAL AGREEMENTS...................................................... 35
8.1 Registration Statement; ONSB Proxy Statement; Shareholder Approval......... 35
8.2 Nasdaq/NMS Listing......................................................... 36
8.3 Applications............................................................... 36
</TABLE>
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8.4 Agreement as to Efforts to Consummate...................................... 36
8.5 Investigation and Confidentiality.......................................... 37
8.6 Press Releases............................................................. 37
8.7 No-Shop Covenant........................................................... 37
8.8 Accounting and Tax Treatment............................................... 38
8.9 State Takeover Laws........................................................ 38
8.10 Charter Provisions......................................................... 38
8.11 Agreement of Affiliates.................................................... 38
8.12 Employee Benefits and Contracts............................................ 39
8.13 Tax Free Reorganization.................................................... 40
8.14 D&O Insurance.............................................................. 40
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS
TO CONSUMMATE.............................................................. 41
9.1 Conditions to Obligations of Each Party.................................... 41
9.2 Conditions to Obligations of LSB........................................... 43
9.3 Conditions to Obligations of ONSB.......................................... 44
ARTICLE 10 TERMINATION................................................................ 46
10.1 Termination................................................................ 46
10.2 Effect of Termination...................................................... 47
10.3 Non-Survival of Representations and Covenants.............................. 48
ARTICLE 11 MISCELLANEOUS.............................................................. 48
11.1 Definitions................................................................ 48
11.2 Expenses................................................................... 58
11.3 Brokers and Finders........................................................ 58
11.4 Entire Agreement........................................................... 58
11.5 Amendments................................................................. 59
11.6 Waivers.................................................................... 59
11.7 Assignment................................................................. 59
11.8 Notices.................................................................... 60
11.9 Governing Law.............................................................. 60
11.10 Counterparts............................................................... 61
11.11 Captions................................................................... 61
11.12 Interpretations............................................................ 61
11.13 Enforcement of Agreement................................................... 61
11.14 Severability............................................................... 61
</TABLE>
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LIST OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION
1. Form of Plan of Merger. (ss. ss. 1.1, 9.1(i)).
2. Form of Affiliate Agreement between LSB and affiliates of
ONSB. (ss. ss. 8.11, 9.2(g)).
3. Form of Support Agreement between LSB and ONSB directors
and executive officers. (ss. ss. 5.20, 9.2(h)).
4. Matters as to which Bell, Davis & Pitt, P.A., counsel for ONSB,
will opine. (ss.9.2(d)).
5. Matters as to which Hunton & Williams, counsel for LSB and
LSB Bank, will opine. (ss. 9.3(d)).
<PAGE> 100
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"Agreement") is made and entered into as of March , 1997, by and among LSB
BANCSHARES, INC. ("LSB"), a North Carolina corporation, having its principal
office located in Lexington, North Carolina; LEXINGTON STATE BANK ("LSB Bank"),
a North Carolina chartered bank and a wholly-owned subsidiary of LSB, having its
principal office located in Lexington, North Carolina; and OLD NORTH STATE BANK
("ONSB"), a North Carolina chartered bank having its principal office located in
Winston-Salem, North Carolina.
PREAMBLE
The respective Boards of Directors of ONSB and LSB are of the
opinion that the transactions described herein are in the best interests of the
parties and their respective shareholders. This Agreement provides for the
acquisition of ONSB by LSB pursuant to the merger of ONSB with and into LSB
Bank. At the effective time of such merger, the outstanding shares of the
capital stock of ONSB shall be converted into the right to receive shares of the
common stock of LSB (except as provided herein). As a result, shareholders of
ONSB shall become shareholders of LSB. The transactions described in this
Agreement are subject to the approvals of the shareholders of ONSB and LSB, the
Federal Deposit Insurance Corporation, the North Carolina State Banking
Commission, and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the merger
(i) for federal income tax purposes shall qualify as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code, and (ii) for
accounting purposes shall qualify for treatment as a "pooling of interests"
consistent with GAAP and the rules and regulations of the SEC.
As a condition and inducement to LSB's willingness to enter into this
Agreement, certain of ONSB's directors and executive officers will execute and
deliver to LSB, on the date hereof, a Support Agreement (a "Support Agreement"),
in substantially the form of Exhibit 3 to this Agreement.
As an inducement to LSB's willingness to consummate the transactions
contemplated by this Agreement, ONSB and LSB have entered into a certain Option
Agreement dated as of January 20, 1997 (the "Option Agreement"), pursuant to
which ONSB has granted to LSB an option to purchase shares of common stock of
ONSB in accordance with the terms of such Option Agreement.
Certain terms used in this Agreement are defined in Section
11.1 hereof.
NOW, THEREFORE, in consideration of the premises and the
mutual warranties, representations, covenants and agreements set forth herein,
and other good and
<PAGE> 101
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this
Agreement and the Plan of Merger, at the Effective Time, ONSB shall be merged
with and into LSB Bank, pursuant to Section 53-12 of Chapter 53 of the General
Statutes of North Carolina and in accordance with the provisions of Sections
53-13 and 53-17 of Chapter 53 and Section 55-11- 06 of Chapter 55 of the General
Statutes of North Carolina. LSB Bank shall be the Surviving Bank resulting from
the Merger and shall continue to be operated as a wholly-owned, first tier
Subsidiary of LSB and shall continue to be governed by the Laws of the State of
North Carolina as a state chartered bank, operating under the name "LSB". The
Merger shall be consummated pursuant to the terms of this Agreement, which has
been approved and adopted by the respective Boards of Directors of ONSB and LSB,
and the terms of the Plan of Merger to be entered into by LSB Bank and ONSB.
1.2 TIME AND PLACE OF CLOSING. The closing (the "Closing")
will take place at 9:00 A.M. (Eastern Standard Time) on the date that the
Effective Time occurs (or the immediately preceding day if the Effective Time is
earlier than 9:00 A.M.), or at such other time as the Parties, acting through
their chief executive officers or chairmen of the board of directors, may
mutually agree. The place of Closing shall be at the offices of Hunton &
Williams in Charlotte, North Carolina, or such other location as LSB shall
designate.
1.3 EFFECTIVE TIME. The Merger and other transactions
contemplated by this Agreement shall become effective on the date and at the
time the Articles of Merger reflecting the Merger shall become effective with
the Secretary of State of the State of North Carolina (the "Effective Time").
Subject to the terms and conditions hereof, unless otherwise mutually agreed
upon in writing by the chief executive officers or chairmen of the board of
directors of each Party, the Parties shall use their commercially reasonable
best efforts to cause the Effective Time to occur as soon as practicable
following the last to occur of (i) the effective date (including expiration of
any applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the date on which the shareholders of ONSB and LSB approve this Agreement and
the Plan of Merger to the extent such approval is required by applicable Law.
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<PAGE> 102
ARTICLE 2
TERMS OF MERGER
2.1 BUSINESS OF SURVIVING BANK. The business of the Surviving
Bank from and after the Effective Time shall continue to be that of a state
chartered bank organized under the laws of the State of North Carolina, and
shall be conducted at the main office of the Surviving Bank, which shall be
located at One LSB Plaza, Lexington, North Carolina 27292, and at its legally
established branches, offices, agencies, and facilities, whether in operation or
approved but unopened, at the Effective Time, including all such branches,
offices, agencies, and facilities of ONSB.
2.2 ASSUMPTION OF RIGHTS. As of the Effective Time, all
assets, rights, franchises, and interests of ONSB in every type of property
(real, personal and mixed) and choses in action shall be transferred to and
vested in the Surviving Bank by virtue of the Merger without any deed or other
transfer. The Surviving Bank, upon the Merger and without any order or other
action on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee, and
receiver, and in every other fiduciary capacity, in the same manner and to the
same extent as such rights, franchises, and interests were held or enjoyed by
ONSB at the Effective Time.
2.3 ASSUMPTION OF LIABILITIES. As of the Effective Time, the
Surviving Bank shall be liable for all liabilities of every kind and description
of ONSB and all deposits, debts, liabilities, obligations and contracts of ONSB,
whether matured or unmatured, accrued, absolute, contingent, or otherwise, shall
be those of the Surviving Bank, none of which shall be released or impaired by
the Merger, including liabilities arising out of the operation of a trust
department; all rights of creditors and other obligees and all liens on property
of ONSB shall be preserved unimpaired; and all actions and legal proceedings to
which ONSB was a party prior to the Merger shall be unaffected by the
consummation thereof and shall proceed as if the Merger had not taken place.
2.4 ACCOUNTS AND DEPOSITS. As of the Effective Time, all
accounts and deposits of ONSB shall be and continue to be accounts and deposits
of the Surviving Bank, without change in their respective terms, maturity,
minimum required balances or withdrawal value. As of the Effective Time, each
account or deposit of ONSB shall be considered for dividend or interest purposes
as an account or deposit of the Surviving Bank from the time said account or
deposit was opened in ONSB and at all times thereafter until such account or
deposit ceases to be an account or deposit of the Surviving Bank.
2.5 ARTICLES OF INCORPORATION. The Articles of Incorporation
of LSB Bank in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Bank, until otherwise amended or
repealed in accordance with applicable law.
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<PAGE> 103
2.6 BYLAWS. The Bylaws of LSB Bank in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Bank, until otherwise
amended or repealed in accordance with applicable law.
2.7 DIRECTORS AND OFFICERS. The directors of LSB Bank in
office immediately prior to the Effective Time, together with such additional
persons as elected in accordance with Section 7.6 hereof, shall serve as the
directors of the Surviving Bank from and after the Effective Time in accordance
with the Bylaws of the Surviving Bank. The officers of LSB Bank in office
immediately prior to the Effective Time, together with such additional persons
as appointed in accordance with Section 7.6 hereof, shall serve as the officers
of the Surviving Bank from and after the Effective Time in accordance with the
Bylaws of the Surviving Bank.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action the part of LSB, LSB Bank, ONSB, or the shareholders of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) Each share of LSB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of LSB Bank Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(c) Each share of ONSB Common Stock (excluding shares held by
(i) any ONSB Company or any LSB Company (in each case other than in a
fiduciary capacity or as a result of debts previously contracted) which
shares shall be canceled as provided in Section 3.3 hereof, and (ii)
shareholders who perfect their statutory appraisal rights as provided
in Section 3.4 hereof) issued and outstanding at the Effective Time
shall cease to be outstanding and shall be converted into and exchanged
for the right to receive 0.948 of a share of LSB Common Stock, subject
to adjustment at Closing pursuant to subparagraphs a. and b. of this
Section 3.1(c) (as adjusted, the "Exchange Ratio"):
a. If the Average LSB Closing Price is above $20.00
per share (subject to each Party's right to terminate this
Agreement set forth in Section 10.1(i) hereof), the "Exchange
Ratio" shall be adjusted and calculated in
4
<PAGE> 104
accordance with the following equation (rounded to the nearest
one-thousandth):
ER = [[(ALCP*$250,000)+$25,000,000]/IOS]/ALCP
Where:
ER = Exchange Ratio.
ALCP = Average LSB Closing Price.
IOS = 1,582,678 shares of ONSB Common Stock, less any
shares canceled as provided in Section 3.3 hereof.
For example, assuming that (i) the Average LSB Closing Price
is determined to be $23.00, and (ii) none of such shares are
canceled as provided in Section 3.3 hereof; then, the adjusted
Exchange Ratio would be 0.845.
b. If the Average LSB Closing Price is below $20.00
per share (subject to each Party's right to terminate this
Agreement set forth in Section 10.1(i) hereof), the "Exchange
Ratio" shall be adjusted and calculated (using the same
abbreviated terms as in subparagraph a. above) in accordance
with the following equation (rounded to the nearest one
one-thousandth):
ER = [[(ALCP*$1,000,000)+$10,000,000]/IOS]/ALCP
For example, assuming that (i) the Average LSB Closing Price
is determined to be $16.00, and (ii) none of such shares are
canceled as provided in Section 3.3 hereof; then, the adjusted
Exchange Ratio would be 1.027.
3.2 ANTI-DILUTION PROVISIONS. In the event LSB or ONSB (in
breach of Section 7.2 hereof) changes the number of shares of LSB Common Stock
or ONSB Common Stock, respectively, issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY ONSB OR LSB. Each of the shares of ONSB
Common Stock held by any ONSB Company or by any LSB Company, in each case other
than in a fiduciary capacity or as a result of debts previously contracted,
shall be canceled and retired at the Effective Time, and no consideration shall
be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS. Any holder of shares of ONSB
Common Stock who perfects such holder's dissenters' rights of appraisal in
accordance with and as
5
<PAGE> 105
contemplated by Article 13 of the NCBCA shall be entitled to receive the value
of such shares in cash as determined pursuant to such provision of Law;
provided, however, that no such payment shall be made to any dissenting
shareholder unless and until such dissenting shareholder has complied with the
applicable provisions of the NCBCA and surrendered to the Surviving Bank the
certificate or certificates representing the shares for which payment is being
made. In the event that after the Effective Time a dissenting shareholder of
ONSB fails to perfect, or effectively withdraws or loses, such holder's right to
appraisal and of payment for such holder's shares, LSB shall issue and deliver
the consideration to which such holder of shares of ONSB Common Stock is
entitled under this Article 3 (without interest) upon surrender by such holder
of the certificate or certificates representing shares of ONSB Common Stock held
by such holder. ONSB will establish an escrow account with an amount sufficient
to satisfy the maximum aggregate payment that may be required to be paid to
dissenting shareholders. Upon satisfaction of all claims of dissenting
shareholders, the remaining escrowed amount, reduced by payment of the fees and
expenses of the escrow agent, will be returned to the Surviving Bank.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement, each holder of shares of ONSB Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of LSB Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of LSB Common Stock multiplied
by the Average LSB Closing Price. No such holder will be entitled to dividends,
voting rights, or any other rights as a shareholder in respect of any fractional
shares.
3.6 CONVERSION OF STOCK OPTIONS AND WARRANTS; RESTRICTED
STOCK.
(a) At the Effective Time, each option, warrant or other right
to purchase shares of ONSB Common Stock pursuant to stock options,
warrants or stock appreciation rights ("ONSB Options") granted by ONSB
under the ONSB Stock Plans or the ONSB Warrants, which are outstanding
at the Effective Time, whether or not exercisable, shall be converted
into and become rights with respect to LSB Common Stock, and LSB shall
assume each ONSB Option, in accordance with the terms of the ONSB Stock
Plan and stock option agreement or the ONSB Warrant, as the case may
be, by which it is evidenced, except that from and after the Effective
Time, (i) LSB and its Compensation Committee shall be substituted for
ONSB and the Committee of ONSB's Board of Directors (including, if
applicable, the entire Board of Directors of ONSB) administering such
ONSB Stock Plan and ONSB Warrants, (ii) each ONSB Option assumed by LSB
may be exercised solely for shares of LSB Common Stock (or cash in the
case of stock appreciation rights), (iii) the number of shares of LSB
Common Stock subject to such ONSB Option shall be equal to the number
of shares of ONSB Common Stock subject to such ONSB Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and (iv)
the per share exercise price
6
<PAGE> 106
under each such ONSB Option shall be adjusted by dividing the per share
exercise price under each such ONSB Option by the Exchange Ratio and
rounding up to the nearest cent. Notwithstanding the provisions of
clause (iii) of the preceding sentence, LSB shall not be obligated to
issue any fraction of a share of LSB Common Stock upon exercise of ONSB
Options and any fraction of a share of LSB Common Stock that otherwise
would be subject to a converted ONSB Option shall represent the right
to receive a cash payment upon exercise of such converted ONSB Option
equal to the product of such fraction and the difference between the
market value of one share of LSB Common Stock at the time of exercise
of such Option and the per share exercise price of such ONSB Option.
The market value of one share of LSB Common Stock at the time of
exercise of an ONSB Option shall be the last sale price of such common
stock on the Nasdaq/NMS (as reported by The Wall Street Journal or, if
not reported thereby, any other authoritative source selected by LSB)
on the last trading day preceding the date of exercise. In addition,
notwithstanding the clauses (iii) and (iv) of the first sentence of
this Section 3.6(a), each ONSB Option which is an "incentive stock
option" shall be adjusted as required by Section 424 of the Internal
Revenue Code, so as not to constitute a modification, extension or
renewal of the option, within the meaning of Section 424(h) of the
Internal Revenue Code. ONSB agrees to take all necessary steps to
effectuate the foregoing provisions of this Section 3.6(a).
(b) As soon as practicable after the Effective Time, LSB shall
deliver to the participants in each ONSB Stock Plan and the holders of
the ONSB Warrants, as the case may be, an appropriate notice setting
forth such participant's or holder's, as the case may be, rights
pursuant thereto, and the grants pursuant to such ONSB Stock Plan and
ONSB Warrants shall continue in effect on the same terms and conditions
(subject to the adjustments required by Section 3.6(a) after giving
effect to the Merger), and LSB shall comply with the terms of each ONSB
Stock Plan to ensure, to the extent required by, and subject to the
provisions of, such ONSB Stock Plan, that ONSB Options which qualified
as incentive stock options prior to the Effective Time continue to
qualify as incentive stock options after the Effective Time. At or
prior to the Effective Time, LSB shall take all corporate action
necessary to reserve for issuance sufficient shares of LSB Common Stock
for delivery upon exercise ONSB Options assumed by it in accordance
with this Section 3.6.
(c) All restrictions or limitations on transfer with respect
to ONSB Common Stock awarded under the ONSB Stock Plans, the ONSB
Warrants, or any other plan, program, or arrangement of any ONSB
Company, to the extent that such restrictions or limitations shall not
have already lapsed, and except as otherwise expressly provided in such
plan, program, or arrangement, shall remain in full force and effect
with respect to shares of LSB Common Stock into which such restricted
stock is converted pursuant to Section 3.1 hereof.
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<PAGE> 107
(d) Notwithstanding the foregoing provisions of this Section
3.6, in no event shall options and warrants issued by ONSB to purchase
more than 151,636 shares of ONSB Common Stock be converted into or
become rights with respect to LSB Common Stock in connection with the
transactions contemplated by this Agreement.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time,
LSB shall cause the exchange agent selected by LSB (the "Exchange Agent") to
mail to the former shareholders of ONSB appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of ONSB Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent. After the
Effective Time, each holder of shares of ONSB Common Stock (other than shares to
be canceled pursuant to Section 3.3 hereof or as to which statutory dissenters'
rights have been perfected as provided in Section 3.4 hereof) issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares (or, if applicable, a lost certificate
affidavit (including indemnification) in form and substance reasonably
acceptable to LSB and the Exchange Agent) to the Exchange Agent and shall
promptly upon surrender thereof receive in exchange therefor the consideration
provided in Section 3.1 hereof, together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
Section 4.2 hereof. To the extent required by Section 3.5 hereof, each holder of
shares of ONSB Common Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the certificate or certificates representing
such shares (or a lost certificate affidavit referenced above), cash in lieu of
any fractional share of LSB Common Stock to which such holder may be otherwise
entitled (without interest). LSB shall not be obligated to deliver the
consideration to which any former holder of ONSB Common Stock is entitled as a
result of the Merger until such holder surrenders such holder's certificate or
certificates representing the shares of ONSB Common Stock (or a lost certificate
affidavit referenced above) for exchange as provided in this Section 4.1. The
certificate or certificates of ONSB Common Stock so surrendered shall be duly
endorsed, or accompanied with executed blank stock powers with signatures
guaranteed, as the Exchange Agent may require. Any other provision of this
Agreement notwithstanding, neither LSB, the Surviving Bank nor the Exchange
Agent shall be liable to a holder of ONSB Common Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property Law.
4.2 RIGHTS OF FORMER ONSB SHAREHOLDERS. At the Effective Time,
the stock transfer books of ONSB shall be closed as to holders of ONSB Common
Stock immediately prior to the Effective Time, and no subsequent transfer of
ONSB Common
8
<PAGE> 108
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1
hereof, each certificate theretofore representing shares of ONSB Common Stock
(other than shares to be canceled pursuant to Section 3.3 hereof or as to which
the holder thereof has perfected dissenters' rights of appraisal as contemplated
in Section 3.4 hereof) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 3.1
and 3.5 hereof; subject, however, to the Surviving Bank's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which have been declared or made by ONSB in respect of such
shares of ONSB Common Stock in accordance with the terms of this Agreement and
which remain unpaid at the Effective Time. To the extent permitted by Law,
former shareholders of record of ONSB shall be entitled to vote after the
Effective Time at any meeting of LSB shareholders the number of whole shares of
LSB Common Stock into which their respective shares of ONSB Common Stock are
converted, regardless of whether such holders have exchanged their certificates
representing ONSB Common Stock for certificates representing LSB Common Stock in
accordance with the provisions of this Agreement. Whenever a dividend or other
distribution is declared by LSB on the LSB Common Stock, the record date for
which is at or after the Effective Time, the declaration shall include dividends
or other distributions on all shares of LSB Common Stock issuable pursuant to
this Agreement, but no dividend or other distribution payable to the holders of
record of LSB Common Stock as of any time subsequent to the Effective Time shall
be delivered to the holder of any certificate representing shares of ONSB Common
Stock issued and outstanding at the Effective Time until such holder surrenders
such certificate for exchange as provided in Section 4.1 hereof. However, upon
surrender of such ONSB Common Stock certificate, both the LSB Common Stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered cash payments to be paid for fractional
share interests (without interest) shall be delivered and paid with respect to
each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ONSB
ONSB hereby represents and warrants to LSB and LSB Bank as
follows:
5.1 ORGANIZATION, STANDING AND POWER. ONSB is a state
chartered bank duly organized, validly existing, and in good standing under the
Laws of the State of North Carolina, and has the corporate power and authority
to carry on its business as now conducted and to own, lease and operate its
Assets. ONSB is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ONSB.
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5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) ONSB has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement, the
Option Agreement, the Confidentiality Agreement and the Plan of Merger
and to consummate the transactions contemplated hereby and thereby,
subject to the approval of this Agreement and the Plan of Merger by the
holders of two-thirds of the outstanding shares of ONSB Common Stock.
The execution, delivery, and performance of this Agreement, the Option
Agreement, the Confidentiality Agreement and the Plan of Merger and the
consummation of the transactions contemplated herein and therein,
including the Merger, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of ONSB,
subject to the approval of this Agreement and the Plan of Merger by the
holders of two-thirds of the outstanding shares of ONSB Common Stock.
Subject to such requisite shareholder approval, this Agreement, the
Option Agreement and the Confidentiality Agreement represent, and, when
executed and delivered, the Plan of Merger will represent, legal,
valid, and binding obligations of ONSB, enforceable against ONSB in
accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement
of creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any such proceeding
may be brought).
(b) Neither the execution and delivery of this Agreement, the
Option Agreement, the Confidentiality Agreement and the Plan of Merger
by ONSB, nor the consummation by ONSB of the transactions contemplated
hereby and thereby, nor compliance by ONSB with any of the provisions
hereof and thereof, will (i) conflict with or result in a breach of any
provision of ONSB's Articles of Incorporation or Bylaws, or (ii) except
as disclosed in Section 5.2(b) of the ONSB Disclosure Memorandum,
constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any
ONSB Company under, any Contract or Permit of any ONSB Company, or,
(iii) except as disclosed in Section 5.2(b) of the ONSB Disclosure
Memorandum, violate any Law or Order applicable to any ONSB Company or
any of their respective Assets.
(c) Except as disclosed in Section 5.2(c) of the ONSB
Disclosure Memorandum, no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by ONSB of
the Merger and the other transactions contemplated in this Agreement,
the Option Agreement, the Confidentiality Agreement and the Plan of
Merger.
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5.3 CAPITAL STOCK.
(a) The authorized capital stock of ONSB consists of 2,000,000
shares of ONSB Common Stock, of which 1,582,678 shares are issued and
outstanding as of the date of this Agreement and not more than
1,734,314 shares will be issued and outstanding at the Effective Time.
All of the issued and outstanding shares of ONSB Common Stock are duly
and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of ONSB Common Stock has
been issued in violation of any preemptive rights of the current or
past shareholders of ONSB. ONSB has reserved 111,294 shares of ONSB
Common Stock for issuance under the ONSB Stock Plans, pursuant to which
options to purchase not more than 111,294 shares of ONSB Common Stock
are outstanding. ONSB has reserved 40,342 shares of ONSB Common Stock
for issuance under the ONSB Warrants, pursuant to which warrants to
purchase not more than 40,342 shares of ONSB Common Stock are
outstanding.
(b) Except as set forth in Section 5.3(a) hereof, or as
provided in the Option Agreement, there are no shares of capital stock
or other equity securities of ONSB outstanding and no outstanding
Rights relating to the capital stock of ONSB.
5.4 ONSB SUBSIDIARIES. ONSB has disclosed in Section 5.4 of
the ONSB Disclosure Memorandum all of the ONSB Subsidiaries as of the date of
this Agreement. Except as disclosed in Section 5.4 of the ONSB Disclosure
Memorandum, ONSB or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each ONSB Subsidiary. No equity
securities of any ONSB Subsidiary are or may become required to be issued (other
than to another ONSB Company) by reason of any Rights relating to the capital
stock of such ONSB Subsidiary, and there are no Contracts by which any ONSB
Subsidiary is bound to issue (other than to another ONSB Company) additional
shares of its capital stock or Rights relating thereto or by which any ONSB
Company is or may be bound to transfer any shares of the capital stock of any
ONSB Subsidiary (other than to another ONSB Company). There are no Contracts
relating to the rights of any ONSB Company to vote or to dispose of any shares
of the capital stock of any ONSB Subsidiary. All of the issued and outstanding
shares of capital stock of each ONSB Subsidiary are duly authorized, validly
issued and fully paid and nonassessable under the applicable corporation Law of
the jurisdiction in which such Subsidiary is incorporated or organized and are
owned by a ONSB Company free and clear of any Lien. Each ONSB Subsidiary is a
corporation, and is duly organized, validly existing, and in good standing under
the Laws of the jurisdiction in which it is incorporated or organized, and has
the corporate power and authority necessary for it to own, lease, and operate
its Assets and to carry on its business as now conducted. Each ONSB Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not
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reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ONSB.
5.5 FINANCIAL STATEMENTS; REGULATORY AUTHORITY FILINGS.
(a) ONSB has disclosed in Section 5.5 of the ONSB Disclosure
Memorandum, and has delivered to LSB copies of, all ONSB Financial
Statements prepared for periods ended prior to the date hereof and will
deliver to LSB copies of all ONSB Financial Statements prepared
subsequent to the date hereof. The ONSB Financial Statements (as of the
dates thereof and for the periods covered thereby): (i) are, or, if
dated after the date of this Agreement, will be, in accordance with the
books and records of the ONSB Companies, which are or will be, as the
case may be, complete and correct and which have been or will have
been, as the case may be, maintained in accordance with good business
practices; and (ii) present or will present, as the case may be, fairly
the consolidated financial position of the ONSB Companies as of the
dates indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows of the ONSB Companies for the
periods indicated, in accordance with GAAP (subject to any exceptions
as to consistency specified therein or as may be indicated in the notes
thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
(b) ONSB has filed, and made copies available to LSB of, all
forms, reports, and documents required to be filed by ONSB with the FRB
or the FDIC since December 31, 1993 (collectively, the "ONSB FRB/FDIC
Reports"). The ONSB FRB/FDIC Reports (i) at the time filed, complied in
all material respects with the applicable requirements of the Laws that
the FRB and the FDIC, as the case may be, are charged to administer and
enforce, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated in such ONSB
FRB/FDIC Reports or necessary in order to make the statements in such
ONSB FRB/FDIC Reports, in light of the circumstances under which they
were made, not misleading. Except for ONSB Subsidiaries that are
registered as a broker, dealer or investment advisor, neither ONSB nor
any ONSB Subsidiary is required to file any forms, reports, or other
documents with the SEC or NASD.
5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS AND UNDISCLOSED
LIABILITIES.
(a) Since September 30, 1996, (i) there have been no events,
changes, or occurrences which have had, or are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
ONSB, and (ii) the ONSB Companies have not taken any action, or failed
to take any action, prior to the date of this Agreement,
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which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of
the covenants and agreements of ONSB provided in Article 7 hereof.
(b) No ONSB Company has any Liabilities that are reasonably
likely to have, individually or in the aggregate, a Material Adverse
Effect on ONSB, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of ONSB as of September 30,
1996 included in the ONSB Financial Statements or reflected in the
notes thereto. No ONSB Company has incurred or paid any Liability since
September 30, 1996, except for such Liabilities incurred or paid in the
ordinary course of business consistent with past business practice and
which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on ONSB.
5.7 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
any of the ONSB Companies have been timely filed, or requests for
extensions have been timely filed, granted, and have not expired for
periods ended on or before December 31, 1995, and on or before the date
of the most recent fiscal year end immediately preceding the Effective
Time, and all Tax Returns filed are complete and accurate to the
Knowledge of ONSB. All Taxes shown on filed Tax Returns have been paid.
Except as disclosed in Section 5.7(a) of the ONSB Disclosure
Memorandum, there is no audit examination, deficiency, or refund
Litigation with respect to any Taxes. All Taxes and other Liabilities
due with respect to completed and settled examinations or concluded
Litigation have been paid.
(b) None of the ONSB Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of
any Tax due that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the ONSB Companies for the period or periods through and
including the date of the respective ONSB Financial Statements has been
made and is reflected on such ONSB Financial Statements.
(d) Deferred Taxes of the ONSB Companies have been provided
for in the ONSB Financial Statements in accordance with GAAP.
(e) Each of the ONSB Companies is in compliance with, and its
records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all applicable
information reporting and Tax withholding requirements under federal,
state, and local Tax Laws, and such records identify with specificity
all accounts subject to backup withholding under Section 3406 of the
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Internal Revenue Code, except for such instances of noncompliance and
such omissions as are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on ONSB.
5.8 ASSETS. Except as disclosed or reserved against in the
ONSB Financial Statements, the ONSB Companies have good and marketable title,
free and clear of all Liens, to all of their respective Assets. All tangible
properties used in the businesses of the ONSB Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with ONSB's past practices. All Assets which are material to
the business of the ONSB Companies, held under leases or subleases by any of the
ONSB Companies, are held under valid Contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect. The ONSB Companies currently
maintain insurance similar in amounts, scope, and coverage to that maintained by
other peer banking organizations. None of the ONSB Companies has received notice
from any insurance carrier that (i) such insurance will be canceled or that
coverage thereunder will be reduced or eliminated, or (ii) premium costs with
respect to such policies of insurance will be substantially increased. The
Assets of the ONSB Companies include all assets required to operate the business
of the ONSB Companies as presently conducted.
5.9 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of ONSB, each ONSB Company, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ONSB.
(b) There is no Litigation pending or, to the Knowledge of
ONSB, threatened before any court, governmental agency, or board or
other forum in which any ONSB Company or any of its Loan Properties or
Participation Facilities has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on,
under, or involving a site owned, leased, or operated by any ONSB
Company or any of its Loan Properties or Participation Facilities.
(c) To the Knowledge of ONSB, there is no reasonable basis for
any Litigation of a type described in subsection (b) above, except such
as is not
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reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ONSB.
(d) To the Knowledge of ONSB, there have been no releases of
Hazardous Materials in, on, under, or affecting any ONSB Company's
current properties, or any Participation Facility or Loan Property of
an ONSB Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ONSB.
5.10 COMPLIANCE WITH LAWS. ONSB is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits of ONSB are insured by the Bank Insurance Fund.
Each ONSB Company has in effect all Permits necessary for it to own, lease, or
operate its Assets and to carry on its business as now conducted, except for
those Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ONSB, and there
has occurred no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on ONSB. Except as disclosed in Section 5.10 of the ONSB Disclosure
Memorandum, no ONSB Company:
(a) Is in violation of any Laws, Orders, or Permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on ONSB; and
(b) Has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any ONSB
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on ONSB, (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
ONSB, or (iii) requiring any ONSB Company (A) to enter into or consent
to the issuance of a cease and desist order, formal agreement,
directive, commitment, or memorandum of understanding, or (B) to adopt
any Board resolution or similar undertaking which restricts materially
the conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies, its management, or the
payment of dividends.
5.11 LABOR RELATIONS. No ONSB Company is the subject of any
Litigation asserting that it or any other ONSB Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other ONSB Company to
bargain with any labor organization as to wages or conditions of employment, nor
is any ONSB Company a party to or bound by any collective
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bargaining agreement, contract, or other agreement or understanding with a labor
union or labor organization, nor is there any strike or other labor dispute
involving any ONSB Company, pending or threatened, or to the Knowledge of ONSB
is there any activity involving any ONSB Company's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
5.12 EMPLOYEE BENEFIT PLANS.
(a) ONSB has disclosed in Section 5.12 of the ONSB Disclosure
Memorandum, and has delivered or made available to LSB prior to the
execution of this Agreement correct and complete copies, in each case,
of all pension, retirement, profit-sharing, deferred compensation,
stock option, employee stock ownership, severance pay, vacation, bonus,
or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other
health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee
benefit plans" as that term is defined in Section 3(3) of ERISA,
currently or previously adopted, maintained by, sponsored in whole or
in part by, or contributed to by any ONSB Company or ERISA Affiliate
thereof 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 "ONSB Benefit Plans"). Any of the ONSB Benefit Plans
which is an "employee pension benefit plan," as that term is defined in
Section 3(1) of ERISA, is referred to herein as a "ONSB ERISA Plan."
Any ONSB ERISA Plan which is also a "defined benefit plan" (as defined
in Section 414(j) of the Internal Revenue Code or Section 3(35) of
ERISA) is referred to herein as a "ONSB Pension Plan." On or after
September 26, 1980, neither ONSB nor any ONSB Company has had an
"obligation to contribute" (as defined in ERISA Section 4212) to a
"multi-employer plan" (as defined in ERISA Sections 4001(a)(3) and
3(37)(A)).
(b) ONSB has delivered or made available to LSB prior to the
execution of this Agreement correct and complete copies of the
following documents: (i) all trust agreements or other funding
arrangements for such ONSB Benefit Plans (including insurance
contracts), and all amendments thereto, (ii) with respect to any such
ONSB Benefit Plans or amendments, all determination letters, rulings,
opinion letters, information letters, or advisory opinions issued by
the Internal Revenue Service, the United States Department of Labor, or
the Pension Benefit Guaranty Corporation after December 31, 1974, (iii)
annual reports or returns, audited or unaudited financial statements,
actuarial valuations and reports, and summary annual reports prepared
for any ONSB Benefit Plan with respect to the most recent three plan
years, and (iv) the most recent summary plan descriptions and any
material modifications thereto.
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(c) All ONSB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws, the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
ONSB. Each ONSB ERISA Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and ONSB is not
aware of any circumstances which will or could result in revocation of
any such favorable determination letter. Each trust created under any
ONSB ERISA Plan has been determined to be exempt from Tax under Section
501(a) of the Internal Revenue Code and ONSB is not aware of any
circumstance which will or could result in revocation of such
exemption. With respect to each ONSB Benefit Plan, except as disclosed
in Section 5.12(c) of the ONSB Disclosure Memorandum, no event has
occurred which will or could give rise to a loss of any intended Tax
consequences under the Internal Revenue Code or to any Tax under
Section 511 of the Internal Revenue Code. There is no material pending
or threatened Litigation relating to any ONSB ERISA Plan. No ONSB
Company has engaged in a transaction with respect to any ONSB Benefit
Plan that, assuming the taxable period of such transaction expired as
of the date hereof, would subject any ONSB Company to a Tax or penalty
imposed by either Section 4975 of the Internal Revenue 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 ONSB.
(d) No ONSB Pension Plan has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair
market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001 (a)(16) of ERISA,
when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Since
the date of the most recent actuarial valuation, there has been (i) no
material change in the financial position of any ONSB Pension Plan,
(ii) no change in the actuarial assumptions with respect to any ONSB
Pension Plan, and (iii) no increase in benefits under any ONSB Pension
Plan as a result of plan amendments or changes in applicable Law which
is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ONSB or materially adversely affect the
funding status of such plan. Neither any ONSB Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any ONSB Company, or
single-employer plan of any entity which is considered an employer with
ONSB under Section 4001 of ERISA or Section 414 of the Internal Revenue
Code or Section 302 of ERISA (whether or not waived) (an "ERISA
Affiliate") has an "accumulated funding deficiency" within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA. No
ONSB Company has provided, or is required to provide, security to a
ONSB Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Internal Revenue Code.
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(e) No liability under Title IV of ERISA has been or is
expected to be incurred by any ONSB Company with respect to any defined
benefit plan currently or formerly maintained by any of them or by any
ERISA Affiliate.
(f) No ONSB Company has any obligations for retiree health and
life benefits under any of the ONSB Benefit Plans.
(g) Except as disclosed in Section 5.12 of the ONSB Disclosure
Memorandum, neither the execution and delivery of this Agreement, the
Option Agreement or the Plan of Merger nor the consummation of the
transactions contemplated hereby and thereby will (i) result in any
payment (including, without limitation, severance, unemployment
compensation, golden parachute, or otherwise) becoming due to any
director or any employee of any ONSB Company from any ONSB Company
under any ONSB Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any ONSB Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(h) To the Knowledge of ONSB, no oral or written
representation or communication with respect to any aspect of the ONSB
Benefit Plans has been made to employees of any of the ONSB Companies
prior to the date hereof which is not in accordance with the written or
otherwise preexisting terms and provisions of such plans. All ONSB
Benefit Plan documents and annual reports or returns, audited or
unaudited financial statements, actuarial valuations, summary annual
reports, and summary plan descriptions issued with respect to the ONSB
Benefit Plans are correct and complete in all material respects and
there have been no changes in the information set forth therein.
(i) Except as disclosed in Section 5.12(i) of the ONSB
Disclosure Memorandum, none of the ONSB Companies has paid, or
committed to pay, any bonus or commissions to any agent, manager or
other employee of any ONSB Company with respect to any period
commencing after December 31, 1995.
5.13 MATERIAL CONTRACTS. Except as disclosed in Section 5.13
of the ONSB Disclosure Memorandum, none of the ONSB Companies, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under: (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000; (ii) any Contract
relating to the borrowing of money by any ONSB Company or the guarantee by any
ONSB Company of any such obligation (other than Contracts evidencing deposit
liabilities, purchases of federal funds, fully-secured repurchase agreements,
and Federal Home Loan Bank advances of depository institution Subsidiaries,
trade payables, and Contracts relating to borrowings or guarantees made in the
ordinary course of business); (iii) any Contracts between or among ONSB
Companies; and (iv) any other Contract or
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amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by ONSB with the SEC as of the date of this Agreement if ONSB were
required to file a Form 10-K with the SEC (together with all Contracts referred
to in Sections 5.8 and 5.12(a) hereof, the "ONSB Contracts"). With respect to
each ONSB Contract: (i) the Contract is in full force and effect; (ii) no ONSB
Company is in Default thereunder; (iii) no ONSB Company has repudiated or waived
any material provision of any such Contract; and (iv) no other party to any such
Contract is, to the Knowledge of ONSB, in Default in any respect, or has
repudiated or waived any material provision thereunder. Except as disclosed in
Section 5.13 of the ONSB Disclosure Memorandum, all of the indebtedness of any
ONSB Company for money borrowed is prepayable at any time by such ONSB Company
without penalty or premium.
5.14 LEGAL PROCEEDINGS. Except as disclosed in Section 5.14 of
the ONSB Disclosure Memorandum, there is no Litigation instituted or pending,
or, to the Knowledge of ONSB, threatened (or unasserted but considered probable
of assertion and which if asserted would have at least a reasonable probability
of an unfavorable outcome) against any ONSB Company, or against any Asset,
interest, or right of any of them, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
any ONSB Company. Section 5.14 of the ONSB Disclosure Memorandum includes a
summary report of all Litigation as of the date of this Agreement to which any
ONSB Company is a party and in which the estimated maximum exposure is $50,000
or more.
5.15 REPORTS. Since January 1, 1992, or the date of
organization if later, each ONSB Company has timely filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with any Regulatory Authority. As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all material respects, 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 made therein, in light of the circumstances
under which they were made, not misleading.
5.16 STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied by any ONSB Company or any Affiliate thereof for
inclusion in the Registration Statement to be filed by LSB with the SEC will,
when the Registration Statement becomes effective, be false or misleading with
respect to any material fact, or contain any untrue statement of material fact,
or omit to state any material fact required to be stated thereunder or necessary
to make the statements therein not misleading. None of the information supplied
or to be supplied by any ONSB Company or any Affiliate thereof for inclusion in
the ONSB Proxy Statement to be mailed to ONSB's shareholders in connection with
the Shareholders Meeting, and any other documents to be filed by a ONSB Company
or any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the
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transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the ONSB Proxy Statement, when first mailed to
the shareholders of ONSB, be false or misleading with respect to any material
fact, or contain any untrue statement of material fact, or omit to state any
material fact required to be stated thereunder or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the ONSB Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Shareholders' Meeting, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated thereunder or necessary to correct any
material statement in any earlier communication with respect to the solicitation
of any proxy for the Shareholders' Meeting. All documents that any ONSB Company
or any Affiliate thereof is responsible for filing with any Regulatory Authority
in connection with the transactions contemplated hereby will comply as to form
in all material respects with the provisions of applicable Law.
5.17 ACCOUNTING, TAX AND REGULATORY MATTERS. No ONSB Company
or any Affiliate thereof has taken any action, or agreed to take any action, or
has any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying, for "pooling-of-interests" accounting treatment consistent with GAAP
and the rules and regulations of the SEC or treatment as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) hereof or result in the imposition of a condition
or restriction of the type referred to in the last sentence of such Section.
5.18 STATE TAKEOVER LAWS. No action is necessary by any ONSB
Company to exempt the transactions contemplated by this Agreement from any
applicable "moratorium," "control share," "fair price," "business combination,"
or other anti-takeover Laws of the State of North Carolina (collectively,
"Takeover Laws"), including Articles 9 and 9A of the NCBCA.
5.19 CHARTER PROVISIONS. Each ONSB Company has taken all
action so that the entering into of this Agreement and the Option Agreement and
the consummation of the Merger and the other transactions contemplated by this
Agreement and the Option Agreement do not and will not result in the grant of
any rights to any Person (other than a LSB Company) under the Articles of
Incorporation, Bylaws, or other governing instruments of any ONSB Company or
restrict or impair the ability of LSB or any of its Subsidiaries to vote, or
otherwise to exercise the rights of a shareholder with respect to, shares of any
ONSB Company that may be directly or indirectly acquired or controlled by LSB.
5.20 SUPPORT AGREEMENTS. At least a majority of the
directors of ONSB and the President and Chief Executive Officer and the Chairman
of the Board of ONSB have executed and delivered to LSB Support Agreements.
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5.21 DERIVATIVES CONTRACTS. Neither ONSB nor any of its
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract, or any other interest rate or foreign currency protection contract
that is not included in the ONSB Financial Statements, which is a financial
derivative contract (including various combinations thereof).
5.22 D&O INSURANCE. ONSB has (i) reported all claims to its
Knowledge under its past and present directors' and officers' liability
insurance policies in accordance with the terms and conditions of such policies
to permit coverage thereunder, and (ii) paid on a timely basis all premiums due
under such policies, and such policies have been in effect since the
organization of ONSB and no lapse of coverage has occurred since such date of
organization of ONSB.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF LSB
LSB and LSB Bank hereby jointly and severally represent and
warrant to ONSB as follows:
6.1 ORGANIZATION, STANDING AND POWER. LSB is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of North Carolina, and has the corporate power and authority to carry on
its business as now conducted and to own, lease and operate its Assets. LSB is
duly qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on LSB.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) LSB has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement, the
Option Agreement and the Confidentiality Agreement and to consummate
the transactions contemplated hereby and thereby, subject to the
approval of the issuance of LSB Common Stock contemplated herein by the
holders of a majority of the outstanding shares of LSB Common Stock.
The execution, delivery and performance of this Agreement, the Option
Agreement and the Confidentiality Agreement and the consummation of the
transactions contemplated herein and therein, including the Merger,
have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of LSB, subject to the approval of the
issuance of LSB Common Stock contemplated
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herein by the holders of a majority of the outstanding shares of LSB
Common Stock. Subject to such shareholder approval, this Agreement, the
Option Agreement and the Confidentiality Agreement represent legal,
valid, and binding obligations of LSB, enforceable against LSB in
accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement
of creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement, the
Option Agreement and the Confidentiality Agreement by LSB, nor the
consummation by LSB of the transactions contemplated hereby and
thereby, nor compliance by LSB with any of the provisions hereof and
thereof, will (i) conflict with or result in a breach of any provision
of LSB's Articles of Incorporation or Bylaws, or (ii) except as
disclosed in Section 6.2(b) of the LSB Disclosure Memorandum,
constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any
LSB Company under, any Contract or Permit of any LSB Company, or, (iii)
except as disclosed in Section 6.2(b) of the LSB Disclosure Memorandum,
violate any Law or Order applicable to any LSB Company or any of their
respective Assets.
(c) Except as disclosed in Section 6.2(c) of the LSB
Disclosure Memorandum, no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by LSB or
LSB Bank of the Merger and the other transactions contemplated in this
Agreement, the Option Agreement, the Confidentiality Agreement and the
Plan of Merger.
6.3 CAPITAL STOCK.
(a) The authorized capital stock of LSB consists of 10,000,000
shares of LSB Common Stock, of which 5,403,539 shares were issued and
outstanding as of September 30, 1996. All of the issued and outstanding
shares of LSB Common Stock are, and all of the shares of LSB Common
Stock to be issued in exchange for shares of ONSB Common Stock upon
consummation of the Merger, when issued in accordance with the terms of
this Agreement, will be, duly and validly issued and outstanding and
fully paid and nonassessable. None of the outstanding shares of LSB
Common Stock has been, and none of the shares of LSB Common Stock to be
issued in exchange for shares of ONSB Common Stock upon consummation of
the Merger, will be, issued in violation of any preemptive rights of
the current or past shareholders of LSB. LSB has reserved 750,000
shares of LSB Common Stock for issuance under the LSB Stock Plans,
pursuant to which options to purchase not more
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than 271,395 shares of LSB Common Stock were outstanding as of February
21, 1997.
(b) Except as disclosed in Section 6.3(a) hereof, there are no
shares of capital stock or other equity securities of LSB outstanding
as of September 30, 1996 and no outstanding Rights relating to the
capital stock of LSB as of February 21, 1997.
6.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) LSB has filed and made available to ONSB all forms,
reports, and documents required to be filed by LSB with the SEC since
December 31, 1993, other than registration statements on Forms S-4 and
S-8 (collectively, the "LSB SEC Reports"). The LSB SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the 1933 Act and the 1934 Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such LSB SEC Reports or
necessary in order to make the statements in such LSB SEC Reports, in
light of the circumstances under which they were made, not misleading.
(b) Each of the LSB Financial Statements contained in the LSB
SEC Reports, including any LSB SEC Reports filed after the date of this
Agreement until the Effective Time, complied or will comply as to form
in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was or will be prepared in
accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC), and fairly presented or will fairly
present the consolidated financial position of LSB and its Subsidiaries
as at the respective dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were nor or are not expected
to be material in amount.
6.5 ABSENCE OF CERTAIN CHANGES OR EVENTS AND UNDISCLOSED
LIABILITIES.
(a) Since September 30, 1996, (i) there have been no events,
changes or occurrences which have had, or are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
LSB, and (ii) the LSB Companies have not taken any action, or failed to
take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or
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result in a material breach or violation of any of the covenants and
agreements of LSB provided in Article 7 hereof.
(b) No LSB Company has any Liabilities that are reasonably
likely to have, individually or in the aggregate, a Material Adverse
Effect on LSB, except Liabilities which are accrued or reserved against
in the consolidated balance sheets of LSB as of September 30, 1996
included in the LSB Financial Statements or reflected in the notes
thereto. No LSB Company has incurred or paid any Liability since
September 30, 1996, except for such Liabilities incurred or paid in the
ordinary course of business consistent with past business practice and
which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on LSB.
6.6 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
any of the LSB Companies have been timely filed, or requests for
extensions have been timely filed, granted, and have not expired for
periods ended on or before December 31, 1995, and on or before the date
of the most recent fiscal year end immediately preceding the Effective
Time, and all Tax Returns filed are complete and accurate to the
Knowledge of LSB. All Taxes shown on filed returns have been paid.
Except as disclosed in Section 6.6(a) of the LSB Disclosure Memoranda,
there is no audit examination, deficiency, or refund Litigation with
respect to any Taxes. All Taxes and other Liabilities due with respect
to completed and settled examinations or concluded Litigation have been
paid.
(b) None of the LSB Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of
any Tax due that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the LSB Companies for the period or periods through and
including the date of the respective LSB Financial Statements has been
made and is reflected on such LSB Financial Statements.
(d) Deferred Taxes of the LSB Companies have been provided for
in the LSB Financial Statements in accordance with GAAP.
6.7 COMPLIANCE WITH LAWS. LSB is duly registered as a bank
holding company under the BHC Act. Each LSB Company has in effect all Permits
necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on LSB, and there has occurred no Default under any such Permit, other
than Defaults which are not reasonably likely to have, individually or in
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the aggregate, a Material Adverse Effect on LSB. Except as disclosed in Section
6.7 of the LSB Disclosure Memorandum, no LSB Company:
(a) is in violation of any Laws, Orders or Permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on LSB; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any LSB
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on LSB, (ii) threatening to revoke
any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on LSB, or
(iii) requiring any LSB Company (A) to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or (B) to adopt any Board or
similar undertaking, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit
or reserve policies, its management, or the payment of dividends.
6.8 LEGAL PROCEEDINGS. Except as disclosed in Section 6.8 of
the LSB Disclosure Memorandum, there is no Litigation instituted or pending, or,
to the Knowledge of LSB, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any LSB Company, or against any Asset, interest,
or right of any of them that is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on LSB, nor are the any Orders of any
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any LSB Company, that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on LSB.
6.9 REPORTS. Since January 1, 1992, or the date of
organization if later, each LSB Company has timely filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with (i) the SEC, including, but not
limited to, Forms 10-K, Forms 10-Q, Form 8-K, and proxy statements; (ii) other
Regulatory Authorities; and (iii) any applicable state securities or banking
authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on LSB). As of their respective date, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material
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fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
6.10 STATEMENTS TRUE AND CORRECT. None of the information
supplied or to be supplied by any LSB Company or any Affiliate thereof for
inclusion in the Registration Statement to be filed by LSB with the SEC, will,
when the Registration Statement becomes effective, be false or misleading with
respect to any material fact, or contain any untrue statement of a material
fact, or omit to state any material fact required to be stated thereunder or
necessary to make the statements therein not misleading. None of the information
supplied or to be supplied by any LSB Company or any Affiliate thereof for
inclusion in the ONSB Proxy Statement to be mailed to ONSB's shareholders in
connection with the Shareholders' Meeting, and any other documents to be filed
by any LSB Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to the ONSB Proxy
Statement, when first mailed to the shareholders of ONSB, be false or misleading
with respect to any material fact, or contain any untrue statement of a material
fact, or omit to state any material fact required to be stated thereunder or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the ONSB Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Shareholders' Meeting, be false or misleading with respect to any material fact,
or contain any untrue statements of material fact, or omit to state any material
fact required to be stated thereunder or necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that any LSB Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.11 ACCOUNTING, TAX AND REGULATORY MATTERS. No LSB Company or
any Affiliate thereof has taken any action, or agreed to take any action, or has
any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying for "pooling-of-interests" accounting treatment consistent with GAAP
and the rules and regulations of the SEC or treatment as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, or (ii)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) hereof or result in the imposition of a condition
or restriction of the type referred to in the last sentence of such Section.
6.12 AUTHORITY OF LSB BANK. LSB Bank is a state chartered bank
duly organized, validly existing, and in good standing under the Laws of the
State of North Carolina as a wholly owned, first tier Subsidiary of LSB. LSB
Bank has the corporate power and authority necessary to execute, deliver, and
perform its obligations under this Agreement and the Plan of Merger and to
consummate the transactions contemplated hereby
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and thereby, subject to the approval of this Agreement and the Plan of Merger by
LSB, its sole shareholder. The execution, delivery, and performance of this
Agreement and the Plan of Merger and the consummation of the transactions
contemplated herein and therein, including the Merger, will be duly and validly
authorized by all necessary corporate action in respect thereof on the part of
LSB Bank, subject to the approval of this Agreement and the Plan of Merger by
LSB, its sole shareholder. Subject to such shareholder approval, this Agreement,
and, when executed and delivered, the Plan of Merger will, represent legal,
valid, and binding obligations of LSB Bank, enforceable against LSB Bank in
accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
6.13 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of LSB, each LSB Company, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except for violations which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on LSB.
(b) There is no Litigation pending or, to the Knowledge of
LSB, threatened before any court, governmental agency, or board or
other forum in which any LSB Company or any of its Loan Properties or
Participation Facilities has been or, with respect to threatened
Litigation, may be named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with
any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on,
under, or involving a site owned, leased, or operated by any LSB
Company or any of its Loan Properties or Participation Facilities.
(c) To the Knowledge of LSB, there is no reasonable basis for
any Litigation of a type described in subsection (b) above, except such
as is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on LSB.
(d) To the Knowledge of LSB, there have been no releases of
Hazardous Materials in, on, under, or affecting any LSB Company's
current properties, or any Participation Facility or Loan Property of
an LSB Company, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on LSB.
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6.14 LABOR RELATIONS. No LSB Company is the subject of any
Litigation asserting that it or any other LSB Company has committed an unfair
labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other LSB Company to
bargain with any labor organization as to wages or conditions of employment, nor
is any LSB Company a party to or bound by any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or labor
organization, nor is there any strike or other labor dispute involving any LSB
Company, pending or threatened, or to the Knowledge of LSB is there any activity
involving any LSB Company's employees seeking to certify a collective bargaining
unit or engaging in any other organization activity.
6.15 EMPLOYEE BENEFIT PLANS.
(a) LSB has disclosed in Section 6.15 of the LSB Disclosure
Memorandum, and has delivered or made available to ONSB prior to the
execution of this Agreement correct and complete copies, in each case,
of all pension, retirement, profit-sharing, deferred compensation,
stock option, employee stock ownership, severance pay, vacation, bonus,
or other incentive plan, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other
health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee
benefit plans" as that term is defined in Section 3(3) of ERISA,
currently or previously adopted, maintained by, sponsored in whole or
in part by, or contributed to by any LSB Company or ERISA Affiliate
thereof 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 "LSB Benefit Plans"). Any of the LSB Benefit Plans
which is an "employee pension benefit plan," as that term is defined in
Section 3(1) of ERISA, is referred to herein as a "LSB ERISA Plan." Any
LSB ERISA Plan which is also a "defined benefit plan" (as defined in
Section 414(j) of the Internal Revenue Code or Section 3(35) of ERISA)
is referred to herein as a "LSB Pension Plan." On or after September
26, 1980, neither LSB nor any LSB Company has had an "obligation to
contribute" (as defined in ERISA Section 4212) to a "multi-employer
plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).
(b) LSB has delivered or made available to ONSB prior to the
execution of this Agreement correct and complete copies of the
following documents: (i) all trust agreements or other funding
arrangements for such LSB Benefit Plans (including insurance
contracts), and all amendments thereto, (ii) with respect to any such
LSB Benefit Plans or amendments, all determination letters, rulings,
opinion letters, information letters, or advisory opinions issued by
the Internal Revenue Service, the United States Department of Labor, or
the Pension Benefit Guaranty Corporation after December 31, 1974, (iii)
annual reports or returns, audited or unaudited financial
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statements, actuarial valuations and reports, and summary annual
reports prepared for any LSB Benefit Plan with respect to the most
recent three plan years, and (iv) the most recent summary plan
descriptions and any material modifications thereto.
(c) All LSB Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws, the breach or violation of which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
LSB. Each LSB ERISA Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and LSB is not
aware of any circumstances which will or could result in revocation of
any such favorable determination letter. Each trust created under any
LSB ERISA Plan has been determined to be exempt from Tax under Section
501(a) of the Internal Revenue Code and LSB is not aware of any
circumstance which will or could result in revocation of such
exemption. With respect to each LSB Benefit Plan, except as disclosed
in Section 6.15(c) of the LSB Disclosure Memorandum, no event has
occurred which will or could give rise to a loss of any intended Tax
consequences under the Internal Revenue Code or to any Tax under
Section 511 of the Internal Revenue Code. There is no material pending
or threatened Litigation relating to any LSB ERISA Plan. No LSB Company
has engaged in a transaction with respect to any LSB Benefit Plan that,
assuming the taxable period of such transaction expired as of the date
hereof, would subject any LSB Company to a Tax or penalty imposed by
either Section 4975 of the Internal Revenue 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 LSB.
(d) No LSB Pension Plan has any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair
market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001 (a)(16) of ERISA,
when determined under actuarial factors that would apply if the plan
terminated in accordance with all applicable legal requirements. Since
the date of the most recent actuarial valuation, there has been (i) no
material change in the financial position of any LSB Pension Plan, (ii)
no change in the actuarial assumptions with respect to any LSB Pension
Plan, and (iii) no increase in benefits under any LSB Pension Plan as a
result of plan amendments or changes in applicable Law which is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on LSB or materially adversely affect the funding status
of such plan. Neither any LSB Pension Plan nor any "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any LSB Company, or single-employer plan of any
entity which is considered an employer with LSB under Section 4001 of
ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an
"accumulated funding deficiency" within the meaning of Section 412 of
the Internal Revenue Code or Section 302 of ERISA. No LSB Company has
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provided, or is required to provide, security to a LSB Pension Plan or
to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Internal Revenue Code.
(e) No liability under Title IV of ERISA has been or is
expected to be incurred by any LSB Company with respect to any defined
benefit plan currently or formerly maintained by any of them or by any
ERISA Affiliate.
(f) Except as disclosed in Section 6.15(f) of the LSB
Disclosure Memorandum, no LSB Company has any obligations for retiree
health and life benefits under any of the LSB Benefit Plans.
(g) Except as disclosed in Section 6.15(g) of the LSB
Disclosure Memorandum, neither the execution and delivery of this
Agreement, the Option Agreement or the Plan of Merger nor the
consummation of the transactions contemplated hereby and thereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, or otherwise) becoming due
to any director or any employee of any LSB Company from any LSB Company
under any LSB Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any LSB Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
(h) To the Knowledge of LSB, no oral or written representation
or communication with respect to any aspect of the LSB Benefit Plans
has been made to employees of any of the LSB Companies prior to the
date hereof which is not in accordance with the written or otherwise
preexisting terms and provisions of such plans. All LSB Benefit Plan
documents and annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports, and summary
plan descriptions issued with respect to the LSB Benefit Plans are
correct and complete in all material respects and there have been no
changes in the information set forth therein.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF ONSB. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with Article 10 hereof, unless the prior written consent
of LSB shall have been obtained, and except as otherwise expressly contemplated
herein, ONSB shall, and shall cause each of its Subsidiaries to: (a) operate its
business only in the usual, regular, and ordinary course; (b) preserve intact
its business organization and Assets and maintain its rights and franchises; (c)
take no action which would (i) adversely affect the ability of any Party to
obtain any
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Consents required for the transactions contemplated hereby without imposition of
a condition or restriction of the type referred to in the last sentence of
Section 9.1(b) hereof, or (ii) adversely affect the ability of any Party to
perform its covenants and agreements under this Agreement and to consummate the
Merger; and (d) work with LSB and its Representatives to achieve appropriate
operating efficiencies and to conform the accounting policies and practices of
all ONSB Companies to those of LSB and its Subsidiaries.
7.2 NEGATIVE COVENANTS OF ONSB. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with Article 10 hereof, ONSB covenants and agrees that
it will not do or agree or commit to do, or permit any of its Subsidiaries to do
or agree or commit to do, any of the following without the prior written consent
of the chief executive officer or president of LSB:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any ONSB Company; or
(b) incur, guarantee, or otherwise become responsible for, any
additional debt obligation or other obligation for borrowed money
(other than indebtedness of a ONSB Company to another ONSB Company) in
excess of an aggregate of $100,000 (for the ONSB Companies on a
consolidated basis) except in the ordinary course of the business of
ONSB Companies consistent with past practices (which shall include, for
ONSB, creation of deposit liabilities, purchases of federal funds,
advances from the Federal Home Loan Bank with maturities of less than
six (6) months, and entry into repurchase agreements fully secured by
U.S. government or agency securities), or forgive any indebtedness of
any Person owed to any ONSB Company in excess of $10,000, or impose, or
suffer the imposition, on any Asset of any ONSB Company of any Lien or
permit any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax and loan"
accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and
Liens in effect as of the date hereof that are disclosed in the ONSB
Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of any ONSB Company,
or declare or pay any dividend or make any other distribution in
respect of ONSB's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of
stock options or warrants outstanding as of the date hereof and
pursuant to the terms thereof in existence on the date hereof, or
pursuant to the Option Agreement, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to
become outstanding,
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any additional shares of ONSB Common Stock or any other capital stock
of any ONSB Company, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any
security convertible into any such stock; or
(e) adjust, split, combine, or reclassify any capital stock of
any ONSB Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of ONSB Common
Stock, or sell, lease, mortgage or otherwise dispose of or otherwise
encumber (i) any shares of capital stock of any ONSB Subsidiary (unless
any such shares of stock are sold or otherwise transferred to another
ONSB Company), or (ii) any Asset other than in the ordinary course of
business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of
three (3) years or less, purchase any securities or make any material
investment, either by purchase of stock of securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any Person
other than a wholly owned ONSB Subsidiary, or otherwise acquire direct
or indirect control over any Person, other than in connection with (i)
foreclosures in the ordinary course of business, or (ii) acquisitions
of control by ONSB in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of any ONSB Company, except in accordance with
past practice disclosed in Section 7.2(g) of the ONSB Disclosure
Memorandum or as required by Law; pay any severance or termination pay
or any bonus other than pursuant to written policies or written
Contracts in effect on the date of this Agreement and disclosed in
Section 7.2(g) of the ONSB Disclosure Memorandum, and enter into or
amend any severance agreements with officers of any ONSB Company; grant
any increase in fees or other increases in compensation or other
benefits to directors of any ONSB Company; or voluntarily accelerate
the vesting of any stock options or other stock-based compensation or
employee benefits; or
(h) except as contemplated in this Agreement, enter into or
amend any employment Contract between any ONSB Company and any Person
(unless such amendment is required by Law) that the ONSB Company does
not have the unconditional right to terminate without Liability (other
than Liability for services already rendered), at any time on or after
the Effective Time; or
(i) adopt any new employee benefit plan or program of any ONSB
Company or make any change in or to any existing employee benefit plans
or programs of any ONSB Company other than any such change that is
required by Law
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or that, in the opinion of counsel, is necessary or advisable to
maintain the tax qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods, principles, or practices or systems of internal accounting
controls, except as may be necessary to conform to changes in Tax Laws
or regulatory accounting requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any ONSB
Company for money damages in excess of $10,000 or restrictions upon the
operations of any ONSB Company; or
(l) except in the ordinary course of business, enter into,
modify, amend or terminate any material Contract or waive, release,
compromise or assign any material rights or claims thereunder.
7.3 COVENANTS OF LSB. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement in
accordance with Article 10 hereof, LSB covenants and agrees that it shall (a)
continue to conduct its business and the business of its Subsidiaries in a
manner, designed in its reasonable judgment, to enhance the long-term value of
the LSB Common Stock and the business prospects of the LSB Companies and to the
extent consistent therewith use all commercially reasonable best efforts to
preserve intact the LSB Companies' core businesses and goodwill with their
respective employees and the communities they serve, and (b) take no action
which would (i) materially adversely affect the ability of any Party to obtain
any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentence of Section 9.1(b) hereof, or (ii) materially adversely affect the
ability of any Party to perform its covenants and agreements under this
Agreement; provided, that the foregoing shall not prevent any LSB Company from
acquiring any other company or discontinuing or disposing of any of its Assets
or business if such action is, in the judgment of LSB, desirable in the conduct
of the business of LSB and its Subsidiaries. LSB further covenants and agrees
that it will not: (x) without the prior written consent of the chief executive
officer, president or chairman of the Board of ONSB, amend the Articles of
Incorporation or Bylaws of LSB, in each case, in any manner adverse to the
holders of ONSB Common Stock, or (y) declare and pay any cash dividends on the
LSB Common Stock except for regular cash dividends on the LSB Common Stock with
record and payment dates in accordance with LSB's past record dates for cash
dividends.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the occurrence
or impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it,
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or (ii) is reasonable likely to cause or constitute a material breach of any of
its representations, warranties, or covenants contained herein, and to use its
commercially reasonable best efforts to prevent or promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and such Party shall deliver to the
other Party copies of all such reports filed by such Party and its Subsidiaries
promptly after the same are filed. If financial statements are contained in any
such reports filed with the SEC, in the case of LSB, or the FRB, in the case of
ONSB, such financial statements will fairly present the consolidated financial
position of the entity filing such statements as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity, and cash
flows for the periods then ended in accordance with GAAP (subject in the case of
interim financial statements to normal recurring year-end adjustments that are
not material). As of their respective dates, such reports filed with the SEC or
the FRB, as the case may be, will comply in all material respects with the
Securities Laws, in the case of reports filed with the SEC, and the applicable
Laws enforced by the FRB, in the case of reports filed with the FRB, and will
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. Any financial statements contained in any other reports to another
Regulatory Authority shall be prepared in accordance with Laws applicable to
such reports.
7.6 ONSB RIGHT TO RECOMMEND DIRECTORS; ADDITIONAL OFFICERS.
From the date of this Agreement until the earlier of the date ten (10) days
prior to the scheduled Closing Date or the termination of this Agreement in
accordance with Article 10 hereof, ONSB shall have the right (subject to
shareholder requirement and age restrictions in the Bylaws of LSB) to (i)
recommend candidates to fill two (2) additional directorships on the class of
directors which terms expire at the 1998 annual meeting of LSB shareholders (the
"1998 Class"), which two additional directorships on the 1998 Class LSB's Board
of Directors will authorize on or before the Closing Date (expanding the Board
from 12 to 14 directorships), and (ii) specify which of those candidates shall
be reelected upon expiration of his or her term to fill (x) one (1) additional
directorship on the class of directors which terms expire at the 1999 annual
meeting of LSB shareholders (the "1999 Class"), and (y) one (1) additional
directorship on the class of directors which terms expire at the 2000 annual
meeting of LSB shareholders (the "2000 Class"), which additional directorships
on the 1999 Class and the 2000 Class LSB's Board of Directors will authorize on
or before the 1998 annual meeting of LSB shareholders. LSB shall notify ONSB in
writing of its Board's decisions whether to accept or reject candidates
recommended by ONSB to fill such two (2) additional directorships on the 1998
Class and to fill such additional directorships on the 1999 Class and the 2000
Class. Prior to the Effective Time, LSB's Board of Directors shall (subject to
shareholder requirement and age restrictions in the Bylaws of LSB) elect the two
candidates accepted by the LSB Board to fill the two (2) additional
directorships on the 1998
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Class, provided such elections shall be contingent and become effective upon the
Closing of the Merger, and in connection with the 1998 annual meeting of LSB
shareholders, LSB's Board of Directors shall (subject to the Articles of
Incorporation and Bylaws of LSB and the occurrence of the Merger) recommend in
the proxy statement to the LSB shareholders the election of the particular
candidates accepted by the LSB Board to fill the one (1) additional directorship
on the 1999 Class and the one (1) additional directorship on the 2000 Class.
Notwithstanding anything to the contrary in this Section, the LSB Board may
reject any person(s) recommended by ONSB pursuant to this Section which in the
reasonable good faith judgment of the LSB Board could reasonably likely have an
adverse effect upon the LSB Board's ability to deliberate and take actions for
the benefit of the shareholders of LSB. Shortly after the election to LSB's
Board of Directors of the candidates recommended by ONSB as provided above (and
prior to the Effective Time with respect to candidates to fill the additional
directorships on the 1998 Class), LSB shall (subject to the Articles of
Incorporation and Bylaws of LSB Bank) cause such persons to be elected to LSB
Bank's Board of Directors for the same terms as such persons will serve as
directors on LSB's Board of Directors. Prior to the Effective Time, LSB Bank's
Board of Directors shall (subject to the Articles of Incorporation and Bylaws of
LSB Bank) appoint Nicholas A. Daves to the office of Senior Vice President of
LSB Bank, Charles V. Darnell to the office of Senior Vice President of LSB Bank,
Suzanne J. Bullotta to the office of Senior Vice President of LSB Bank, and all
other officers of ONSB to offices at LSB Bank that carries titles equivalent to
the titles held by such officers at ONSB (except for the corporate secretary of
ONSB that shall be appointed as an assistant corporate secretary of LSB Bank),
provided such appointments shall be contingent and become effective upon the
Closing of the Merger.
7.7 ONSB'S DISPOSITION OF FEDERAL RESERVE BANK STOCK. Prior to
the Effective Time, ONSB shall, and shall cause each of its Subsidiaries to,
take all necessary steps to sell or cause the cancellation of any and all shares
of Federal Reserve Bank stock owned by ONSB and its Subsidiaries.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; ONSB PROXY STATEMENT; SHAREHOLDER
APPROVAL. As soon as reasonably practicable after execution of this Agreement,
LSB shall file the Registration Statement with the SEC, provided ONSB has
provided, on a reasonably timely basis, all information concerning ONSB and its
Subsidiaries necessary for inclusion in the Registration Statement, and shall
use its commercially reasonable best efforts to cause the Registration Statement
to become effective under the 1933 Act as soon as reasonably practical after the
filing thereof and take any action required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the shares
of LSB Common Stock upon consummation of the Merger. ONSB shall promptly furnish
all
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information concerning it and the holders of its capital stock as LSB may
reasonably request in connection with such action. ONSB shall call a
Shareholders' Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of (i) this Agreement and the Plan of Merger, and (ii) such
other related matters as it deems appropriate. In connection with the
Shareholders' Meetings, (A) ONSB shall, if required, file the ONSB Proxy
Statement (which shall be included in the Registration Statement) with the FRB
and mail such ONSB Proxy Statement to its shareholders, (B) the Parties shall
furnish to each other all information concerning them that they may reasonably
request in connection with such ONSB Proxy Statement, (C) the Board of Directors
of ONSB shall recommend (subject to compliance with their fiduciary duties as
advised in writing by counsel to such Board) to its shareholders the approval of
this Agreement and the Plan of Merger, and (D) the Board of Directors and
officers of ONSB shall (subject to compliance with their fiduciary duties as
advised in writing by counsel to such Board) use their commercially reasonable
best efforts to obtain such shareholders' approval.
8.2 NASDAQ/NMS LISTING. LSB shall, prior to the Effective
Time, (i) file with the NASD a notification for the listing on the Nasdaq/NMS
relating to the proposed issuance of the shares of LSB Common Stock to be issued
to the holders of ONSB Common Stock pursuant to the Merger, and (ii) take all
other steps reasonably necessary to cause such shares to become listed on the
Nasdaq/NMS at the Effective Time.
8.3 APPLICATIONS. As soon as reasonably practical after
execution of this Agreement, LSB shall prepare and file, and ONSB shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement. The Parties shall
use their commercially reasonable best efforts to obtain the requisite Consents
of all Regulatory Authorities as soon as reasonably practical after the filing
of the appropriate applications.
8.4 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the
terms and conditions of this Agreement, each Party agrees to use, and to cause
its Subsidiaries to use, its commercially reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper, or advisable under applicable Laws to consummate and make
effective, as soon as practicable after the date of this Agreement, the
transactions contemplated by this Agreement, including, which limitation, using
its commercially reasonable best efforts to lift or rescind any Order adversely
affecting its ability to consummate the transactions contemplated herein and to
cause to be satisfied the conditions applicable to such Party referred to in
Article 9 hereof; provided, that nothing herein shall preclude either Party from
exercising its rights under this Agreement or the Option Agreement. Each Party
shall use, and shall cause each of its Subsidiaries to use, its
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commercially reasonable best efforts to obtain all Consents necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
8.5 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party shall keep the
other Party advised of all material developments relevant to its
business and to consummation of the Merger and shall permit the other
Party and its Representatives to make or cause to be made such
investigation of the business, books, records, contracts, employees,
and properties of it and its Subsidiaries during normal business hours
and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall
not interfere unreasonably with normal operations. No investigation by
a Party shall affect the representations and warranties of the other
Party.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior
to the Effective Time, each Party shall promptly return or certify the
destruction of all documents, electronic files and copies thereof, and
all work papers containing confidential information received from other
Party.
(c) ONSB shall use its commercially reasonable best efforts to
exercise its rights under confidentiality agreements entered into with
Persons which were considering an acquisition transaction with ONSB to
preserve the confidentiality of the information relating to ONSB
provided to such parties.
8.6 PRESS RELEASES. Prior to the Effective Time, ONSB and LSB
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this Section
8.6 shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.7 NO-SHOP COVENANT. Except with respect to this Agreement
and the transactions contemplated hereby, no ONSB Company nor any Affiliate
thereof nor any Representatives thereof retained by any ONSB Company shall
directly or indirectly solicit any Acquisition Proposal by any Person. Except to
the extent necessary to comply with the fiduciary duties of ONSB's Board of
Directors as advised in writing by counsel to such Board of Directors, no ONSB
Company or any Affiliate or Representative thereof shall
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furnish any non-public information that it is not legally obligated to furnish,
negotiate with respect to, or enter into any Contract with respect to, any
Acquisition Proposal, but ONSB may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised in
writing by counsel. ONSB shall promptly notify LSB orally and in writing in the
event that it receives any inquiry or proposal relating to any such transaction.
ONSB shall (i) immediately cease and cause to be terminated as of the date of
this Agreement any existing activities, discussions or negotiations with any
Persons conducted heretofore with respect to any of the foregoing, and (ii)
direct and use its commercially reasonable best efforts to cause all of its
Representatives not to engage in any of the foregoing. The Parties agree that
nothing in this Section 8.7 shall affect ONSB's no-shop obligations and LSB's
right of first refusal and right to a break-up fee set forth in Section 8 of the
Letter of Intent.
8.8 ACCOUNTING AND TAX TREATMENT. Each of the Parties
undertakes and agrees to use its commercially reasonable best efforts to cause
the Merger, and to take no action which would cause the Merger not, to qualify
for "pooling-of-interests" accounting treatment consistent with GAAP and the
rules and regulations of the SEC and treatment as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code for federal income tax
purposes.
8.9 STATE TAKEOVER LAWS. No ONSB Company shall take any steps
to make the transactions contemplated by this Agreement subject to any Takeover
Law, including Articles 9 and 9A of the NCBCA.
8.10 CHARTER PROVISIONS. Each ONSB Company shall take all
necessary action to ensure that the entering into of this Agreement, the Option
Agreement, the Confidentiality Agreement and the Plan of Merger, and the
consummation of the Merger and the other transactions contemplated hereby and
thereby do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws or other governing instruments of
any ONSB Company or restrict or impair the ability of LSB or any of its
Subsidiaries to vote, or otherwise exercise the rights of a shareholder with
respect to, shares of any ONSB Company that may be directly or indirectly
acquired or controlled by LSB.
8.11 AGREEMENT OF AFFILIATES. ONSB has disclosed in Section
8.11 of the ONSB Disclosure Memorandum each Person whom it reasonably believes
to be an "affiliate" of ONSB for purposes of Rule 145 under the 1933 Act. ONSB
shall use its commercially reasonable best efforts to cause each such Person to
execute and deliver to LSB not later than thirty (30) days prior to the
Effective Time, an Affiliate Agreement in substantially the form of Exhibit 2
(an "Affiliate Agreement"), providing that such Person will not sell, pledge,
transfer, or otherwise dispose of the shares of ONSB Common Stock held by such
Person, except as contemplated by such Affiliate Agreement or by this Agreement,
and will not sell, pledge, transfer, or otherwise dispose of the shares of LSB
Common Stock to be received by such Person upon consummation of the Merger,
except in compliance with applicable
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provisions of the 1933 Act and the rules and regulations thereunder and until
such time as financial results covering at least thirty (30) days of combined
operations of LSB and ONSB have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies. In order that
the Merger will qualify for "pooling-of-interests" accounting treatment
consistent with GAAP and the rules and regulations of the SEC, shares of LSB
Common Stock issued to such affiliates of ONSB in exchange for shares of ONSB
Common Stock shall not be transferable until such time as financial results
covering at least thirty (30) days of combined operations of LSB and ONSB have
been published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies, regardless of whether each such affiliate has
provided the Affiliate Agreement referred to in this Section 8.11 (and LSB shall
be entitled to place restrictive legends upon certificates for shares of LSB
Common Stock issued to affiliates of ONSB pursuant to this Agreement to enforce
the provisions of this Section 8.11). LSB shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of LSB Common Stock by such affiliates.
8.12 EMPLOYEE BENEFITS AND CONTRACTS.
(a) Following the Effective Time, LSB shall provide generally
to officers and employees of the ONSB Companies who at or after the
Effective Time become employees of a LSB Company (other than Mr. Daves,
Mr. Marziano and Mr. Darnell who shall have rights to employee benefits
as provided under their existing agreements), employee benefits under
employee benefit plans (other than stock option or other plans
involving the potential issuance of LSB Common Stock, except as set
forth in this Section 8.12), on terms and conditions substantially
similar to those currently provided by the LSB Companies to their
similarly situated officers and employees. For purposes of
participation and vesting (but not accrual of benefits) under such
employee benefit plans, (i) service under any qualified defined benefit
plans of ONSB shall be treated as service under LSB's qualified defined
benefit plans, (ii) service under any qualified defined contribution
plans of ONSB shall be treated as service under LSB's qualified defined
contribution plans, and (iii) service under any other employee benefit
plans of ONSB shall be treated as service under any similar employee
benefit plans maintained by LSB. LSB shall cause its, and its
Subsidiaries', employee benefit plans to waive any pre-existing
condition limitations covered under the applicable employee benefit
plans of the ONSB Companies for any employees of the ONSB Companies who
become or remain employees of any LSB Company. LSB also shall, and
shall cause its Subsidiaries to, honor all employment, consulting and
other compensation Contracts disclosed in Section 8.12 of the ONSB
Disclosure Memorandum between any ONSB Company and any current or
former director, officer, or employee thereof and all provisions for
vested benefits or other vested amounts earned or accrued through the
Effective Time under the ONSB Benefit Plans disclosed in Section 8.12
of the ONSB Disclosure Memorandum.
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(b) Each person employed by an ONSB Company on a full-time
basis at the Effective Time (other than Mr. Daves, Mr. Marziano and Mr.
Darnell) who, following the Merger and at LSB's sole discretion, is
terminated by an LSB Company for reasons other than Cause (as defined
below) within six (6) months following the Effective Time shall be
entitled to a severance payment by LSB Bank in an amount equal to one
(1) week's salary or wages for each full year of prior continuous
service with an ONSB Company, provided that any severance payment shall
consist of a minimum of two (2) weeks' salary or wages. For purposes of
this Section, the term "Cause" shall mean (i) failure or refusal of
employee to comply with duties and responsibilities substantially
similar to those assigned to the employee immediately prior to the
Merger, (ii) employee being charged by any duly constituted law
enforcement agency or authority with a crime involving moral turpitude,
theft, embezzlement, or fraud, or (iii) employee's excessive use or
abuse of drugs, alcohol or other toxic substances. To the extent any
ONSB Company maintains any plan or arrangement for the payment of
severance or salary continuation benefits to employees, such plan or
arrangement (except as provided in this Section 8.12(c)) shall be
terminated at the Effective Time and be of no force and effect
thereafter.
8.13 TAX FREE REORGANIZATION. The Parties agree to use their
commercially reasonable best efforts to obtain a written opinion of Bell, Davis
& Pitt, P.A., in form reasonably satisfactory to such Parties (the "Tax
Opinion"), to the effect that (i) the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, (ii) the
exchange in the Merger of ONSB Common Stock for LSB Common Stock will not give
rise to gain or loss to the shareholders of ONSB with respect to such exchange
(except that a shareholder who receives cash hereunder (as a result of the
exercise of dissenters' rights or in lieu of fractional shares) will recognize a
taxable gain up to the extent of any cash received, but will not recognize any
taxable loss), and (iii) each of ONSB, LSB, and LSB Bank will be a party to that
"reorganization" within the meaning of Section 368(b) of the Internal Revenue
Code and none of such parties will recognize gain or loss as a consequence of
the Merger. In rendering such Tax Opinion, counsel shall be entitled to rely
upon representations of officers of ONSB, LSB and LSB Bank reasonably
satisfactory in form and substance to such counsel.
8.14 D&O INSURANCE.
(a) LSB shall use its commercially reasonable best efforts
(and ONSB shall cooperate prior to the Effective Time in these efforts)
to maintain in effect for a period of three (3) years after the
Effective Time ONSB's existing directors' and officers' liability
insurance policy (provided that LSB may substitute therefor (i)
policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous or (ii) with
the consent of ONSB given prior to the Effective Time, any other
policy) with respect to claims arising from facts or events which
occurred prior to the Effective Time and covering persons who are
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currently covered by such insurance; provided, that LSB shall not be
obligated to make aggregate premium payments for such three-year period
in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related to ONSB's directors and officers, 250%
of the annual premium payments on ONSB's current policy in effect as of
the date of this Agreement (the "Maximum Amount"). If the amount of the
premiums necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, LSB shall use its commercially reasonable
best efforts to maintain the most advantageous policies of directors'
and officers' liability insurance obtainable for a premium equal to the
Maximum Amount.
(b) If the Surviving Bank or any of its successors or assigns
shall consolidate with or merge into any other Person and shall not be
the continuing or surviving Person of such consolidation or merger or
shall transfer all or substantially all of its assets to any Person,
then and in each case, proper provision shall be made so that the
successors and assigns of the Surviving Bank shall assume the
obligations set forth in this Section 8.14.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.6 hereof:
(a) Shareholder Approval. The shareholders of ONSB and LSB
shall have approved this Agreement and the Plan of Merger and the
consummation of the transactions contemplated hereby and thereby,
including the Merger, as and to the extent required by Law or by the
provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or
made and shall be in full force and effect and all waiting periods
required by Law, including the HSR Act, shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted
in a manner (including requirements relating to the raising of
additional capital or the disposition of Assets) which in the
reasonable good faith judgment of the Board of Directors of either
Party would so materially adversely impact the economic or business
assumptions of the transactions contemplated by this Agreement that,
had such condition or requirement been known, such Party would not, in
its reasonable good faith judgment have entered into this Agreement.
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(c) Consents and Approvals. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) hereof) or for the preventing of
any Default under any Contract or Permit of such Party which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party.
(d) Legal Proceeding. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions
contemplated by this Agreement.
(e) Registration Statement. The Registration Statement shall
be effective under the 1933 Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and
all necessary approvals under state securities Laws or the 1933 Act or
1934 Act relating to the issuance or trading of the shares of LSB
Common Stock issuable pursuant to the Merger shall have been received.
(f) Nasdaq/NMS Listing. The shares of LSB Common Stock
issuable pursuant to the Merger shall have been approved for listing on
the Nasdaq/NMS.
(g) Pooling Letters. Each of the Parties shall have received a
letter, dated as of the Effective Time, in form and substance
reasonably acceptable to such Party, from Arthur Anderson LLP to the
effect that the Merger will qualify for "pooling-of-interests"
accounting treatment under Accounting Principles Board Opinion No. 16
and consistent with the rules and regulations of the SEC if closed and
consummated in accordance with this Agreement. Each of the Parties also
shall have received a letter, dated as of the Effective Time, and in
form and substance reasonably acceptable to such Party, from Larrowe,
Cardwell & Company, LC to the effect that such firm is not aware of any
matters relating to ONSB and its Subsidiaries which would preclude the
Merger from qualifying for "pooling-of-interests" accounting treatment
under Accounting Principles Board Opinion No. 16 and consistent with
the rules and regulations of the SEC.
(h) Tax Matters. Each Party shall have received a copy of the
Tax Opinion referred to in Section 8.13 hereof. In addition, each Party
shall have delivered to the other Parties a Certificate, dated as of
the date of the Tax Opinion, signed by its duly authorized officers, to
the effect that, to the best knowledge and belief of such officers, the
statement of facts and representations made on behalf of the management
of such Party, presented to the legal counsel delivering the Tax
Opinion, were at the date of such presentation, true, correct, and
complete, and are
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on the date of such Certificate, to the extent contemplated by the
presentation, true, correct, and complete, as though such presentation
had been made on the date of such Certificate.
(i) Plan of Merger; Articles of Merger. Each Party shall have
received from LSB Bank and ONSB the executed Plan of Merger and the
executed Articles of Merger.
9.2 CONDITIONS TO OBLIGATIONS OF LSB. The obligations of LSB
to perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by LSB pursuant to Section 11.6(a) hereof:
(a) Representations and Warranties. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
ONSB set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of ONSB set forth in Sections
5.3 and 5.7 hereof shall be true and correct (except for inaccuracies
which are de minimus in amount). The representations and warranties of
ONSB set forth in Sections 5.17, 5.18, and 5.19 hereof shall be true
and correct in all material respects. There shall not exist
inaccuracies in the representations and warranties of ONSB set forth in
this Agreement (including the representations and warranties set forth
in Sections 5.3, 5.7, 5.17, 5.18, and 5.19) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a
Material Adverse Effect on ONSB; provided that, for purposes of this
sentence only, those representations and warranties which are qualified
by references to "material" or "Material Adverse Effect" shall be
deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of ONSB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. ONSB shall have delivered to LSB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its Chairman of the Board and its President and Chief Executive
Officer, to the effect that the conditions of its obligations set forth
in Section 9.2(a) and 9.2(b) hereof have been satisfied, and (ii)
certified copies of resolutions duly adopted by ONSB's Board of
Directors and shareholders evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance
of this Agreement, the Option Agreement and
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the Plan of Merger, and the consummation of the transactions
contemplated hereby and thereby, all in such reasonable detail as LSB
and its counsel shall request.
(d) Opinion of Counsel. LSB shall have received a written
opinion of Bell, Davis & Pitt, P.A., counsel to ONSB, dated as of the
Effective Time, in form reasonably satisfactory to LSB and its counsel,
as to the matters set forth in Exhibit 4.
(e) Fairness Opinion. LSB shall have received from The Carson
Medlin Company a letter, dated not more than five (5) business days
prior to the date of the LSB Proxy Statement, to the effect that, in
the opinion of such firm, the terms of the Merger are fair, from a
financial point of view, to the holders of LSB Common Stock.
(f) Accountant's Letters. LSB shall have received from
Larrowe, Cardwell & Company, LC letters dated not more than five (5)
days prior to (i) the date of the ONSB Proxy Statement, (ii) the date
of the LSB Proxy Statement, and (iii) the Effective Time, with respect
to certain financial information regarding ONSB, in form and substance
reasonably satisfactory to LSB, which letters shall be based upon
customary specified procedures undertaken by such firm in accordance
with Statement of Auditing Standard No. 72.
(g) Affiliate Agreements. LSB shall have received from each
affiliate of ONSB an executed Affiliate Agreement referred to in
Section 8.11 hereof, to the extent necessary to assure in the
reasonable judgment of LSB that the transactions contemplated hereby
will qualify for "pooling-of-interests" accounting treatment consistent
with GAAP and the rules and regulations of the SEC.
(h) Support Agreement. LSB Bank shall have received from at
least a majority of the directors of ONSB and the President and Chief
Executive Officer and the Chairman of the Board of ONSB executed
Support Agreements referred to in the Preamble of this Agreement.
(i) Address Existing Dispute. ONSB shall have addressed the
dispute referred to in Section 5.14 of the ONSB Disclosure Memorandum
in a manner (including, without limitation, on terms and conditions, if
resolved) reasonably satisfactory to LSB.
9.3 CONDITIONS TO OBLIGATIONS OF ONSB. The obligations of ONSB
to perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction or the following conditions,
unless waived by ONSB pursuant to Section 11.6(b) hereof:
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(a) Representations and Warranties. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
LSB set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as
though all such representations and warranties had been made on and as
of the Effective Time (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of LSB set forth in Section
6.3 hereof shall be true and correct (except for inaccuracies which are
de minimus in amount). The representations and warranties of LSB set
forth in Section 6.11 hereof shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of LSB set forth in this Agreement (including the
representations and warranties set forth in Sections 6.3 and 6.11) such
that the aggregate effect of such inaccuracies has, or is reasonably
likely to have, a Material Adverse Effect on LSB; provided that, for
purposes of this sentence only, those representations and warranties
which are qualified by references to "material" or "Material Adverse
Effect" shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of LSB to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. LSB shall have delivered to ONSB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its Chairman of the Board, President and Chief Executive Officer, to
the effect that the conditions of its obligations set forth in Section
9.3(a) and 9.3(b) hereof have been satisfied, and (ii) certified copies
of resolutions duly adopted by LSB's Board of Directors and the
shareholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement and
the Option Agreement, and the consummation of the transactions
contemplated hereby and thereby, all in such reasonable detail as ONSB
and its counsel shall request.
(d) Opinion of Counsel. ONSB shall have received a written
opinion of Hunton & Williams, counsel to LSB and LSB Bank, dated as of
the Effective Time, in form reasonably satisfactory to ONSB and its
counsel, as to the matters set forth in Exhibit 5.
(e) Fairness Opinion. ONSB shall have received from Scott &
Stringfellow, Inc. a letter, dated not more than five (5) business days
prior to the date of the ONSB Proxy Statement, to the effect that, in
the opinion of such firm, the terms of the Merger are fair, from a
financial point of view, to the holders of ONSB Common Stock.
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ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement and the Plan of Merger, and notwithstanding the approval of this
Agreement by the shareholders of ONSB or LSB, this Agreement may be terminated
and the Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of LSB and the
Board of Directors of ONSB; or
(b) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) hereof in the case of ONSB and Section 9.3(a)
in the case of LSB or in material breach of any covenant or other
agreement contained in this Agreement) in the event of an inaccuracy of
any representation or warranty of the other Party contained in this
Agreement which cannot be or has not been cured within thirty (30) days
after receipt of written notice by the breaching Party of such
inaccuracy and which inaccuracy would provide the terminating Party the
ability to refuse to consummate the Merger under the applicable
standard set forth in Section 9.2(a) hereof in the case of ONSB and
Section 9.3(a) hereof in the case of LSB; or
(c) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) hereof in the case of ONSB and Section 9.3(a)
in the case of LSB or in material breach of any covenant or other
agreement contained in this Agreement) in the event of a material
breach by the other Party of any covenant or agreement contained in
this Agreement which cannot be or has not been cured within thirty (30)
days after the receipt of written notice by the breaching Party of such
breach; or
(d) By the Board of Directors of either Party in the event (i)
any Consent of any Regulatory Authority required for consummation of
the Merger and the other transactions contemplated hereby shall have
been denied by final nonappealable action of such authority or if any
action taken by such authority is not appealed within the time limit
for appeal, or (ii) the shareholders of ONSB or LSB fail to vote their
approval of this Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby, as required by the Laws of the State
of North Carolina at the shareholders' meeting where the transactions
were presented to such shareholders for approval and voted upon; or
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(e) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by September 30, 1997,
if the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the
Party electing to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) hereof in the case of ONSB and Section 9.3(a)
in the case of LSB or in material breach of any covenant or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger (other than as contemplated by Section 10.1(d) hereof) cannot be
satisfied or fulfilled by the date specified in Section 10.1(e) hereof;
or
(g) By the Board of Directors of LSB, in the event that the
Board of Directors of ONSB shall have affirmed, recommended or
authorized entering into any Acquisition Proposal in conflict with this
Agreement or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the Assets of ONSB;
or
(h) By the Board of Directors of LSB, at any time prior to the
90th day after the date of this Agreement, in the event that the review
of the Assets, business, financial condition, results of operations,
and prospects of ONSB undertaken by LSB and its Representatives during
such time period or any of the disclosures contained in the ONSB
Disclosure Memorandum causes the Board of Directors of LSB to
determine, in its reasonable good faith judgment, that a fact or
circumstance exists or is likely to exist or result which materially
and adversely impacts the economic benefits taken as whole to LSB of
the transactions contemplated by this Agreement so as to render
inadvisable the consummation of the Merger; or
(i) By the Board of Directors of either Party in the event the
Average LSB Closing Price is either below $15.00 or above $24.00,
provided that such termination must occur during the 7-day period
commencing after the Pricing Period by the terminating Party giving
written notice of termination to the other Party.
10.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement and abandonment of the Merger pursuant to Section 10.1 hereof,
this Agreement shall become void and have no effect, except that (i) the
provisions of this Section 10.2 and Article 11 and Section 8.5(b) hereof shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b), 10.1(c), 10.1(f) or 10.1(g) hereof shall not relieve the
breaching Party from liability for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination. The
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Parties agree that a termination of the Agreement under this Article 10 shall
have no effect upon their rights and obligations under the Option Agreement and
the Letter of Intent except as otherwise provided therein.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The
respective representations, warranties, obligations, covenants, and agreements
of the Parties shall not survive the Effective Time except this Section 10.3 and
Articles 2, 3, 4 and 11 and Sections 7.6, 8.11, 8.12 and 8.14 hereof.
ARTICLE 11
MISCELLANEOUS
11.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"ACQUISITION PROPOSAL" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger,
acquisition of all of the stock or assets of, or other business
combination involving such Party or any of its Subsidiaries or the
acquisition of a substantial equity interest in, or a substantial
portion of the assets of, such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person;
(ii) any officer, director, partner, employer, or direct or indirect
beneficial owner of any ten percent (10%) or greater equity or voting
interest of such Person; or (iii) any other Person for which a Person
described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of
Reorganization and Merger, including the Exhibits, the LSB Disclosure
Memorandum and the ONSB Disclosure Memorandum delivered pursuant hereto
and incorporated herein by reference.
"ARTICLES OF MERGER" shall mean the Articles of Merger (which
shall contain the Plan of Merger) to be executed by LSB Bank and filed
with the Secretary of State of the State of North Carolina relating to
the Merger as contemplated by Section 1.1 hereof.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real,
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personal or mixed, tangible or intangible, accrued or contingent, or
otherwise relating to or utilized in such Person's business, directly
or indirectly, in whole or in part, whether or not carried on the books
and records of such Person, and whether or not owned in the name of
such Person or any Affiliate of such Person and wherever located.
"AVERAGE LSB CLOSING PRICE" shall mean the simple average of
the last sale prices for LSB Common Stock on the Nasdaq/NMS (as
reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source selected by LSB) on the trading days during
the Pricing Period.
"BHC ACT" shall mean the federal Bank Holding Company Act of
1956, as amended.
"CLOSING DATE" shall mean the date on which the Closing
occurs.
"CONFIDENTIALITY AGREEMENT" shall mean that certain
Confidentiality Agreement dated as of January 20, 1997 between LSB and
ONSB.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding, or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract,
Order or Permit, or (iii) any occurrence of any event that with or
without the passage of time or the giving of notice would give rise to
a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under,
any Contract, Order or Permit.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution
or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata)
and which are administered, interpreted or enforced by the United
States Environmental Protection Agency or state or local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of human health or the environment, including the
Comprehensive
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Environmental Response Compensation and Liability Act, as amended, 42
U.S.C. 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 4213.S.C. 6901 et seq., and other Laws relating to emissions,
discharges, releases or threatened releases of any Hazardous Material,
or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any
Hazardous Material.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXHIBITS" 1 through 5, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part hereof, and
may be referred to in this Agreement and any other related instrument
or document without being attached hereto or thereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall mean the Board of Governors of the Federal Reserve
System.
"FRB/FDIC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with the
FRB or the FDIC pursuant to applicable Laws.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance or toxic
substance (as those terms are defined by any applicable Environmental
Laws) and (ii) any chemicals, pollutants, contaminants, petroleum,
petroleum products, or oil (and specifically shall include asbestos
requirement abatement, removal or encapsulation pursuant to the
requirements of governmental authorities and any polychlorinated
biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as added
by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
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"KNOWLEDGE" as used with respect to a Person (including
references to such Person being aware of a particular matter) shall
mean the actual knowledge after due inquiry of the Chairman, President,
Chief Executive Officer, Corporate Secretary, Chief Financial Officer,
Chief Accounting Officer, Chief Credit Officer, General Counsel, any
Assistant or Deputy General Counsel, or any Senior or Executive Vice
President of such Person.
"LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities or business, including, without
limitation, those promulgated, interpreted or enforced by any of the
Regulatory Authorities.
"LETTER OF INTENT" shall mean that certain letter of intent
dated January 20, 1997 between LSB and ONSB, as amended on February 12,
1997, relating to the transactions herein.
"LIABILITY" shall mean any direct or indirect, primary or
secondly, liability, indebtedness, obligation, penalty, cost or expense
(including without limitation, costs of investigation, collection and
defense), claim, deficiency, guaranty or endorsement of or by any
Person (other than endorsements of notes, bills, checks and drafts
presented for collection or deposit in the ordinary course of business)
of any type, whether accrued, absolute or contingent, liquidated or
unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction,
security interest, title retention, or other security arrangement, or
any adverse right or interest, charge, or claim of any nature
whatsoever of, on, or with respect to any property or property
interest, other than (i) Liens for current property Taxes not yet due
and payable, and (ii) for depository institution, pledges to secure
deposits and other Liens incurred in the ordinary course of the banking
business.
"LITIGATION" shall mean any action, arbitration, cause of
action, complaint, criminal prosecution, demand letter, governmental or
other investigation, hearing, inquiry, administrative or other
proceeding, relating to or affecting a Party, its Subsidiaries, its or
their business, its or their Assets (including Contracts related to it
or them), or the transactions contemplated by this Agreement, but shall
not include regular, periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities.
"LOAN PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security
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interest or other lien (including an interest in a fiduciary capacity),
and, where required by the context, includes the owner or operator of
such property, but only with respect to such property.
"LSB BANK COMMON STOCK" shall mean the common stock, par value
$5.00 per share, of LSB Bank.
"LSB COMMON STOCK" shall mean the common stock, par value
$5.00 per share, of LSB.
"LSB COMPANIES" shall mean, collectively, LSB and all LSB
Subsidiaries.
"LSB DISCLOSURE MEMORANDUM" shall mean the written information
entitled "LSB Bancshares, Inc. Disclosure Memorandum" delivered to ONSB
prior to ONSB's execution of this Agreement, describing in reasonable
detail the matters contained therein and, with respect to each
disclosure made therein, specifically referencing each Section of this
Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be
disclosed for purposes of any other Section not specifically referenced
with respect thereto. Such LSB Disclosure Memorandum is hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or
document without being attached hereto or thereto.
"LSB FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of LSB
as of September 30, 1996, and as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any), for the nine
months ended September 30, 1996, and for each of the three fiscal years
ended December 31, 1995, 1994 and 1993, as filed by LSB in SEC
Documents, and (ii) the consolidated balance sheets of LSB (including
related notes and schedules, if any) and related statements of income,
changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in SEC Documents filed with
respect to periods ended subsequent to September 30, 1996.
"LSB PROXY STATEMENT" shall mean the proxy statement used by
LSB to solicit the approval of its shareholders of the transactions
contemplated by this Agreement.
"LSB STOCK PLANS" shall mean the existing stock option plans
of LSB designated as follows: (i) 1986 Employee Incentive Stock Option
Plan, (ii) 1994 Directors' Stock Option Plan, and (iii) 1996 Omnibus
Stock Incentive Plan.
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"LSB SUBSIDIARIES" shall mean the Subsidiaries of LSB,
including, without limitation, LSB Bank, Peoples Finance Company of
Lexington, Inc., LSB Financial Services, Inc., and LSB Properties, Inc.
"MATERIAL" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event,
condition, occurrence, change in facts, conditions or circumstances
which, individually or in the aggregate, the other Party shall
reasonable determine could have an adverse effect resulting in: (i)
liability, loss, damage or injury and all reasonable costs and expenses
(including reasonable counsel fees and costs of any suit related
thereto) on the financial position, business, or results of operations
of such Party and its Subsidiaries, taken as a whole, exceeding five
(5%) percent of such Party's consolidated shareholders' equity set
forth on its balance sheet as of September 30, 1996, which is a part of
the ONSB Financial Statements or the LSB Financial Statements, as the
case may be; or (ii) the inability of such Party to perform its
obligations under this Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement; provided that
"Material Adverse Effect" shall not be deemed to include the impact of
(a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b)
changes in GAAP or regulatory accounting principles generally
applicable to banks and their holding companies, (c) the Merger and
compliance with the provisions of this Agreement on the operating
performance of the Parties, and (d) actions and omissions of a Party or
any of its Subsidiaries taken with the prior informed written consent
of the other Party.
"MERGER" shall mean the merger of ONSB with and into LSB Bank
referred to in Section 1.1 hereof.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"NASDAQ/NMS" shall mean the National Market System of the NASD
Automated Quotations System.
"NCBCA" shall mean the North Carolina Business Corporation
Act.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
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"ONSB COMMON STOCK" shall mean the common stock, par value
$5.00 per share, of ONSB.
"ONSB COMPANIES" shall mean, collectively, ONSB and all ONSB
Subsidiaries.
"ONSB DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Old North State Bank Disclosure Memorandum"
delivered to LSB prior to LSB's execution of this Agreement, describing
in reasonable detail the matters contained therein and, with respect to
each disclosure made therein, specifically referencing each Section of
this Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be
disclosed for purposes of any other Section not specifically referenced
with respect thereto. Such ONSB Disclosure Memorandum is hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or
document without being attached hereto or thereto.
"ONSB FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of ONSB
as of September 30, 1996, and as of December 31, 1995 and 1994, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the nine
months ended September 30, 1996, and for each of the three fiscal years
ended December 31, 1995, 1994 and 1993, as filed by ONSB in FRB/FDIC
Documents, and (ii) the consolidated balance sheets of ONSB (including
related notes and schedules, if any) and related statements of income,
changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in FRB/FDIC Documents filed with
respect to periods ended subsequent to September 30, 1996.
"ONSB PROXY STATEMENT" shall mean the proxy statement used by
ONSB to solicit the approval of its shareholders of the transactions
contemplated by this Agreement, which shall include the prospectus of
LSB relating to the issuance of LSB Common Stock to holders of ONSB
Common Stock in connection with the transactions contemplated in this
Agreement.
"ONSB STOCK PLANS" shall mean the existing stock option plans
of ONSB designated as follows: (i) 1989 Employee Stock Option Plan of
Piedmont BancShares Corporation (assumed by ONSB in connection with its
merger with Piedmont BancShares Corporation on December 28, 1995), and
(ii) 1990 Incentive Stock Option Plan of Old North State Bank.
"ONSB SUBSIDIARIES" shall mean the Subsidiaries of ONSB, which
shall include the ONSB Subsidiaries described in Section 5.4 hereof and
any corporation,
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bank, savings association, or other organization acquired as a
Subsidiary of ONSB in the future and owned by ONSB at the Effective
Time.
"ONSB WARRANTS" shall mean the existing warrants issued by
ONSB to purchase 40,342 shares of ONSB Common Stock, immediately
exercisable at $9.09 per share, which expire on April 11, 2000.
"ORDER" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory
Authority.
"PARTICIPATION FACILITY" shall mean any facility or property
in which the Party in question or any of its Subsidiaries participates
in the management and, where required by the context, said term means
the owner or operator of such facility or property, but only with
respect to such facility or property.
"PARTY" shall mean either ONSB or LSB, and "Parties" shall
mean both ONSB and LSB.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets or business.
"PERSON" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, limited liability partnership, trust, business
association, group acting in concert, or any person acting in a
representative capacity.
"PLAN OF MERGER" shall mean the Plan of Merger, in
substantially in the form of Exhibit 1 hereto, to be entered into by
ONSB and LSB Bank setting forth the terms of the Merger.
"PRICING PERIOD" shall mean the fifteen (15) consecutive
trading days preceding the beginning of the 10-day period ending on the
Closing Date.
"REGISTRATION STATEMENT" shall mean the Registration Statement
on Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
LSB under the 1933 Act with respect to the shares of LSB Common Stock
to be issued to the shareholders of ONSB in connection with the
transactions contemplated by this Agreement.
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"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the FRB, the
Office of Thrift Supervision (including its predecessor, the Federal
Home Loan Bank Board), the Office of the Comptroller of the Currency,
the FDIC, all state regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries, the NASD, and the SEC.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a
Person.
"RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of a Person or by which a Person is or
may be bound to issue additional shares of its capital stock or other
Rights.
"SEC" shall mean the United State Securities and Exchange
Commission.
"SEC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules, and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"SHAREHOLDERS' MEETING" shall mean the meeting of the
shareholders of ONSB to be held pursuant to Section 8.1 hereof,
including any adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls fifty percent (50%) or more of the outstanding equity
securities either directly or through an unbroken chain of entities as
to each of which fifty percent (50%) or more of the outstanding equity
securities is owned directly or indirectly by its parent; provided,
however, there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of which are owned
or controlled in a fiduciary capacity.
"SURVIVING BANK" shall mean LSB Bank, as the surviving bank
resulting from the Merger.
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"TAX" or "TAXES" shall mean all federal, state, local, and
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment,
sales, use, transfer, license, payroll, franchise, severance, stamp,
occupation, windfall profits, environmental, federal highway use,
commercial rent, customs duties, capital stock, paid-up capital,
profits, withholding, Social Security, single business and
unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of any kind whatsoever,
imposed or required to be withheld by the United States or any state,
local, foreign government or subdivision or agency thereof, including
any interest, penalties or additions thereto.
"TAX RETURN" shall mean any report, return, information
return, or other information required to be supplied to a taxing
authority in connection with Taxes, including any return of an
affiliated or combined or unitary group that includes a Party or its
Subsidiaries.
(b) The terms set forth below shall have the meanings
ascribed thereto in the referenced sections:
Affiliate Agreement Section 8.11
Closing Section 1.2
Effective Time Section 1.3
ERISA Affiliate Section 5.12(d)
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(c)
LSB Benefit Plans Section 6.15(a)
LSB ERISA Plan Section 6.15(a)
LSB Pension Plan Section 6.15(a)
LSB SEC Reports Section 6.4(a)
Maximum Amount Section 8.14
ONSB Benefit Plans Section 5.12(a)
ONSB Contracts Section 5.13
ONSB ERISA Plan Section 5.12(a)
ONSB Pension Plan Section 5.12(a)
ONSB Options Section 3.6
ONSB FRB/FDIC Reports Section 5.5(b)
Support Agreement Preamble
Takeover Law Section 5.18
Tax Opinion Section 8.13
(b) Any singular term in this Agreement shall be deemed to
include the plurals and any plural term the singular. Whenever the
words "include", "includes"
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or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitations."
11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2, each of
the Parties shall bear and pay all direct costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including filing, registration and application fees,
printing fees, and fees and expenses of its own financial or other
consultants, investment bankers, accountants, and legal counsel, except
that each of the Parties shall bear and pay one-half of (i) the SEC and
Blue Sky filing fees incurred in connection with the Registration
Statement, the ONSB Proxy Statement and the LSB Proxy Statement, and
(ii) the printing and distribution costs incurred in connection with
the printing and distribution of the Registration Statement, the ONSB
Proxy Statement and the LSB Proxy Statement.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach
by a Party of the terms of this Agreement or otherwise limit the rights
of the non-breaching Party.
(c) Nothing contained in this Section 11.2 shall affect the
break-up fee arrangement between the Parties set forth in Section 8 of
the Letter of Intent.
11.3 BROKERS AND FINDERS. Except for Scott & Stringfellow,
Inc. as to ONSB, and The Carson Medlin Company as to LSB, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by ONSB or LSB, each of ONSB and LSB, as the case
may be, agrees to indemnify and hold the other Party harmless of and from any
Liability in respect of any such claim.
11.4 ENTIRE AGREEMENT. Except for the binding provisions of
the Letter of Intent, the Option Agreement and the Confidentiality Agreement, or
as otherwise expressly provided herein, this Agreement (including the documents
and instruments referred to herein) constitutes the entire agreement among the
parties hereto with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral. Nothing in this Agreement, expressed or implied, is intended to
confer upon any Person, other than the parties hereto or their respective
successors, any rights, remedies, obligations, or liabilities under or by reason
of this Agreement, other than as provided in Section 8.11 hereof.
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11.5 AMENDMENTS. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each of the parties
hereto upon the approval of the Boards of Directors of each of the Parties,
whether before or after shareholder approval of this Agreement has been
obtained.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, LSB, acting through its
Board of Directors, Chairman of the Board, President, Chief Executive
Officer, or other authorized officer, shall have the right to waive any
Default in the performance of any term of this Agreement by ONSB, to
waive on behalf of LSB and LSB Bank or extend the time for the
compliance or fulfillment by ONSB of any and all of its obligations
under this Agreement, and to waive any or all of the conditions
precedent to the obligations of LSB under this Agreement, except any
condition which, if not satisfied, would result in the violation of any
Law. No such waiver shall be effective unless in writing signed by such
duly authorized officer of LSB.
(b) Prior to or at the Effective Time, ONSB, acting though its
Board of Directors, Chairman of the Board, President, Chief Executive
Officer, or other authorized officer, shall have the right to waive on
behalf of ONSB any Default in the performance of any term of this
Agreement by LSB or LSB Bank, to waive or extend the time for the
compliance or fulfillment by LSB of any and all of its obligations
under this Agreement, and to waive any or all of the conditions
precedent to the obligations of ONSB under this Agreement, except any
condition which, if not satisfied, would result in the violation of any
Law. No such waiver shall be effective unless in writing signed by such
duly authorized officer of ONSB.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right
of such Party at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the
breach of any term contained in this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of
such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other parties hereto. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties hereto and their respective successors
and assigns.
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11.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the address set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so received:
LSB and LSB Bank: LSB Bancshares, Inc.
One LSB Plaza
Lexington, North Carolina 27292
Telecopy Number: (910) 249-1589
Attention: Robert F. Lowe
Chairman of the Board,
President and
Chief Executive Officer
Copy to Counsel: Hunton & Williams
One NationsBank Plaza, Suite 2650
101 South Tryon Street
Charlotte, North Carolina 28280
Telecopy Number: (704) 378-4890
Attention: David E. Johnston
ONSB: Old North State Bank
161 South Stratford Road
Winston-Salem, North Carolina 27104
Telecopy Number: (910) 631-3922
Attention: Nicholas A. Daves
Chairman of the Board
Copy to Counsel: Bell, Davis & Pitt, P.A.
635 West Fourth Street
Winston-Salem, North Carolina 27101
Telecopy Number: (910) 722-6558
Attention: John W. Babcock
11.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of North Carolina, without
regard to any applicable conflicts of Laws, except to extent that the federal
laws of the United States may apply to the Merger.
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11.10 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are
for reference purposes only and are not part of this Agreement
11.12 INTERPRETATIONS. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against any
party, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. The parties acknowledge and agree
that this Agreement has been reviewed, negotiated and accepted by all parties
and their attorneys and shall be construed and interpreted according to the
ordinary meaning of the words used so as fairly to accomplish the purposes and
intentions of all parties hereto.
11.13 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or equity.
11.14 SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provision of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable the provision
shall be interpreted to be only so broad as is enforceable.
[Signatures On The Following Page]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by officers thereunto, all duly authorized, all as of the
day and year first above written.
ATTEST: LSB BANCSHARES, INC.
- ------------------------------- ------------------------------------------
Secretary Robert F. Lowe
Chairman, President and Chief Executive
Officer
[CORPORATE SEAL]
ATTEST: LEXINGTON STATE BANK
- ------------------------------- ------------------------------------------
Secretary Robert F. Lowe
Chairman, President and Chief Executive
Officer
[CORPORATE SEAL]
ATTEST: OLD NORTH STATE BANK
- ------------------------------- ------------------------------------------
Secretary Nicholas A. Daves
Chairman of the Board
[CORPORATE SEAL]
------------------------------------------
Robert E. Marziano
President and Chief Executive Officer
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APPENDIX B
PROVISIONS OF THE NORTH CAROLINA BUSINESS CORPORATION ACT
RELATING TO DISSENTERS' APPRAISAL RIGHTS
ARTICLE 13.
DISSENTERS' RIGHTS
PART 1.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SEC. 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.
SEC. 55-13-02
RIGHT TO DISSENT
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including 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;
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(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.
SEC. 55-13-03
DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenter's 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.
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PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SEC. 55-13-20
NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
SEC. 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.
SEC. 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 the
corporate action was taken, 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.
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SEC. 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.
SEC. 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.
SEC. 55-13-25
OFFER OF PAYMENT
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to 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, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.
(b) The offer of payment must 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
offer 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) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
SEC. 55-13-26
FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share 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.
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SEC. 55-13-28
PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S OFFER 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 his estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered 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 to a dissenter who accepts
the corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; 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 offered 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.
PART 3.
JUDICIAL APPRAISAL OF SHARES
SEC. 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 date of his payment
demand under G.S. 55-13-28 and petition the court to determine the fair value of
the shares and accrued interest. Upon service upon it of the petition filed with
the court, the corporation shall pay to the dissenter the amount offered by the
corporation under G.S. 55-13-25.
(b) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(c) Reserved for future codification purposes.
(d) 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 petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(e) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) 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. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
(f) 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.
B-5
<PAGE> 167
SEC.55-13-31
COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
B-6
<PAGE> 168
APPENDIX C
May __, 1997
Board of Directors
Old North State Bank
Stratford Road Branch - P.O. Box 5068
Winston-Salem, NC 27113-5068
Gentlemen:
You have asked us to render our opinion relating to the fairness, from a
financial point of view, to the shareholders of Old North State Bank ("Old
North State") of the terms of an Agreement and Plan of Reorganization and
Merger by and among LSB Bancshares, Inc. ("LSB"), Lexington State Bank ("LSB
Bank") and Old North State dated March 14, 1997 (the "Merger Agreement"). The
Merger Agreement provides for the merger of Old North State with and into LSB's
wholly owned subsidiary LSB Bank (the "Merger") and further provides that each
share of Common Stock of Old North State which is issued and outstanding
immediately prior to the Effective Date of the Merger shall be converted into a
number of shares of LSB Common Stock according to the following:
(1) If LSB's stock price is above $20.00 per share, then the
Exchange Ratio (the "Exchange Ratio") shall equal the following:
ER = [[(ALCP * $250,000) + $25,000,000]/IOS]/ALCP
Where:
ER = Exchange Ratio
ALCP = Average LSB Closing Price (as defined in the Merger
Agreement)
IOS = 1,582,678 shares of Old North State Common Stock, less
any shares canceled; or,
(2) If LSB's stock price is below $20.00 per share, then the
Exchange Ratio shall equal the following:
ER = [[(ALCP*$1,000,000) + $10,000,000]/IOS]/ALCP
<PAGE> 169
Board of Directors
Old North State Bank
May , 1997
Page 2
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Merger Agreement; (2) the Registration Statement and
this Proxy Statement; (3) Old North State's audited financial statements
for the three years ended December 31, 1996; (4) other internal
information relating to Old North State prepared by Old North State's
management; (5) information regarding the trading market for the common
stocks of Old North State and LSB and the price ranges within which the
respective stocks have traded; (6) the relationship of prices paid to
relevant financial data such as net worth, assets, deposits and earnings
in certain bank and bank holding company mergers and acquisitions in
North Carolina in recent years; (7) LSB's annual reports to shareholders
and its audited financial statements for the three years ended December
31, 1996; and (8) other internal information relating to LSB prepared by
LSB's management. We have discussed with members of management of Old
North State and LSB the background to the Merger, reasons and basis for
the Merger and the business and future prospects of Old North State and
LSB individually and as a combined entity. Finally, we have conducted
such other studies, analyses and investigations, particularly of the
banking industry, and considered such other information as we deemed
appropriate and usual and customary for transactions such as this.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information
furnished to us by or on behalf of Old North State and LSB. We have not
attempted independently to verify such information, nor have we made any
independent appraisal of the assets of Old North State or LSB. We have
taken into account our assessment of general economic, financial market
and industry conditions as they exist and can be evaluated at the date
hereof, as well as our experience in business valuation in general.
On the basis of our analyses and review and in reliance on the
accuracy and completeness of the information furnished to us and subject
to the conditions noted above, it is our opinion that, as of the date
hereof the terms of the Merger Agreement are fair from a financial point
of view to the shareholders of Old North State Bank Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By:
----------------------------------------
G. Jacob Savage III, CFA
Managing Director & First Vice President
<PAGE> 170
APPENDIX D
May 9, 1997
Board of Directors
LSB Bancshares, Inc.
One LSB Plaza
P.O. Box 867
Lexington, North Carolina 27293-0867
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the Exchange Ratio, as defined below, to the stockholders of LSB
Bancshares, Inc. ("LSB") under the terms of a certain Agreement and Plan of
Reorganization and Merger dated as of March 14, 1997 (the "Agreement") by and
among LSB, Lexington State Bank and Old North State Bank ("ONSB") pursuant to
which ONSB will merge with and into Lexington State Bank (the "Merger"). Under
the terms of the Agreement, each of the outstanding shares of ONSB common stock
shall be converted into and exchanged for .948 of a share of LSB common stock,
subject to certain adjustments (the "Exchange Ratio"). The foregoing summary
of the Merger is qualified in its entirety by reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in North Carolina and the Southeast and the major
commercial banks operating in that market. We have been retained by LSB in a
financial advisory capacity to render our opinion hereunder, for which we will
receive compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of LSB and ONSB. In connection with rendering our
opinion, we reviewed (i) the Agreement; (ii) the annual reports to stockholders
of LSB, including audited financial statements, for the five years ended
December 31, 1996; (iii) the annual reports to stockholders of ONSB, including
audited financial statements, for the five years ended December 31, 1996; (iv)
the Proxy Statement of LSB dated March 14, 1997 for the annual meeting of the
stockholders of LSB held on April 16, 1997; (v) the Proxy Statement of ONSB
dated April 12,
<PAGE> 171
Board of Directors
LSB Bancshares, Inc.
May 9, 1997
Page 2
1997 for the annual meeting of the stockholders of ONSB held on May 12, 1997;
(vi) interim financial statements of LSB and ONSB through March 31, 1997; (vii)
a preliminary copy of the joint Proxy Statement prepared in connection with the
respective special meetings of the stockholders of LSB and ONSB to be held to
consider the Merger; and (viii) certain other financial and operating
information with respect to the business, operations and prospects of LSB and
ONSB.
We also (i) held discussions with members of the senior management of LSB and
ONSB regarding their respective historical and current business operations,
financial conditions and future prospects; (ii) reviewed the historical market
prices and trading activity for the common stocks of LSB and ONSB and compared
them with those of certain publicly traded companies which we deemed to be
relevant; (iii) compared the results of operations of LSB and ONSB with those
of certain banking companies which we deemed to be relevant; (iv) compared the
proposed financial terms of the Merger with the financial terms, to the extent
publicly available, of certain other recent business combinations of commercial
banking organizations; (v) analyzed the pro forma financial impact of the
Merger on LSB; and (vi) conducted such other studies, analyses, inquiries and
examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of LSB and
ONSB. The opinion we express herein is necessarily based upon market, economic
and other relevant considerations as they exist and can be evaluated as of the
date of this letter.
Based upon the foregoing, it is our opinion that the Exchange Ratio provided
for in the Agreement is fair, from a financial point of view, to the
stockholders of LSB.
Very truly yours,
THE CARSON MEDLIN COMPANY
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the General Statutes of North Carolina
provide for indemnification of directors, officers, employees, and agents of a
North Carolina corporation. Subject to certain exceptions, a corporation may
indemnify an individual made a party to a proceeding because he is or was a
director against liability incurred in the proceeding if (i) he conducted
himself in good faith; and (ii) he reasonably believed (a) in the case of
conduct in his official capacity with the corporation, that his conduct was in
its best interests, and (b) in all other cases, that his conduct was at least
not opposed to its best interests; and (iii) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Moreover, unless limited by its articles of incorporation, a corporation must
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding. Expenses incurred by a director 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 provision in the articles of
incorporation or bylaws or by any applicable resolution or contact upon receipt
of an undertaking by or on behalf of a director to repay such amount unless it
shall ultimately be determined that he is entitled to be indemnified by the
corporation against such expenses. A director may also apply for court-ordered
indemnification under certain circumstances.
Unless a corporation's articles of incorporation provide otherwise, (i) an
officer of a corporation is entitled to mandatory indemnification and is
entitled to apply for court-ordered indemnification to the same extent as a
director, (ii) the corporation may indemnify or advance expenses to an officer,
employee, or agent of a corporation to the same extent as to a director, and
(iii) a corporation may also indemnify or advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
In addition and separate and apart from the indemnification rights
discussed above, the statutes further provide that a corporation may, in its
articles of incorporation or bylaws, or by contract or resolution, indemnify or
agree to indemnify any one of its directors, officers, employees, or agents
against liability and expenses in any proceeding (including without limitation
a proceeding brought by or on behalf of the corporation itself) arising out of
their status as such or their activities in any of the foregoing capacities;
provided, however, that a corporation may not indemnify or agree to indemnify a
person against liability or expenses he may incur on account of his activities
which were at the time taken known or believed by him to be clearly in conflict
with the best interests of the corporation. A corporation may likewise and to
the same extent indemnify or agree to indemnify any person who, at the request
of the corporation, is or was serving as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise or as a trustee or administrator under
an employee benefit plan. Any such provision for indemnification may also
include provisions for recovery from the corporation of reasonable costs,
expenses, and attorneys' fees in connection with the enforcement of rights to
indemnification and may further include provisions establishing reasonable
procedures for determining and enforcing the rights granted therein.
As permitted by North Carolina statutory provisions, Article 8 of the
Bylaws of the Registrant provides as follows:
<PAGE> 173
Section 1. Indemnification Provisions. Any person who at any time
serves or has served as a director or officer of the corporation or of
any wholly owned subsidiary of the corporation, or in such capacity at
the request of the corporation for any other foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or as
a trustee or administrator under any employee benefit plan of the
corporation or of any wholly owned subsidiary thereof (a "Claimant"),
shall have the right to be indemnified and held harmless by the
corporation to the fullest extent from time to time permitted by law
against all liabilities and litigation expenses (as hereinafter defined)
in the event a claim shall be made or threatened against that person in,
or that person is made or threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, and whether or not
brought by or on behalf of the corporation, including all appeals
therefrom (a "proceeding"), arising out of that person's status as such
or that person's activities in any such capacity; provided, that such
indemnification shall not be effective with respect to (a) that portion
of any liabilities or litigation expenses with respect to which the
Claimant is entitled to receive payment under any insurance policy or (b)
any liabilities or litigation expenses incurred on account of any of the
Claimant's activities which at the time taken known or believed by the
Claimant to be clearly in conflict with the best interests of the
corporation.
Section 2. Definitions. As used in this Article, (a) "liabilities"
shall include, without limitation, (1) payments in satisfaction of any
judgment, money decree, excise tax, fine or penalty for which Claimant
had become liable in any proceeding and (2) payments in settlement of any
such proceeding subject, however, to Section 3 of this Article; (b)
"litigation expenses" shall include, without limitation, (1) reasonable
costs and expenses and attorneys' fees and expenses actually incurred by
the Claimant in connection with any proceeding and (2) reasonable costs
and expenses and attorneys' fees and expenses in connection with the
enforcement of rights to the indemnification granted hereby or by
applicable law, if such enforcement is successful in whole or in part;
and (c) "disinterested directors" shall mean directors who are not party
to the proceeding in question.
Section 3. Settlements. The corporation shall not be liable to
indemnify the Claimant for any amounts paid in settlement of any
proceeding effected without the corporation's written consent. The
corporation will not unreasonably withhold its consent to any proposed
settlement.
Section 4. Litigation Expense Advances.
(a) Except as provided in subsection (b) below, any litigation
expenses shall be advanced to any Claimant within 30 days of receipt by
the secretary of the corporation of a demand therefor, together with an
undertaking by or on behalf of the Claimant to repay to the corporation
such amount unless it is ultimately determined that Claimant is entitled
to be indemnified by the corporation against such expenses. The
secretary shall promptly forward notice of the demand and undertaking
immediately to all directors of the corporation.
(b) Within 10 days after mailing of notice to the directors
pursuant to subsection (a) above, any disinterested director may, if
desired, call a meeting of all disinterested directors to review the
reasonableness of the expenses so requested. No advance shall be made
if a majority of the disinterested directors affirmatively determines
that the item of expense is unreasonable in amount; but if the
disinterested directors determine that a portion of the expense item is
reasonable, the corporation shall advance such portion.
ii
<PAGE> 174
Section 5. Approval of Indemnification Payments. Except as
provided in Section 4 of this Article, 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 Section 1 of this Article, including, without limitation,
making a good faith evaluation of the manner in which the Claimant acted
and of the reasonable amount of indemnity due the Claimant. In taking
any such action, any Claimant who is a director of the corporation shall
not be entitled to vote on any matter concerning such Claimant's right
to indemnification.
Section 6. Suits by Claimant. No Claimant shall be entitled to
bring suit against the corporation to enforce his rights under this
Article until sixty days after a written claim has been received by the
corporation, together with any undertaking to repay as required by Section
4 of this Article. It shall be a defense to any such action that the
Claimant's liabilities or litigation expenses were incurred on account of
activities described in clause (b) of Section 1, but the burden of proving
this defense shall be on the corporation. Neither the failure of the
corporation to have made a determination prior to the commencement of the
action to the effect that indemnification of the Claimant is proper in the
circumstances, nor an actual determination by the corporation that the
Claimant had not met the standard of conduct described in clause (b) of
Section 1, shall be a defense to the action or create a presumption that
the Claimant has not met the applicable standard of conduct.
Section 7. Consideration; Personal Representatives and Other
Remedies. Any person who during such time as this Article or
corresponding provisions of predecessor bylaws is or has been in effect
serves or has served in any of the aforesaid capacities for or on behalf
of the corporation shall be deemed to be doing so or to have done so in
reliance upon, and as consideration for, the right of indemnification
provided herein or therein. The right of indemnification provided
herein or therein shall inure to the benefit of the legal
representatives of any person who qualifies or would qualify as a
Claimant hereunder, and the right shall not be exclusive of any other
rights to which the person or legal representative may be entitled apart
from this Article.
Section 8. Scope of Indemnification Rights. The rights granted
herein shall not be limited by the provisions of Section 55-8-51 of the
General Statutes of North Carolina or any successor statute.
As permitted by applicable statutes, the Registrant has purchased a
standard director and officer liability insurance policy that will,
subject to certain limitations, indemnify the Registrant 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 capacities as such.
The indemnification provisions in the Bylaws may be sufficiently
broad to permit indemnification of the Registrant's officers and
directors for liabilities arising under the 1933 Act.
iii
<PAGE> 175
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization and Merger, dated as of March
14, 1997, by and among LSB Bancshares, Inc., Lexington State Bank
and Old North State Bank (included as Appendix A to the
Prospectus/Proxy Statement contained in Part I).
5.1* Opinion of Hunton & Williams regarding the validity of the shares
of common stock of LSB Bancshares, Inc. to be issued in connection
with the Merger.
8.1* Opinion of Bell, Davis & Pitt, P.A. regarding the federal income
tax consequences of the Merger.
13.1 Old North State Bank Annual Report to Shareholders for the fiscal
year ended December 31, 1996.
13.2* Old North State Bank Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 1997.
23.1 Consent of Turlington and Company, L.L.P., independent certified
public accountants for LSB Bancshares, Inc.
23.2 Consent of Larrowe, Cardwell & Company, LC independent certified
public accounts for Old North State Bank.
23.3* Consent of Hunton & Williams (included in Exhibit 5.1).
23.4* Consent of Bell, Davis & Pitt, P.A.
23.5 Consent of Scott & Stringfellow, Inc.
23.6 Consent of The Carson Medlin Company.
99.1 Form of proxy of Old North State Bank.
99.2 Form of proxy of LSB Bancshares, Inc.
</TABLE>
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or 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
iv
<PAGE> 176
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 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 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 percent 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;
(1) 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.
(2) 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.
B. 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 15(d) of the
Securities 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.
C. 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.
D. (1) The undersigned registrant 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), the issuer undertakes that 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.
(2)The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of
v
<PAGE> 177
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 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.
E. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 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.
F. 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.
vi
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lexington, State of
North Carolina, on May 12, 1997.
LSB BANCSHARES, INC.
By: /s/ Robert F. Lowe
-------------------------------
Robert F. Lowe
Chairman of the Board,
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert F. Lowe and Monty J. Oliver, and each of
them (with full power each to act alone) as true and lawful attorneys-in-fact,
with full power of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any amendments to this
Registration Statement and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
vii
<PAGE> 179
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Margaret Lee W. Crowell Director
- --------------------------- March 12, 1997
Margaret Lee W. Crowell
/s/ Robert F. Lowe Chairman of the Board,
- --------------------------- President and Chief Executive March 12, 1997
Robert F. Lowe Officer
/s/ Robert E. Timberlake Director
- ---------------------------
Robert E. Timberlake
/s/ Julius S. Young, Jr. Director
- --------------------------- March 12, 1997
Julius S. Young, Jr.
/s/ Leonard H. Beck Director
- --------------------------- March 12, 1997
Leonard H. Beck
/s/ Samuel R. Harris Director
- --------------------------- March 12, 1997
Samuel R. Harris
/s/ David A. Smith Director
- --------------------------- March 12, 1997
David A. Smith
/s/ Burr W. Sullivan Director
- --------------------------- March 12, 1997
Burr W. Sullivan
/s/ Peggy B. Barnhardt Director
- --------------------------- March 12, 1997
Peggy B. Barnhardt
/s/ Walter A. Hill Director
- --------------------------- March 12, 1997
Walter A. Hill
/s/ Robert B. Smith, Jr. Director
- --------------------------- March 12, 1997
Robert B. Smith, Jr.
/s/ Monty J. Oliver Secretary and Treasurer,
- --------------------------- Chief Financial Officer March 12, 1997
Monty J. Oliver (Chief Accounting Officer)
</TABLE>
viii
<PAGE> 180
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization and Merger, dated as of March
14, 1997, by and among LSB Bancshares, Inc., Lexington State Bank
and Old North State Bank (included as Appendix A to the
Prospectus/Proxy Statement contained in Part I).
5.1* Opinion of Hunton & Williams regarding the validity of the shares
of common stock of LSB Bancshares, Inc. to be issued in connection
with the Merger.
8.1* Opinion of Bell, Davis & Pitt, P.A. regarding the federal income
tax consequences of the Merger.
13.1 Old North State Bank Annual Report to Shareholders for the fiscal
year ended December 31, 1996.
13.2* Old North State Bank Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 1997.
23.1 Consent of Turlington and Company, L.L.P., independent certified
public accountants for LSB Bancshares, Inc.
23.2 Consent of Larrowe, Cardwell & Company, LC independent certified
public accounts for Old North State Bank.
23.3* Consent of Hunton & Williams (included in Exhibit 5.1).
23.4* Consent of Bell, Davis & Pitt, P.A.
23.5 Consent of Scott & Stringfellow, Inc.
23.6 Consent of The Carson Medlin Company.
99.1 Form of proxy of Old North State Bank.
99.2 Form of proxy of LSB Bancshares, Inc.
</TABLE>
* To be filed by amendment.
<PAGE> 1
EXHIBIT 13.1
================================================================================
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights ..................................... 1
Letter to Stockholders ................................... 2
Consolidated Balance Sheets .............................. 4
Consolidated Statements of Income ........................ 5
Consolidated Statements of Changes in Stockholders' Equity 6
Consolidated Statements of Cash Flows .................... 7
Notes to Consolidated Financial Statements ............... 8
Independent Auditor's Report ............................. 24
Five Year Financial Summary ............................. 25
Management's Discussion and Analysis of Operations ....... 27
Directors, Advisory Board Members and Officers ........... 39
Stockholder Information .................................. 40
</TABLE>
OLD NORTH STATE BANK PROFILE
Old North State Bank, a full-service commercial bank headquartered in
Winston-Salem, North Carolina, opened for business on August 14, 1989. On
December 28, 1995, Old North State Bank acquired Piedmont BancShares
Corporation and its subsidiary, Enterprise Bank and Trust Company, in a
merger-of-equals transaction. The bank places special emphasis on the banking
needs of small businesses and individuals through its seven offices located in
Forsyth and Stokes Counties. Old North State Investments, Inc., a wholly-owned
subsidiary of the bank founded in 1993, sells mutual funds, annuities and life
and long-term care insurance.
<PAGE> 2
================================================================================
FINANCIAL HIGHLIGHTS
AT OR FOR THE TWELVE MONTHS ENDED DECEMBER 31 (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 CHANGE
---------- ---------- ------
<S> <C> <C> <C>
FOR THE YEAR:
Interest income $ 9,891 $ 4,282 + 131%
Interest expense 4,389 1,978 + 122%
Net interest income 5,502 2,304 + 139%
Net income 1,026 378 + 171%
Net income per share $ .65 $ .50 + 30%
AT YEAR END:
Total assets $ 130,245 $ 118,407 + 10%
Net loans 82,849 69,616 + 19%
Deposits 110,101 104,743 + 5%
Stockholders' equity 11,176 10,245 + 9%
Shares of common stock 1,580,978 1,572,171 + 1%
Book value per share $ 7.07 $ 6.52 + 8%
AVERAGE BALANCES:
Total assets $ 124,279 53,430 + 133%
Net loans 76,192 30,279 + 152%
Deposits 106,063 47,964 + 121%
Stockholders' equity 10,646 4,387 + 143%
RATIOS:
Profitability
Return on average assets .82% .71%
Return on average equity 9.64% 8.62%
Capital adequacy
Equity to assets (average fourth quarter) 7.81% 7.52%
Risk-based capital ratio (year end) 11.19% 11.22%
Asset quality
Nonaccrual loans and real
estate owned to assets .22% .29%
Loan loss reserves to loans 1.19% 1.39%
COMMON STOCK PRICE AT YEAR END
Bid $ 14.25 $ 9.50
Asked none $ 10.25
</TABLE>
1
<PAGE> 3
March 31, 1997
Dear Stockholders, Customers and Friends:
It is a pleasure to send you our 1996 Annual Report. During the year the
balance sheet and income statements for Old North State Bank grew dramatically.
The merger between Old North State Bank and Enterprise Bank and Trust Company,
which was effective in late 1995, is reflected in the reported numbers for the
full year of combined operations in 1996.
Net income for 1996 was $1,026,000, a 171% increase over 1995 when reported
earnings were $378,000. Earnings per share for 1996 were $.65 versus $.50 for
1995, based on the average number of shares outstanding during each year.
Net loans grew by over $13,000,000 during the year. Most of this increase was
in loans to small and middle-sized businesses in our two county primary service
area. Our loan loss reserve at the end of 1996 was $1,000,000 or 1.19% of year
end loans.
At year end total assets were $130,245,000, an increase of 10% over year end
1995. Stockholders' equity reached $11,176,000 at the end of 1996, and our 1996
net profit produced a return on average equity of 9.64%, an increase over all
prior years.
During the fourth quarter of 1996, your Board of Directors conducted a
strategic planning process to set a course of action for the future. After a
thorough evaluation of external and internal factors, your Board of Directors
decided that it might be in the best interest of shareholders to seek an
affiliation with a larger community bank with a similar approach to doing
business. After extensive discussions with several potential acquirers, your
Board of Directors approved the signing on January 20, 1997, of a Letter of
Intent to merge with LSB BankShares, Inc., the holding company for Lexington
State Bank. Subsequently, a Definitive Agreement was negotiated and signed on
March 14, 1997.
LSB's proposal is attractive to our shareholders from a financial point of
view. In addition, our affiliation with a strong and successful community bank
headquartered in a neighboring county will be beneficial to our customers, who
will have access to a wider range of banking services after the merger.
The proposed merger is subject to regulatory and shareholder approvals. We
will call a Special Shareholders Meeting in the next few months to vote on the
merger proposal.
<PAGE> 4
We look forward to seeing you at our Annual Meeting on May 12, 1997, at 4:00 PM
EDST. The meeting will be held at the Holiday Inn North, 3050 University
Parkway, Winston-Salem, North Carolina, 27105. Please complete the enclosed
Proxy and return it as soon as possible even if you plan to attend the meeting.
If you choose to vote in person, your Proxy will be returned to you at the
meeting.
Your banking business is important to our success at Old North State Bank. We
appreciate your support and encourage you to share the banking advantages you
have found at our bank with your family, friends and business associates.
As always, your comments and suggestions are welcome.
Sincerely,
Nicholas A. Daves Robert E. Marziano
Chairman of the Board President and CEO
3
<PAGE> 5
================================================================================
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks $ 4,409,195 $ 5,054,158
Interest-bearing deposits with banks 154,964 845,155
Federal funds sold - 1,765,000
Investment securities available for sale 33,338,179 33,378,767
Investment securities to be held to maturity 4,146,321 2,292,630
Loans, net of allowance for loan losses of $1,000,000
in 1996 and $980,993 in 1995 82,848,597 69,615,597
Property and equipment, net 2,424,074 2,426,839
Accrued income 1,014,675 985,038
Other assets 1,908,602 2,044,026
------------ ------------
$130,244,607 $118,407,210
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Demand deposits 18,532,416 14,920,476
Interest-bearing demand deposits 12,830,570 12,035,926
Savings deposits 15,795,893 16,297,078
Large denomination time deposits 15,057,971 12,767,541
Other time deposits 47,884,021 48,722,028
------------ ------------
Total deposits 110,100,871 104,743,049
Federal funds purchased and securities sold under
agreements to repurchase 2,824,832 2,096,354
Long-term debt 4,908,333 -
Accrued interest payable 941,875 1,115,243
Other liabilities 292,951 207,924
------------ ------------
119,068,862 108,162,570
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $5 par value; 2,000,000 shares
authorized; 1,580,978 and 1,572,171 shares
issued in 1996 and 1995, respectively 7,904,890 7,860,855
Surplus 2,850,260 1,846,297
Retained earnings 529,325 503,016
Unrealized appreciation (depreciation) on investment
securities available for sale, net of income taxes (108,730) 34,472
------------ ------------
11,175,745 10,244,640
------------ ------------
$130,244,607 $118,407,210
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans $7,468,187 $3,070,981 $2,277,591
Federal funds sold 67,344 88,714 27,834
Investment securities:
Taxable 2,294,255 1,098,182 621,908
Exempt from federal income tax 35,053 16,800 11,219
Deposits with banks 26,348 7,711 6,658
---------- ---------- ----------
9,891,187 4,282,388 2,945,210
---------- ---------- ----------
INTEREST EXPENSE:
Deposits 4,046,643 1,947,386 1,137,024
Federal funds purchased and securities
sold under agreements to repurchase 77,258 3,624 2,859
Other borrowed funds 265,406 26,975 23,261
---------- ---------- ----------
4,389,307 1,977,985 1,163,144
---------- ---------- ----------
Net interest income 5,501,880 2,304,403 1,782,066
PROVISION FOR LOAN LOSSES 243,079 115,000 63,563
---------- ---------- ----------
Net interest income after provision for loan losses 5,258,801 2,189,403 1,718,503
---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 524,731 314,128 229,870
Securities gains (losses) (36,961) (5,174) (20,243)
Other income 231,440 45,775 38,701
---------- ---------- ----------
719,210 354,729 248,328
---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,501,906 1,057,269 801,979
Occupancy expense 487,699 167,665 121,427
Equipment expense 283,018 136,021 103,539
Other expense 1,284,686 617,555 485,016
---------- ---------- ----------
4,557,309 1,978,510 1,511,961
---------- ---------- ----------
Income before income taxes 1,420,702 565,622 454,870
INCOME TAX EXPENSE 394,393 187,252 156,099
---------- ---------- ----------
Net income $1,026,309 $ 378,370 $ 298,771
========== ========== ==========
EARNINGS PER COMMON SHARE $ .65 $ .50 $ .44
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,576,623 750,659 686,611
========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 7
================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
------------ RETAINED DEPRECIATION
SHARES AMOUNT SURPLUS EARNINGS ON SECURITIES TOTAL
------ ------ ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 335,087 $1,675,435 $1,825,721 $113,382 $ - $3,614,538
Net income - - - 298,771 - 298,771
Dividends paid
($.08 per share) - - - (29,487) - (29,487)
Stock options exercised 33,502 167,510 201,012 - - 368,522
Stock dividend (5%) 18,430 92,150 165,870 (258,020) - -
Fractional shares purchased (121) (605) (1,080) - - (1,685)
Fractional shares reissued 121 605 1,210 - - 1,815
Unrealized depreciation
on investment securities
available for sale, net
of taxes - - - - (290,624) (290,624)
--------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1994 387,019 1,935,095 2,192,733 124,646 (290,624) 3,961,850
Net income - - - 378,370 - 378,370
Stock split (1.922 for 1)
effected in the form of a
dividend 356,832 1,784,160 (1,784,160) - - -
Fractional shares purchased (437) (2,185) (5,236) - - (7,421)
Fractional shares reissued 437 2,185 1,683 - - 3,868
Stock issued in affiliation 828,320 4,141,600 1,441,277 - - 5,582,877
Net change in unrealized
depreciation on investment
securities available for sale,
net of taxes - - - - 325,096 325,096
--------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1995 1,572,171 7,860,855 1,846,297 503,016 34,472 10,244,640
Net income - - - 1,026,309 - 1,026,309
Transfer of capital - - 1,000,000 (1,000,000) - -
Stock options exercised 8,807 44,035 3,963 - - 47,998
Net change in unrealized
depreciation on investment
securities available for sale,
net of taxes - - - - (143,202) (143,202)
--------- ---------- ----------- ----------- --------- ----------
BALANCE, DECEMBER 31, 1996 1,580,978 $7,904,890 $2,850,260 $ 529,325 $(108,730) $11,175,745
========= ========== =========== =========== ========= ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 8
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,026,309 $ 378,370 $ 298,771
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 286,926 120,495 101,676
Amortization of intangibles 107,797 14,280 1,805
Accretion on loans and deposits purchased (251,923) - -
Provision for loan losses 243,079 115,000 63,563
Deferred income taxes 214,985 17,188 1,382
Net realized (gains) losses on securities 36,961 5,174 20,243
Accretion of discount on securities, net (40,071) (15,525) (20,634)
Changes in assets and liabilities:
Accrued income (29,637) (119,213) (134,835)
Other assets (113,588) (80,427) 162,481
Accrued interest payable (173,368) 415,802 47,843
Other liabilities 85,027 (27,352) 143,102
------------ ----------- ------------
Net cash provided by operating activities 1,392,497 823,792 685,397
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing deposits in banks 690,191 (10,977) 90,000
Net (increase) decrease in federal funds sold 1,765,000 (865,000) -
Purchases of securities (23,637,985) (7,439,877) (9,224,292)
Sales of securities 7,306,448 2,750,000 1,940,030
Maturities of securities 14,304,572 3,868,236 726,129
Net increase in loans (13,286,231) (7,208,723) (4,237,801)
Purchases of properties and equipment (284,161) (136,267) (198,090)
------------ ----------- ------------
Net cash used in investing activities (13,142,166) (9,042,608) (10,904,024)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings and NOW deposits 3,905,399 3,043,791 4,106,676
Net increase in time deposits 1,514,498 6,931,073 5,307,147
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 728,478 (299,320) 200,000
Proceeds from (repayment of) long-term debt 4,908,333 (375,000) 375,000
Dividends paid - - (29,487)
Proceeds from issuance of common stock 47,998 2,249,891 368,652
------------ ----------- ------------
Net cash provided by financing activities 11,104,706 11,550,435 10,327,988
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (644,963) 3,331,619 109,361
CASH AND CASH EQUIVALENTS, BEGINNING 5,054,158 1,722,539 1,613,178
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, ENDING $ 4,409,195 $ 5,054,158 $ 1,722,539
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,624,750 $ 1,562,183 $ 1,115,301
============ =========== ============
Taxes paid $ 208,323 $ 269,335 $ 41,039
============ =========== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Other real estate acquired in settlement of loans $ - $ - $ 137,780
============ =========== ============
Net noncash assets acquired for common stock $ - $ 2,845,138 $ -
============ =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 9
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Old North State Bank (the Bank) was organized and incorporated under the laws
of the State of North Carolina on June 30, 1989. The Bank commenced operations
on August 14, 1989, and currently serves the counties of Forsyth and Stokes,
and the city of Winston-Salem, North Carolina, through seven banking offices.
As a state chartered, Federal Reserve member bank, the Bank is subject to
regulation by the State of North Carolina Banking Commission and the Federal
Reserve. Old North State Bank Investments, Inc. is a wholly-owned subsidiary
of the Bank which sells mutual funds and annuities.
The accounting and reporting policies of the Bank and its subsidiary follow
generally accepted accounting principles and general practices within the
financial services industry. Following is a summary of the more significant
policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Bank and it
subsidiary. All significant, intercompany transactions and balances have been
eliminated in consolidation.
USE OF 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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for loan and
foreclosed real estate losses, management obtains independent appraisals for
significant properties.
Substantially all of the Bank's loan portfolio consists of loans in its market
area. Accordingly, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio and the recovery of a substantial portion of the carrying
amount of foreclosed real estate are susceptible to changes in local market
conditions. The regional economy is diverse with the primary employers being
health care, manufacturing and financial services.
While management uses available information to recognize loan and foreclosed
real estate losses, future additions to the allowances may be necessary based
on changes in local economic conditions. In addition, regulatory agencies, as
a part of their routine examination process, periodically review the Bank's
allowances for loan and foreclosed real estate losses. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examinations. Because of these factors, it is reasonably possible that the
allowances for loan and foreclosed real estate losses may change materially in
the near term.
CASH AND CASH EQUIVALENTS
For the purposes of presentation in the statement of cash flows, cash and cash
equivalents are defined as those amounts included in cash and due from banks
(including items in process of clearing).
TRADING SECURITIES
The Bank does not hold securities for short-term resale and therefore does not
maintain a trading securities portfolio.
<PAGE> 10
SECURITIES HELD TO MATURITY
Bonds, notes, and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity or to call dates.
<PAGE> 11
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
SECURITIES AVAILABLE FOR SALE
Available-for-sale securities are reported at fair value and consist of bonds,
notes, debentures, and certain equity securities not classified as trading
securities or as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of
stockholders' equity. Realized gains and losses on the sale of
available-for-sale securities are determined using the specific-identification
method. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity or to call dates.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below cost that are other than temporary are
reflected as write-downs of the individual securities to fair value. Related
write-downs are included in earnings as realized losses.
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal amount adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan. Discounts and
premiums on any purchased residential real estate loans are amortized to income
using the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Discounts and premiums on any purchased
consumer loans are recognized over the expected lives of the loans using
methods that approximate the interest method.
Interest is accrued and credited to income based on the principal amount
outstanding. The accrual of interest on impaired loans is discontinued when,
in management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed. Interest income is subsequently recognized only to the extent
cash payments are received.
The allowance for loan losses is increased by charges to income and decreased
by charge-offs, net of recoveries. Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
PROPERTY AND EQUIPMENT
Land is carried at cost. Bank premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and
amortization computed principally by the straight-line method over the
following estimated useful lives:
<TABLE>
Years
-----
<S> <C>
Buildings and improvements 10-40
Furniture and equipment 3-20
</TABLE>
FORECLOSED PROPERTIES
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value less anticipated cost to sell
at the date of foreclosure establishing a new cost basis. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance are
included in loss on foreclosed real estate. The historical average holding
period for such properties is less than 12 months.
<PAGE> 12
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. The Company is not required to adopt the fair
value based recognition provisions prescribed under SFAS No. 123, Accounting
for Stock-Based Compensation (issued in October 1995), but complies with the
disclosure requirements set forth in the Statement, which include disclosing
proforma net income as if the fair value method of accounting had been applied.
INCOME TAXES
Provision for income taxes is based on amounts reported in the statements of
income (after exclusion of non-taxable income such as interest on state and
municipal securities) and consists of taxes currently due plus deferred taxes
on temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included
in the financial statements at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates enacted, deferred tax
assets and liabilities are adjusted through the provision for income taxes.
Deferred income tax liability relating to unrealized appreciation (or the
deferred tax asset in the case of unrealized depreciation) on investment
securities available for sale is recorded in other liabilities (assets). Such
unrealized appreciation or depreciation is recorded as an adjustment to equity
in the financial statements and not included in income determination until
realized. Accordingly, the resulting deferred income tax liability or asset is
also recorded as an adjustment to equity.
EARNINGS PER COMMON SHARE
Net income per share is computed based on the weighted average number of shares
outstanding during the period, after giving retroactive effect to stock splits
and dividends.
FINANCIAL INSTRUMENTS
Any derivative financial instruments held or issued by the Bank are held or
issued for purposes other than trading.
In the ordinary course of business the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and commercial
and standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
The Bank does not utilize interest-rate exchange agreements or interest-rate
futures contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet.
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
<PAGE> 13
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate their fair values.
Interest-bearing deposits with banks: Fair values for time deposits are
estimated using a discounted cash flow analysis that applies interest rates
currently being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits.
Available-for-sale and held-to-maturity securities: Fair values for
securities, excluding restricted equity securities, are based on quoted market
prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. The
carrying values of restricted equity securities approximate fair values.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans are estimated using discounted cash flow
analysis, based on interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss experience and risk
characteristics. Fair value for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values, where applicable. The
carrying amount of accrued interest receivable approximates its fair value.
Deposit liabilities: The fair values disclosed for demand and savings deposits
are, by definition, equal to the amount payable on demand at the reporting
date. The fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities on
such time deposits. The carrying amount of accrued interest payable
approximates fair value.
Short-term debt: The carrying amounts of short-term debt approximate their
fair values.
Other liabilities: For fixed-rate loan commitments, fair value considers the
difference between current levels of interest rates and the committed rates.
The carrying amounts of other liabilities approximates fair value.
RECLASSIFICATION
Certain reclassifications have been made to the prior years' financial
statements to place them on a comparable basis with the current year. Net
income and stockholders' equity previously reported were not affected by these
reclassifications.
NOTE 2. BUSINESS COMBINATION
On December 28, 1995, Old North State Bank acquired Piedmont BancShares
Corporation and its consolidated subsidiary, Enterprise Bank and Trust Company,
in exchange for 828,320 shares of Old North State Bank common stock valued at
$5,582,877. In conjunction with the acquisition, Piedmont BancShares
Corporation and Enterprise Bank and Trust Company were merged with and into Old
North State Bank. Enterprise Financial Service Corporation, formerly a
wholly-owned subsidiary of Enterprise Bank and Trust Company, was renamed Old
North State Investments, Inc. and continues as a wholly-owned subsidiary of Old
North State Bank.
<PAGE> 14
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATION, CONTINUED
The acquisition was accounted for as a purchase transaction and accordingly the
results of operations attributable to the acquired companies are included in
the consolidated financial statements only from the date of acquisition. The
excess of purchase price over fair value of net tangible and identified
intangible assets acquired will be amortized on the straight-line basis over 15
years. The acquisition is summarized as follows:
<TABLE>
<S> <C>
Purchase price, including direct costs of $322,705 $ 5,905,582
------------
Loans, net 35,514,561
Investment securities 18,842,169
Identified intangible assets 461,731
Other assets 5,853,924
Deposits (53,087,187)
Other liabilities (2,486,616)
------------
Net tangible and identified intangible assets acquired
(at fair market value) 5,098,582
------------
Excess of purchase price over net tangible and identified
intangible assets acquired (at fair market value) $ 807,000
============
</TABLE>
Results of operations for the years ending December 31, 1995 and 1994, as if
the combination had occurred on January 1, 1994, are summarized below:
<TABLE>
<CAPTION>
PIEDMONT
BANCSHARES
OLD NORTH CORPORATION PRO FORMA
1995 STATE BANK & SUBSIDIARIES ADJUSTMENTS COMBINED
- ---- ---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income $4,246,819 $4,332,802 $ 168,451 $8,748,072
Interest expense 1,960,604 2,114,699 - 4,075,303
---------- ---------- --------- ----------
Net interest income 2,286,215 2,218,103 168,451 4,672,769
Provision for credit losses 115,000 308,975 - 423,975
Other income 351,186 431,091 - 782,277
Other expense 1,958,094 2,531,282 71,425 4,560,801
---------- ---------- --------- ----------
Income before income taxes 564,307 (191,063) 97,026 470,270
Income taxes (benefit) 187,252 (64,961) - 122,291
---------- ---------- --------- ----------
Net income (loss) $ 377,055 $ (126,102) $ 97,026 $ 347,979
========== ========== ========= ==========
1994
- ----
Interest income $2,945,210 $3,160,860 $168,451 $6,274,521
Interest expense 1,163,144 1,298,734 (44,561) 2,417,317
---------- ---------- --------- ----------
Net interest income 1,782,066 1,862,126 213,012 3,857,204
Provision for credit losses 63,563 47,395 - 110,958
Other income 248,328 372,050 - 620,378
Other expense 1,511,961 1,976,641 71,425 3,560,027
---------- ---------- --------- ----------
Income before income taxes 454,870 210,140 141,587 806,597
Income taxes (benefit) 156,099 (136,000) (207,448) 227,547
---------- ---------- --------- ----------
Net income $ 298,771 $ 346,140 $ (65,861) $ 579,050
========== ========== ========= ==========
</TABLE>
<PAGE> 15
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. RESTRICTIONS ON CASH
To comply with banking regulations, the Bank is required to maintain certain
average cash reserve balances. The daily average cash reserve requirement was
approximately $698,000 and $246,000 for the periods including December 31, 1996
and 1995, respectively.
NOTE 4. INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amount of securities and
their approximate fair values at December 31 follow:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
- ---- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities $ 5,260,412 $ 26,281 $ 15,395 $ 5,271,298
U.S. Government agency securities 19,047,084 35,566 151,533 18,931,117
Mortgage-backed securities 7,206,155 30,658 93,837 7,142,976
Other securities 1,108,071 4,861 1,344 1,111,588
Equity securities 881,200 - - 881,200
----------- ---------- ---------- -----------
$33,502,922 $ 97,366 $ 262,109 $33,338,179
=========== ========== ========== ===========
HELD TO MATURITY:
U.S. Government agency securities $ 1,000,000 $ - $ - $ 1,000,000
Mortgage-backed securities 1,744,931 - 32,096 1,712,835
Other securities 1,401,390 3,144 17,366 1,387,168
----------- ---------- ---------- -----------
$ 4,146,321 $ 3,144 $ 49,462 $ 4,100,003
=========== ========== ========== ===========
1995
- ----
AVAILABLE FOR SALE:
U.S. Treasury securities $10,426,829 $ 24,304 $ 229 $10,450,904
U.S. Government agency securities 15,457,345 92,501 81,738 15,468,108
Mortgage-backed securities 5,891,488 25,496 11,814 5,905,170
Other securities 1,093,775 4,427 717 1,097,485
Equity securities 457,100 - - 457,100
----------- ---------- ---------- -----------
$33,326,537 $ 146,728 $ 94,498 $33,378,767
=========== ========== ========== ===========
HELD TO MATURITY:
Mortgage-backed securities $ 1,744,490 $ - $ 32,565 $ 1,711,925
Other securities 548,140 2,079 4,714 545,505
----------- ---------- ---------- -----------
$ 2,292,630 $ 2,079 $ 37,279 $ 2,257,430
=========== ========== ========== ===========
</TABLE>
Investment securities with amortized cost of approximately $14,503,000 and
$14,379,000 at December 31, 1996 and 1995, respectively, were pledged as
collateral on public deposits and for other purposes as required or permitted
by law.
Gross realized gains and losses for the years ended December 31, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Realized gains $ 16,630 $ 17,009 $ 1,500
Realized losses (53,591) (22,183) (21,743)
-------- -------- --------
$(36,961) $ (5,174) $(20,243)
========= ======== =========
</TABLE>
<PAGE> 16
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. INVESTMENT SECURITIES, CONTINUED
The amortized cost and approximate fair value of investment securities by
scheduled maturity are shown below. Maturities may differ from scheduled
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or repaid without any penalties. Therefore, these
securities are not included in the maturity categories in the following
maturity summary:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,994,386 $ 3,013,415 $ - $ -
Due after one year through five years 19,115,711 18,991,779 563,598 564,433
Due after five years through ten years 2,862,152 2,862,810 1,000,000 1,000,000
Due after ten years 443,318 446,000 837,792 822,735
Mortgage-backed securities 7,206,155 7,142,975 1,744,931 1,712,835
Equity securities 881,200 881,200 - -
----------- ----------- ---------- ----------
$33,502,922 $33,338,179 $4,146,321 $4,100,003
=========== =========== ========== ==========
</TABLE>
NOTE 5. LOANS RECEIVABLE
The major components of loans in the consolidated balance sheets at December
31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commercial $ 20,740 $ 19,730
Real estate:
Construction and land development 5,030 3,525
Residential, 1-4 families 23,128 19,258
Residential, 5 or more families 2,854 1,519
Farmland 255 250
Nonfarm, nonresidential 24,707 20,499
Agricultural 284 153
Consumer 6,527 5,618
Other 324 45
-------- --------
83,849 70,597
Less allowance for loan losses (1,000) (981)
-------- --------
$ 82,849 $ 69,616
======== ========
Nonperforming assets at December 31, 1996 and 1995 are detailed as follows:
1996 1995
-------- --------
Nonaccrual loans $259,002 $339,700
Restructured loans - -
Loans past due 90 days or more 138,000 -
-------- --------
Total nonperforming loans 397,002 339,700
Foreclosed, repossessed and idled properties 25,929 -
-------- --------
Total nonperforming assets $422,931 $339,700
======== ========
</TABLE>
<PAGE> 17
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. LOANS RECEIVABLE, CONTINUED
Gross interest income that would have been recognized for each year if the
nonaccrual loans and restructured loans had been current in accordance with
their original terms and had been outstanding throughout the period or since
origination, if held part of the period, is detailed below. Applicable interest
income that was actually collected and included in net income for each year is
also summarized below:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
NONACCRUAL LOANS:
Interest income, original terms $23,102 $17,397
======= =======
Interest income recognized $ 2,883 $ 3,932
======= =======
RESTRUCTURED LOANS:
Interest income, original terms $ - $ -
======= =======
Interest income recognized $ - $ -
======= =======
</TABLE>
An allowance determined in accordance with SFAS No. 114 and No. 118 is provided
for all impaired loans. The total recorded investment in impaired loans and
the related allowance for loan losses at December 31, the average annual
recorded investment in impaired loans, and interest income recognized on
impaired loans for the year (all approximate) are summarized below.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Recorded investment at December 31 $964,000 $549,000
======== ========
Allowance for loan losses $278,000 $31,000
======== ========
Average recorded investment for the year $944,000 $224,000
======== ========
Interest income recognized for the year $ 69,000 $ 14,000
======== ========
</TABLE>
The Bank is not committed to lend additional funds to debtors whose loans have
been modified.
NOTE 6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- --------
<S> <C> <C> <C>
BALANCE, BEGINNING $ 980,993 $ 372,544 $321,168
Provision charged to expense 243,079 115,000 63,563
Recoveries of amounts charged off 24,146 33,430 11,425
Amounts charged off (248,218) (159,951) (23,612)
Allowance of acquired bank at date of acquisition - 619,970 -
---------- --------- --------
BALANCE, ENDING $1,000,000 $ 980,993 $372,544
========== ========= ========
</TABLE>
NOTE 7. PROPERTY AND EQUIPMENT
Components of property and equipment and total accumulated depreciation at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Land $ 407,727 $ 407,727
Buildings and improvements 1,259,356 1,203,002
Equipment and fixtures 1,861,264 1,633,457
----------- ----------
3,528,347 3,244,186
Less accumulated depreciation (1,104,273) (817,347)
----------- ----------
$ 2,424,074 $2,426,839
=========== ==========
</TABLE>
<PAGE> 18
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. PROPERTY AND EQUIPMENT, CONTINUED
The Bank leases certain branch locations under operating leases which expire
through January 2005. Rental expense was $251,881, $46,872, and $15,488 in
1996, 1995, and 1994, respectively. Future minimum rental commitments under
the aforementioned noncancelable leases are as follows:
<TABLE>
<S> <C>
1997 $ 215,293
1998 163,560
1999 158,560
2000 151,560
2001 151,560
Thereafter 1,075,599
----------
$1,916,132
==========
</TABLE>
NOTE 8. SHORT-TERM DEBT
Short-term debt consists of federal funds purchased and securities sold under
agreements to repurchase, which generally mature within one to four days from
the transaction date, and other short-term borrowings. Additional information
at December 31, 1996 and 1995 and for the years then ended is summarized below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Outstanding balance at December 31 $2,824,832 $2,096,354
========== ==========
Year-end weighted average rate 4.31% 3.94%
========== ==========
Daily average outstanding during the year $1,780,164 $63,513
========== ==========
Average rate for the year 4.25% 5.71%
========== ==========
Maximum outstanding at any month-end during the year $2,824,832 $2,096,354
========== ==========
</TABLE>
The Bank has established various credit facilities to provide additional
liquidity if and as needed. These include unsecured lines of credit with
correspondent banks totaling $6,000,000.
NOTE 9. LONG-TERM DEBT
The Bank has a $16,000,000 secured credit availability arrangement with the
Federal Home Loan Bank which may be repaid over a period exceeding one year.
At December 31, 1996 the outstanding balance under this arrangement was
$4,908,333, which bears interest at 5.75%. There was no outstanding balance at
December 31, 1995.
Future maturities of long-term debt are detailed below:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 183,333
1998 383,333
1999 1,191,667
2000 700,000
2001 2,150,000
2002 300,000
----------
$4,908,333
==========
</TABLE>
<PAGE> 19
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- ------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 4,409 $ 4,409 $ 5,054 $ 5,054
Interest-bearing deposits with banks 155 155 845 845
Federal funds sold - - 1,765 1,765
Securities, available-for-sale 33,338 33,338 33,379 33,379
Securities, held to maturity 4,146 4,100 2,293 2,257
Loans, net of allowance for loan losses 82,849 83,291 69,616 71,212
FINANCIAL LIABILITIES
Deposits 110,101 110,357 104,743 105,582
Short-term debt 2,825 2,825 2,096 2,096
Long-term debt 4,908 4,633 - -
OFF-BALANCE SHEET ASSETS (LIABILITIES)
Commitments to extend credit and
standby letters of credit - - - -
</TABLE>
NOTE 11. COMMON STOCK
OPTIONS AND WARRANTS
The Bank maintains a qualified incentive stock option plan which originally
reserved up to 67,624 shares for purchase by eligible employees. Options are
granted under the plan which are exercisable at $5.45 per share or the fair
market value of the Bank's common stock at the date of grant, whichever is
higher. Options generally vest at 20% per year and expire ten years from the
date of grant (from April 2000 through March 2004), except that expiration and
vesting may occur earlier as a result of death, disability, termination or
certain changes in control of the Bank. At December 31, 1996, no additional
options are available for grant under the plan.
The Bank also has common stock options outstanding at December 31, 1996 and
1995, issued under a non-qualified employee stock option plan of a company
acquired by the Bank. Options outstanding pursuant to this arrangement are
fully vested, exercisable at $9.09 per share and expire between July 1999 and
September 2001. At December 31, 1996, there were 66,098 of these options
outstanding.
At December 31, 1996 and 1995, the Bank had warrants outstanding to purchase
40,342 shares of its common stock. These warrants were issued to organizers
and founders of a company acquired by the Bank, are immediately exercisable at
$9.09 per share and expire on April 11, 2000.
The Bank maintained a nonqualified stock option plan which reserved up to
33,509 shares (before 1994 stock dividend and 1995 split) for purchase by
directors. During 1994 options to purchase 33,502 shares (all that were
granted under the plan) were exercised at $11 per share.
<PAGE> 20
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. COMMON STOCK, CONTINUED
Activity (restated for stock dividends and splits) during the years ended
December 31, 1996 and 1995, is summarized below:
<TABLE>
<CAPTION>
GRANTED AND OUTSTANDING
--------------------------------------------------
INCENTIVE NONQUALIFIED
STOCK STOCK EXERCISE(1)
WARRANTS OPTIONS OPTIONS PRICE EXERCISED
-------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 - 65,391 - $ 5.45 -
Granted - - - - -
Exercised - - - - -
Forfeited - - - - -
Expired - - - - -
Issued under plans of a company
acquired by the Bank 40,342 - 66,098 9.09 -
---------- ------- ------- ---------- --------
BALANCE DECEMBER 31, 1995 40,342 65,391 66,098 7.70 -
Granted - - - - -
Exercised - (8,807) - 5.45 8,807
Forfeited - (9,688) - 5.45 -
Expired - - - - -
---------- ------- ------- ---------- --------
BALANCE DECEMBER 31, 1996 40,342 46,896 66,098 $ 7.98 8,807
========== ======= ======= ========== ========
</TABLE>
Additional information relating to the options and warrants is detailed below:
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
OUTSTANDING OPTIONS AND WARRANTS AT DECEMBER 31:
Exercise price(1) $ 7.98 $ 7.70
Range of exercise prices:
From $ 5.45 $ 5.45
To $ 9.09 $ 9.09
Remaining contractual life in months(1) 38 54
EXERCISABLE OPTIONS AND WARRANTS AT DECEMBER 31:
Number 152,136 160,540
Exercise price(1) $ 8.00 $ 7.86
OPTIONS AND WARRANTS GRANTED DURING THE YEAR:
Grant-date fair value(1) $ - $ -
Exercise price(1) $ - $ -
SIGNIFICANT ASSUMPTIONS USED IN DETERMINING FAIR VALUE:
Risk-free interest rate n/a n/a
Expected life in years n/a n/a
Expected dividends n/a n/a
Expected volatility n/a n/a
RESULTS OF OPERATIONS:
Compensation cost recognized in income $ - $ -
============ =========
Pro forma net income(2) $ 1,026,309 $ 378,370
============ =========
Pro forma earnings per common share(2) $ .65 $ .50
============ =========
</TABLE>
<PAGE> 21
(1) Weighted average
(2) As if the fair value based method prescribed by SFAS No. 123 had been
applied
<PAGE> 22
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. EMPLOYEE BENEFIT PLANS
The Bank has adopted a profit sharing plan pursuant to Section 401(k) of the
Internal Revenue Code. The plan covers substantially all employees who have
completed one year of service. Participants may contribute a percentage of
compensation, subject to a maximum allowed under the Code. In addition, the
Bank may make additional contributions at the discretion of the Board of
Directors. The Bank contribution was approximately $13,100 for 1996. There
was no expense to the Bank relating to this plan for 1995 or 1994, as the plan
was not adopted until December 28, 1995.
NOTE 13. INCOME TAXES
CURRENT AND DEFERRED INCOME TAX COMPONENTS
The components of income tax expense (substantially all Federal) are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current $179,408 $170,064 $154,717
Deferred 214,985 17,188 1,382
-------- -------- --------
$394,393 $187,252 $156,099
======== ======== ========
</TABLE>
RATE RECONCILIATION
A reconciliation of income tax expense computed at the statutory federal income
tax rate to income tax expense included in the statements of income follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory federal rate $483,039 $192,311 $154,656
Tax exempt interest income (11,918) (5,712) (3,814)
Intangibles accretion, net of amortization (74,736) - -
State income tax, net of federal benefit 2,089 - 5,117
Other (4,081) 653 140
-------- -------- --------
$394,393 $187,252 $156,099
======== ======== ========
</TABLE>
DEFERRED INCOME TAX ANALYSIS
The components of net deferred tax assets (all Federal) at December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets $ 598,300 $ 734,129
Deferred tax liabilities (131,675) (126,289)
--------- ---------
$ 466,625 $ 607,840
========= =========
The tax effects of each significant item creating deferred taxes are summarized below:
1996 1995
--------- ---------
Net unrealized (appreciation) depreciation on
securities available for sale $ 56,012 $ (17,758)
Allowance for loan losses 270,758 283,492
Net operating loss carryforwards 250,880 443,092
Amortization of deposit premiums 14,578 6,408
Deferred compensation 4,032 -
Contributions - 117
Depreciation (93,386) (83,384)
Accretion of discount on investment securities (38,289) (25,147)
Other 2,040 1,020
-------- ---------
$466,625 $ 607,840
======== =========
</TABLE>
<PAGE> 23
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. INCOME TAXES, CONTINUED
OPERATING LOSS AND CARRYFORWARDS
At December 31, 1996, the Bank had federal net operating loss carryforwards for
income tax purposes of approximately $737,900 which will expire from 2005
through 2008 if not previously utilized. State net economic loss
carryforwards, which expire in 1997 and 1998, amount to approximately $549,000
at December 31, 1996. The deferred tax benefit resulting from state net
economic loss carryforwards has been offset in full by a valuation allowance.
NOTE 14. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business the Bank is involved in various legal
proceedings. After consultation with legal counsel, management believes that
any liability resulting from such proceedings will not be material to the
consolidated financial statements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET 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. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, credit risk in
excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as for on-balance-sheet instruments. A summary of the
Bank's commitments at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commitments to extend credit $17,114,000 $16,079,000
Standby letters of credit 665,500 269,600
----------- -----------
$17,779,500 $16,348,600
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the party. Collateral held varies, but may
include accounts receivable, inventory, property and equipment, residential
real estate and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held varies
as specified above and is required in instances which the Bank deems necessary.
<PAGE> 24
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. COMMITMENTS AND CONTINGENCIES, CONTINUED
CONCENTRATIONS OF CREDIT RISK
Substantially all of the Bank's loans, commitments to extend credit, and
standby letters of credit have been granted to customers in the Bank's market
area and such customers are generally depositors of the Bank. Investments in
state and municipal securities involve governmental entities within and outside
the Bank's market area. The concentrations of credit by type of loan are set
forth in Note 5. The distribution of commitments to extend credit approximates
the distribution of loans outstanding. Standby letters of credit were granted
primarily to commercial borrowers. The Bank's primary focus is toward consumer
and small business transactions, and accordingly, it does not have a
significant number of credits to any single borrower or group of related
borrowers in excess of $1,000,000.
The Bank has cash and cash equivalents on deposit with financial institutions
which exceed federally-insured limits.
OTHER COMMITMENTS
The Bank has entered into employment agreements with certain of its key
officers covering duties, salary, benefits, stock options, provisions for
termination and Bank obligations in the event of merger or acquisition.
NOTE 15. REGULATORY RESTRICTIONS
DIVIDENDS
The Bank, as a North Carolina banking corporation, may pay dividends only out
of undivided profits (retained earnings) as determined pursuant to North
Carolina General Statutes 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.
CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
federal 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
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets, as all those terms are defined in the regulations.
Management believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Reserve
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
<PAGE> 25
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. REGULATORY RESTRICTIONS, CONTINUED
CAPITAL REQUIREMENTS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets) $11,039,625 12.3% >$7,180,704 >8.0% >$8,975,880 >10.0%
- - - -
Tier I Capital
(to Risk-Weighted Assets) $10,039,625 11.2% >$3,590,352 >4.0% >$5,385,528 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $10,039,625 7.8% >$5,141,480 >4.0% >$6,426,850 > 5.0%
- - -
DECEMBER 31, 1995:
Total Capital
(to Risk-Weighted Assets) $9,838,514 12.5% >$6,312,766 >8.0% >$7,890,958 >10.0%
- - - -
Tier I Capital
(to Risk-Weighted Assets) $8,857,521 11.2% >$3,156,383 >4.0% >$4,734,575 > 6.0%
- - - -
Tier I Capital
(to Average Assets) $8,857,521 7.5% >$4,711,293 >4.0% >$5,889,116 > 5.0%
- - -
</TABLE>
NOTE 16. TRANSACTIONS WITH RELATED PARTIES
The Bank has entered into transactions with its directors, significant
shareholders and their affiliates (related parties). Such transactions were
made in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. Aggregate transactions involving the purchase of goods
and services from related parties in 1996 amounted to approximately $32,230.
Aggregate 1996 and 1995 loan transactions with related parties were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
BALANCE, BEGINNING $1,600,705 $825,808
New loans 2,836,075 680,141
Repayments (1,441,277) (630,748)
Relationship changes 24,821 725,504
----------- ----------
BALANCE, ENDING $3,020,324 $1,600,705
=========== ==========
</TABLE>
<PAGE> 26
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. SUBSIDIARY CONDENSED FINANCIAL STATEMENTS
Old North State Investments, Inc., formerly Enterprise Financial Service
Corporation, is a wholly-owned subsidiary of the Bank which sells annuities and
mutual funds. Old North State Investments, Inc.'s condensed financial
statements as of December 31, 1996 and 1995 and for the years then ended are
presented below. The assets, liabilities, equity, results of operations and
cash flows noted therein are included in Old North State Bank's consolidated
financial statements only from December 28, 1995 (the date of acquisition)
forward.
<TABLE>
<CAPTION>
BALANCE SHEETS
- ---------------------------------------------------------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash $238,618 $87,767
Equipment, net 2,304 4,080
Commissions receivable 14,202 30,430
Other assets 753 4,006
-------- --------
$255,877 $126,283
======== ========
Due to Old North State Bank 117,033 -
Other liabilities 3,130 15,004
Stockholder's equity 135,714 111,279
-------- --------
$255,877 $126,283
======== ========
STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------
Commission income $143,021 $185,466
-------- --------
Personnel and employee benefits 66,577 102,085
Occupancy expense 7,494 8,949
Furniture and equipment expense 2,331 2,137
Other operating expense 25,779 24,915
-------- --------
102,181 138,086
-------- --------
Net income before income taxes 40,840 47,380
Income taxes 16,405 3,555
-------- --------
Net income $24,435 $43,825
======== ========
STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $24,435 $43,825
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,776 2,481
Net changes in assets and liabilities 124,640 (1,167)
-------- --------
Net cash provided by operating activities and net increase in cash 150,851 45,139
CASH, BEGINNING 87,767 42,628
-------- --------
CASH, ENDING $238,618 $87,767
======== ========
</TABLE>
<PAGE> 27
NOTE 18. PENDING AFFILIATION
On March 14, 1997, the Bank entered an agreement to affiliate with LSB
Bancshares, Inc. through an arrangement whereby Old North State Bank would be
merged into Lexington State Bank, a subsidiary of LSB Bancshares, Inc.
Completion of the transaction is subject to a number of conditions, including
approval by the shareholders of Old North State Bank and appropriate regulatory
authorities.
<PAGE> 28
================================================================================
FIVE YEAR FINANCIAL SUMMARY(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income $ 9,891 $ 4,282 $ 2,945 $ 2,294 $ 2,032
Interest expense 4,389 1,978 1,163 957 959
-------- -------- ------- ------- -------
Net interest income 5,502 2,304 1,782 1,337 1,073
Provision for loan losses 243 115 63 120 123
Other income 719 355 248 234 183
Other expense 4,558 1,979 1,512 1,237 1,028
Income taxes (benefit) 394 187 156 (30) -
-------- -------- ------- ------- -------
Net income $ 1,026 $ 378 $ 299 $ 244 $ 105
======== ======== ======= ======= =======
PER SHARE DATA(2)
Net income $ .65 $ .50 $ .44 $ .36 $ .16
Cash dividends declared - - .04 - -
Book value 7.07 6.52 5.33 5.35 4.98
YEAR-END BALANCE SHEET SUMMARY
Loans, net $ 82,849 $ 9,616 $27,007 $22,971 $19,440
Investment securities 37,485 35,671 15,505 9,386 6,724
Total assets 130,245 118,407 46,748 36,221 30,105
Deposits 110,101 104,743 41,681 32,267 26,425
Stockholders' equity 11,176 10,245 3,962 3,615 3,370
SELECTED RATIOS
Return on average assets .82% .71% .75% .76% .40%
Return on average equity 9.64% 8.62% 8.00% 7.02% 3.16%
Average equity to average assets 8.53% 8.21% 9.40% 10.85% 12.52%
</TABLE>
- ---------------------------
(1) In thousands of dollars, except per share data.
(2) Adjusted for the effects of a 5% stock dividend in 1994 and a 1.922 for
1 stock split in 1995.
<PAGE> 29
================================================================================
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
================================================================================
================================================================================
<PAGE> 30
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
Management's Discussion and Analysis is provided to assist in the understanding
and evaluation of the Bank's financial condition and results of operation. The
following discussion should be read in conjunction with the accompanying
financial statements and related notes elsewhere in this annual report.
RESULTS OF OPERATIONS
1996 was the first full year of operation since the merger of Old North State
Bank and Piedmont BancShares and its subsidiary, Enterprise Bank and Trust
Company, on December 28, 1995. Old North State Bank is a state-chartered
financial institution organized in 1989 under North Carolina law and is a
member of the Federal Reserve Bank of Richmond. The Bank has seven full
service locations in Forsyth and Stokes Counties and five of these locations
maintain Automated Teller Machines (ATM's).
Net income for the year ended December 31, 1996 was $1,026,309 or $.65 per
share, compared to $378,370 or $.50 per share for 1995. This increase is
attributable to solid economic growth, increased consumer support, improved net
interest margins, and merger economics. Total assets increased from $118.4
million in 1995 to $130.2 million at the end of 1996. This represents a modest
growth of 10%.
<TABLE>
<S> <C>
- - The portfolio of earning assets continued to be the primary contributors
to profitability. Average earning assets increased 133.3% for the year
ending 1996 while net interest income increased 138.8%. This produced a
net yield on interest earning assets of 4.79% in 1996.
- - Noninterest income increased $364,481 or 102.8% to $719,210 for 1996.
Noninterest income included service charges on deposit accounts of
$524,731 in 1996 and $314,128 in 1995.
- - Noninterest expense totaled $4,557,309 in 1996. This represented an
increase of $2,578,799 from the $1,978,510 in 1995. This increase is
primarily the result of the merger.
- - The effective tax rate was 27.76% in 1996, compared with 33.1% in 1995.
- - The return on average assets for 1996 was .82% compared with .71% in 1995.
For the past two years the returns on average shareholders' equity were
9.64% and 8.62%, respectively.
- - At the end of 1996, the ratio of equity to assets was 8.53%, compared to
8.21% at the end of 1995. The risk-adjusted total capital ratio was 12.3%
at the end of the year, compared with 12.47% twelve months earlier.
</TABLE>
The Bank has entered an agreement to affiliate with LSB Bancshares, Inc.
through an arrangement whereby Old North State Bank would be merged into
Lexington State Bank, a subsidiary of LSB Bancshares, Inc. Completion of the
transaction is subject to a number of conditions, including approval by the
shareholders of Old North State Bank and appropriate regulatory authorities.
<PAGE> 31
TABLE 1. KEY FINANCIAL RATIOS(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Return on assets .82% .71% .75%
Return on equity 9.64% 8.62% 8.00%
Equity to assets 8.53% 8.21% 9.40%
</TABLE>
- --------------------
(1) Ratios are computed on average balances.
<PAGE> 32
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
TABLE 2. NET INTEREST INCOME AND AVERAGE BALANCES, IN THOUSANDS
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST BALANCE EXPENSE COST
------- ---------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Deposits in other banks $ 456 $ 27 5.92% $ 126 $ 8 6.35% $ 102 $ 7 6.86%
Investments 36,944 2,329 6.30% 17,372 1,116 6.42% 10,749 633 5.89%
Federal funds sold and
securities purchased with
agreements to resell 1,292 67 5.19% 1,509 89 5.90% 624 28 4.49%
Loans 76,192 7,468 9,80% 30,279 3,071 10.14% 24,725 2,277 9.21%
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total 114,884 9,891 49,286 4,284 36,200 2,945
-------- ------- ------- ------- ------- -------
Yield on average
interest-earning assets 8.61% 8.69% 8.14%
======= ======= =======
NONINTEREST-EARNING ASSETS:
Cash and due from banks 3,830 1,652 1,288
Premises and equipment 2,443 1,679 1,594
Interest receivable and other 3,122 813 623
-------- ------- ------- ------- ------- -------
Total 9,395 4,144 3,505
-------- ------- -------
Total assets $124,279 $53,430 $39,705
======== ======= =======
INTEREST-BEARING LIABILITIES:
Demand deposits $ 12,004 179 1.49% $ 4,505 77 1.71% $ 2,791 49 1.76%
Savings deposits 15,690 388 2.47% 8,204 225 2.74% 7,720 214 2.77%
Time deposits 62,944 3,480 5.53% 28,305 1,645 5.81% 19,488 874 4.49%
Long-term debt 4,620 265 5.74% 397 27 6.80% 370 23 6.22%
Short-term debt 1,780 77 4.33% 63 4 6.35% 63 3 4.76%
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total 97,038 4,389 41,474 1,978 30,432 1,163
-------- ------- ------- ------- ------- -------
Cost on average
interest-bearing liabilitie 4.52% 4.77% 3.82%
======= ======= =======
NON INTEREST-BEARING LIABILITIES
Demand deposits 15,425 6,950 5,147
Interest payable and other 1,170 619 393
-------- ------- -------
Total 16,595 7,569 5,540
-------- ------- -------
Total liabilities 113,633 49,043 35,972
STOCKHOLDERS' EQUITY 10,646 4,387 3,733
-------- ------- -------
Total liabilities and
stockholders' equity $124,279 $53,430 $39,705
======== ======= =======
Net interest income $5,502 $2,306 $ 1,782
====== ====== =======
Net yield on
interest-earning assets 4.79% 4.68% 4.92%
==== ==== =======
</TABLE>
<PAGE> 33
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Net interest income represents the principal source of earnings for a bank.
Net interest income equals the amount by which interest income exceeds funding
costs. For 1996 net interest income represented 88.4% of net revenues (net
interest income plus noninterest income), compared with 86.7% in 1995. The
relationship of net interest income to total revenues increased slightly in
1996 because of increased loan demand.
Net yield on average earning assets is a primary measure used in evaluating the
effectiveness of the management of earning assets and funding sources. The net
yield on average earning assets was 4.79% in 1996, compared with 4.68% in 1995.
During 1996, the gross yield on average interest-earning assets was 8.61%, down
slightly from 8.69% in 1995. In conjunction, the cost of funds on average
interest-bearing liabilities at the end of 1996 was 4.52% compared to 4.77% in
1995. (Table 2)
The primary factor responsible for the slight improvement in net interest
margin in 1996 was the greater reduction in the cost on average
interest-bearing liabilities compared to the yield on average interest-earning
assets as seen in Table 3.
TABLE 3. RATE/VOLUME VARIANCE ANALYSIS, IN THOUSANDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
---------------------------- ----------------------------
INTEREST VARIANCE INTEREST VARIANCE
INCOME/ ATTRIBUTABLE TO INCOME/ ATTRIBUTABLE TO
------------------ ------------------
EXPENSE EXPENSE
VARIANCE RATE VOLUME VARIANCE RATE VOLUME
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Deposits in other banks $ 19 $ (2) $ 21 $ 1 $ (1) $ 2
Investment securities 1,213 (44) 1,257 483 92 391
Federal funds sold and securities
purchased with agreements to resell (22) (9) (13) 61 22 39
Loans 4,397 (259) 4,656 794 282 512
-------- -------- -------- -------- -------- --------
Total 5,607 (314) 5,921 1,339 395 944
-------- -------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Demand deposits 102 (27) 129 28 (2) 30
Savings deposits 163 (42) 205 11 (2) 13
Time deposits 1,835 (176) 2,011 771 374 397
Long-term debt 238 (49) 287 4 2 2
Short-term debt 73 (36) 109 1 1 0
-------- -------- -------- -------- -------- --------
Total 2,411 (330) 2,741 815 373 442
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME $ 3,196 $ 16 $ 3,180 $ 524 $ 22 $ 502
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 34
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income has become an increasingly important factor of
profitability. Noninterest income for Old North State Bank consists of service
charges on deposit accounts, insurance commissions, gains and losses on
investment securities transactions, and other commissions and fees derived from
various banking and bank-related activities. Noninterest income for 1996
totaled $719,210, compared with $354,729 last year.
Service charges on deposit accounts have historically represented the largest
single item of noninterest income. This continued to be the case in 1996.
Such charges totaled $524,731, an increase from $314,128 in 1995. Other
service charges, commissions and fees totaled $231,440 in 1996, compared with
$45,775 in 1995.
An analysis of noninterest income for the past three years is provided in Table
4.
TABLE 4. SOURCES OF OTHER INCOME, IN THOUSANDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service charges on deposit accounts $524.7 $319.6 $229.8
Other service charges and fees 53.6 26.2 18.1
Insurance commissions 10.8 9.3 10.0
Rental income - - 6.9
Annuity/mutual fund income 143.0 - -
Gain (loss) sale of securities (37.0) (5.2) (20.2)
Other income 24.1 4.8 3.7
------ ------ ------
Total $719.2 $354.7 $248.3
====== ====== ======
</TABLE>
NONINTEREST EXPENSE
Noninterest expense increased 130.3% to $4,557,309 in 1996. The merger with
Piedmont BancShares in 1995 was accounted for as a purchase, and prior year
history was not restated. The 1996 increase in expenses includes the
incremental cost of operations related to the December 28, 1995 merger, and the
cost of standardizing operating procedures to those of Old North State Bank.
Excluding costs and expenses related to the merger, it is estimated that
noninterest expense would have increased approximately 8 - 9% in 1996.
Salaries and benefits increased 136.6% in 1996, which includes approximately 5%
annual merit increases and the incremental salaries and benefits of the
additional employees who joined Old North State Bank from the merger. Other
noninterest expense increased 123.1% to $2,055,403 in 1996. Approximately one
half of the total increase in other expenses represented the increased cost of
hospitalization insurance.
Net occupancy expense increased 190.8% and furniture and equipment expense rose
108.1% in 1996. In 1996, four branches from the merger were added.
It appears these expenses are extraordinary, but they are a direct result of
the merger. As the merged Bank matures these expenses will start to decline as
a percent of revenue.
<PAGE> 35
See table 5 for an analysis of noninterest expense.
INCOME TAXES
The Bank's effective tax rate was 27.76% in 1996 and 33.11% in 1995. During
1996, the Bank expensed $394,393 for income taxes.
The Bank reports certain items of income or expense in one time period for the
income statements but in another time period for tax purposes, thus creating
temporary differences. At year-end the net deferred tax asset resulting from
temporary differences was $410,613, compared to $625,598 at year-end 1995.
<PAGE> 36
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
TABLE 5. DETAILS OF OTHER EXPENSE, IN THOUSANDS
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Salaries $2,172.9 $ 905.9 $ 676.1
Employee benefits 329.0 151.4 125.9
Occupancy 487.7 167.6 121.4
Equipment 283.0 136.0 103.5
FDIC insurance premium 7.6 50.5 75.9
Data processing 230.5 127.3 48.1
Postage 63.8 13.6 27.9
Telephone 70.0 34.4 25.9
Stationery and supplies 80.2 49.0 37.4
Directors fees 39.7 20.0 19.3
Advertising 67.6 58.2 23.2
Franchise taxes 16.0 6.9 5.9
Blanket bond insurance 17.6 7.2 7.3
Professional fees 99.1 25.4 21.1
Correspondent fees 40.0 24.3 21.3
Other operating expense 552.6 200.8 171.8
-------- -------- --------
Total $4,557.3 $1,978.5 $1,512.0
======== ======== ========
</TABLE>
BALANCE SHEET ANALYSIS
LOANS
As of December 31, 1996, the Bank had loans outstanding of $83.8 million, as
compared to $70.6 million in 1995, resulting in an increase of 18.8%.
Outstanding loans represent 64.4% of total assets at year-end, compared to
58.8% at the end of 1995.
The Bank's loan portfolio consists primarily of commercial loans, residential
one-to-four family mortgage loans and installment loans (Table 6).
Substantially all of these loans are concentrated in the Bank's market area.
The interest rates charged on loans vary with the degree of risk, the maturity
and amount of the loan. Competitive pressures, money market rates, availability
of funds, and government regulation also influence interest rates. On average,
loans yielded 9.80% in 1996, compared to an average yield of 10.14% in 1995
(Table 2). This decrease is primarily due to stronger competition in 1996.
NONPERFORMING LOANS AND PROVISION FOR LOAN LOSSES
Loans are placed on nonaccrual status either when they become 90 days past due
or when collection of interest and principal is doubtful. There are three
negative implications for earnings when a loan is placed in nonaccrual status.
All interest accrued but unpaid at the date the loan goes on nonaccrual status
is either deducted from interest income or written off as a loss. Secondly,
future accruals of interest income are not made until it becomes certain that
both loan principal and interest can be paid. Finally, there may be actual
losses which necessitate increased provisions for loan losses charged against
earnings.
<PAGE> 37
Nonperforming loans at December 31, 1996 were $397,002 compared to $339,700 for
the same period in 1995. Nonperforming loans equaled .47% of total loans at
year-end 1996 and .48% at year-end 1995. Net charge-offs were .29% of average
loans outstanding in 1996, compared to .41% in 1995. For the same two years
the provisions charged against earnings as a percent of average loans
outstanding were .32% and .38%, respectively.
<PAGE> 38
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
Old North State Bank maintains a watch list for loans which demonstrate a high
level of credit risk. This list is monitored to evaluate collectibility and to
identify signs of improvement or deterioration. The factors considered include
the undivided strength of the borrowers, the strength of individual industries,
the value and marketability of the collateral, specific market strengths and
weaknesses, and general economic conditions. Management believes the loan loss
allowance at December 31, 1996 is adequate to cover existing and potential loan
losses.
Table 6 provides additional information.
TABLE 6. LOANS, IN THOUSANDS
- --------------------------------------------------------------------------------
ANALYSIS OF LOANS
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Commercial, financial and agricultural $21,024 $19,883 $ 8,691
Real estate - construction 5,030 3,525 717
Real estate - mortgage 25,439 21,190 9,848
Installment loans to individuals1 31,313 25,372 7,854
Other 1,043 627 270
------- ------- -------
Total $83,849 $70,597 $27,380
======= ======= =======
</TABLE>
______________________________
(1) Includes residential mortgages
ANALYSIS OF CERTAIN LOAN MATURITIES
<TABLE>
<CAPTION>
COMMERCIAL, INSTALLMENT
FINANCIAL REAL LOANS
AND REAL ESTATE- TO
AGRICULTURAL ESTATE CONSTRUCTION INDIVIDUALS OTHER TOTAL
------------ ------ ------------ ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Due within one year $ 10,348 $ 3,741 $ 2,221 $ 5,336 $ 102 $21,748
--------- ------- -------- ------- ------
Due after one through five years:
Fixed rate 3,461 5,607 152 11,229 433 20,882
Variable rate 6,657 5,515 1,960 9,839 491 24,462
--------- ------- -------- ------- ------ -------
Total 10,118 11,122 2,112 21,068 924 45,344
-------- ------- -------- ------- ------ -------
Due after five years through ten years
Fixed rate 35 4,657 697 568 17 5,974
Variable rate 523 5,919 - 4,341 - 10,783
--------- ------- -------- ------- ------ -------
Total 558 10,576 697 4,909 17 16,757
--------- ------- -------- ------- ------ -------
Total $ 21,024 $25,439 $ 5,030 $31,313 $1,043 $83,849
========= ======= ======== ======= ====== =======
</TABLE>
<PAGE> 39
ALLOCATION OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Balance at end of period applicable to 1996 1995 1994
------------------ ------------------ ------------------
AMOUNT PERCENT(1) AMOUNT PERCENT(1) AMOUNT PERCENT(1)
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 250 25% $275 28% $120 32%
Real estate, construction 60 6% 49 5% 11 3%
Real estate, mortgage 300 30% 294 30% 134 36%
Installment loans to individuals, other 390 39% 363 37% 108 29%
------ --- ---- --- ---- ---
Total $1,000 100% $981 100% $373 100%
====== === ==== === ==== ===
</TABLE>
______________________________
(1) Percent of loans in each category to total loans
<PAGE> 40
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES
Investment securities at the end of 1996 made up 28.7% of total assets compared
to 30.1% in 1995. This slight decrease is a result of a stronger demand for
funding of loans. Table 7 provides details of the investment portfolio and a
breakdown between available-for-sale and held-to-maturity required by Financial
Accounting Standard No. 115. At year-end 1996, 11.1% of the portfolio was
classified as held-to-maturity while 88.9% was classified as
available-for-sale. For the same period in 1995 the percentages were 6.3% and
93.7%, respectively. The Bank uses its investments to provide liquidity for
unexpected deposit decrease or loan generation, to meet the Bank's interest
rate sensitivity goals, and to generate income. Management is conservative in
its selection of investment securities. Accordingly, the investment portfolio
consists primarily of securities of the United States Government or its
agencies, mortgage-backed securities and North Carolina bank qualified
municipals.
TABLE 7. INVESTMENT SECURITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
AMORTIZED COST DUE
----------------------------------------------
AFTER ONE AFTER FIVE AFTER MORTGAGE AVERAGE
IN ONE YR. THROUGH THROUGH TEN BACKED EQUITY MARKET MATURITY
OR LESS FIVE YRS. TEN YRS. YEARS SECURITIES SECURITIES TOTAL VALUE IN YEARS
---------- ----------- ---------- ----- ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury $2,744,117 $ 2,516,295 $ - $ - $ - $ - $ 5,260,412 $ 5,271,298 1.39
U.S. agencies 250,263 16,341,419 2,455,402 - - - 19,047,084 18,931,117 4.09
States and municipal - - 858,286 - - - 858,286 859,623 9.80
Mortgage-backed - - - 7,206,155 - 7,206,155 7,142,976 9.75
Other - 249,785 - - - 249,785 251,965 1.04
Equity securities - - - - 881,200 881,200 881,200
---------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- ----
Total $2,994,380 $19,107,499 $3,313,688 $ $7,206,155 $ 881,200 $33,502,922 $33,338,179 5.02
========== =========== ========== ========== ========== ========== =========== =========== ====
WEIGHTED AVERAGE YIELDS:
U.S. Treasury 6.02% 5.90% - - - 5.96%
U.S. agencies 6.77% 6.35% 6.91% - - 6.43%
States and municipal - 5.19% - - 5.19%
Mortgage-backed - - - 6.25% - 6.25%
Other - 6.71% - - - 6.71%
Equity securities - - - - 7.00% 7.00%
---------- ---------- ---------- ---------- ---------- -------- --------
Consolidated 6.09% 6.30% 6.47% 6.25% 7.00% 6.53%
---------- ---------- ---------- ---------- ---------- -------- ---------
HELD TO MATURITY
U.S. Treasury $ $ - $ $ - $ - $ - $ - -
U.S. agencies - 1,000,000 - - 1,000,000 1,000,000 5.50
States and municipal - 315,991 - 837,791 - 1,153,782 1,139,155 12.12
Mortgage-backed - - - - 1,744,931 1,744,931 1,712,835 14.57
Other - 247,608 - - 247,608 248,013 2.17
Equity securities - - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
Total $ - $ 563,599 $1,000,000 $ 837,791 $1,744,931 $4,146,321 $4,100,003 10.96
========== ========== ========== ========== ========== ========== ========== =====
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE YIELDS:
U.S. Treasury - - - - - -
U.S. agencies - - 7.00% - - 7.00%
States and municipal - 5.48% - 4.98% - 5.12%
Mortgage-backed - - - - 5.79% 5.79%
Other - 5.63% - - - 5.63%
Equity securities - - - - - -
- ------------------------ --- -------- ---------- -------- ---------- ----------
Consolidated - 5.54% 7.00% 4.98% 5.79% 5.88%
- ------------------------ --- -------- ---------- -------- ---------- ----------
</TABLE>
<PAGE> 42
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
TABLE 7. INVESTMENT SECURITIES, CONTINUED
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ ----------------------
<S> <C> <C> <C> <C>
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ----------
U.S. Treasury $10,426,829 $10,450,904 $ - $ -
U.S. agencies 15,457,345 15,468,108 - -
States and municipal - - 301,522 297,580
Mortgage-backed 5,891,488 5,905,170 1,744,490 1,711,925
Other 1,093,775 1,097,485 246,618 247,925
Equity securities 457,100 457,100 - -
----------- ----------- ---------- ----------
Total $33,326,537 $33,378,767 $2,292,630 $2,257,430
=========== =========== ========== ==========
</TABLE>
DEPOSITS
Total deposits at the end of 1996 were $110,100,871 as compared to $104,743,049
at the end of 1995. This represents an increase of 5.1%. Total deposits
averaged $106,063,000 during 1996. The mix of deposits between interest
bearing versus noninterest bearing has been consistent over the year. Table 9
gives details for the last three years.
The Bank continually seeks to maintain or grow its deposits base by offering
quality products and services with very competitive rates.
TABLE 8. LARGE TIME DEPOSIT MATURITIES, IN THOUSANDS
Analysis of time deposits of $100,000 or more at December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Remaining maturity of three months or less 9,389
Remaining maturity over three through six months 3,074
Remaining maturity six through twelve months 1,687
Remaining maturity over twelve months 960
------
Total time deposits of $100,000 or more 15,110
======
</TABLE>
<PAGE> 43
TABLE 9. AVERAGE DEPOSIT MIX, IN THOUSANDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ -----------------
AVERAGE AVERAGE AVERAGE
BALANCE PERCENT BALANCE PERCENT BALANCE PERCENT
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-BEARING DEPOSITS:
Demand deposits $ 12,004 11.3 $ 4,505 9.4 $ 2,791 7.9
Savings deposits 15,690 14.8 8,204 17.1 7,720 22.0
Large denomination time deposits 15,110 14.3 3,422 7.1 2,275 6.5
Other time deposits 47,834 45.1 24,883 51.9 17,213 49.0
-------- ------- ------- ------- ------- -------
Total interest bearing deposits 90,638 85.5 41,014 85.5 29,999 85.4
-------- ------- ------- ------- ------- -------
NON-INTEREST BEARING DEPOSITS:
Demand deposits 15,425 14.5 6,950 14.5 5,147 14.6
-------- ------- ------- ------- ------- -------
Total $106,063 100.0 $47,964 100.0 $35,146 100.0
======== ======= ======= ======= ======= =======
</TABLE>
<PAGE> 44
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
SHORT-TERM/LONG-TERM DEBT
The Bank had short-term debt on December 31, 1996 of $2,824,832 as compared to
$2,096,354 in 1995. The borrowing at year-ends 1996 and 1995 consisted of
securities sold under agreements to repurchase to certain customers of the
Bank.
The Bank's long-term debt at year-end 1996 was $4,908,333. There was no
long-term debt at year-end 1995. This debt was generated to match off against
specific lending needs and will mature essentially at the same time the loans
mature.
CAPITAL ADEQUACY
Old North State Bank maintains an adequate capital position and exceeds all
minimum regulatory capital requirements. Stockholders' equity totaled
$11,175,745 at December 31, 1996 compared to $10,244,640 at December 31, 1995.
Table 10 provides information with respect to the Bank's capital ratios.
The minimum ratios imposed by Regulation are: Tier I Capital as a percent of
risk-weighted assets will be at least 4% and Tier II Capital as a percent of
risk-weighted assets will be at least 8%. The Bank's ratios for 1996 were
11.2% and 12.3%, respectively as compared to 11.2% and 12.5%, respectively in
1995.
The leverage ratios maintained by the Bank at year end 1996 and 1995 were 7.8%
and 7.5%, respectively. This exceeds the regulatory minimum requirement of 5%
for a well capitalized bank.
TABLE 10. YEAR-END RISK-BASED CAPITAL, IN THOUSANDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Tier I capital $10,040 $ 8,858 $ 4,154
Qualifying allowance for loan losses(1) 1,000 981 338
------- ------- -------
Tier II capital $11,040 $ 9,839 $ 4,492
======= ======= =======
Total risk-weighted assets $89,759 $78,910 $27,013
======= ======= =======
Tier I as a percent of risk weighted assets 11.19% 11.22% 15.38%
Total Tier II capital as a percent of risk
weighted assets 12.30% 12.47% 16.63%
Leverage ratio(2) 7.81% 7.52% 9.25%
</TABLE>
______________________________
(1) Limited to 1.25% of risk-weighted assets
(2) Year end Tier I capital to fourth quarter adjusted average assets
<PAGE> 45
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY AND LIQUIDITY
The largest component of the Bank's earnings is net interest income, which can
fluctuate widely when significant interest rate movements occur. The management
team is responsible for minimizing the Bank's exposure to interest rate risk
and assuring an adequate level of liquidity. This is accomplished by developing
objectives, goals and strategies designed to enhance profitability and
performance.
Rate-sensitivity management limits interest rate risk by controlling the mix
and maturity of assets and liabilities. Management regularly reviews the Bank's
sensitivity position and evaluates alternative sources and uses of funds as
well as changes in external factors. Various methods are used to achieve and
maintain the desired rate-sensitivity position, including the sale or purchase
of assets and product pricing.
Table 11 shows the interest rate sensitivity of Old North State Bank's balance
sheet on December 31, 1996. This table shows the gap position ranging from 1-3
months to over 5 years. For the first twelve months maturity period, the
cumulative liability gap position was $23,578,000. This means there were more
rate sensitive liabilities in the period than rate sensitive assets. A large
portion of these liabilities are interest-bearing demand, money market and
savings accounts, which do not necessarily reprice as often or under the same
conditions as other interest-bearing deposits. Table 11 is only an indication
of the interest rate sensitivity on a particular day and is not necessarily
reflective of the Bank's position on other dates.
In order to ensure that sufficient funds are available for loan growth and
deposit withdrawals, as well as provide for general needs, the Bank must
maintain an adequate level of liquidity. Both assets and liabilities provide
sources of liquidity. Asset liquidity comes from the Bank's ability to convert
short-term investments into cash and from the maturity and repayment of loans
and investment securities. Liability liquidity is provided by the Bank's
ability to attract deposits. The primary source of liability liquidity is the
Bank's customer base which provides core deposit growth. The overall liquidity
position of the Bank is closely monitored and evaluated regularly. Management
believes the Bank's liquidity sources at December 31, 1996 are adequate to meet
its operating needs.
INFLATION
The results of operations and financial conditions presented in this report are
based on historical cost information, and are unadjusted for the effects of
inflation.
Since the assets and liabilities of banks are primarily monetary in nature
(payable in fixed, determinable amounts) the performance of the Bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
While the effect of inflation on banks is normally not as significant as is its
influence on those businesses which have large investments in plant and
inventories, it does have an effect during periods of high inflation. In such
periods there are normally corresponding increases in the money supply, and
banks will normally experience above average growth in assets, loans and
deposits. Also, increases in the price of goods and services generally will
result in increased operating expenses.
Inflation has not been a significant factor in the Bank's operation to date.
<PAGE> 46
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
- --------------------------------------------------------------------------------
TABLE 11. INTEREST RATE SENSITIVITY, IN THOUSANDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
MATURITIES, DECEMBER 31, 1996
1-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------- --------- -------- ------------ ---------
EARNING ASSETS:
Investments $ 1,400 $ 2,542 $26,261 $ 7,436 $ 37,639
Loans 54,401 3,935 19,338 6,175 83,849
------- -------- ------- --------- ----------
Total 55,801 6,477 45,599 13,611 121,488
------- -------- ------- --------- ----------
INTEREST-BEARING DEPOSITS:
Demand deposits 12,831 - - - 12,831
Savings 15,796 - - - 15,796
IRA's 1,245 1,987 2,117 - 5,349
Certificates of deposit 21,905 29,084 6,602 - 57,591
Other borrowings 2,825 183 4,725 - 7,733
------- -------- ------- --------- ----------
Total 54,602 31,254 13,444 - 99,300
------- -------- ------- --------- ----------
INTEREST RATE GAP $ 1,199 $(24,777) $32,155 $ 13,611 $ 22,188
======= ======== ======= ========= ==========
CUMULATIVE INTEREST RATE GAP $ 1,199 $(23,578) $ 8,577 $ 22,188
======= ======== ======= =========
Ratio of interest-sensitive assets to
interest-sensitive liabilities 102% 21% 339% N/A 122%
======= ======== ======= ========= ==========
Cumulative ratio of interest-sensitive
assets to interest-sensitive liabilities 102% 73% 109% 122%
======= ======== ======= =========
MATURITIES, DECEMBER 31, 1995
1-3 4-12 1-5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
-------- --------- -------- ------- ----------
EARNING ASSETS:
Investments $ 3,467 $ 7,337 $23,223 $4,254 $ 38,281
Loans 48,617 3,049 14,235 5,380 71,281
------- -------- ------- --------- ----------
Total 52,084 10,386 37,458 9,634 109,562
------- -------- ------- --------- ----------
INTEREST-BEARING DEPOSITS:
Demand deposits 14,036 - - - 14,036
Savings 16,297 - - - 16,297
IRA's 681 2,058 2,034 - 4,773
Certificates of deposit 8,754 43,165 4,735 - 56,654
Other borrowings 2,096 - - - 2,096
------- -------- ------- --------- ----------
Total 41,864 45,223 6,769 - 93,856
------- -------- ------- --------- ----------
INTEREST RATE GAP $10,220 $(34,837) $30,689 $ 9,634 15,706
======= ======== ======= ========= ==========
CUMULATIVE INTEREST RATE GAP $10,220 $(24,617) $ 6,072 $ 15,706
======= ======== ======= =========
Ratio of interest-sensitive assets to
interest-sensitive liabilities 124% 23% 553% N/A 117%
======= ======== ======= ========= ==========
Cumulative ratio of interest-sensitive
assets to interest-sensitive liabilities 124% 72% 106% 117%
======= ======== ======= =========
</TABLE>
<PAGE> 47
- --------------------------------------------------------------------------------
----------------------------------------------
DIRECTORS, ADVISORY BOARD MEMBERS AND OFFICERS
----------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 48
- --------------------------------------------------------------------------------
DIRECTORS, ADVISORY BOARD MEMBERS AND OFFICERS OF OLD NORTH STATE BANK
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C>
J. DAVID BRANCH, MD W. FRANK FOWLER, DDS ROBERT E. MARZIANO RICHARD E. STOVER
Ophthalmologist Retired Dentist President and CEO Attorney At Law
Old North State Bank Stover, Cromer and
Bennett
JAMES R. BURROW MARVIN D. GENTRY
James R. Burrow Surveying President and CEO SANDRA K. MITCHELL LLOYD G. WALTER, JR.
and Mapping Company The New Fortis Corporation President President
Utility Auditing Consultants, Inc. Walter, Robbs, Callahan
and Pierce, Architects,
LEWIS N. CARROLL JOHN W. GOODE PA
Carroll Signs and Advertising President NICHOLAS P. PATELLA
Southeastern Employee President JOHN F. WATTS
JAMES H. CORRIGAN, JR. Benefit Services, Inc. Patella and Associates Advertising Watts Realty
Chairman of the Board
Mebane Packaging Group FREDERICK W. JOYNER JAMES R. RIDLEY JOHN H. WATTS
President Retired Chairman, A. Watts, Inc.
NICHOLAS A. DAVES Carolina Benefit Administrators, Inc. President and CEO
Chairman of the Board Integon Corporation
Old North State Bank
- ---------------------------------------------------------------------- ---------------------------------- ------------------------
WINSTON-SALEM KERNERSVILLE DANBURY
ADVISORY BOARD ADVISORY BOARD ADVISORY BOARD
ANN B. ADAMS CALVERT B. JEFFERS, JR., DVM A. L. COLLINS EUGENE A. LYONS
The Golden Apple, Inc. Boulevard Animal Hospital Attorney at Law Retired Principal
Wolfe and Collins, PA North Stokes High
SANDRA C. BOYETTE MARK H. NELSON, MD County Commissioner
Vice President - Public Affairs Ophthalmologist EUNICE M. DUDLEY
Wake Forest University Chief Financial Officer PATSY R. MABE
DALE R. PINILIS Dudley Products, Inc. Former Danbury Banker
ROBERT C. CLARK VP - Clinical Support System
President Forsyth Memorial Hospital GLEN D. HART J. ELWOOD PRIDDY
Rawley & Apperson, Inc. Hart Properties Priddy's Store
MICHAEL E. PULITZER, JR.
J. EMORY CRAWFORD General Manager WAYNE F. MABE
Ace Hardware WXII - TV 12 Chief Financial Officer
Qualified Metal Fabricators
DAVID W. GOOGE ROBERT N. PULLIAM
Googe Financial Services Williams, Overman, Pierce & Co, LLP DAMON A. WEAR, DDS
General Dentistry
DONALD G. HAVER ROBERT S. SIMON
VP - Community Affairs President
R.J. Reynolds Tobacco Co. Windsor Jewelers
- ------------------------------- --------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS OFFICERS
NICHOLAS A. DAVES DENICE C. ALLEN BETTY R. HARTMAN LINDA H. MAYNARD
Chairman of the Board Assistant Vice President Assistant Vice President Assistant Vice President
ROBERT E. MARZIANO AMY L. BENNETT MARY ANNE HICKS WANDA S. MERSCHEL
President/CEO Assistant Cashier Vice President Vice President/Asst.
Secretary
SUZANNE J. BULLOTTA CORETTA J. BIGELOW CARLA W. HOOKER
Senior Vice President Vice President Assistant Vice President ARTHUR A. SMITH
Banking Officer
CHARLES V. DARNELL DEBORAH S. COOK SHERRILL B. JONES
Senior Vice President Vice President Assistant Vice President ROBIN H. SMITH
Assistant Vice President
NANCY H. ELLISON PAMELA S. LAWSON
Assistant Vice President Vice President/Internal Auditor KATHERINE E. STANLEY
Assistant Vice President
WADE N. GENTRY BRIAN D. LAYMAN
Assistant Vice President Assistant Vice President ROBIN S. THOMAS
Assistant Cashier
CATHY B. MARION
Corporate Secretary PAMELA B. TUTTLE
Banking Officer
BRENDA B. WALLER
Assistant Secretary
</TABLE>
<PAGE> 49
- --------------------------------------------------------------------------------
STOCKHOLDER INFORMATION
- --------------------------------------------------------------------------------
INFORMATION FOR STOCKHOLDERS
ANNUAL MEETING
The Annual Meeting of Stockholders of Old North State Bank will be held Monday,
May 12, 1997, at 4:00 p.m. EDST, at the Holiday Inn North, 3050 University
Parkway, Winston-Salem, NC, 27105.
INDEPENDENT AUDITORS
Larrowe, Cardwell & Company, LC, Galax, Virginia.
TRANSFER AGENT
First Citizens Bank & Trust Company, P. O. Box 29522, Raleigh, NC 27626-0522.
COMMON STOCK
Old North State Bank common stock is traded over-the-counter under the symbol
ONSB.
MARKET MAKERS FOR OLD NORTH STATE BANK STOCK
Interstate/Johnson Lane, Winston-Salem, NC
Mark A. Trevillian - (910) 724-5911
Legg Mason Wood Walker, Winston-Salem, NC
Robert S. Northington, Jr. - (910) 773-1900
Scott & Stringfellow Investment Corporation
Stuart F. Vaughn - (910) 722-4702
FORM 10-KSB AND OTHER INFORMATION
Copies of Old North State Bank's Form 10-KSB and other information can be
obtained after March 31, 1997, by contacting Charles V. Darnell, Senior Vice
President and Chief Financial Officer, Old North State Bank, P. O. Box 5068,
Winston-Salem, NC 27113-5068 or by telephone at (910) 983-0682.
Quarterly research reports on Old North State Bank are available from Equity
Research Services, Inc., P. O. Box 2942, Raleigh, NC 27602-2942 or from Old
North State Bank, P. O. Box 5068, Winston-Salem, NC 27113-5068.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the use of our report incorporated herein by reference
and the reference to our firm under the heading Experts in the Registration
Statement as filed with the Securities and Exchange Commission and the Federal
Deposit Insurance Corporation.
Turlington and Company, L.L.P.
Lexington, North Carolina
May 11, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS CONSENT
We consent to the use of our report incorporated herein by reference
from Old North State Bank's 1996 Annual Report filed on Form 10-KSB and the
reference to our firm under this heading Experts in the Registration Statement
as filed with the Securities and Exchange Commission and the Federal Deposit
Insurance Corporation.
Larrowe, Cardwell & Company, L.C.
Galax, Virginia
May 12, 1997
<PAGE> 1
EXHIBIT 23.5
May 5, 1997
Mr. David E. Johnston
Hunton & Williams
One NationsBank Plaza - Suite 2650
101 South Tryon Street
Charlotte, NC 28280
Re: Old North State Bank/
LSB Bancshares, Inc.
Dear Mr. Johnston:
CONSENT OF INVESTMENT BANKERS
- -----------------------------
We consent to the use, quotation and summarization in the Registration
Statement on Form S-4 of our Opinion of Fairness dated May , 1997,
rendered to the Board of Directors of Old North State in connection with its
merger with LSB Bancshares, Inc. and to the use of our name, and the statements
with respect to us, appearing in the Registration Statement.
Sincerely,
SCOTT & STRINGFELLOW, INC.
G. Jacob Savage III, CPA
Managing Director and First
Vice President
Corporate Finance Department
<PAGE> 1
EXHIBIT 23.6
CONSENT OF THE CARSON MEDLIN COMPANY
We hereby consent to the inclusion as Appendix __ to the Proxy Statement
constituting part of the Registration Statement on Form S-4 of LSB Bancshares,
Inc. of our letter to the Board of Directors of LSB Bancshares, Inc. and to the
references made to such letter and to the firm in such Proxy Statement. In
giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder.
THE CARSON MEDLIN COMPANY
Raleigh, North Carolina
May 9, 1997
<PAGE> 1
EXHIBIT 99.1
OLD NORTH STATE BANK
REVOCABLE PROXY
The undersigned hereby constitutes and appoints Robert E. Marziano and
Nicholas A. Daves, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of Old North Sate
Bank ("ONSB") which the undersigned would be entitled to vote if personally
present at the Special Meeting of ONSB shareholders to be held at the Holiday
Inn North, 3050 University Parkway, Winston-Salem, North Carolina, at 9:00
A.M., local time, on Monday, July 21, 1997, and at any adjournment or
postponement thereof (the "Special Meeting") upon the proposals described in
the Joint Proxy Statement/Prospectus and the Notice of Special Meeting of
Shareholders, both dated June ____, 1997, the receipt of which is acknowledged
in the manner specified below.
1. MERGER. To consider and vote upon a proposal to approve an
Agreement and Plan of Reorganization and Merger, dated as of March 14,
1997 (the "Agreement"), by and among ONSB, Lexington State Bank (LSB
Bank) and LSB Bancshares, Inc., the holding company of LSB Bank (LSB),
pursuant to which (i) ONSB will merge (the Merger) with and into LSB
Bank, with LSB Bank the surviving corporation, (ii) each share of the
$5.00 par value common stock of ONSB (ONSB Stock) issued and
outstanding at the effective time of the Merger will be exchanged for
0.948 of a share of the $5.00 par value common stock of LSB, subject
to possible adjustment, and cash in lieu of any fractional share, and
(iii) LSB will assume the obligations of ONSB under certain warrants
and various stock plans and adopt substitute plans where appropriate,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears below. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President
<PAGE> 2
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
DATED: , 1997
_________________________
Signature
_________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF OLD NORTH STATE BANK, AND
MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE> 1
EXHIBIT 99.2
LSB BANCSHARES, INC.
REVOCABLE PROXY
The undersigned hereby constitutes and appoints Monty J. Oliver and
Robert F. Lowe, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of LSB Bancshares,
Inc. ("LSB") which the undersigned would be entitled to vote if personally
present at the Special Meeting of LSB shareholders to be held at the offices of
LSB at One LSB Plaza, Lexington, North Carolina, at 1:00 P.M., local time, on
Monday, July 21, 1997, and at any adjournment or postponement thereof (the
"Special Meeting") upon the proposals described in the Joint Proxy
Statement/Prospectus and the Notice of Special Meeting of Shareholders, both
dated June ____, 1997, the receipt of which is acknowledged in the manner
specified below.
1. PROPOSED ISSUANCE OF COMMON STOCK. To consider and vote
upon a proposal to issue shares of LSB common stock, $5.00 par value
per share (LSB Stock), pursuant to the terms of an Agreement and Plan
of Reorganization and Merger, dated as of March 14, 1997 (the
Agreement), by and among Old North State Bank, Lexington State Bank
(LSB Bank) and LSB, pursuant to which (i) Old North State Bank will
merge (the Merger) with and into LSB Bank, with LSB Bank the surviving
corporation, (ii) each share of the $5.00 par value common stock of
Old North State Bank (Old North State Bank Stock) issued and
outstanding at the effective time of the Merger will be exchanged for
0.948 of a share of LSB Stock, subject to possible adjustment, and
cash in lieu of any fractional share, and (iii) LSB will assume the
obligations of Old North State Bank under certain warrants and various
stock plans and adopt substitute plans where appropriate, all as more
fully described in the accompanying Joint Proxy Statement/Prospectus.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign exactly as name appears below. When shares are held jointly, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
full corporate name by President
<PAGE> 2
or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED: , 1997
_________________________
Signature
_________________________
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
LSB BANCSHARES, INC., AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
