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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 0-15956
Bank of Granite Corporation
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(Exact name of registrant as specified in its charter)
Delaware 56-1550545
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 128, Granite Falls, N.C. 28630
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (704) 496-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Stock NASDAQ
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 13, 1998, was $261,259,380.
Documents Incorporated by Reference
PARTS I AND II: Annual Report to Shareholders for the fiscal year ended
December 31, 1997 (with the exception of those portions which are specifically
incorporated by reference in this Form 10-K, and the Annual Report to
Shareholders is not deemed to be filed as part of this report).
PART III: Definitive Proxy Statement dated March 23, 1998 as filed
pursuant to Section 14 of the Securities Exchange Act of 1934 in connection with
the 1998 Annual Meeting of Shareholders.
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Exhibit Index begins on page 13
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FORM 10-K CROSS-REFERENCE INDEX
1997 1998
1997 Annual Proxy
Form 10-K Report Statement
Page Page Page
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PART I
Item 1 - Business 3 n/a n/a
Item 2 - Properties 7 n/a n/a
Item 3 - Legal Proceedings 9 n/a n/a
Item 4 - Submission of Matters to a
Vote of Security Holders 9 n/a n/a
PART II
Item 5 - Market for the Registrant's
Common Equity and
Related Shareholder Matters 9 4 & 18 I-3
Item 6 - Selected Financial Data 9 22
Item 7 - Management's Discussion
and Analysis of Financial
Condition and Results of
Operations 9 17 II-1 - II-11
Item 8 - Financial Statements and
Supplementary Data 9 21,23 & 24 II-12 - II-34
Item 9 - Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure 9 n/a n/a
PART III
Item 10 - Directors and Executive
Officers of the Registrant 10 n/a I-8
Item 11 - Executive Compensation 10 n/a I-9 - I-13
Item 12 - Security Ownership of Certain
Beneficial Owners and
Management 10 n/a I-3 & I-8
Item 13 - Certain Relationships and
Related Transactions 10 n/a I-16
PART IV
Item 14 - Exhibits, Financial Statement
Schedules and Reports on
Forms 8-K 11 n/a II-12 - II-34
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PART I
ITEM 1 - BUSINESS
Bank of Granite Corporation (the "Registrant") is a Delaware Corporation
organized January 30, 1987 as a holding company. The Registrant currently
engages in no operations other than ownership and operation of Bank of Granite
(the "Bank"), a state bank chartered under the laws of North Carolina on August
2, 1906 and GLL & Associates, Inc. ("GLL"), a mortgage bank chartered under the
laws of North Carolina on June 24, 1985. GLL merged with the Registrant on
November 5, 1997. The Registrant conducts its banking business from twelve
offices located in Caldwell, Catawba, and Burke counties in North Carolina.
According to the North Carolina Banking Commission, the Bank ranked 14th and
13th among North Carolina commercial banks based on assets and deposits,
respectively, as of December 31, 1997. The Registrant conducts its mortgage
banking business from five offices in the Central and Southern Piedmont and
Catawba Valley regions of North Carolina.
GENERAL BUSINESS
The Bank's principal activities include the taking of demand and time deposits
and the making of loans, secured and unsecured, to individuals, associations,
partnerships and corporations. Bank of Granite is an independent community bank.
The majority of its customers are individuals and small businesses. No material
part of its business is dependent upon a single customer or a few customers
whose loss would have an adverse effect on the business of the Bank. No material
portion of the business of the Bank is seasonal.
GLL's principal activities include the origination and underwriting of mortgage
loans to individuals. GLL also sells mortgage servicing rights and appraisal
services. GLL specializes in government guaranteed mortgage products. The
majority of its customers are individuals. No material part of its business is
dependent upon a single customer or a few customers whose loss would have an
adverse effect on the business of GLL. The mortgage business is sensitive to
changes in interest rates in the market. When rates decline, GLL experiences an
increase in its mortgage business. When rates rise, GLL's business declines.
TERRITORIAL SERVED AND COMPETITION
The Bank operates banking offices in Granite Falls and the Baton section of
Granite Falls; Lenoir and the Hibriten and Whitnel sections of Lenoir; Hudson;
Newton; Morganton; Hickory and the Springs Road, Viewmont and Long View sections
of Hickory, for a total of twelve offices. The Bank currently plans to open
additional offices in the Mountain View section of Hickory and in the Vale
community. Banking laws of North Carolina allow statewide branching, resulting
in commercial banking in the state being extremely competitive.
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According to June 30, 1997 data provided by the Federal Deposit Insurance
Corporation (the "FDIC"), there were seven other commercial banks in the Bank's
Caldwell County market. The Bank of Granite had $163.5 million, or 25.5%, of
the $641.4 million in total deposits in Caldwell County as of June 30, 1997.
According to the FDIC data, in the Bank's Catawba County market, there were
twelve other commercial banks as of June 30, 1997. The Bank of Granite had
$225.1 million, or 14.2%, of the $1,584.2 million in total deposits in Catawba
County as of June 30, 1997.
In the Bank's Burke County market, there were six commercial banks and one
savings institution as of June 30, 1997 according to the FDIC. The Bank of
Granite had $24.4 million, or 4.3%, of the $573.2 million in total deposits in
Burke County as of June 30, 1997.
The mortgage banking business is also highly competitive, with both bank and
nonbank mortgage originators. GLL conducts its mortgage banking business from
five offices in the North Carolina cities of Winston-Salem, Charlotte,
Greensboro, High Point and Statesville. In January 1998, the Bank merged its
mortgage department with GLL, serving the Catawba Valley region of North
Carolina from an office in Hickory.
EMPLOYEES
As of December 31, 1997, the Bank had 187 and GLL had 28 full-time equivalent
employees. Both the Bank and GLL consider its relationship with its employees
to be excellent.
SUPERVISION AND REGULATION
The following summaries of statutes and regulations affecting bank holding
companies, banks and mortgage banks do not purport to be complete. Such
summaries are qualified in their entirety by reference to such statutes and
regulations.
The Bank Holding Company Act
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
required to register as such with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board" or "FRB").
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A bank holding company is required to file with the FRB annual reports and
other information regarding its business operations and those of its
subsidiaries. It is also subject to examination by the approval prior to
acquiring, directly or indirectly, more than 5% of the voting stock of such
bank, unless it already owns a majority of the voting stock of such bank.
Furthermore, a bank holding company must engage, with limited exceptions, in
the business of banking or managing or controlling banks or furnishing services
to or performing services for its subsidiary banks. One of the exceptions to
this prohibition is the ownership of shares of a company the activities of
which the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The FRB has cease-and-desist powers over parent bank holding companies and
non-banking subsidiaries where their action would constitute a serious threat
to the safety, soundness or stability of a subsidiary bank.
While the Registrant is not presently subject to any regulatory restrictions on
dividends, the Registrant's ability to pay dividends will depend to a large
extent on the amount of dividends paid by the Bank and any other subsidiaries.
The Bank, as a North Carolina banking corporation, may pay dividends only out
of undivided profits as determined pursuant to North Carolina General Statutes
Section 53-87. As of December 31, 1997, the Bank had undivided profits of
approximately $79.9 million. Additionally, current federal regulations require
that the Bank maintain a ratio of total capital to assets, as defined by
regulatory authorities, in excess of 6%. As of December 31, 1997, this ratio
was 17.69%, leaving approximately $60.4 million of the Bank's undivided profits
available for the payment of dividends. The Bank is, and such other
subsidiaries may be, subject to regulatory restrictions on the payment of
dividends.
In an effort to achieve a measurement of capital adequacy that is more
sensitive to the individual risk profiles of financial institutions, the
various financial institution regulators mandate minimum capital regulations
and guidelines that categorize various components of capital and types of
assets and measure capital adequacy in relation to a particular institution's
relative levels of those capital components and the level of risk associated
with various types of assets of that financial institution. The FDIC and the
FRB statements of policy on "risk-based capital" require the Registrant to
maintain a level of capital commensurate with the risk profile assigned to its
assets in accordance with the policy statements. The capital standards call for
minimum total capital of 8 percent of risk-adjusted assets. At December 31,
1997, the Registrant's tier 1 ratio and total capital ratio to risk-adjusted
assets was 24.3% and 25.6% respectively. The Registrant's leverage ratio at
December 31, 1997 was 17.9%. The Registrant is in compliance with all
regulatory capital requirements.
The Registrant cannot predict what other legislation might be enacted or what
other regulation might be adopted or, if enacted or adopted, the effect
thereof.
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The Bank is subject to supervision and regulation, of which regular bank
examinations are a part, by the FDIC and North Carolina State Banking
Commission (the "Banking Commission"). The Bank is a member of the FDIC, which
currently insures the deposits of each member bank to a maximum of $100,000 per
depositor. For this protection, each bank pays a semi-annual statutory
assessment and is subject to the rules and regulations of the FDIC.
Federal banking laws applicable to all depository financial institutions, among
other things, (I) afford federal bank regulatory agencies with powers to
prevent unsafe and unsound banking practices; (II) restrict preferential loans
by bands to "insiders" of banks; (III) require banks to keep information on
loans to major shareholders and executive officers, and (IV) bar certain
directory and officer interlocks between financial institutions. The
prohibitions against preferential loans and certain director and officer
interlocks may inhibit the ability of the Bank and the Registrant to obtain
experienced and capable officers and directors, to replace presently proposed
officers and directors, or to add to their number.
The Registrant is an "affiliate" of the Bank within the meaning of the Federal
Reserve Act, which imposes restrictions on loans by the Bank to the Registrant,
on investments by the Bank in the stock or securities of the security for loans
by the Bank to any borrower. The Registrant is also subject to certain
restrictions with respect to engaging in the business of issuing, underwriting
and distributing securities.
Shareholders of banks (including bank holding companies which own stock in
banks) may be compelled by bank regulatory authorities to invest additional
capital in the event their banks experience either significant loan losses or
rapid growth of loans or deposits. In addition, the Registrant may also be
required to provide additional capital to any additional banks which it
acquires as a condition to obtaining the approvals and consents of regulatory
authorities in connection with such acquisitions.
GLL, as a mortgage bank, is regulated by the Banking Commission. Because GLL is
a nonbank subsidiary of a bank holding company, it is also regulated by both
the Banking Commission and the FRB. In addition, because GLL underwrites
mortgages guaranteed by the government, it is subject to other audits and
examinations as required by the government agencies or the investors who
purchase the mortgages.
Effects of Governmental Monetary Policy and Economic Controls
The Registrant is directly affected by governmental monetary policy and by
regulatory measures affecting the banking industry in general. Of primary
importance is the FRB, whose actions directly affect the money supply and, in
general, affect banks' lending abilities by increasing or decreasing the cost
and availability of bank credit in order to combat recession and curb
inflationary pressures in the economy by open market operations in the United
States government securities, changes in the discount rate on the member bank
borrows, and changes in reserve requirements against bank deposits.
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Deregulation of interest rates paid by banks on deposits and the types of
deposits that may be offered by banks have eliminated minimum balance
requirements and rate ceilings on various types of time deposit accounts. The
effect of these specific actions and, in general, the deregulation of deposit
interest rates have increased banks' costs of funds and made the more sensitive
to fluctuations in money market rates.
In view of changing conditions in the national economy and money markets, as
well as the effect of actions by monetary and fiscal authorities, no prediction
can be made as to possible future changes in interest rates, deposit levels,
loan demand or the business and earnings of the Registrant.
ITEM 2 - PROPERTIES
Bank of Granite owns all of its facilities which are listed below.
GRANITE FALLS, NC
Granite Falls office (home office) - 8,735 square foot building located on a
1.2 acre lot.
Storage building - 735 square foot building with an adjoining 100' x 221' lot.
Operations Center - 11,769 square foot building located on a 1.05 acre lot.
Print shop - 375 square foot building.
Baton office - 430 square office area located inside a supermarket.
LENOIR, NC
Lenoir office - 7,400 square foot building.
Whitnel office - 2,530 square foot building located on a 45,500 square foot
lot.
Hibriten office - 2,480 square foot building located on a 2.10 acre lot.
HUDSON, NC
Hudson office - 4,235 square foot building located on a 4.10 acre lot.
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HICKORY, NC
Hickory office - 9,515 square foot building located on a 20,000 square foot
lot.
Bank of Granite Plaza - two story building with two sections containing 7,520
square feet and 7,572 square feet.
Springs Road office - 3,612 square foot building located on a 1.6 acre lot.
Viewmont office - 4,200 square foot building located on a 2 acre lot.
Longview office - 2,440 square foot building located on a 1.1 acre lot.
Mountain View office (under construction) - 2,480 square foot building located
on a 1.81 acre lot.
NEWTON, NC
Newton office - 3,612 square foot building located on a 40,000 square foot lot.
MORGANTON, NC
Morganton office - 5,400 square foot building located on a 0.78 acre lot.
GLL leases all of its facilities which are listed below.
Winston-Salem office (home office) - 6,974 square foot building located on a
0.61 acre lot.
Charlotte office - 878 square foot office in a 150,000 square foot office
building.
High Point office - 830 square foot office in a 7,200 square foot office
building.
Statesville office - 300 square foot office in a 20,000 square foot office
building.
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ITEM 3 - LEGAL PROCEEDINGS
There were no significant legal proceedings as of December 31, 1997.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders in the fourth quarter
of 1997.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER'S MATTERS
The information required by this item is set forth on pages 4 & 18 of the
Registrant's 1997 ANNUAL REPORT TO SHAREHOLDERS under the headings "Market and
Dividend Summary" and "Shareholder Information", and respectively, and on page
I-3 of the 1998 PROXY STATEMENT under the heading "Principal Holders of Voting"
Securities". The above information is incorporated by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is set forth on page 22 in the
Registrant's 1997 ANNUAL REPORT TO SHAREHOLDERS under the heading "Selected
Financial Data" of which information is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this item is set forth on pages II-1 - II-11 of the
Registrant's 1998 PROXY STATEMENT for the heading "Management's Discussion and
Analysis", which is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS & SUPPLEMENTARY DATA
The Consolidated financial statements, the notes thereto and the independent
auditors' report is set forth on pages II-12 - II-34 of the 1998 PROXY
STATEMENT for the year ended December 31, 1997 are incorporated herein by
reference.
ITEM 9 - CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no disagreement with accountants on accounting and financial
disclosure as defined by Item 304 of Regulation S-K.
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth on page I-8 under the
heading "Directors and Executive Officers of Bank of Granite Corporation" in
the definitive proxy materials of the Company filed in connection with its 1998
ANNUAL MEETING OF SHAREHOLDERS. The information required by this item contained
in such definitive proxy materials is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is set forth on pages I-9 - I-13 in the
definitive proxy materials of the Company filed in connection with its 1998
ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is set forth on pages I-3 & I-8 in the
definitive proxy materials of the Company filed in connection with its 1998
ANNUAL MEETING OF SHAREHOLDERS, which information is incorporated herein by
reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth on page I-16 under the
heading "Transactions with Officers and Directors" in the definitive proxy
materials of the Company filed in connection with its 1998 ANNUAL MEETING OF
SHAREHOLDERS, which information is incorporated herein by reference.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORMS 8-K
a.1. Financial Statements
The information required by this item is set forth on pages II-12
- II-34 of the Registrant's 1998 PROXY STATEMENT TO SHAREHOLDERS,
which is incorporated herein by reference.
2. Financial Statement Schedules
None
3. Exhibits
10. Material Contracts
a. Merger Agreement with GLL & Associates, Inc.
13. Annual Report to Shareholders
21. Subsidiaries of the Registrant
27. Financial Data Schedule
b. No reports on Form 8-K were filed for the quarter ended December
31, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on behalf
by the undersigned, thereunto duly authorized.
BANK OF GRANITE CORPORATION
By: /s/ John A. Forlines, Jr.
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John A. Forlines, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ John A. Forlines, Jr. Chairman and Chief March 23, 1998
- -------------------------- Executive Officer
John A. Forlines, Jr.
/s/ Kirby A. Tyndall Secretary/Treasurer, March 23, 1998
- -------------------------- Chief Financial
Kirby A. Tyndall Officer and Principal
Accounting Officer
/s/ John N. Bray Director March 23, 1998
- --------------------------
John N. Bray
/s/ Robert E. Cline Director March 23, 1998
- --------------------------
Robert E. Cline
/s/ John A. Forlines, Jr. Director March 23, 1998
- --------------------------
John A. Forlines, Jr.
/s/ Barbara F. Freiman Director March 23, 1998
- --------------------------
Barbara F. Freiman
/s/ Hugh R. Gaither Director March 23, 1998
- --------------------------
Hugh R. Gaither
/s/ Charles M. Snipes Director March 23, 1998
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Charles M. Snipes
/s/ Boyd C. Wilson, Jr. Director March 23, 1998
- --------------------------
Boyd C. Wilson, Jr.
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Bank of Granite Corporation
Exhibit Index
Begins
on Page
Exhibit 10.a -- Merger Agreement 14
Exhibit 13 -- Annual Report To Shareholders 57
Exhibit 21 -- Subsidiaries of the Registrant 69
Exhibit 27 -- Financial Data Schedule 70
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Exhibit 10.a -- Merger Agreement
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MERGER AGREEMENT
among
BANK OF GRANITE CORPORATION
Buyer
GLL & ASSOCIATES, INC.
the Company
and
THE SHAREHOLDERS OF
GLL & ASSOCIATES, INC.
Sellers
Dated as of November 3, 1997
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINED TERMS
1.1. Definitions . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
THE MERGER
2.1. The Merger. . . . . . . . . . . . . . . . . . . . . . .5
2.2. Articles of Incorporation . . . . . . . . . . . . . . .5
2.3. Bylaws. . . . . . . . . . . . . . . . . . . . . . . . .5
2.4. Directors and Officers. . . . . . . . . . . . . . . . .5
2.5. Approval. . . . . . . . . . . . . . . . . . . . . . . .6
2.6. Effective Time. . . . . . . . . . . . . . . . . . . . .6
2.7. Filing of Articles of Merger. . . . . . . . . . . . . .6
ARTICLE III
CONVERSION AND EXCHANGE OF SHARES FOR THE MERGER PRICE
3.1. Shares. . . . . . . . . . . . . . . . . . . . . . . . .6
3.2. Merger Sub Shares . . . . . . . . . . . . . . . . . . .6
3.3. Merger Price. . . . . . . . . . . . . . . . . . . . . .6
3.4. Closing Payment . . . . . . . . . . . . . . . . . . . .6
ARTICLE IV
THE CLOSING
4.1. Closing . . . . . . . . . . . . . . . . . . . . . . . .7
4.2. Deliveries by the Sellers and the Company . . . . . . .7
4.3. Deliveries by the Buyer . . . . . . . . . . . . . . . .7
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
5.1. The Company . . . . . . . . . . . . . . . . . . . . . .8
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5.2. The Sellers . . . . . . . . . . . . . . . . . . . . . .9
5.3. Assets. . . . . . . . . . . . . . . . . . . . . . . . .9
5.4. Interests in Real Property. . . . . . . . . . . . . . 10
5.5. Absence of Undisclosed Liabilities. . . . . . . . . . 10
5.6. Contracts . . . . . . . . . . . . . . . . . . . . . . 10
5.7. Intellectual Property Rights. . . . . . . . . . . . . 11
5.8. Financial Statements. . . . . . . . . . . . . . . . . 11
5.9. Loans, Accounts, Notes and Other Receivables. . . . . 11
5.10. Securities Portfolio and Investments. . . . . . . . . 12
5.11. Legal Compliance. . . . . . . . . . . . . . . . . . . 12
5.12. Taxes and Tax Returns . . . . . . . . . . . . . . . . 12
5.13. Litigation. . . . . . . . . . . . . . . . . . . . . . 13
5.14. Labor and Employment Matters. . . . . . . . . . . . . 13
5.15. Employee Benefit Plans; ERISA . . . . . . . . . . . . 14
5.16. Insurance . . . . . . . . . . . . . . . . . . . . . . 16
5.17. Transactions with Affiliates. . . . . . . . . . . . . 16
5.18. Environmental Matters . . . . . . . . . . . . . . . . 16
5.19. Absence of Changes or Events. . . . . . . . . . . . . 17
5.20. Bank Accounts . . . . . . . . . . . . . . . . . . . . 17
5.21. Corporate and Personnel Data. . . . . . . . . . . . . 18
5.22. Licenses and Permits. . . . . . . . . . . . . . . . . 18
5.23. Investment. . . . . . . . . . . . . . . . . . . . . . 18
5.24. Certain Regulated Businesses. . . . . . . . . . . . . 18
5.25. Commissions . . . . . . . . . . . . . . . . . . . . . 18
5.26. Full Disclosure . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
6.1. Organization. . . . . . . . . . . . . . . . . . . . . 19
6.2. Authority Relative to this Agreement. . . . . . . . . 19
6.3. Consents and Approvals, No Violations . . . . . . . . 19
6.4. Issuance of Shares of the Buyer's Stock . . . . . . . 19
6.5. Reports . . . . . . . . . . . . . . . . . . . . . . . 19
6.6. Buyer's Financial Statements. . . . . . . . . . . . . 20
6.7. Absence of Changes. . . . . . . . . . . . . . . . . . 20
6.8. Commissions . . . . . . . . . . . . . . . . . . . . . 20
6.9. Full Disclosure . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII
AFFIRMATIVE COVENANTS
7.1. Ordinary Conduct. . . . . . . . . . . . . . . . . . . 20
7.2. Covenants of the Sellers. . . . . . . . . . . . . . . 22
7.3. Covenants of the Buyer. . . . . . . . . . . . . . . . 23
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7.4. Monthly Distributions . . . . . . . . . . . . . . . . 23
7.5. Reorganization for Tax Purposes . . . . . . . . . . . 24
7.6. Accounting Treatment. . . . . . . . . . . . . . . . . 24
7.7. Consummation of Agreement . . . . . . . . . . . . . . 24
7.8. Schedules to Agreement. . . . . . . . . . . . . . . . 24
7.9. Corporate Action. . . . . . . . . . . . . . . . . . . 24
7.10. Maintenance of Corporate Existence. . . . . . . . . . 25
7.11. No Solicitation . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
DISCLOSURE OF ADDITIONAL INFORMATION
8.1. Access to Information . . . . . . . . . . . . . . . . 25
8.2. Access to Premises. . . . . . . . . . . . . . . . . . 25
8.3. Confidentiality . . . . . . . . . . . . . . . . . . . 25
8.4. Publicity . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX
CONDITIONS TO CLOSING
9.1. Mutual Conditions . . . . . . . . . . . . . . . . . . 26
9.2. Conditions to the Obligations of the Company and
the Sellers . . . . . . . . . . . . . . . . . . . . 26
9.3. Conditions to the Obligations of the Buyer. . . . . . 27
ARTICLE X
TERMINATION
10.1. Termination . . . . . . . . . . . . . . . . . . . . . 28
10.2. Procedure and Effect of Termination . . . . . . . . . 29
ARTICLE XI
INDEMNIFICATION
11.1. Survival of Representations . . . . . . . . . . . . . 29
11.2. Sellers' Agreement to Indemnify . . . . . . . . . . . 29
11.3. Buyer's Agreement to Indemnify. . . . . . . . . . . . 31
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ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. Expenses. . . . . . . . . . . . . . . . . . . . . . . 32
12.2. Action by Sellers . . . . . . . . . . . . . . . . . . 32
12.3. Amendment and Modification. . . . . . . . . . . . . . 32
12.4. Waiver of Compliance; Consents. . . . . . . . . . . . 32
12.5. Notices . . . . . . . . . . . . . . . . . . . . . . . 32
12.6. Assignment; Third Party Beneficiaries . . . . . . . . 34
12.7. Separable Provisions. . . . . . . . . . . . . . . . . 34
12.8. Governing Law . . . . . . . . . . . . . . . . . . . . 34
12.9. Counterparts. . . . . . . . . . . . . . . . . . . . . 34
12.10. Interpretation. . . . . . . . . . . . . . . . . . . . 34
12.11. Entire Agreement. . . . . . . . . . . . . . . . . . . 34
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SCHEDULES
Schedule 5.1(b) Capitalization
Schedule 5.1(d) Subsidiaries and Affiliates
Schedule 5.1(f) Consents and Approvals
Schedule 5.2 Ownership of Shares
Schedule 5.3 Assets
Schedule 5.4 Real Property
Schedule 5.5 Undisclosed Liabilities
Schedule 5.6 Contracts
Schedule 5.7 Intellectual Property
Schedule 5.8 Financial Statements
Schedule 5.9 Loans, Accounts, Notes and Other Receivables
Schedule 5.10 Securities Portfolio and Investments
Schedule 5.11 Legal Compliance
Schedule 5.12 Taxes
Schedule 5.14 Labor and Employment Matters
Schedule 5.15 Employee Benefit Plans; ERISA
Schedule 5.16 Insurance
Schedule 5.17 Transactions with Affiliates
Schedule 5.18 Environmental Matters
Schedule 5.19 Absence of Changes or Events
Schedule 5.20 Bank Accounts
Schedule 5.21 Corporate and Personnel Data
Schedule 5.22 Licenses and Permits
Schedule 6.3 Buyer's Consents and Approvals
Schedule 7.1 Conduct Prior to Closing
EXHIBITS
Exhibit A Plan of Merger
Exhibit B Employment Agreement of Gary L. Lackey
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MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement"), dated as of November 3,
1997, is by and among BANK OF GRANITE CORPORATION, a Delaware corporation
(the "Buyer"), GLL & ASSOCIATES, INC., a North Carolina corporation (the
"Company"), and GARY L. LACKEY, LEWIS E. HUBBARD, EMMA B. HUBBARD, BRUCE R.
HUBBARD, LEWIS E. HUBBARD, JR., BEVERLY H. GODFREY, and the EAGAN FAMILY
TRUST, under irrevocable agreement dated July 16, 1997 (collectively, the
"Sellers").
Background Statement
The Buyer and the Company desire to effect a merger pursuant to which the
Merger Sub (as defined below) will merge with and into the Company and the
Company will be the surviving corporation. The Sellers, who are all of the
shareholders of the Company, will receive common stock of the Buyer as
consideration for the merger.
Statement of Agreement
In consideration of the premises and the mutual representations,
warranties, covenants, agreements and conditions contained herein, the parties
hereto agree as follows:
ARTICLE I.
DEFINED TERMS
1.1 Definitions. As used in this Agreement, the following terms have the
following meanings:
"Affiliate" means, with respect to any Person, each of the Persons that
directly or indirectly, through one or more intermediaries, owns or controls,
or is controlled by or under common control with, such Person. For the purpose
of this Agreement, "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Merger Agreement.
"Applicable Law" means, as to any Person, all applicable statutes, codes,
laws, ordinances, rules, orders, decrees and regulations of any Governmental
Authority.
"Articles of Merger" has the meaning given to it in Section 2.6.
"Assets" means all of the assets, rights, interests and properties of the
Company of any nature whatsoever, whether real, personal, tangible or
intangible.
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"Average Closing Price" means the simple average of the closing price of
the Buyer's Stock on the Nasdaq National Market System at the close of trading
on each of the ten trading days immediately preceding the date immediately
prior to the Closing Date.
"Business Day" means any day excluding Saturday, Sunday and any day that
shall be a legal holiday in North Carolina.
"Buyer" means Bank of Granite Corporation, a Delaware corporation.
"Buyer Affiliates" has the meaning given to it in Section 11.2.
"Buyer's Stock" means the common stock of Bank of Granite Corporation, as
traded on the Nasdaq.
"Closing" means the closing of the Merger, as identified more
specifically in Article IV.
"Closing Date" has the meaning given to it in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the regulations thereunder,
in each case as in effect from time to time. References to sections of the Code
shall be construed also to refer to any successor sections.
"Company" means GLL & Associates, Inc., a North Carolina corporation.
"Contract" means any agreement, warranty, indenture, mortgage, guaranty,
lease, license or other contract, agreement, arrangement, commitment or
understanding, written or oral.
"Eagan Line of Credit" has the meaning given to it in Section 7.1(d).
"Eagan Trust" means the Eagan Family Trust, under irrevocable agreement
dated July 16, 1997.
"Effective Time" has the meaning given to it in Section 2.6.
"Employment Agreement" means the Employment and Noncompetition
Agreement between the Surviving Corporation and Gary L. Lackey in the form
attached hereto as Exhibit B.
"Environmental Assessment" means any and all soil and groundwater tests,
surveys, environmental assessments and other inspections, tests and inquiries
conducted by the Buyer or any agent of the Buyer and related to the Real
Property.
"Environmental Laws" means any federal, state or local law, statute,
ordinance, rule, regulation, permit, directive, license, approval, guidance,
interpretation, order or other legal requirement relating to the protection of
human health or the environment, including, but not limited to, any requirement
pertaining to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of materials that are or may constitute a threat
to human health or the environment. Without limiting the foregoing, each of the
following is an Environmental Law: the Comprehensive Environmental Response,
Compensation, and Liability
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Act (42 U.S.C. ss. 9601 et seq.) ("CERCLA"), the Hazardous Material
Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. ss. 6901 et seq.) ("RCRA"), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42
U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et seq.), the Safe Drinking Water Act (42 U.S.C. ss. 300 et seq.) and the
Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.) ("OSHA"), as
such laws and regulations have been or are in the future amended or
supplemented, and each similar federal, state or local statute, and each
rule and regulation promulgated under such federal, state and local laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed also to refer to any successor
sections.
"Financial Statements" means, on a consolidated basis, the Company's
audited statements of income and stockholders' equity for the years ended
December 31, 1996, 1995 and 1994 and audited balance sheets as of December 31,
1996, 1995 and 1994, as well as the unaudited interim statements of income and
stockholders' equity for each of the months subsequent to December 31, 1996
through October 31, 1997 (or if Closing does not occur in November 1997, such
other month-end on or immediately prior to Closing) and the unaudited interim
balance sheet as of the end of each month subsequent to December 31, 1996
through October 31, 1997 (or if Closing does not occur in November 1997, such
other month-end on or immediately prior to Closing).
"Generally Accepted Accounting Principles" means generally accepted
accounting principles as recognized by the American Institute of Certified
Public Accountants, as in effect from time to time, consistently applied and
maintained on a consistent basis for a Person throughout the period indicated
and consistent with such Person's prior financial practice.
"Governmental Authority" means any nation, province, state or other
political subdivision thereof, and any agency, natural person or other entity
exercising executive, legislative, regulatory or administrative functions of or
pertaining to government.
"Hazardous Material" means any substance or material meeting any one or
more of the following criteria: (a) it is or contains a substance designated as
a hazardous waste, hazardous substance, hazardous material, pollutant,
contaminant or toxic substance under any Environmental Law or is otherwise
regulated under any Environmental Law; or (b) its presence at some quantity
requires investigation, notification or remediation under any Environmental
Law.
"Hubbards" means Lewis E. Hubbard, Emma B. Hubbard, Bruce R. Hubbard,
Lewis E. Hubbard, Jr. and Beverly H. Godfrey.
"Intellectual Property" means (a) all inventions and discoveries (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names and corporate
names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations and renewals in connection therewith, (c) all
copyrights and all applications, registrations and renewals in
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connection therewith, (d) all know-how, trade secrets, whether patentable or
unpatentable and whether or not reduced to practice (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
process and techniques, technical data, designs, drawings, specifications,
pricing and cost information and business and marketing plans and proposals),
(e) all computer software (including data and related documentation) and (f)
all other proprietary rights.
"Merger" means the merger of the Merger Sub into the Company, as more
specifically described herein.
"Merger Price" has the meaning set forth in Section 3.3.
"Merger Sub" means GLL Acquisition Corp., a North Carolina corporation and
a wholly owned subsidiary of the Buyer.
"Permitted Liens" has the meaning given to it in Section 5.3.
"Person" means a corporation, a company, an association, a joint venture,
a partnership, an organization, a business, an individual, a trust or a
government or political subdivision thereof or any government agency or any
other legal entity.
"Plan" means, with respect to the Company, any employee pension,
retirement, profit-sharing, stock bonus, incentive, deferred compensation,
stock option, employee stock ownership, hospitalization, medical, dental,
vacation, insurance, sick pay, disability, severance or other plan, fund,
program, policy, contract or arrangement, whether arrived at through collective
bargaining or otherwise, providing employee benefits (including but not limited
to any "employee benefit plan" as that term is defined in Section 3(3) of ERISA
and any employee benefit plan that is a "cafeteria plan" as described in
Section 125 of the Code), currently maintained or previously maintained at any
time in the last five years by, sponsored in whole or in part by, or
contributed to by the Company, for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries,
whether created in writing, through an employee manual or similar document, or
orally.
"Plan of Merger" means the Plan of Merger between the Buyer, the Merger
Sub and the Company, substantially in the form attached as Exhibit A.
"Real Property" means any land, building or premises in which the Company
has ownership or possessory rights, whether by title, lease or otherwise.
"Securities Act" means the Securities Act of 1933, as amended.
"Sellers" means Gary L. Lackey, Lewis E. Hubbard, Emma B. Hubbard,
Bruce R. Hubbard, Lewis E. Hubbard, Jr., Beverly H. Godfrey and the Eagan
Trust.
"Shares" has the meaning given to it Section 3.1.
"Surviving Corporation" has the meaning given to it in Section 2.1.
"Taxes" means all taxes, charges, fees, levies or other assessments
(whether federal, state, local or foreign), including without limitation
income, gross receipts, excise, property, estate, sales, use, value added,
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transfer, license, payroll, franchise, ad valorem, withholding, Social Security
and unemployment taxes, as well as any interest, penalties and other additions
to such taxes, charges, fees, levies or other assessments.
"Tax Return" means any report, return or other information required to be
supplied to a taxing authority in connection with Taxes.
ARTICLE II.
THE MERGER
2.1 The Merger. On the terms and subject to the conditions of this
Agreement, the Plan of Merger and North Carolina law, at the Effective Time,
the Merger Sub shall merge into the Company, the separate existence of the
Merger Sub shall cease and the Company shall be the surviving corporation (the
"Surviving Corporation").
2.2 Articles of Incorporation. The articles of incorporation of the
Company in effect at the Effective Time shall be the articles of incorporation
of the Surviving Corporation as may be amended by the Articles of Merger filed
pursuant to this Agreement until further amended in accordance with applicable
law.
2.3 Bylaws. The bylaws of the Company in effect at the Effective Time
shall be the bylaws of the Surviving Corporation until amended in accordance
with applicable law.
2.4 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed in accordance with applicable law, the
directors of the Merger Sub at the Effective Time shall be the directors of the
Surviving Corporation and the officers of the Merger Sub at the Effective Time
shall be the officers of the Surviving Corporation. Promptly after Closing, the
Buyer shall cause Gary L. Lackey to be duly appointed as President and duly
elected as a director of the Surviving Corporation.
2.5 Approval. The Sellers and the Company shall take and cause to be taken
all action necessary to approve and authorize the Merger and other transactions
contemplated hereby.
2.6 Effective Time. The Merger shall become effective on the date and at
the time of filing of articles of merger, in the form required by and executed
in accordance with the laws of North Carolina (the "Articles of Merger"), or at
such other time specified in the Articles of Merger. The date and time when the
Merger shall become effective is herein referred to as the "Effective Time."
2.7 Filing of Articles of Merger. At or as soon as practicable after the
Closing, the Company and the Buyer shall cause the Articles of Merger to be
executed and filed with the Secretary of State of North Carolina, as required
by the laws of North Carolina, and shall take any and all other actions and do
any and all other things to cause the Merger to become effective as
contemplated hereby.
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ARTICLE III.
CONVERSION AND EXCHANGE OF SHARES FOR THE MERGER PRICE
3.1 Shares. (a) All of the shares of capital stock of the Company issued
and outstanding immediately prior to the Effective Time (the "Shares") shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be cancelled and converted at the Effective Time into the right to
receive the Merger Price (as defined below in Section 3.3).
(b) All Shares, by virtue of the Merger and without any action on the part
of the holders thereof, shall at the Effective Time no longer be outstanding,
shall be cancelled and retired and shall cease to exist, and each holder of
certificates representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except for the right to receive the Merger
Price for such Shares upon the surrender of such certificates.
(c) Notwithstanding anything contained in this Section 3.1 to the
contrary, each Share held in the treasury of the Company immediately prior to
the Effective Time shall be cancelled without any conversion thereof, and no
payment shall be made with respect thereto.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing Shares are presented to the Surviving
Corporation, they shall be cancelled.
3.2 Merger Sub Shares. Each share of common stock of the Merger Sub issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
at the Effective Time into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
3.3 Merger Price. (a) At the Effective Time and upon surrender to the
Buyer of properly endorsed certificates representing the Shares, the Sellers
shall be entitled to receive and the Buyer shall pay or issue and deliver to
the Sellers the number of shares of the Buyer's Stock with a value, based on
the Average Closing Price, of $3,500,000 (the value of such stock, the "Merger
Price").
(b) No fractional shares of the Buyer's Stock shall be issued in
connection with the Merger. If any Seller otherwise has the right to receive .5
or more of a share of the Buyer's Stock, such Seller shall receive an
additional share of the Buyer's Stock; otherwise, such Seller shall not receive
any shares of the Buyer's Stock or other consideration for such a fractional
interest in the Merger Price.
3.4 Closing Payment. At the Effective Time, the Buyer shall issue and
deliver to each Seller the number of shares of the Buyer's Stock with a value,
based on the Average Closing Price, of the product of (a) the Merger Price,
multiplied by (b) the quotient of the number of Shares owned by each Seller (as
represented in Section 5.2) divided by the total number of Shares issued and
outstanding immediately prior to the Closing (as represented in Section
5.1(b)).
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ARTICLE IV.
THE CLOSING
4.1 Closing. The Closing of the Merger shall take place at the offices of
Robinson, Bradshaw & Hinson, P.A. in Charlotte, North Carolina on November 5,
1997, or on such other date or at such other location as the Buyer and the
Company may mutually agree (such date, the "Closing Date"). The Closing shall
be effective upon the filing of the Articles of Merger or at such other time as
may be specified in the Articles of Merger. At the Closing, the parties will
execute, deliver and file all documents necessary to effect the transactions
contemplated herein, including the Articles of Merger.
4.2 Deliveries by the Sellers and the Company. At or by the Closing, the
Sellers and the Company shall have caused the following documents to be
executed and delivered to the Buyer:
(a) the Employment Agreement;
(b) canceled certificates representing the Shares;
(c) the opinions, certificates, instruments and other documents
contemplated in Section 9.3; and
(d) all other documents, certificates and instruments required hereunder
to be delivered by the Sellers and the Company, or as may reasonably be
requested by the Buyer at or prior to the Closing.
4.3 Deliveries by the Buyer. At or by the Closing (except with respect to
the stock certificates in subclause (b), which shall be issued and delivered to
the Sellers as soon as reasonably practicable after the Closing), the Buyer
shall have caused the following documents to be executed and delivered to the
Sellers:
(a) the Employment Agreement;
(b) stock certificates representing the shares of the Buyer's Stock to be
issued to the Sellers hereunder;
(c) the certificates, instruments and other documents contemplated in
Section 9.2; and
(d) all other documents, certificates and instruments required hereunder
to be delivered by the Buyer, or as may reasonably be requested by the Sellers
or the Company at or prior to the Closing.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY
The Sellers and the Company jointly and severally represent and warrant to
the Buyer that the statements contained in this Article V are correct and
complete as of the date of this Agreement.
5.1 The Company. (a) Organization; Foreign Qualifications; Authority. The
Company is a corporation duly organized, validly existing and in existence
under the laws of North Carolina and is duly qualified to transact business as
a foreign corporation in, and is in good standing under the laws of, those
jurisdictions wherein the character of the property owned or leased or the
nature of the activities conducted by the Company makes such qualification
necessary. The Company has no offices or employees in any state other than
North Carolina. The Company has full power and authority under applicable
corporate law to own, lease or otherwise hold its properties and assets and to
carry on its business as presently conducted.
(b) Capitalization. There are 20,500 issued and outstanding shares of
capital stock of the Company, all of which have been duly authorized and
validly issued and are fully paid and nonassessable, have not been issued in
violation of the preemptive rights of any shareholder and have been issued
pursuant to and in compliance with an applicable exemption under the Securities
Act. Except as set forth on Schedule 5.1(b), there are no shares of capital
stock or other equity securities of the Company outstanding. Except as
disclosed on Schedule 5.1(b), there are no outstanding warrants, options,
agreements, convertible or exchangeable securities, calls, puts or rights with
respect to any securities of the Company or any other commitments or
arrangements to issue, sell, purchase, return or redeem any securities of the
Company. There are no securities of the Company reserved for issuance for any
purpose.
(c) Records. Complete and accurate copies of the Company's articles of
incorporation and its bylaws and its stock book have been delivered to the
Buyer. The stock book of the Company contains complete and accurate records of
the record share ownership of the issued and outstanding shares of stock of the
Company.
(d) Subsidiaries and Affiliates. Except as disclosed on Schedule 5.1(d),
the Company does not own, directly or indirectly, any capital stock of or any
other equity interests in any Person. Schedule 5.1(d) sets forth all Affiliates
of the Company.
(e) Authority Relative to this Agreement. The Company has the power and
authority under applicable corporate law to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Company (including any
applicable shareholder approval). This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws of general applicability affecting
creditors' rights and by general principles of equity that may limit the
specific performance of particular provisions).
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(f) Consents and Approvals, No Violations. (i) Except as set forth on
Schedule 5.1(f), there is no requirement (other than the filing of the Articles
of Merger) applicable to the Company to make any filing with, or to obtain any
permit, authorization, consent or approval of, any Governmental Authority as a
condition to the lawful consummation of the transactions contemplated hereby.
(ii) Except as disclosed on Schedule 5.1(f), the execution, delivery
and performance of this Agreement by the Company and its compliance with the
terms hereof will not (A) conflict with any provisions of the articles of
incorporation or bylaws of the Company, (B) violate or result in a default or
breach (or, by its terms, give rise to any liens or right of termination,
cancellation or acceleration), or require the consent of a third party in order
to continue in full force and effect after Closing, pursuant to the terms of
any Contract to which the Company is a party, or (C) violate any Applicable
Law.
5.2 The Sellers. (a) Ownership of Shares. The Sellers collectively own all
of the issued and outstanding shares of capital stock of the Company, free and
clear of any liens, adverse claims, covenants, conditions, restrictions,
claims, charges, pledges or encumbrances of any kind. Gary L. Lackey owns 5,125
Shares; Lewis E. Hubbard owns 125 Shares; Emma B. Hubbard owns 3,812.5 Shares;
Bruce R. Hubbard owns 1,250 Shares; Lewis E. Hubbard, Jr., owns 1,250 Shares;
Beverly H. Godfrey owns 1,250 Shares and the Eagan Trust owns 7,687.5 Shares.
Except as disclosed on Schedule 5.2, none of the Sellers owns any other
securities of the Company.
(b) Authority Relative to this Agreement and the Employment Agreements.
Each of the Sellers has the legal right, power and authority to execute and
deliver this Agreement, to perform his obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement constitutes the legal,
valid and binding obligation of each of the Sellers, enforceable against him in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency or other laws of general applicability
affecting creditors' rights and by general principles of equity that may limit
the specific performance of particular provisions).
(c) Consents and Approvals, No Violations. There is no requirement
applicable to any Seller to make any filing with, or to obtain any permit,
authorization, consent or approval of, any Governmental Authority as a
condition to the lawful consummation of the transactions contemplated hereby.
(d) The execution, delivery and performance of this Agreement by the
Sellers and their compliance with the terms hereof will not: (i) violate or
result in a default or breach (or give rise to any liens or right of
termination, cancellation or acceleration) pursuant to the terms of any
Contract to which any of them is a party or (ii) violate any Applicable Law.
5.3 Assets. The Company has good, valid and marketable title to all of its
owned Assets free and clear of all mortgages, liens, security interests or
encumbrances of any nature whatsoever except "Permitted Liens," which means (i)
liens for current taxes not yet due and payable, (ii) liens in favor of
carriers, warehousemen, mechanics, landlords and materialmen imposed by
mandatory provisions of law and incurred in the ordinary course of business for
sums not yet due and payable and (iii) those liens disclosed on Schedule 5.3.
Schedule 5.3 lists all leases and any amendments thereto pursuant to which the
Company leases or licenses Assets other than Real Property from any other
Person providing for rentals of $10,000 per year or greater. Except for such
leased or licensed Assets and except for the Real Property leased by the
Company as disclosed on Schedule 5.4, there are no Assets (other than Assets
that in the aggregate do not have a value in excess of $2,000) used by the
Company in the operation of its business that are not owned by the Company. The
Assets
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owned, licensed and leased by the Company constitute all of the Assets
sufficient to conduct the business of the Company as presently conducted and
are in a good state of repair in all material respects, reasonable wear and
tear excepted, usable by the Company for their intended purposes.
5.4 Interests in Real Property. (a) The Company's leasehold interest in
the offices listed on Schedule 5.4 comprise all of the Real Property in which
the Company has any interest (other than any interest arising out of the
ordinary course of its mortgage lending activities). None of the Sellers or the
Company has any knowledge of any type of pending or threatened legal action
affecting such Real Property, including without limitation any condemnation
action. Except as disclosed on Schedule 5.4, to the knowledge of the Sellers
and the Company, the conduct of business by the Company within such Real
Property complies with all applicable legal requirements relating to such Real
Property, including without limitation requirements under the applicable zoning
ordinances, building code requirements and any requirements under applicable
private restrictions. To the knowledge of the Sellers and the Company, except
as disclosed on Schedule 5.4, all such Real Property is in good condition.
5.5 Absence of Undisclosed Liabilities. Except as disclosed on Schedule
5.5, the Company has no liabilities or obligations (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due) other than
(a) liabilities or obligations reserved against or otherwise disclosed in the
Financial Statements, (b) liabilities or obligations under Contracts listed on
the Schedules to this Agreement or under Contracts that are not required to be
disclosed thereon (but not liabilities for breaches thereof) and (c)
liabilities and obligations incurred after December 31, 1996 in the ordinary
course of business consistent (in amount and kind) with past practice. Except
as disclosed in Schedule 5.5, no facts or circumstances exist that would
reasonably be expected to serve as the basis for any other liabilities or
obligations of the Company that would be required to be disclosed on Schedule
5.5.
5.6 Contracts. (a) Schedule 5.6 sets forth all Contracts (other than those
arising directly out of the Company's mortgage lending activities) to which the
Company is party or by which it or its properties or assets is bound that (i)
involve obligations to or by the Company in the future exceeding $10,000; (ii)
have a future term (excluding any portion subject to a cancelable right
exercisable without penalty) of one year or more; (iii) pursuant to which the
Company made warranties of its services that continue in effect; (iv) involves
hedging, options or any similar trading activity, or any interest rate
exchanges or swaps (with the exception of letters of credit, lines of credit
and loan commitments extended in the ordinary course of the Company's
business); (v) involves the purchase or sale of any Assets of the Company in
excess of $10,000 in the aggregate; or (vi) is otherwise material to the
Company.
(b) Complete copies (or, if oral, full written descriptions) of all
Contracts required to be listed hereby on Schedule 5.6, including all
amendments thereto, have been delivered to the Buyer. Each of such Contracts is
legal, valid, binding, enforceable (except as its enforceability may be limited
by applicable bankruptcy, insolvency or other laws of general applicability
affecting creditors' rights and by general principles of equity that may limit
the specific performance of particular provisions) and in full force and effect
against the Company, and to the knowledge of the Sellers and the Company, the
other parties thereto.
(c) (i) The Company has not committed an uncured event of default (unless
permanently waived) under any Contract, and no facts or circumstances exist
that with the passage of time or the giving of notice or both would constitute
any such event of default. Neither the Sellers
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nor the Company have received notice (whether oral or written) that the Company
is in default under any Contract or of the termination thereof.
(ii) To the knowledge of the Company and the Sellers, (A) no other
party to any Contract has committed an uncured event of default (unless
permanently waived) under any Contract, and (B) no facts or circumstances exist
that with the passage of time or the giving of notice or both would constitute
any such event of default. The Company has not given notice to the other party
to any such Contract that such other party is in default thereunder or of the
termination thereof.
5.7 Intellectual Property Rights. (a) The Company owns or has the right to
use (pursuant to license, sublicense, agreement or permission) all Intellectual
Property currently used in its business as currently conducted and all other
Intellectual Property, individually or in the aggregate, material to the
operation of its business as currently conducted. All registered trademarks and
patents owned or used by the Company (together with any application therefor)
and all trade names, copyrights and processes material to the Company's
operations are listed on Schedule 5.7. Except as disclosed on Schedule 5.7, the
Company has not pledged, mortgaged, assigned, licensed, granted permission with
respect to or otherwise transferred any such Intellectual Property to any third
party. No such item of Intellectual Property is subject to any outstanding
injunction, judgment, order, decree, ruling or charge, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand is
pending or, to the knowledge of the Sellers and the Company, is threatened that
challenges the legality, validity, use or enforceability of any such item of
Intellectual Property. Except as disclosed on Schedule 5.7, the Company owns
all right, title and interest in each such item of Intellectual Property, free
and clear of any encumbrance, lien or other restriction. None of the Company's
rights with respect to any such Intellectual Property will be terminated,
limited or otherwise affected by its execution of this Agreement or its
consummation of the transactions contemplated by this Agreement.
5.8 Financial Statements. Except as disclosed on Schedule 5.8, the
Financial Statements have been prepared in accordance with Generally Accepted
Accounting Principles. The Financial Statements fairly present the results of
operations and financial position of the Company for the periods and as of the
dates set forth therein.
5.9 Loans, Accounts, Notes and Other Receivables. (a) All loans, accounts,
notes and other receivables reflected as assets on the Company's books and
records (i) have resulted from bona fide business transactions in the ordinary
course of the Company's operations, (ii) in all material respects were made in
accordance with the Company's standard loan policies and procedures, and (iii)
except as disclosed on Schedule 5.9, are owned by the Company free and clear of
all liens, encumbrances, assignments, participation or repurchase agreements or
other exceptions to the title or to the ownership or collection rights of any
other person or entity.
(b) All records of the Company regarding all outstanding loans, accounts,
notes and other receivables, and all other real estate owned, are accurate in
all material respects, and, with respect to each loan which the Company's loan
documentation indicates is secured by any real or personal property or property
rights ("Loan Collateral"), such loan is secured by valid, perfected and
enforceable liens on all such Loan Collateral having the priority described in
the Company's records of such loan (except as such enforceability may be
limited by applicable bankruptcy, insolvency or other laws of general
applicability affecting creditors' rights and by general principles of equity
that may limit the specific performance of particular provisions). For purposes
of making the representation in this Section 5.9(b) regarding loans secured by
real property, the determination as to rights in and to any such real property
may be made based solely on
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title insurance policies issued with respect to such property, which policies
are in full force and effect, valid and enforceable in accordance with their
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws of general applicability affecting creditors' rights
and by general principles of equity that may limit the specific performance of
particular provisions) and underwritten by an insurer qualified to transact
business in North Carolina.
(c) To the knowledge of the Sellers and the Company, each loan reflected
as an asset on the Company's books, and each guaranty therefor, is the legal,
valid and binding obligation of the obligor or guarantor thereon. No defense,
offset or counterclaim has been asserted with respect to any such loan
guaranty.
(d) Neither the Company nor any Seller has reason to believe that any of
the Company's loans and other extensions of credit is not collectible in the
ordinary course of the Company's business in an amount that is at least the
amount at which it is carried on the Company's books and records.
5.10 Securities Portfolio and Investments. All securities owned by the
Company (whether owned of record or beneficially) are disclosed on Schedule
5.10 are held free and clear of all mortgages, liens, pledges, encumbrances or
any other restriction or rights of any other person or entity, whether
contractual or statutory, which would impair the ability of the Company to
dispose freely of any such security or otherwise to realize the benefits of
ownership thereof at any time (other than in connection with any repurchase
agreements with customers). There are no voting trusts or other agreements or
undertakings to which the Company is a party with respect to the voting of any
such securities. With respect to all "repurchase agreements" to which the
Company has "repurchased" securities under agreement to resell (if any), the
Company has a valid, perfected first lien or security interest in the
government securities or other collateral securing the repurchase agreement,
and the value of the collateral securing each such repurchase agreement equals
or exceeds the amount of the debt owed to the Company which is secured by such
collateral.
Except for fluctuations in the market values of United States Treasury and
agency or municipal securities, since June 30, 1997, there has been no
significant deterioration or material adverse change in the quality, or any
material decrease in the value, of the Company's securities portfolio.
5.11 Legal Compliance. Except as disclosed on Schedule 5.11, the Company
is in compliance in all material respects with all Applicable Laws, and no
facts or circumstances exist that, with or without the passing of time or the
giving of notice or both, would reasonably be expected to serve as the basis
for any claim that the Company is not in compliance in any material respect
with an Applicable Law. Except as disclosed on Schedule 5.11, the Company has
not received any written communication from a Governmental Authority that
remains pending alleging its noncompliance with any Applicable Law.
5.12 Taxes and Tax Returns. (a) The Company has duly and timely filed
(including within any applicable extension periods) all Tax Returns required to
be filed by it prior to the date hereof and has duly paid such taxes that are
due. All such Tax Returns are true, correct and complete in all material
respects. Except as set forth in Schedule 5.12, since December 31, 1991, the
Company has not incurred any liability for Taxes other than in the ordinary
course of business. Schedule 5.12 sets forth all periods since December 31,
1991 for which the federal income tax returns of the Company has been examined
by the Internal Revenue Service, and all deficiencies asserted as a result of
such examinations (or as a result of any examination of such returns for
earlier fiscal years) have
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been paid or finally settled. There are no disputes pending in respect of or
claims asserted for Taxes, nor are there any pending or, to the knowledge of
the Sellers and the Company, threatened audits or investigations or outstanding
matters under discussion with any taxing authorities with respect to the
payment of Taxes or the Company's Tax Returns, nor has the Company given or
been requested to give any currently effective waivers extending the statutory
period of limitation applicable to any Taxes for any period. Except as set
forth in Schedule 5.12, no issues that have been raised by any taxing authority
in connection with any Taxes or Tax Returns of the Company are of a recurring
nature that would apply to Taxes or such Tax Returns after the Closing. All
required declarations of estimated income taxes related to the operations of
the Company have been made, and all Taxes required to be shown on such
declarations have been paid. Copies of all Income Tax Returns relating to the
operations of the Company for all periods since December 31, 1991 have been
delivered to the Buyer.
(b) No facts exist or have existed that would reasonably be expected to
constitute grounds for the assessment of Taxes against the Company beyond the
reserves for Taxes shown on the Financial Statements.
(c) There are no liens with respect to Taxes (except for liens for taxes,
assessments or other governmental charges not yet delinquent) upon any of the
Company's Assets.
(d) Since January 1, 1987, the Company has had in effect a valid election
under Section 1362(a)(1) of the Code to be taxed as a "Subchapter S"
corporation under Section 1361(a)(1) of the Code. In no year has the Company
incurred any tax liability under Section 1374 or 1375 of the Code.
(e) The Company has not been and will not be liable for the tax of any
Person relating to conduct or operations prior to the Closing Date under
Section 1.1502-6 of the Treasury Regulations promulgated pursuant to the Code
(or any similar provision of state, local or foreign law) as a transferee or
successor, by contract or otherwise.
5.13 Litigation. There are no lawsuits, claims, or legal, administrative
or arbitration proceedings or investigations pending or, to the knowledge of
the Sellers and the Company, threatened by or against or affecting the Company
or any of the Company's Assets, operations or business.
5.14 Labor and Employment Matters. (a) The Company has delivered to the
Buyer complete and accurate copies of each employment, consulting and similar
agreement to which the Company is a party, all of which are listed on Schedule
5.14. Except as disclosed in Schedule 5.14, the Company is not a party to or
bound by any written agreement, any employment manual, employment handbook,
employment practice or policy constituting a contractual obligation, or any
consent decree, court order or statutory obligation: (i) for the employment of
any individual, or the provision of services by any individual, who is not
terminable by the Company without penalty upon thirty days notice or less; (ii)
with any labor union; or (iii) relating to the payment of any severance or
termination payment, bonus or death benefit to any employee or former employee
or his or her estate or designated beneficiary.
(b) The Company is not a party to any collective bargaining agreement, and
has not recognized or received a demand for recognition of any collective
bargaining representative with respect thereto; and during the past three years
there have been no material labor strikes, disputes or work stoppages nor, to
the knowledge of the Sellers and the Company, are any such actions threatened
against the Company.
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(c) Except as set forth in Schedule 5.14, there are no loans or other
obligations payable or owing to any officers, directors or employees of the
Company, except salaries, wages, bonuses and salary advances and reimbursement
of expenses incurred and accrued in the ordinary course of business, nor are
any loans or debts payable or owing by any such persons or their Affiliates to
the Company, nor has the Company guaranteed any of their loans or obligations.
(d) The Company is in compliance in all material respects with all laws
and other obligations relating to employment, denial of employment or
employment opportunity and termination of employment.
(e) There is no material controversy pending or, to the knowledge of the
Company and the Sellers, threatened between the Company and any of its present
or former officers, directors, supervisory personnel or any group of its
employees.
5.15 Employee Benefit Plans; ERISA. (a) Schedule 5.15 identifies each Plan
by name and ERISA plan number, if any. The Company does not have a formal plan
or commitment, and it has not made an announcement of its intentions, whether
or not legally binding, to create any additional Plan or modify or change any
existing Plan. A true and complete copy of each of the following has been made
available to the Buyer with respect to the Company:
(i) a copy of each written Plan (including all amendments
thereto);
(ii) a copy of the annual returns or reports (including, without
limitation, reports on the Form 5500 series, including all attachments
thereto), if required under ERISA or the Code, with respect to each Plan for
the three most recent plan years with filing deadlines prior to the date of the
Agreement or for which returns have actually been prepared or filed prior to
the date of the Agreement and a copy of each summary annual report with respect
to each such annual report;
(iii) a copy of the most recent summary plan description, together
with each subsequent summary of material modifications, required under ERISA
with respect to each Plan and all other material employee communications
relating to each Plan;
(iv) a copy of all written rules, regulations, procedures and
interpretations for each Plan;
(v) if a Plan is funded through a trust or other funding arrangement,
including insurance contracts, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements thereof;
(vi) all contracts relating to the Plans with respect to which it may
have any liability, including, without limitation, insurance contracts,
investment management agreements, subscription and participation agreements,
administration agreements and record keeping agreements;
(vii) the most recent determination letter received from the Internal
Revenue Service that covers the entire Plan with respect to each Plan that is
intended to be qualified under Section 401(a) of the Code, each subsequent
determination letter with respect to each such Plan, and complete copies of the
determination letter applications (including attachments and cover letters) for
each such determination letter; and
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(viii) all rulings, opinion letters, information letters or advisory
opinions issued by the Internal Revenue Service or the United States Department
of Labor with respect to each Plan within the ten-year period prior to the date
of this Agreement.
(b) Prohibited Transactions. Except as disclosed on Schedule 5.15, no
prohibited transaction (as defined in Section 4975 of the Code or Section 406
of ERISA) or transaction that would violate Section 404 of ERISA has occurred
with respect to any Plan which is an "employee benefit plan" as defined in
Section 3(3) of ERISA in connection with which the Company or any of its
officers, directors or employees would be subject, directly or indirectly, to
any tax, penalty or liability to any person for prohibited transactions or
breach of fiduciary responsibility under ERISA or the Code (including, without
limitation, liability for a breach of fiduciary responsibility by a cofiduciary
pursuant to Section 405 of ERISA).
(c) Funding. Except as disclosed on Schedule 5.15, full payment has been
made on the Closing Date of all amounts that the Company is required to pay
under the terms of each Plan and applicable law (including any employee salary
deferral contributions described in Section 125 or 401(k) of the Code). Except
as disclosed on Schedule 5.15, the Company will make contributions to the Plans
required to be made before the Closing Date for the current plan year and for
any prior year through the Closing Date, or if any such contributions are not
due before the Closing Date, will make adequate provisions for reserves
therefor.
(d) Compliance with Applicable Law. (i) Each Plan that is subject to Title
I of ERISA conforms to, and its administration is in compliance with,
applicable federal laws, including but not limited to ERISA; (ii) each Plan
that is intended to be qualified under Section 401(a) of the Code meets all of
the applicable operational requirements for qualification and meets all of the
plan document requirements for qualification that are required to be included
in the plan document as of the Closing Date, and either a favorable
determination letter has been received or has been applied for, and nothing has
occurred since the most recent favorable determination letter that would
adversely affect such qualification; (iii) each Plan that includes a cash or
deferred arrangement described in Section 401(k) of the Code has been
administered in accordance with all applicable requirements of Section 401(k)
and the Treasury Regulations issued thereunder; and (iv) each Plan that
includes a cafeteria plan described in Section 125 of the Code has been
administered in accordance with all applicable requirements of Section 125 and
the Treasury Regulations issued thereunder. There is no pending or threatened
action, claim or proceeding against or with respect to any Plan by the Internal
Revenue Service, the Department of Labor, the Equal Employment Opportunity
Commission, or any participant, beneficiary or any other person or entity
involving any aspect of the Plans (other than routine benefit claims), nor are
there any facts that could form the basis for any such action, claim or
proceeding. The Company has fully complied with the reporting and disclosure
requirements of the Code and ERISA, the bonding requirements of ERISA, and
other provisions applicable to the Plans.
(e) Multiemployer Plans; Pension Plans. The Company does not participate
in or contribute to, and never has participated in or contributed to, any
Multiemployer Plan. The Company does not maintain and has never maintained an
"employee pension benefit plan" as defined in Section 3(2) of ERISA that is
subject to Title IV of ERISA.
(f) Effect of Agreement. Except as indicated on Schedule 5.15, the
execution and performance of this Agreement will not result in any (i) payment
(whether retirement benefits, severance pay, unemployment compensation or
otherwise) becoming due from the Company to any employee,
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former employee or director of the Company, (ii) increase in benefits otherwise
payable under any Plan, or (iii) acceleration of the time of payment or vesting
of any such benefits. No amounts payable to any officer, employee or director
of the Company under any Plan in connection with the transactions contemplated
hereby will fail to be deductible for federal income tax purposes by virtue of
Section 280G of the Code.
(g) Benefits for Former Employees. Except as disclosed on Schedule 5.15,
no Plan provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former employees
beyond retirement or other termination of service other than (i) coverage
mandated by Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA
and Title XXII of the Public Health Service Act (collectively, "COBRA"), (ii)
death benefits or retirement benefits under any Plan qualified under Section
401(a) of the Code, (iii) disability benefits under any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) that have been fully
provided for by insurance or otherwise, (iv) deferred compensation benefits
accrued as liabilities on the books of the Company, or (v) benefits the full
cost of which is borne by the current or former employee (or his or her
beneficiary). Each Plan that is subject to the provisions of COBRA has been,
and as of the Closing Date will have been, maintained in compliance with the
provisions of COBRA.
5.16 Insurance. Schedule 5.16 lists all of the insurance policies
("Policies") maintained by the Company as of the date hereof, and for each
indicates the insurer's name, policy number, expiration date and amount and
type of coverage. All such Policies are currently in effect. In addition, the
coverage of such Policies shall not be restricted as a result of the
transactions contemplated hereby. These Policies provide coverage in such
amounts and against such liabilities, casualties, losses or risks as is
customary or reasonable for entities engaged in the Company's business or as is
required by applicable law or regulations, and in the reasonable opinion of the
Sellers and the Company, the insurance coverage provided under these Policies
is considered reasonable and adequate in all respects for the Company. Each of
the Policies is in full force and effect and is valid and enforceable in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency or other laws of general applicability
affecting creditors' rights and by general principles of equity that may limit
the specific performance of particular provisions) and is underwritten by an
insurer qualified to transact business in North Carolina. The Company has taken
all requisite actions (including the giving of required notices) under each
such policy in order to preserve all rights thereunder with respect to all
matters. The Company is not in default under the provisions of, has not
received notice of cancellation or nonrenewal of or any premium increase on, or
has any knowledge of any failure to pay any premium on or any inaccuracy in any
application for any Policy. There are no pending claims with respect to any
policy, and neither the Sellers nor the Company has any knowledge of any state
of facts or of the occurrence of any event that is reasonably likely to form
the basis for any such claim.
5.17 Transactions with Affiliates. Except as set forth on Schedule 5.17,
none of the Sellers or any other officer or director of the Company, nor any
Affiliate of such Persons, has any agreement, arrangement or understanding with
the Company (including employment agreements) or any interest in any property,
real, personal or mixed, tangible or intangible, used in or pertaining to the
business of the Company.
5.18 Environmental Matters. (a) To the knowledge of the Sellers and
the Company, without independent investigation, the Real Property listed on
Schedule 5.4 (including without limitation the improvements thereon and the
soil and groundwater thereunder): (i) does not contain and is not
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contaminated by any Hazardous Material; and (ii) has never been the subject of
a remedial action for an environmental problem.
(b) The Company: (i) has never sent a Hazardous Material to a site that is
contaminated by any Hazardous Material or that, pursuant to any Environmental
Law, (1) has been placed on the "National Priorities List", the "CERCLIS" list,
or any similar state or federal list, or (2) is subject to or the source of a
claim, an administrative order or other request to take "removal", "remedial",
"corrective" or any other "response" action, as defined in any Environmental
Law, or to pay for the costs of any such action at the site; (ii) is in
compliance in all material respects with all Environmental Laws in all of its
activities and operations; (iii) has timely filed every report required to be
filed, acquired all necessary certificates, approvals and permits (all of which
are listed in Schedule 5.18 and none of which shall be lost or materially
modified as a result of this transaction), and generated and maintained all
required data, documentation and records under all Environmental Laws; and (iv)
will be able to comply with any prospective requirement adopted or promulgated
prior to the date hereof under any Environmental Law and to be applicable to
the Company in the future without material cost or change in the operations of
the Company.
(c) The Company is not involved in any suit or proceeding and has not
received any notice or request for information from any Governmental Authority
or other third party with respect to a release or threatened release of any
Hazardous Material or a violation or alleged violation of any Environmental
Law, and has not received notice of any claims from any person or entity
relating to property damage or to personal injuries from exposure to any
Hazardous Material.
5.19 Absence of Changes or Events. Except as disclosed on Schedule 5.19 or
in the interim financial statements, since December 31, 1996, the Company has
not: (a) issued any shares of capital stock or declared, set aside or paid any
dividend or distribution with respect to shares of capital stock; (b) made any
form of material changes in any Plan; (c) granted or made any commitments with
respect to any increases in any form of compensation to its employees (other
than the Sellers) except in the ordinary course of business consistent with
past practices; (d) granted or made any commitments with respect to any
increases in any form of compensation to the Sellers; (e) entered into any
Contract or conducted its business other than in the ordinary course of
business consistent with past practices; or (f) except as a result of the
consummation of the transactions contemplated by this Agreement, incurred any
material adverse change in the business, assets, condition or results of
operations of the Company, provided, however, that the Company may make or has
made: (i) the monthly distributions permitted by Section 7.4; (ii) a special
bonus in an amount not greater than $100,000 in recognition of current and past
performance to Gary L. Lackey; (iii) the distribution of approximately $115,000
made as of August 7, 1997 to the shareholders of the Company (which resulted in
a book value of the Company as of such date of $700,000); (iv) the engagement
of, and payment of fees up to an aggregate amount of $198,000 to, Orr
Management; and (v) reasonable fees and expenses, including attorneys' fees,
incurred in connection with the Merger. Except for changes resulting from
consummation of the Merger (including those items disclosed herein or the
schedules hereto) and occurring in the ordinary course of business, the balance
sheet of the Company upon Closing (including cash balances and other working
capital items) will not be materially and adversely changed from the most
recent balance sheet of the Company comprising part of the Financial
Statements.
5.20 Bank Accounts. Schedule 5.20 lists all bank accounts and safe deposit
boxes of the Company, all powers of attorney in connection with such accounts
and the names of all persons authorized to draw thereon or to have access
thereto.
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5.21 Corporate and Personnel Data. Schedule 5.21 lists the names, salary
rates, and the date of last raise of all the employees of the Company as of a
date within 5 days prior to the date hereof.
5.22 Licenses and Permits. Schedule 5.22 lists all of the material
licenses, permits, authorizations, and registrations issued by any Governmental
Authority to the Company. No other licenses, permits, authorizations, or
registrations are materially necessary to enable the Company to own, lease or
otherwise hold its properties or to enable the Company to carry on its business
as presently conducted. Except as set forth on Schedule 5.22, no such license,
permit, authorization or registration will be violated or made void or be
affected in any way adverse to the Company by the consummation of the
transactions contemplated by this Agreement.
5.23 Investment. (a) In connection with the acceptance by the Sellers of
shares of the Buyer's Stock under this Agreement, each Seller acknowledges that
he is familiar with the operations of the Buyer to the extent of the
information furnished by the Buyer in its published reports (including
documents filed with the Securities and Exchange Commission or other
information required to be prepared pursuant to federal securities laws); that
each Seller has had an opportunity to inspect the Buyer's most recent financial
information (including annual and quarterly reports on Form 10-K and 10-Q,
respectively and any interim press releases, whether or not contained in a Form
8-K) and to ask questions of management concerning the Buyer; that each Seller
has received adequate information to enable him to make an informed decision
with respect to his ownership of the Buyer's Stock acquired in connection with
the Merger.
(b) Each Seller: (i) is an "accredited investor" within the meaning of
Rule 501 under the Securities Act or (ii) has sufficient knowledge and
experience in investing in companies similar to the Buyer so as to be able to
evaluate the risks and merits of an investment in the Buyer and is able
financially to bear the risks of such investment;
(c) Each Seller is a resident of, and is domiciled in, the state of North
Carolina;
(d) The Buyer's Stock acquired by each Seller in connection with the
Merger is being acquired for his or its own account, for investment, and not
with a view to or for sale in connection with any unregistered distribution
thereof in violation of the Securities Act or any state securities act; and
(e) Each Seller understands that (i) shares of the Buyer's Stock acquired
in connection with the Merger must be held for any applicable holding period
under Rule 144 of the Securities Act, or any successor rule or regulation,
unless a disposition thereof is registered under the Securities Act or is
exempt from such registration, (ii) the certificates representing such shares
of the Buyer's Stock shall bear a legend to such effect, and (iii) the Buyer
will make or cause to be made a notation on its transfer books to such effect.
5.24 Certain Regulated Businesses. The Company is neither an "investment
company" as defined in the Investment Company Act of 1940, as amended, nor a
"public utility holding company" as defined in the Public Utility Holding
Company Act of 1935, as amended.
5.25 Commissions. No broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated hereby by reason of any action taken by the Sellers
or the Company other than the Company's payment of fees to Orr Management in an
amount not to exceed $198,000.
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5.26 Full Disclosure. Neither the representations and warranties of the
Company and the Sellers set forth in this Agreement, nor those stated in a
certificate or document to be delivered hereunder at or prior to Closing by the
Sellers or the Company, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was, is or will be made, in order to
avoid statements herein or therein being misleading.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company and the Sellers that the
statements contained in this Article VI are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date.
6.1 Organization. Each of the Buyer and the Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation.
6.2 Authority Relative to this Agreement. Each of the Buyer and the Merger
Sub has the power and authority under applicable corporate law to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by each of the Buyer and the Merger Sub, the performance of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of each of the Buyer and the Merger Sub (including any applicable
shareholder approval). This Agreement constitutes the legal, valid and binding
obligation of each of the Buyer and the Merger Sub, enforceable against each of
them in accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency or other laws of general applicability
affecting creditors' rights and by general principles of equity that may limit
the specific performance of particular provisions).
6.3 Consents and Approvals, No Violations. (a) Except as disclosed on
Schedule 6.3, there is no requirement applicable to the Buyer or the Merger Sub
to make any filing with (other than the Articles of Merger), or to obtain any
permit, authorization, consent or approval of, any Governmental Authority as a
condition to the lawful consummation of the transactions contemplated hereby.
(b) The execution, delivery and performance of this Agreement by each of
the Buyer and the Merger Sub and its compliance with the terms hereof will not:
(i) conflict with any provisions of its articles of incorporation or bylaws,
(ii) violate or result in a default or breach (or give rise to any right of
termination, cancellation or acceleration or liens) pursuant to the terms of
any Contract to which it is a party, or (iii) violate any Applicable Law.
6.4 Issuance of Shares of the Buyer's Stock. Shares of the Buyer's Stock
to be issued to the Sellers hereunder are duly authorized and, when so issued
to the Sellers, will be validly issued and outstanding and fully paid and
nonassessable, free and clear of any liens, pledges, encumbrances or preemptive
rights.
6.5 Reports. Since December 31, 1994, the Buyer has filed all reports,
registrations and statements, together with any required amendments thereto,
that it was required to file with: (i) the Securities
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and Exchange Commission, including without limitation Forms 10-K, Forms 10-Q
and proxy statements; (ii) the Federal Reserve Board; and (iii) any applicable
state securities or banking authorities (collectively, the "Reports"). As of
their respective dates, the Reports comply in all material respects with all of
the rules and regulations promulgated by the Securities and Exchange
Commission, the Federal Reserve Board and any applicable state securities or
banking authorities, as the case may be, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not materially misleading.
6.6 Buyer's Financial Statements. On a consolidated basis, the Buyer's
audited statements of income and stockholders' equity for the years ended
December 31, 1996, 1995 and 1994 and audited balance sheets as of December 31,
1996, 1995 and 1994, together with the notes thereto, (as included in the
Buyer's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
filed with the Securities and Exchange Commission) have been prepared in
accordance with Generally Accepted Accounting Principles and fairly present the
results of operations and financial position of the Buyer for the periods and
as of the dates set forth therein.
6.7 Absence of Changes. Since December 31, 1996, except as a result of the
consummation of the transactions contemplated by this Agreement, the Buyer, on
a consolidated basis with its subsidiaries and taken as a whole, has not
incurred a material adverse change in its business, financial condition or
results of operations.
6.8 Commissions. No broker, finder or other Person is entitled to any
brokerage fees, commissions or finder's fees in connection with the
transactions contemplated hereby by reason of any action taken by the Buyer or
the Merger Sub.
6.9 Full Disclosure. Neither the representations and warranties of the
Buyer set forth in this Agreement, nor those stated in a certificate or
document to be delivered hereunder at or prior to Closing by the Buyer,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was, is or will be made, in order to avoid statements herein or
therein being misleading.
ARTICLE VII.
AFFIRMATIVE COVENANTS
7.1 Ordinary Conduct. Except as otherwise contemplated by this Agreement,
the Company will, and the Sellers will cause the Company to, from the date of
this Agreement to the Closing, conduct its business in the ordinary course in
substantially the same manner as presently conducted and will make reasonable
commercial efforts consistent with past practices to preserve its relationships
with their respective clients, suppliers and others with whom the Company has
dealt and to keep available the services of each of its officers. Additionally,
except as otherwise contemplated by this Agreement or as set forth on Schedule
7.1, the Company will not do any of the following without the prior written
consent of the Buyer:
(a) amend its articles of incorporation or bylaws;
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(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver any stock or equity equivalents of any class or any
other of its securities, or amend any of the terms of any securities
outstanding as of the date hereof;
(c) except as permitted by Section 5.19 or disclosed on Schedule 5.19, (i)
split, combine or reclassify any shares of its capital stock, (ii) declare, set
aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock or (iii)
redeem or otherwise acquire any of its securities;
(d) (i) incur or assume any long-term debt or issue any debt securities
or, except under existing lines of credit (including the existing line of
credit made by John T. Eagan, Jr. or any affiliate of his to the Company, as
more specifically described on Schedule 5.9 (the "Eagan Line of Credit")) and
in amounts not material to it, incur or assume any short-term debt other than
in the ordinary course of business, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person, (iii) make any loans,
advances or capital contributions to, or investments in, any other Person, (iv)
pledge or otherwise encumber shares of its capital stock or (v) mortgage or
pledge any of its assets, tangible or intangible, or create or suffer to exist
any lien thereupon, other than Permitted Liens;
(e) adopt or amend any Plan;
(f) except as permitted by Section 5.19 or disclosed on Schedule 5.19,
grant to any director, executive officer or employee any increase in his or her
compensation or pay or agree to pay to any such person other than in the
ordinary course of business any bonus, severance or termination payment,
specifically including any such payment that becomes payable upon the
termination of such person by it after the Closing;
(g) (i) acquire, sell, lease or dispose of any assets outside the ordinary
course of business, or any other assets that in the aggregate are material to
it, or (ii) enter into any Contract or transaction outside the ordinary course
of business consistent with past practice;
(h) (i) change or modify any of the accounting principles or practices
used by it or (ii) revalue in any material respect any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(i) (i) acquire any Person (or division thereof), any equity interest
therein or the assets thereof; (ii) enter into, cancel or modify any Contract
other than in the ordinary course of business consistent with past practices;
(iii) enter into, cancel or modify any Contract involving an amount in excess
of $10,000; (iv) authorize any new capital expenditure or expenditures that,
individually or in the aggregate, are in excess of $10,000; or (v) enter into
or amend any Contract with respect to any of the foregoing;
(j) except as permitted by Section 5.19 or disclosed on Schedule 5.19,
pay, discharge or satisfy, cancel, waive or modify any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the Financial Statements or on Schedule 5.5 or incurred in the
ordinary course of business consistent with past practices;
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(k) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(l) take, or agree in writing or otherwise to take, any action that would
make any of the representations or warranties of it or the Sellers contained in
this Agreement untrue or incorrect or would result in any of the conditions set
forth in this Agreement not being satisfied; or
(m) agree, whether in writing or otherwise, to do any of the foregoing.
7.2 Covenants of the Sellers.
(a) Transfer of Shares. Each Seller agrees that between the date hereof
and the earlier of the Closing or the date on which this Agreement is
terminated, he shall not transfer, pledge, hypothecate or otherwise encumber
any of the Shares owned by him or grant to any Person any right to purchase any
of the Shares other than the rights granted to the Buyer hereunder.
(b) Restricted Stock. The shares of the Buyer's Stock issued in connection
with the Merger have not been registered under the Securities Act, and each
Seller agrees that he will not offer, sell, pledge or otherwise transfer any of
such shares of the Buyer's stock except pursuant to an effective registration
statement or in accordance with an applicable exemption from the registration
requirements of the Securities Act accompanied by a legal opinion as to such
exemption in form reasonably satisfactory to the Company and its counsel and in
accordance with any applicable securities laws of any state of the United
States or any other jurisdiction.
(c) Release. Each Seller (in his capacity as employee, shareholder,
officer or director, or otherwise) hereby releases and forever discharges the
Company, the Surviving Corporation, the Buyer and their Affiliates, and each of
their stockholders, directors, officers, employees, agents and successors and
assigns, (all of such parties, collectively, the "Released Parties") from any
and all claims, demands, proceedings, causes of action, orders, obligations,
contracts, agreements, debts and liabilities whatsoever, whether known or
unknown, fixed or contingent, both at law and in equity, other than as may
arise under and are brought in connection with this Agreement, that such Seller
has, ever had or may hereafter have against any of the Released Parties based
on facts, circumstances, events or omissions occurring prior to Closing,
whether or not relating to claims pending on or asserted after the Closing;
provided, however, that this Section 7.2(c) shall become effective only upon
Closing. Each Seller hereby covenants to refrain from, directly or indirectly,
asserting any claim or demand, or commencing, instituting or causing to be
commenced, any proceeding of any kind against any Released Party based upon any
matters purported to be released hereby. Notwithstanding the foregoing, the
release set forth in this Section 7.2(c) shall not (i) apply to any claims or
rights that any Seller may have against a Released Party with respect to which
proceeds have been paid under an insurance policy held by or on behalf of the
Surviving Corporation, (ii) affect employment-related benefits to which the
Company has committed prior to Closing or is required by law to provide, (iii)
affect director and officer indemnity and advancement rights to which any
Seller would otherwise have a right under applicable corporate law or the
Company's governing charter documents, (iv) apply to John T. Eagan, Jr. or any
affiliate of his with respect to the collection of loans or advances made under
the Eagan Line of Credit, or (v) apply to claims solely among the Sellers and
John T. Eagan, Jr. as to rights of contribution or similar claims for
liabilities incurred under this Agreement.
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(d) Gary L. Lackey agrees, subject to the conditions stated in Sections
9.1 and 9.2, to execute and deliver, and cause to be executed and delivered, to
the Buyer at or by the Closing the Employment Agreement.
7.3 Covenants of the Buyer.
(a) Employment Agreement. The Buyer will, subject to the conditions stated
in Sections 9.1 and 9.3, cause the Surviving Corporation to execute and deliver
the Employment Agreement at or prior to Closing.
(b) Merger Sub. The Buyer will cause the Merger Sub to be a direct, wholly
owned subsidiary of the Buyer and shall cause the Surviving Corporation to be a
first-tier subsidiary of the Buyer except to the extent applicable federal tax
law permits the Surviving Corporation to be contributed to a direct or indirect
subsidiary of the Buyer without violating the Merger's compliance with Code
Section 368(a). The Buyer will cause the Surviving Corporation to continue the
historic business of the Company or use a significant portion of the Company's
business assets in a business so long as it is required for the Merger to
comply with Code Section 368(a).
(c) Listing of Additional Shares. The Buyer will notify the Nasdaq Stock
Market of the listing of the shares of the Buyer's Stock to be issued in
connection with the Merger within 30 days after the Closing Date.
(d) Compliance with Rule 144. For a period of two years after the Closing
Date, the Buyer will use its reasonable best efforts to comply with the
requirements of Rule 144, promulgated by the Securities and Exchange Commission
pursuant to the Securities Act, necessary for the Sellers to sell the shares of
Buyer's stock received hereunder under Rule 144 after the expiration of any
applicable holding period thereunder.
(e) Guaranties. The Buyer shall execute any guaranties in substitution of
and releasing any Seller's personal guaranties of any obligations of the
Company.
(f) Registration Rights. In connection with any underwritten public
offering of the Buyer's Stock in respect of which a registration statement has
been filed under the Securities Act on Form S-1 or S-3, at the option of such
underwriter(s), the sale of the shares of Buyer's Stock received by the Sellers
hereunder shall be covered by such registration statement.
7.4 Monthly Distributions. The Company (or upon Closing, the Surviving
Corporation) will make monthly distributions to the Sellers of 70% of the
Company's income from operations, if any, for the period from August 1, 1997
through October 31, 1997 (or if Closing does not occur in November 1997, such
other month-end on or immediately prior to Closing); provided, however, that
the aggregate amount of such monthly distributions will not exceed 70% of the
Company's income from operations for that entire period. Computation of the
Company's income from operations will be based on monthly financial statements
prepared by or on behalf of the Company in accordance with Generally Accepted
Accounting Principles, except as modified: (a) in accordance with Schedule 5.8,
(b) to reflect any downward adjustment to income required by the above proviso
relating to the aggregate amount of distributions permitted under this Section,
(c) to exclude as an expense (and thus from the computation of income) the
amounts of any payments or distributions permitted to be made by subclauses
(ii) through (iv) of Section 5.19, and (d) to include as an expense (offsetting
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income) all fees, costs and expenses incurred or to be incurred by the Company
in connection with this Agreement and the Merger, as required by Section 12.1.
Such financial statements will be subject to the approval of the Buyer. The
Company shall deliver these financial statements to the Buyer within 30 days
after the end of each applicable calendar month. If the Buyer does not accept
any of such monthly financial statements, it will give written notice to the
Sellers within 30 days after receipt thereof, which notice shall set forth in
reasonable detail the basis for the Buyer's objections. The Buyer will be
deemed to have accepted such financial statements at 5:00 p.m. Charlotte, North
Carolina time on the 30th day after receipt thereof if the Buyer has not by
then given the Sellers timely written notice of objection. If the Buyer and the
Sellers are unable to resolve the disagreement within 30 days after the
delivery of the Buyer's objections, the parties shall engage a mutually
agreeable independent certified public accounting firm to resolve the issues.
With respect to any such dispute, the accounting firm shall apply Generally
Accepted Accounting Principles to the issues at hand and will not have the
power to alter, modify, amend, add to or subtract from any term or provision of
this Agreement. The decision of the accounting firm shall be rendered within 30
days after its engagement and shall be binding on the parties. The Buyer and
the Company each shall pay one-half of the cost of the accounting firm.
7.5 Reorganization for Tax Purposes. Each of the parties hereto undertakes
and agrees to use its reasonable best efforts to cause the Merger to qualify as
a "reorganization" within the meaning of Section 368(a)(1)(A) of the Code and
that it will not intentionally take any action that would cause the Merger to
fail to so qualify.
7.6 Accounting Treatment. Each of the parties hereto undertakes and agrees
to use its reasonable best efforts to cause the Merger to qualify to be treated
as a "pooling-of-interests" under Generally Accepted Accounting Principles and
that it will not intentionally take any action that would cause the Merger to
fail to so qualify.
7.7 Consummation of Agreement. The Company, the Sellers and the Buyer (on
behalf of itself and the Merger Sub) each agree to use their reasonable efforts
to perform or fulfill all conditions and obligations to be performed or
fulfilled by them under this Agreement so that the transactions contemplated
hereby shall be consummated. Except for events that are the subject of specific
provisions of this Agreement, if any event should occur, either within or
outside the control of the Company, the Sellers, the Buyer or the Merger Sub
that would materially delay or prevent fulfillment of the conditions upon the
obligations of any party hereto to consummate the transactions contemplated by
this Agreement, each party will notify the others of any such event and the
parties will use their reasonable, diligent and good faith efforts to cure or
minimize the same as expeditiously as possible.
7.8 Schedules to Agreement. The Company and the Sellers will promptly
notify the Buyer of any event, fact or other circumstance arising after the
date hereof that would have caused the disclosure schedules delivered under
this Agreement to be untrue or misleading had such event, fact or circumstance
arisen prior to the delivery of such schedules.
7.9 Corporate Action. The Company and the Buyer will, and the Buyer shall
cause the Merger Sub to, take all corporate action necessary to consummate this
Agreement and the Merger. The Sellers as shareholders of the Company shall take
all action necessary for the Company to consummate and give effect to the
Merger.
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7.10 Maintenance of Corporate Existence. The Company and the Buyer shall,
and the Buyer shall cause the Merger Sub through Closing to, maintain in full
force and effect their respective corporate existences.
7.11 No Solicitation. In recognition of the time that will be expended and
the expense which will be incurred by the Buyer in connection with the
transactions contemplated hereby, the Company and the Sellers will not, and the
Company will use its best efforts so that its officers, employees and agents
will not, directly or indirectly or through agents, brokers or otherwise, until
this Agreement is closed or is terminated as provided in this Agreement,
encourage, solicit, engage in negotiations or discussions with or provide
information with respect to any inquiries or proposals relating to (a) the
possible direct or indirect acquisition of all or a portion of the Company's
capital stock or its assets or (b) any business combination with the Company.
Additionally, the Sellers and the Company agree to promptly notify the Buyer
upon any inquiries by a third Person relating to the foregoing subclauses (a)
and (b).
ARTICLE VIII.
DISCLOSURE OF ADDITIONAL INFORMATION
8.1 Access to Information. Prior to the Closing Date, the Company and the
Sellers shall: (a) give the Buyer and its authorized representatives reasonable
access, during normal business hours and upon reasonable notice, to the books,
records, offices and other facilities and properties of the Company; and (b)
furnish the Buyer with such financial and operating data and other information
with respect to the business operations of the Company including, but not
limited to, information relating to Taxes as the Buyer may from time to time
reasonably request.
8.2 Access to Premises. Prior to Closing, the Company and the Sellers
shall give the Buyer and its authorized representatives reasonable access,
during normal business hours and upon reasonable notice, to all property leased
by the Company for the purpose of inspecting such property.
8.3 Confidentiality. Prior to Closing, except as otherwise provided in
Section 8.4, the parties hereto shall not discuss or disclose, and each will
use its best efforts to cause its employees, lenders, accountants,
representatives, agents, consultants and advisors not to discuss or disclose,
or use for any purpose other than the transactions contemplated hereby, the
subject matter or transactions contemplated by this Agreement or information
pertaining to the Company, with any other Person without the prior consent of
the other parties hereto, unless (a) such information is public other than as a
result of a violation of this Agreement or (b) the use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the transactions contemplated hereby.
8.4 Publicity. Without the prior consent of the other parties, no party
hereto shall issue any news release or other public announcement or disclosure,
or any general public announcement to its employees, suppliers or customers,
regarding this Agreement or the transactions contemplated hereby, except as may
be required by law, but in which case the disclosing party shall provide the
other parties hereto with reasonable advance notice of the timing and substance
of any such disclosure.
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ARTICLE IX.
CONDITIONS TO CLOSING
9.1 Mutual Conditions. The obligations of all the parties hereto to effect
the transaction contemplated hereby shall be subject to the fulfillment of the
following conditions, any of which may be waived by all of the parties hereto:
(a) Adverse Proceedings. The Company, any Seller, the Buyer or the Merger
Sub shall not be subject to any order, decree or injunction of a court of
competent jurisdiction that enjoins or prohibits the consummation of this
Agreement and no Governmental Authority shall have instituted a suit or
proceeding that is then pending and seeks to enjoin or prohibit the
transactions contemplated hereby. Any party who is subject to any such order,
decree or injunction or the subject of any such suit or proceeding shall take
any steps within that party's control to cause any such order, decree or
injunction to be modified so as to permit the Closing and to cause any such
suit or proceeding to be dismissed.
(b) Consents. All permits, authorizations, consents and approvals of
Governmental Authorities necessary for the consummation of the transactions
contemplated hereby have been obtained.
(c) Accounting Treatment. The Buyer shall have received assurances from
Deloitte and Touche, in form and substance satisfactory to it, to the effect
that the Merger will qualify to be treated as a "pooling-of-interests" for
accounting purposes. The Buyer also shall have received a letter from Deloitte
and Touche in form and substance satisfactory to it to the effect that such
accountants are not aware of any fact or circumstance that might cause the
Merger not to qualify for such treatment. Nothing shall have come to the
attention of the Buyer that any event has occurred or that any condition or
circumstance exists that makes it likely that the Merger may not so qualify.
9.2 Conditions to the Obligations of the Company and the Sellers. The
obligation of the Company and the Sellers to effect the transactions
contemplated hereby shall be further subject to the fulfillment of the
following conditions, any one or more of which may be waived by the Sellers:
(a) All representations and warranties of the Buyer contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date as though made as of such date (except for representations and warranties
that are made as of a specific date). The Buyer shall have performed and
complied in all material respects with all covenants and agreements contained
in this Agreement required to be performed and complied with by it at or prior
to the Closing. The Sellers shall have received a certificate to the matters
set forth in this Section 9.2 signed by the Buyer.
(b) All documents required to have been executed and delivered by the
Buyer, on behalf of itself or the Merger Sub, to the Company or the Sellers at
or prior to the Closing shall have been so executed and delivered, whether or
not such documents have been or will be executed and delivered by the other
parties contemplated thereby.
(c) The Sellers shall have received a legal opinion from Robinson,
Bradshaw & Hinson, P.A., counsel to the Buyer, dated as of the Closing Date,
containing opinions in form and substance reasonably acceptable to the Sellers.
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(d) As of the Closing Date, the Sellers shall have received the following
documents with respect to the Merger Sub:
(i) a true and complete copy of its articles of incorporation and all
amendments thereto, certified by the jurisdiction of its incorporation as of a
recent date;
(ii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;
(iii) a certificate from its Secretary or an Assistant Secretary
certifying that its articles of incorporation have not been amended since the
date of the certificate described in subsection (ii) above, and that nothing
has occurred since the date of issuance of the certificate of existence
specified in subsection (i) above that would adversely affect its existence;
(iv) a true and complete copy of the resolutions of its Board of
Directors and shareholders authorizing the execution, delivery and performance
of this Agreement, and all instruments and documents to be delivered in
connection herewith, and the transactions contemplated hereby, certified by its
Secretary or an Assistant Secretary; and
(v) a certificate from its Secretary or an Assistant Secretary
certifying the incumbency and signatures of its officers who will execute
documents at the Closing or who have executed this Agreement.
9.3 Conditions to the Obligations of the Buyer. The obligations of the
Buyer to effect the transactions contemplated hereby shall be further subject
to the fulfillment of the following conditions, any one or more of which may be
waived by the Buyer:
(a) The Buyer will have completed its financial, operations, legal and
other due diligence review of the Company and will be satisfied in its sole
discretion with the results of such review.
(b) The Company shall have obtained all consents of third parties
contemplated by Section 5.1(f) and its corresponding schedule.
(c) All representations and warranties of the Company and the Sellers
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date as though made as of such date (except for
representations and warranties that are made as of a specific date). The
Company and the Sellers shall have performed and complied in all material
respects with all covenants and agreements contained in this Agreement required
to be performed and complied with by them at or prior to the Closing. The Buyer
shall have received certificates to the matters set forth in this Section 9.3
signed by an authorized officer of the Company and by the Sellers.
(d) All documents required to have been executed and delivered by the
Sellers, the Company or any third party to the Buyer at or prior to the Closing
shall have been so executed and delivered, whether or not such documents have
been or will be executed and delivered by the Buyer or the Merger Sub if so
contemplated thereby.
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(e) The Buyer shall have received a legal opinion from Blanco Tackabery
Combs Matamoros P.A., counsel to the Company and the Sellers, dated as of the
Closing Date, containing opinions in form and substance reasonably acceptable
to the Buyer.
(f) As of the Closing Date, the Buyer shall have received the following
documents with respect to the Company:
(i) a long-form certificate of its corporate existence issued by
the jurisdiction of its incorporation as of a recent date;
(ii) a true and complete copy of its articles of incorporation and
all amendments thereto, certified by the jurisdiction of its incorporation as
of a recent date;
(iii) a true and complete copy of its bylaws, certified by its
Secretary or an Assistant Secretary;
(iv) a certificate from its Secretary or an Assistant Secretary
certifying that its articles of incorporation have not been amended since the
date of the certificate described in subsection (ii) above, and that nothing
has occurred since the date of issuance of the certificate of existence
specified in subsection (i) above that would adversely affect its existence;
(v) a true and complete copy of the resolutions of its Board of
Directors and shareholders authorizing the execution, delivery and performance
of this Agreement, and all instruments and documents to be delivered in
connection herewith, and the transactions contemplated hereby, certified by its
Secretary or an Assistant Secretary;
(vi) a certificate from its Secretary or an Assistant Secretary
certifying the incumbency and signatures of its officers who will execute
documents at the Closing or who have executed this Agreement; and
(vii) the results of a search of the appropriate state offices as of
a recent date reflecting the filing of Uniform Commercial Code financing
statements against it and any pending litigation involving and outstanding
judgments against it.
ARTICLE X.
TERMINATION
10.1 Termination. The obligations of the parties hereunder may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:
(a) By mutual written consent of the Company and the Buyer;
(b) By either the Buyer or the Company, if there shall be any law or
regulation that makes consummation of this Agreement illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
Company, the Sellers, the Buyer or the Merger Sub from consummating this
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Agreement is entered and such judgment, injunction, order or decree shall
become final and non-appealable;
(c) By either the Buyer or the Company, if the conditions to the
obligation to effect the transactions contemplated hereby of the party seeking
termination shall not have been fulfilled or waived by January 31, 1998, and if
the party seeking termination is in material compliance with all of its
obligations under this Agreement; and
(d) By either the Buyer or the Company, if a condition to the obligation
to effect the transactions contemplated hereby of the party seeking termination
shall have become incapable of fulfillment (notwithstanding the efforts of the
party seeking to terminate as set forth in Section 7.7) and has not been
waived.
10.2 Procedure and Effect of Termination. In the event of a termination
contemplated hereby by any party pursuant to Section 10.1, the party seeking to
terminate this Agreement shall give prompt written notice thereof to the other
party, and the transactions contemplated hereby shall be abandoned, without
further action by any party hereto. In such event:
(a) The parties hereto shall continue to be bound by their obligations of
confidentiality set forth in Section 8.3, and all copies of the information
provided by the Company hereunder will be returned to the Company or destroyed
immediately upon its request therefor.
(b) All filings, applications and other submissions relating to the
transactions contemplated hereby shall, to the extent practicable, be withdrawn
from the Person to which made.
(c) The terminating party shall be entitled to seek any remedy to which
such party may be entitled at law or in equity for the violation or breach of
any agreement, covenant, representation or warranty contained in this
Agreement.
ARTICLE XI.
INDEMNIFICATION
11.1 Survival of Representations. The representations, warranties,
covenants and agreements made by the Company will not survive the Closing. All
representations, warranties, covenants and agreements made by the Sellers and
the Buyer will survive the Closing. No warranty or representation shall be
deemed to be waived or otherwise diminished as a result of any due diligence
investigation by the party to whom the warranty or representation was made or
as a result of any actual or constructive knowledge by such party with respect
to any facts, circumstances or claims or by the actual or constructive
knowledge of such person that any warranty or representation is false at the
time of signing or Closing. All claims made by virtue of such representations,
warranties and agreements shall be made under, and subject to the limitations
set forth in, this Article.
11.2 Sellers' Agreement to Indemnify. (a) Subject to the limitations set
forth in this Section 11.2, the Sellers hereby agree jointly and severally to
indemnify, defend and hold harmless the Buyer, the Surviving Corporation and
any of their Affiliates, and all officers, directors, equity holders, employees
and agents thereof (all of such parties, collectively, the "Buyer Affiliates"),
from and against all demands,
29
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<PAGE> 36
claims, actions, losses, damages, liabilities, costs and expenses (including,
without limitation, settlement costs, arbitration costs and any reasonable
legal and other expenses for investigating or defending any action or
threatened action) incurred by any of the Buyer Affiliates arising out of or in
connection with or resulting from (i) a breach of any covenant, agreement,
representation or warranty of the Company or any Seller contained in this
Agreement or in any agreement or instrument executed and delivered pursuant to
this Agreement on or prior to Closing or (ii) Taxes that are assessed on or
incurred by the Surviving Corporation or the Sellers (or any successor thereof)
on the basis of action, facts, circumstances, events or omissions occurring
prior to Closing (collectively, "Buyer's Damages").
(b) In the event there is a claim for Buyer's Damages resulting from the
assertion of liability by a third party, the Buyer will, or will cause the
Surviving Corporation to, give the Sellers notice of any such third-party claim
within thirty days after receiving notice thereof, and the Sellers may
undertake the lead defense thereof by counsel of its own choosing if (i) the
Sellers provide written notice to the Buyer that the Sellers intend to
undertake such defense and agree that (A) any damages or liabilities resulting
from such third-party claim are Buyer's Damages and (B) the Sellers will be
jointly and severally responsible for and indemnify the Buyer Affiliates
against such damages and liabilities in accordance with this Section 11.2, (ii)
the Sellers provide the Buyer with evidence reasonably acceptable to the Buyer
that the Sellers will have the financial resources to defend against the
third-party claim and fulfill its indemnification obligations hereunder, (iii)
the third-party claim involves only money damages and does not seek an
injunction or other equitable relief, (iv) settlement of, or an adverse
judgment with respect to, the third-party claim is not, in the good faith
judgment of the Buyer likely to establish a precedent adverse to the continuing
business interests of the Surviving Corporation (or any successor thereof) and
(v) the Sellers conduct the defense of the third-party claim actively and
diligently. Any Buyer Affiliate may by counsel participate in such proceedings,
negotiations or defense at its own expense.
In the event that within ten days after notice of any such third-party
claim, the Sellers have not notified the Buyer of their intention to defend the
third-party claim or in the event that, in the good faith judgment of the
Buyer, the Sellers have not satisfied the conditions in the above subclauses
(i) through (v), any Buyer Affiliate will have the right to undertake the
defense, compromise or settlement of such claim. The Sellers may by counsel
participate in such proceedings, negotiations or defense at any time at their
own expense. None of the Buyer Affiliates shall settle any such third-party
claim without the consent of the Sellers, which consent shall not be
unreasonably withheld. The Buyer Affiliates and the Sellers will furnish to
each other in reasonable detail such information as they may have with respect
to any claim for Buyer's Damages.
(c) Notwithstanding the foregoing, with respect to Buyer's Damages arising
from breaches of representations and warranties (except those in Section 5.2 to
which this Section 11.2(c) is inapplicable): (i) the Sellers, jointly and
severally, shall be obligated to indemnify the Buyer Affiliates in the
aggregate only up to the amount of the Merger Price, provided that none of Gary
L. Lackey, the Hubbards (as a group) or the Eagan Trust shall be obligated to
indemnify the Buyer Affiliates in excess of 50% of Buyer's Damages; (ii) a
Buyer Affiliate must have given the Sellers notice of any such breaches within
two years after the Closing Date and with respect to the representations in
Sections 5.12 (relating to Taxes), 5.14 (relating to Labor and Employment
Matters) and 5.18 (Environmental Matters), the applicable statutes of
limitation; and (iii) the Sellers will not be liable for any such Buyer's
Damages unless and until the aggregate amount of such Buyer's Damages exceeds
$20,000 (at which time the Sellers will be liable for such initial $20,000).
Further notwithstanding the foregoing, the Sellers will have no liability with
respect to Buyer's Damages to the extent of any insurance proceeds received by
the Surviving Corporation in connection therewith; provided, however,
30
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<PAGE> 37
that any such insurance proceeds received shall not be taken into account and
shall not reduce Buyer's Damages for the purpose of determining whether the
threshold of $20,000 (as described above) has been met.
(d) Notwithstanding the foregoing, the Sellers shall have no
indemnification obligations under this Section 11.2 until Closing has occurred,
but upon Closing, the Sellers' indemnification obligations under this Section
11.2 shall exist without regard to this Section 11.2(d) and without regard to
whether the basis for any claim arises prior to or after Closing.
(e) After the Closing, this Section 11.2 shall provide the exclusive
remedy for the breach of any covenant, agreement, representation or warranty
made in this Agreement by the Sellers or the Company.
11.3 Buyer's Agreement to Indemnify. (a) Subject to the limitations set
forth in this Section 11.3, the Buyer hereby agrees to indemnify, defend and
hold harmless the Sellers from and against all demands, claims, actions,
losses, damages, liabilities, costs and expenses (including, without
limitation, settlement costs, arbitration costs and any reasonable legal and
other expenses for investigating or defending any action or threatened action)
incurred by the Sellers arising out of or in connection with or resulting from
a breach of any covenant, agreement, representation or warranty of the Buyer
contained in this Agreement or in any agreement or instrument executed and
delivered pursuant to this Agreement on or prior to the Closing (collectively,
"Sellers' Damages").
(b) In the event there is a claim for Sellers' Damages resulting from the
assertion of liability by a third party, the Sellers will give the Buyer notice
of any such third-party claim within thirty days after receiving notice
thereof, and a Buyer Affiliate may undertake the defense thereof by counsel of
its own choosing if (i) the Buyer provides written notice to the Sellers that a
Buyer Affiliate intends to undertake such defense and agrees that (A) any
damages or liabilities resulting from such third-party claim are Sellers'
Damages and (B) the Buyer Affiliates will be responsible for and indemnify the
Sellers against such damages and liabilities in accordance with this Section
11.3, (ii) the third-party claim involves only money damages and does not seek
an injunction or other equitable relief, and (iii) the Buyer Affiliates conduct
the defense of the third-party claim actively and diligently. The Sellers may
by counsel participate in such proceedings, negotiations or defense at their
own expense.
In the event that within ten days after notice of any such third-party
claim, no Buyer Affiliate has notified the Sellers of its intention to defend
the third-party claim or in the event that, in the good faith judgment of the
Sellers, the Buyer Affiliates have not satisfied the conditions in the above
subclauses (i) through (iii), the Sellers will have the right to undertake the
defense, compromise or settlement of such claim.
The Buyer Affiliates may by counsel participate in such proceedings,
negotiations or defense at any time at their own expense. The Sellers shall not
settle any such third-party claim without the consent of the Buyer, which
consent shall not be unreasonably withheld. The Buyer Affiliates and the
Sellers will furnish to each other in reasonable detail such information as
they may have with respect to any claim for Sellers' Damages.
(c) Notwithstanding the foregoing, with respect to Sellers' Damages
arising from breaches of representations and warranties, (i) the Buyer shall be
obligated to indemnify the Seller Affiliates in the aggregate only up to the
amount of the Merger Price, (ii) a Seller Affiliate must have given the Buyer
notice of any such breaches within two years after the Closing Date, and (iii)
the Buyer shall not be liable for any such Sellers' Damages unless and until
the aggregate amount of such Sellers' Damages exceeds $20,000 (at which time
the Buyer shall be liable for such initial $20,000).
31
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<PAGE> 38
(d) After the Closing, this Section 11.3 shall provide the exclusive
remedy for the breach of any covenant, agreement, representation or warranty
made in this Agreement by the Buyer.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
12.1 Expenses. Whether or not the transactions contemplated hereby are
consummated, () the Buyer shall pay all fees, costs and expenses incurred by it
and the Merger Sub in connection with this Agreement and the transactions
contemplated hereby and () the Company shall pay all fees, costs and expenses
incurred by it in connection with this Agreement and the Merger.
12.2 Action by Sellers. Except as otherwise expressly provided in this
Agreement, any act or decision of the Sellers hereunder (including without
limitation any decision relating to termination, waiver of conditions and
indemnification) shall require the consent or approval of the Sellers who then
hold a majority of the Shares (if prior to Closing) or who held a majority of
the Shares immediately prior to Closing (if at or subsequent to Closing), and
any act or decision approved or consented to by such Sellers shall be binding
upon all of the Sellers.
12.3 Amendment and Modification. This Agreement may be amended, modified
or supplemented only by written agreement of the Company, the Sellers and the
Buyer.
12.4 Waiver of Compliance; Consents. Except as otherwise provided in this
Agreement, any failure of the Buyer, on one hand, and the Company or the
Sellers, on the other, to comply with any obligation, representation, warranty,
covenant, agreement or condition herein may be waived by the other party or
parties only by a written instrument signed by the party or parties granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, representation, warranty, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 12.4.
12.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered by hand or by facsimile
transmission, one Business Day after sending by a reputable national over-night
courier service or three Business Days after mailing when mailed by registered
or certified mail (return receipt requested), postage prepaid, to the parties
in the manner provided below:
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<PAGE> 39
(a) Any notice to the Company or the Sellers shall be delivered to the
following addresses:
Gary L. Lackey
GLL & Associates, Inc.
Post Office Box 25027 (27114-5027)
154 Charlois Boulevard
Winston-Salem, North Carolina 27103
Telephone: 910/760-4911
Facsimile: 910/659-4045
Eagan Family Trust
c/o John T. Eagan, Jr.
Post Office Box 25168
Winston-Salem, North Carolina 27114-5168
Lewis E. Hubbard
285 S. Stratford Road
Winston-Salem, North Carolina 27103
with a copy to:
Blanco Tackabery Combs Matamoros P.A.
P.O. Drawer 25008 (27114-5008)
110 S. Stratford Road, Suite 500
Winston-Salem, North Carolina 27104
Attention: Brian L. Herndon
Telephone: 910/761-1250
Facsimile: 910/761-1530
(b) Any notice to the Buyer shall be delivered to the following addresses:
Bank of Granite
23 North Main Street (P.O. Box 128)
Granite Falls, North Carolina 28630
Attention: John A. Forlines, Jr.
Telephone: 704/496-2000
Facsimile: 704/496-2116
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<PAGE> 40
with a copy to:
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Attention: Henry H. Ralston
Telephone: 704/377-2536
Facsimile: 704/378-4000
Any party may change the address to which notice is to be given by notice given
in the manner set forth above.
12.6 Assignment; Third Party Beneficiaries. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other parties, except that the Buyer may assign its
rights and obligations under this Agreement to any Affiliate of the Buyer. If
such assignment is made, the assignee shall be entitled to all of the rights
and shall assume all the obligations of the Buyer hereunder, but the Buyer
shall not be released from liability for the performance of the obligations of
such assignee under this Agreement. This Agreement shall not be deemed to
confer upon any third party beneficiaries or other Persons, including any
employees of the Company, any rights or remedies hereunder.
12.7 Separable Provisions. If any provision of this Agreement shall be
held invalid or unenforceable, the remainder nevertheless shall remain in full
force and effect.
12.8 Governing Law. The execution, interpretation and performance of this
Agreement shall be governed by the internal laws and judicial decisions of the
State of North Carolina.
12.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
12.11 Entire Agreement. This Agreement, including the Schedules and any
exhibits hereto, embodies the entire agreement and understanding of the parties
with respect of the subject matter of this Agreement. This Agreement supersedes
all prior agreements and understandings between the parties with respect to the
transactions contemplated hereby, including the letter of intent dated as of
August 11, 1997 between the Buyer and the Company.
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<PAGE> 41
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
GLL & ASSOCIATES, INC.
By: /s/ Gary L. Lackey
Gary L. Lackey, President
SELLERS:
/s/ Gary L. Lackey
GARY L. LACKEY
/s/ Lewis E. Hubbard
LEWIS E. HUBBARD
/s/ Emma B. Hubbard
EMMA B. HUBBARD
/s/ Bruce R. Hubbard
BRUCE R. HUBBARD
/s/ Lewis E. Hubbard, Jr.
LEWIS E. HUBBARD, JR.
/s/ Beverly H. Godfrey
BEVERLY H. GODFREY
Page 54
<PAGE> 42
EAGAN FAMILY TRUST, under irrevocable
agreement dated July 16, 1997
By: /s/ John T. Eagan, Jr.
John T. Eagan, Jr., Trustee
Page 55
<PAGE> 43
BUYER:
BANK OF GRANITE CORPORATION
By: /s/ John A. Forlines, Jr.
John A. Forlines, Jr.
Chief Executive Officer
Page 56
<PAGE> 1
Exhibit 13 -- Annual Report To Shareholders
F I N A N C I A L O V E R V I E W
NET INCOME INCREASED FOR 44TH CONSECUTIVE YEAR
In 1997, Bank of Granite Corporation produced its 44th year of record earnings.
We know of no other publicly owned bank with a comparable consistency in
earnings growth. Net income increased 8% to $14,431,187. Diluted earnings per
share grew 7.5% to $1.57 compared to $1.46 for the previous year. For sixty
consecutive quarters (15 years), quarterly earnings have exceeded those of the
comparable quarter of the preceding year. We believe this to be a record for
any publicly owned company.
Even though 1997 continued the series of record earnings, it also brought a
number of "first's" for the Company. In the second quarter, total assets
reached $500 million for the first time. In the third quarter, Bank of Granite
installed a check imaging system, which will enable the Bank to process and
store digital images of checking items rather than retaining actual paper
items. This should enable the Bank to realize efficiencies in the areas of
document storage and research as well as to create a database of information
for use in the Bank's marketing of products and services. In the fourth
quarter, the Company completed its first acquisition, GLL & Associates, Inc., a
mortgage banking firm specializing in government guaranteed mortgages in the
central and southern Piedmont region of North Carolina.
Factors that contributed to the 1997 earnings growth:
* Net interest income increased $3,037,752 or 11.9%
* Loans outstanding grew by $28,101,441 or 8.5%, supported
in part by a $16,878,193, or 4.2%, growth in deposits
* GLL & Associates contributed net earnings in its first quarter as a
subsidiary, even after merger-related expenses.
* Noninterest income increased $870,514 or 12%
* Operating efficiency ratio of 36.7%
Page 57
<PAGE> 2
NET INTEREST INCOME INCREASED 11.9% PERCENT
Net interest income increased $3,037,752, or 11.9%, compared to 1996. Interest
income grew $3,363,791, or 8.3%, resulting primarily from a 6.9% growth in
average interest earning assets. Interest expense increased only $326,039, or
2.2%, which was attributable to the 3.7% growth in average interest-bearing
deposits. Bank of Granite's balance sheet remains moderately asset-sensitive
because of its high level of variable rate loans. "Asset sensitive" means that
when interest rates in the overall economy change, rates on the Bank's loans
change a little more quickly than the rates on its deposits. Therefore, when
rates rise, the Bank's interest income rises at a faster pace than the interest
expense it pays on its deposits. Likewise, when rates fall, the Bank's interest
income on loans declines at a faster pace than the interest it pays on
deposits. The Company manages the maturities and pricing of its interest
earning assets and interest-bearing liabilities so as to maximize net interest
income, regardless of whether rates rise or fall in the market.
For 1998, we expect to operate in a relatively stable interest rate environment
in which market rates may fall. As a result, our net interest margin could
tighten. We have other services that thrive when rates fall, such as our new
mortgage banking subsidiary. We anticipate that loan demand in 1998 will remain
strong with a continued highly competitive market for quality loans.
ACQUISITION COMPLETED IN FOURTH QUARTER
On November 5, 1997, the Company completed its acquisition of GLL & Associates,
Inc., a mortgage bank. The acquisition was accounted for as a pooling of
interests, so all amounts throughout this annual report have been restated to
include GLL as if the two companies were merged for all periods presented or
discussed. Prior to the date of merger, GLL had elected to be taxed as a
"Subchapter S" corporation under the federal tax laws, therefore GLL provided
no income taxes on the pre-merger earnings taxable to GLL's former owners. The
Company recorded income tax expenses on GLL's earnings subsequent to the merger
date because such earnings will be included in the Company's taxable income.
GLL, with pre-merger assets of $13 million, originates approximately $120-130
million in mortgages per year and specializes in government guaranteed mortgage
products.
In the fourth quarter, GLL sold two mortgage servicing portfolios that resulted
in a nonrecurring gain, included in other noninterest income, of $601,135, or
$360,681 after-tax. Also in the fourth quarter, nonrecurring expenses related
to the merger, included in noninterest expenses, totaled $405,678, or $258,162
after-tax.
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<PAGE> 3
DIVERSIFICATION CONTINUED IN NONINTEREST INCOME GROWTH
Bank of Granite Corporation continues to seek additional sources of noninterest
income. In recent years, nontraditional banking services, such as fees from the
origination of mortgage loans, sales of the guaranteed portions of small
business administration loans, and sales of annuities and life insurance
continue to grow in importance to the Company's product lines. Unlike
traditional banking services, these nontraditional sources of income bring
greater volatility to earnings. For example, mortgage origination and annuity
sales activity may increase significantly when interest rates decline.
Noninterest income for 1997 was $8,110,184, an increase of 12%. Income from
nontraditional banking services was $3,318,663 and accounted for 40.9% of all
noninterest income in 1997. Noninterest income in 1997 included $601,135 in
nonrecurring gains from the sale of mortgage servicing rights by the Company's
new subsidiary, GLL & Associates.
If, as anticipated, interest rates remain flat or decline slightly in 1998, we
expect demand for mortgage loans, small business loans and annuity products to
strengthen. Service charges on deposit accounts will continue to grow relative
to deposit growth.
NONINTEREST EXPENSE REFLECTS TREND IN FEE INCOME
The growth in fee income largely results from receiving value for services
provided. Costs are usually incurred to provide such services. Although
noninterest expenses increased 14.2% in 1997, the Company still achieved a
36.74% efficiency ratio, which we believe to be among the best in the country.
Expressed another way, it costs the Company 36.74 cents for every dollar of
taxable-equivalent net interest and other revenues earned. In 1997, the Company
began to incur costs for a new office, a new department that supports a
profitable new cash flow manager product for selected businesses and a
significant investment in new imaging technology. In addition, nonrecurring
expenses related to the merger of GLL & Associates totaling $405,678 were
recorded in the fourth quarter.
In 1998, we anticipate continued growth in operating expenses as we continue to
invest in technology and alternative delivery systems, new offices and new or
expanded services to generate fee income. Over the next one-to-two years, we
are committing significant resources (1) to assure that the technology of the
Company, its customers and its vendors will be ready for the year 2000, (2) to
automate our teller stations and upgrade our ATM network, and (3) to identify
innovative ways in which to serve our existing and future customers. As always,
we will continue to evaluate investments relative to the value they will
generate.
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<PAGE> 4
ASSET QUALITY
In 1997, both the furniture and hosiery manufacturing industries experienced an
economically challenging period. Furniture and hosiery manufacturing are
important industries to the Company's Catawba Valley market area. In addition,
consumer loan customers continue to struggle, resulting in higher than normal
levels of past dues and bankruptcies. Nonperforming assets totaled $2,705,733,
or 0.51% of average assets. Our credit administration and collections
departments continue to monitor problem loans in an effort to minimize losses
and delinquencies. In spite of net charge-offs increasing to $766,311, the
ratio of net charge-offs to average loans outstanding remained under 0.25%. As
a matter of prudence, we continued to contribute to our loan loss reserves. The
total allowance for loan losses increased to $5,202,578 as of December 31,
1997, yet remained at 1.48% of net loans outstanding due to growth in loans. At
year-end 1997, the allowance for loan losses covered 198% of nonperforming
loans.
We anticipate asset quality in 1998 to approximate that of 1997. Assuming we
continue to operate in a similar economic climate, we expect nonperforming
assets and net charge-offs to remain at levels somewhat similar to those
experienced in 1997. We plan to continue prudent additions to our reserve for
loan losses, and to continue our emphasize on conservative lending practices.
FORWARD LOOKING STATEMENTS
The foregoing discussion may contain forward looking statements within the
meaning of the Private Securities Litigation Reform Act. The accuracy of such
forward looking statements could be affected by such factors as, including but
not limited to, the financial success or changing strategies of the Company's
customers, actions of government regulators, or general economic conditions.
Page 60
<PAGE> 5
FINANCIAL HIGHLIGHTS (1)
<TABLE>
<CAPTION>
1997 (2) 1996 % change
<S> <C> <C> <C>
Earnings
Interest income $ 44,027,854 $ 40,664,063 8.3%
Interest expense 15,459,548 15,133,509 2.2%
Net income 14,431,187 13,365,872 8.0%
Cash dividends paid 3,340,932 3,058,856 9.2%
Per share
Net income
- Basic $ 1.58 $ 1.47 7.5%
- Diluted 1.57 1.46 7.5%
Cash dividends 0.37 0.35 5.7%
Book value 10.41 9.22 12.9%
Average shares outstanding
- Basic 9,140,088 9,104,832 0.4%
- Diluted 9,183,840 9,152,564 0.3%
At Year-end
Assets $528,979,733 $498,192,379 6.2%
Deposits 414,576,184 397,697,991 4.2%
Loans (gross) 357,845,513 329,744,072 8.5%
Allowance for loan losses 5,202,578 4,793,889 8.5%
Shareholders' equity 95,216,723 84,018,569 13.3%
Ratios
Return on average assets 2.81% 2.76%
Return on average equity 16.21% 16.98%
Average capital to average assets 17.36% 16.24%
</TABLE>
(1) All amounts reflect the Corporation's November 1997 merger with GLL &
Associates, Inc. ("GLL"), which was accounted for as a pooling of
interests.
(2) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale of
mortgage servicing rights of $360,681 (after-tax) and merger expenses of
$258,162 (after-tax).
MARKET AND DIVIDEND SUMMARY
<TABLE>
<CAPTION>
1997 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Price Range
<S> <C> <C> <C> <C>
High $ 30 1/4 $ 30 5/8 $ 33 1/8 $ 33 1/2
Low 27 1/4 27 1/8 28 3/4 29 1/4
Close 29 1/2 30 1/4 32 3/4 30 3/4
Dividend $ 0.09 $ 0.09 $ 0.09 $ 0.10
1996 Quarter 1 Quarter 2 Quarter 3 Quarter 4
Price Range
High $ 20 43/64 $ 26 3/4 $ 29 1/2 $ 33
Low 18 21/64 20 23 1/2 27 1/4
Close 20 11/64 25 1/2 27 1/2 29
Dividend $ 0.08 $ 0.08 $ 0.09 $ 0.09
</TABLE>
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<PAGE> 6
SELECTED FINANCIAL DATA (1)
Bank of Granite Corporation and Subsidiaries
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1997 (2) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total interest income $ 44,027,854 $ 40,664,063 $ 38,264,504 $ 31,783,764 $ 28,818,066
Total interest expense 15,459,548 15,133,509 13,998,536 10,225,632 10,062,659
----------------------------------------------------------------
Net interest income 28,568,306 25,530,554 24,265,968 21,558,132 18,755,407
Provision for loan losses 1,175,000 820,000 1,117,000 704,000 575,000
----------------------------------------------------------------
Net interest income after
provision for loan losses 27,393,306 24,710,554 23,148,968 20,854,132 18,180,407
Other income 8,110,184 7,239,670 6,145,112 6,712,147 7,271,879
Other expense 14,119,050 12,363,995 11,650,576 12,711,683 11,367,477
----------------------------------------------------------------
Income before income taxes
and cumulative effect of
a change in accounting
for income taxes 21,384,440 19,586,229 17,643,504 14,854,596 14,084,809
Income taxes 6,953,253 6,220,357 5,598,532 4,622,525 3,984,532
----------------------------------------------------------------
Income before cumulative
effect of a change in
accounting for income
taxes 14,431,187 13,365,872 12,044,972 10,232,071 10,100,277
Cumulative effect on
prior years of a change
in accounting for income
taxes -- -- -- -- (125,926)
----------------------------------------------------------------
Net income $ 14,431,187 $ 13,365,872 $ 12,044,972 $ 10,232,071 $ 9,974,351
----------------------------------------------------------------
Per share:
Net income -
Basic $ 1.58 $ 1.47 $ 1.33 $ 1.13 $ 1.11
Diluted $ 1.57 $ 1.46 $ 1.32 $ 1.13 $ 1.10
----------------------------------------------------------------
Cash dividends $ 0.37 $ 0.35 $ 0.29 $ 0.25 $ 0.23
----------------------------------------------------------------
Book value $ 10.41 $ 9.22 $ 8.19 $ 7.05 $ 6.31
----------------------------------------------------------------
Average shares
outstanding -
Basic 9,140,088 9,104,832 9,069,217 9,034,076 8,983,795
Diluted 9,183,840 9,152,564 9,102,539 9,086,397 9,048,659
----------------------------------------------------------------
Performance ratios:
Return on average assets 2.81% 2.76% 2.70% 2.47% 2.55%
Return on average equity 16.21% 16.98% 17.42% 16.94% 18.70%
Average equity to
average assets 17.36% 16.24% 15.50% 14.56% 13.65%
Dividend payout 23.15% 22.89% 21.82% 21.87% 19.94%
----------------------------------------------------------------
Balance at year end
Assets $528,979,733 $498,192,379 $468,139,374 $423,098,161 $410,729,692
Securities 131,109,218 128,661,064 124,283,449 112,932,093 113,304,074
Loans (gross) 357,845,513 329,744,072 312,779,662 279,942,537 265,755,180
Allowance for loan losses 5,202,578 4,793,889 4,644,725 3,996,491 3,603,430
Liabilities 433,763,010 414,173,810 393,768,044 359,313,211 353,841,159
Deposits 414,576,184 397,697,991 377,043,144 343,330,048 327,514,920
Shareholders' equity 95,216,723 84,018,569 74,371,330 63,784,950 56,888,533
----------------------------------------------------------------
</TABLE>
(1) All amounts reflect the Corporation's November 1997 merger with GLL &
Associates, Inc. ("GLL"), which was accounted for as a pooling of
interests.
(2) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale of
mortgage servicing rights of $360,681 (after-tax) and merger expenses of
$258,162 (after-tax).
Page 62
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Bank of Granite Corporation:
We have audited the consolidated balance sheets of Bank of Granite
Corporation and its subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. Such consolidated financial statements and our report
thereon dated January 23, 1998, expressing an unqualified opinion (which are
not included herein) are included in the proxy statement for the 1998 annual
meeting of shareholders. The accompanying consolidated balance sheets and
consolidated statements of income are the responsibility of the Company's
management. Our responsibility is to express an opinion on such consolidated
balance sheets and consolidated statements of income in relation to the
complete consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheets as of December 31, 1997 and 1996 and the related consolidated
statements of income for each of the three years in the period ended December
31, 1997 is fairly stated in all material respects in relation to the basic
consolidated financial statements from which it has been derived.
DELOITTE & TOUCHE LLP
Hickory, North Carolina
January 23, 1998
Page 63
<PAGE> 8
BANK OF GRANITE
CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Balance Sheets (1) December 31,
1997 1996
ASSETS:
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 27,707,850 $ 24,870,352
Interest-bearing deposits 157,507 274,825
Federal funds sold -- 4,500,000
-------------------------
Total cash and cash equivalents 27,865,357 29,645,177
-------------------------
Investment Securities:
Available for sale, at fair value
(amortized cost of $51,285,077 and $50,906,209
at December 31, 1997 and 1996, respectively) 52,072,834 51,211,956
Held to maturity, at amortized cost
(fair value of $80,733,959 and $78,728,117
at December 31, 1997 and 1996, respectively) 79,036,384 77,449,108
Loans 357,845,513 329,744,072
Allowance for loan losses (5,202,578) (4,793,889)
-------------------------
Net loans 352,642,935 324,950,183
-------------------------
Premises and equipment, net 9,583,429 8,254,712
Accrued interest receivable 4,972,654 4,290,350
Other assets 2,806,140 2,390,893
-------------------------
TOTAL $528,979,733 $498,192,379
=========================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Demand $ 80,637,746 $ 78,010,962
NOW accounts 62,792,730 60,575,240
Money market accounts 25,697,397 27,290,026
Savings 23,848,043 22,271,033
Time deposits of $100,000 or more 92,588,469 88,267,044
Other time deposits 129,011,799 121,283,686
-------------------------
Total deposits 414,576,184 397,697,991
-------------------------
Federal funds purchased and
securities sold under agreements to repurchase 8,882,016 2,955,234
Other borrowings 6,287,700 9,636,259
Accrued interest payable 2,138,430 1,978,712
Other liabilities 1,878,680 1,905,614
-------------------------
Total liabilities 433,763,010 414,173,810
-------------------------
Shareholders' equity:
Common stock, $1 par value,
authorized - 15,000,000 shares;
issued and outstanding - 9,146,272 shares in 1997 and
9,116,552 shares in 1996 9,146,272 9,116,552
Capital surplus 22,234,753 21,913,629
Retained earnings 63,362,060 52,800,932
Net unrealized gain on securities available
for sale, net of deferred income taxes 473,638 187,456
-------------------------
Total shareholders' equity 95,216,723 84,018,569
-------------------------
TOTAL $528,979,733 $498,192,379
=========================
</TABLE>
(1) All amounts reflect the Corporation's November 1997 merger with GLL &
Associates, Inc. ("GLL"), which was accounted for as a pooling of
interests.
Page 64
<PAGE> 9
BANK OF GRANITE
CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Income (1) For the Years Ended December 31,
1997 (2) 1996 1995
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 36,246,226 $ 33,006,697 $ 31,538,067
Federal funds sold 197,939 312,516 251,047
Interest-bearing deposits 10,766 6,732 6,945
Investments:
U.S. Treasury 1,208,692 1,144,098 961,701
U.S. Government agencies 2,200,475 2,442,745 2,033,620
States and political subdivisions 3,253,315 3,022,204 2,845,134
Other 910,441 729,071 627,990
--------------------------------------
Total interest income 44,027,854 40,664,063 38,264,504
--------------------------------------
INTEREST EXPENSE:
Time deposits of $100,000 or more 5,132,118 4,973,875 4,748,413
Other time and savings deposits 9,465,803 9,192,464 8,276,096
Federal funds purchased and securities
sold under agreements to repurchase 217,916 188,176 175,549
Other borrowed funds 643,711 778,994 798,478
--------------------------------------
Total interest expense 15,459,548 15,133,509 13,998,536
--------------------------------------
NET INTEREST INCOME 28,568,306 25,530,554 24,265,968
PROVISION FOR LOAN LOSSES 1,175,000 820,000 1,117,000
--------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 27,393,306 24,710,554 23,148,968
--------------------------------------
OTHER INCOME:
Service charges on deposit accounts 3,273,187 3,107,378 2,843,085
Other service fees and commissions 3,690,047 3,296,063 3,001,198
Securities gains (losses) 3,695 174,086 (40,952)
Other 1,143,255 662,143 341,781
--------------------------------------
Total other income 8,110,184 7,239,670 6,145,112
--------------------------------------
OTHER EXPENSES:
Salaries and wages 6,916,428 6,231,710 5,565,407
Employee benefits 1,344,946 1,273,246 1,074,896
Occupancy expense, net 603,298 610,683 607,987
Equipment rentals, depreciation,
and maintenance 1,187,293 1,050,971 1,000,887
Other 4,067,085 3,197,385 3,401,399
--------------------------------------
Total other expenses 14,119,050 12,363,995 11,650,576
--------------------------------------
INCOME BEFORE INCOME TAXES 21,384,440 19,586,229 17,643,504
INCOME TAXES 6,953,253 6,220,357 5,598,532
--------------------------------------
NET INCOME $ 14,431,187 $ 13,365,872 $ 12,044,972
======================================
PER SHARE AMOUNTS:
Net income -
Basic $ 1.58 $ 1.47 $ 1.33
Diluted $ 1.57 $ 1.46 $ 1.32
Cash dividends $ 0.37 $ 0.35 $ 0.29
</TABLE>
(1) All amounts reflect the Corporation's November 1997 merger with GLL &
Associates, Inc. ("GLL"), which was accounted for as a pooling of
interests.
(2) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale of
mortgage servicing rights of $360,681 (after-tax) and merger expenses of
$258,162 (after-tax).
Page 65
<PAGE> 10
QUARTERLY FINANCIAL SUMMARY (1)
Unaudited
<TABLE>
<CAPTION>
1997 Quarter 1 Quarter 2 Quarter 3 Quarter 4 (2)
<S> <C> <C> <C> <C>
Total interest income $ 10,361,843 $ 11,033,537 $ 11,319,840 $ 11,312,634
Total interest expense 3,662,081 3,840,653 3,990,624 3,966,190
Net interest income 6,699,762 7,192,884 7,329,216 7,346,444
Provision for loan losses 255,000 320,000 300,000 300,000
Net interest income after
provision for loan losses 6,444,762 6,872,884 7,029,216 7,046,444
Other income 1,781,254 1,759,434 1,847,100 2,722,396
Other expense 3,127,528 3,489,025 3,656,814 3,845,683
Income before income taxes 5,098,488 5,143,293 5,219,502 5,923,157
Income taxes 1,728,758 1,558,410 1,580,380 2,085,705
Net income $ 3,369,730 $ 3,584,883 $ 3,639,122 $ 3,837,452
Net income per share
Basic $ 0.37 $ 0.39 $ 0.40 $ 0.42
Diluted $ 0.37 $ 0.39 $ 0.40 $ 0.42
Average shares outstanding
Basic 9,129,715 9,141,926 9,145,114 9,146,160
Diluted 9,202,009 9,184,282 9,193,258 9,191,002
<CAPTION>
1996 Quarter 1 Quarter 2 Quarter 3 Quarter 4
<S> <C> <C> <C> <C>
Total interest income $ 9,842,616 $ 10,108,320 $ 10,318,767 $ 10,394,360
Total interest expense 3,692,115 3,799,631 3,850,520 3,791,243
Net interest income 6,150,501 6,308,689 6,468,247 6,603,117
Provision for loan losses 185,000 100,000 260,000 275,000
Net interest income after
provision for loan losses 5,965,501 6,208,689 6,208,247 6,328,117
Other income 1,810,914 1,741,980 1,754,964 1,931,812
Other expense 3,093,501 3,165,350 3,033,414 3,071,730
Income before income taxes 4,682,914 4,785,319 4,929,797 5,188,199
Income taxes 1,515,000 1,495,000 1,545,000 1,665,357
Net income $ 3,167,914 $ 3,290,319 $ 3,384,797 $ 3,522,842
Net income per share
Basic $ 0.35 $ 0.36 $ 0.37 $ 0.39
Diluted $ 0.35 $ 0.36 $ 0.37 $ 0.38
Average shares outstanding
Basic 9,086,206 9,104,405 9,112,999 9,116,271
Diluted 9,124,384 9,151,330 9,158,206 9,171,801
</TABLE>
(1) All amounts reflect the Corporation's November 1997 merger with GLL &
Associates, Inc. ("GLL"), which was accounted for as a pooling of
interests.
(2) Nonrecurring items related to GLL: Fourth quarter 1997 - gain on sale of
mortgage servicing rights of $360,681 (after-tax) and merger expenses of
$258,162 (after-tax).
Page 66
<PAGE> 11
SHAREHOLDER INFORMATION
COMMON STOCK
Bank of Granite Corporation's common stock is traded on the
over-the-counter (OTC) market and quoted in the NASDAQ (National Association of
Securities Dealers Automated Quotations) National Market System, where the
symbol is GRAN. Price and volume information is contained in the Wall Street
Journal and most major daily newspapers in the "Over-the-Counter Markets"
section under the National Market System listing.
ANNUAL MEETING
The Annual Meeting of the shareholders of the Bank of Granite Corporation
will be held at 10:30 am, Monday, April 27, 1998, at the Holiday Inn, 1385
Lenoir Rhyne Boulevard Southeast, Hickory, North Carolina (located off
Interstate 40 at Exit 125).
EQUAL OPPORTUNITY EMPLOYER
It is the policy of Bank of Granite Corporation to treat all employees and
applicants for employment without regard to race, creed, color, national
origin, sex or age.
COPIES OF FORM 10-K
Copies of the Bank of Granite Corporation's Annual Report to the
Securities and Exchange Commission on Form 10-K may be obtained by
shareholders at no charge by writing: Kirby A. Tyndall, Secretary/Treasurer,
Bank of Granite Corporation, Post Office Box 128, Granite Falls, North
Carolina 28630.
STOCK TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
908/272-8511 or 800/368-5948
DIVIDEND REINVESTMENT
Registered holders of Bank of Granite Corporation stock are eligible to
participate in the Corporation's Dividend Reinvestment Plan, a convenient and
economical way to purchase additional shares of Bank of Granite Corporation
common stock. For an informational folder and authorization form or to receive
additional information on this plan, contact Registrar and Transfer Company at
the address above.
Page 67
<PAGE> 12
SHAREHOLDER INFORMATION
For additional information, contact Melodie R. Mathes, Shareholder
Relations, Bank of Granite Corporation, Post Office Box 128, Granite Falls,
North Carolina 28630, 704/496-2022.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 1st Avenue NW
Post Office Box 9197
Hickory, North Carolina 28603
MARKET INFORMATION
Bank of Granite serves the people and businesses of the Blue Ridge Foothills
and Catawba Valley of North Carolina, which is located approximately 70 miles
northwest of Charlotte. This region offers a remarkable quality of life, with
both scenic and cultural treasures, to over 200,000 citizens. The area is also
known as a manufacturing capital for furniture, hosiery and fiber optic
telecommunications.
Page 68
<PAGE> 1
Exhibit 21 -- Subsidiaries of the Registrant
Bank of Granite Corporation has two subsidiaries as follows:
Date of State of
Name Incorporation Incorporation
Bank of Granite August 2, 1906 North Carolina
GLL & Associates, Inc. June 24, 1985 North Carolina
Page 69
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,707,850
<INT-BEARING-DEPOSITS> 157,507
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,072,834
<INVESTMENTS-CARRYING> 51,285,077
<INVESTMENTS-MARKET> 80,733,959
<LOANS> 357,845,513
<ALLOWANCE> 5,202,578
<TOTAL-ASSETS> 528,979,733
<DEPOSITS> 414,576,184
<SHORT-TERM> 15,169,716
<LIABILITIES-OTHER> 4,017,110
<LONG-TERM> 0
0
0
<COMMON> 9,146,272
<OTHER-SE> 86,070,451
<TOTAL-LIABILITIES-AND-EQUITY> 528,979,733
<INTEREST-LOAN> 36,246,226
<INTEREST-INVEST> 7,572,923
<INTEREST-OTHER> 208,705
<INTEREST-TOTAL> 44,027,854
<INTEREST-DEPOSIT> 14,597,921
<INTEREST-EXPENSE> 15,459,548
<INTEREST-INCOME-NET> 28,568,306
<LOAN-LOSSES> 1,175,000
<SECURITIES-GAINS> 3,695
<EXPENSE-OTHER> 14,119,050
<INCOME-PRETAX> 21,384,440
<INCOME-PRE-EXTRAORDINARY> 21,384,440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,431,187
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.57
<YIELD-ACTUAL> 6.32
<LOANS-NON> 728,308
<LOANS-PAST> 1,898,362
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,794,000
<CHARGE-OFFS> 849,000
<RECOVERIES> 83,000
<ALLOWANCE-CLOSE> 5,203,000
<ALLOWANCE-DOMESTIC> 5,203,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 232,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,870,352
<INT-BEARING-DEPOSITS> 274,825
<FED-FUNDS-SOLD> 4,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,211,956
<INVESTMENTS-CARRYING> 50,906,209
<INVESTMENTS-MARKET> 78,728,117
<LOANS> 329,744,072
<ALLOWANCE> 4,793,889
<TOTAL-ASSETS> 498,192,379
<DEPOSITS> 397,697,991
<SHORT-TERM> 12,591,493
<LIABILITIES-OTHER> 3,884,326
<LONG-TERM> 0
0
0
<COMMON> 9,116,552
<OTHER-SE> 74,902,017
<TOTAL-LIABILITIES-AND-EQUITY> 498,192,379
<INTEREST-LOAN> 33,006,697
<INTEREST-INVEST> 7,338,118
<INTEREST-OTHER> 319,248
<INTEREST-TOTAL> 40,664,063
<INTEREST-DEPOSIT> 14,166,339
<INTEREST-EXPENSE> 15,133,509
<INTEREST-INCOME-NET> 25,530,554
<LOAN-LOSSES> 820,000
<SECURITIES-GAINS> 174,086
<EXPENSE-OTHER> 12,363,995
<INCOME-PRETAX> 19,586,229
<INCOME-PRE-EXTRAORDINARY> 19,586,229
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,365,872
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 6.05
<LOANS-NON> 409,305
<LOANS-PAST> 648,480
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,645,000
<CHARGE-OFFS> 742,000
<RECOVERIES> 71,000
<ALLOWANCE-CLOSE> 4,794,000
<ALLOWANCE-DOMESTIC> 4,794,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 180,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,487,428
<INT-BEARING-DEPOSITS> 258,244
<FED-FUNDS-SOLD> 1,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,141,969
<INVESTMENTS-CARRYING> 49,394,376
<INVESTMENTS-MARKET> 76,413,677
<LOANS> 312,779,662
<ALLOWANCE> 4,644,725
<TOTAL-ASSETS> 468,139,374
<DEPOSITS> 377,043,144
<SHORT-TERM> 13,465,049
<LIABILITIES-OTHER> 3,259,851
<LONG-TERM> 0
0
0
<COMMON> 6,092,586
<OTHER-SE> 68,278,744
<TOTAL-LIABILITIES-AND-EQUITY> 468,139,374
<INTEREST-LOAN> 31,538,067
<INTEREST-INVEST> 6,468,445
<INTEREST-OTHER> 257,992
<INTEREST-TOTAL> 38,264,504
<INTEREST-DEPOSIT> 13,024,509
<INTEREST-EXPENSE> 13,998,536
<INTEREST-INCOME-NET> 24,265,968
<LOAN-LOSSES> 1,117,000
<SECURITIES-GAINS> (40,952)
<EXPENSE-OTHER> 11,650,576
<INCOME-PRETAX> 17,643,504
<INCOME-PRE-EXTRAORDINARY> 17,643,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,044,972
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 6.20
<LOANS-NON> 231,654
<LOANS-PAST> 440,686
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,996,000
<CHARGE-OFFS> 593,000
<RECOVERIES> 125,000
<ALLOWANCE-CLOSE> 4,645,000
<ALLOWANCE-DOMESTIC> 4,645,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 171,000
</TABLE>
