SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-12
COMMUNITY BANKSHARES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
_________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
5) Total fee paid
_________________________________________________________________________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:________________________________________________
2) Form, Schedule or Registration Statement No.:__________________________
3) Filing Party:__________________________________________________________
4) Date Filed:____________________________________________________________
COMMUNITY BANKSHARES, INC.
102 Founders Court
Post Office Box 2086
Orangeburg, South Carolina 29116-2086
Dear Shareholder:
You are cordially invited to attend the special meeting of shareholders
of Community Bankshares, Inc., which will be held at the Carolina Room, 1225
Orangeburg Mall Circle, Orangeburg, South Carolina at 3:00 p.m., on Wednesday,
October 15, 2008.
At the special meeting, you will be asked to consider and vote on a
proposal to approve a merger agreement that Community Bankshares and Community
Resource Bank have entered into with First Citizens Bank and Trust Company, Inc.
The merger agreement provides for Community Bankshares and Community Resource
Bank to merge with and into First Citizens. If the merger is approved, First
Citizens will be the surviving corporation and Community Bankshares and
Community Resource Bank will cease to exist, and you will be entitled to receive
$21.00 in cash, without interest, for each share of Community Bankshares common
stock you own. A proxy statement is enclosed in which a copy of the merger
agreement is included. Please carefully read the proxy statement and the merger
agreement, as well as the other appendices to the proxy statement, in their
entirety.
After careful consideration of a number of factors that are discussed
more fully in the proxy statement, the board of directors of Community
Bankshares unanimously determined that the merger is advisable and in the best
interests of Community Bankshares and its shareholders, and approved the merger,
the merger agreement and the transactions contemplated by the merger agreement.
The board of directors recommends that you vote "FOR" approval of the merger
agreement and the merger.
Your vote is very important. Because approval of the merger agreement
and the merger requires the affirmative vote of two-thirds of the outstanding
shares of Community Bankshares, if you fail to vote, or fail to instruct your
broker how to vote if your shares are held in street name, it will have the same
effect as a vote against the merger agreement and the merger. If you are a
record shareholder and sign, date, and return your proxy card without indicating
how you want to vote, your proxy will be counted as a vote "FOR" the merger and
the transactions contemplated by the merger agreement and "FOR" the proposal to
authorize adjournment.
Whether or not you plan to attend the special meeting in person, please
complete, date, sign and promptly return the enclosed proxy card, or such other
document as your broker instructs you to use if your shares are held in "street
name," in the accompanying pre-addressed postage-paid envelope. Doing so will
not limit your right to attend the special meeting and vote in person if you are
a shareholder of record.
Thank you for your many years of loyal support for our company.
Sincerely,
s/Samuel L. Erwin
-----------------------------
Samuel L. Erwin
Chief Executive Officer
The enclosed proxy statement is first being mailed to shareholders on
September 17, 2008.
COMMUNITY BANKSHARES, INC.
102 Founders Court
Post Office Box 2086
Orangeburg, South Carolina 29116-2086
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 15, 2008
TO OUR SHAREHOLDERS:
A Special Meeting of the Shareholders of Community Bankshares, Inc., a
South Carolina corporation, will be held at the Carolina Room, 1225 Orangeburg
Mall Circle, Orangeburg, South Carolina at 3:00 p.m., on Wednesday, October 15,
2008, for the following purposes:
(1) Merger. To vote on the Agreement and Plan of Merger, dated June 25,
2008, among Community Bankshares, Inc., Community Resource Bank, N.A.,
and First Citizens Bank and Trust Company, Inc., which provides for
the merger of Community Bankshares, Inc. and Community Resource Bank,
N.A. with and into First Citizens Bank and Trust Company, Inc.;
(2) Adjournment. To consider and vote on a proposal to authorize
adjournment of the special meeting to allow time for further
solicitation of proxies in the event there are insufficient votes
present at the special meeting, in person or by proxy, to approve the
Agreement and Plan of Merger; and
(3) Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournment thereof.
You are only entitled to notice of and to vote at the Special Meeting
or any adjournment thereof if you were a record holder of our common stock at
the close of business on August 15, 2008.
You are cordially invited and urged to attend the Special Meeting in
person. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY, OR SUCH OTHER
DOCUMENT AS YOUR BROKER INSTRUCTS YOU TO USE IF YOUR SHARES ARE HELD IN "STREET
NAME," IN THE ACCOMPANYING PRE-ADDRESSED POSTAGE-PAID ENVELOPE. If you need
assistance in completing your proxy, please call the Company at (803) 535-1060
or (888) 329-1060. If you are the record owner of your shares and attend the
special meeting and desire to revoke your proxy and vote in person, you may do
so. In any event, a proxy may be revoked by the record owner of shares at any
time before it is exercised by giving notice of revocation to our President, or
by returning a properly executed proxy with a later date at or before the
meeting. If your shares are held in "street name" by your broker, you must
follow the instructions you will receive from your broker to change or revoke
your proxy.
We do not know of any other matters to be presented at the Special
Meeting, but if other matters are properly presented, the persons named as proxy
agents will vote on such matters in their discretion.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL PRESENTED ABOVE AND ALSO RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO AUTHORIZE ADJOURNMENT OF THE
MEETING.
By Order of the Board of Directors
s/William W. Traynham
------------------------------------
William W. Traynham
President
Orangeburg, South Carolina
September 17, 2008
COMMUNITY BANKSHARES, INC.
102 Founders Court
Post Office Box 2086
Orangeburg, South Carolina 29116-2086
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
MERGER PROPOSED - YOUR VOTE IS IMPORTANT
We are providing this Proxy Statement in connection with the
solicitation of proxies by the Board of Directors of Community Bankshares, Inc.
for use at a special meeting of our shareholders, or at any adjournment of the
meeting, for the purpose of voting on the merger of Community Bankshares, Inc.
and Community Resource Bank, N.A., with and into First Citizens Bank and Trust
Company, Inc. The special meeting will be held on Wednesday, October 15, 2008,
at 3:00 p.m. in the Carolina Room at 1225 Orangeburg Mall Circle, Orangeburg,
South Carolina.
The basic terms of the proposed transaction and cross-references to
more detailed discussions of those terms in this proxy statement are as follow:
o The Boards of Directors of Community Bankshares, Inc., Community
Resource Bank, N.A. and First Citizens Bank and Trust Company, Inc.
have each approved a transaction that will result in the merger of
Community Bankshares, Inc. and Community Resource Bank, N.A. with and
into First Citizens Bank and Trust Company, Inc. (Please see "The
Merger and the Merger Agreement--General").
o First Citizens will be the surviving corporation of the merger and
Community Bankshares and Community Resource Bank will cease to exist.
(Please see "The Merger and the Merger Agreement--General").
o As a result of the merger, shareholders of Community Bankshares on the
effective date will be entitled to receive $21.00 in cash in exchange
for each share of Community Bankshares common stock owned. (Please see
"The Merger and the Merger Agreement--Merger Consideration").
o Generally, Community Bankshares stock options and stock appreciation
rights will terminate and be cancelled, and holders of such stock
options and stock appreciation rights will be paid the merger
consideration of $21.00 per share in cash less the exercise price for
each stock option or stock appreciation right held. (Please see "The
Merger and the Merger Agreement--Conversion of Shares; Treatment of
Restricted Stock, Stock Options and SARs; Dividend Reinvestment
Plan").
o Holders of Community Bankshares restricted stock will receive $21.00
per share in cash in exchange for each share of restricted stock held
on the effective date. (Please see "The Merger and the Merger
Agreement--Conversion of Shares; Treatment of Restricted Stock, Stock
Options and SARs; Dividend Reinvestment Plan").
o Participants in the Community Bankshares, Inc. Dividend Reinvestment
Plan will also receive $21.00 per share in cash in exchange for each
share held in their plan accounts on the effective date. Any cash held
in plan accounts that has not yet been invested in Community
Bankshares, Inc. common stock will be returned to the participants for
whose accounts it is held. (Please see "The Merger and the Merger
Agreement--Conversion of Shares; Treatment of Restricted Stock, Stock
Options and SARs; Dividend Reinvestment Plan").
o Based on the number of shares of Community Bankshares, Inc. common
stock, stock options, stock appreciation rights and restricted stock
outstanding on September 5, 2008, the total cash consideration to be
paid in connection with the merger would be $97,260,494. (Please see
"The Merger and the Merger Agreement--Merger Consideration").
o Shareholders of Community Bankshares are being asked to approve the
merger at a special meeting of shareholders. (Please see "Special
Meeting of Shareholders").
o Community Bankshares, as the sole shareholder of Community Resource
Bank, has approved the merger as to the bank, and First Citizens
Bancorporation, Inc., as sole shareholder of First Citizens, has also
approved the merger as to First Citizens. (Please see "The Merger and
the Merger Agreement--General.)
We cannot complete the merger unless we obtain approvals from the
shareholders of Community Bankshares. Your vote is important. Whether or not you
plan to attend the special shareholders' meeting, please take the time to vote
by completing and mailing the enclosed proxy card or such other document as your
broker instructs you to use if your shares are held in "street name." If you are
a record shareholder and you sign, date, and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote "FOR" the
merger and the transactions contemplated by the merger agreement and "FOR" the
proposal to authorize adjournment. If you do not return your proxy card, or if
you do not instruct your broker how to vote any shares held for you in "street
name," the effect will be the same as a vote against the merger.
This proxy statement is dated September 17, 2008, and we first began
mailing it to shareholders of Community Bankshares on or about September 17,
2008.
Throughout this Proxy Statement, we may use terms such as "we," "us,"
"our," and "our Company" to refer to Community Bankshares, Inc. and its
subsidiaries, and terms such as "you" and "your" to refer to Community
Bankshares' shareholders.
TABLE OF CONTENTS
Page No.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................1
SUMMARY...........................................................................................................4
CAUTIONARY STATEMENT REGADING FORWARD-LOOKING STATEMENTS..........................................................9
SPECIAL MEETING OF SHAREHOLDERS..................................................................................10
Meeting Date, Time, Place and Record Date.....................................................................10
Matters to be Considered at the Special Meeting...............................................................10
Quorum and Method of Determining Quorum; Adjournment..........................................................10
Vote Required and Method of Counting Votes....................................................................11
Voting by Record Shareholders.................................................................................11
Voting by Shareholders whose Shares are held in "Street Name".................................................11
Revocation of Proxy by Record Shareholder.....................................................................11
Revocation of Proxy by Shareholders whose Shares are held in "Street Name"....................................12
Actions to be taken by the Persons Named as Agents in the Form of Proxy.......................................12
Methods of Solicitation of Proxies............................................................................12
Dissenters' Rights............................................................................................12
Recommendation of the Board of Directors......................................................................12
THE MERGER AND THE MERGER AGREEMENT..............................................................................13
General .....................................................................................................13
Merger Consideration..........................................................................................13
Background of the Merger......................................................................................13
Community Bankshares' Reasons for the Merger..................................................................15
First Citizens' Reasons for the Merger........................................................................16
Opinion of Community Bankshares' Financial Adviser............................................................17
Conversion of Shares; Treatment of Restricted Stock, Stock Options, and SARs; Dividend Reinvestment Plan......23
Delisting and Deregistration of Community Bankshares Common Stock.............................................25
Effective Time of the Merger..................................................................................25
Exchange of Certificates......................................................................................25
Lost Certificates.............................................................................................26
Termination and Conversion of Options and SARs................................................................27
Certain Important Federal Income Tax Consequences.............................................................27
Accounting Treatment..........................................................................................29
Interests of Employees and Directors of Community Bankshares in the Merger....................................29
Regulatory Matters............................................................................................30
Representations and Warranties................................................................................30
Conditions to Consummation....................................................................................34
Conduct of Business Pending the Merger........................................................................36
Exclusive Agreement...........................................................................................41
First Citizens' Agreements Pending Closing....................................................................42
Mutual Agreements.............................................................................................42
Amendment and Termination.....................................................................................43
Expenses......................................................................................................45
AUTHORIZATION TO ADJOURN.........................................................................................45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................46
BUSINESS OF COMMUNITY BANKSHARES AND COMMUNITY RESOURCE BANK.....................................................47
BUSINESS OF FIRST CITIZENS.......................................................................................49
OTHER BUSINESS...................................................................................................49
SHAREHOLDER PROPOSALS............................................................................................49
WHERE YOU CAN FIND MORE INFORMATION..............................................................................50
APPENDIX A - AGREEMENT AND PLAN OF MERGER, DATED JUNE 25, 2008, AMONG COMMUNITY BANKSHARES, INC., COMMUNITY RESOURCE
BANK, N.A., AND FIRST CITIZENS BANK AND TRUST COMPANY, INC.
APPENDIX B - OPINIONS OF ALLEN C. EWING & CO., INVESTMENT BANKERS
APPENDIX C - CONSOLIDATED FINANCIAL STATEMENTS OF COMMUNITY BANKSHARES, INC. (Pursuant to S.C. Code Section 33-11-103)
APPENDIX D - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF COMMUNITY RESOURCE BANK, N.A. (Pursuant to S.
C. Code Section 33-11-103)
APPENDIX E - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF FIRST CITIZENS BANK AND TRUST COMPANY, INC.
(Pursuant to S.C. Code Section 33-11-103)
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are provided for your convenience
to address briefly some of the questions you may have about the proposed merger
and the special meeting of shareholders. You should still carefully read this
entire proxy statement and each of the appendices.
Q: What am I being asked to vote on?
A: You are being asked to vote on approval of the merger agreement that
Community Bankshares, Inc. and Community Resource Bank, N.A., have entered into
with First Citizens Bank and Trust Company, Inc. If the merger agreement is
approved, Community Bankshares and Community Resource Bank, N.A., will merge
with and into First Citizens, and will cease to exist. You are also being asked
to vote to authorize adjournment of the special meeting to solicit additional
proxies if necessary.
Q: Why is Community Bankshares merging with and into First Citizens?
A: Community Bankshares and Community Resource Bank are merging with and into
First Citizens for a number of reasons, including, among others, that our
shareholders will receive a substantial cash payment in exchange for their
Community Bankshares stock, the challenges of remaining independent in the
current economic and regulatory environment, and the opinion of our financial
adviser that the merger consideration is fair from a financial point of view.
Please see "The Merger and the Merger Agreement--Background of the Merger," and
"--Community Bankshares' Reasons for the Merger."
Q: What will I receive in the merger for my shares of Community Bankshares
common stock, and when will I receive it?
A: If the merger is completed, each share of Community Bankshares common stock
outstanding on the effective date will be automatically cancelled and converted
into the right to receive $21.00 in cash, without interest.
If you hold your shares in certificated form, after the merger is
completed, First Citizens will arrange for a letter of transmittal to be sent to
you. The merger consideration will be paid to you after you submit the completed
letter of transmittal, stock certificates, and any other required documentation.
If you hold your shares in uncertificated form, you will not be
required to complete a letter of transmittal. After the merger is effective, the
paying agent will pay you the merger consideration automatically without further
action by you.
Q: What will I receive in the merger if I hold options to purchase shares of
Community Bankshares common stock or if I hold Community Bankshares stock
appreciation rights?
A: The merger agreement provides for Community Bankshares to enter into an
agreement with each holder of outstanding options to purchase shares of
Community Bankshares common stock or stock appreciation rights ("SARs") covering
shares of Community Bankshares common stock. The agreement will provide,
immediately prior to effectiveness of the merger, for the options and SARs to
terminate and be cancelled, and for Community Bankshares to pay to each such
holder the difference between $21.00 per share and the exercise price of each
option or SAR, multiplied by the number of shares covered by the options or the
SARs, without interest. Such payments are to be made regardless of whether the
options or SARs have vested.
Q: What will I receive in the merger if I hold Community Bankshares restricted
stock?
A: The merger agreement provides for Community Bankshares to enter into an
agreement with each holder of Community Bankshares restricted stock that
provides, immediately upon effectiveness of the merger, for each outstanding
share of restricted stock to be terminated and cancelled and converted into the
right to receive $21.00 per share, without interest, regardless of whether the
restricted shares have vested.
1
Q: What will happen to shares held for my account in the Community Bankshares
Dividend Reinvestment Plan?
A: The Community Bankshares Dividend Reinvestment Plan will be terminated. Upon
effectiveness of the merger, each share of Community Bankshares common stock
held in the plan will be automatically cancelled and converted into the right to
receive $21.00 in cash, without interest, which the plan administrator will
distribute to participants following effectiveness of the merger. Any cash
remaining in the plan that has not yet been invested in shares of Community
Bankshares common stock will also be returned to the participants for whose
accounts it is held.
Q: Will I owe taxes as a result of the merger?
A: Your receipt of cash for your Community Bankshares stock as a result of the
merger will be a fully taxable transaction for United States federal income tax
purposes. Assuming you held your stock as a capital asset, you will generally
recognize capital gain or loss in an amount equal to the difference between the
merger consideration you receive and your adjusted tax basis in the common stock
surrendered in the merger. Please see the section entitled "The Merger and the
Merger Agreement--Certain Important Federal Income Tax Consequences." You should
consult with your own tax adviser about the tax consequences of the merger in
light of your individual circumstances, including the application of any
federal, state, local, foreign, or estate tax law.
Q: Does the Community Bankshares board of directors recommend a vote in favor of
the merger?
A: Yes. After careful consideration, the board of directors of Community
Bankshares unanimously determined that the merger is advisable and in the best
interests of Community Bankshares and its shareholders, approved the merger and
the merger agreement and the transactions contemplated in the agreement, and
recommended that the merger agreement be submitted to shareholders for approval.
The Board of Directors of Community Bankshares recommends that you vote "FOR"
the merger. Please see the sections entitled "The Merger and the Merger
Agreement--Background of the Merger," and "--Community Bankshares' Reasons for
the Merger."
Q: What vote of Community Bankshares shares is required to approve the merger?
A: For the merger to be approved, two-thirds of the outstanding shares of
Community Bankshares common stock must be voted in favor of the merger.
Q: Who is entitled to vote at the special meeting?
A: Holders of record of Community Bankshares common stock on August 15, 2008,
the record date, are entitled to vote at the special meeting.
Q: What should I do now?
A: After you have carefully read this proxy statement and the appendices, please
indicate on the enclosed proxy card, or such other document as your broker
instructs you to use if your shares are held in "street name," how you want to
vote, and sign and mail it in the enclosed envelope as soon as possible so that
your shares will be represented at the meeting.
Q: What happens if I was a shareholder of record on the record date and I sign
and send in a proxy card, but do not indicate how I want to vote?
A: If you were a shareholder of record on the record date and you sign and send
in a proxy card, but do not indicate how you want to vote, your proxy will be
voted "FOR" the proposal to approve and adopt the merger agreement, and "FOR"
the proposal to authorize adjournment.
2
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares on the proposal to approve and adopt the
merger agreement only if you provide instructions on how to vote. You should
instruct your broker how to vote your shares following the directions your
broker provides. If you do not provide instructions to your broker, your shares
will not be voted on the merger proposal, which will have the same effect as a
vote against the merger.
Q: Why is my vote important?
A: Because the merger agreement must be approved by the affirmative vote of
two-thirds of the outstanding shares entitled to vote at the Community
Bankshares special meeting, if you fail to vote on the merger, or fail to
instruct your broker how to vote if your shares are held in street name, it will
have the same effect as a vote against the merger.
Q: Can I change my vote after I have submitted my proxy?
A: Yes. If you are a record shareholder, there are three ways you can change
your vote. First, you may send a written notice to our President, or such other
person to whom you submitted your proxy, stating that you would like to revoke
your proxy. Second, you may complete and submit a later dated proxy with new
voting instructions. The latest proxy actually received by Community Bankshares
prior to the shareholders' meeting will be your vote. Any earlier proxies will
be revoked. Third, you may attend the shareholders' meeting and vote in person.
Any earlier proxies will be revoked. Simply attending the meeting without
voting, however, will not revoke your proxy. If you have instructed a broker or
other nominee to vote your shares, you must follow the directions you will
receive from your broker or other nominee to change or revoke your proxy.
Q: Do I have the right to dissent and obtain the fair value for my shares?
A: No. South Carolina law does not provide dissenters' rights with respect to
the merger because the shares of Community Bankshares common stock are listed on
the American Stock Exchange. South Carolina corporate law does not provide
dissenters' rights to shareholders of corporations that have shares listed on a
national exchange.
Q: Should I send in my stock certificates now?
A: No. You should not send in your stock certificates at this time. If the
merger is completed, First Citizens will make arrangements for written
instructions to be sent to all Community Bankshares shareholders explaining how
to exchange Community Bankshares stock for the merger consideration.
Q: Whom should I call with questions about the merger?
A: Please call the President of Community Bankshares, William W. Traynham, at
(803) 535-1060.
3
SUMMARY
This summary highlights material information from this proxy statement.
To better understand the merger and its potential impact on you, we urge you to
read this entire document carefully, including the appendices and enclosures.
Each item in this summary includes a beginning page reference directing you to a
more complete discussion of the item.
The Companies (page 49 for First Citizens and page 47 for Community Bankshares)
Community Bankshares, Inc.
102 Founders Court
Orangeburg, South Carolina 29118
(803) 535-1060
Community Bankshares, Inc. is a South Carolina corporation registered as
a bank holding company with the Board of Governors of the Federal Reserve.
Community Bankshares engages in a general banking business through its wholly
owned subsidiary, Community Resource Bank, a national banking association, which
commenced operations in 1987. Community Resource Bank operates from two offices
in Orangeburg, South Carolina, two offices in Sumter, South Carolina, two
offices in Florence, South Carolina, and four offices in the Midlands area of
South Carolina. In addition to the bank, Community Bankshares has one other
subsidiary, Community Resource Mortgage, Inc. Community Resource Bank has one
subsidiary, Community Resource Financial Services, Inc., which engages in sales
of securities and insurance products. As of June 30, 2008, Community Resource
Bank had approximately $583.3 million in total assets.
First Citizens Bank and Trust Company, Inc.
1230 Main Street
Columbia, South Carolina 29201
(803) 771-8700
First Citizens Bank and Trust Company, Inc. is a South Carolina
chartered bank that offers a complete array of commercial and retail banking
services through its 170 banking offices located throughout South Carolina and
in Georgia. In addition to the types of banking services offered by Community
Resource Bank, First Citizens offers wealth management and trust and retirement
services, as well as brokerage and investment services which are provided by an
affiliate, First Citizens Securities Corporation. First Citizens is a wholly
owned subsidiary of First Citizens Bancorporation, Inc., a South Carolina
corporation registered as a financial holding company with the Board of
Governors of the Federal Reserve. As of June 30, 2008, First Citizens had
approximately $6.2 billion in total assets and, ranked by deposits at June 30,
2007, it was the fifth largest of 107 FDIC insured institutions with offices in
South Carolina.
Special Meeting of Shareholders
Date, Time and Place (page 10)
The special meeting of Community Bankshares shareholders to vote on the
merger will be held on Wednesday, October 15, 2008 at 3:00 p.m. in the Carolina
Room at 1225 Orangeburg Mall Circle, Orangeburg, South Carolina.
Matters to be Considered at the Special Meeting (page 10)
At the special meeting, you will be asked to consider and vote on a
proposal to approve the merger agreement that Community Bankshares and Community
Resource Bank have entered into with First Citizens. You will also be asked to
consider and vote on a proposal to authorize adjournment of the special meeting
to allow time for further solicitation of proxies in the event there are
insufficient votes present at the special meeting, in person or by proxy, to
approve the merger agreement. Finally, you may also be asked to consider any
other matters that may properly come before the meeting, including any
procedural matters in connection with the special meeting.
4
Record Date and Voting (page 10)
The record date for determining shareholders entitled to notice of and
to vote at the special meeting is August 15, 2008. On the record date, there
were 4,460,806 shares of Community Bankshares common stock outstanding. Each
share of our common stock outstanding on the record date will be entitled to one
vote on each matter properly brought before the special meeting. The affirmative
vote of the holders of two-thirds of our outstanding shares of common stock is
required to approve the merger agreement. As of August 15, 2008, our directors
and executive officers owned approximately 16% of our common stock.
Voting by Proxy by Shareholders of Record (page 11)
If you held your shares of record in your own name on the record date,
you can vote your shares by marking the enclosed proxy form, dating it, signing
it, and returning it to us in the enclosed postage-paid envelope. If you are a
shareholder of record, you can also attend the special meeting and vote in
person.
Voting by Shareholders whose Shares are held in "Street Name" (page 11)
If you hold your shares in street name with a broker or other nominee,
you will need to instruct your broker or other nominee how to vote by following
the procedures provided by your broker or nominee. If you hold your shares in
street name, you may attend the special meeting, but you may not vote in person
without a proxy appointment from a shareholder of record.
Revocation of Proxy by Shareholders of Record (page 11)
If you are a record shareholder and execute and deliver a proxy, you
have the right to revoke it at any time before it is voted by:
o delivering to William W. Traynham, President, Community
Bankshares, Inc., at 102 Founders Court, Orangeburg, South
Carolina 29115, or by mailing to Mr. Traynham at P.O. Box 2086,
Orangeburg, South Carolina 29116-2086, an instrument which by its
terms revokes the proxy;
o delivering or mailing to Mr. Traynham at the street or post
office address above a duly executed proxy bearing a later date;
or
o attending the special meeting and voting in person.
Written notice of your revocation of a proxy or delivery of a later
dated proxy will be effective when we receive it. Your attendance at the special
meeting will not in itself constitute revocation of a proxy.
Revocation of Proxy by Shareholders whose Shares are held in "Street
Name" (page 12)
If you hold your shares in street name with a broker or other nominee,
you may change or revoke your proxy instructions only by submitting new voting
instructions to the broker or other nominee in accordance with the procedures
provided to you by your broker or other nominee.
Community Bankshares' Board of Directors Recommends Shareholder Approval (page
12)
Community Bankshares' board of directors believes that the merger is in
the best interests of Community Bankshares and its shareholders and unanimously
recommends that the shareholders vote "FOR" approval of the merger and the
merger agreement, and also recommends that the shareholders vote "FOR" approval
of the proposal to authorize adjournment.
5
The Merger (page 13)
Under the terms of the merger agreement, Community Bankshares and
Community Resource Bank will merge with and into First Citizens, and First
Citizens will be the surviving corporation of the merger. First Citizens will
continue its existence under South Carolina law, while both Community Bankshares
and Community Resource Bank will cease to exist. The merger agreement is
attached as Appendix A and is incorporated into this proxy statement by
reference. We encourage you to read the merger agreement carefully, as it is the
legal document that governs the merger.
What Community Bankshares Shareholders will Receive in the Merger (page 13)
If the merger is completed, shareholders of Community Bankshares on the
effective date will be entitled to receive $21.00 in cash, without interest, in
exchange for each share of Community Bankshares common stock owned.
Effects of the Merger on Community Bankshares Options, Stock Appreciation Rights
and Restricted Stock (page 23)
The merger agreement provides for Community Bankshares to enter into an
agreement with each holder of outstanding options to purchase shares of
Community Bankshares common stock or stock appreciation rights ("SARs") covering
shares of Community Bankshares common stock, and the agreement is to provide,
immediately prior to effectiveness of the merger, for Community Bankshares to
pay to each such holder the difference between $21.00 per share and the exercise
price of each option or SAR, multiplied by the number of shares covered by the
options or the SARs. The merger agreement further provides for Community
Bankshares to enter into an agreement with each holder of restricted shares that
provides for each outstanding share of restricted stock to be converted into the
right to receive $21.00 per share in cash upon effectiveness of the merger. Such
payments are to be made regardless of whether the options, SARs or restricted
shares have vested.
Effects of the Merger on the Community Bankshares Dividend Reinvestment Plan
(page 25)
The merger agreement provides for termination of the Community
Bankshares Dividend Reinvestment Plan, and for payment to each participant of
the merger consideration of $21.00 per share in exchange for each share of
Community Bankshares stock held in the participant's account on the effective
date. Any cash remaining in the plan that has not yet been invested in shares of
Community Bankshares common stock will be returned to the participants for whose
accounts it is held.
Community Bankshares' Reasons for the Merger (page 15)
We are proposing to merge Community Bankshares and Community Resource
Bank with First Citizens for a variety of reasons, including, among others:
o Our belief that the amount and nature of consideration offered to
our shareholders is attractive, and our financial adviser's
opinion that the consideration our shareholders will receive is
fair from a financial point of view;
o The merger offers our shareholders the opportunity to convert a
relatively illiquid investment into cash;
o Our analysis of the difficulty of remaining independent and the
risks of current market conditions versus the substantial and
immediate benefits of a cash transaction;
o First Citizens' ability to pay the proposed merger consideration;
and
o The difficulty of identifying other attractive potential merger
partners willing and able to enter into a more favorable
transaction.
6
Regulatory Approvals (page 30)
Completion of the merger requires approvals from the South Carolina
State Board of Financial Institutions and the Federal Deposit Insurance
Corporation, both of which have already been obtained.
Interests of Directors and Executive Officers of Community Bankshares that
differ from your Interests (page 29)
When considering whether to approve the merger agreement, you should be
aware that some directors and officers of Community Bankshares have interests in
the merger that differ from the interests of other Community Bankshares'
shareholders, including the following:
o Several executive officers of Community Bankshares who currently
have employment agreements that provide for payments to them if
their employment is terminated following a merger will be
terminated and receive payments under such agreements;
o Executive officers and directors of Community Bankshares will be
entitled to cash payments equal to the difference between $21.00
per share and the exercise price for each option and SAR they
hold, and $21.00 per share for each share of restricted stock
they hold (all other employees who hold options, SARs or
restricted stock will also be entitled to these payments); and
o Following the merger, First Citizens will generally indemnify and
provide liability insurance to the present directors and officers
of Community Bankshares, subject to certain exceptions.
Each board member was aware of these and other interests and considered
them before approving and adopting the merger agreement.
Certain Federal Income Tax Consequences (page 27)
You will be taxed on all of the cash consideration you receive in the
merger. Tax matters are complicated, and the tax consequences of the merger may
vary among our shareholders. We urge you to contact your own tax adviser to
fully understand the tax implications of the merger to you.
Termination of the Merger Agreement and Termination Fee (page 43)
Notwithstanding the approval of the merger by Community Bankshares'
shareholders, First Citizens and Community Bankshares can mutually agree at any
time to terminate the merger agreement before completing the merger.
Either Community Bankshares or First Citizens can also terminate the
merger agreement under a number of other circumstances, including among others:
o if the merger is not approved by our shareholders;
o if the other party violates or fails to fully perform any of its
obligations or covenants under the merger agreement and fails to
cure the violation and the violation has, or is likely to have, a
material adverse effect on the violating party;
o if there is a material adverse change in the financial condition
or results of operations of the other party or in the ability of
the other party to complete the merger;
o if any of the other party's representations or warranties are or
may become, false or misleading in any material respect, and it
results, or could result, in a material adverse effect, and the
other party fails to remedy the condition; or
7
o if we do not complete the merger by March 31, 2009, or such later
date as we mutually agree upon.
Community Bankshares can also terminate the merger agreement if we
receive an acquisition proposal from a third party that is superior to First
Citizens' proposal and if we receive legal advice that our board would be in
breach of its fiduciary duties if the board did not accept the superior
proposal; provided, however, First Citizens would then have the opportunity to
match the superior proposal in order to proceed with the merger.
Community Bankshares must pay First Citizens a termination fee of
$1,000,000 under the following circumstances:
o if we terminate the agreement because of a superior proposal and
enter into an acquisition agreement with respect to that
proposal; or
o if any of the events discussed under the caption "Amendment and
Termination" beginning on page 43 occurs, and if at any time
after the date of the merger agreement and before the date 12
months after the date of such termination by First Citizens,
o we or Community Resource Bank execute, enter into or
otherwise become bound by an acquisition agreement with
respect to a superior proposal,
o either our board or Community Resource Bank's board accepts,
approves, endorses, recommends or otherwise takes or agrees
to any action in furtherance of, any acquisition proposal,
or
o any filing is made with the SEC in connection with an
acquisition proposal.
First Citizens also has the right to terminate the merger agreement if
it identifies certain types of material defects with respect to our real
property, or if the costs of correcting certain material defects with respect to
our real property would exceed $500,000 in the aggregate.
No Solicitation of Other Acquisition Proposals (page 41)
Community Bankshares has agreed that it will not solicit or encourage
other acquisition proposals, or respond to unsolicited acquisition proposals,
unless it reasonably believes that failure to do so would cause our directors to
violate their duties or obligations to us and our shareholders. If we intend to
respond to an unsolicited proposal that is superior to First Citizens' proposal,
we must first give First Citizens the opportunity to match the proposal. If the
conditions described under the caption "Amendment and Termination" beginning on
page 43 are met, and we accept another proposal, we will be required to pay
First Citizens a termination fee of $1,000,000.
Dissenters' Rights (page 12)
You will not be entitled to exercise dissenters' rights. South Carolina
law does not provide dissenters' rights with respect to the merger because the
shares of Community Bankshares common stock are listed on the American Stock
Exchange. South Carolina corporate law does not provide dissenters' rights to
shareholders of corporations that have shares listed on national exchanges.
8
CAUTIONARY STATEMENT REGADING FORWARD-LOOKING STATEMENTS
This proxy statement, including information included or incorporated by
reference in this document, contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
may relate to the financial condition, results of operations, plans, objectives,
future performance, and business of each of First Citizens and Community
Bankshares, as well as certain information relating to the merger.
Forward-looking statements are based on many assumptions and estimates and are
not guarantees of future performance. Actual results may differ materially from
those anticipated in any forward-looking statements, as they will depend on many
factors about which we are unsure, including many factors that are beyond our
control. The words "may," "would," "could," "should," "will," "expect,"
"anticipate," "predict," "project," "potential," "believe," "continue,"
"contemplate," "seek," "assume," "believe," "intend," "plan," "forecast,"
"goal," and "estimate," as well as similar expressions, are meant to identify
such forward-looking statements. Potential risks and uncertainties include, but
are not limited to, the following:
o approval of the merger by Community Bankshares' shareholders;
o satisfaction of other conditions to the merger;
o the effect of announcement of the merger on Community Bankshares'
customer relationships, operating results and business generally,
including its ability to retain key employees;
o our prospects for success if we had not entered into the merger
agreement;
o adverse effects of being required to pay the termination fee if
required upon a termination of the merger agreement;
o unavailability of a more favorable transaction; and
o other risks detailed in Community Bankshares' current filings
with the Securities and Exchange Commission, including its most
recent filings on Forms 10-Q and 10-K (please see "Where You Can
Find More Information" on page 50).
We have based our forward-looking statements on our current
expectations about future events. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we cannot guarantee
you that these expectations actually will be achieved. We do not intend to, and
assume no responsibility to, update or revise any forward-looking statements.
9
SPECIAL MEETING OF SHAREHOLDERS
Meeting Date, Time, Place and Record Date
The special meeting of shareholders of Community Bankshares will be
held on Wednesday, October 15, 2008, at 3:00 p.m. local time in the Carolina
Room at 1225 Orangeburg Mall Circle, Orangeburg, South Carolina. Only Community
Bankshares shareholders of record on August 15, 2008, will be entitled to notice
of and to vote at the special meeting.
Matters to be Considered at the Special Meeting
At the special meeting, Community Bankshares' shareholders will be
asked to approve the Agreement and Plan of Merger, dated June 25, 2008, among
Community Bankshares, Community Resource Bank and First Citizens. The merger
agreement provides for the merger of Community Bankshares and Community Resource
Bank with and into First Citizens, and the conversion of each outstanding share
of Community Bankshares common stock into the right to receive $21.00 cash per
share, without interest. First Citizens will be the surviving company of the
merger and Community Bankshares and Community Resource Bank will cease to exist.
You will also be asked to consider a proposal to authorize adjournment of the
special meeting to allow time for further solicitation of proxies in the event
there are insufficient votes present at the special meeting, in person or by
proxy, to approve the merger agreement. You may also be asked to consider any
other business that properly comes before the special meeting, including
procedural matters.
The Community Bankshares board of directors is soliciting proxies to be
used at the special meeting, and each copy of this proxy statement mailed to our
shareholders is accompanied by a proxy form for use by record shareholders in
connection with the special meeting. If your shares are held with a broker or
other nominee in "street name," you should follow the broker's or other
nominee's instructions and form to indicate how you wish to vote.
Quorum and Method of Determining Quorum; Adjournment
Our only outstanding voting security is our no par value common stock,
each share of which entitles the record holder to one vote on each matter that
comes before the special meeting. At the close of business on the record date (
August 15, 2008), we had issued and outstanding 4,460,806 shares of common
stock, which were held of record by approximately 2,050 persons. You are only
entitled to notice of and to vote on matters that come before the special
meeting if you were our shareholder of record at the close of business on the
record date. Although shares of our common stock may be transferred subsequent
to the record date, all votes must be cast in the names of holders of record on
the record date.
The presence in person or by proxy of the holders of one-third of the
outstanding shares of our common stock entitled to vote at the special meeting
is necessary to constitute a quorum at the special meeting. A quorum must be
present in order for the vote on the merger agreement to occur. If a share is
represented for any purpose at the special meeting by the presence of the
registered owner or a person holding a valid proxy for the registered owner, it
is deemed to be present for the purposes of establishing a quorum. Therefore,
valid proxies which are marked "Abstain" or "Against" or as to which no vote is
marked, including proxies submitted by brokers that are the record owners of
shares (so-called "broker non-votes"), will be included, together with the
proxies marked "For," in determining the number of votes present or represented
at the special meeting for purposes of determining a quorum.
If a quorum is not present or represented at the special meeting, the
shareholders entitled to vote, present in person or represented by proxy, have
the power to adjourn the meeting from time to time. If the new time and place at
which the special meeting will be reconvened are announced at the special
meeting before the adjournment, no further notice of the reconvened meeting is
required to be given unless the adjournment is for more than 120 days. Our
directors, officers and regular employees may solicit proxies for the reconvened
meeting in person or by mail, telephone or other electronic means. At any such
reconvened meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
noticed. The persons named as agents in the accompanying form of proxy intend to
10
use their discretionary authority to vote in favor of adjournment of the special
meeting if a quorum is not present or represented at the special meeting. Please
see also "Authorization to Adjourn."
Vote Required and Method of Counting Votes
Approval of the merger agreement requires the affirmative vote of
two-thirds of all shares of Community Bankshares common stock entitled to vote
at the special meeting. Approval of any other matters that may properly come
before the special meeting, including the proposal to authorize adjournment,
requires that the number of shares voted in favor of the proposal exceed the
number of shares voted against the proposal.
Only shares affirmatively voted for approval of the merger agreement,
including proxies properly executed by shareholders of record that do not
contain voting instructions, will be counted in favor of the proposal. A record
shareholder's failure to execute and return a proxy card or otherwise to vote at
the special meeting will have the same effect as a vote "AGAINST" the merger
agreement. If a record shareholder abstains from voting, the abstention will
also have the effect of a vote "AGAINST" the merger agreement. Additionally,
failure of a shareholder whose shares are held in street name to complete and
return voting instructions as required by the broker or bank that holds such
shares of record will have the same effect as a vote "AGAINST" the merger
agreement.
Accordingly, our board of directors urges you to complete, date, and
sign the accompanying proxy form, or such other document as your broker or other
nominee instructs you to use if your shares are held in "street name," and
return it promptly in the enclosed, postage-paid envelope.
Voting by Record Shareholders
If you hold your shares of record in your own name, you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record and sign, date, and return your proxy card without indicating how you
want to vote, your proxy will be voted "FOR" approval of the merger agreement
and "FOR" approval of the proposal to authorize adjournment. If you are a
shareholder of record, you can also attend the special meeting and vote in
person.
Voting by Shareholders whose Shares are held in "Street Name"
If you hold your shares in street name with a broker or other nominee,
you can direct your vote by submitting voting instructions to your broker or
nominee in accordance with the procedure on the voting card provided by your
broker or nominee. If you hold your shares in street name, you may attend the
special meeting, but you may not vote in person without a proxy appointment from
a shareholder of record.
Brokers or other nominees will not have the authority to vote shares
they hold for you in street name on the merger agreement unless you give them
specific instructions on how to vote following the directions they have provided
to you with this proxy statement. Although valid proxies submitted by brokers or
other nominees that hold shares in street name as record owners and as to which
no vote is marked (so-called "broker non-votes"), will be included in
determining the number of votes present or represented at the special meeting
for purposes of determining a quorum, the shares will not be voted on the merger
agreement, and will have the same effect as votes "AGAINST" the merger
agreement.
Revocation of Proxy by Record Shareholder
If you are a record shareholder and execute and deliver a proxy, you
have the right to revoke it at any time before it is voted by:
o delivering to William W. Traynham, President, Community
Bankshares, Inc., at 102 Founders Court, Orangeburg, South
Carolina 29115, or by mailing to Mr. Traynham at P.O. Box 2086,
Orangeburg, South Carolina 29116-2086, an instrument which by its
terms revokes the proxy;
11
o delivering or mailing to Mr. Traynham at the street or post
office address above a duly executed proxy bearing a later date;
or
o attending the special meeting and voting in person.
Written notice of your revocation of a proxy or delivery of a later
dated proxy will be effective when we receive it. Your attendance at the special
meeting will not in itself constitute revocation of a proxy.
Revocation of Proxy by Shareholders whose Shares are held in "Street
Name"
If you hold your shares in street name with a broker or other nominee,
you may change or revoke your proxy instructions by submitting new voting
instructions to the broker or other nominee in accordance with the procedures
provided by such broker or nominee.
Actions to be taken by the Persons Named as Agents in the Form of Proxy
Our board of directors selected the persons named as agents in the
accompanying form of proxy solicited on behalf of the board of directors. When
the form of proxy enclosed is properly executed and returned, the shares that it
represents will be voted at the meeting. In each case where you have
appropriately specified how the proxy is to be voted, it will be voted in
accordance with your specifications. If you are a shareholder of record and you
return a properly executed proxy card that does not contain voting instructions,
the proxy agents will vote your shares "FOR" approval of the merger agreement
and "FOR" the proposal to authorize adjournment. Our Board of Directors is not
aware of any other matters that may be presented for action at the special
meeting of shareholders, but if other matters do properly come before the
meeting, the persons named as agents in the form of proxy intend to vote on such
matters in accordance with their best judgment.
Methods of Solicitation of Proxies
We may solicit proxies in person or by mail, telephone or other
electronic means through our directors, officers and regular employees, none of
whom will be specially compensated for doing so. We will also ask banking
institutions, brokerage firms, custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of our common stock held of
record by such persons, and we will reimburse the reasonable forwarding
expenses. We will pay all of the costs of solicitation of proxies. We do not
currently plan to use the services of a proxy solicitation firm, but may decide
to do so at a later time if we determine that doing so would be prudent.
No person is authorized to give any information or to make any
representation not contained in this proxy statement and, if given or made, such
information or representation should not be relied upon as having been
authorized by Community Bankshares, First Citizens, or any other person. The
delivery of this proxy statement does not, under any circumstances, create any
implication that there has been no change in the business or affairs of
Community Bankshares or First Citizens since the date of the proxy statement.
Dissenters' Rights
You will not be entitled to exercise dissenters' rights. South Carolina
law does not provide dissenters' rights with respect to the merger because the
shares of Community Bankshares common stock are listed on the American Stock
Exchange. South Carolina corporate law does not provide dissenters' rights to
shareholders of corporations that have shares listed on national exchanges.
Recommendation of the Board of Directors
Our board of directors has determined that the merger agreement and the
transactions contemplated by it are in the best interests of Community
Bankshares and our shareholders. Our board of directors unanimously recommends
that you vote at the special meeting "FOR" approval of the merger and the merger
agreement, and also recommends that you vote "FOR" the proposal to authorize
adjournment.
12
In the course of reaching its decision to approve the merger agreement
and the transactions contemplated in the merger agreement, our board of
directors, among other things, consulted with its legal advisers, Haynsworth
Sinkler Boyd, P.A., regarding the legal terms of the merger agreement, and with
its financial advisers, Allen C. Ewing & Co., as to the fairness, from a
financial point of view, of the consideration to be received by the holders of
Community Bankshares common stock in the merger. For a discussion of the factors
considered by our board of directors in reaching its conclusion, see "The Merger
and the Merger Agreement--Background of the Merger" and "--Community Bankshares'
Reasons for the Merger."
Our shareholders should note that our directors and executive officers
have certain interests in, and may derive benefits as a result of, the merger
that are in addition to their interests as shareholders. See "The Merger and the
Merger Agreement--Interests of Employees and Directors of Community Bankshares
in the Merger."
THE MERGER AND THE MERGER AGREEMENT
The summary descriptions of the terms and conditions of the merger, the
merger agreement, and any related documents in this proxy statement are
qualified in their entirety by reference to the copy of the merger agreement
attached as Appendix A to this proxy statement and the opinion of Allen C. Ewing
& Co., our financial adviser, attached as Appendix B to this proxy statement.
General
The merger agreement provides that if all of the conditions set forth
in the merger agreement are satisfied or waived, Community Bankshares and
Community Resource Bank will merge with and into First Citizens, with First
Citizens remaining in existence as the surviving corporation of the merger.
Community Resource Mortgage and Community Resource Financial Services will
become wholly owned subsidiaries of First Citizens.
As discussed above, Community Bankshares' shareholders are being asked
to vote to approve the merger at the special meeting of shareholders. Community
Bankshares, as sole shareholder of Community Resource Bank, has already approved
the merger, and First Citizens Bancorporation, Inc., as sole shareholder of
First Citizens, has also already approved the merger.
Merger Consideration
The merger agreement provides that each share of Community Bankshares
common stock outstanding on the effective date will be automatically cancelled
and converted into the right to receive $21.00 in cash, without interest. Based
on the number of shares of Community Bankshares common stock, including shares
held in participant accounts in the Community Bankshares Dividend Reinvestment
Plan and restricted stock, stock options, and stock appreciation rights
outstanding on September 5, 2008, the total cash consideration to be paid in
connection with the merger would be $97,260,494.
Background of the Merger
During the past several years, our management has been approached from
time to time by other bankers who have expressed an interest in "getting
together" or "combining forces" with us at some point in the future. Likewise,
from time to time our shareholders have suggested that they would like for us to
take action that would provide them the opportunity to receive a premium for
their shares. During that same period, we found ourselves dealing with a number
of issues, including: asset quality problems; an inefficient corporate
structure; the need either to decrease overhead substantially or to grow
significantly in order to more effectively make use of existing overhead;
increasing compliance burdens and costs; increasing competition; and a slowing
economic environment.
Management, therefore, began to explore and evaluate the possibility of
combining with another institution of similar size in an effort to obtain better
economies of scale. In theory, such a combination could produce a larger entity
that would be more efficient and competitive, and which would, in turn, achieve
a better stock price than either institution alone would be likely to achieve.
The exploration went as far as some preliminary discussions with more than one
other institution. Although the discussions indicated that other institutions
had similar interests, our board of directors ultimately concluded that such a
transaction in a form that would be favorable to our shareholders was not
13
presently feasible. However, it did become apparent to the board of directors
that a number of our shareholders had a strong interest in determining whether
an acceptable merger premium to acquire us could be obtained from another
company. Accordingly, the board of directors decided to retain Allen C. Ewing &
Co., ("Ewing"), which had previously assisted the board with strategic planning,
to determine whether a desirable transaction might be available.
In the early fall of 2007, Ewing identified approximately 15 other
institutions that, based on information available to Ewing, might be expected to
have an interest in acquiring us, that our Board would be likely to consider an
acceptable affiliation partner, and that appeared to be capable of entering into
a transaction favorable to our shareholders. After discussing the possibilities
with our board of directors, Ewing contacted 13 of the institutions to determine
their level of interest and to solicit non-binding indications of interest. Most
of those institutions indicated that they were not interested, but five of the
institutions requested, and were provided, evaluation materials about us. Two of
the five institutions, including First Citizens, submitted non-binding
indications of interest near the end of October. Of the two proposals, our board
of directors determined that only the First Citizens proposal was likely to
result in an acceptable proposal after negotiation because it was an all cash
proposal, whereas the other proposal involved only the prospective acquirer's
stock at a time when financial institution stocks were generally declining in
market price. During November of 2007, First Citizens conducted due diligence
investigations and negotiated with us regarding the terms of a possible
transaction. The parties were not successful in negotiating a mutually agreeable
price and, based on the substantial differences in their positions, negotiations
were terminated in the first week of December, 2007. Upon termination of the
negotiations, our board decided that we would focus on meeting the challenges of
the economy and our marketplace as an independent institution and directed
management to focus its attention accordingly.
On May 14, 2008, First Citizens contacted Ewing and advised Ewing that
First Citizens had reviewed our performance in the fourth quarter of 2007 and
the first quarter of 2008, and that First Citizens would be interested in
resuming negotiations if we were amenable. Ewing advised First Citizens that it
would contact us, but that Ewing believed First Citizens should be prepared to
propose its best price. Ewing then contacted our chief executive officer who,
after consultation with the chairman of our board of directors, advised Ewing
that, if First Citizens presented a written proposal, it would be taken to our
board of directors.
On May 16, 2008, First Citizens presented Ewing with a non-binding
letter of intent to acquire us for a price of $21.00 per share in cash,
contingent upon satisfactory conclusion of follow-up due diligence. Ewing
forwarded the letter to our chief executive officer, and, on May 18, 2008, our
chief executive officer advised all of the members of our board of directors
individually about the proposal, with the exception of one director who was out
of the country. On May 19, 2008, our chief executive officer met with the chief
executive officer of First Citizens to discuss the proposal and various
personnel matters in connection with the proposal. At a meeting of the board of
directors on May 20, 2008, our chief executive officer outlined the First
Citizens proposal, and, after discussion, the board authorized management to
pursue the proposed transaction, to permit First Citizens to conduct further due
diligence, and to negotiate a definitive merger agreement with First Citizens
for consideration by our board of directors.
On May 27, 2008, our executive officers, our attorneys, and Ewing met
with executive officers of First Citizens and its attorney. At the meeting, the
parties discussed the general terms and conditions of the proposed transaction,
due diligence plans, possible timing of the transaction, and the current
business and financial conditions of Community Bankshares and Community Resource
Bank. Immediately following this meeting, our chief executive officer met with
the chief executive officer of First Citizens to discuss personnel matters.
First Citizens performed due diligence between late May and early June 2008.
During early June 2008, management and legal counsel negotiated the proposed
terms of the merger agreement.
The full board of directors of Community Bankshares met on June 23,
2008 with its financial adviser and counsel present to review the proposed
transaction with First Citizens and the merger agreement. Ewing explained the
process it had undertaken to enable it to give its fairness opinion to the board
and stated that, subject to the assumptions and qualifications appearing in the
opinion, in its opinion the proposed transaction was fair from a financial
perspective to our shareholders. Ewing also reported that it had reviewed the
companies that had expressed an interest in Community Bankshares in 2007 and
14
that, due to the decline in the market value of their stocks and other factors,
it believed that it would be highly unlikely that a transaction with one of them
would be available on better terms than the First Citizens' proposal. A draft of
a substantially complete definitive merger agreement with First Citizens was
distributed to all of our directors, and counsel described and explained the
provisions of the agreement. The board of directors asked questions and
discussed the merits and risks of the proposed transaction. The meeting was
adjourned to give directors an opportunity to read the merger agreement and
consider the proposed transaction.
The board of directors of Community Bankshares met again via telephone
conference call on June 24, 2008, together with the board of directors of
Community Resource Bank. (The Board of Directors of Community Bankshares, Inc.
and Community Resource Bank are the same except that the president of the bank
is on the Community Resource Bank board, but is not on the Community Bankshares
board.) Ewing and Community Bankshares' counsel were also on the call. After
questions and discussion, the boards of directors of Community Bankshares and
Community Resource Bank each voted unanimously to approve the transaction and
authorize the execution and delivery of the definitive merger agreement with
First Citizens. The Board of First Citizens met on June 25, 2008 and also
unanimously approved the merger agreement.
Community Bankshares' Reasons for the Merger
In reaching its determination that the merger and the merger agreement
and plan of merger are fair to, and in the best interests of, Community
Bankshares and our shareholders and Community Resource Bank, our board of
directors consulted with its advisers and counsel, as well as with our
management, and considered a number of factors, including, without limitation,
the following:
o Reviews of our current business, operations, earnings, financial
condition, and current and future market conditions as well as
reasonable expectations of future performance and operations;
o The terms of the transactions proposed by the companies that had
previously submitted proposals, including both the amount and
nature of the consideration proposed to be paid in comparison to
one another as well as to other similar transactions occurring in
the recent past within South Carolina;
o The belief of our board of directors that the terms of the merger
agreement are attractive in that the merger agreement allows our
shareholders to receive a substantial cash payment in exchange
for all of their shares;
o The difficulty of remaining independent in our markets and the
risks of continuing to operate under current market conditions
versus the benefits of a substantial cash transaction;
o The alternatives to merger, including remaining an independent
institution;
o The competitive and regulatory environment for financial
institutions generally;
o The impact of the proposed merger on our employees and the
communities we serve;
o First Citizens' ability to pay the proposed merger consideration;
o The belief of our board of directors, based upon analysis of the
anticipated financial effects of the merger, that upon
consummation of the merger, First Citizens would remain a
well-capitalized institution, the financial position of which
would be in excess of all applicable regulatory capital
requirements;
o The difficulty of identifying other potential merger partners
with both the ability and willingness to enter into a clearly
more favorable transaction; and
o Our financial adviser's opinion that the consideration our
shareholders will receive as a result of the merger is fair from
a financial point of view.
15
In the course of its considerations as to the advisability of the
merger, our board was also aware of a variety of potential risks and other
countervailing factors, including:
o The fact that our shareholders will not participate in any future
growth potential of First Citizens as the surviving entity of the
merger;
o The possibility that the merger might not be completed and the
effect of the public announcement of the merger on our
management's attention, relationships with customers, and
retention of key employees;
o The restrictions the merger agreement imposes on our ability to
solicit competing bids and the fact that we might be required to
pay a $1,000,000 termination fee;
o The fact that gains from a cash transaction would be fully
taxable to our shareholders for U.S. federal income tax purposes;
and
o That, although we expect the merger to be completed, there can be
no assurance that all conditions to the parties' obligations to
complete the merger will be satisfied, and as a result, it is
possible that the merger may not be completed, even if approved
by our shareholders. (Please see "The Merger and the Merger
Agreement--Conditions to Consummation.")
The foregoing discussion of factors considered by our board of
directors is not intended to be exhaustive, but sets forth the principal factors
considered by our board.
After evaluating the foregoing factors and other factors the directors
deemed appropriate, and consulting with legal counsel and financial advisers,
the board of directors, all of whom were present at the meetings to consider and
vote upon such matters, unanimously determined that the merger is fair to, and
in the best interests of Community Bankshares and our shareholders, and approved
the merger, the merger agreement, and the other transactions contemplated by the
merger agreement. The board of directors did not assign any specific or relative
weight to the foregoing factors in its considerations, but rather made its
recommendation based on the totality of the information presented.
The Community Bankshares Board of Directors recommends you vote "FOR"
the merger and the merger agreement.
First Citizens' Reasons for the Merger
First Citizens has advised us that its board of directors determined
that the merger and the merger agreement are fair to, and in the best interests
of, First Citizens and to its sole shareholder, First Citizens Bancorporation,
Inc., and its shareholders. The material factors considered by First Citizens'
board in deciding to proceed with merger negotiations and to approve the merger
agreement are described below.
o A combination of First Citizens and Community Resource Bank will
create a stronger and more effective competitor in their markets
and better serve their combined customer base;
o Community Resource Bank has stable customer relationships and a
strong branch network that would be complementary to First
Citizens' business; and
o First Citizens' and Community Resource Bank's banking markets are
complementary in terms of loan demand, demographic profile,
geography and business composition, and First Citizens'
management believes it would be able to further leverage
Community Resource Bank's existing customer base, branch network
and reputation.
16
Additional factors considered by First Citizens' board of directors in
determining to approve the merger agreement and merger included the board's
review with its management of the provisions of the merger agreement and its
assessment of whether the consideration proposed to be paid to Community
Bankshares' shareholders was fair to First Citizens and to its sole shareholder,
First Citizens Bancorporation, Inc., and its shareholders, from a financial
point of view.
While First Citizens' board of directors considered the above and other
factors individually, the board did not collectively assign any specific or
relative weights to the factors considered and did not make any determination
with respect to any individual factor. The board collectively made its
determination with respect to the merger agreement and merger based on the
unanimous conclusion reached by its members, in light of the factors that each
of them considered appropriate, that the merger agreement and merger were in the
best interests of First Citizens and to its sole shareholder and its
shareholders.
Opinion of Community Bankshares' Financial Adviser
By letter dated September 7, 2007, Community Bankshares retained Ewing
to act as its financial adviser in connection with a possible sale or merger
transaction involving Community Bankshares. Ewing is a nationally recognized
investment banking firm with a significant focus on financial institutions
headquartered in the Southeast. In the ordinary course of its investment banking
activities, Ewing is regularly engaged in the valuation of financial
institutions and their securities in connection with mergers, acquisitions and
divestitures and with other corporate transactions.
Ewing acted as our exclusive financial adviser in connection with the
proposed merger with First Citizens and participated in certain of the
negotiations leading to the execution of the merger agreement. At the June 23,
2008 meeting of the board of directors of Community Bankshares, Ewing presented
its financial analysis of the proposed merger and verbally opined that, as of
that date, the terms of the merger were fair, from a financial point of view, to
the shareholders of Community Bankshares. On June 25, 2008 (the day on which the
merger agreement was executed), Ewing delivered its written opinion that, as of
that date, the terms of the merger were fair, from a financial point of view, to
the shareholders of Community Bankshares.
In connection with this proxy statement, Ewing has confirmed its
opinion dated June 25, 2008 by delivering to the Community Bankshares board its
updated opinion that, as of September 16, 2008, and subject to the
considerations set forth in the opinion, the terms of the proposed merger were
fair from a financial point of view to Community Bankshares' shareholders. In
rendering its updated opinion, Ewing confirmed the appropriateness of its
reliance on the analyses used to render its earlier opinion by reviewing the
assumptions upon which such analyses were based, performing procedures to update
certain of the analyses and reviewing other factors considered in connection
therewith.
The full texts of Ewing's June 25, 2008 and September 16, 2008 opinions
are attached as Appendix B to this proxy statement. The opinions outline the
procedures followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken by Ewing in rendering its opinion. The
descriptions of the opinions set forth below are qualified in their entirety by
reference to the opinions. We urge Community Bankshares shareholders to read the
entire opinions carefully in connection with their consideration of the proposed
merger.
Ewing's opinions are directed to the Community Bankshares board of
directors and relate only to the fairness of the terms of the merger, including
the consideration to be received by Community Bankshares shareholders, from a
financial point of view. Ewing's opinions do not address any other aspect of the
proposed merger and are not recommendations to any Community Bankshares
shareholder as to how such shareholder should vote at the meeting of Community
Bankshares shareholders.
17
Information and Material Considered with Respect to the Merger
In arriving at its June 25, 2008 and September 16, 2008 opinions,
Ewing, among other things:
o reviewed the merger agreement, including the representation by
First Citizens that it has sufficient cash reserves with which to
finance the proposed merger;
o reviewed certain publicly available financial statements and
other historical financial and operating information of Community
Bankshares that Ewing deemed relevant;
o reviewed and discussed with Community Bankshares' senior
management the internally prepared financial projections of
Community Bankshares for the year ending December 31, 2008;
o held discussions with members of Community Bankshares' senior
management regarding the business, financial condition, results
of operations and prospects of Community Bankshares;
o reviewed and analyzed financial and market information relating
to other publicly traded commercial banking companies considered
by Ewing to be reasonably similar to Community Bankshares;
o reviewed and analyzed the pricing ratios and other financial
terms of recent business combinations in the commercial banking
industry considered by Ewing to be reasonably similar to those
contemplated by the merger agreement;
o reviewed certain publicly available information with respect to
historical market prices and trading activity of Community
Bankshares' common stock;
o considered the current financial market environment in general
and the commercial banking sector environment in particular; and
o conducted other financial and market studies, analyses and
inquiries, and considered other information that Ewing deemed
relevant.
In performing its reviews and analyses and in rendering its opinions,
Ewing assumed and relied upon, without independent verification, the accuracy
and completeness of all financial and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
further relied on the assurances of members of senior management of Community
Bankshares that they were not aware of any facts or circumstances that would
make such information inaccurate or misleading.
With respect to the financial projections of Community Bankshares
provided to or discussed with it, Ewing has assumed, without independent
verification or investigation, that such projections were reasonably prepared on
a basis reflecting the best currently available information, estimates and
judgments of Community Bankshares' senior management as to the future financial
performance of Community Bankshares.
In arriving at its opinions, Ewing did not conduct a physical
inspection of the properties and facilities of Community Bankshares, and did not
make nor obtain any evaluations or appraisals of the assets or liabilities
(including, without limitation, any potential environmental liabilities),
contingent or otherwise, of Community Bankshares, nor did it examine any
individual credit files.
The Ewing opinions are necessarily based upon market, economic and
other conditions as they existed and could be evaluated, and the information
made available to Ewing, as of the dates of its opinions. The financial markets
in general and the market for the common stock of Community Bankshares, in
particular, are subject to volatility, and Ewing's opinions did not address
potential developments in the financial markets or the market for the common
stock of Community Bankshares after the date of its opinions. Ewing's opinions
did not address the relative merits of the merger as compared to any alternative
business strategies that might exist for Community Bankshares, nor did it
address the effect of any other business combination in which Community
Bankshares might engage. For purposes of its opinions, Ewing assumed that the
18
proposed merger would be consummated substantially in accordance with the terms
of the merger agreement.
Subsequent developments may affect Ewing's opinions; and Ewing does not
have any obligation to update, revise or reaffirm its opinions after the date of
this proxy statement.
In preparing its opinions, Ewing performed a variety of financial and
comparative analyses, a summary of which are described below. The summary is not
a complete description of the analyses underlying Ewing's opinions. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
Accordingly, Ewing believes that its analyses must be considered as an
integrated whole and that selecting portions of its analyses and factors,
without considering all analyses and factors, could create a misleading or
incomplete view of the processes underlying such analyses and Ewing's opinions.
In performing its analyses, Ewing made numerous assumptions with
respect to Community Bankshares, First Citizens, industry performance and
general business, economic, market and financial conditions, many of which are
beyond the control of Community Bankshares and First Citizens. The estimates
contained in these analyses and the valuation ranges resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty.
Ewing's opinions and analyses were only one of many factors considered
by the Community Bankshares board of directors in its evaluation of the proposed
merger, and should not be viewed as determinative of the views of the Community
Bankshares board of directors or management of Community Bankshares with respect
to the proposed merger or the consideration to be received by Community
Bankshares' shareholders in the proposed merger. The per share merger
consideration in the proposed merger was determined on the basis of negotiations
between Community Bankshares and First Citizens. Community Bankshares' decision
to enter into the proposed merger was made solely by the Community Bankshares
board of directors.
The following is a summary of the material financial and comparative
analyses presented to the Community Bankshares board of directors by Ewing on
June 23, 2008, in connection with its written opinion dated June 25, 2008.
Summary of Proposal
Ewing reviewed the financial terms of the proposed transaction. Based
upon a cash payment of $21.00 for each outstanding share of Community
Bankshares' common stock and a cash payment equal to $21.00 minus the exercise
price for each outstanding option to purchase Community Bankshares' common stock
and for each outstanding stock appreciation right, Ewing calculated the total
transaction value as of June 23, 2008 to be approximately $96,356,080. Based
upon financial information for Community Bankshares as of or for the latest
twelve months ("LTM") ended March 31, 2008, Ewing calculated the following
transaction ratios:
Transaction Ratios
------------------
Transaction value/LTM Earnings ended 3/31/08 36.12x
Transaction value/3/31/08 Book value 1.77x
Transaction value/3/31/08 Tangible book value 2.02x
Transaction value as a percentage of 3/31/08 Deposits 20.24%
Ewing noted that the price of $21.00 to be paid for the outstanding
shares of Community Bankshares' common stock represented a 91.78% premium to the
stock's closing price of $10.95 on June 23, 2008 (the day before the Community
Bankshares board approved the merger agreement) and a 94.44% premium to the
stock's closing price of $10.80 on June 24, 2008 (the day before the merger
agreement was executed by Community Bankshares).
19
Analysis of Selected Publicly-Traded Comparable Companies
Ewing reviewed and compared publicly available financial data, market
information and trading multiples for Community Bankshares and a group of
financial institutions (the "CBI Peer Group") selected by Ewing. The CBI Peer
Group consisted of the following 25 publicly-traded bank holding companies
headquartered in the Southeast that were closest in size to Community Bankshares
as measured by total assets as of March 31, 2008:
CBI Peer Group
--------------
1st Financial Services Corporation Hampton Roads Bankshares, Inc.
Access National Corporation Monarch Financial Holdings, Inc.
Alliance Bankshares Corporation Mountain National Bancshares, Inc.
American Community Bancshares, Inc. New Century Bancorp, Inc.
Bank of the Carolinas Corporation North State Bancorp
Beach First National Bancshares, Inc. Peoples Bancorporation, Inc.
Carolina Bank Holdings, Inc. Premier Financial Bancorp, Inc.
Eagle Financial Services, Inc. Southcoast Financial Corporation
First Bancshares, Inc. SouthCrest Financial Group, Inc.
First Community Corporation Tidelands Bancshares, Inc.
First National Corporation Valley Financial Corporation
First Reliance Bancshares, Inc. Waccamaw Bankshares, Inc.
Habersham Bancorp
Source: SNL Financial
The analysis compared publicly available financial and market trading
information for Community Bankshares and for each bank holding company in the
CBI Peer Group as of and for the latest twelve months ended March 31, 2008, with
pricing data as of June 19, 2008. The table below sets forth the data for
Community Bankshares and the average and median data for the CBI Peer Group.
CBI Peer Group Analysis
-----------------------
CBI Peer Group Peer Group
Average Median
------- ------
Total assets (in thousands) $584,613 $567,841 $564,489
Total deposits (in thousands) $467,065 $442,941 $437,699
Price/LTM earnings 19.6x 14.1x 13.5x
Price/Book value 0.95x 1.05x 0.91x
Price/Tangible Book value 1.08x 1.12x 1.08x
Return on average assets - LTM 0.46% 0.70% 0.69%
Return on average equity - LTM 4.91% 7.99% 8.43%
Dividend yield 4.16% 1.50% 0.98%
Net interest margin - LTM 3.86% 3.65% 3.68%
Equity/Assets 9.29% 8.69% 8.42%
Loans/Deposits 95.04% 96.83% 98.76%
Efficiency ratio - LTM 74.79% 72.16% 69.52%
Nonperforming assets/Total assets 1.34% 1.09% 0.71%
Loan loss reserve/Gross loans 1.25% 1.21% 1.10%
Source: SNL Financial
Ewing then applied the average and median price multiples from the
table above to Community Bankshares' earnings per share, book value per share
and tangible book value per share as of and for the latest twelve months ended
March 31, 2008. This analysis yielded a range of implied values per share of
Community Bankshares' common stock of between $8.09 and $12.81.
20
In preparing its September 16, 2008 opinion, Ewing updated the Peer
Group Analysis by using available financial and market trading information as of
and for the latest twelve months ended June 30, 2008, with pricing data as of
September 9, 2008. This updated analysis yielded a range of implied values per
share of Community Bankshares' common stock of between $6.64 and $12.61.
Ewing noted that none of the companies in the CBI Peer Group was
identical to Community Bankshares. Consequently, the analysis necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the peer group companies and other
factors that would affect their market values.
Analysis of Selected Merger and Acquisition Transactions
Ewing reviewed and analyzed the financial terms, to the extent publicly
available, of 29 completed or pending merger or acquisition transactions
involving the following banks and bank holding companies with total target
assets of $400 million to $1 billion announced between January 1, 2007 and June
20, 2008:
Selected Merger and Acquisition Transactions
--------------------------------------------
Buyer Name Target Name
------------------------------------ --------------------------------------
Whitney Holding Corporation Parish National Corporation
Northstar Financial Group, Inc. Capitol Bancorp Ltd. (1)
Valley National Bancorp Greater Community Bancorp
Eastern Bank Corporation MASSBANK Corp.
MutualFirst Financial, Inc. MFB Corp.
S&T Bancorp, Inc. IBT Bancorp, Inc.
Eagle Bancorp, Inc. Fidelity & Trust Financial Corporation
Independent Bank Corp. Slade's Ferry Bancorp
First Interstate BancSystem, Inc. First Western Banks
First Niagara Financial Group, Inc. Great Lakes Bancorp, Inc.
Camden National Corporation Union Bankshares Company
Colonial BancGroup, Inc. Citrus & Chemical Bancorporation, Inc.
Anchor BanCorp Wisconsin, Inc. S&C Banco, Inc.
Olney Bancshares of Texas, Inc. Union Bank, N.A.
Chittenden Corporation Community Bank & Trust Company
BancTrust Financial Group, Inc. Peoples BancTrust Company, Inc.
Harleysville National Corporation East Penn Financial Corporation
New York Community Bancorp, Inc. Synergy Financial Group, Inc.
East West Bancorp, Inc. Desert Community Bank
Midwest Banc Holdings, Inc. Northwest Suburban Bancorp, Inc.
Ridgewood Savings Bank City & Suburban Financial Corporation
1st Source Corporation Fina Bancorp, Incorporated
Marshall & Ilsley Corporation Excel Bank Corporation
Renasant Corporation Capital Bancorp, Inc.
United Community Banks, Inc. Gwinnett Commercial Group, Inc.
United Bankshares, Inc. Premier Community Bankshares, Inc.
Greene County Bancshares, Inc. Civitas BankGroup, Inc.
Chittenden Corporation Merrill Merchants Bancshares, Inc.
Umpqua Holdings Corporation North Bay Bancorp
(1) Four subsidiary banks of Capitol Bancorp being sold as a group.
Source: SNL Financial
For the selected transactions, Ewing analyzed, among other things,
total transaction price as a multiple of latest twelve months earnings and as a
percentage of book value, tangible book value and total deposits and tangible
book premium to core deposits. All multiples and percentages for the selected
transactions were based on publicly available information at the time of
announcement of the relevant transaction. The following table sets forth the
average and median multiples and percentages indicated by this analysis:
21
Comparable Transactions Analysis
--------------------------------
Average Multiple/% Median Multiple/%
------------------ -----------------
Transaction Price/LTM Earnings 22.23x 20.69x
Transaction Price/Book Value 2.39x 2.55x
Transaction Price/Tangible Book Value 2.51x 2.65x
Transaction Price/Total deposits 25.99% 24.84%
Tangible book premium/Core deposits 20.09% 20.65%
Source: SNL Financial
Ewing then applied the average and median multiples and percentages
resulting from the analysis above to Community Bankshares' earnings, book value,
tangible book value, total deposits and core deposits as of and for the latest
twelve months ended March 31, 2008. This analysis yielded a range of implied
values per share of Community Bankshares' common stock of between $12.40 and
$31.12.
In preparing its September 16, 2008 opinion, Ewing updated the
comparable transactions analysis through September 9, 2008, using Community
Bankshares financial data as of and for the twelve months ended June 30, 2008.
This updated analysis yielded a range of implied values per share of Community
Bankshares' common stock of between $9.97 and $30.07.
Ewing noted that no transaction considered in the analysis of selected
merger and acquisition transactions is identical to the proposed merger. All
multiples and percentages for the selected transactions were based on public
information available at the time of announcement of such transaction, without
taking into account differing market and other conditions during the periods in
which the selected transactions occurred.
Declining Transaction Multiples
In preparing its June 25, 2008 opinion, Ewing grouped the 29 selected
transactions by announcement date in six-month intervals as follows: January
through June 2007; July through December 2007 and January through June 2008.
Ewing observed that each of the average transaction ratios over the entire
period has declined as shown in the table below. Ewing believes that the decline
in pricing ratios coincides with, and is reflective of, the deterioration in
bank valuations related to the credit problems which have plagued the industry
since early 2007.
Transaction Ratios
------------------
CBI 1/08-6/08 7/07-12/07 1/07-6/07
--- --------- ---------- ---------
Transaction value/LTM Earnings ended 3/31/08 36.12x 18.64x 22.48x 23.08x
Transaction value/3/31/08 Book value 1.77x 1.81x 2.23x 2.66x
Transaction value/3/31/08 Tangible book value 2.02x 1.98x 2.31x 2.77x
Transaction value/3/31/08 Total deposits 20.24% 20.53% 25.67% 27.86%
Tangible book premium/Core deposits 13.54% 11.50% 16.84% 24.68%
Source: SNL Financial
With particular regard to transactions announced during the most recent
interval period from January through June 2008, Ewing noted that the Community
Bankshares transaction ratios relating to book value, tangible book value, total
deposits and core deposits were closely in line with the average ratios of such
transactions, while the Community Bankshares ratio of transaction value/LTM
earnings was considerably higher than the average.
In preparing its September 16, 2008 opinion, Ewing noted the continued
deterioration in bank valuations and the resulting decline in selected
transaction ratios.
Discounted Cash Dividend and Terminal Value Analysis
Ewing performed a discounted cash dividend and terminal value analysis
in order to estimate the present value of Community Bankshares' equity. Ewing's
analysis was based upon projections provided by Community Bankshares' management
for the year ending December 31, 2008 and Ewing's assumption, with the
concurrence of Community Bankshares' management, of an annual earnings growth
22
rate of 10% for the years from 2009 through 2012. Ewing also assumed, with the
concurrence of Community Bankshares' management, that Community Bankshares'
current annual cash dividend of $0.48 per share would continue to be paid in
each of the years from 2008 through 2012. To approximate a weighted average
terminal value of Community Bankshares as of December 31, 2012, Ewing applied a
price/earnings multiple of 21.36x to the 2012 projected earnings (with a
weighting of 75%) and applied a price/book value multiple of 2.36x to Community
Bankshares' projected book value as of December 31, 2012 (with a weighting of
25%). These multiples represent the average price/earnings and price/book value
multiples relating to acquisitions involving banks with assets of $400 million
to $1 billion either announced or consummated for the period beginning January
1, 1999 and ending June 24, 2008. The stream of dividend income, together with
the weighted average terminal value, was then discounted to present values using
discount rates ranging from 12.04% to 14.04%, chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Community Bankshares common stock. This analysis yielded an imputed range of
values per share of Community Bankshares common stock of $13.26 to $14.42.
Ewing noted that the discounted dividend and terminal value analysis is
a widely used valuation methodology, but that the results of such methodology
are highly dependent upon the numerous assumptions that must be made, and the
results thereof are not necessarily indicative of actual values or future
results.
Stock Trading History
Ewing reviewed the reported daily closing prices and daily trading
volumes of Community Bankshares' common stock for a one-year trading period
beginning June 25, 2007 and ending June 24, 2008. The table below sets forth
selected data relating to closing prices and trading volume of Community
Bankshares' common stock for the aforementioned period.
Selected Trading Data Relating to CBI's Common Stock
----------------------------------------------------
Period of Time Closing Price
-------------- ------------- Average Daily
High Low Average Volume
---- --- ------- ------
6/25/07 - 6/24/08 $15.20 $10.80 $13.03 2,631 shares
In view of the fact that Community Bankshares' shareholders will
receive only cash in connection with the merger, Ewing did not deem to be
relevant certain other valuation analyses such as contribution analysis, pro
forma merger analysis and financial impact analysis, which analyses are more
commonly performed in cases where the consideration paid to the target's
shareholders includes securities of the acquiring entity.
Fees of Financial Adviser
Community Bankshares has either paid or has agreed to pay Ewing the
following fees in connection with its engagement: (i) a retainer fee of $25,000
upon execution of Ewing's advisory agreement with Community Bankshares; (ii) a
fairness opinion fee of $150,000 for Ewing's delivery of its final opinion,
payable at the closing of the merger or otherwise upon the termination of
Ewing's engagement and (iii) a transaction fee equal to 1% of the aggregate
merger consideration paid to the shareholders of Community Bankshares contingent
upon the consummation of the merger. Community Bankshares has also agreed to
reimburse certain of Ewing's reasonable out-of-pocket expenses incurred in
connection with its engagement and to indemnify Ewing and its officers,
directors, employees, affiliates, agents, counsel and other advisers against
certain expenses and liabilities, including liabilities under securities laws.
Conversion of Shares; Treatment of Restricted Stock, Stock Options, and SARs;
Dividend Reinvestment Plan
Conversion of Shares. At the effective time of the merger, each
outstanding share of Community Bankshares common stock you own will cease to
exist and will be automatically converted into the right to receive $21.00 in
cash, without interest. No further transfers of Community Bankshares common
stock will be permitted after the effective time, and you will have no further
rights as a Community Bankshares shareholder, except the right to receive the
cash payment of $21.00 per share.
Stock Options, SARs and Restricted Stock. The merger agreement provides
that, not less than 30 days before the closing of the merger, our board of
23
directors will take such action as is necessary or appropriate under the
Community Bankshares, Inc. 2007 Equity Plan and the Community Bankshares, Inc.
1997 Stock Option Plan to terminate each stock option or SAR that remains
outstanding and unexercised immediately prior to the effective time of the
merger and to convert the rights of the holders of those stock options and SARs
into the right to receive cash as described below.
The merger agreement requires us to enter into a written equity award
release agreement, in form reasonably satisfactory to First Citizens, with each
holder of a then outstanding stock option, SAR, or restricted stock award
granted under our 2007 Equity Plan, 1997 Stock Option Plan or otherwise. The
equity award release agreement is required to provide that:
o Immediately prior to the effective time of the merger, each then
outstanding Community Bankshares stock option held by that holder
will terminate automatically and be cancelled, and, whether or
not any such option was vested, we will pay to that holder cash
in an amount (if any) equal to
o $21.00, minus the exercise price of that option as provided
in the written option award agreement, multiplied by
o the number of shares of Community Bankshares common stock
covered by the option;
o Immediately prior to the effective time of the merger, each then
outstanding Community Bankshares SAR held by that holder will
terminate automatically and be cancelled, and, whether or not any
such SAR was vested, we will pay to that holder cash in an amount
(if any) equal to
o $21.00, minus the exercise price of that SAR as provided in
the written SAR award agreement, multiplied by
o the number of shares of Community Bankshares common stock
covered by the SAR;
o Each then outstanding restricted stock award will terminate and
be cancelled at the effective time of the merger, and, whether or
not any such restricted stock award was vested, the shares of
Community Bankshares common stock covered by the restricted stock
award will be converted into the right to receive from First
Citizens $21.00 in cash, without interest, in exchange for each
of those shares on the same basis as all of our other
shareholders;
o In the case of any other type of outstanding stock-based award
granted under our 2007 Equity Plan or otherwise, provisions
comparable to those described above to effect a termination of
any such other awards at the effective time in return for a cash
payment from us, whether or not such other award was vested, in
an amount and form reasonably satisfactory to First Citizens;
o The award holder understands and agrees that no assurances or
representations are being made to him or her by us or First
Citizens with respect to the tax treatment of any such payment,
and the holder will be and remain responsible for the timely
payment of all federal and state income taxes and his or her
portion of any FICA and FUTA taxes applicable to such payment;
o We and our successors in interest may withhold from such payment
any and all such taxes that we reasonably believe we are required
to withhold; and
o The award holder fully and completely releases us and our
successors in interest, including First Citizens, from any
further obligation with respect to his or her stock options,
SARs, restricted stock awards, or other share-based awards, and
from any liability for the tax consequences of such payment.
The merger agreement further provides that no such payment shall be
made to any holder of a stock option, SAR, restricted stock award or other
share-based award unless and until the holder executes and delivers an equity
award release to us. As a result of the merger, from and after the effective
time of the merger, First Citizens will become responsible for Community
24
Bankshares' payment obligations, and will become entitled to all of our rights,
under each equity award release agreement. Any stock options, SARs or restricted
shares that remain outstanding upon effectiveness of the merger will be
automatically terminated and converted into the right to receive the applicable
payment discussed above, without interest. In no event will any stock option,
SAR, or share of restricted stock be converted into any rights with respect to
First Citizens or First Citizens Bancorporation stock.
Shares held in Participant Accounts in the Dividend Reinvestment Plan.
The merger agreement provides for termination of the Community Bankshares
Dividend Reinvestment Plan, and for conversion of each share of Community
Bankshares stock held in the participant's account into the right to receive
$21.00 in cash, without interest. Any cash remaining in the plan that has not
yet been invested in shares of Community Bankshares common stock will be
returned to the participants for whose accounts it is held.
Delisting and Deregistration of Community Bankshares Common Stock
Upon completion of the merger, Community Bankshares common stock will
be delisted from the American Stock Exchange and deregistered under the
Securities Exchange Act of 1934, as amended.
Effective Time of the Merger
If the merger is approved by at least two-thirds of the outstanding
shares of Community Bankshares, and all other required governmental and other
consents and approvals are received, and if the other conditions to the
obligations of the parties to consummate the merger are satisfied or waived (as
permitted), the merger will be consummated and effected on the date and at the
time the articles of merger reflecting the merger are filed with the Secretary
of State of South Carolina. In no event is the effective time to be later than
three business days following the closing date.
Exchange of Certificates
Designation of Paying Agent; Deposit of Merger Consideration; and
Investment of Funds. First Citizens will designate our stock transfer agent,
Registrar and Transfer Company, to act as paying agent for First Citizens and
the holders of the Community Bankshares common stock in connection with the
merger. At the effective time of the merger, First Citizens will deposit with
the paying agent the aggregate merger consideration to which all holders of
Community Bankshares common stock will become entitled as a result of the
merger. The merger consideration will be held in trust for the benefit of the
Community Bankshares shareholders, and may not be used for any other purposes.
Pending disbursement of the merger consideration to our shareholders,
the paying agent has agreed to invest such funds in FDIC-insured bank deposits.
All interest, dividends or other income on the invested funds shall belong
solely to First Citizens. If for any reason (including losses on invested funds)
the funds held by the paying agent are inadequate to pay the amounts to which
the Community Bankshares shareholders are entitled in the merger, the merger
agreement provides that First Citizens will be liable for the payment thereof.
Transmittal Letter. As promptly as practicable after the effective time
of the merger, First Citizens will cause the paying agent to mail to each record
holder of certificated shares, as of the effective time, whose shares of
Community Bankshares common stock have been converted into the right to receive
the merger consideration, a letter of transmittal and instructions for
surrendering Community Bankshares common stock in exchange for the merger
consideration.
Transmittal and Payment Procedure for Certificated Shares. If you own
your Community Bankshares common stock in certificated form, upon your surrender
to First Citizens or the paying agent of all certificates representing your
Community Bankshares common stock, together with a letter of transmittal
executed and completed in accordance with the instructions thereto and any
additional information that First Citizens or the paying agent reasonably
requests, and verification of the status and ownership of those shares by
Registrar and Transfer Company in its capacity as registrar and transfer agent
for Community Bankshares common stock, the paying agent will promptly deliver to
25
you a check in exchange for your Community Bankshares common stock in the
aggregate amount of the merger consideration into and for which your shares have
been converted and exchanged, without any interest thereon, and those Community
Bankshares stock certificates will be canceled. Delivery of Community Bankshares
stock certificates will not be considered to have been effected, and the risk of
loss of a Community Bankshares certificate will not be considered to have passed
to First Citizens, until the certificates have been actually delivered to First
Citizens, or to the paying agent, with a properly completed letter of
transmittal, in accordance with the instructions provided to you. You should not
surrender your certificates for exchange until you receive the letter of
transmittal and instructions from the paying agent or First Citizens.
Payment Procedure for Uncertificated Shares. If you own your Community
Bankshares common stock in uncertificated book-entry form, you will not be
required to complete a letter of transmittal. Without any action by you, upon
effectiveness of the merger, the paying agent will promptly deliver to you a
check in exchange for your uncertificated Community Bankshares common stock, for
the aggregate amount of the merger consideration into and for which your
uncertificated Community Bankshares common stock has been converted and
exchanged, without any interest thereon, and your Community Bankshares stock
will be canceled.
Payment Procedure for Restricted Shares. Community Bankshares
restricted shares are held in uncertificated book-entry form, and you will not
be required to complete a letter of transmittal with respect to any restricted
shares you own. Without any action by you, upon effectiveness of the merger, the
paying agent will promptly deliver to you a check in exchange for your
restricted shares, for the aggregate amount of the merger consideration into and
for which your restricted shares has been converted and exchanged, without any
interest thereon, and your Community Bankshares restricted shares will be
canceled.
Payment Procedure for Shares held in Participant Accounts in the
Dividend Reinvestment Plan. If you are a participant in the Community Bankshares
Dividend Reinvestment Plan, you will not be required to take any action with
respect to shares held for your account. Upon effectiveness of the merger, the
paying agent will promptly deliver to you a check in exchange for the shares
held for your account in the plan, for the aggregate amount of the merger
consideration into and for which those shares have been converted, without any
interest thereon, plus any cash remaining in your account that has not yet been
invested in shares of Community Bankshares common stock.
Procedures in Connection with Shareholder Delay in Submitting
Documentation. At any time following the one-year anniversary of the effective
time of the merger, First Citizens will be entitled to require the paying agent
to deliver to it any portion of the merger consideration (including any interest
received with respect thereto) previously deposited by First Citizens with, but
which has not been disbursed by, the paying agent, and, after that time, any
Community Bankshares shareholders who have not yet surrendered their stock
certificates, together with a properly completed letter of transmittal, will be
entitled to look to First Citizens only as a general creditor with respect to
the merger consideration into which their Community Bankshares stock has been
converted. Upon any such Community Bankshares shareholder's later surrender of
Community Bankshares stock certificates to First Citizens or the paying agent,
together with a properly completed letter of transmittal, in accordance with the
instructions provided by First Citizens, First Citizens will promptly deliver to
that shareholder, in exchange for the Community Bankshares stock, a check drawn
for the aggregate amount of the merger consideration into and for which the
Community Bankshares stock has been converted and exchanged, without any
interest thereon, and the Community Bankshares stock will be cancelled. However,
neither First Citizens nor the paying agent shall be liable to any shareholder
for merger consideration that previously has been delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
In no event will any Community Bankshares shareholder receive or be
entitled to interest on the merger consideration to which such shareholder is
entitled for any period before or after the effective time of the merger.
Lost Certificates
If your Community Bankshares stock certificates have been lost,
destroyed, stolen, or are otherwise missing, you will be entitled to receive the
merger consideration to which you are entitled in accordance, and upon
compliance, with conditions imposed by First Citizens under applicable law.
These conditions may include the requirement that you provide an affidavit with
respect to the loss, destruction or theft of your stock certificates, and an
indemnification agreement and surety bond (or other indemnification satisfactory
to First Citizens in its sole discretion) in such sum and on such terms as First
Citizens may direct to protect it against any claims made against First Citizens
26
with respect to shares of Community Bankshares common stock represented by the
certificates claimed to have been lost, destroyed or stolen.
Termination and Conversion of Options and SARs
In the event that, at the effective time of the merger, any options to
purchase Community Bankshares common stock or Community Bankshares SARs remain
outstanding and have not been exercised or cashed out as described above under
the caption "-- Conversion of Shares; Treatment of Restricted Stock, Stock
Options, and SARS; Dividend Reinvestment Plan," such options and SARs shall
terminate at the effective time of the merger, and the rights of the holder of
such options or SARs shall be converted, without any action by Community
Bankshares, First Citizens, or such holder, into the right to receive a cash
payment in an amount, and in the manner and subject to the limitations,
described above under the caption "-- Conversion of Shares; Treatment of
Restricted Stock, Stock Options and SARs; Dividend Reinvestment Plan."
Certain Important Federal Income Tax Consequences
The following discussion summarizes certain material federal income tax
consequences of the merger to Community Bankshares shareholders. This summary is
based on current laws, regulations, rulings, and decisions now in effect,
including the Internal Revenue Code of 1986, as amended (the "Code"), all of
which are subject to change at any time, possibly with retroactive effect. This
summary is not a complete description of all of the tax consequences of the
merger and, except as specifically provided below, may not address federal
income tax consequences applicable to you if you are subject to special
treatment under federal income tax law, such as rules relating to shareholders
who are not citizens or residents of the United States, who are financial
institutions, foreign corporations, tax-exempt organizations, insurance
companies, or dealers in securities, shareholders who acquired their shares
pursuant to the exercise of options or similar derivative securities or
otherwise as compensation, and shareholders who hold their shares as part of a
straddle or conversion transaction. In addition, this summary does not address
the tax consequences of the merger under applicable employment, withholding,
state, local, foreign, estate, or gift tax laws. This discussion assumes you
hold your shares of Community Bankshares common stock as a capital asset within
the meaning of Section 1221 of the Code and that your receipt or ownership of
the awards discussed below did not and do not trigger the recognition of income
pursuant to Section 409A of the Code. Each Community Bankshares shareholder
should consult with his or her own tax adviser about the tax consequences of the
merger in light of his or her individual circumstances, including the
application of any federal, state, local, foreign, or estate tax law.
Tax Consequences of the Merger Generally
A summary of the general tax consequences of the merger is as follows:
o the merger will not constitute a reorganization under Section
368(a) of the Code;
o the exchange of Community Bankshares common stock for cash in the
merger will generally be a taxable transaction; and
o a Community Bankshares shareholder will generally recognize gain
or loss as if the shareholder had received the cash consideration
as a distribution in redemption of the shareholder's Community
Bankshares stock, subject to the provisions and limitations of
Section 302 of the Code.
Tax Consequences to Community Bankshares Shareholders
A Community Bankshares shareholder will recognize gain or loss as if
the shareholder had received the cash consideration as a distribution in
redemption of the shareholder's Community Bankshares common stock, subject to
the provisions and limitations of Section 302 of the Code. Subject to those
limitations, the gain or loss will be long-term capital gain or loss to the
extent shares of Community Bankshares common stock surrendered in the merger
were held as capital assets for a period exceeding one year as of the time of
the exchange. The gain or loss will be short-term capital gain or loss to the
extent shares of Community Bankshares common stock surrendered in the merger
27
were held as capital assets for a period of one year or less as of the time of
the exchange.
Tax Consequences to Holders of Community Bankshares Options
Each holder of incentive stock options (as defined in Section 422(b) of
the Code) who receives cash equal to the difference between $21.00 and the
exercise price of the incentive stock options, times the number of shares of
Community Bankshares stock covered by the options, will recognize ordinary
income equal to such excess. The same consequences apply to each holder of
non-qualified stock options (defined as any stock options issued that do not
comply with Section 422(b) of the Code) who receives cash equal to the
difference between $21.00 and the exercise price of the non-qualified stock
options, times the number of shares of Community Bankshares stock covered by the
options. To the extent that holders of incentive stock options or non-qualified
stock options exercise their options prior to being cashed out in connection
with the merger, the tax consequences may differ.
With respect to holders of incentive stock options who exercise their
options prior to being cashed out in connection with the merger, such holders
would receive Community Bankshares stock on the exercise of the options, and the
exercise would not give rise to ordinary income (although the exercise could
trigger alternative minimum tax, we assume for purposes of this discussion that
the exercise does not in fact trigger such tax). Assuming that the merger is
consummated within the later of two years from the date the underlying options
were granted or one year from the date of exercise, as is anticipated here, the
holder will recognize ordinary income equal to the lesser of (i) the fair market
value at the date of exercise over the exercise price of the options or (ii) the
amount realized on the disposition (i.e., the cash-out incident to the merger)
over the exercise price of the options. If the amount realized on the
disposition is greater than the fair market value on the date of exercise, the
excess will be taxed as capital gain (a short-term capital gain in the event
that the disposition occurs one year or less following the exercise).
With respect to holders of non-qualified stock options who exercise
their options prior to being cashed out in connection with the merger, such
holders will recognize ordinary income equal to the excess of the fair market
value at the date of exercise over the exercise price, times the number of
shares of Community Bankshares stock covered by the options. Any subsequent
disposition of such stock, including through a cash-out incident to the merger,
will give rise to capital gain or loss (short-term capital gain or loss to the
extent that the stock is held for one year or less).
The tax consequences set forth in this section with respect to options
assume that none of the options had an exercise price in excess of $21.00 per
share on the date of grant.
Tax Consequences for Holders of Community Bankshares Stock Appreciation
Rights
Each holder of stock appreciation rights who receives cash equal to the
difference between $21.00 and the exercise price of the stock appreciation
right, times the number of shares with respect to which the stock appreciation
rights apply, will recognize ordinary income equal to the excess of the amount
realized over the exercise price, times the number of such shares.
Tax Consequences for Holders of Community Bankshares Restricted Stock
Awards
Each holder of Community Bankshares restricted stock awards who has not
recognized ordinary income with respect to such restricted stock awards by
virtue of any applicable restrictions lapsing or through a Section 83(b)
election will recognize ordinary income equal to $21.00 per share (assuming the
holder was not required to make any payment to acquire the restricted stock
awards). To the extent that the recipient of restricted stock awards previously
recognized ordinary income due to the restrictions lapsing or through a Section
83(b) election (or recognizes income in said manner prior to the date of the
merger), the cash-out incident to the merger will give rise to capital gain or
loss (short-term capital gain or loss to the extent that the stock is held for
one year or less).
You are urged to consult your personal tax adviser as to the specific
federal income tax consequences to you, based on your own particular status and
circumstances, and also as to any state, local, foreign, estate, gift, or other
tax consequences arising out of the merger.
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Accounting Treatment
The merger will be accounted for using the purchase method of
accounting. Under the purchase method of accounting, the assets and liabilities
of Community Bankshares as of the effective time will be recorded at their
respective fair values and added to those of First Citizens.
Interests of Employees and Directors of Community Bankshares in the Merger
General. Some of our employees and directors may be deemed to have
interests in the merger in addition to their interests as shareholders of
Community Bankshares generally. These interests include, among others, proposed
employee benefits for those who become employees of First Citizens after the
merger, lump sum payments for certain employees who currently have change in
control agreements or employment agreements with Community Bankshares, entry
into an employment agreements with several of our officers, payments in
settlement of outstanding options, SARs and restricted stock, and insurance
coverage and indemnification for Community Bankshares' directors and officers,
as described below.
Employment of Community Resource Bank Employees. If suitable positions
are available, First Citizens may, but is not obligated to, offer employment to
persons who are employees of Community Resource Bank at the effective time of
the merger. Unless otherwise provided in a written employment agreement between
First Citizens and any such employee, the employment offered by First Citizens
will be on an "at will" basis, in such position, at such location, and at such
compensation as First Citizens determines following effectiveness of the merger.
Employee Benefits. The merger agreement generally provides that,
following the effective time of the merger, each employee of Community Resource
Bank who is offered and accepts employment with First Citizens will be entitled
to participate in employee benefit plans provided generally by First Citizens to
its employees on the same basis, and subject to the same eligibility and vesting
requirements and other conditions, restrictions and limitations, as generally
are in effect and applicable to other similarly situated First Citizens
employees. For purposes of determining benefit accruals under First Citizens'
vacation policy, and for purposes of determining eligibility to participate and
vesting in connection with the provision of employee benefits generally, each
such continuing employee will be given credit for his or her time of service
with Community Resource Bank prior to the merger. However, such continuing
employees will not be or become eligible to participate in, or for benefits
under, First Citizens' defined benefit pension plan (which has been frozen to
new participants). The terms of participation by continuing employees in First
Citizens' health insurance plan will include the waiver of any waiting periods
and/or pre-existing condition limitations, to the extent such waiting periods
and pre-existing conditions did not apply under Community Resource Bank's health
insurance plan that covered the continuing employee immediately prior to the
effective time of the merger. Each continuing employee will also be given credit
towards satisfaction of any annual deductible limitation and out-of-pocket
maximum applied under the First Citizens health insurance plan for any
deductible amounts and co-payments previously paid by him or her under Community
Resource Bank's health insurance plan during the plan year in which the merger
occurs.
Employment Agreements and Change in Control Severance Agreements.
Community Bankshares or Community Resource Bank entered into Amended and
Restated Employment Agreements, dated December 7, 2007, with each of Samuel L.
Erwin, William W. Traynham, and Jason E. Starnes. Mr. Erwin will not continue
employment with First Citizens after the merger and Mr. Traynham will only
continue employment for a short period of time after the merger. Payments to
each of them under these agreements will be triggered by the merger. The
payments to each will be a lump sum amount equal to twice the amount of his
annual base salary in effect at the date of termination, unless that amount,
plus any other payments, would equal or exceed three times the base amount under
Internal Revenue Code section 280G, in which case it will be adjusted to have a
value of three times the base amount under Section 280G less $100. It is not
presently known whether Mr. Starnes will continue employment with First Citizens
or whether payments to him would be triggered by the merger.
At the request of First Citizens, and as a condition to First
Citizens' entering into the merger agreement, in June 2008, Community Resource
Bank entered into Employment Agreements with each of Michael A. Wolfe, Gregory
G. Burke, William E. Howard, and Robert B. Smith, which will be assumed by First
29
Citizens in connection with the merger, and will take effect upon effectiveness
of the merger. The agreement with Mr. Wolfe will replace an existing employment
agreement with Community Resource Bank, and the agreement with Mr. Burke will
replace an existing change of control agreement. The employment agreements are
for a period of two years, three in the case of Mr. Wolfe, and provide for the
payment of a minimum base salary plus benefits as well as a signing bonus and/or
a retention bonus. The agreements also contain noncompetition agreements which
restrict the ability of the employee to compete with First Citizens or to
solicit its customers or employees for periods of up to two years following the
termination of the employee's employment with First Citizens.
Insurance. The merger agreement provides for Community Bankshares and
Community Resource Bank, immediately prior to the effective time of the merger,
to purchase "tail" coverage with respect to their directors' and officers'
liability and errors and omissions liability insurance, to be effective at the
effective time of the merger and for the maximum term available and in the same
amount of coverage as is provided by their then current directors' and officers'
and errors and omissions liability insurance policy.
Indemnification. First Citizens has agreed, after exhaustion of all
applicable director and officer liability insurance coverage, to indemnify the
current and former directors and executive officers of Community Bankshares and
Community Resource Bank, and each of their officers or employees that is serving
or has served as a director or trustee of another entity expressly at the
request or direction of Community Bankshares, Community Resource Bank or any of
their respective subsidiaries, to the extent that each of those persons would
have had a right to be indemnified by Community Bankshares, Community Resource
Bank or any of their respective subsidiaries under their respective Articles of
Incorporation or Association, as applicable, and Bylaws in effect on the date of
the merger agreement, or under Chapter 8 of the South Carolina Business
Corporation Act of 1988, or under The National Bank Act, had the merger not been
consummated, against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, amounts paid in settlement, losses, claims damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the effective time of the
merger (including the merger transaction), whether asserted or claimed prior to,
at or after the merger.
Regulatory Matters
Completion of the merger among Community Bankshares, Community
Resource Bank and First Citizens is subject to the prior receipt of all required
consents or approvals of, or the provision of notices to, federal and state
authorities. These approvals include approvals from the South Carolina State
Board of Financial Institutions and the Federal Deposit Insurance Corporation
(FDIC), both of which have been obtained.
These regulatory approvals merely imply satisfaction of regulatory
criteria for approval, and do not include review of the merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders, and do not constitute an endorsement or recommendation of the
proposed merger. Approval of the merger by the FDIC and the South Carolina State
Board of Financial Institutions: (i) reflects only their view that the
transaction does not contravene applicable competitive standards imposed by law
and is consistent with regulatory policies relating to safety and soundness;
(ii) is not an opinion that the proposed merger is financially favorable to the
shareholders or that the FDIC or the South Carolina State Board of Financial
Institutions has considered the adequacy of the terms of the transaction; and
(iii) is not an endorsement of, or recommendation for, the merger.
Representations and Warranties
The merger agreement contains representations and warranties of
Community Bankshares, Community Resource Bank and First Citizens that are
customary for mergers in which the consideration to be paid is all cash. These
representations and warranties were made only for purposes of the merger
agreement, may have been made for the purposes of allocating contractual risk
among the parties to the agreement instead of establishing these matters as
absolute facts, and are subject to standards of materiality agreed upon between
the parties as set forth in the merger agreement that may differ from those
applicable to investors. The assertions of Community Bankshares and Community
Resource Bank in the representations and warranties are qualified by additional
disclosures in a disclosure letter delivered to First Citizens in connection
30
with signing of the merger agreement. Accordingly, shareholders of Community
Bankshares should not rely on the representations and warranties as
characterizations of the actual state of facts because they were made as of the
date of the merger agreement and are modified in part by the disclosure letter.
The disclosure letter contains information that has previously been disclosed by
Community Bankshares in public filings, as well as information that is of a
non-public nature. Moreover, information concerning the subject matter of the
representations and warranties may have changed since the date of the merger
agreement, which subsequent information may or may not be reflected in Community
Bankshares' public disclosures. The following is a brief description of the
representations and warranties. The actual representations and warranties are
contained in the merger agreement, a copy of which is set forth as Appendix A to
this proxy statement.
Community Bankshares and Community Resource Bank Representations and
Warranties. The representations and warranties made by Community Bankshares and
Community Resource Bank to First Citizens relate to Community Bankshares,
Community Resource Bank, and their respective subsidiaries, and concern, among
other matters:
o corporate matters, including due organization and incorporation,
good standing, and authority to conduct their business;
o authorized and outstanding capital stock;
o absence of five percent or greater shareholders;
o subsidiaries;
o stock-based awards, agreements and plans;
o authority and power to execute the merger agreement and carry out
its provisions, validity of the agreement, and approval of the
agreement;
o absence of conflicts of the merger agreement with organizational
documents, contractual obligations, or legal requirements;
o required consents and approvals;
o maintenance of books and records;
o filing, accuracy, and compliance with law of reports filed with
regulatory authorities;
o accuracy and compliance with generally accepted accounting
principles of consolidated financial statements;
o tax matters;
o conduct of business in the ordinary course, and absence of
material adverse changes in Community Bankshares' consolidated
financial condition or results of operations, in the prospects,
businesses, investments, properties, loan portfolio or operations
of Community Bankshares, Community Resource Bank and their
respective subsidiaries considered as one entity, or in the
ability of Community Bankshares or Community Resource Bank to
consummate the transactions contemplated in the merger agreement
or to carry on Community Resource Bank's business as presently
conducted, or in First Citizens ability to conduct Community
Resource Bank's business following the merger;
o absence of undisclosed material liabilities;
o compliance with existing obligations;
o litigation and regulatory matters;
31
o real properties owned and leased;
o character and status of loans, accounts, notes and other
receivables;
o character and status of securities portfolio and investments;
o personal property owned and leased;
o intellectual property owned and licensed;
o environmental matters;
o brokerage fees or finders commissions;
o material contracts;
o employment matters, employee relations, employment agreements,
and employee benefit plans;
o insurance;
o insurance of deposits;
o indemnification obligations;
o disclosure controls and procedures and internal control over
financial reporting; and
o absence of obstacles to obtaining regulatory approvals.
First Citizens Representations and Warranties. Because First Citizens
is paying all cash as the merger consideration and the shareholders of Community
Bankshares will have no continuing interest in its business after the merger is
completed, its representations and warranties to Community Bankshares and
Community Resource Bank are much more limited than those of Community Bankshares
and Community Resource Bank to it, and concern, among others, the following
matters:
o corporate matters, including due organization and incorporation,
good standing, and authority to conduct its business;
o authority and power to execute the merger agreement and carry out
its provisions, validity of the agreement, and approval of the
agreement;
o absence of conflicts of the merger agreement with organizational
documents, contractual obligations, or legal requirements;
o required consents and approvals;
o ability to pay the merger consideration; and
o absence of obstacles to obtaining regulatory approvals.
Material Effect. Some of Community Bankshares', Community Resource
Bank's, and First Citizens' representations and warranties are qualified by a
material effect standard.
CBI material effect. The merger agreement defines "material effect"
with respect to Community Bankshares and Community Resource Bank ("CBI material
effect") as a material adverse effect on Community Bankshares' consolidated
32
financial condition or results of operations, a material adverse effect on
Community Bankshares, Community Resource Bank and their respective subsidiaries
considered as one entity, or a material adverse effect on the prospects,
businesses, investments, properties, loan portfolio or operations of Community
Bankshares, Community Resource Bank and their respective subsidiaries considered
as one entity, or in the ability of Community Bankshares or Community Resource
Bank to consummate the transactions described in the merger agreement or to
carry on Community Resource Bank's business as presently conducted, or in First
Citizens' ability to conduct Community Resource Bank's business following the
merger; provided, however, the definition does not include any change resulting
from:
o the execution or announcement of the merger agreement;
o any actions taken by First Citizens after the date of the merger
agreement and prior to effectiveness of the merger that relate to
or affect the businesses of Community Bankshares, Community
Resource Bank and their respective subsidiaries;
o compliance by Community Bankshares or Community Resource Bank
with the terms of the merger agreement;
o any reasonable out-of-pocket costs or expenses associated with,
relating to or arising from the transactions contemplated by the
merger agreement (including legal, accounting, and financial
advisory fees and disbursements);
o general economic, industry or financial conditions or events that
affect the banking industry as a whole;
o the impact of laws, rules, regulations and court decisions (other
than court decisions related to litigation in which Community
Bankshares or Community Resource Bank is a party) that affect the
banking industry as a whole;
o acts of war or terrorism; or
o a requirement imposed by any regulatory authority.
First Citizens material effect. The merger agreement defines "material
effect" with respect to First Citizens ("FCB material effect") as a material
adverse effect on First Citizens and First Citizens Bancorporation considered as
one entity, on First Citizens Bancorporation's consolidated financial condition
or results of operations, or on the ability of First Citizens and First Citizens
Bancorporation to consummate the transactions described in the merger agreement;
provided, however, the definition does not include any change resulting from:
o the execution or announcement of the merger agreement;
o compliance by First Citizens with the terms of the merger
agreement;
o any reasonable out-of-pocket costs or expenses associated with,
relating to or arising from the transactions contemplated by the
merger agreement (including legal, accounting, and financial
advisory fees and disbursements);
o general economic, industry or financial conditions or events that
affect the banking industry as a whole;
o the impact of laws, rules, regulations and court decisions (other
than court decisions related to litigation in which First
Citizens is a party) that affect the banking industry as a whole;
o acts of war or terrorism; or
o a requirement imposed by any regulatory authority.
33
Conditions to Consummation
The merger agreement also provides conditions precedent to the
obligations of the parties to consummate the merger that are customary for
mergers in which the consideration to be paid is all cash.
Conditions to all Parties' Obligations. The following conditions apply
to the obligations of each of the parties to the merger agreement:
o receipt of required regulatory approvals;
o receipt of all other necessary consents and approvals;
o absence of adverse regulatory or legal proceedings;
o approval of the merger agreement by the boards of directors of
each of the parties and by the shareholders of Community
Bankshares, and by Community Bankshares and First Citizens
Bancorporation as sole shareholders of Community Resource Bank
and First Citizens, respectively (all of these approvals, except
the approval of Community Bankshares' shareholders, have been
obtained); and
o filing of articles of merger with the South Carolina Secretary of
State.
Additional Conditions to Community Bankshares' and Community Resource
Bank's obligations. The following additional conditions apply to the obligation
of Community Bankshares and Community Resource Bank to complete the merger:
o there shall have been no material adverse change, or potential
material adverse change, in or affecting First Citizens
Bancorporation's consolidated financial condition or results of
operations, or in First Citizens' ability to complete the merger;
o First Citizens shall have complied in all material respects with
all federal and state laws and regulations applicable to the
transactions described in the merger agreement except where
failure to comply would not have an FCB material effect (as such
term is defined above under the caption "-- Representations and
Warranties - Material Effect");
o First Citizens' representations and warranties shall be true and
correct in all material respects, except as waived by Community
Bankshares, or except as would not have an FCB material effect
(as such term is defined above under the caption "--
Representations and Warranties - Material Effect");
o First Citizens shall, in all material respects, have complied
with or performed all of its covenants, obligations and
agreements under the merger agreement;
o Community Bankshares and Community Resource Bank shall have
received certificates from First Citizens' Chief Executive
Officer and Chief Financial Officer as to compliance with the two
preceding conditions;
o Community Bankshares shall have received a legal opinion of
counsel to First Citizens covering matters normally covered in
legal opinions relating to cash mergers, together with copies of
various resolutions, certifications and other closing
documentation;
o First Citizens shall have deposited the merger consideration with
the paying agent;
o Community Bankshares shall have received from its financial
adviser its written opinion that the merger is fair, from a
financial point of view, to Community Bankshares and its
shareholders; and
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o The agreement shall not have been terminated by First Citizens.
Additional Conditions to First Citizens' Obligations. The following
additional conditions apply to the obligation of First Citizens to complete the
merger:
o there shall have been no material adverse change, or potential
material adverse change, in Community Bankshares' consolidated
financial condition or results of operations, in the prospects,
businesses, investments, properties, loan portfolio or operations
of Community Bankshares, Community Resource Bank, and their
respective subsidiaries considered as one entity, or in the
ability of Community Bankshares or Community Resource Bank to
consummate the transactions contemplated in the merger agreement
or to carry on Community Resource Bank's business as presently
conducted, or in First Citizens' ability to conduct Community
Resource Bank's business following the merger;
o Community Bankshares and Community Resource Bank shall have
complied in all material respects with all federal and state laws
and regulations applicable to the transactions described in the
merger agreement except where failure to comply would not have a
CBI material effect (as such term is defined above under the
caption "-- Representations and Warranties - Material Effect"),
or following the merger, an FCB material effect (as such term is
defined above under the caption "-- Representations and
Warranties - Material Effect");
o Community Bankshares' and Community Resource Bank's
representations and warranties shall be true and correct in all
material respects, except as waived by First Citizens, or except
as would not have a CBI material effect (as such term is defined
above under the caption "-- Representations and Warranties -
Material Effect"), or following the merger an FCB material effect
(as such term is defined above under the caption "--
Representations and Warranties - Material Effect");
o Community Bankshares and Community Resource Bank shall, in all
material respects, have complied with or performed all of their
covenants, obligations and agreements under the merger agreement;
o First Citizens shall have received certificates from the Chief
Executive Officer and Chief Financial Officer of Community
Bankshares and Community Resource Bank, respectively, as to
compliance with the two preceding conditions;
o The employment agreements with Messrs. Erwin, Traynham, Starnes,
Wolfe, Burke, Howard and Smith shall have remained in effect;
o Except as waived by First Citizens, each holder of a stock award
shall have executed an equity award release providing for cashing
out of all outstanding stock awards, and all outstanding stock
awards shall have terminated in the manner described above under
the caption "-- Conversion of Shares; Treatment of Restricted
Stock, Stock Options, and SARS; Dividend Reinvestment Plan;"
o Community Bankshares and Community Resource Bank shall have
delivered to First Citizens consents to assignments of leases and
contracts as required by the merger agreement;
o First Citizens shall have received a legal opinion of counsel to
Community Bankshares covering matters normally covered in legal
opinions relating to cash mergers, together with copies of
various resolutions, certifications and other closing
documentation;
o No regulatory authority shall have raised an objection to or
imposed any condition on the merger or its approval thereof
(including without limitation any requirement of divestiture of
branches or deposits of Community Resource Bank or First Citizens
in any banking market) that First Citizens reasonably deems, at
its discretion, to so adversely impact the economic or business
benefits of the merger agreement or the merger to First Citizens
as to render it inadvisable for it to consummate the merger; and
o The agreement shall not have been terminated by Community
Bankshares.
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Conduct of Business Pending the Merger
As outlined below, Community Bankshares and Community Resource Bank
have agreed to take certain actions, and to refrain from taking certain actions,
with respect to the conduct of our business pending completion of the merger.
Affirmative Agreements. Community Bankshares and Community Resource
Bank have agreed to take the actions related to our business outlined below,
among others, pending completion of the merger.
Business in the Regular or Usual Course. Under the merger agreement,
Community Bankshares and Community Resource Bank have agreed, for themselves,
and in some instances, on behalf of Community Resource Mortgage and Community
Financial Services as applicable, that, until the effective time of the merger,
unless otherwise provided in the merger agreement or expressly agreed to by
First Citizens, we will carry on our business only in the regular and usual
course in substantially the same manner as our business has previously been
conducted. To the extent consistent with our business and within our ability to
do so, we have agreed that we will use commercially reasonable efforts to:
o preserve our business organization, keep our present officers and
employees available, and preserve our relationships with
customers, depositors, creditors, correspondents, suppliers, and
others with which we have business relationships;
o maintain all of our properties and equipment in customary repair,
order and condition, ordinary wear and tear excepted;
o maintain our books of account and records in the usual, regular
and ordinary manner in accordance with sound business practices
applied on a consistent basis;
o comply with all applicable laws, rules and regulations;
o not change our existing loan underwriting guidelines, policies or
procedures in any material respect except as may be required by
law or recommended by regulatory authorities;
o continue to maintain federal deposit insurance and, except to the
extent that changed circumstances dictate otherwise, continue to
maintain in force our current business and property insurance
policies;
o promptly notify First Citizens of any actual or, to our
knowledge, threatened litigation by or against us; and
o promptly provide to First Citizens such information as it
reasonably requests.
Periodic Reporting of Financial and Business Information. We have also
agreed to provide periodic financial and business information to First Citizens
until effectiveness of the merger.
Notification of the Occurrence of Certain Adverse Events. We have
agreed promptly to notify First Citizens about:
o any actual or anticipated CBI material change (as such term is
defined above under the caption "-- Representations and
Warranties - Material Change");
o any actual or anticipated condition or event that has caused or,
with the lapse of time or otherwise, may or could cause, any of
our statements, representations or warranties in the merger
agreement to be or become inaccurate, misleading or incomplete in
any material respect, or which has resulted or may or could
cause, create or result in the breach or violation in any
material respect of any of our covenants or agreements in the
merger agreement; and
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o the occurrence or existence of any event, fact or condition that
may reasonably be expected to prevent or materially impede or
delay us or First Citizens from obtaining the approvals of
regulatory authorities required in order to consummate, or
otherwise from completing, the merger.
Accruals for Expenses and Other Accounting Matters. We have also agreed
to make such appropriate accounting entries in our books and records and take
such other actions as First Citizens deems to be required by generally accepted
accounting principles ("GAAP"), or that First Citizens otherwise reasonably
deems necessary, appropriate or desirable in anticipation of completion of the
merger and that are not in violation of GAAP or applicable law. These actions
may include, among others, making additional provisions to our loan loss reserve
or loan repurchase reserve, or accruals or the creation of reserves for
compensation, employee benefit and transaction related expenses. However, (i)
except as otherwise agreed to by First Citizens and us, we will not be required
to make any such accounting entries until immediately prior to the closing of
the merger and only following receipt of written confirmation from First
Citizens that it is not aware of any fact or circumstance that would prevent
completion of the merger, (ii) any such accounting entries we make at the
direction of First Citizens and related to First Citizens' own accounting
purposes or convenience (as opposed to entries relating to events, developments,
changes or circumstances in our business or operations that are, or should be,
made by us under GAAP or otherwise in the normal course of its business) may
not, in and of themselves, be used to evidence a material adverse change in our
financial condition, results of operations or business, and (iii) we are not
required to make any such accounting entries that our Chief Executive Officer
and Chief Financial Officer believe, in good faith, would not be permissible
under GAAP.
Loan Loss Reserve, Loan Repurchase Reserve, and Loan Charge-Offs. We
have agreed to make such appropriate accounting entries in our books and records
and take such other actions as are necessary or appropriate to:
o charge off any loans on our books, or any portions thereof, that
we, or First Citizens in its sole discretion, consider to be
losses, or that we, or First Citizens, otherwise believe, in good
faith, are required to be charged off pursuant to applicable
banking regulations, GAAP or otherwise, or that otherwise would
be charged off by First Citizens after the merger in accordance
with its loan administration and charge off policies and
procedures; provided, however, we will not be required to record
any charge-off that our Chief Executive Officer and Chief
Financial Officer believe, in good faith, would not be
permissible under GAAP; and
o maintain our loan loss reserve and loan repurchase reserve in a
manner, and fund our loan loss reserve and loan repurchase
reserve in amounts, consistent with our past practices and as
required by applicable banking regulations, GAAP, and our loan
policies and procedures.
Consents to Assignment of Contracts and Leases. We have agreed, with
respect to each contract or other agreement, including without limitation
service contracts, leases, or rental agreements pertaining to real or personal
property, to which we are a party, and that First Citizens reasonably believes
requires the consent of any other contracting party in connection with or as a
result of the merger, to use commercially reasonable efforts to obtain, prior to
the closing, the written consent and estoppel certificate of that other party in
a form reasonably satisfactory to First Citizens.
First Citizens' Access to Information. We have agreed to provide First
Citizens and its employees, accountants, legal counsel, environmental or other
consultants, or other representatives and agents access to all books, records,
files (including credit files and loan documentation and records) and other
information (whether maintained electronically or otherwise) belonging to us, to
all our properties and facilities, employees, accountants, legal counsel,
environmental or other consultants, or other representatives or agents, as First
Citizens, in its sole discretion, considers to be necessary or appropriate for
the purpose of conducting ongoing reviews and investigations of our assets and
business affairs, preparing for consummation of the merger, determining the
accuracy of our representations and warranties in the merger agreement or our
compliance with our covenants in the merger agreement, or for any other reason.
Such investigations or reviews must, however, be performed in such a manner as
not to interfere unreasonably with our normal operations or with our
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relationships with our customers or employees, and must be conducted in
accordance with procedures established by First Citizens and us, each acting
reasonably.
Pricing of Deposits and Loans. We have agreed to make pricing decisions
with respect to deposit accounts and loans in a manner consistent with our past
practices based on competition and prevailing market rates in our banking
markets.
Employment Agreements and Change in Control Severance Agreements. We
have agreed to maintain in full force and effect, and, unless otherwise
permitted by the merger agreement, not to modify without the consent of First
Citizens (except as appropriate to comply with Section 409A of the Code and the
regulations promulgated thereunder), the following agreements with certain of
our officers:
o Amended and Restated Employment Agreements dated December 7,
2007, between Community Bankshares and each of Samuel L. Erwin,
William W. Traynham, and Jason E. Starnes;
o Employment Agreements between Community Resource Bank and Michael
A. Wolfe (dated June 15, 2008), Gregory G. Burke (dated June 15,
2008), William E. Howard (dated June 19, 2008), and Robert B.
Smith (dated June 19, 2008); and
o Change in Control Severance Agreements between Community
Bankshares and Michael O. Blakeley (dated May 27, 2008) and
William J. McElveen (dated February 8, 2008).
Further Action; Instruments of Transfer. In furtherance of completing
the merger, we have also agreed to:
o use commercially reasonable efforts to take or cause to be taken
all action required of us under the merger agreement as promptly
as practicable so as to permit the consummation of the merger at
the earliest practicable date;
o perform all acts and execute and deliver to First Citizens all
documents or instruments required of us under the merger
agreement, or as otherwise reasonably necessary or useful to or
requested by First Citizens, in consummating the merger; and
o cooperate with First Citizens in every reasonable way in carrying
out, and pursuing diligently the expeditious completion of, the
merger.
Negative Agreements
We have agreed not to take the actions related to our business outlined
below pending completion of the merger, unless First Citizens consents to our
doing so:
o amend our Articles of Incorporation or Bylaws;
o make any change in our authorized capital stock, create any other
or additional authorized capital stock or other securities, or
reclassify, combine, subdivide or split any shares of our capital
stock or other securities;
o sell or issue any additional shares of capital stock or other
securities (except upon exercise of options), or enter into any
agreement or understanding with respect to any such action;
o purchase, redeem, retire or otherwise acquire any shares of our
capital stock;
o grant or issue any options, warrants, calls, puts or other rights
of any kind relating to the purchase, redemption or conversion of
shares of our capital stock or any other securities, or enter
into any agreement or understanding with respect to any such
action;
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o declare or pay any dividends on outstanding shares of Community
Bankshares stock, or make any other distributions on or in
respect of any shares of our capital stock or otherwise to our
shareholders, except (i) quarterly cash dividends on the
outstanding shares at times and in amounts consistent with our
past practices, but not to exceed $0.12 per outstanding share per
quarter; and, (ii) if the closing is not held before December 1,
2008, a pro rated final cash dividend on the outstanding shares
of record in an amount per share equal to $0.12 multiplied by a
fraction in which the numerator is the number of days from the
previous calendar quarter-end to and including the closing date
and the denominator is the total number of days in the calendar
quarter in which the closing date occurs;
o enter into, become bound by, or amend any oral or written
contract, agreement or commitment for the employment or
compensation of any director, officer, employee or consultant
which is not immediately terminable by us or them without cost or
other liability on no more than 30 days' notice;
o adopt, enter into, or become bound by, any new or additional
profit-sharing, bonus, incentive, change in control or "golden
parachute," stock option, stock purchase, pension, deferred
compensation, retirement, insurance (other than renewals of
existing group employee insurance policies in the ordinary course
of business), paid leave, or similar contract, agreement,
commitment, understanding, plan or arrangement with respect to,
or which provides for benefits for, any of our current or former
directors, officers, employees or consultants, or amend any such
existing contract, agreement, commitment, understanding, plan or
arrangement;
o enter into, become bound by or amend any contract with or
commitment to any labor or trade union or association or any
collective bargaining group;
o increase the compensation or benefits of, or pay any bonus or
other special or additional compensation to, any of our current
or former directors, officers, employees or consultants, except
routine merit increases in the salaries of our employees,
provided that the times and amounts of those increases are
consistent with our past practices and our salary administration
and review policies and procedures in effect on September 30,
2007;
o make any changes in our accounting methods, practices or
procedures or in depreciation or amortization policies, schedules
or rates heretofore applied except as required by GAAP or
applicable law or regulations or as recommended by our
independent public accountants;
o change our independent public accountants;
o directly or indirectly, acquire any branch or all or any
significant part of the assets of any other person or entity,
other than in connection with the foreclosure or other
enforcement of a lien held to secure a loan; open any new branch
office; or enter into or become bound by any contract, agreement,
commitment or letter of intent relating to, or otherwise take or
agree to take any action in furtherance of, any such transaction
or the opening of a new branch office;
o except as may be required by our regulatory authorities, or
otherwise as shall be required by applicable law, regulation or
the merger agreement, change in any material respect the nature
of our business or the manner in which we conduct our business,
discontinue any material portion or line of business, or change
in any material respect our lending, investment, asset-liability
management or other material banking or business policies;
o sell or lease (as lessor), or enter into or become bound by any
contract, agreement, option or commitment relating to the sale,
lease (as lessor) or other disposition of, any real property in
any amount, other than real property acquired in connection with
the foreclosure in the ordinary course of our business of a
mortgage that secured one of our loans;
o sell or lease (as lessor), or enter into or become bound by any
contract, agreement, option or commitment relating to the sale,
lease (as lessor) or other disposition of, any equipment or any
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other fixed or capital asset (other than real property) having a
book value or a fair market value, whichever is greater, of more
than $25,000 in the case of any individual item or asset, or
$75,000 in the aggregate for all such items or assets, except the
sale of investment portfolio securities for liquidity purposes in
the ordinary course of business;
o purchase or lease (as lessee), or enter into or become bound by
any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of, any real
property in any amount, other than real property that is the
subject of a mortgage securing one of our loans that is being
foreclosed in the ordinary course of business;
o purchase or lease (as lessee), or enter into or become bound by
any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of, any
equipment or any other fixed asset (other than real property)
having a purchase price, or involving aggregate lease payments,
in excess of $25,000 in the case of any individual item, or
$75,000 in the aggregate for all such items or assets, other than
any equipment or other fixed assets that are subject to a lien
securing one of our loans that is being enforced in the ordinary
course of business;
o enter into any purchase or other commitment or contract for
supplies or services other than in the usual and ordinary course
of business consistent with past practices;
o except in the ordinary course of business consistent with past
practices, sell, purchase or repurchase, or enter into or become
bound by any contract, agreement, option or commitment to sell,
purchase or repurchase, any loan or other receivable or any
participation in any loan or other receivable;
o except in the ordinary course of business consistent with past
practices with respect to investment securities, loans and
similar assets, sell or dispose of, or enter into or become bound
by any contract, agreement, option or commitment relating to the
sale or other disposition of, any other asset;
o assign our rights to or otherwise give any other person our
permission or consent to use or do business under the corporate
name of any of our companies or any name similar thereto; or
release, transfer or waive any license or right granted to us by
any other person to use any trademark, trade name, copyright,
service mark or intellectual property right;
o other than acceptance of deposits, entry into repurchase
agreements, purchases of Federal Funds, borrowings from the
Federal Home Loan Bank of no more than 90 days maturity, and
direct investments by the Federal Reserve Bank of Richmond
pursuant to its Treasury Tax and Loan Investment Program, in any
such case in the ordinary course of business consistent with past
practices, (i) enter into or become bound by any promissory note,
loan agreement or other agreement or arrangement pertaining to
our borrowing of money, (ii) assume, guarantee, endorse or
otherwise become responsible or liable for any obligation of any
other person or entity (except pursuant to standby letters of
credit issued in the ordinary course of our lending business), or
(iii) except in the ordinary course of business consistent with
past practices, incur any other liability or obligation (absolute
or contingent);
o mortgage, pledge or subject any of our assets to, or permit any
of our assets to become or, except for any liens or encumbrances
we previously disclosed to First Citizens under the merger
agreement, remain subject to, any lien or any other encumbrance,
with the exception of pledges of loans or portfolio securities to
the Federal Home Loan Bank to secure borrowings permitted by the
merger agreement, and pledges of securities in the ordinary
course of business and consistent with past practices in
connection with the securing of public funds deposits or
repurchase agreements;
o waive, release, or compromise any rights in our favor against or
with respect to any of our current or former officers, directors,
shareholders, employees, consultants, or members of families of
current or former officers, directors, shareholders, employees or
consultants, nor waive, release or compromise any material rights
against or with respect to any other person or entity except in
the ordinary course of business and in good faith for fair value
in money or money's worth;
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o enter into or become bound by any contracts, agreements,
commitments, pledges or understandings (i) for or with respect to
any charitable contributions in excess of $5,000 in the case of
any one contribution or pledge, or $30,000 in the aggregate; (ii)
with any governmental or regulatory agency or authority except as
required by law; (iii) which is entered into other than in the
ordinary course of their business; or (iv) except as otherwise
permitted by the merger agreement, and whether or not in the
ordinary course of our business, which would obligate or commit
us to make expenditures over any period of time of more than
$50,000 in the case of any one contract, agreement, commitment or
understanding, or more than $100,000 in the case of all
contracts, agreements, commitments or understandings;
o make any material change in our current deposit policies and
procedures, or take any actions designed to materially increase
or decrease the aggregate level of our deposits, or any category
of our deposits, other than changes that are consistent with our
asset-liability management policies and based on competition,
market rates, or changes in applicable law; or
o surrender our leasehold interest in any parcel of leased real
property, or seek or agree to the termination of the lease
agreement pertaining to any such parcel, other than at the end of
the term of a lease agreement under the terms of which it does
not have an option to renew; or modify or amend the lease
agreement pertaining to any parcel of leased real property other
than in connection with the renewal of a lease agreement at the
end of its term, and after consultation with First Citizens.
Exclusive Agreement
Unless, due to a material change in circumstances, our board of
directors reasonably believes in good faith, following consultation with and
receipt of the advice of outside legal counsel and financial advisers, that any
such action or inaction would violate the directors' duties or obligations as
such to us or to our shareholders, we have agreed that neither Community
Bankshares nor Community Resource Bank, nor their respective directors
(individually or acting as Community Bankshares' or Community Resource Bank's
Board of Directors), nor any of their respective officers, will, directly, or
indirectly through any person:
o initiate, solicit, encourage the initiation or procurement of, or
take any action, including by way of furnishing information, to
facilitate the initiation or procurement of, any acquisition
proposal (as defined below), or to generate inquiries,
discussions or negotiations with respect to the making of any
acquisition proposal;
o continue or otherwise participate in any discussions or
negotiations with, furnish or disclose any information relating
to any of our companies or afford access to our business,
properties, assets, books or records to, or otherwise cooperate
in any way with, or knowingly assist, participate in, facilitate
or encourage any effort by, any third party that is seeking to
make, or has made, an acquisition proposal;
o except to the extent required by law, disclose to any person or
entity any information not customarily disclosed to the public
concerning any of our companies or their business, or afford to
any other person or entity access to the properties, facilities,
books or records of any of our companies;
o approve, endorse or recommend, enter into or become bound by, or
otherwise take or agree to any action in furtherance of, any
acquisition agreement (as defined below); or
o authorize or direct any other person to represent us in
connection with, or to take on our behalf, any action described
above, or cooperate with any other person in connection with any
such action.
"Acquisition proposal" means any proposal or offer with respect to any
of the following (other than the transactions described in the merger
agreement with First Citizens):
o any merger, consolidation, share exchange, business combination,
or other similar transaction involving Community Bankshares or
Community Resource Bank;
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o any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of any branch office of Community Resource Bank or of
25% or more of our consolidated assets to any other person,
entity or group in a single transaction or series of related
transactions; or
o any tender offer or exchange offer for 25% or more of the
outstanding shares of Community Bankshares' or Community Resource
Bank's capital stock, or the making of any filing with the SEC in
connection therewith.
"Acquisition agreement" means any letter of intent, agreement in
principle, acquisition agreement or other similar agreement, in any
case in writing, that relates to or provides for any transaction that
is described in or contemplated by the term acquisition proposal, as
defined above.
We have agreed to promptly, and in any event within 24 hours, notify
First Citizens in writing of the receipt of any acquisition proposal or any
information related thereto, describing the acquisition proposal and identifying
the third party making such proposal.
As discussed under the caption "-- Amendment and Termination" below, if
we go forward with a superior proposal and certain conditions are met, we will
be required to pay First Citizens a termination fee of $1,000,000.
First Citizens' Agreements Pending Closing
First Citizens has agreed to:
o Use commercially reasonable efforts to take or cause to be taken
all action required of it under the merger agreement as promptly
as practicable so as to permit the consummation of the merger at
the earliest practicable date;
o Perform all acts and execute and deliver to us all documents or
instruments required of it under the merger agreement; and
o Cooperate with us in every way in carrying out, and pursue
diligently the expeditious completion of, the merger.
First Citizens has also agreed to promptly notify us in writing of and
provide to us such further information we request regarding:
o any actual or anticipated material adverse change in its
consolidated financial condition or results of operations, or
business, or in its ability to consummate the merger; and
o any actual or anticipated condition or event that has caused or,
with the lapse of time or otherwise, may or could cause, any of
its statements, representations or warranties in the merger
agreement to be or become inaccurate, misleading or incomplete in
any material respect, or which has resulted or may or could
cause, create or result in the breach or violation in any
material respect of any of its covenants or agreements in the
merger agreement.
Mutual Agreements
First Citizens and we have agreed to cooperate mutually to prepare and
file all necessary regulatory applications and to use commercially reasonable
efforts to obtain regulatory approvals, and to cooperate in preparation of our
proxy statement. We and First Citizens have also agreed to protect each others'
confidential information, and to each refrain from making any public
announcements about the merger without consulting the other and providing an
opportunity for review.
We have agreed to permit First Citizens, at its expense, to conduct a
title examination, physical survey, zoning compliance review, structural
inspection, and environmental assessments of all of our real property.
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Amendment and Termination
Termination by Either Party. The merger agreement contains standard
provisions for termination by the parties, including, among other reasons:
o material inaccuracy of representations or warranties;
o failure to perform or comply with any obligations, agreements, or
covenants;
o material adverse change in consolidated financial condition or
results of operations or ability to consummate the merger, and,
as to Community Bankshares, also any material adverse change in
its prospects, businesses, investments, properties, loan
portfolio, operations, or ability to carry on its business as
presently conducted;
o failure to obtain regulatory approvals or approval of Community
Bankshares' shareholders; or
o failure to close the merger by March 31, 2009, or such later date
as is mutually agreed upon.
Prior to either First Citizens or Community Bankshares terminating the
merger agreement as a result of violation by the other party of, or failure
fully to perform, its obligations, covenants or agreements, or as a result of
any of the other party's representations or warranties being false or
misleading, or as a result of any event that has occurred that could cause such
representations and warranties to become false and misleading, the party that
intends to terminate must give the other party notice of intent to terminate and
the opportunity to cure the default, violation condition or other circumstance
giving rise to the right to terminate. In the event of termination by any party
as a result of the circumstances set forth in this paragraph, the violating
party must pay to the terminating party an amount equal to the terminating
party's aggregate documented out-of-pocket expenses actually incurred by it in
negotiating and preparing the merger agreement, performing due diligence, and
otherwise in connection with or attempting to consummate the transactions
described therein. In all other cases in which First Citizens or we terminate
the merger agreement each party shall pay its own costs and expenses.
Termination by Community Bankshares. In addition, we have the right to
terminate the merger agreement if we receive a "superior proposal." The merger
agreement defines "superior proposal" as an unsolicited, bona fide, written
offer made by a third party to consummate an acquisition proposal (as such term
is defined under the caption "-- Exclusive Agreement" above) that our board of
directors determines, in good faith, after consulting with its outside legal
counsel and its financial adviser, would, if consummated, result in a
transaction that is more favorable to our shareholders than the transactions
contemplated by the merger agreement with First Citizens, and we actually enter
into an acquisition agreement (as such term is defined under the caption "--
Exclusive Agreement" above) with such party. However, prior to any such
termination as a result of receiving a superior proposal, we must give First
Citizens ten days in which First Citizens may, if it so elects, adjust the terms
of the merger agreement with First Citizens to allow the transaction with First
Citizens to go forward.
Termination by First Citizens. First Citizens also has the right to
terminate the merger agreement under the following additional circumstances:
o if First Citizens identifies the existence of any zoning
restriction, easement, covenant or other restriction, or the
existence of any facts or conditions that constitute a breach of
representations and warranties relating to with respect to any of
our real property, that First Citizens reasonably believes will
materially and adversely affect its use of that real property for
the purpose for which and in the manner in which it currently is
used or the value or marketability of that real property; or
o if First Citizens reasonably believes that the total of the costs
and expenses First Citizens or Community Bankshares or Community
Resource Bank, or their respective subsidiaries, could incur in
fully correcting all of the material defects identified by First
Citizens that are described below, plus all other amounts for
which any of First Citizens or Community Bankshares or Community
Resource Bank, or their respective subsidiaries, could become
responsible or liable related to any environmental liabilities
43
with respect to real property of Community Bankshares or
Community Resource Bank, or their respective subsidiaries,
whether before or after the effective time of the merger, exceeds
an aggregate of $500,000.
The material defects referred to in the foregoing bullet point are as
follow:
o the existence of any lien (other than the lien of real property
taxes not yet due and payable), encumbrance, title imperfection
or title irregularity relating to any of the real property of
Community Bankshares or Community Resource Bank, or their
respective subsidiaries, including without limitation the
existence of any facts or circumstances that adversely affect
their ability to enforce any lease agreement or their rights in
any leasehold interest thereunder;
o the existence of any structural defects or conditions of
disrepair in the improvements on any parcel of real property of
Community Bankshares or Community Resource Bank, or their
respective subsidiaries, (including any equipment, fixtures or
other components related thereto);
o the existence of facts or circumstances relating to any of the
real property of Community Bankshares or Community Resource Bank,
or their respective subsidiaries, and indicating that:
o there likely has been a discharge, disposal, release,
threatened release, or emission by any person of any
hazardous substance on, from, under, at, or relating to that
real property, or
o any action has been taken or not taken, or a condition or
event likely has occurred or exists, with respect to that
real property (including, without limitation, any removal or
disposal of materials from the real property) which
constitutes or would constitute a violation of any
environmental law or any contract or other agreement between
any of Community Bankshares or Community Resource Bank, or
their respective subsidiaries, and any other person or
entity, as to which, in either such case, First Citizens
reasonably believes, based on the advice of legal counsel or
other consultants, that any of Community Bankshares or
Community Resource Bank, or their respective subsidiaries,
or First Citizens could incur costs or become responsible or
liable, before or after the effective time of the merger,
for assessment, removal, remediation, monetary damages
(including without limitation any liability to other persons
for property damage or personal injury), or civil, criminal
or administrative penalties or other corrective action.
First Citizens also has the right to terminate the agreement if, as
the result of receipt of a superior proposal, our board of directors withdraws,
qualifies, or revises its recommendation that our shareholders vote in favor of
the merger.
Termination Fee. We must pay First Citizens, in addition to its
out-of-pocket expenses, a termination fee of $1,000,000 if the merger agreement
is terminated under any of the following circumstances (please see definitions
of "acquisition proposal" and "acquisition agreement" under the caption "--
Exclusive Agreement" above):
o if we terminate the merger agreement as a result of obtaining a
superior proposal; or
o if First Citizens terminates the merger agreement, and any time
before 12 months after the date of such termination, (a)
Community Bankshares or Community Resource Bank executes, enters
into or otherwise becomes bound by an acquisition agreement with
respect to a superior proposal, (b) the board of directors of
either Community Bankshares or Community Resource Bank accepts,
approves, endorses, recommends or otherwise takes or agrees to
any action in furtherance of, any acquisition proposal, or (c)
any filing is made with the SEC in connection with an acquisition
proposal; AND any of the following events has occurred:
44
o First Citizens has terminated the merger agreement for violation
of, or failure of Community Bankshares or Community Resource Bank
fully to perform, its obligations, covenants and agreements where
the failure to fully perform any of such obligations, covenants
or agreements that gives rise to such termination was for reasons
reasonably within Community Bankshares' or Community Resource
Bank's control, and at any time after the date of the merger
agreement and prior to the date of such termination an
acquisition proposal has been publicly announced, disclosed or
communicated or otherwise made known to the senior management or
board of directors of Community Bankshares or Community Resource
Bank;
o First Citizens or Community Bankshares has terminated the merger
agreement as a result of failure of Community Bankshares'
shareholders to approve to merger and in either such case an
acquisition proposal has been publicly announced or disclosed by,
or communicated or made known to, the senior management or board
of directors of Community Bankshares or Community Resource Bank
at any time after the date of the merger agreement and prior to
the date of Community Bankshares' shareholders' meeting or, in
the case of a termination by First Citizens as a result of
Community Bankshares' shareholders' meeting not being held by
December 31, 2008, prior to the date of such termination;
o First Citizens has terminated the merger agreement because the
proxy statement distributed by Community Bankshares to its
shareholders in connection with its shareholders' meeting does
not state that Community Bankshares' board of directors considers
the merger to be advisable and in the best interests of Community
Bankshares and its shareholders and that the board recommends
that Community Bankshares' shareholders vote for approval of the
Plan of Merger (or, after having made such a recommendation in
the proxy statement, the board withdraws, qualifies or revises
that recommendation in any material respect), and where such
failure to recommend approval is a result of Community
Bankshares' board of directors reasonable good faith belief,
after consultation with and receipt of the advice of its outside
legal counsel and financial advisers, that such a recommendation
would violate the directors' duties or obligations as such to
Community Bankshares or to its shareholders under applicable law
as a result of Community Bankshares' receipt of a superior
proposal; or
o First Citizens has terminated the merger agreement because the
merger has not become effective by March 31, 2009, or such later
date as shall be mutually agreed among the parties, and where the
reason the merger has not become effective on or before such date
is within the reasonable control of Community Bankshares and
Community Resource Bank.
Expenses
Except as provided above under the caption "-- Amendment and
Termination," each party to the merger agreement is required to pay its own
legal, accounting, financial and other consulting or advisory fees, and all its
other costs and expenses, incurred or to be incurred in connection with the
execution and performance of its obligations under the merger agreement, or
otherwise in connection with the merger agreement (including without limitation
filing fees, printing and mailing costs, and other out-of-pocket expenses).
Expenses associated with the printing and mailing of this Proxy Statement and
all amounts owed by us to Allen C. Ewing & Co. for its services and for
rendering its fairness opinion described under the caption - Opinion of
Community Bankshares' Financial Adviser - Fees of Financial Adviser," will be
deemed to have been incurred solely by us.
AUTHORIZATION TO ADJOURN
Under South Carolina law, a shareholders meeting may be adjourned and
reconvened one or more times to a later date for any reason. If the new time and
place at which the meeting will be reconvened are announced at the meeting
before the adjournment, no further notice of the reconvened meeting is required
to be given unless the adjournment is for more than 120 days. Even if a quorum
is not present, shareholders who are represented at a meeting may approve an
adjournment of the meeting.
45
If a quorum is not present at the Community Bankshares special meeting,
or if there are insufficient shares of our common stock represented at the
special meeting, in person or by proxy, to vote on or to approve the merger
agreement and the merger, our management likely will propose to adjourn the
meeting until a later date and time to allow time to solicit additional proxy
cards needed to establish a quorum or additional votes needed to approve the
merger agreement and the merger. In that event, a proposal would be submitted to
the shareholders represented at the special meeting to adjourn the meeting and
reconvene it at a later date.
Shareholders who sign a proxy card and return it to us will be
authorizing the persons named as proxy agents to vote their shares according to
the proxy agents' best judgment on matters incident to the conduct of the
special meeting, including routine adjournments of the meeting. That authority
will permit the proxy agents to vote shares in favor of an adjournment if a
quorum is not present at the meeting, or if an adjournment is needed for most
other purposes. However, that general authority may not permit the proxy agents
to vote shares in favor of an adjournment for the purpose of soliciting
additional votes needed to approve the merger agreement and the merger.
Therefore, a separate proposal is included in the proxy card which accompanies
this proxy statement in which you are asked to give instructions to the proxy
agents on how your shares should be voted in the event a proposal is submitted
to adjourn the meeting to allow additional time to solicit votes needed to
approve the merger agreement and the merger.
If you vote in favor of this proposal, you will authorize the proxy
agents to vote your shares in favor of one or more adjournments of the special
meeting for up to a total of 120 days, if necessary, to allow additional time to
solicit votes needed to approve the merger agreement and merger. The general
authority given to the proxy agents in your proxy card to vote your shares on
matters incident to the conduct of the special meeting will authorize them to
vote your shares according to their best judgment on adjournments for any other
reason.
Our board of directors recommends that you vote "FOR" the proposal to
authorize adjournment of the special shareholders' meeting to allow time for the
further solicitation of proxies to approve the merger agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of August 15, 2008, the number and
percentage of outstanding shares beneficially owned by (i) each of our
directors, (ii) each person who was named in the Summary Compensation Table of
the proxy statement relating to our 2008 Annual Meeting of Shareholders, and
(iii) all of our executive officers and directors as a group. We do not know of
anyone who owns more than 5% of our outstanding common stock. Except as
indicated in the footnotes to the table, each person named has sole voting and
dispositive power with respect to the shares shown.
Name of Beneficial Owner Amount and Nature of % of Class
Beneficial Ownership
------------------------ -------------------- ----------
E. J. Ayers, Jr. (1) 80,590 1.82%
Alvis J. Bynum (2) 32,685 *
Anna O. Dantzler (3) 90,500 2.03%
Thomas B. Edmunds (4) 20,000 *
Samuel L. Erwin (5) 37,595 *
Charles E. Fienning (6) 17,147 *
Henrietta C. Guthrie (7) 4,436 *
Richard L. Havekost (8) 41,150 *
J. V. Nicholson, Jr. (9) 135,000 3.03%
Samuel F. Reid, Jr. (10) 52,792 1.20%
Charles P. Thompson, Jr. (11) 30,823 *
46
Name of Beneficial Owner Amount and Nature of % of Class
Beneficial Ownership
------------------------ -------------------- ----------
William W. Traynham (12) 64,531 1.45%
Wm. Reynolds Williams (13) 11,686 *
J. Richard Williamson(14) 25,042 *
Michael A. Wolfe (15) 58,637 1.31%
All executive officers and
directors as a group (18 persons) (16) 732,994 16.02%
*Less than one percent
(1) Includes 1,680 shares owned by Nancy R. Ayers, Mr. Ayers' wife; and 5,000
shares subject to stock options which are currently exercisable.
(2) Includes 5,874 shares owned by Marjorie F. Bynum, Mr. Bynum's wife; and
7,150 shares subject to stock options which are currently exercisable.
(3) Includes 10,500 shares held jointly with Charlton Ardis, Mrs. Dantzler's
son; and 10,250 shares subject to stock options which are currently
exercisable.
(4) Includes 10,000 shares held by Lucy Edmunds, Mr. Edmunds' wife.
(5) Includes 30,000 stock options which are currently exercisable.
(6) Includes 5,361 shares owned by Suzanne S. Fienning, Mr. Fienning's wife.
(7) Includes 1,603 shares held in trust for Caroline R. Guthrie, Mrs. Guthrie's
child.
(8) Includes 4,050 shares subject to stock options which are currently
exercisable.
(9) Includes 67,500 shares owned by Ellen Nicholson, Mr. Nicholson's wife.
(10) Includes 14,052 shares held by Mr. Reid as trustee for his children; 16,800
shares owned by Rosa G. Reid, Mr. Reid's wife; and 10,250 shares subject to
stock options which are currently exercisable.
(11) Includes 68 shares owned jointly with Cheri Thompson, Mr. Thompson's wife.
(12) Includes 18,436 shares owned jointly with Margaret S. Traynham, Mr.
Traynham's wife; and 15,250 shares subject to stock options which are
currently exercisable. Of the total shares shown as beneficially owned by
Mr. Traynham, 15,000 shares are pledged as collateral.
(13) Includes 6,650 shares owned jointly with Mary T. Williams, Mr. Williams'
wife; and 4,220 shares held in a defined benefit plan.
(14) Includes 1,284 shares held in trust for Dr. Williamson's children.
(15) Includes 2,537 shares owned by Mr. Wolfe's wife, Joye McGrady Wolfe, as
custodian for their children; and 15,250 shares subject to stock options
which are currently exercisable.
(16) Includes 132,400 shares subject to stock options which are currently
exercisable.
BUSINESS OF COMMUNITY BANKSHARES AND COMMUNITY RESOURCE BANK
Organization
Community Bankshares is a South Carolina corporation and a bank holding
company. Community Bankshares commenced operations on July 1, 1993, upon
effectiveness of the acquisition of the Orangeburg National Bank as a
wholly-owned subsidiary. In June 1996, Community Bankshares acquired all the
stock of Sumter National Bank. In July 1998 Community Bankshares acquired all
the stock of Florence National Bank. In July 2002, Community Bankshares acquired
by merger Ridgeway Bancshares, Inc., the parent company of the former Bank of
Ridgeway.
Orangeburg National Bank was chartered in 1987 as a national bank, and
operated from two offices located in Orangeburg, South Carolina. Sumter National
Bank, a national bank, was chartered in 1996 and operated from two offices
located in Sumter, South Carolina. Florence National Bank, a national bank, was
chartered in 1998 and operated from two offices located in Florence, South
Carolina. Bank of Ridgeway, a South Carolina state-chartered bank organized in
1898, operated from one office in Ridgeway, one office in Winnsboro, and one
office in Blythewood, South Carolina. In November 2001, Community Bankshares
47
acquired all the common stock of Resource Mortgage Inc., a Columbia, South
Carolina based mortgage company, and subsequently renamed it Community Resource
Mortgage, Inc.
In August 2006, Orangeburg National Bank's name was changed to
Community Resource Bank, N.A., and in October 2006, Sumter National Bank,
Florence National Bank and Bank of Ridgeway were merged into Community Resource
Bank. Effective in January 2007, the operations of the mortgage company became a
division of Community Resource Bank, and Community Bankshares has continued to
conduct mortgage loan origination operations under the name "Community Resource
Mortgage, a division of Community Resource Bank" (the "Mortgage Division").
Community Resource Mortgage, Inc. remains a separate corporate entity and
wholly-owned subsidiary of Community Bankshares, but with only limited assets
and activities. Community Resource Bank and the Mortgage Division now operate in
four geographical regions in South Carolina: Orangeburg, Sumter and Florence
counties and the Midlands (Fairfield and Richland counties).
In 2002, Community Resource Bank organized Community Resource Financial
Services, Inc., as a wholly-owned financial subsidiary for the purpose of
engaging in sales of securities and insurance products.
Business of Banking
Community Resource Bank offers a full array of commercial banking
services. Deposit services include business and personal checking accounts, NOW
accounts, savings accounts, money market accounts, various term certificates of
deposit, IRA accounts, and other deposit services. The Federal Deposit Insurance
Corporation insures deposits up to applicable limits. Most of Community Resource
Bank's deposits are attracted from individuals and small to medium sized
businesses.
Community Resource Bank offers secured and unsecured,
short-to-intermediate term loans, with floating and fixed interest rates for
commercial and consumer purposes. Consumer loans include car loans, home equity
improvement loans secured by first and second mortgages, personal expenditure
loans, education loans, and the like. Commercial loans include short-term
unsecured loans, short and intermediate term real estate mortgage loans, loans
secured by listed stocks, loans secured by equipment, inventory, accounts
receivable, and the like. Community Resource Bank does not and will not
discriminate against any applicant for credit on the basis of race, color,
creed, sex, age, marital status, familial status, handicap, or derivation of
income from public assistance programs.
Other services offered by Community Resource Bank include safe deposit
boxes, night depository service, VISA and Master Card brand credit cards
(through a correspondent), tax deposits, sale of U.S. Treasury bonds, notes and
bills and other U. S. government securities (through a correspondent),
twenty-four hour automated teller service, and consumer and commercial Internet
banking services. The bank has ATMs that are part of the Star and Cirrus
networks.
The Mortgage Division provides a wide variety of one to four family
residential mortgage loan products in the markets served by Community Resource
Bank.
Competition
The market for financial institutions in our various markets is highly
competitive. Banks generally compete with other financial institutions through
the banking services and products offered, the pricing of services, the level of
service provided, the convenience and availability of services, and the degree
of expertise and personal concern with which services are offered. Community
Resource Bank encounters strong competition from most of the financial
institutions in its market areas.
The primary market area for Community Resource Bank comprises generally
the middle of the state and Pee Dee section of South Carolina (Fairfield,
Orangeburg, Richland, Sumter and Florence counties). In the conduct of certain
banking business, the bank also competes with credit unions, consumer finance
companies, insurance companies, money market mutual funds, and other financial
institutions, many of which are not subject to the same degree of regulation and
48
restrictions imposed upon the bank. Many of these competitors have substantially
greater resources and lending limits than the bank and offer certain services,
such as international banking and trust services, which the bank does not
provide. The bank believes, however, that its relatively small size and
community banking orientation have permitted it to offer more personalized
services than many of its competitors.
At June 30, 2007, the latest date for which such data is presently
available, Community Resource Bank was the 17th largest (of 107) FDIC insured
financial institution with offices in the state of South Carolina, based on
deposits. At that date the bank had $486 million in deposits, which represented
..76% of the state's total FDIC insured deposits of $64 billion. In Orangeburg
County, the bank competed with nine other FDIC insured institutions, in Sumter
County eight, in Florence County 16, in Richland County 19, and in Fairfield
County four. At June 30, 2007, the bank's Orangeburg offices had the second
largest deposit share in Orangeburg County; the bank's Sumter offices had the
third largest deposit share in Sumter County; the bank's Florence offices had
the sixth largest deposit share in Florence County; and the bank's Midlands
offices had the largest deposit share in Fairfield County, and the 16th largest
deposit share in Richland County.
The Mortgage Division provides services from offices in Orangeburg,
Richland, Sumter, and Florence, South Carolina, where it competes with hundreds
of financial institutions and mortgage originators.
BUSINESS OF FIRST CITIZENS
First Citizens Bank and Trust Company, Inc. is a South Carolina
chartered bank that offers a complete array of commercial and retail banking
services through its 170 banking offices located throughout South Carolina and
in Georgia. In addition to the types of banking services offered by Community
Resource Bank, First Citizens offers wealth management and trust and retirement
services, as well as brokerage and investment services which are provided by an
affiliate, First Citizens Securities Corporation. First Citizens is a wholly
owned subsidiary of First Citizens Bancorporation, Inc., a South Carolina
corporation registered as a financial holding company with the Board of
Governors of the Federal Reserve. As of June 30, 2008, First Citizens had
approximately $6.2 billion in total assets and, ranked by deposits at June 30,
2007, it was the fifth largest of 107 FDIC insured institutions with offices in
South Carolina.
OTHER BUSINESS
We do not know of any other business to be presented at the special
meeting. If any other matters are properly brought before the special meeting,
however, the persons named as agents in the accompanying form of proxy intend to
vote such proxy in accordance with their best judgment.
SHAREHOLDER PROPOSALS
In the event the merger is not completed and we hold an annual meeting
of shareholders in 2009, if you wish to present a proposal for action at that
2009 annual meeting of shareholders, you must deliver the proposal to our
President, William W. Traynham, at our executive offices, 102 Founders Court,
Orangeburg, South Carolina, or mail it to Mr. Traynham at P.O. Box 2086,
Orangeburg, South Carolina 29116-2086. If you wish for us to include any such
proposal in our proxy statement and form of proxy for the 2009 Annual Meeting of
Shareholders, you must send or deliver the proposal in time for Mr. Traynham to
receive it no later than December 20, 2008. If any shareholder proposal is not
received by Mr. Traynham by March 4, 2009, the persons named as proxies in the
proxy materials relating to that meeting will use their discretion in voting the
proxies when the proposal is raised at the meeting. Only proper proposals that
are timely received will be included in our proxy statement and proxy card.
49
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. Our SEC file
number is 001-12341. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its Public Reference Room facilities at 100
F Street NE, Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference
Room.
50
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
COMMUNITY BANKSHARES, INC.
COMMUNITY RESOURCE BANK, N.A.
AND
FIRST CITIZENS BANK AND TRUST COMPANY, INC.
JUNE 25, 2008
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
ARTICLE II.
THE MERGER
2.01. Nature of Transaction; Plan of Merger..................................................................... 6
2.02. Effect of Merger; Surviving Corporation................................................................... 6
2.03. Assets and Liabilities of CBI and CRB..................................................................... 6
2.04. Conversion and Exchange of Stock.......................................................................... 6
(a) Conversion of CBI Stock............................................................................. 6
(b) Cancellation of CRB Stock........................................................................... 7
(c) Exchange and Payment Procedures; Surrender of Certificates.......................................... 7
(d) Lost Certificates................................................................................... 8
(e) Antidilutive Adjustments............................................................................ 9
(f) Termination and Conversion of CBI Stock Awards...................................................... 9
2.05. Articles of Incorporation, Bylaws, and Management......................................................... 9
2.06. Closing; Effective Time................................................................................... 9
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
CBI AND CRB
3.01. Organization; Standing; Power.............................................................................10
3.02. Capital Stock.............................................................................................10
3.03. Principal Shareholders....................................................................................11
3.04. Subsidiaries..............................................................................................11
3.05. Convertible Securities, Options, Etc......................................................................11
3.06. Authorization and Validity of Agreement...................................................................11
3.07. Validity of Transactions; Absence of Required Consents or Waivers.........................................12
3.08. Books and Records.........................................................................................12
3.09. Reports to Regulatory Authorities.........................................................................12
3.10. Consolidated Financial Statements.........................................................................13
3.11. Tax Matters...............................................................................................14
3.12. Absence of Changes or Certain Other Events................................................................16
3.13. Absence of Undisclosed Liabilities........................................................................16
3.14. Compliance with Existing Obligations......................................................................16
3.15. Litigation and Compliance with Law........................................................................16
3.16. Real Properties...........................................................................................17
3.17. Loans, Accounts, Notes and Other Receivables..............................................................18
3.18. Securities Portfolio and Investments......................................................................20
3.19. Personal Property and Other Assets........................................................................21
3.20. Intellectual Property.....................................................................................21
3.21. Environmental Matters.....................................................................................21
3.22. Absence of Brokerage or Finders Commissions...............................................................23
3.23. Material Contracts........................................................................................23
3.24. Employment Matters; Employee Relations....................................................................24
3.25. Employment Agreements; Employee Benefit Plans.............................................................24
3.26. Insurance.................................................................................................26
3.27. Insurance of Deposits.....................................................................................27
3.28. Indemnification Obligations...............................................................................27
3.29. Disclosure and Accounting Controls........................................................................27
3.30. Obstacles to Regulatory Approval..........................................................................28
A-i
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF FCB
4.01. Organization; Standing; Power.............................................................................28
4.02. Authorization and Validity of Agreement...................................................................28
4.03. Validity of Transactions; Absence of Required Consents or Waivers.........................................29
4.04. Financing.................................................................................................29
4.05. Obstacles to Regulatory Approval..........................................................................29
ARTICLE V.
COVENANTS OF CBI AND CRB
5.01. Affirmative Covenants.....................................................................................29
(a) CBI Shareholders' Meeting; Proxy Statement; Recommendation..........................................29
(b) Conduct of Business Prior to Effective Time.........................................................30
(c) Periodic Financial and Other Information............................................................31
(d) Notice of Certain Changes or Events.................................................................34
(e) Accruals for Expenses and Other Accounting Matters..................................................34
(f) Loan Loss Reserve, Loan Repurchase Reserve, and Loan Charge-Offs....................................35
(g) Consents to Assignment of Contracts and Leases......................................................35
(h) Access..............................................................................................35
(i) Pricing of Deposits and Loans.......................................................................36
(j) Employment Agreements and Change in Control Severance Agreements....................................36
(k) Further Action; Instruments of Transfer.............................................................36
5.02. Negative Covenants........................................................................................36
(a) Amendments to Articles of Incorporation or Bylaws...................................................36
(b) Change in Capitalization............................................................................36
(c) Sale or Issuance of Capital Stock or Other Securities...............................................37
(d) Purchase or Redemption of Shares....................................................................37
(e) Options, Warrants and Rights........................................................................37
(f) Dividends...........................................................................................37
(g) Employment, Benefit or Retirement Agreements or Plans...............................................37
(h) Increase in Compensation; Bonuses...................................................................38
(i) Accounting Practices; Independent Accountants.......................................................38
(j) Acquisitions; Additional Branch Offices.............................................................38
(k) Changes in Business Practices.......................................................................38
(l) Exclusive Agreement.................................................................................38
(m) Acquisition or Disposition of Assets................................................................39
(n) Debt; Liabilities...................................................................................40
(o) Liens; Encumbrances.................................................................................41
(p) Waiver of Rights....................................................................................41
(q) Other Contracts.....................................................................................41
(r) Deposit Liabilities.................................................................................41
(s) Changes in Lease Agreements.........................................................................41
(t) Actions by CRM, CFS, RIA and FNFS...................................................................42
ARTICLE VI
COVENANTS OF FCB
6.01. Employees; Employee Benefits..............................................................................42
(a) Employment of CRB Employees.........................................................................42
(b) Employee Benefits...................................................................................42
6.02. Further Action; Instruments of Transfer...................................................................43
6.03 Notice of Certain Changes or Events.......................................................................43
A-ii
ARTICLE VII.
ADDITIONAL MUTUAL AGREEMENTS
7.01. Regulatory Approvals......................................................................................43
7.02. Information for Proxy Statement and Applications for Regulatory Approvals.................................43
7.03. Announcements; Confidential Information...................................................................44
7.04. Real Property Matters.....................................................................................46
7.05. Director' and Officers' Liability Insurance...............................................................47
7.06. Final Tax Return..........................................................................................47
7.07. Expenses..................................................................................................48
7.08. Employment and Change of Control Severance Agreements.....................................................48
7.09 Treatment of 401(k) Plan..................................................................................48
7.10 Equity Award Termination and Releases.....................................................................48
7.11 Deregistration of CBI Stock...............................................................................50
7.12 Satisfaction of Conditions to Regulatory Approvals........................................................50
7.13 Dissolution of RIA and FNFS...............................................................................50
ARTICLE VIII.
CONDITIONS PRECEDENT TO MERGER
8.01. Conditions to all Parties' Obligations....................................................................51
(a) Regulatory Approvals................................................................................51
(b) Adverse Proceedings, Injunction, Etc................................................................51
(c) Approval by Boards of Directors and Shareholders....................................................51
(d) Articles of Merger; Other Actions...................................................................52
8.02. Additional Conditions to CBI's and CRB's Obligations......................................................52
(a) Material Adverse Change.............................................................................52
(b) Compliance with Laws................................................................................52
(c) FCB's Representations and Warranties and Performance of Agreements..................................52
(d) Legal Opinion of FCB's Counsel......................................................................52
(e) Other Documents and Information.....................................................................53
(f) Deposit of Merger Consideration.....................................................................53
(g) Fairness Opinion....................................................................................53
(h) No Termination or Abandonment.......................................................................53
8.03. Additional Conditions to FCB's Obligations................................................................53
(a) Material Adverse Change.............................................................................53
(b) Compliance with Laws................................................................................53
(c) CBI's and CRB's Representations and Warranties and Performance of Agreements........................53
(d) Employment Agreements...............................................................................54
(e) Termination of CBI Stock Options....................................................................54
(f) Consents to Assignment; Estoppel Certificates.......................................................54
(g) Legal Opinion of CBI's Counsel......................................................................54
(h) Other Documents and Information.....................................................................54
(i) No Disadvantageous Conditions to Regulatory Approvals...............................................54
(j) No Termination or Abandonment.......................................................................55
ARTICLE IX.
TERMINATION; BREACH; REMEDIES
9.01. Mutual Termination........................................................................................55
9.02. Unilateral Termination....................................................................................55
(a) Termination by FCB..................................................................................55
(b) Termination by CBI..................................................................................56
9.03. Breach; Remedies; Expense Reimbursement...................................................................58
(a) Breach by CBI or CRB................................................................................58
(b) Breach by FCB.......................................................................................58
(c) Enforcement of Certain Agreements Following Termination.............................................58
9.04 Termination Fees..........................................................................................59
9.05 Method and Timing of Payments.............................................................................59
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ARTICLE X.
INDEMNIFICATION
10.01. Indemnification Following Termination of Agreement........................................................60
(a) By CBI and CRB......................................................................................60
(b) By FCB..............................................................................................60
(c) Procedure for Claiming Indemnification...............................................................61
10.02 Indemnification of CBI Directors and Officers.............................................................61
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.01. Survival of Certain Rights and Obligations Following Closing or Termination...............................62
11.02. Inspection................................................................................................62
11.03. Waiver....................................................................................................63
11.04. Amendment.................................................................................................63
11.05. Notices...................................................................................................63
11.06. Further Assurance.........................................................................................64
11.07. Headings and Captions.....................................................................................64
11.08. Gender and Number.........................................................................................64
11.09. Entire Agreement..........................................................................................64
11.10. Severability of Provisions................................................................................64
11.11. Assignment................................................................................................64
11.12. Counterparts..............................................................................................64
11.13. Governing Law.............................................................................................64
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AGREEMENT AND
PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into as
of the 25th day of June, 2008, by and among COMMUNITY BANKSHARES, INC. ("CBI"),
COMMUNITY RESOURCE BANK, N.A. ("CRB"), and FIRST CITIZENS BANK AND TRUST
COMPANY, INC. ("FCB").
WHEREAS, CBI is a South Carolina business corporation with its
principal office and place of business located in Orangeburg, South Carolina,
and, by virtue of its being the owner of all the issued and outstanding shares
of common stock of CRB, is a bank holding company registered as such with the
Board of Governors of the Federal Reserve System; and,
WHEREAS, CRB is a national banking association with its principal
office and place of business located in Orangeburg, South Carolina, and is a
wholly-owned subsidiary of CBI and the owner of all the issued and outstanding
shares of common stock of Community Resource Financial Services, Inc. ("CFS"),
Ridgeway Insurance Agency ("RIA"), and Florence National Financial Services,
Inc. ("FNFS"), each of which is a South Carolina business corporation which has
its principal office and place of business in South Carolina; and,
WHEREAS, CBI also is the owner of all the issued and outstanding shares
of common stock of Community Resource Mortgage, Inc. ("CRM"), which is a South
Carolina business corporation which has its principal office and place of
business in Columbia, South Carolina; and,
WHEREAS, FCB is a South Carolina state-chartered bank with its
principal office and place of business located in Columbia, South Carolina, and
is a wholly-owned bank subsidiary of First Citizens Bancorporation, Inc.
("Bancorp"), which is a South Carolina business corporation and is a bank
holding company registered as such with the Board of Governors of the Federal
Reserve System; and,
WHEREAS, FCB, CBI and CRB have agreed that it is in their mutual best
interests and in the best interests of their respective shareholders for CBI and
CRB to be merged with and into FCB in the manner and upon the terms and
conditions contained in this Agreement and the Plan of Merger attached as
Exhibit A hereto; and,
WHEREAS, to effectuate the foregoing, FCB, CBI and CRB desire to adopt
this Agreement and Plan of Reorganization; and,
WHEREAS, FCB's Board of Directors has approved this Agreement, and
Bancorp has approved this Agreement in its capacity as FCB's sole shareholder;
and,
WHEREAS, CBI's and CRB's Boards of Directors have approved this
Agreement, and CBI's Board of Directors has approved this Agreement in its
capacity as CRB's sole shareholder and recommended approval of this Agreement to
its shareholders.
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NOW, THEREFORE, in consideration of the premises, the mutual benefits
to be derived from this Agreement, and the representations, warranties,
conditions, covenants and promises herein contained, and subject to the terms
and conditions hereof, FCB, CBI and CRB hereby adopt and make this Agreement and
mutually agree as provided below.
ARTICLE I
DEFINITIONS
As used in this Agreement, certain of the capitalized terms used
throughout this Agreement are listed below with their meanings as used herein.
1.01. Acquisition Agreement and Acquisition Proposal. The terms
"Acquisition Agreement" and "Acquisition Proposal" shall have the meanings
assigned to them in Paragraph 5.02(l) of this Agreement.
1.02. CBI Audited Financial Statements. The term "CBI Audited Financial
Statements" means CBI's audited consolidated statements of financial condition
as of December 31, 2007 and 2006, and its audited consolidated statements of
income, shareholders' equity and cash flows for the three years ended December
31, 2007, 2006 and 2005, together with the notes thereto.
1.03. CBI Companies. The term "CBI Companies" refers collectively to
CBI, CRB, CRM and CFS.
1.04. CBI DRIP. The term "CBI DRIP" means CBI's Dividend Reinvestment
Plan.
1.05. CBI Interim Financial Statements. The term "CBI Interim Financial
Statements" means CBI's unaudited consolidated interim statements of financial
condition as of March 31, 2008 and 2007, and its unaudited interim consolidated
statements of income, shareholders' equity and cash flows for the three months
ended March 31, 2008 and 2007, together with the notes thereto.
1.06. CBI Material Change. The term "CBI Material Change" means a
material adverse change in CBI's consolidated financial condition or results of
operations (including the acceleration of any material obligation or
indebtedness of CBI or CRB), in the prospects, businesses, investments,
properties, Loan portfolio or operations of the CBI Companies considered as one
entity, or in the ability of CBI or CRB to consummate the transactions described
herein or to carry on CRB's business as presently conducted, or in FCB's ability
to conduct CRB's business following the Merger, but shall not include any change
resulting from (a) the execution or announcement of this Agreement, (b) any
actions taken by FCB after the date hereof and prior to the Effective Time that
relate to, or affect, the businesses of the CBI Companies, (c) compliance by CBI
or CRB with the terms of this Agreement, (d) any reasonable out-of-pocket costs
or expenses associated with, relating to or arising from the transactions
contemplated by this Agreement (including legal, accounting and financial
advisory fees and disbursements), (e) general economic, industry or financial
conditions or events that affect the banking industry as a whole, (f) the impact
of laws, rules, regulations and court decisions (other than court decisions
related to litigation in which CBI or CRB is a party) that affect the banking
industry as a whole, (g) acts of war or terrorism, or (h) a requirement imposed
by any Regulatory Authority as described in Paragraph 7.12.
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1.07. CBI Material Effect. The term "CBI Material Effect" means a
material adverse effect on the CBI Companies considered as one entity, on CBI's
consolidated financial condition or results of operations, on the CBI Companies'
(considered as one entity) prospects, businesses, investments, properties, Loan
portfolio or operations, or on the ability of CBI or CRB to consummate the
transactions described herein or to carry on CRB's business as presently
conducted, or on FCB's ability to conduct CRB's business following the Merger,
but shall not include any effect resulting from (a) the execution or
announcement of this Agreement, (b) any actions taken by FCB after the date
hereof and prior to the Effective Time that relate to, or affect, the businesses
of the CBI Companies, (c) compliance by CBI or CRB with the terms of this
Agreement, (d) any reasonable out-of-pocket costs or expenses associated with,
relating to or arising from the transactions contemplated by this Agreement
(including legal, accounting and financial advisory fees and disbursements), (e)
general economic, industry or financial conditions or events that affect the
banking industry as a whole, (f) the impact of laws, rules, regulations and
court decisions (other than court decisions related to litigation in which CBI
or CRB is a party) that affect the banking industry as a whole, (g) acts of war
or terrorism, or (h) a requirement imposed by any Regulatory Authority as
described in Paragraph 7.12.
1.08. CBI Real Property. The term "CBI Real Property" means all real
property owned or leased by any of the CBI Companies (including foreclosed real
property) or in which any CBI Company holds a leasehold interest, in either case
including improvements thereon.
1.09. CBI Shareholders' Meeting. The term "CBI Shareholders' Meeting"
shall have the meaning assigned to it in Paragraph 5.01(a) of this Agreement.
1.10. CBI Stock. The term "CBI Stock" means the outstanding no par
value common stock of CBI, whether in certificated or uncertificated book-entry
form, and also including outstanding shares held by the administrator of the CBI
DRIP for the accounts of participants in that plan, and outstanding shares
covered by CBI RSAs.
1.11. CBI Stock Award. The term "CBI Stock Award" means any and all
options to purchase shares of CBI Stock (each, a "CBI Option"), awards of
restricted shares of CBI Stock (each, a "CBI RSA"), stock appreciation rights
relating to CBI Stock (each, a "CBI SAR"), and any other share-based awards
pertaining or related to CBI Stock, that have been issued pursuant to CBI's 2007
Equity Plan, 1997 Stock Option Plan or any other share-based compensation plan
maintained or provided by CBI or otherwise and that remain outstanding and
unexercised (whether or not vested) at the Effective Time.
1.12. CRB Stock. The term "CRB Stock" means the outstanding $5.00 par
value common stock of CRB.
1.13. Closing and Closing Date. The terms "Closing" and "Closing Date"
shall have the meanings assigned to them in Paragraph 2.06 of this Agreement.
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1.14. Code. The term "Code" means the Internal Revenue Code of 1986, as
amended.
1.15. Commercially Reasonable Efforts. The term "Commercially
Reasonable Efforts" means a party's best efforts in good faith; provided,
however, that Commercially Reasonable Efforts shall not require (a) the
expenditure of sums of money that are unreasonable under the circumstances or in
relation to the significance to the transactions described in this Agreement of
the action or result the party is required to use Commercially Reasonable
Efforts to take or achieve, or (b) the initiation of a law suit against any
person.
1.16. Effective Time. The term "Effective Time" means the date and time
at which the Merger shall become effective as specified in Articles of Merger
executed by FCB and filed by it with the South Carolina Secretary of State as
described in Paragraph 2.06 below in accordance with applicable law in order to
effectuate the Merger of CBI and CRB into FCB.
1.17. FCB Material Change. The term "FCB Material Change" means a
material adverse change in or affecting Bancorp's consolidated financial
condition or results of operations or in the ability of FCB to consummate the
transactions described herein, but shall not include any change resulting from
(a) the execution or announcement of this Agreement, (b) compliance by FCB with
the terms of this Agreement, (c) any reasonable out-of-pocket costs or expenses
associated with, relating to or arising from the transactions contemplated by
this Agreement (including legal, accounting and financial advisory fees and
disbursements), (d) general economic, industry or financial conditions or events
that affect the banking industry as a whole, (e) the impact of laws, rules,
regulations and court decisions (other than court decisions related to
litigation in which FCB is a party) that affect the banking industry as a whole,
(f) acts of war or terrorism, or (g) a requirement imposed by any Regulatory
Authority as described in Paragraph 7.12.
1.18. FCB Material Effect. The term "FCB Material Effect" means a
material adverse effect on FCB and Bancorp considered as one entity, on
Bancorp's consolidated financial condition or results of operations, or on the
ability of FCB and Bancorp to consummate the transactions described herein, but
shall not include any effect resulting from (a) the execution or announcement of
this Agreement, (b) compliance by FCB with the terms of this Agreement, (c) any
reasonable out-of-pocket costs or expenses associated with, relating to or
arising from the transactions contemplated by this Agreement (including legal,
accounting and financial advisory fees and disbursements), (d) general economic,
industry or financial conditions or events that affect the banking industry as a
whole, (e) the impact of laws, rules, regulations and court decisions (other
than court decisions related to litigation in which FCB is a party) that affect
the banking industry as a whole, (f) acts of war or terrorism, or (g) a
requirement imposed by any Regulatory Authority as described in Paragraph 7.12.
1.19. GAAP. The term "GAAP" means accounting principles generally
accepted in the United States.
1.20. Knowledge. The term "Knowledge of CBI" refers to facts,
information, events or circumstances of which any of the respective executive
officers of the CBI Companies are consciously aware or of which they should have
become consciously aware in the ordinary course of business and the performance
of their management duties.
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The term "Knowledge of FCB" refers to facts, information, events or
circumstances of which any of FCB's executive officers are consciously aware or
of which they should have become consciously aware in the ordinary course of
business and the performance of their management duties.
1.21. Lease Agreements. The term "Lease Agreements" shall have the
meaning assigned to it in Section 3.16 of this Agreement.
1.22. Loans. The term "Loans" means any and all (a) loans (whether held
for investment or for resale) reflected as assets on the books and records of
the CBI Companies, (b) loans sold by any of the CBI Companies to any third party
investor, (c) lines of credit, letters of credit, accounts, notes, financing
leases and other extensions of credit or receivables reflected as assets on the
books and records of the CBI Companies, and (d) all unfunded commitments to make
a Loan or issue or extend credit of any of the CBI Companies.
1.23. Merger. The term "Merger" shall have the meaning assigned to it
in Paragraph 2.01 of this Agreement.
1.24. Merger Consideration. The term "Merger Consideration" shall have
the meaning assigned to it in Paragraph 2.04(a) of this Agreement.
1.25. Paying Agent. The term "Paying Agent" shall have the meaning
assigned to it in Paragraph 2.04(c)(i) of this Agreement.
1.26. Previously Disclosed. The terms "Previously Disclosed to FCB" and
"Previously Disclosed to CBI" shall mean the disclosure of information by CBI
and CRB to FCB, or by FCB to CBI and CRB, respectively, as of a date not more
than ten days prior to the date of this Agreement, or, in the case of certain
information, as of such other date as is specified herein, in a letter delivered
by the disclosing party(ies) to the other party(ies) specifically referring to
this Agreement and arranged in paragraphs corresponding to the Paragraphs,
Subparagraphs and items of this Agreement applicable thereto. Information shall
be deemed to have been Previously Disclosed for the purpose of a given
Paragraph, Subparagraph or item of this Agreement only if a specific reference
to that Paragraph, Subparagraph or item is made by the disclosing party(ies) in
its above letter.
1.27. Regulatory Authorities. The term "Regulatory Authorities"
includes each and every federal, state or local governmental, regulatory, or
judicial authority having jurisdiction over any of the CBI Companies or FCB, or
any of their respective business operations, properties or assets, or the
transactions described herein, including without limitation the South Carolina
State Board of Financial Institutions, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Reserve Bank of Richmond, the U.S.
Department of Justice, and the SEC.
1.28. SEC. The term "SEC" means the Securities and Exchange Commission.
1.29. 1934 Act. The term "1934 Act" means the Securities Exchange Act
of 1934, as amended.
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ARTICLE II
THE MERGER
2.01. Nature of Transaction; Plan of Merger. Subject to the provisions
of this Agreement, at the Effective Time CBI and CRB each simultaneously will be
merged into and with FCB pursuant to Section 33-11-101, et. seq., of the Code of
Laws of South Carolina, as amended (the "Merger"), as provided in the plan of
merger (the "Plan of Merger") attached as Exhibit A to this Agreement.
2.02. Effect of Merger; Surviving Corporation. At the Effective Time,
and by reason of the Merger, the separate corporate existences of CBI and CRB
shall cease while the corporate existence of FCB as the surviving corporation in
the Merger shall continue with all of its purposes, objects, rights, privileges,
powers and franchises, all of which shall be unaffected and unimpaired by the
Merger. Following the Merger, FCB shall continue to operate as a South Carolina
state-chartered bank and will conduct its business at the then legally
established branch and main offices of FCB and CRB. The duration of the
corporate existence of FCB, as the surviving corporation, shall be perpetual and
unlimited.
2.03. Assets and Liabilities of CBI and CRB. At the Effective Time, and
by reason of the Merger, and in accordance with applicable law, all of the
property, assets and rights of every kind and character of CBI and CRB
(including without limitation all real, personal or mixed property, all debts
due on whatever account, all other choses in action and every other interest of
or belonging to or due to CBI or CRB, whether tangible or intangible) shall be
transferred to and vest in FCB, and FCB shall succeed to all the rights,
privileges, immunities, powers, purposes and franchises of a public or private
nature of CBI and CRB, all without any conveyance, assignment or further act or
deed; and FCB shall become responsible for all of the liabilities, duties and
obligations of every kind, nature and description of CBI and CRB as of the
Effective Time.
2.04. Conversion and Exchange of Stock.
(a) Conversion of CBI Stock. Except as otherwise provided in
this Agreement, at the Effective Time all rights of CBI's shareholders with
respect to all outstanding shares of CBI Stock shall cease to exist and, as
consideration for and to effect the Merger, each such outstanding share (not to
exceed an aggregate of the 4,450,556 shares outstanding on the date of this
Agreement, and up to 385,098 additional shares which could be issued prior to
the Effective Time upon the exercise of CBI Options which have been issued prior
to the date hereof and which shall not previously have been exercised,
terminated or cancelled) shall be converted, without any action by CBI, FCB or
any CBI shareholder, into the right to receive cash in the amount of $21.00 (the
"Merger Consideration"), all in the manner and subject to the limitations
described in this Agreement. Cash held by the administrator of the CBI DRIP at
the Effective Time for the accounts of participants in that plan that have not
been invested in CBI Stock shall be returned to those participants.
At the Effective Time, and without any action by FCB, CBI or
any CBI shareholder, CBI's stock transfer books shall be closed and there shall
be no further transfers of CBI Stock on its stock transfer books or the
registration of any transfer of CBI Stock by any holder thereof, and the holders
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of CBI Stock shall cease to be, and shall have no further rights as,
shareholders of CBI other than as provided in this Agreement. Following the
Effective Time, CBI Stock shall evidence only the right of the registered
holders thereof to receive the consideration into which their CBI Stock was
converted at the Effective Time as provided in this Paragraph 2.04(a).
(b) Cancellation of CRB Stock. At the Effective Time, all
outstanding shares of CRB Stock shall be cancelled, and no cash or other
consideration shall be issued in exchange for or with respect to those shares.
(c) Exchange and Payment Procedures; Surrender of
Certificates.
(i) Prior to the Effective Time, FCB shall designate
CBI's stock transfer agent, Registrar and Transfer Company, to act as agent for
FCB and the holders of the CBI Stock in connection with the Merger (the "Paying
Agent") and to receive in trust from FCB the aggregate Merger Consideration to
which all holders of CBI Stock shall become entitled pursuant to Paragraph
2.04(a).
(ii) At the Effective Time, FCB shall deposit the
aggregate Merger Consideration with the Paying Agent. The Merger Consideration
shall be held in trust for the benefit of the holders of CBI Stock and such cash
shall not be used for any other purposes; provided, however, that, pending
disbursement of the Merger Consideration to CBI's shareholders, FCB may direct
the Paying Agent to invest such cash in obligations of or guaranteed by the
United States of America, in commercial paper obligations receiving the highest
rating from Standard & Poor's Corporation, or in certificates of deposit of
domestic commercial banks (collectively, the "Permitted Investments"), or in
money market funds which are invested solely in Permitted Investments, any of
which Permitted Investments shall have a maturity that will not prevent or delay
payments to be made pursuant to Paragraph 2.04(a) and this Paragraph 2.04(c).
All interest, dividends or other income on the invested funds shall belong
solely to FCB. If for any reason (including losses on invested funds) the funds
held by the Paying Agent are inadequate to pay the amounts to which the holders
of CBI Stock shall be entitled under Paragraph 2.04(a), FCB shall be liable for
the payment thereof.
(iii) As promptly as practicable after the Effective
Time, FCB shall cause to be mailed to each record holder, as of the Effective
Time, whose shares of CBI Stock were converted pursuant to Paragraph 2.04(a)
into the right to receive the Merger Consideration, a letter of transmittal (in
such form and having such other provisions as FCB may reasonably specify),
together with instructions for effecting the surrender of CBI Stock in exchange
for the Merger Consideration.
Upon a CBI shareholder's surrender to FCB or its
Paying Agent of all certificates representing his, her or its CBI Stock ("CBI
Certificates"), together with a letter of transmittal duly executed and
completed in accordance with the instructions thereto and such additional
information as FCB or the Paying Agent shall reasonably request, and
verification of the status and ownership of those shares by Registrar and
Transfer Company in its capacity as registrar and transfer agent for CBI Stock,
the Paying Agent shall promptly deliver a check or, if agreed upon by the Paying
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Agent, make an electronic transfer, to that CBI shareholder, in exchange for
his, her or its CBI Stock, in the aggregate amount of the Merger Consideration
into and for which his, her or its CBI Stock has been converted and exchanged,
without any interest thereon, and those CBI Certificates shall be canceled.
Delivery of CBI Certificates shall not be considered to have been effected, and
the risk of loss of a CBI Certificate shall not be considered to have passed to
FCB, until the CBI Certificates shall have been actually delivered to FCB, or to
the Paying Agent, with a properly completed letter of transmittal, in accordance
with the instructions provided by FCB as provided above.
With respect to CBI Stock in uncertificated
book-entry form ("Uncertificated CBI Stock"), upon a CBI shareholder's delivery
to FCB or the Paying Agent of a letter of transmittal duly executed and
completed in accordance with the instructions thereto and such additional
information as FCB or the Paying Agent shall reasonably request, and
verification of the status and ownership of those shares by Registrar and
Transfer Company in its capacity as registrar and transfer agent for CBI Stock,
the Paying Agent shall promptly deliver a check or, if agreed upon by the Paying
Agent, make an electronic transfer, to that CBI shareholder in exchange for his,
her or its Uncertificated CBI Stock, for the aggregate amount of the Merger
Consideration into and for which his, her or its Uncertificated CBI Stock has
been converted and exchanged, without any interest thereon, and that CBI Stock
shall be canceled, Constructive delivery of Uncertificated CBI Stock shall not
be considered to have been effected or to have passed to FCB until a properly
completed letter of transmittal indicating that the holder's shares are
Uncertificated CBI Stock shall have been actually delivered to FCB, or to the
Paying Agent, in accordance with instructions by FCB as provided above.
(iv) At any time following the one-year anniversary
of the Effective Time, FCB shall be entitled to require the Paying Agent to
deliver to it any portion of the Merger Consideration (including any interest
received with respect thereto) previously deposited by FCB with, but which has
not been disbursed by, the Paying Agent, and, thereafter, any CBI shareholders
who have not yet surrendered their CBI Certificates, or complied with the
delivery requirements for Uncertificated CBI Stock, as described in Paragraph
2.04(c)(iii) above, shall be entitled to look to FCB only as a general creditor
thereof with respect to the Merger Consideration into which their CBI Stock has
been converted. Upon any such CBI shareholder's later surrender of his, her or
its CBI Certificates to FCB or the Paying Agent, with a properly completed
letter of transmittal, in accordance with the instructions provided by FCB, or
that shareholder's compliance with the delivery requirements for Uncertificated
CBI Stock, in either case as described in Paragraph 2.04(c)(iii) above, FCB
shall promptly deliver to that CBI shareholder, in exchange for his, her or its
CBI Stock, a check drawn for the aggregate amount of the Merger Consideration
into and for which his, her or its CBI Stock has been converted and exchanged,
without any interest thereon, and any CBI Certificates shall be cancelled;
provided, however, that, notwithstanding anything contained in this Agreement to
the contrary, neither FCB nor the Paying Agent shall be liable to any holder of
CBI Stock for Merger Consideration which previously has been delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. In no event shall any CBI shareholder receive or be entitled to
interest on the Merger Consideration to which he, she or it is entitled for any
period before or after the Effective Time.
(d) Lost Certificates. CBI shareholders whose CBI Certificates
have been lost, destroyed, stolen, or are otherwise missing shall be entitled to
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receive the Merger Consideration to which they are entitled in accordance and
upon compliance with conditions imposed by FCB pursuant to applicable law,
including the requirement that the shareholders provide an affidavit with
respect to the loss, destruction or theft of their CBI Certificates, and an
indemnification agreement and surety bond (or other indemnification satisfactory
to FCB in its sole discretion) in such sum and on such terms as FCB may direct
against any claims made against FCB with respect to shares of CBI Stock
represented by the CBI Certificates claimed to have been lost, destroyed or
stolen.
(e) Antidilutive Adjustments. If, prior to the Effective Time,
CBI shall declare any dividend payable in shares of CBI Stock or other
securities or shall subdivide, split, reclassify or combine the presently
outstanding shares of CBI Stock, then an appropriate and proportionate
adjustment shall be made in the amount of Merger Consideration into which each
share of CBI Stock will be converted at the Effective Time pursuant to this
Agreement.
(f) Termination and Conversion of CBI Stock Awards.
Immediately prior to the Effective Time, each CBI Option and CBI SAR that
remains outstanding and has not been exercised shall terminate and the rights of
the holder of that CBI Stock Award shall be converted, without any action by
CBI, FCB or such holder, into the right to receive a cash payment in an amount,
and in the manner and subject to the limitations, described in Paragraph 7.10 of
this Agreement.
2.05 Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and Bylaws of FCB in effect at the Effective Time shall be the
Articles of Incorporation and Bylaws of FCB as the surviving corporation in the
Merger. The directors of FCB in office at the Effective Time shall constitute
the Board of Directors of FCB as the surviving corporation in the Merger and
shall continue to hold such offices until removed as provided by law or until
the election or appointment of their respective successors. The officers of FCB
in office at the Effective Time shall continue to serve in their same positions
as officers of FCB as the surviving corporation in the Merger until removed as
provided by law or until the election or appointment of their respective
successors.
2.06. Closing; Effective Time. The consummation and closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of FCB in Columbia, South Carolina, or at such other place as FCB
shall designate, on a date mutually agreeable to FCB and CBI (the "Closing
Date") after the expiration of any and all required waiting periods following
the effective date of required approvals of the Merger by governmental or
regulatory authorities). At the Closing, FCB, CBI and CRB shall take such
actions (including without limitation the delivery of certain closing documents
and the execution of Articles of Merger under South Carolina law) as are
required in this Agreement and as otherwise shall be required by law to
consummate the Merger and cause it to become effective.
Subject to the terms and conditions set forth in this
Agreement, the Effective Time of the Merger shall be the date and time specified
in Articles of Merger filed with the South Carolina Secretary of State in
accordance with applicable law; provided, however, that the Effective Time shall
in no event be more than three business days following the Closing Date.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
CBI AND CRB
Except as otherwise specifically provided in this Agreement or
as Previously Disclosed to FCB, CBI and CRB each hereby make the following
representations and warranties to FCB. Additionally, CBI and CRB each hereby
makes the representations contained in Paragraphs 3.13, 3.15, 3.16, 3.21, 3.23,
3.25 and 3.28 regarding each of RIA and FNFS to the same extent as if those two
companies were included within the term "CBI Companies."
3.01. Organization; Standing; Power.
(a) CBI is duly organized and incorporated, validly
existing and in good standing as a business corporation under the laws of South
Carolina.
(b) CRB is duly organized and chartered, validly
existing and in good standing as a national banking association under the laws
of the United States of America.
(c) CRM and CFS each is duly organized and
incorporated, validly existing and in good standing as a business corporation
under the laws of South Carolina.
(d) Each of the CBI Companies (i) has all requisite
power and authority (corporate and other) to own, lease and operate its
properties and to carry on its business as it now is being conducted; (ii) is
duly qualified to do business and is in good standing in each jurisdiction in
which it owns, leases or operates properties of a character, or in which it
transacts business of a nature, that makes such qualification necessary, except
where failure so to qualify would not have a CBI Material Effect; and (iii) is
not transacting business or operating any properties owned or leased by it in
violation of any provision of federal, state or local law or any rule or
regulation promulgated thereunder, except where such violation would not have a
CBI Material Effect.
3.02. Capital Stock.
(a) CBI's authorized capital stock consists of
12,000,000 shares of CBI Stock, of which 4,450,556 shares are issued and
outstanding.
(b) CRB's authorized capital stock consists of
3,000,000 shares of CRB Stock, of which 3,000,000 shares are issued and
outstanding. All outstanding shares of CRB Stock are owned, beneficially and of
record, by CBI.
(c) CRM's authorized capital stock consists of
100,000 shares of no par value common stock ("CRM Stock"), of which 1,000 shares
are issued and outstanding. All outstanding shares of CRM Stock are owned,
beneficially and of record, by CBI.
(d) CFS's authorized capital stock consists of
100,000 shares of no par value common stock ("CFS Stock"), of which 1,000 shares
are issued and outstanding. All outstanding shares of CFS Stock are owned,
beneficially and of record, by CRB.
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(e) None of the CBI Companies has any other
authorized or outstanding shares of capital stock. Each outstanding share of CBI
Stock, CRB Stock, CRM Stock and CFS Stock (i) has been duly authorized and is
validly issued and outstanding, fully paid and, except as provided in Section 55
of the National Bank Act in the case of CRB Stock, nonassessable, and (ii) has
not been issued in violation of the preemptive rights of any shareholder.
3.03. Principal Shareholders. To the Knowledge of CBI, no
person or entity directly or indirectly owns, beneficially or of record, more
than 5% of the outstanding shares of CBI Stock.
3.04. Subsidiaries. With the exception of SCB Capital Trust I
which is a limited purpose, unconsolidated subsidiary of CBI, and except as
Previously Disclosed or otherwise described in this Agreement, none of the CBI
Companies has any subsidiaries, direct or indirect; and, except for equity
securities included in their investment portfolios on May 31, 2008, as
Previously Disclosed to FCB, none of them own any stock or other equity interest
in any other corporation, service corporation, joint venture, partnership or
other entity.
3.05. Convertible Securities, Options, Etc. With the exception
of CBI Options issued under CBI's 2007 Equity Plan and 1997 Stock Option Plan
covering an aggregate of 385,098 shares of CBI Stock, and CBI RSAs issued under
CBI's 2007 Equity Plan covering an aggregate of 13,200 shares of CBI Stock,
there are no outstanding, (a) securities or other obligations (including
debentures or other debt instruments) issued by any of the CBI Companies which
are convertible into shares of their capital stock or any other securities
issued by any of them, (b) options, warrants, rights, calls or other commitments
of any nature which entitle any person or entity to receive or acquire from them
any shares of capital stock of any of the CBI Companies or any other securities
of issued by any of them, or (c) plan, agreement or other arrangement pursuant
to which shares of capital stock of any of the CBI Companies or any other
securities issued by any of them, or options, warrants, rights, calls or other
commitments of any nature pertaining to any securities of any of them, have been
or may be issued by any of them.
3.06. Authorization and Validity of Agreement. This Agreement
has been duly and validly approved by CBI's and CRB's respective Boards of
Directors and by CBI as the sole shareholder of CRB. Subject only to approval of
this Agreement by the shareholders of CBI in the manner required by law and
receipt of required approvals of Regulatory Authorities, (a) CBI and CRB each
has the corporate power and authority to execute and deliver this Agreement and
to perform its obligations and agreements and carry out the transactions
described in this Agreement, (b) all corporate proceedings and approvals
required to authorize CBI and CRB to enter into this Agreement and to perform
its obligations and agreements and carry out the transactions described herein
have been duly and properly completed or obtained, and (c) this Agreement
constitutes the valid and binding agreement of each of CBI and CRB and is
enforceable against each of them in accordance with its terms (except to the
extent enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally, (ii) legal and equitable limitations on the
availability of injunctive relief, specific performance and other equitable
remedies, and (iii) general principles of equity and applicable laws or court
decisions limiting the enforceability of indemnification provisions).
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3.07. Validity of Transactions; Absence of Required Consents
or Waivers. Subject only to approval of this Agreement by CBI's shareholders in
the manner required by law and receipt of required approvals of Regulatory
Authorities, neither the execution and delivery of this Agreement, nor the
consummation of the transactions described herein, nor compliance by CBI or CRB
with any of its or their obligations or agreements contained herein, nor any
action or inaction by CBI or CRB required herein, will: (a) conflict with or
result in a breach of the terms and conditions of, or constitute a default or
violation under any provision of, CBI's Articles of Incorporation or CRB's
Articles of Association, or their respective Bylaws, or any contract, agreement,
lease, mortgage, note, bond, indenture, license, obligation or understanding
(oral or written) to which either of them is bound or the business, capital
stock, properties or assets of either of them is subject; (b) result in the
creation or imposition of any lien, claim, interest, charge, restriction or
encumbrance upon any of the properties or assets of CBI or CRB; (c) violate any
applicable federal or state statute, law, rule, or regulation, or any judgment,
order, writ, injunction or decree of any court, administrative or regulatory
agency or governmental body; or (d) result in the acceleration of any obligation
or indebtedness of CBI or CRB.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with CBI or CRB's execution and delivery
of this Agreement, or the performance of their obligations or agreements, or the
consummation of the transactions, described herein, except for required
approvals of CBI's shareholders and Regulatory Authorities.
3.08. Books and Records. The CBI Companies' respective
business records, books of account, and management information and data systems
(a) have been maintained in compliance with all applicable legal, regulatory and
accounting requirements, and such books and records are complete and reflect
accurately in all material respects their respective assets and items of income
and expense, and all transactions and dispositions of assets, and (b) are
recorded, stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under
the exclusive ownership and direct control of the CBI Companies or CBI's
independent accountants and consultants (including all means of access thereto
and therefrom).
The CBI Companies' respective minute books are complete and
accurately reflect in all material respects all corporate actions which their
respective shareholders, boards of directors, and all committees thereof, have
taken during the time periods covered by such minute books.
3.09. Reports to Regulatory Authorities.
(a) Since January 1, 2003, the CBI Companies each has
timely filed all reports, registrations and statements and other filings,
together with any amendments required to be made with respect thereto, that
either of them was required to file with any Regulatory Authority (collectively,
the "CBI Reports"). Each CBI Report complied in all material respects with all
applicable statutes applicable thereto, and to all rules and regulations
enforced or promulgated by the Regulatory Authorities with which it was filed,
and, at the time it was filed (or if amended or superseded by a subsequent
filing prior to the date of this Agreement, then on the date of that subsequent
filing) did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
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statements therein, in light of the circumstances under which they were made,
not misleading.
(b) CBI has Previously Disclosed to FCB copies of all
comment letters received by any of the CBI Companies from any Regulatory
Authority since December 31, 2003, regarding any CBI Report, together with the
CBI Companies' responses to such comment letters. Except as described in those
comment letters, none of the CBI Companies have been notified by any Regulatory
Authority that any such CBI Report was deficient in any material respect as to
form or content.
(c) None of CRB, CRM or CFS is required to file any
report, registration, statement or other filing with the Securities and Exchange
Commission (the "SEC") or with any other Regulatory Authority pursuant to any
federal or state laws pertaining to the purchase, sale or issuance of securities
or the regulation thereof or the market therefor which has not been filed.
(d) CBI's officers who serve as its "principal
executive officer" and "principal financial officer" (as those terms are defined
in the SEC's rules and regulations) have made, and CBI has furnished to the SEC,
all certifications with respect to CBI Reports filed with the SEC under the 1934
Act that were required by Sections 302 and 906 of the Sarbanes-Oxley Act of
2002, as amended ("SOX") and rules and regulations of the SEC thereunder, and
those certifications contain no qualifications or exceptions to the matters
certified therein and have not been modified or withdrawn. Neither CBI nor any
of its officers has received notice from the SEC questioning or challenging the
accuracy, completeness, form or manner of filing or submission of such
certifications.
3.10. Consolidated Financial Statements. CBI has Previously
Disclosed to FCB copies of the CBI Audited Financial Statements and the CBI
Interim Financial Statements. The CBI Audited Financial Statements and CBI
Interim Financial Statements (a) comply as to form in all material respects with
the applicable published rules and regulations of Regulatory Authorities with
respect thereto, (b) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated, (c) are in accordance with
the CBI Companies' books and records, and (d) present fairly in all material
respects CBI's consolidated financial condition, assets and liabilities, results
of operations, changes in stockholders' equity and changes in cash flows as of
the dates indicated and for the periods specified therein (except to the extent
that the CBI Interim Financial Statements are subject to normal and recurring
year-end adjustments that are not expected to be material in amount or effect,
except as indicated in such interim financial statements or notes thereto). The
CBI Audited Financial Statements have been audited by J. W. Hunt & Company LLP
which serves as CBI's independent registered public accounting firm, as
evidenced by that firm's report included therein.
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3.11. Tax Matters.
(a) For purposes of this Paragraph 3.11, the
following definitions shall apply:
"Regulations" means the Treasury Regulations
(including Temporary Regulations) promulgated by the United States Department of
Treasury with respect to the Code or other federal tax statutes.
"Tax" or "Taxes" means any and all federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
taxes of any kind (together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto) imposed by any
Governmental Authority, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the tax liability of any other
Person (or any predecessor or successor thereof or any analogous or similar
provision under Law).
"Tax Returns" means any and all returns,
reports and forms (including elections, declarations, amendments, schedules,
information returns or attachments thereto) required to be filed with a
Governmental Authority with respect to Taxes
(b) Each of the CBI Companies has filed all Tax
Returns that it was required to file under applicable laws and regulations. All
such Tax Returns were correct and complete in all material respects. All Taxes
due and owing by any of the CBI Companies (whether or not shown on any Tax
Return) have been fully and timely paid. None of the CBI Companies is the
beneficiary of any extension of time within which to file any Tax Return which
has not been filed. No claim has ever been made by an authority in a
jurisdiction where any of the CBI Companies does not file Tax Returns that any
of them is or may be subject to taxation by that jurisdiction. There are no
Liens for Taxes (other than Taxes not yet due and payable) upon any of the
assets of any of the CBI Companies.
(c) Each of the CBI Companies has withheld and paid
all Taxes required to have been withheld and paid in connection with any amounts
paid or owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(d) CBI has Previously Disclosed to FCB a list of all
federal, state, local, and foreign income Tax Returns filed with respect to any
of the CBI Companies that are the subject of an ongoing audit. None of the CBI
Companies, nor any director or officer (or employee responsible for Tax matters)
of any of them, expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. No foreign, federal, state, or
local tax audits or administrative or judicial Tax proceedings are pending or
being conducted with respect to any of the CBI Companies, and none of them has
received from any foreign, federal, state, or local taxing authority (including
jurisdictions where they have not filed Tax Returns) any (i) notice indicating
an intent to open an audit or other review or (ii) notice of deficiency or
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proposed adjustment for any amount of Tax proposed, asserted, or assessed by any
taxing authority against any of the CBI Companies.
(e) None of the CBI Companies has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(f) None of the CBI Companies has been a United
States real property holding corporation within the meaning of Code ss.897(c)(2)
during the applicable period specified in Code ss.897(c)(1)(A)(ii). Each of the
CBI Companies has disclosed on its respective federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code ss.6662. None of the CBI Companies
has any liability for the Taxes of any person under Reg. ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(g) The aggregate unpaid Taxes of the CBI Companies
(i) did not, as of the most recent fiscal quarter end, exceed the reserve for
Tax liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the
most recent balance sheet delivered to the FCB (rather than in any notes
thereto), and (ii) do not exceed that reserve as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the CBI Companies in filing their Tax Returns. Since the date of the most recent
balance sheet delivered to FCB, none of the CBI Companies has incurred any
liability for Taxes arising from extraordinary gains or losses, as that term is
used in GAAP, outside the ordinary course of business consistent with past
custom and practice.
(h) None of the CBI Companies will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any:
(A) change in method of accounting for a
taxable period ending on or prior to the Closing Date;
(B) "closing agreement" as described in Code
ss.7121 (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date;
(C) installment sale or open transaction
disposition made on or prior to the Closing Date; or
(D) prepaid amount received on or prior to
the Closing Date.
(i) None of the CBI Companies has distributed stock
of another Person, or has had its stock distributed by another person, in a
transaction that was purported or intended to be governed in whole or in part by
Code ss.355.
(j) Each of the CBI Companies currently is an accrual
basis taxpayer.
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3.12. Absence of Changes or Certain Other Events.
(a) Since December 31, 2007, each of the CBI
Companies has conducted its business only in the ordinary course, and there has
been no CBI Material Change, and there has occurred no event or development, and
there currently exists no condition or circumstance, which, individually or in
the aggregate, and with the lapse of time or otherwise, may or could cause,
create or result in a CBI Material Change.
(b) Since December 31, 2007, and except as described
in Paragraph 3.13 below, none of the CBI Companies has incurred any material
liability, engaged in any material transaction, increased the salaries,
compensation or general benefits payable or provided to its employees (with the
exception of routine increases in the salaries of employees effected by CRB at
such times and in such amounts as is consistent with its past practices and its
salary administration and review policies and procedures in effect prior to
September 30, 2007), suffered any material loss, destruction, or damage to any
of its properties or assets, or made a material acquisition or disposition of
any assets, or entered into any material contract or lease.
3.13. Absence of Undisclosed Liabilities. Except as reflected
in the CBI Interim Financial Statements, none of the CBI Companies has any
material liability or obligation, whether matured or unmatured, accrued,
absolute, contingent or otherwise, whether due or to become due (including
without limitation tax liabilities or unfunded liabilities under employee
benefit plans or arrangements), other than (a) increases in CRB's deposit
accounts in the ordinary course of its business since December 31, 2007, or (b)
unfunded commitments to make, issue or extend loans, lines of credit, letters of
credit or other extensions of credit entered into in the ordinary course of
CRB's business and in accordance with its normal lending policies and practices
and which, either individually or in the aggregate, do not exceed the lesser of
amounts which are consistent with CRB's lending practices prior to the date of
this Agreement or the maximum amounts permitted by applicable banking
regulations
3.14. Compliance with Existing Obligations. Each of the CBI
Companies has performed in all material respects all obligations required to be
performed by it under, and it is not in default in any material respect under,
or in violation in any material respect of, the terms and conditions of its
Articles of Incorporation or Association, as applicable, Bylaws and/or any
material contract, agreement, lease, mortgage, note, bond, indenture, license,
obligation, understanding or other undertaking (whether oral or written) to
which it is bound or by which its business, operations, capital stock,
properties or assets are subject.
3.15. Litigation and Compliance with Law.
(a) There are no actions, suits, arbitrations,
controversies or other proceedings or investigations or, to the Knowledge of
CBI, any facts or circumstances which reasonably could be expected to result in
such, including without limitation any such action by any Regulatory Authority,
which currently exist or are ongoing, pending or, to the Knowledge of CBI,
threatened, contemplated or probable of assertion, against any of the CBI
Companies or any person in his or her capacity as a director or officer of any
of the CBI Companies, or any of their respective properties or assets, or
otherwise relating to or affecting any of the CBI Companies or their respective
businesses or assets.
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(b) Each of the CBI Companies has all licenses,
permits, orders, and authorizations or approvals ("Permits") of all Regulatory
Authorities and all other federal, state, local or foreign governmental or
regulatory agencies, that are required by law or regulation and that are
material to or necessary for the conduct of its business or for it to own, lease
and operate its properties; all such Permits are in full force and effect; no
violations have occurred with respect to any such Permits; and no proceeding is
pending or, to the Knowledge of CBI, threatened or probable of assertion, to
suspend, cancel, revoke or limit any Permit except in cases in which the failure
to obtain or maintain in force any such Permit, or the violation thereof, will
not have a CBI Material Effect.
(c) None of the CBI Companies is subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any Regulatory
Authority relating to its financial condition, directors or officers, employees,
operations, capital, public disclosure and reporting, regulatory compliance or
any other matter; there are no judgments, orders, stipulations, injunctions,
decrees or awards against any of the CBI Companies which limit, restrict,
regulate, enjoin or prohibit in any material respect any present or past
business or practice; and, to the Knowledge of CBI, no Regulatory Authority or
any court is contemplating, threatening or requesting the issuance of any such
agreement, order, writ, injunction, directive, memorandum, judgment,
stipulation, decree or award.
(d) None of the CBI Companies is in violation or
default in any material respect under, and each of them has complied in all
material respects with, all laws, statutes, ordinances, rules, regulations,
orders, writs, injunctions or decrees of any Regulatory Authority. To the
Knowledge of CBI, no person or authority has asserted a claim, and, to the
Knowledge of CBI, there is no reasonable basis for any claim by any person or
authority for compensation, reimbursement, damages or other penalties or relief
for any violations described in this subparagraph (d).
(e) CBI has complied, and is in compliance in all
material respects, with the listing requirements, including all corporate
governance requirements, of The American Stock Exchange.
3.16. Real Properties.
CBI has Previously Disclosed to FCB a list of all
parcels of CBI Real Property, together with
true and complete copies of all lease agreements pertaining to each parcel of
CBI Real Property in which any of them has a leasehold interest ("Lease
Agreements"). Neither RIA nor FNFS owns or leases any real property.
(a) With respect to each parcel of CBI Real Property
owned by any of the CBI Companies, that company has good and marketable fee
simple title to that CBI Real Property and owns the same free and clear of all
mortgages, liens, leases, encumbrances, title defects and exceptions to title
other than (i) the lien of current taxes not yet due and payable, and (ii) such
imperfections of title and restrictions, covenants and easements (including
utility easements) which do not materially and adversely affect the economic
value or marketability of that CBI Real Property or materially detract from,
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interfere with or restrict the present or future use of that CBI Real Property
for the purposes for which it currently is used.
(b) With respect to each parcel of CBI Real Property
in which any of the CBI Companies holds a leasehold interest, (i) that company
has unconditionally accepted occupancy of and currently is occupying that
property; (ii) the lease term, commencement date, expiration date, renewal
terms, and current rent applicable to that parcel is as set forth in the Lease
Agreement pertaining to it; (iii) the Lease Agreement pertaining to that parcel
is in full force and effect and has not been modified or amended; (iv) the terms
and conditions of the Lease Agreement pertaining to that parcel will continue
without modification notwithstanding the Merger, and the Merger will not be
deemed to be a transfer or assignment in violation of or otherwise to violate
the Lease Agreement, to require the approval or consent of the landlord under
the Lease Agreement, or to prevent the exercise of, or result in the loss of,
any right or option to renew or extend the Lease Agreement or to purchase that
parcel; (v) that company has performed all of the lessee's obligations
(including the payment of rent) under the Lease Agreement pertaining to that
parcel, and no event of default by it exists or has occurred under that Lease
Agreement (including without limitation any default that would prevent the
exercise of or result in the loss of any right or option to renew or extend the
Lease Agreement or to purchase that parcel); and (vi) to the Knowledge of CBI,
the lessor of that parcel has performed all of the lessor's obligations under
the Lease Agreement pertaining to that parcel, and no event of default by the
lessor exists or has occurred under that Lease Agreement.
(c) Each parcel of CBI Real Property complies in all
material respects with all applicable federal, state and local laws,
regulations, ordinances, or orders of any governmental or regulatory authority,
including without limitation those relating to zoning, building and use permits
and the Americans with Disabilities Act. The parcels of CBI Real Property upon
which CRB's banking offices are situated, or which otherwise are used by any of
the CBI Companies in conjunction with its respective business, may, under
applicable zoning ordinances, be used for the purposes for which they currently
are used as a matter of right rather than as a conditional or nonconforming use.
(d) With respect to each parcel of CBI Real Property
that currently is used by any of the CBI Companies as an office, (i) all
improvements and fixtures included in or on that CBI Real Property are in
satisfactory condition and repair and performing the functions and operations
for which they were designed, ordinary wear and tear excepted, and (ii) there
does not exist any condition which materially and adversely affects the economic
value or marketability of that CBI Real Property or materially detracts from,
interferes with or restricts its present or future use of that CBI Real Property
or those improvements and fixtures for the purposes for which they currently are
used.
3.17. Loans, Accounts, Notes and Other Receivables
(a) All Loans reflected as assets on the CBI
Companies' books and records or which have been sold by any of them (i) have
resulted from bona fide business transactions in the ordinary course of their
respective operations, (ii) were made in all material respects in accordance
with their standard practices and procedures, and (iii) in the case of Loans
reflected as assets on their books, are owned by them free and clear of all
liens, encumbrances, assignments, repurchase agreements or other exceptions to
title, or the ownership or collection rights of any other person or entity,
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except for liens granted to the Federal Home Loan Bank of Atlanta to secure
advances to CRB in the ordinary course of its business.
(b) All records of the CBI Companies regarding all
outstanding Loans (including Loans reflected as assets on their books and
records, and Loans which have been sold by any of them), and all foreclosed CBI
Real Property and other collateral for Loans owned by the CBI Companies, are
accurate in all material respects, and each Loan which their Loan documentation
indicates is secured by any real or personal property or property rights ("Loan
Collateral") is secured by valid, perfected and enforceable liens on all such
Loan Collateral having the priority described in their records of such Loan.
(c) Each Loan reflected as an asset on the CBI
Companies' books and records or which has been sold by any of them, and each
guaranty therefor, is the legal, valid and binding obligation of the obligor or
guarantor thereon (subject to the application of general principles of equity
and to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws), and no defense, offset or counterclaim has been asserted with respect to
any such Loan or guaranty.
(d) with respect to Loans on the books of any of the
CBI Companies as of April 30, 2008, CBI has Previously Disclosed to FCB written
listings reflecting:
(i) each Loan which was carried in a
nonaccrual status or classified by any Regulatory Authority, or by CBI or CRB
itself, as "Loss," "Doubtful," "Substandard" or "Special Mention" (or otherwise
by words of similar import), or which they otherwise had designated as a special
asset, a "potential problem loan," or for special handling, or had placed on any
"watch list" or similar internal list because of concerns regarding the ultimate
collectibility or deteriorating condition of such asset or any obligor or Loan
Collateral therefor;
(ii) each Loan which was past due more than
30 days as to the payment of principal and/or interest;
(iii) each Loan as to which any obligor
(including the borrower or any guarantor)
otherwise was in default, was, to the Knowledge of CBI, the subject of a
proceeding in bankruptcy, or on which any obligor has indicated any inability or
intention not to repay such loan in accordance with its terms, and that do not
appear in the Loans Previously Disclosed to FCB pursuant to (i) or (ii) above;
(iv) each Loan which had been held for
resale for as much or more than 90 days but not sold;
(v) each Loan which had been repurchased
from any investor and was recorded (or will be recorded) on the books of any of
the CBI Companies;
(e) with respect to Loans previously sold by any of
the CBI Companies, CBI has Previously Disclosed to FCB written listings
reflecting:
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(i) each Loan on the balance sheet that has
been repurchased from investors;
(ii) each Loan which is in the process of
being repurchased or which any of the CBI Companies have been requested to
repurchase by any investor;
(iii) each Loan that any of the CBI
Companies have identified as having a risk of repurchase from any investor;
(iv) each Loan as to which any investor has
requested indemnification from any of the CBI Companies, or as to which there is
any outstanding mortgage insurance claim, together with a statement as to
whether any of the CBI Companies have agreed to or rejected the indemnification
request, and, in the case of each Loan as to which any of the CBI Companies have
agreed to a request for indemnification, a description of the terms of that
indemnification.
(f) To the Knowledge of CBI, each of the Loans on the
books of, or previously sold by, any of the CBI Companies (with the exception of
those Loans Previously Disclosed to FCB as described in Paragraph 3.17(d) and
(e) above) is collectible in the ordinary course of their business or the
business of the investor that purchased the loan in an amount which is not less
than the amount at which it is carried on their books or should be carried in
accordance with GAAP on the investor's books and records.
(g) The CBI Companies' reserve for possible loan
losses (the "Loan Loss Reserve") has been established in conformity with GAAP,
sound banking practices and all applicable rules, requirements and policies of
Regulatory Authorities and, in the best judgment of management and the Boards of
Directors of CBI and CRB, is reasonable in view of the size and character of the
CBI Companies' Loan portfolio, current economic conditions and other relevant
factors, and is adequate in all material respects to provide for losses relating
to or the risk of loss inherent in their Loan portfolio and foreclosed Real
Property owned by them.
(h) The CBI Companies' reserves for possible loan
repurchases (the "Loan Repurchase Reserve") has been established in conformity
with GAAP, sound banking practices and all applicable rules, requirements and
policies of Regulatory Authorities and, in the best judgment of management and
the Boards of Directors of CBI and CRB, is reasonable in view of the amount and
character of (i) Loans which have been sold, (ii) Loans which have been
repurchased or are in process of being repurchased, (iii) Loans which have been
identified as being at risk of repurchase, (iv) potential losses related to
current and future repurchased Loans, and (v) current economic conditions, and
other relevant factors.
3.18. Securities Portfolio and Investments. CBI has Previously
Disclosed to FCB a listing of all securities owned, of record or beneficially,
by any of the CBI Companies as of May 31, 2008. All securities owned, of record
or beneficially, by any of the CBI Companies as of the date hereof 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 (other than customary pledges to secure public funds deposits, and
sales of securities under agreements to repurchase, entered into by CRB in the
ordinary course of its business with its customers, and restrictions imposed by
and the rights of the issuers of such securities), which would materially impair
the ability of any of the CBI Companies to dispose freely of any such security
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and/or otherwise to realize the benefits of ownership at any time. There are no
voting trusts or other agreements or undertakings to which any of the CBI
Companies is a party with respect to the voting of any such securities. With
respect to all repurchase agreements under which CBI or CRB has "purchased"
securities under agreement to resell, it 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 it which
is secured by such collateral.
Since May 31, 2008 there has been no material deterioration or
adverse change in the quality, or any material decrease in the value, of the CBI
Companies securities portfolios as a whole.
3.19. Personal Property and Other Assets. All banking
equipment, data processing equipment, vehicles, and other personal property used
by either CBI or CRB and material to the operation of its business are owned by
it free and clear of all liens, encumbrances, leases, title defects or
exceptions to title. To the Knowledge of CBI, all personal property material to
the business of each of the CBI Companies is in good operating condition and
repair, ordinary wear and tear excepted.
3.20. Intellectual Property. The CBI Companies own, possess or
have the right to use their respective corporate names and any and all patents,
licenses, trademarks, trade names, copyrights, trade secrets and proprietary and
other confidential information or intellectual property necessary to conduct
their businesses as now conducted; and, none of them have violated, and they are
not in conflict with, any patent, license, trademark, trade name, copyright or
proprietary right of any other person or entity.
3.21. Environmental Matters.
(a) As used in this Agreement, "Environmental Laws"
means: (i) all federal, state, and local statutes, regulations and ordinances,
(ii) all common law, and (iii) all orders, decrees, and similar provisions
having the force or effect of law and to which any of the CBI Companies are
subject, which, in the case of any of the above, concern or relate to pollution
or protection of the environment, standards of conduct and bases of obligations
or liability, in either case relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, or clean-up of any "Hazardous Substances" (as
defined below), public or worker health and safety, wetlands protection,
drainage or stormwater management, noise, odor, or indoor air pollution.
"Hazardous Substance" means any materials,
substances, wastes, chemical substances, or mixtures presently listed, defined,
designated, classified or regulated as hazardous, toxic, or dangerous, or
otherwise regulated, under any Environmental Laws, whether by type or quantity,
including without limitation pesticides, pollutants, contaminants, toxic
chemicals, oil, or other petroleum products or byproducts, asbestos or materials
containing (or presumed to contain) asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, lead, radon, methyl tertiary butyl ether, or
radioactive material.
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(b) CBI has Previously Disclosed to FCB all written
reports, correspondence, notices or other information or materials, if any, in
its possession pertaining to environmental surveys or assessments of the CBI
Real Property and any improvements thereon, the presence of any Hazardous
Substance on any of the CBI Real Property, or any violation or alleged violation
of Environmental Laws on, affecting or otherwise involving the CBI Real Property
or involving any of the CBI Companies.
(c) To the Knowledge of CBI, there has been no
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, emission, discharge, release, or threatened release of any
Hazardous Substances (excluding any such substance used, generated, stored,
disposed of or otherwise handled in the ordinary course of CBI's or CRB's
business for purposes of office cleaning, maintenance or operation, in
quantities normally needed for those purposes, and in compliance with all
applicable Environmental Laws, or any such substances that may be naturally
occurring in any ambient air, surface water, ground water, land surface or
subsurface strata on any of the CBI Real Property) by any person on or from any
of the CBI Real Property which constitutes a violation of any Environmental
Laws, and there has been no removal, clean-up or remediation of any Hazardous
Substances from, on or relating to any of the CBI Real Property.
(d) None of the CBI Companies has violated any
Environmental Laws relating to any of the CBI Real Property, and, to the
Knowledge of CBI, there has been no violation of any Environmental Laws relating
to any of the CBI Real Property by any other person or entity for whose
liability or obligation with respect to any particular matter or violation for
which any of the CBI Companies is or may be responsible or liable.
(e) None of the CBI Companies is subject to any
claims, demands, causes of action, suits, proceedings, losses, damages,
penalties, liabilities, obligations, costs or expenses of any kind and nature
which arise out of, under or in connection with, or which result from or are
based upon the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, reporting, testing,
processing, emission, discharge, release, threatened release, control, removal,
clean-up or remediation of any Hazardous Substances on, from or relating to any
of the CBI Real Property or by any person or entity.
(f) To the Knowledge of CBI, no facts, events or
conditions relating to any of the CBI Real Property, or the operations of any of
the CBI Companies at any of their office locations, will prevent, hinder or
limit continued compliance with Environmental Laws or give rise to any
investigatory, emergency removal, remedial or corrective actions, obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental Laws.
(g) To the Knowledge of CBI, (i) there has been no
violation of any Environmental Laws with respect to any Loan Collateral by any
person or entity for whose liability or obligation with respect to such
violation any of the CBI Companies is or may be responsible or liable, (ii) none
of the CBI Companies is subject to any claims, demands, causes of action, suits,
proceedings, losses, damages, penalties, liabilities, obligations, costs or
expenses of any kind and nature which arise out of, under or in connection with,
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or which result from or are based upon, the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to any Loan Collateral, by any person
or entity, and (iii) there are no facts, events or conditions relating to any
Loan Collateral that will give rise to any investigatory, emergency removal,
remedial or corrective actions, obligations or liabilities pursuant to
Environmental Laws.
3.22. Absence of Brokerage or Finders Commissions. CBI has
Previously Disclosed to FCB a copy of its consulting or advisory agreement with
Allen C. Ewing & Co. ("Ewing") containing all terms pertaining to services that
firm will provide to CBI, and all fees or other compensation payable by CBI to
that firm, in connection with this Agreement and the Merger. Except for CBI's
engagement of Ewing (a) all negotiations relative to this Agreement and the
transactions described herein have been carried on by CBI directly (or through
its legal counsel) with FCB, and no person or firm has been retained by or has
acted on behalf of, pursuant to any agreement, arrangement or understanding
with, or under the authority of, CBI or CRB or their respective Boards of
Directors as a broker, finder or agent, or has performed similar functions or
otherwise is or may be entitled to receive or claim a brokerage fee or other
commission or compensation, in connection with or as a result of the
transactions described herein; and (b) none of the CBI Companies has agreed, or
has any obligation, to pay any brokerage fee or other commission, fee or other
compensation to any person or entity in connection with or as a result of the
transactions described herein.
3.23. Material Contracts. Other than a benefit plan or
employment agreement and CBI Stock Awards Previously Disclosed to FCB pursuant
to Paragraph 3.25, and with the exception of outstanding Loans and deposit
accounts made or accepted by CRB and CRM in the ordinary course of their
business, none of the CBI Companies is a party to or bound by any agreement (a)
involving money or other property in an amount or with a value, or calling for
aggregate payments by any of the CBI Companies over the remaining term of the
agreement, in excess of $75,000, (b) which calls for the provision of goods or
services and which cannot be terminated without material penalty upon not more
than 30 days notice to the other party thereto, (c) which otherwise is material
to it and was not entered into in the ordinary course of business, (d) which
involves hedging, options or any similar trading activity, or interest rate
exchanges or swaps, (e) which commits any of the CBI Companies to make, issue or
extend any loan other than commitments for Loans by CRB in amounts and on terms
that are consistent with the amounts and terms of Loans made by CRB and CRM in
the ordinary course of their business, (f) which involves the sale of any assets
of any of the CBI Companies which are used in and material to the operation of
their business, (g) which involves any purchase or sale of real property in any
amount, or which involves the purchase or sale of any other assets in the amount
of more than $25,000 in the case of any single transaction or $100,000 in the
case of all such transactions, (h) which involves the purchase, sale, issuance,
redemption or transfer of any CBI Stock or other securities, or (i) with any
director, officer or principal shareholder of CBI.
None of the CBI Companies are in default in any material
respect, and there has not occurred any event which, with the lapse of time or
giving of notice, or both, would constitute such a default by any of the CBI
Companies, under any contract, lease, insurance policy, commitment or
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arrangement to which it is a party or by which it or its property is or may be
bound or affected or under which it or its property receives benefits.
3.24. Employment Matters; Employee Relations. Each of the CBI
Companies (a) has paid in full to or accrued in accordance with GAAP on behalf
of all its directors, officers and employees all wages, salaries, commissions,
bonuses, fees and other direct compensation for all labor or services performed
by them to the date of this Agreement, and all vacation pay, sick pay, severance
pay, overtime pay and other amounts for which it is obligated under applicable
law or its existing agreements, benefit plans, policies or practices, and (b) is
in compliance with all applicable federal, state and local laws, statutes, rules
and regulations with regard to employment and employment practices, terms and
conditions, wages and hours and other compensation matters, except where a
failure of compliance, either individually or cumulatively with other such
failures, would not have a CBI Material Effect; and no person has made any claim
that any of the CBI Companies is liable in any amount for any arrearage in wages
or employment taxes or for any penalties for failure to comply with any of the
foregoing.
There is no action, suit or proceeding by any person pending
or, to the Knowledge of CBI, threatened, against any of the CBI Companies (or
any of their officers, directors or employees), involving employment
discrimination, sexual harassment, wrongful discharge or other claims involving
their employment practices.
None of the CBI Companies is a party to or bound by any
collective bargaining agreement with any of its employees, any labor union or
any other collective bargaining unit or organization. There is no pending or, to
the Knowledge of CBI, threatened labor dispute, work stoppage or strike
involving any of the CBI Companies and any of their employees, or any pending
or, to the Knowledge of CBI, threatened proceeding in which it is asserted that
any of the CBI Companies has committed an unfair labor practice; and to the
Knowledge of CBI, there is no activity involving any of the CBI Companies or any
of their employees seeking to certify a collective bargaining unit or engaging
in any other labor organization activity.
3.25. Employment Agreements; Employee Benefit Plans.
(a) For purposes of this Agreement, the following
definitions shall apply:
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
"COBRA" means the provisions of Code Section
4980B and Part 6 of Subtitle B of Title I of ERISA.
"HIPPA" means the provisions of the Code and
ERISA enacted by the Health Insurance Portability and Accountability Act of
1996.
(b) CBI has Previously Disclosed to FCB a true and
complete list of: (i) all bonus, deferred compensation, pension, retirement,
salary continuation, profit-sharing, thrift, savings, employee stock ownership,
stock bonus, stock purchase, restricted stock, stock appreciation rights, and
stock option plans (including a listing of all outstanding CBI Stock Awards);
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(ii) all employment, change in control and severance contracts; (iii) all
medical, dental, health, and life insurance plans; (iv) all vacation, sickness
and other leave plans; (iv) all disability and death benefit plans; and (v) all
other employee benefit plans, contracts, or arrangements (including any other
stock-based plan or arrangements) maintained or contributed to by it for the
benefit of any of its current or former officers, employees, contractors or
directors or any of their beneficiaries, or for which any of the CBI Companies
may have any liability (collectively, the "Plans"). There are no other entities
or other trades or businesses that can or should be treated as a single
employer, together with any of the CBI Companies, with respect to any Plan under
Section 414 of the Code. All reports and returns with respect to the Plans (and
any Plans previously maintained by any of the CBI Companies) required to be
filed with any governmental department, agency, service or other authority,
including without limitation Internal Revenue Service Form 5500 (Annual Report)
or the one-time filing with the United States Department of Labor (the "DOL") in
lieu of such Annual Report, or distributed to participants and their
beneficiaries, have been properly and timely filed or distributed.
(c) All Plans currently are, and at all times have
been, in compliance with all material provisions and requirements of applicable
law, including the Code and ERISA and the terms of the Plans. There is no
pending or threatened litigation relating to any Plan. None of the CBI Companies
have engaged in a transaction with respect to any Plan that could subject it,
any of them or their directors or employees or any Plan to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) or (l) of ERISA.
(d) All Plans which are intended to be plans
qualified under Section 401(a) of the Code ("Retirement Plans"), are qualified
under the provisions of Section 401(a) of the Code, the trusts under the
Retirement Plans are exempt trusts under Section 501(a) of the Code, and
determination or opinion letters have been issued and may be relied upon, or
have been applied for, with respect to each such qualification and exemption,
including determination letters covering the current terms and provisions of the
Retirement Plans unless the time period for applying for any such determination
or opinion letters covering the current terms and provisions of the Retirement
Plans has not yet expired. There is no reason why any such determination letter
will or should be revoked or not be issued or reissued. There are no issues
relating to said qualification or exemption of the Retirement Plans pending or
threatened before the IRS, the DOL, the Pension Benefit Guaranty Corporation or
any court. There are no claims, issues or disputes with respect to any of the
Plans or the administration thereof currently existing between any of the CBI
Companies, or any trustee or other fiduciary thereunder, and any governmental
agency, any current or former employee of any of the CBI Companies or
beneficiary of any such employee, or any other person or entity (other than
claims for benefits in the ordinary course).
(e) All contributions, premiums or payments required
to be made pursuant to the terms of each of the Plans have been timely made. All
such contributions were fully deductible and not subject to excise taxes under
the Code.
(f) There are no restrictions on the rights of any of
the CBI Companies to amend or terminate unilaterally any Plan with respect to
prospective benefit accruals without incurring any liability thereunder (other
than normal administrative expenses). Termination or liquidation of any Plan or
any of the investments or insurance contracts relating to any Plan will not
result in any material sales charge, surrender fee, interest rate adjustment or
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similar expense. Neither the execution and delivery of this Agreement nor the
consummation of the transactions described herein (either alone or in
combination with another event) will, except as otherwise specifically provided
in this Agreement or as Previously Disclosed to FCB, (i) result in any payment
to any person (including without limitation any severance compensation or
payment, unemployment compensation, "golden parachute" or "change in control"
payment, or otherwise) becoming due under any Plan or agreement to any director,
officer, employee or consultant, (ii) increase any benefits otherwise payable
under any Plan or agreement, or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
(g) With respect to each Plan, no event has occurred,
and there exists no condition or set of circumstances in connection with which
any of the CBI Companies could, directly or indirectly, be subject to any
liability under ERISA, the Code or any other applicable law, except for
liability for benefit claims and funding obligations payable in the ordinary
course and consistent with the terms of the Plan.
(h) None of the CBI Companies currently sponsors or
maintains, and none of them have ever sponsored or maintained or been liable
with respect to, any employee benefit plan that is or was (A) subject to Section
302 or Title IV of ERISA or Section 412 of the Code, (B) a multiemployer plan as
defined in Code Section 414(f) or ERISA Sections 3(37) or 4001(a)(31), (C) a
multiple employer plan within the meaning of Code Section 413(c) or ERISA
Sections 4063, 4064 or 4066 or (D) a multiemployer welfare arrangement within
the meaning of ERISA Section 3(40).
(i) Each Plan that is a "group health plan" has been
operated at all times in compliance in all material respects with the provisions
of COBRA, HIPPA and other applicable law and any similar state laws. None of the
Plans provide for medical, life or other welfare benefits to employees,
contractors or directors beyond their retirement or other termination of service
(other than coverage mandated by COBRA, the cost of which is fully paid by the
current or former employee, contractor, director or their beneficiaries).
(j) For purposes of the Plans, each person has been
properly classified and treated as an employee or independent contractor for all
applicable purposes.
(k) Each "deferred compensation plan" within the
meaning of Code Section 409A to which any of the CBI Companies is a party
complies in form with (or is within the period during which it can be amended to
comply with) the requirements of Section 409A of the Code and has been operated
in good faith compliance with such requirements since January 1, 2005.
(l) To the Knowledge of CBI, no fiduciary of any Plan
maintained by any of the CBI Companies has any liability for any breach of
fiduciary duty or any other failure to act or comply in connection with the
administration or investments of the assets of any such Plan.
3.26. Insurance. CBI has Previously Disclosed to FCB a listing
of each blanket bond and liability, property and casualty, workers' compensation
and employer liability, life, or other insurance policy in effect as of the date
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of this Agreement which is maintained by or insures any of the CBI Companies
(the "Policies"). The Policies provide coverage in such amounts and against such
liabilities, casualties, losses or risks as the CBI Companies are required by
applicable law or regulation to maintain; and, in the reasonable opinion of
management of CBI, the insurance coverage provided under the Policies is
reasonable and adequate in all respects for the respective CBI Companies. Each
of the Policies is in full force and effect and is valid and enforceable in
accordance with its terms (subject to general principles of equity and
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws),
and is underwritten by an insurer qualified to issue those policies in South
Carolina; and the CBI Companies have complied in all material respects with
requirements (including the giving of required notices) under each such Policy
in order to preserve all rights thereunder with respect to all matters. None of
the CBI Companies are in default under the provisions of, and none of them have
received notice of cancellation or nonrenewal of or any premium increase on, or
failed to pay any premium on, any Policy, and there has not been any material
inaccuracy in any application for any Policy which would give the insurer a
valid defense against paying a claim under that Policy. There are no pending
claims with respect to any Policy, and, to the Knowledge of CBI, there currently
are no conditions, and there has occurred no event, that is reasonably likely to
form the basis for any such claim.
3.27. Insurance of Deposits. All deposits of CRB are insured
by the FDIC to the maximum extent permitted by law, all deposit insurance
premiums due from CRB to the FDIC have been paid in full in a timely fashion,
and no proceedings have been commenced or, to the Knowledge of CBI, are
contemplated by the FDIC or otherwise to terminate such insurance.
3.28. Indemnification Obligations. Except to the extent
provided by its Articles of Incorporation (or, in the case of CRB, its Articles
of Association) or Bylaws in effect on the date of this Agreement or in a
contract or agreement Previously Disclosed to FCB pursuant to Paragraph 3.23 or
3.25 of this Agreement, or as otherwise required by applicable law, none of the
CBI Companies have any obligation to indemnify or hold harmless any of their
current or former directors, officers, employees or shareholders or, except as
would not be reasonably likely to have a CBI Material Effect, any other person,
against or from any costs or expenses (including attorneys' fees), judgments,
fines, amounts paid in settlement, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative. No
claim, demand or request for payment of indemnification has been made or
currently is pending or, to the Knowledge of CBI, threatened, against or with
respect to any of the CBI Companies, and, to the Knowledge of CBI, no facts or
circumstances exist which reasonably could be expected to result in such.
3.29. Disclosure and Accounting Controls. CBI maintains:
(a) disclosure controls and procedures as required by
and defined in the SEC's Rule 13a-15 under the 1934 Act which are reviewed
quarterly by CBI's management, including its officers who serve as its principal
executive officer and principal financial officer, and which are designed to
ensure that information required to be disclosed by CBI in reports it files with
or submits to the SEC under the 1934 Act is recorded, processed, summarized,
communicated to CBI's management, and reported, within the time periods
specified in the SEC's rules; and
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(b) internal control over financial reporting as
required by and defined in the SEC's Rule 13a-15 under the 1934 Act which
provides reasonable assurance regarding the reliability of CBI's financial
reporting and the preparation of its consolidated financial statements in
accordance with GAAP, including policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the CBI Companies' transactions and dispositions of their assets, (ii) provide
reasonable assurance that transactions are recorded as necessary to permit the
preparation of financial statements in accordance with GAAP, and receipts and
expenditures are made only in accordance with authorizations of CBI's management
and Board of Directors, and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the CBI Companies' assets that could have a material effect on CBI's
consolidated financial statements.
3.30. Obstacles to Regulatory Approval. To the Knowledge of
CBI and CRB, there exists no fact or condition (including without limitation
CRB's record of compliance with the Community Reinvestment Act) pertaining to
any of the CBI Companies or their business or operations that may reasonably be
expected to prevent or materially impede or delay CBI, CRB or FCB from obtaining
all approvals of Regulatory Authorities required in order to consummate the
transactions described in this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF FCB
Except as otherwise specifically described in this Agreement
or as Previously Disclosed to CBI, FCB hereby makes the following
representations and warranties to CBI and CRB.
4.01. Organization; Standing; Power. FCB (i) is duly organized
and incorporated, validly existing and in good standing as a state-chartered
bank under the laws of South Carolina, (ii) has all requisite power and
authority (corporate and other) to own its properties and conduct its business
as it now is being conducted, and (iii) is duly qualified to do business and is
in good standing in each jurisdiction in which it owns, leases or otherwise
operates properties of a character, or it transacts business of a nature, that
makes such qualification necessary, except where failure to qualify would not
have an FCB Material Adverse Effect.
4.02. Authorization and Validity of Agreement. This Agreement
has been duly and validly approved by FCB's Board of Directors and by Bancorp in
its capacity as FCB's sole shareholder. Subject only to receipt of required
approvals of Regulatory Authorities, (a) FCB has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
and agreements and carry out the transactions described herein, (b) all
corporate proceedings required to be taken to authorize FCB to enter into this
Agreement and to perform its obligations and agreements and carry out the
transactions described herein have been duly and properly taken, and (c) this
Agreement constitutes the valid and binding agreement of FCB and is enforceable
in accordance with its terms (except to the extent enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors' rights generally, (ii)
legal and equitable limitations on the availability of injunctive relief,
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specific performance and other equitable remedies, and (iii) general principles
of equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
4.03. Validity of Transactions; Absence of Required Consents
or Waivers. Subject to receipt of required approvals of Regulatory Authorities,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions described herein, nor compliance by FCB with any of its
obligations or agreements contained herein, will: conflict with or result in a
breach of the terms and conditions of, or constitute a default or violation
under any provision of, FCB's Articles of Incorporation or Bylaws, or, except
where the same could not reasonably be expected to have an FCB Material Effect,
(a) conflict with or result in a breach of the terms and conditions of, or
constitute a default or violation under any material contract, agreement, lease,
mortgage, note, bond, indenture, license, or obligation or understanding (oral
or written) to which FCB is bound or by which it, or its businesses, capital
stock, properties or assets may be affected, (b) result in the creation or
imposition of any material lien, claim, interest, charge, restriction or
encumbrance upon any of FCB's properties or assets, (c) violate any applicable
federal or state statute, law, rule or regulation, or any order, writ,
injunction or decree of any court, administrative or regulatory agency or
governmental body, or (d) result in the acceleration of any material obligation
or indebtedness of FCB.
No consents, approvals or waivers are required to be obtained
from any person or entity in connection with FCB's execution and delivery of
this Agreement, or the performance of its obligations or agreements or the
consummation of the transactions described herein, except for required approvals
of Regulatory Authorities described in Paragraph 7.01.
4.04. Financing. FCB has sufficient cash reserves, or has
access to sufficient cash, with which to finance the transactions described
herein.
4.05. Obstacles to Regulatory Approval. To the Knowledge of
FCB, no fact or condition (including without limitation FCB's record of
compliance with the Community Reinvestment Act) pertaining to FCB or its
business exists that may reasonably be expected to prevent or materially impede
or delay FCB from obtaining all approvals of Regulatory Authorities required in
order to consummate the transactions described in this Agreement.
ARTICLE V.
COVENANTS OF CBI AND CRB
Except as otherwise specifically provided in this Agreement, CBI and
CRB covenant and agree with FCB as described in the following paragraphs.
5.01. Affirmative Covenants.
(a) CBI Shareholders' Meeting; Proxy Statement;
Recommendation. CBI shall cause a meeting of its shareholders (the "CBI
Shareholders' Meeting") to be duly called and held as soon as practicable after
the date of this Agreement for the purpose of voting by CBI's shareholders on
the approval of the Plan of Merger. In connection with the call and conduct of,
and all other matters relating to, the CBI Shareholders' Meeting (including the
solicitation of appointments of proxies), CBI will comply in all material
respects with all provisions of applicable law and regulations and with its
Articles of Incorporation and Bylaws.
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CBI will solicit appointments of proxies from its
shareholders for use at the CBI Shareholders' Meeting and, in connection with
that solicitation, will prepare and distribute to its shareholders proxy
solicitation materials (a "Proxy Statement") that, in all material respects,
shall contain or be accompanied by such information regarding the CBI
Shareholders' Meeting, this Agreement, the parties hereto, the Merger and other
transactions described herein, and otherwise be in such form and contain such
information, as is required by the 1934 Act and rules and regulations of the SEC
thereunder (including without limitation Regulation 14A), or as CBI's Board of
Directors otherwise shall determine.
CBI will mail the Proxy Statement to its shareholders
on a date mutually agreed upon by CBI and FCB, but in no event less than 20 days
prior to the scheduled date of the CBI Shareholders' Meeting; provided, however,
that no such materials shall be mailed to CBI's shareholders unless and until
the Proxy Statement shall have been filed by CBI with the SEC, the review period
applicable thereto shall have expired, and CBI shall have satisfactorily
responded to and complied with any comments of the SEC thereon.
CBI covenants that its and CRB's directors,
individually and collectively as CBI's and CRB's Boards of Directors, will (i)
recommend that CBI's shareholders vote their shares of CBI Stock at the CBI
Shareholders' Meeting in favor of approval of the Plan of Merger, (ii) actively
encourage CBI's shareholders to vote, or to authorize the proxies designated by
CBI's Board to vote, their shares in favor of the Merger. The Proxy Statement
distributed to CBI's shareholders in connection with the CBI Shareholders'
Meeting will state that CBI's Board of Directors considers the Merger to be
advisable and in the best interests of CBI and its shareholders and that the
Board of Directors recommends that CBI's shareholders vote for approval of the
Plan of Merger. Notwithstanding the foregoing, if CBI's Board of Directors
reasonably believes in good faith, after consultation with and receipt of the
advice of its outside legal counsel and financial advisers, that such a
recommendation would violate the directors' duties or obligations as such to CBI
or to its shareholders under applicable law as a result of CBI's receipt of a
"Superior Proposal" (as that term is defined in Paragraph 9.02(b)(vi) below,
then the Board of Directors may submit the Agreement to shareholders at the CBI
Shareholders' Meeting without recommendation and, to the extent required by law,
communicate the basis for its lack of a recommendation to the shareholders in
the Proxy Statement or any appropriate amendment or supplement thereto.
(b) Conduct of Business Prior to Effective Time.
Although the parties recognize that the operation of CBI and CRB until the
Effective Time is the responsibility of their respective Boards of Directors and
officers, CBI and CRB each agrees that, following the date of this Agreement and
to and including the Effective Time, and except as otherwise provided herein or
expressly agreed to in writing by FCB's Chief Executive Officer or Chief
Financial Officer, CBI and CRB each will, and will cause each of the other CBI
Companies to, carry on its business in and only in the regular and usual course
in substantially the same manner as such business heretofore was conducted, and,
to the extent consistent with such business and within its ability to do so,
each of them agrees that it and each of the other CBI Companies will use
Commercially Reasonable Efforts to:
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(i) preserve intact its present business
organization, to keep available its present officers and employees, and to
preserve its relationships with customers, depositors, creditors,
correspondents, suppliers, and others having business relationships with it;
(ii) maintain all of its properties and
equipment in customary repair, order and condition, ordinary wear and tear
excepted;
(iii) maintain its books of account and
records in the usual, regular and ordinary manner in accordance with sound
business practices applied on a consistent basis;
(iv) comply with all laws, rules and
regulations applicable to it, to its properties, assets or employees, and to the
conduct of its business;
(v) not change its existing loan
underwriting guidelines, policies or procedures in any material respect except
as may be required by law or recommended by Regulatory Authorities; and
(vi) continue to maintain federal deposit
insurance as described in Paragraph 3.27 and, except to the extent that changed
circumstances dictate otherwise, continue to maintain in force the Policies
described in Paragraph 3.26 and not cancel, terminate, fail to renew, or modify
any Policy, or allow any Policy to be cancelled or terminated, unless the
cancelled or terminated Policy is replaced with a bond or policy providing
coverage, or unless the Policy as modified provides coverage, that is
substantially equivalent to the Policy that is replaced or modified;
(vii) promptly notify FCB of any actual or,
to their Knowledge, threatened litigation by or against any of them, together
with a description of the circumstances surrounding any such actual or
threatened litigation, its present status and management's evaluation of such
litigation; and
(viii) promptly provide to FCB such
information about their financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties, employees or
operations, as FCB reasonably shall request.
(c) Periodic Financial and Other Information.
Following the date of this Agreement and from
time to time as indicated below, to and including the Effective Time, CBI and
CRB will:
(i) within ten calendar days following each
calendar month-end, deliver to FCB a copy of CBI's unaudited year-to-date
consolidated income statement and an unaudited consolidated statement of
condition, each as of that month-end, accompanied by a written certification,
signed by CBI's Chief Executive Officer and Chief Financial Officer, to the
effect that (A) they each have reviewed the statements, (B) the statements have
been prepared in accordance with CBI's normal month-end management reporting
procedures, and (C) subject to normal and recurring quarter- and year-end
adjustments that are not expected to be material in amount or effect, all facts,
events, transactions, claims or other circumstances of which those officers are
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aware and which, individually or in the aggregate, they believe will result in
material liabilities or charges against earnings during the then current
quarterly period are reflected in the statements.
(ii) within ten calendar days following each
calendar quarter-end, deliver to FCB a copy of CBI's interim unaudited
consolidated financial statements for and as of the end of that quarterly
period;
(iii) promptly following the filing thereof,
deliver to FCB a copy of each report,
registration, statement or other filing, and any amendments thereto (including
without limitation each call report filed by CBI or CRB) made by any of the CBI
Companies with or to any Regulatory Authority; provided, however, that CBI shall
not be required to deliver to FCB copies of reports filed electronically by it
with the SEC under the 1934 Act which are available to the public on the SEC's
Internet website;
(iv) within ten calendar days following each
calendar quarter-end, deliver to FCB a copy of CBI's and CRB's management's
analysis of their and CRM's Loan Loss Reserves and Loan Repurchase Reserves;
(v) within ten calendar days following each
calendar month-end, deliver to FCB a listing of the aggregate dollar volume and
number of Loans and Loan commitments made or issued by CRB and CRM during that
month;
(vi) within ten calendar days following each
calendar month-end, deliver to FCB lists of:
(A) each Loan made by CRB or CRM
to a borrower, or commitment
by CRB or CRM to make, issue
or extend any Loan to a
borrower, in excess of the
lesser of $500,000 or an
amount that would cause CRB's
and CRM's aggregate credit
exposure to that borrower to
exceed that amount;
(B) each renewal, extension or
modification by CRB or CRM of
the terms of, or commitment by
CRB or CRM to renew, extend or
modify the terms of, any
existing Loan to a borrower to
whom CRB and CRM have an
aggregate credit exposure in
excess of $500,000;
(C) Loans that are past due as to
principal or interest for more
than 30 days;
(D) Loans in nonaccrual status;
(E) Loans for which there has been
no reduction in principal for
a period of longer than one
year;
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(F) all reworked or restructured
Loans still outstanding,
including original terms,
restructured terms and status;
(G) classified, potential problem
or "watch list" Loans, along
with the outstanding balance
and amount specifically
allocated to the Loan Loss
Reserve for each such Loan;
(H) all Loans charged off during
the previous month; and
(I) foreclosed real property or
other real estate owned and
all repossessed personal
property;
(vii) within ten calendar days following
each calendar month-end, deliver to FCB lists of:
(A) mortgage Loans held for sale,
together with an aging
schedule indicating the number
of days each Loan has been
held for sale;
(B) mortgage Loans sold during the
month, broken down by
investor;
(C) mortgage Loans originated
during the month by type
(e.g., conforming,
conventional, Alt A, SISA,
NINA, subprime, etc.), and
indicating, for each such
Loan, the Loan term, interest
rate and loan-to-value ratio,
the borrower's credit score,
and, whether the Loan has been
sold, is to be sold, or is to
be retained;
(D) mortgage Loans on the balance
sheet that have been
repurchased from investors and
mortgage Loans that were put
into the portfolio that were
initially intended to be sold
to investors;
(E) mortgage Loans that are
pending repurchase from
investors or where investors
have requested a repurchase;
(F) mortgage Loans identified as
"at risk" for repurchase;
(G) mortgage Loans on which there
are outstanding or potential
mortgage insurance claims;
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(H) mortgage Loans where
indemnification has been
requested or has been
provided;
(I) losses specifically recognized
and allocated to any mortgage
Loan applicable to this
subparagraph (vii) as part of
the Loan Repurchase Reserves;
and
(J) all communications with any
investor (whether verbal,
written or electronic) during
the month relating to any
potential or pending
repurchase of a previously
sold mortgage Loan, any
request, demand, or claim by
an investor that a previously
sold mortgage Loan be
repurchased, or any mortgage
insurance claim, together with
copies of any written or
electronic correspondence, or
summaries of verbal
conversations, relating to any
such matter;
(viii) promptly following FCB's request,
provide to FCB such other information about the CBI Companies' financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties, employees or operations, as FCB reasonably shall
request from time to time.
(d) Notice of Certain Changes or Events. Following
the date of this Agreement and to and including the Effective Time, CBI and CRB
promptly will notify FCB in writing of and provide to it such further
information as it shall request regarding (i) any CBI Material Change, or of the
actual or prospective occurrence of any condition or event which, with the lapse
of time or otherwise, may or could cause, create or result in any such CBI
Material Change, (ii) the actual or, to the Knowledge of CBI, prospective
existence or occurrence of any condition or event which has caused or, with the
lapse of time or otherwise, may or could cause, any statement, representation or
warranty of CBI or CRB herein to be or become inaccurate, misleading or
incomplete in any material respect, or which has resulted or may or could cause,
create or result in the breach or violation in any material respect of any of
CBI's or CRB's covenants or agreements contained herein or in the failure of any
of the conditions described in Paragraphs 8.01 or 8.03; and (iii) the occurrence
or existence of any event, fact or condition that may reasonably be expected to
prevent or materially impede or delay CBI, CRB or FCB from obtaining the
approvals of Regulatory Authorities required in order to consummate, or
otherwise from completing, the transactions described in this Agreement.
(e) Accruals for Expenses and Other Accounting
Matters. CBI and CRB will make such appropriate accounting entries in their
books and records and take such other actions as FCB deems to be required by
GAAP, or which FCB otherwise reasonably deems to be necessary, appropriate or
desirable in anticipation of completion of the Merger and which are not in
violation of GAAP or applicable law, including without limitation additional
provisions to CBI's or CRB's Loan Loss Reserve or Loan Repurchase Reserve or
accruals or the creation of reserves for compensation, employee benefit and
transaction-related expenses; provided, however, that notwithstanding any
provision of this Agreement to the contrary, (i) except as otherwise agreed to
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by CBI and FCB, CBI and CRB shall not be required to make any such accounting
entries until immediately prior to the Closing and only following receipt of
written confirmation from FCB that it is not aware of any fact or circumstance
that would prevent completion of the Merger, (ii) any such accounting entries
made by CBI or CRB at the direction of FCB and related to FCB's own accounting
purposes or convenience (as opposed to entries relating to events, developments,
changes or circumstances in CBI's or CRB's business or operations that are, or
should be, made by them under GAAP or otherwise in the normal course of its
business) may not, in and of themselves, be used to evidence a CBI Material
Change, and (iii) CBI and CRB shall not be required to make any such accounting
entries that its Chief Executive Officer and Chief Financial Officer believe, in
good faith, would not be permissible under GAAP.
(f) Loan Loss Reserve, Loan Repurchase Reserve, and
Loan Charge-Offs. Following the date of this Agreement, and prior to the Closing
Date, CBI and CRB will make such appropriate accounting entries in their books
and records and take such other actions as are necessary or appropriate to:
(i) charge-off any Loans on CRB's or CRM's
books, or any portions thereof, that they, or FCB in its sole discretion,
consider to be losses, or that they, or FCB, otherwise believe, in good faith,
are required to be charged off pursuant to applicable banking regulations, GAAP
or otherwise, or that otherwise would be charged off by FCB after the Effective
Time in accordance with its Loan administration and charge-off policies and
procedures; provided, however, that CBI and CRB shall not be required to record
any charge-off that its Chief Executive Officer and Chief Financial Officer
believe, in good faith, would not be permissible under GAAP; and
(ii) maintain their Loan Loss Reserve and
Loan Repurchase Reserve in a manner, and provide funds to their Loan Loss
Reserve and Loan Repurchase Reserve in amounts, consistent with their past
practices and as required by applicable banking regulations, GAAP, and their
Loan policies and procedures.
(g) Consents to Assignment of Contracts and Leases.
With respect to each contract or other agreement, including without limitation
service contracts and each lease or rental agreement pertaining to real or
personal property, to which any of the CBI Companies is a party (including each
of the Lease Agreements) and which FCB reasonably believes requires the consent
of any other contracting party in connection with or as a result of the Merger,
CBI and CRB will use Commercially Reasonable Efforts to obtain, prior to the
Closing, the written consent and estoppel certificate of that other party in a
form reasonably satisfactory to FCB.
(h) Access. CBI and CRB each agrees that, following
the date of this Agreement and to and including the Effective Time, it will
provide FCB and its employees, accountants, legal counsel, environmental or
other consultants, or other representatives and agents access to all books,
records, files (including credit files and loan documentation and records) and
other information (whether maintained electronically or otherwise) of each of
the CBI Companies, to all their properties and facilities, employees,
accountants, legal counsel, environmental or other consultants, or other
representatives or agents, as FCB shall, in its sole discretion, consider to be
necessary or appropriate for the purpose of conducting ongoing reviews and
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investigations of the assets and business affairs of the CBI Companies,
preparing for consummation of the Merger, determining the accuracy of CBI's and
CRB's representations and warranties in this Agreement or their compliance with
their covenants in this Agreement, or for any other reason; provided, however,
that any investigation or reviews conducted by or on behalf of FCB shall be
performed in such a manner as will not interfere unreasonably with CBI's and
CRB's normal operations or with CBI's relationship with its customers or
employees, and shall be conducted in accordance with procedures established by
the parties, each acting reasonably.
(i) Pricing of Deposits and Loans. Following the date
of this Agreement and to and including the Effective Time, CRB and CRM will make
pricing decisions with respect to deposit accounts and Loans in a manner
consistent with their past practices based on competition and prevailing market
rates in their banking markets.
(j) Employment Agreements and Change in Control
Severance Agreements. Following the date of this Agreement and to and including
the Effective Time, CBI will maintain in full force and effect, in accordance
with their original terms, and, except with the prior written consent of FCB,
will not make or agree to any amendments to or modification or termination of,
each of (i) those certain Amended and Restated Employment Agreements dated
December 7, 2007, between it and Samuel L. Erwin, William W. Traynham and Jason
E. Starnes (the "Existing Employment Agreements"), (ii) those certain Employment
Agreements between it and Michael A. Wolfe (dated June 15, 2008), Gregory G.
Burke dated June 15, 2008), William E. Howard (dated June 19, 2008), and Robert
B. Smith (dated June 19, 2008) (the "New Employment Agreements"), and (iii)
those certain Change in Control Severance Agreements between CBI and Michael O.
Blakeley (dated May 27, 2008) and William J. McElveen (dated February 8, 2008)
(the "CIC Agreements"); provided, however, that the Existing Employment
Agreements, New Employment Agreements and CIC Agreements may be amended as
appropriate to comply with Section 409A of the Code and regulations promulgated
thereunder.
(k) Further Action; Instruments of Transfer. CBI and
CRB each (i) will use Commercially Reasonable Efforts to take or cause to be
taken all action required of it under this Agreement as promptly as practicable
so as to permit the consummation of the transactions described herein at the
earliest practicable date, (ii) shall perform all acts and execute and deliver
to FCB all documents or instruments required of it herein, or as otherwise shall
be reasonably necessary or useful to or requested by FCB, in consummating such
transactions, and, (iii) will cooperate with FCB in every reasonable way in
carrying out, and will pursue diligently the expeditious completion of, such
transactions.
5.02. Negative Covenants. Following the date of this
Agreement, and to and including the Effective Time, without the prior written
consent and authorization of FCB's Chief Executive Officer or Chief Financial
Officer:
(a) Amendments to Articles of Incorporation or
Bylaws. None of the CBI Companies will amend their Articles of Incorporation or
Association, as applicable, or its Bylaws.
(b) Change in Capitalization. None of the CBI
Companies will make any change in their authorized capital stock, create any
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other or additional authorized capital stock or other securities, or reclassify,
combine, subdivide or split any shares of their capital stock or other
securities.
(c) Sale or Issuance of Capital Stock or Other
Securities. With the exception of CBI's sale of CBI Stock upon the exercise of a
CBI Option granted prior to and outstanding on the date of this Agreement, none
of the CBI Companies will sell or issue any additional shares of capital stock
or other securities of such company, including any capital notes, debentures or
other debt securities or any securities convertible into capital stock or other
securities, or enter into any agreement or understanding with respect to any
such action.
(d) Purchase or Redemption of Shares. None of the CBI
Companies will purchase, redeem, retire or otherwise acquire any shares of their
capital stock.
(e) Options, Warrants and Rights. None of the CBI
Companies will grant or issue any options, warrants, calls, puts or other rights
of any kind relating to the purchase, redemption or conversion of shares of
their capital stock or any other securities (including securities convertible
into capital stock) or enter into any agreement or understanding with respect to
any such action. Specifically, and without limiting the generality of the
preceding sentence, CBI will not grant any further CBI Stock Awards or other
share-based awards under its 2007 Equity Plan or otherwise.
(f) Dividends. CBI will not declare or pay any
dividends on the outstanding shares of CBI Stock, whether in cash or in
additional shares of CBI Stock or other securities, or make any other
distributions on or in respect of any shares of its capital stock or otherwise
to its shareholders, provided, however, that to the extent otherwise permitted
by applicable law, (i) CBI shall be permitted to pay quarterly cash dividends on
the outstanding CBI Stock at times and in amounts consistent with its past
practices, but no such quarterly cash dividends shall exceed $0.12 per
outstanding share per quarter; and, (ii) if the Closing shall not be held before
December 1, 2008, CBI shall be permitted to pay a pro rated final cash dividend
on the outstanding shares of CBI Stock to its shareholders in an amount per
share equal to $0.12 multiplied by a fraction in which the numerator is the
number of days from the previous calendar quarter-end to and including the
Closing Date and the denominator is the total number of days in the calendar
quarter in which the Closing Date occurs. Any such final dividend shall be paid
by CBI on or before the Closing Date.
(g) Employment, Benefit or Retirement Agreements or
Plans. Except as required by law, none of the CBI Companies will (i) enter into,
become bound by, or amend any oral or written contract, agreement or commitment
for the employment or compensation of any director, officer, employee or
consultant which is not immediately terminable by it or them without cost or
other liability on no more than 30 days' notice; (ii) adopt, enter into, become
bound by, any new or additional profit-sharing, bonus, incentive, change in
control or "golden parachute," stock option, stock purchase, pension, deferred
compensation, retirement, insurance (hospitalization, life or other, other than
renewals of existing group employee insurance policies in the ordinary course of
their business), paid leave (sick leave, vacation leave or other) or similar
contract, agreement, commitment, understanding, plan or arrangement (whether
formal or informal) with respect to or which provides for benefits for any of
its or their current or former directors, officers, employees or consultants, or
amend any such existing contract, agreement, commitment, understanding, plan or
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arrangement; or (iii) enter into, become bound by or amend any contract with or
commitment to any labor or trade union or association or any collective
bargaining group.
(h) Increase in Compensation; Bonuses. None of the
CBI Companies will increase the compensation or benefits of, or pay any bonus or
other special or additional compensation to, any of its or their current or
former directors, officers, employees or consultants; provided, however, that
notwithstanding anything contained herein to the contrary, prior to the
Effective Time CRB may review and make routine merit increases in the salaries
of its employees, provided that the times and amounts of those increases are
consistent with CRB's past practices and its salary administration and review
policies and procedures in effect on September 30, 2007.
(i) Accounting Practices; Independent Accountants.
None of the CBI Companies will make any changes in their accounting methods,
practices or procedures or in depreciation or amortization policies, schedules
or rates heretofore applied except as required by GAAP or applicable law or
regulations or as recommended by its independent public accountants, and CBI
will not change its independent public accountants.
(j) Acquisitions; Additional Branch Offices. None of
the CBI Companies will, directly or indirectly (i) acquire (whether by merger or
otherwise) any branch or all or any significant part of the assets of any other
person or entity, other than in connection with the foreclosure or other
enforcement of a lien held to secure a Loan, (ii) open any new branch office, or
(iii) enter into or become bound by any contract, agreement, commitment or
letter of intent relating to, or otherwise take or agree to take any action in
furtherance of, any such transaction or the opening of a new branch office.
(k) Changes in Business Practices. Except as may be
required by their respective Regulatory Authorities, or otherwise as shall be
required by applicable law, regulation or this Agreement, none of the CBI
Companies will (i) change in any material respect the nature of their business
or the manner in which they conduct their business, (ii) discontinue any
material portion or line of their business, or (iii) change in any material
respect their lending, investment, asset-liability management or other material
banking or business policies.
(l) Exclusive Agreement.
(i) Unless, due to a material change in
circumstances after the date hereof, CBI's Board of Directors reasonably
believes in good faith, following consultation with and receipt of the advice of
its outside legal counsel and financial advisers, that any such action or
inaction would violate the directors' duties or obligations as such to CBI or to
its shareholders, neither CBI nor CRB, nor their respective directors
(individually or acting as CBI's or CRB's Board of Directors), nor any of CBI's
or CRB's officers, will, directly, or indirectly through any person, (A)
initiate, solicit, encourage the initiation or procurement of, or take any
action, including by way of furnishing information, to facilitate the initiation
or procurement of, any Acquisition Proposal (as defined below) or to generate
inquiries, discussions or negotiations with respect to the making of any
Acquisition Proposal, (B) continue or otherwise participate in any discussions
or negotiations with, furnish or disclose any information relating to any of the
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CBI Companies or afford access to the business, properties, assets, books or
records of CBI or CRB to, or otherwise cooperate in any way with, or knowingly
assist, participate in, facilitate or encourage any effort by, any third party
that is seeking to make, or has made, an Acquisition Proposal, (C) except to the
extent required by law, disclose to any person or entity any information not
customarily disclosed to the public concerning any of the CBI Companies or their
business, or afford to any other person or entity access to the properties,
facilities, books or records of any of the CBI Companies, (D) approve, endorse
or recommend, enter into or become bound by, or otherwise take or agree to any
action in furtherance of, any Acquisition Agreement (as defined below), or (E)
authorize or direct any other person to represent it or them in connection with,
or to take on its or their behalf, any action described above, or cooperate with
any other person in connection with any such action.
"Acquisition Proposal" means any proposal or
offer with respect to any of the following (other than the transactions
described in this Agreement): (A) any merger, consolidation, share exchange,
business combination, or other similar transaction involving CBI or CRB; (B) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of any
branch office of CRB or of 25% or more of CBI's consolidated assets to any other
person, entity or group in a single transaction or series of related
transactions; or (C) any tender offer or exchange offer for 25% or more of the
outstanding shares of CBI's or CRB's capital stock, or the making of any filing
with the SEC in connection therewith.
"Acquisition Agreement" means any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement, in any case in writing, that relates to or provides for any
transaction that is described in or contemplated by the the term Acquisition
Proposal, as defined above.
(ii) CBI and CRB will promptly, and in any
event within 24 hours, notify FCB in writing of the receipt of any Acquisition
Proposal or any information related thereto, which notification shall describe
the Acquisition Proposal and identify the third party making such proposal.
(m) Acquisition or Disposition of Assets. None of the
CBI Companies will:
(i) sell or lease (as lessor), or enter into
or become bound by any contract, agreement, option or commitment relating to the
sale, lease (as lessor) or other disposition of, any real property in any
amount, other than real property acquired by CRB or CRM in connection with the
foreclosure in the ordinary course of its business of a mortgage that secured
one of CRB's or CRM's Loans;
(ii) except as provided below, sell or lease
(as lessor), or enter into or become bound by any contract, agreement, option or
commitment relating to the sale, lease (as lessor) or other disposition of, any
equipment or any other fixed or capital asset (other than real property) having
a book value or a fair market value, whichever is greater, of more than $25,000
in the case of any individual item or asset, or $75,000 in the aggregate for all
such items or assets; provided, however, that this provision shall not prohibit
CBI or CRB from selling investment portfolio securities for liquidity purposes
in the ordinary course of their business;
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(iii) purchase or lease (as lessee), or
enter into or become bound by any contract, agreement, option or commitment
relating to the purchase, lease (as lessee) or other acquisition of, any real
property in any amount, other than real property that is the subject of a
mortgage securing one of CRB's or CRM's Loans that is being foreclosed upon in
the ordinary course of its business;
(iv) purchase or lease (as lessee), or enter
into or become bound by any contract, agreement, option or commitment relating
to the purchase, lease (as lessee) or other acquisition of, any equipment or any
other fixed asset (other than real property) having a purchase price, or
involving aggregate lease payments, in excess of $25,000 in the case of any
individual item, or $75,000 in the aggregate for all such items or assets, other
than any equipment or other fixed assets that are the subject to a lien securing
one of CRB's or CRM's Loans that is being enforced in the ordinary course of its
business;
(v) enter into any purchase or other
commitment or contract for supplies or services other than in the usual and
ordinary course of their business consistent with their past practices;
(vi) except in the ordinary course of their
business consistent with their past practices, sell, purchase or repurchase, or
enter into or become bound by any contract, agreement, option or commitment to
sell, purchase or repurchase, any Loan or other receivable or any participation
in any Loan or other receivable;
(vii) except in the ordinary course of their
business consistent with their past
practices with respect to investment securities, Loans and similar assets, sell
or dispose of, or enter into or become bound by any contract, agreement, option
or commitment relating to the sale or other disposition of, any other asset
(whether tangible or intangible, and including without limitation any trade
name, trademark, copyright, service mark or intellectual property right or
license); or
(viii) assign its rights to or otherwise
give any other person its permission or consent to use or do business under the
corporate name of any of the CBI Companies or any name similar thereto; or
release, transfer or waive any license or right granted to them by any other
person to use any trademark, trade name, copyright, service mark or intellectual
property right.
(n) Debt; Liabilities. With the exception of CRB's
acceptance of deposits, entry into repurchase agreements, purchases of Federal
Funds, borrowings from the Federal Home Loan Bank of no more than 90 days
maturity, and direct investments in CRB by the Federal Reserve Bank of Richmond
pursuant to its Treasury Tax and Loan Investment Program, in any such case in
the ordinary course of CRB's business consistent with its past practices, none
of the CBI Companies will (i) enter into or become bound by any promissory note,
loan agreement or other agreement or arrangement pertaining to their borrowing
of money, (ii) assume, guarantee, endorse or otherwise become responsible or
liable for any obligation of any other person or entity (except pursuant to
standby letters of credit issued by CRB in the ordinary course of its lending
business), or (iii) except in the ordinary course of their business consistent
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with their past practices, incur any other liability or obligation (absolute or
contingent).
(o) Liens; Encumbrances. With the exception of CRB's
pledges of Loans or portfolio securities to the Federal Home Loan Bank to secure
borrowings permitted by Paragraph 5.02(n) above, and pledges of securities in
the ordinary course of CRB's business and consistent with its past practices in
connection with the securing of public funds deposits or repurchase agreements,
none of the CBI Companies will mortgage, pledge or subject any of their assets
to, or permit any of their assets to become or, except for any liens or
encumbrances Previously Disclosed to FCB under to Paragraphs 3.16, 3.17, 3.18
and 3.19, remain subject to, any lien or any other encumbrance.
(p) Waiver of Rights. None of the CBI Companies will
waive, release, or compromise any rights in their favor against or with respect
to any of their current or former officers, directors, shareholders, employees,
consultants, or members of families of current or former officers, directors,
shareholders, employees or consultants, nor will any of them waive, release or
compromise any material rights against or with respect to any other person or
entity except in the ordinary course of business and in good faith for fair
value in money or money's worth.
(q) Other Contracts. None of the CBI Companies will
enter into or become bound by any contracts, agreements, commitments, pledges or
understandings (i) for or with respect to any charitable contributions in excess
of $5,000 in the case of any one contribution or pledge or $30,000 in the
aggregate; (ii) with any governmental or regulatory agency or authority except
as required by law; (iii) which is entered into other than in the ordinary
course of their business; or (iv) except as otherwise permitted elsewhere in
this Paragraph 5.02, and whether or not in the ordinary course of their
business, which would obligate or commit them to make expenditures over any
period of time of more than $50,000 in the case of any one contract, agreement,
commitment or understanding, or more than $100,000 in the case of all contracts,
agreements, commitments or understandings.
(r) Deposit Liabilities. CRB will not make any
material change in its current deposit policies and procedures, or take any
actions designed to materially increase or decrease the aggregate level of its
deposits, or any category of its deposits, as of the date of this Agreement,
other than changes that are consistent with its asset-liability management
policies and based on competition, market rates, or changes in applicable law.
(s) Changes in Lease Agreements. Prior to the
Effective Time, none of the CBI Companies will (i) surrender its leasehold
interest in any parcel of leased CBI Real Property, or seek or agree to the
termination of the Lease Agreement pertaining to any such parcel, other than at
the end of the term of a Lease Agreement under the terms of which it does not
have an option to renew, or (ii) modify or amend the Lease Agreement pertaining
to any parcel of leased CBI Real Property other than in connection with the
renewal of a Lease Agreement at the end of its term. Prior to renewing or
amending a Lease Agreement as described above, CBI and CRB will consult with FCB
and permit FCB to express its views regarding the terms of the renewal or
amendment.
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(t) Actions by CRM, CFS, RIA and FNFS. Except as
provided in Paragraph 7.13 below, CBI and CRB will not cause or permit CRM, CFS,
RIA or FNFS, to take, and, as the sole shareholders of those companies, each of
them will use Commercially Reasonable Efforts to prevent its respective
subsidiaries from taking, any action that is prohibited to CBI, CRB or the CBI
Companies by the various provisions of this Paragraph 5.02.
ARTICLE VI.
COVENANTS OF FCB
Except as otherwise specifically provided in this Agreement, FCB
covenants and agrees with CBI and CRB as described in the following paragraphs.
6.01. Employees; Employee Benefits.
(a) Employment of CRB Employees. Subject to the
availability of suitable positions within FCB, FCB will endeavor, but will not
be obligated, to offer employment to current employees of CRB who remain
employed by CRB at the Effective Time. Except to the extent otherwise provided
in a written agreement between FCB and an employee of CRB as contemplated by
Paragraph 7.08, the employment offered by FCB to CRB's employees will be on an
"at will" basis in such a position, at such location within FCB's system, and
for such rate of compensation, as shall be determined by FCB in the ordinary
course of its business following the Effective Time, and nothing in this
Agreement shall be deemed to constitute an employment agreement between FCB and
any such person or to obligate FCB to employ any such person for any specific
term or period of time, in any specific position, or at any specific salary or
rate of compensation, or to restrict FCB's right to terminate the employment of
any such person at any time following the Effective Time and for any reason
satisfactory to it.
(b) Employee Benefits. Following the Effective Time,
each employee of CRB who accepts employment offered by FCB (a "Continuing
Employee") shall be entitled to participate in employee benefit plans provided
generally by FCB to its employees from time to time on the same basis, and
subject to the same eligibility and vesting requirements and other conditions,
restrictions and limitations, as generally are in effect and applicable to other
similarly situated employees of FCB. For purposes of determining benefit
accruals under FCB's vacation policy, and for purposes of determining
eligibility to participate and vesting in connection with the provision of
employee benefits generally, each Continuing Employee will be given credit for
his or her time of service with CRB prior to the Effective Time. However,
notwithstanding anything contained in this Agreement to the contrary, in no
event shall any Continuing Employee be or become eligible to participate in, or
for benefits under, FCB's defined benefit pension plan (which has been frozen to
new participants). The terms of participation by Continuing Employees in FCB's
health insurance plan shall include the waiver of any waiting periods and/or
pre-existing condition limitations, to the extent such waiting periods and
pre-existing conditions did not apply under CRB's health insurance plan that
covered the Continuing Employee immediately prior to the Effective Time. Each
Continuing Employee shall be given credit towards satisfaction of any annual
deductible limitation and out-of-pocket maximum applied under the FCB health
insurance plan for any deductible amounts and co-payments previously paid by him
or her under CRB's health insurance plan during that plan year in which the
Effective Time occurs.
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6.02. Further Action; Instruments of Transfer. FCB (a) will
use Commercially Reasonable Efforts to take or cause to be taken all action
required of it under this Agreement as promptly as practicable so as to permit
the consummation of the transactions described herein at the earliest
practicable date, (b) shall perform all acts and execute and deliver to CBI and
CRB all documents or instruments required of it herein, and (c) will cooperate
with CBI and CRB in every way in carrying out, and will pursue diligently the
expeditious completion of, such transactions.
6.03 Notice of Certain Changes or Events. Following the date
of this Agreement to and including the Effective Time, FCB promptly will notify
CBI in writing of and provide to it such further information as it shall request
regarding (i) any FCB Material Change, or (ii) the actual or prospective
existence or occurrence of any condition or event of which FCB has Knowledge and
which has caused or, with the lapse of time or otherwise, reasonably could be
expected to result in a FCB Material Change or to cause any statement,
representation or warranty of FCB herein to be or become inaccurate, misleading
or incomplete in any material respect, or which has resulted or reasonably could
be expected to cause, create or result in the breach or violation in any
material respect of any of FCB's covenants or agreements contained herein or in
the failure of any of the conditions described in Paragraphs 8.01 or 8.02.
ARTICLE VII.
ADDITIONAL MUTUAL AGREEMENTS
Except as otherwise specifically provided in this Agreement, CBI, CRB
and FCB mutually covenant and agree as described in the following paragraphs.
7.01. Regulatory Approvals. As soon as practicable following
the date of this Agreement, CBI, CRB and FCB (a) will prepare and file, or cause
to be prepared and filed, all applications required to be filed by it or them
under applicable law and regulations for approvals by Regulatory Authorities of
the Merger or other transactions described in this Agreement, (b) use
Commercially Reasonable Efforts to obtain all necessary approvals of Regulatory
Authorities required for consummation of the Merger and other transactions
described herein, and (c) before the filing of any such application required to
be filed, give the other an opportunity to review and comment on the form and
content of such application. Should the appearance of any of the officers,
directors, employees or counsel of CBI, CRB or FCB be requested by any of the
others or by any Regulatory Authority at any hearing in connection with any such
application, it will use Commercially Reasonable Efforts to arrange for such
appearance.
7.02. Information for Proxy Statement and Applications for
Regulatory Approvals. CBI, CRB and FCB each agrees (a) to cooperate with the
others in the preparation of the Proxy Statement and applications for required
approvals of Regulatory Authorities, to promptly respond to requests by any of
the others and their legal counsel for information, and to provide all
information, documents, financial statements or other material, that is required
for, or that may be reasonably requested by any other party for inclusion in,
any such document, and (b) that none of the information provided by it in
writing for inclusion in any such application or the Proxy Statement will
contain any untrue statement of a material fact, or omit any material fact
required to be stated therein or necessary in order to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading, at and as of the time (i) the Proxy Statement is filed with the SEC,
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(ii) the Proxy Statement is mailed to CBI's shareholders, (iii) the applications
for required approvals of Regulatory Authorities are filed, and (iv) approvals
of Regulatory Authorities are granted.
7.03. Announcements; Confidential Information.
(a) No persons other than CBI or FCB are authorized
to make any public announcements or statements about this Agreement or any of
the transactions described herein. Without the prior review and consent of the
other, neither CBI, CRB nor FCB will make any public announcement, statement or
any other disclosure of any nature to any person as to the terms and conditions
of this Agreement or the transactions described herein, except for such
disclosures as may be required incidental to obtaining the required approval of
any Regulatory Authority to the consummation of the transactions described
herein.
(b) For purposes of this Paragraph 7.03,
"Confidential Information" refers to any information (including business and
financial information) that a party to whom the information pertains (an
"Informing Party") provides or makes available in connection with this Agreement
(including without limitation information provided or made available in
connection with any previous negotiations among CBI, CRB and FCB) to a party for
whose benefit the information is provided, or to that party's affiliates,
directors, officers, employees, attorneys, advisors, consultants,
representatives and agents (a "Receiving Party"), or which a Receiving Party may
otherwise obtain (including without limitation information obtained in
connection with any previous negotiations among CBI, CRB and FCB) from any
examination of an Informing Party's documents, books, records, files or other
written materials or from any discussions with any of the Informing Party's
directors, officers, employees, attorneys, advisors, consultants,
representatives and agents, and shall be deemed to include, without limitation,
(i) all such documents, books, records, files or other written materials
themselves and all information contained therein (whether maintained in writing,
electronically, on microfiche or otherwise), (ii) all corporate minutes,
financial projections and budgets, historical and projected sales reports,
acquisition or other expansion analyses or plans, pro forma financial data,
capital spending budgets and plans, market studies and business plans, (iii) all
information relative to financial results and condition, operations, policies
and procedures, computer systems and software, shareholders, employees,
officers, and directors, and (iv) all information relative to customers and
former or prospective customers.
(c) Prior to the Effective Time and following any
termination of this Agreement:
(i) all Confidential Information of an
Informing Party is proprietary to the Informing Party and constitutes either
trade secrets or confidential information of the Informing Party, is to be held
in strict confidence by a Receiving Party and, except as otherwise provided
herein, may not be disclosed by a Receiving Party to any person or entity not a
party to this Agreement, unless the Receiving Party can demonstrate that the
same information as the Confidential Information to be disclosed:
(A) already was in his, her or its
possession prior to such Confidential Information being obtained from the
Informing Party;
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(B) already was publicly available
or, at that time, had become publicly available through no fault of, or
violation of this Paragraph 7.03 by, the Receiving Party or any other person
that the Receiving Party knows, or has reason to know, is obligated to protect
such Confidential Information; or
(C) was developed independently by
or for the Receiving Party, without the use of the Confidential Information
disclosed to or obtained by the Receiving Party;
(ii) the Receiving Party shall not use any
Confidential Information of the Informing Party in an unlawful manner, to
interfere with or attempt to terminate or otherwise adversely affect any actual
or proposed contractual or business relationship of the Informing Party, or for
any other purposes other than in conjunction with the transactions described
herein. Without limiting the generality of the foregoing, in no event shall the
Receiving Party use any Confidential Information of the Informing Party,
directly or indirectly, for the purpose of competing against the Informing
Party.
However, notwithstanding anything in this Paragraph
7.03 to the contrary, prior to the Effective Time, CBI, CRB or FCB, as the
Receiving Party, (i) may disclose Confidential Information of the Informing
Party to the Receiving Party's affiliates, directors, officers, employees,
agents, attorneys, advisors and consultants who are directly involved in the
transactions contemplated by this Agreement, on a need to know basis and only if
such persons or entities agree to be bound by the restrictions and obligations
of this Paragraph 7.03 or otherwise owe an obligation of confidentiality to the
Receiving Party; and (ii) will enforce its obligations under this Paragraph 7.03
against all persons to whom it discloses Confidential Information and shall be
responsible and liable to the Informing Party for any disclosure of Confidential
Information by such persons or entities in violation of such restrictions and
obligations.
(d) In the event that this Agreement is terminated
and the Merger is not consummated, the Receiving Party will deliver or cause to
be delivered to the Informing Party all written Confidential Information of the
Informing Party in the possession of the Receiving Party, or provide an
affidavit as to the destruction of all copies of such Confidential Information.
(e) Notwithstanding anything contained in this
Paragraph 7.03 to the contrary, neither CBI, CRB nor FCB, as a Receiving Party,
shall be prohibited from disclosing any Confidential Information of the
Informing Party, or shall be required to obtain the prior consent of the
Informing Party for any such disclosure, which it, in good faith, believes is
required to be disclosed in any application to any Regulatory Authority for
approval of the Merger or other transactions described in this Agreement, or
which it, in good faith, and upon the advice of its legal counsel, believes is
otherwise required by law or the American Stock Exchange; provided, however,
that before any such disclosure may be made by a Receiving Party upon the advice
of its legal counsel, it shall, except where such notice is prohibited by law,
give the Informing Party reasonable notice of its intent to make such
disclosure, the form and content of that disclosure, and the basis upon which
its legal counsel has advised it that such disclosure is required by law, so
that the Informing Party may seek a protective order or other similar or
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appropriate relief, and the Receiving Party also shall undertake in good faith
to have the Confidential Information to be disclosed treated confidentially by
the party to whom the disclosure is made.
7.04. Real Property Matters.
(a) At its option and expense, following the date of
this Agreement FCB may cause to be conducted (i) a title examination, physical
survey, zoning compliance review, and structural inspection of any or all of the
CBI Real Property and improvements thereon (collectively, the "Property
Examination"), and (ii) site inspections, environmental assessments, historic
reviews, and regulatory analyses of any or all of the CBI Real Property,
together with such other studies, testing and intrusive sampling and analyses as
FCB shall deem necessary or desirable (collectively, the "Environmental
Survey"); provided, however, that any investigation or reviews conducted by or
on behalf of FCB shall be performed in such a manner as will not interfere
unreasonably with CRB's normal operations. .
If, in the course of the Property Examination or
Environmental Survey, FCB identifies one or more
"Material Defects" (as defined below), FCB will give prompt written notice
thereof to CBI describing the facts or conditions constituting each such
Material Defect.
(b) For purposes of this Agreement, a "Material
Defect" shall include:
(i) the existence of any lien (other than
the lien of real property taxes not yet due and payable), encumbrance, title
imperfection or title irregularity relating to any of the Real Property,
including without limitation the existence of any facts or circumstances that
adversely affect any of the CBI Companies' ability to enforce any Lease
Agreement or its rights in any leasehold interest thereunder;
(ii) the existence of any zoning
restriction, easement, covenant or other restriction, or the existence of any
facts or conditions that constitute a breach of representations and warranties
contained in Paragraph 3.16 or 3.21, relating or with respect to any of the CBI
Real Property, in either such case that FCB reasonably believes will materially
and adversely affect its use of that Real Property for the purpose for which and
in the manner in which it currently is used or the value or marketability of
that CBI Real Property;
(iii) the existence of any structural
defects or conditions of disrepair in the improvements on any parcel of the CBI
Real Property (including any equipment, fixtures or other components related
thereto); or
(iv) the existence of facts or circumstances
relating to any of the CBI Real Property and indicating that (A) there likely
has been a discharge, disposal, release, threatened release, or emission by any
person of any Hazardous Substance on, from, under, at, or relating to that CBI
Real Property, or (B) any action has been taken or not taken, or a condition or
event likely has occurred or exists, with respect to that CBI Real Property
(including, without limitation, any removal or disposal of materials from the
CBI Real Property) which constitutes or would constitute a violation of any
Environmental Law or any contract or other agreement between any of the CBI
Companies and any other person or entity, as to which, in either such case, FCB
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reasonably believes, based on the advice of legal counsel or other consultants,
that, before or after the Effective Time, any of the CBI Companies or FCB,
respectively, could incur costs or become responsible or liable for assessment,
removal, remediation, monetary damages (including without limitation any
liability to other persons for property damage or personal injury), or civil,
criminal or administrative penalties or other corrective action.
(c) In the event that:
(i) FCB reasonably believes that (A) the
total of the costs and expenses that any of the CBI Companies or FCB could incur
in fully correcting all Material Defects identified by FCB that are described in
Paragraphs 7.04(b)(i), (iii) and/or (iv) above, plus (B) all other amounts for
which any of the CBI Companies or FCB could become responsible or liable related
to all those Material Defects as described in Paragraph 7.04(b)(iv), in either
case whether before or after the Effective Time, exceeds an aggregate of
$500,000, or
(ii) FCB identifies one or more Material
Defects described in Paragraph 7.04(b)(ii) above,
then FCB shall have the right and option, exercisable upon written notice to
CBI, to terminate this Agreement. In the event that, following its investigation
of any such Material Defects, FCB concludes that it will terminate this
Agreement as provided in the preceding sentence, it will give prompt notice of
termination to CBI; provided, however, that FCB shall not be obligated to give
any such notice while it continues in good faith to investigate, or to determine
the nature and cost of potential corrective actions, if any, to remedy, any such
Material Defect.
(d) It is contemplated that FCB will conduct the
Property Examination and the Environmental Survey following the date of this
Agreement and prior to the Effective Time. It is the intent of this Agreement,
and CBI and CRB understand and agree, that, upon completion of the Property
Examination and Environmental Survey, if any of the facts, conditions,
circumstances or other matters revealed by the Property Examination or
Environmental Survey reveal a Material Defect, then FCB may exercise its rights
under this Paragraph 7.04 without regard to any actual knowledge on or prior to
the date of this Agreement on the part of FCB or its officers or advisers of
that Material Defect or the facts, conditions, circumstances or other matters
pertaining thereto and without regard to any Previous Disclosure to FCB, or any
other communication to FCB or any of its officers or advisers, prior to the date
of this Agreement, or otherwise.
7.05. Directors' and Officers' Liability Insurance.
Immediately prior to the Effective Time, CBI and CRB shall purchase "tail"
coverage with respect to their directors' and officers' liability and errors and
omissions liability insurance, effective at the Effective Time and for the
maximum term available and in the same amount of coverage as is provided by
their then current directors' and officers' and errors and omissions liability
insurance policy, provided that the total costs of such tail coverage shall not
exceed an aggregate of $50,000 without FCB's prior written approval.
7.06. Final Tax Return. Following the Effective Time, FCB will
make all necessary arrangements for the CBI Companies' final federal and state
income tax returns for the year in which the Effective Time occurs to be
prepared and filed.
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7.07. Expenses. Subject to the provisions of Paragraph 9.03
below, and whether or not this Agreement shall be terminated or the Merger shall
be consummated, CBI, CRB and FCB each shall pay its or their own legal,
accounting, financial and other consulting or advisory fees, and all its or
their other costs and expenses, incurred or to be incurred in connection with
the execution and performance of its or their obligations under this Agreement,
or otherwise in connection with this Agreement and the transactions described
herein (including without limitation filing fees, printing and mailing costs,
and other out-of-pocket expenses). For purposes of this Agreement, expenses
associated with the printing and mailing of the Proxy Statement and all amounts
owed by CBI to Ewing for its services and for rendering the "CBI Fairness
Opinion" described in Paragraph 8.02(g), will be deemed to have been incurred
solely by CBI.
7.08. Employment and Change in Control Severance Agreements.
At the Effective Time, FCB shall, by virtue of the Merger, assume and become
responsible for CBI's obligations, and succeed to CBI's rights, under (a) the
Existing Employment Agreements, (b) the New Employment Agreements, and (c) the
CIC Agreements.
7.09. Treatment of 401(k) Plan. CBI's Section 401(k) plan will
be terminated, effective immediately prior to the Effective Time. Each
participant in CBI's plan at the time it is terminated may elect, upon
completion of the termination and the final liquidation of the plan, (a) to
receive a distribution of the assets credited to his or her plan account at that
time, (b) to have those assets credited as a direct "roll-over" to the
participant's individual retirement plan account, or, (c) if the participant
will become a participant in FCB's Section 401(k) plan, to have those assets
credited as a "roll-over" to the participant's plan account under FCB's plan.
CBI and CRB each will take or cause to be taken such actions
as FCB shall reasonably consider to be necessary or desirable in connection with
or to effect or facilitate such plan termination. As successor to CBI and CRB,
FCB agrees that, as of the Effective Time, it will assume any and all
administrative and fiduciary duties of CBI and CRB with respect to completion of
the termination and liquidation of CBI's plan, including, without limitation,
duties relating to filings with the Internal Revenue Service relating to the
plan.
7.10. Equity Award Termination and Releases. Following the
date of this Agreement, and not less than 30 days before the Closing, CBI's
Board of Directors will take such action as is necessary or appropriate under
CBI's 2007 Equity Plan and 1997 Stock Option Plan to effect a termination of
each CBI Option or CBI SAR that remains outstanding and unexercised immediately
prior to the Effective Time and the conversion of the rights of the holders of
those CBI Stock Awards into the right to receive cash as described below. CBI
shall enter into a written agreement (an "Equity Award Release") in form
reasonably satisfactory to FCB with each holder of a then outstanding CBI
Option, CBI SAR, CBI RSA or other share-based award granted under CBI's 2007
Equity Plan, 1997 Stock Option Plan or otherwise, and providing that:
(a) in the case of CBI Options, immediately prior to
the Effective Time each then outstanding CBI Option held by that holder shall
terminate automatically and be cancelled, and, whether or not such CBI Option
was vested, CBI will pay to that holder, in cash, an amount (if any) equal to
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(i) $21.00, minus the exercise price of that CBI Option as provided in the
written agreement evidencing it, multiplied by (ii) the number of shares of CBI
Stock covered by the CBI Option;
(b) in the case of CBI SARs, immediately prior to the
Effective Time each then outstanding CBI SAR held by that holder shall terminate
automatically and be cancelled, and, whether or not such CBI SAR was vested, CBI
will pay to that holder, in cash, an amount (if any) equal to (i) $21.00, minus
the exercise price of that CBI SAR as provided in the written agreement
evidencing it, multiplied by (ii) the number of shares of CBI Stock covered by
the CBI SAR;
(c) in the case of CBI RSAs, each then outstanding
CBI RSA shall terminate and be cancelled at the Effective Time and, whether or
not such CBI RSA was vested, shares of CBI Stock covered by the CBI RSA shall be
converted into the right to receive from FCB in exchange for those shares the
Merger Consideration described in Paragraph 2.04 above on the same basis as all
other shareholders of CBI;
(d) in the case of any other type of outstanding
stock-based award granted under CBI's 2007 Equity Plan or otherwise, provisions
comparable to those described above to effect a termination of any such other
awards at the Effective Time in return for a cash payment from CBI, whether or
not such other award was vested, in an amount and form reasonably satisfactory
to FCB;
(e) the holder understands and agrees that no
assurances or representations are being made to him or her by CBI or FCB with
respect to the tax treatment of any such payment, and the holder will be and
remain responsible for the timely payment of all federal and state income taxes
and his or her portion of any FICA and FUTA taxes applicable to the above
payment;
(f) CBI and its successors in interest may withhold
from such payment any and all such taxes that it reasonably believes it is
required to withhold; and
(g) the holder fully and completely releases CBI and
its successors in interest, including FCB, from any further obligation with
respect to his or her CBI Options, CBI SARs, CBI RSAs or other share-based
awards and from any liability for the tax consequences of such payment.
No such payment shall be made to any holder of a CBI Option,
CBI SAR, CBI RSA or other share-based award unless and until the holder executes
and delivers an Equity Award Release to CBI. Payments made by CBI pursuant to
executed Equity Award Releases as described in this Paragraph 7.10 shall not be
deemed to breach any covenant of CBI or CRB hereunder or to result in a breach
of any representation or warranty of CBI or CRB herein, provided, that such
payments shall not be made with respect to an aggregate number of CBI Options,
CBI SARs, CBI RSAs or other share-based awards that exceeds the number of such
awards Previously Disclosed to FCB. As a result of the Merger, FCB will become
responsible for CBI's payment obligations, and shall become entitled to all
rights of CBI, under each Equity Award Release, from and after the Effective
Time.
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7.11. Deregistration of CBI Stock.
(a) Immediately prior to the Effective Time, and
subsequent to the payments required by Paragraph 7.10 above, CBI shall file
amendments to each of its Registration Statements on Form S-8 previously filed
with the SEC under the Securities Act of 1933 relating to issuance of shares of
CBI Stock pursuant to the 2007 Equity Plan or the 1997 Stock Option Plan, which
amendments shall remove from registration all shares of CBI Stock that remain
unissued pursuant to those plans.
(b) Prior to the Effective Time, CBI shall terminate
the CBI DRIP and file an amendment to its Registration Statement on Form S-3
previously filed with the SEC under the Securities Act of 1933 relating to
issuance of shares of CBI Stock pursuant to the DRIP, which amendment shall
remove from registration all shares of CBI Stock that remain unissued pursuant
to the DRIP.
7.12. Satisfaction of Conditions to Regulatory Approvals. In
the event that any Regulatory Authority shall require, in connection with or as
a condition to its approval of the Merger, the divestiture of branches or
deposits of CRB or FCB in any of their banking markets, then CBI, CRB and FCB
each will cooperate with the others and use Commercially Reasonable Efforts to
complete actions necessary in order to satisfy that requirement; provided,
however, that this Paragraph shall not require either party to agree to or
complete any divestiture of any branch or deposits on terms, including price,
that it reasonably considers inadequate or unreasonable. An aggregate price that
equals or exceeds the "net book value" of the assets associated with a branch
that is to be divested shall not be considered to be inadequate or unreasonable.
For purposes of this Paragraph 7.12, "net book value" means the aggregate of
amounts recorded in accordance with GAAP on the books and records of FCB, in the
case of an FCB branch, or CRB, in the case of a CRB branch, with respect to a
branch, including without limitation amounts reflecting outstanding loans, cash
on hand, fixed assets (including real property, equipment and fixtures), core
deposit intangibles, and good will, plus, in the case of branch located in real
property leased under a lease agreement which will not be assumed by the
purchaser of the branch, the then current present value of the remaining payment
obligation with respect to that lease. In the case of a sale of a CRB branch
prior to the Closing, "net book value" also shall include the amount of core
deposit intangible that would have been recorded by FCB on its books as a result
of the Merger but that will not be recorded as a result of the sale of the CRB
branch.
In connection with any such divestiture requirement which may
be satisfied by a divestiture of a branch or deposits of either CRB or FCB, FCB
shall have the right to determine which branch or whose deposits are to be
divested; and, in, the case of any sale of a CRB branch pursuant to any
divestiture requirement prior to the Closing, CBI and CRB agree that, without
the prior written consent of FCB, CRB will not sell a CRB branch pursuant to
this Paragraph 7.12 at an aggregate price less than the net book value (as
defined above) of the assets associated with that branch.
7.13. Dissolution of RIA and FNFS. Prior to the Closing, CBI
and CRB will make necessary filings with the South Carolina Secretary of State
to effect the dissolution of RIA and FNFS.
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ARTICLE VIII.
CONDITIONS PRECEDENT TO MERGER
8.01. Conditions to all Parties' Obligations. Notwithstanding
any other provision of this Agreement to the contrary, the obligations of each
of the parties to this Agreement to consummate the transactions described herein
shall be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
(a) Regulatory Approvals. (i) The Merger and other
transactions described in this Agreement shall have been approved, to the extent
required by law, by all Regulatory Authorities having jurisdiction over such
transactions; (ii) no Regulatory Authority shall have objected to or withdrawn
its approval of such transactions; (iii) the 15-day or 30-day waiting period, as
applicable, required following receipt of necessary approvals of federal
Regulatory Authorities for review of the transactions described herein by the
United States Department of Justice shall have expired, and, in connection with
any such review, no objection to the Merger shall have been raised; and (iv) all
other consents, approvals and permissions, including corporate approvals, and
the satisfaction of all other requirements, prescribed by law or regulation that
are necessary to the carrying out of the transactions contemplated herein shall
have been procured; provided, however, that a requirement imposed by any
Regulatory Authority as described in Paragraph 7.12 above shall not constitute
grounds for either CBI, CRB or FCB to refuse to consummate the Merger unless it
shall have complied with its obligations under Paragraph 7.12.
(b) Adverse Proceedings, Injunction, Etc. There shall
not be any (i) order, decree or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits the Merger or any of the other
transactions described in this Agreement or any of the parties hereto from
consummating any such transaction, (ii) pending or threatened investigation of
the Merger or any of such other transactions by the United States Department of
Justice, or any actual or threatened litigation under federal antitrust laws
relating to the Merger or any other such transaction; provided, however, that a
requirement imposed by any Regulatory Authority as described in Paragraph 7.12
above shall not constitute grounds for either CBI, CRB or FCB to refuse to
consummate the Merger unless it shall have complied with its obligations under
Paragraph 7.12, (iii) suit, action or proceeding by any person (including any
Regulatory Authority), pending or threatened before any court or governmental
agency in which it is sought to restrain or prohibit CBI, CRB or FCB from
consummating the Merger or carrying out any of the terms or provisions of this
Agreement, or (iv) other suit, claim, action or proceeding pending or threatened
against any of the CBI Companies or FCB or any of their respective officers or
directors or affiliates which shall reasonably be considered by CBI or FCB to be
materially burdensome in relation to the proposed Merger, or which FCB
reasonably believes would have a CBI Material Effect or an FCB Material Effect,
and which has not been dismissed, terminated or resolved to the satisfaction of
all parties hereto within 90 days of the institution or threat thereof.
(c) Approval by Boards of Directors and Shareholders.
The Boards of Directors of each of CBI, CRB and FCB shall have duly approved and
adopted this Agreement, the shareholders of CBI shall have duly approved the
Plan of Merger at the CBI Shareholders' Meeting, and CBI and Bancorp, as the
sole shareholders of CRB and FCB, respectively, shall have duly approved and
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adopted the Plan of Merger, all by appropriate resolutions and to the extent
required by and in accordance with the provisions of this Agreement, applicable
law, and applicable provisions of their respective Articles of Incorporation or
Association, as applicable, and Bylaws, and each of those approvals shall remain
in effect and not have been rescinded.
(d) Articles of Merger; Other Actions. The Articles
of Merger described in Paragraph 2.06 shall have been duly executed and filed
with the South Carolina Secretary of State as provided in that Paragraph.
8.02. Additional Conditions to CBI's and CRB's Obligations.
Notwithstanding any other provision of this Agreement to the contrary, CBI's and
CRB's separate obligation to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or before the Closing Date.
(a) Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any FCB Material Change, and there
shall not have occurred any event or development, and there shall not exist any
condition or circumstance, which, individually or in the aggregate, and with the
lapse of time or otherwise, may or could cause, create or result in any such FCB
Material Change.
(b) Compliance with Laws. FCB shall have complied in
all material respects with all federal and state laws and regulations applicable
to the transactions described in this Agreement where the violation of or
failure to comply with any such law or regulation could or may have an FCB
Material Effect.
(c) FCB's Representations and Warranties and
Performance of Agreements. Unless waived in writing by CBI as provided in
Paragraph 11.03, each of the representations and warranties of FCB contained in
this Agreement shall have been true and correct in all material respects as of
the date hereof, and they shall remain true and correct in all material respects
on and as of the Closing Date with the same force and effect as though made on
and as of such date, except for changes or exceptions which, individually or in
the aggregate, have not had, and cannot reasonably be expected to have, an FCB
Material Effect; and, FCB shall have complied with or performed in all material
respects all of its obligations, covenants and agreements hereunder to be
complied with or performed by it on or before the Closing Date.
CBI and CRB shall have received a certificate from
FCB dated as of the Closing Date and executed
by FCB's Chief Executive Officer and Chief Financial Officer to the effect that
the conditions of this subparagraph have been met and as to such other matters
as may be reasonably requested by CBI.
(d) Legal Opinion of FCB's Counsel. CBI shall have
received the written legal opinion of Sherrill Roof Millender LLP, South
Carolina counsel to FCB, dated as of the Closing Date, covering matters normally
covered in such opinions and such other matters as CBI shall reasonably request
and otherwise in form and substance reasonably satisfactory to CBI.
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(e) Other Documents and Information. FCB shall have
provided to CBI correct and complete copies (certified by its Secretary) of
resolutions of its Board of Directors and sole shareholder pertaining to
approval of this Agreement and the Merger and other transactions contemplated
herein, together with a certificate of the incumbency of FCB's officers who
executed this Agreement or any other documents delivered to CBI and CRB in
connection with the Closing.
(f) Deposit of Merger Consideration. FCB shall have
deposited the aggregate amount of the Merger Consideration with the Paying Agent
as described in Paragraph 2.04(c).
(g) Fairness Opinion. CBI shall have received from
Ewing a written opinion, dated within ten days prior to the mailing date of the
Proxy Statement, in a form reasonably satisfactory to it, to the effect that the
terms of the Merger, including the consideration to be received by CBI's
shareholders in the Merger, is fair, from a financial point of view, to CBI and
its shareholders (the "CBI Fairness Opinion").
(h) No Termination or Abandonment. This Agreement
shall not have been terminated by FCB under the provisions of Article IX.
8.03. Additional Conditions to FCB's Obligations.
Notwithstanding any other provision of this Agreement to the contrary, FCB's
separate obligation to consummate the transactions described herein shall be
conditioned upon the satisfaction of each of the following conditions precedent
on or before the Closing Date.
(a) Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any CBI Material Change, and there
shall not have occurred any event or development, and there shall not exist any
condition or circumstance which, individually or in the aggregate, and with the
lapse of time or otherwise, may or could cause, create or result in any such CBI
Material Change or, after the Merger, have an FCB Material Effect.
(b) Compliance with Laws. CBI and CRB shall have
complied in all material respects with all federal and state laws and
regulations applicable to the transactions described in this Agreement where the
violation of or failure to comply with any such law or regulation could or may
have a CBI Material Effect or, following the Merger, an FCB Material Effect.
(c) CBI's and CRB's Representations and Warranties
and Performance of Agreements. Unless waived in writing by FCB as provided in
Paragraph 11.03, each of the representations and warranties of CBI and CRB
contained in this Agreement shall have been true and correct in all material
respects as of the date hereof, and they shall remain true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of such date, except for changes or exceptions which,
individually or in the aggregate, have not had, and cannot reasonably be
expected to have, a CBI Material Effect or, following the Merger, an FCB
Material Effect; and, CBI and CRB shall have complied with or performed in all
material respects all its or their obligations, covenants and agreements
hereunder to be complied with or performed by it or them on or before the
Closing Date.
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FCB shall have received certificates from CBI and CRB
dated as of the Closing Date and executed by CBI's and CRB's respective Chief
Executive Officers and Chief Financial Officers to the effect that the
conditions of this subparagraph have been met and as to such other matters as
may be reasonably requested by FCB.
(d) Employment Agreements. Each of the Existing
Employment Agreements and New Employment Agreements described in Paragraph
5.01(j) shall remain in full force and effect and, except as described in that
Paragraph, shall not have been modified or amended by CRB except with the
written consent of FCB.
(e) Termination of CBI Stock Awards. Except to the
extent that they shall previously have expired or been exercised in accordance
with their terms or cancelled in accordance with the terms of the applicable
plans under which they were issued, and except to the extent that the following
requirements shall be waived by FCB, each holder of an unexercised CBI Stock
Award that is outstanding immediately prior to the Closing shall have executed
and delivered to CBI an Equity Award Release in a form reasonably satisfactory
to FCB, and all outstanding CBI Options, CBI SARs, CBI RSAs and other
share-based awards shall have been effectively terminated, all in the manner
described in Paragraph 7.10, effective not later than the Effective Date.
(f) Consents to Assignment; Estoppel Certificates.
CBI and CRB shall have obtained and delivered to FCB the consents to assignments
of leases and contracts (including estoppel certificates pertaining to Lease
Agreements) requested by FCB as described in Paragraph 5.01(g) above.
(g) Legal Opinion of CBI's Counsel. FCB shall have
received the written legal opinion of Haynsworth Sinkler Boyd, P.A., counsel to
CBI and CRB, dated as of the Closing Date, covering matters normally covered in
such opinions and such other matters as FCB shall reasonably request and
otherwise in form and substance reasonably satisfactory to FCB.
(h) Other Documents and Information. CBI and CRB
shall have provided to FCB correct and complete copies (all certified by their
respective Secretaries) of their respective Articles of Incorporation or
Association, as applicable, and Bylaws, and resolutions of their respective
Boards of Directors and CBI's shareholders, pertaining to approval of this
Agreement and the Merger and other transactions contemplated herein, together
with a certificate as to the incumbency of CBI's and CRB's officers who executed
this Agreement or any other documents delivered to FCB in connection with the
Closing.
(i) No Disadvantageous Conditions to Regulatory
Approvals. No Regulatory Authority shall have raised an objection to or imposed
any condition on the Merger or its approval thereof (including without
limitation any requirement of divestiture of branches or deposits of CRB or FCB
in any banking market) which is reasonably deemed by FCB, at its discretion, to
so adversely impact the economic or business benefits of this Agreement or the
Merger to FCB as to render it inadvisable for it to consummate the Merger;
provided, however, that a requirement imposed by any Regulatory Authority as
described in Paragraph 7.12 above shall not constitute grounds for FCB to refuse
to consummate the Merger unless it shall have complied with its obligations
under Paragraph 7.12.
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(j) No Termination or Abandonment. This Agreement
shall not have been terminated by CBI under the provisions of Article IX.
ARTICLE IX.
TERMINATION; BREACH; REMEDIES
9.01. Mutual Termination. At any time prior to the Closing,
this Agreement may be terminated by the mutual agreement of CBI and FCB. Upon
any such mutual termination, and except as otherwise provided herein, all
obligations of CBI, CRB and FCB under this Agreement shall terminate and each
party shall pay its own costs and expenses as provided in Paragraph 7.07.
9.02. Unilateral Termination. At any time prior to the
Closing, this Agreement may be terminated by either CBI or FCB upon written
notice to the other in the manner provided herein and under the circumstances
described below.
(a) Termination by FCB. This Agreement may be
terminated by FCB by action of its Board of Directors or Executive Committee:
(i) if CBI or CRB shall have violated or
failed to fully perform or comply with any of its or their obligations,
covenants or agreements contained in Articles V or VII herein, to the extent
that such obligations, covenants or agreements were required to be complied with
or performed at or prior to the time when FCB gives notice of such termination;
(ii) if there shall have occurred any CBI
Material Change, or any event or development shall have occurred, or any
condition or circumstance exists, which, with the lapse of time or otherwise,
may or could cause, create or result in any such CBI Material Change;
(iii) if (A) any of CBI's or CRB's
representations or warranties contained in Article III or in any other
certificate or writing delivered by either of them to FCB pursuant to this
Agreement shall have been false or misleading in any material respect when made,
or would have been false or misleading in any material respect except for the
fact that the representation or warranty was limited to or qualified based on
the Knowledge of CBI, or (B) there shall have occurred any event or development,
or there exists any condition or circumstance, which, with the lapse or time or
otherwise, may or could cause any such representations or warranties to become
false or misleading in any material respect except for the fact that the
representation or warranty was limited to or qualified based on the Knowledge of
CBI, and which, in any event, individually or in the aggregate, has or have had,
or reasonably could be expected to have, a CBI Material Effect or, following the
Merger, an FCB Material Effect;
(iv) if CBI's shareholders do not approve
this Agreement and the Merger at the CBI Shareholders' Meeting or if,
notwithstanding FCB's satisfaction in all material respects of its obligations
under Paragraph 7.02 above, the CBI Shareholders' Meeting is not held by
December 31, 2008;
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(v) if, for the reasons and to the extent
permitted by Paragraph 5.01(a), the Proxy Statement distributed by CBI to its
shareholders in connection with the CBI Shareholders' Meeting does not state
that CBI's Board of Directors considers the Merger to be advisable and in the
best interests of CBI and its shareholders and that the Board recommends that
CBI's shareholders vote for approval of the Plan of Merger (or, after having
made such a recommendation in the Proxy Statement, the Board withdraws,
qualifies or revises that recommendation in any material respect).
(vi) if, notwithstanding FCB's satisfaction
of its obligations under Paragraph 7.12 above, the Merger shall not have become
effective on or before March 31, 2009, or such later date as shall be mutually
agreed upon in writing by CBI and FCB; or
(vii) under the circumstances described in
Paragraph 7.04(c).
However, before FCB may terminate this Agreement for either of the reasons
specified in subparagraphs (i) or (iii) of this Paragraph 9.02(a), it shall give
written notice to CBI in the manner provided in Paragraph 11.05 of this
Agreement stating its intent to terminate and a description of the specific
breach, default, violation or other condition or circumstances giving rise to
its right to so terminate. Such termination by FCB shall not become effective
if, within 30 days following the giving of such notice or such additional time
as FCB may allow in its discretion, CBI and CRB shall cure such breach, default
or violation or satisfy or eliminate such condition or circumstances to the
reasonable satisfaction of FCB and without cost or expense to FCB or an
aggregate cost or expense to any of the CBI Companies with respect to all such
breaches, defaults or violations, conditions or circumstances that would have a
CBI Material Effect. In the event CBI or CRB cannot or does not cure such
breach, default or violation, or arrange to satisfy or eliminate such condition
or circumstances, as provided above within such cure period, FCB shall give a
further written notice to CBI in the manner provided in Paragraph 11.05 of this
Agreement stating that CBI and CRB have failed to cure satisfactorily the
breach, default or violation, or to satisfy or eliminate such condition or
circumstances, and that FCB terminates the Agreement. Termination of this
Agreement by FCB shall be effective upon its giving of such further written
notice to CBI.
(b) Termination by CBI. At any time prior to the
Closing, this Agreement may be terminated by CBI and CRB, by action of CBI's
Board of Directors:
(i) if FCB shall have violated or failed to
fully perform or comply with any of its obligations, covenants or agreements
contained in Articles VI or VII herein, to the extent that such obligations,
covenants or agreements were required to be complied with or performed at or
prior to the time when CBI gives notice of such termination;
(ii) if there shall have occurred any FCB
Material Change, or any event or development shall have occurred, or any
condition or circumstance exists, which, with the lapse of time or otherwise,
may or could cause, create or result in any such FCB Material Change; or
(iii) if (A) any of FCB's representations
and warranties contained in Article IV or in any other certificate or writing
delivered by it to CBI pursuant to this Agreement shall have been false or
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misleading in any material respect when made, or would have been false or
misleading in any material respect except for the fact that the representation
or warranty was limited to or qualified based on the Knowledge of FCB, or (B)
there shall have occurred any event or development, or there exists any
condition or circumstance, which, with the lapse of time or otherwise, may or
could cause any such representations or warranties to become false or misleading
in any material respect except for the fact that the representation or warranty
was limited to or qualified based on the Knowledge of FCB, and which, in any
event, individually or in the aggregate, has or have had, or reasonably could be
expected to have, an FCB Material Effect; or;
(iv) if, notwithstanding CBI's and CRB's
satisfaction of their obligations under Paragraphs 5.01(a) and 7.02 above, CBI's
shareholders do not approve this Agreement and the Merger at the CBI
Shareholders' Meeting;
(v) if, notwithstanding CBI's and CRB's
satisfaction of their obligations under Paragraph 7.12 above, the Merger shall
not have become effective on or before March 31, 2009, or such later date as
shall be mutually agreed upon in writing by CBI and FCB.
(vi) in the event that CBI's Board of
Directors determines in good faith, after consultation with and receipt of the
advice of its outside counsel and financial advisers, that in light of a
"Superior Proposal" (as defined below) it is necessary to terminate this
Agreement in order to comply with its fiduciary duties to CBI and to CBI's
shareholders under applicable law; provided, however, that CBI's Board of
Directors may terminate this Agreement pursuant to this Paragraph 9.02(b)(vi)
only if it concurrently enters into an Acquisition Agreement related to a
Superior Proposal; and, provided further, however, that this Agreement may be
terminated pursuant to this Paragraph 9.02(b)(vi) only after the tenth business
day following FCB's receipt of written notice advising FCB that CBI's Board of
Directors is prepared to accept a Superior Proposal, and only if, during such
ten-day period, if FCB so elects, CBI and its advisers shall have negotiated in
good faith with FCB to make such adjustments in the terms and conditions of this
Agreement as would enable FCB to proceed with the transactions contemplated
herein on such adjusted terms.
"Superior Proposal" means an unsolicited,
bona fide, written offer made by a third party to consummate an Acquisition
Proposal that CBI's Board of Directors determines, in good faith, after
consulting with its outside legal counsel and its financial adviser, would, if
consummated, result in a transaction that is more favorable to the CBI's
shareholders than the transactions contemplated hereby.
Any termination of the Agreement under this
Paragraph 9.02(b) must be approved by CBI's Board of Directors, and any such
termination shall have the effect of terminating the Agreement as to both CBI
and CRB. However, before CBI may terminate this Agreement for either of the
reasons specified in clauses (i) or (iii) of this Paragraph 9.02(b), CBI shall
give written notice to FCB in the manner provided in Paragraph 11.05 of this
Agreement stating its intent to terminate and a description of the specific
breach, default, violation or other condition or circumstances giving rise to
its right to so terminate. Such termination by CBI shall not become effective
if, within 30 days following the giving of such notice or such additional time
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as CBI may allow in its discretion, FCB shall cure such breach, default or
violation or satisfy or eliminate such condition or circumstances to the
reasonable satisfaction of CBI. In the event FCB cannot or does not cure such
breach, default or violation, or arrange to satisfy or eliminate such condition
or circumstances, as provided above within such cure period, CBI shall give a
further written notice to FCB in the manner provided in Paragraph 11.05 of this
Agreement stating that FCB has failed to cure satisfactorily the breach, default
or violation, or to satisfy or eliminate such condition or circumstances, and
that CBI terminates the Agreement. Termination of this Agreement by CBI shall be
effective upon its giving of such further written notice to FCB.
9.03. Breach; Remedies; Expense Reimbursement.
(a) Breach by CBI or CRB. If this Agreement is
terminated by FCB pursuant to Paragraph 9.02(a)(i) or 9.02(a)(iii) above, then
CBI and CRB shall be jointly and severally obligated to pay to FCB an amount
equal to FCB's aggregate documented out-of-pocket expenses actually incurred by
it in negotiating and preparing this Agreement, performing due diligence, and
otherwise in connection with or attempting to consummate the transactions
described herein. In all other cases in which FCB terminates this Agreement each
party shall pay his, her or its own costs and expenses as provided in Paragraph
7.07.
Subject to CBI's and CRB's obligation to reimburse
FCB's out-of-pocket expenses as described above and to CBI's and CRB's
obligation to pay the termination fees described in Paragraph 9.04 below, in the
event of a breach by CBI or CRB of any of their representations or warranties,
or their failure to perform or violation of any of their obligations, agreements
or covenants, contained in this Agreement, FCB's sole right and remedy shall be
to terminate this Agreement prior to the Effective Time as provided in Paragraph
9.02(a) above.
(b) Breach by FCB. If this Agreement is terminated by
CBI pursuant to Paragraph 9.02(b)(i) or 9.02(b)(iii) above, then FCB shall be
obligated to pay to CBI an amount equal to CBI's and CRB's aggregate documented
out-of-pocket expenses actually incurred by them in negotiating and preparing
this Agreement, performing due diligence, and otherwise in connection with or
attempting to consummate the transactions described herein. In all other cases
in which CBI terminates this Agreement, each party shall pay his, her or its own
costs and expenses as provided in Paragraph 7.07.
Subject to FCB's obligation to reimburse CBI's and
CRB's out-of-pocket expenses as described above, in the event of a breach by FCB
of any of its representations or warranties, or its failure to perform or
violation of any of its obligations, agreements or covenants, contained in this
Agreement, CBI's and CRB's sole right and remedy shall be to terminate this
Agreement prior to the Effective Time as provided in Paragraph 9.02(b) above.
(c) Enforcement of Certain Agreements Following
Termination. Notwithstanding anything contained in this Agreement to the
contrary, either party shall be entitled to commence a suit at law or in equity
for the purpose of (A) obtaining appropriate relief in the event of a violation,
or imminent violation, by the other party of Paragraph Section 7.03 above, or
(ii) enforcing the other party's indemnification obligation under Article X of
this Agreement.
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9.04. Termination Fees. Notwithstanding anything contained in
this Agreement to the contrary, in addition to their obligation to reimburse FCB
for its out-of-pocket expenses under certain circumstances as described in
Pararaphs 9.03(a) above, CBI and CRB will be obligated, jointly and severally,
to pay a termination fee to FCB fee in the amount of $1,000,000 if:
(a) (i) FCB terminates this Agreement pursuant to
Paragraph 9.02(a)(i) where CBI's or CRB's failure to fully perform any of its
obligations, covenants or agreements that gives rise to such termination was for
reasons reasonably within CBI's or CRB's control, and at any time after the date
of this Agreement and prior to the date of such termination an Acquisition
Proposal has been publicly announced, disclosed or communicated or otherwise
made known to the senior management or Board of Directors of CBI or CRB;
(ii) (A) FCB terminates this Agreement
pursuant to Paragraph 9.02(a)(iv), or (B) CBI terminates this Agreement pursuant
to Paragraph 9.02(b)(iv), and in either such case an Acquisition Proposal has
been publicly announced or disclosed by, or communicated or made known to, the
senior management or Board of Directors of CBI or CRB at any time after the date
of this Agreement and prior to the date of the CBI Shareholders' Meeting or, in
the case of a termination by FCB as a result of the CBI Shareholder meeting not
being held by the date specified in Paragraph 9.02(a)(iv), prior to the date of
such termination;
(iii) FCB terminates this Agreement pursuant
to Paragraph 9.02(a)(v); or
(iv) FCB terminates this Agreement pursuant
to Paragraph 9.02(a)(vi) under circumstances in which the reason the Merger has
not become effective on or before the date specified in that subparagraph were
within the reasonable control of CBI and CRB;
and, in the case of a termination described in (i), (ii), (iii) or (iv) above,
if at any time after the date of this Agreement and before the date 12 months
after the date of such termination by FCB, (A) CBI or CRB shall have executed,
entered into or otherwise become bound by an Acquisition Agreement, (B) either
of their Boards of Directors has accepted, approved, endorsed, recommended or
otherwise taken or agreed to any action in furtherance of, any Acquisition
Proposal, or (C) any filing has been made with the SEC in connection with an
Acquisition Proposal; or if
(b) CBI terminates this Agreement pursuant to
Paragraph 9.02(b)(vi).
9.05. Method and Timing of Payments. Any payment for
reimbursement of expenses due from FCB to CBI under Paragraph 9.03(b), or from
CBI and CRB to FCB under Paragraph 9.03(a), shall be made by wire transfer of
immediately available funds within two business days following the date of
termination of the Agreement giving rise to that payment, and any payment of a
termination fee due from CBI and CRB to FCB under Paragraph 9.04 shall be made
by wire transfer of immediately available funds within two business days
following the later of the date of FCB's termination of the Agreement or the
date the Acquisition Agreement is approved by CBI's or CRB's Board of Directors,
executed or entered into.
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ARTICLE X.
INDEMNIFICATION
10.01. Indemnification Following Termination of Agreement.
(a) By CBI and CRB. CBI and CRB each agree that, in
the event this Agreement is terminated for any reason and the Merger is not
consummated, it will indemnify, hold harmless and defend FCB and its officers,
directors, attorneys, financial advisers and consultants from and against any
and all claims, disputes, demands, causes of action, suits or proceedings of any
third party (including any Regulatory Authority), together with all losses,
damages, liabilities, obligations, costs and expenses of every kind and nature
in connection therewith (including without limitation reasonable attorneys' fees
and legal costs and expenses in connection therewith), whether known or unknown,
and whether now existing or hereafter arising, which may be threatened against,
incurred, undertaken, received or paid by them:
(i) in connection with or which arise out
of, result from, or are based upon (A) the operations or business transactions
of any of the CBI Companies or their relationship with any of their employees,
or (B) the failure of any of the CBI Companies to comply with any statute or
regulation of any federal, state or local government or agency (or any political
subdivision thereof) in connection with the transactions described in this
Agreement;
(ii) in connection with or which arise out
of, result from, or are based upon any fact, condition or circumstance that
constitutes a breach by CBI or CRB of, or any inaccuracy, incompleteness or
inadequacy in, any of its representations or warranties under or in connection
with this Agreement, or any failure of CBI or CRB to perform any of its
covenants, agreements or obligations under or in connection with this Agreement;
or,
(iii) in connection with or which arise out
of, result from, or are based upon any information provided by CBI or CRB which
is included in the Proxy Statement and which information causes the Proxy
Statement at the time of its mailing to CBI's shareholders to contain any untrue
statement of a material fact or to omit any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not false or misleading.
(b) By FCB. FCB agrees that, in the event this
Agreement is terminated for any reason and the Merger is not consummated, it
will indemnify, hold harmless and defend CBI and CRB and their respective
officers, directors, attorneys, financial advisers and consultants from and
against any and all claims, disputes, demands, causes of action, suits, or
proceedings of any third party (including any Regulatory Authority), together
with all losses, damages, liabilities, obligations, costs and expenses of every
kind and nature in connection therewith (including without limitation reasonable
attorneys' fees and legal costs and expenses in connection therewith), whether
known or unknown, and whether now existing or hereafter arising, which may be
threatened against, incurred, undertaken, received or paid by them:
(i) in connection with or which arise out
of, result from, or are based upon (A) FCB's operations or business transactions
or its relationship with any of its employees, or (B) FCB's failure to comply
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with any statute or regulation of any federal, state or local government or
agency (or any political subdivision thereof) in connection with the
transactions described in this Agreement;
(ii) in connection with or which arise out
of, result from, or are based upon any fact, condition or circumstance that
constitutes a breach by FCB of, or any inaccuracy, incompleteness or inadequacy
in, any of its representations or warranties under or in connection with this
Agreement, or any failure of FCB to perform any of its covenants, agreements or
obligations under or in connection with this Agreement; or,
(iii) in connection with or which arise out
of, result from, or are based upon any information provided by FCB in writing
which is included in the Proxy Statement and which information causes the Proxy
Statement at the time of its mailing to CBI's shareholders to contain any untrue
statement of a material fact or to omit any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not false or misleading.
(c) Procedure for Claiming Indemnification. If any
matter subject to indemnification under Paragraph 10.01 arises in the form of a
claim (herein referred to as a "Third Party Claim") against CBI, CRB or FCB, or
their respective successors and assigns, or any of their respective subsidiary
entities, officers, directors, attorneys, financial advisers or consultants
(collectively, "Indemnitees"), the Indemnitee promptly shall give notice and
details thereof, including copies of all pleadings and pertinent documents, to
the party obligated for indemnification hereunder (the "Indemnitor"). Within 15
days of such notice, the Indemnitor either (i) shall pay the Third Party Claim
either in full or upon agreed compromise, or (ii) shall notify the applicable
Indemnitee that the Indemnitor disputes the Third Party Claim and intends to
defend against it, and thereafter shall so defend and pay any adverse final
judgment or award in regard thereto. Such defense shall be controlled by the
Indemnitor and the cost of such defense shall be borne by it, except that the
Indemnitee shall have the right to participate in such defense at its own
expense and provided that the Indemnitor shall have no right in connection with
any such defense or the resolution of any such Third Party Claim to impose any
cost, restriction, limitation or condition of any kind that compromises the
Indemnitee hereunder. In the case of an Indemnitee that is an officer, director
or attorney of a party to this Agreement, then that party agrees that it shall
cooperate in all reasonable respects in the defense of any such Third Party
Claim, including making personnel, books and records relevant to the Third Party
Claim available to the Indemnitor without charge therefor except for
out-of-pocket expenses. If the Indemnitor fails to take action within 15 days as
hereinabove provided or, having taken such action, thereafter fails diligently
to defend and resolve the Third Party Claim, the Indemnitee shall have the right
to pay, compromise or defend the Third Party Claim and to assert the
indemnification provisions hereof. The Indemnitee also shall have the right,
exercisable in good faith, to take such action as may be necessary to avoid a
default prior to the assumption of the defense of the Third Party Claim by the
Indemnitor.
10.02 Indemnification of CBI Directors and Officers.
(a) From and after the Effective Time, and without
releasing any insurance carrier and after exhaustion of all applicable director
and officer liability insurance coverage for the CBI Companies and their
directors and officers, FCB, as successor in interest to CBI and CRB, will be
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obligated to indemnify each of their current and former directors and officers,
and each of their officers or employees that is serving or has served as a
director or trustee of another entity expressly at the request or direction of
any of the CBI Companies (each, an "Indemnified Party"), as and to the extent
that each of those persons would have had a right to be indemnified by the CBI
Companies under their respective Articles of Incorporation or Association, as
applicable, and Bylaws in effect on the date of this Agreement, or under Chapter
8 of the South Carolina Business Corporation Act of 1988, or under The National
Bank Act, had the Merger not been consummated, against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement, losses, claims damages or liabilities incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including the transaction contemplated by this
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, as they are from time to time incurred.
(b) Any Indemnified Party wishing to claim
indemnification under this Section 10.02, upon learning of any such claim,
action, suit, proceeding or investigation, shall promptly notify FCB thereof,
but the failure to so notify shall not relieve FCB of any liability it may have
hereunder to such Indemnified Party if such failure does not materially and
substantially prejudice FCB. Notwithstanding anything contained in this Section
10.02 to the contrary, FCB shall have the right to assume the defense of any
such claim, action, suit, proceeding or investigation and, upon such assumption,
FCB shall not be liable to any Indemnified Party for any legal expenses of other
counsel or any other expenses incurred by such Indemnified Party in connection
with the defense thereof. However, if FCB elects not to assume such defense or
counsel for such Indemnified Party, or if there are issues which raise conflicts
of interest between FCB and such Indemnified Party, such Indemnified Party may
retain counsel reasonably satisfactory to him, and FCB shall pay the reasonable
fees and expenses of such counsel. Notwithstanding anything contained in this
Section 10.02 to the contrary, FCB shall not be liable for any settlement of any
such claim, action, suit, proceeding or investigation that is effected without
its prior written consent.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.01. Survival of Certain Rights and Obligations Following
Closing or Termination. With the exception of FCB's obligations under Paragraph
10.02, none of the representations, warranties or agreements of CBI, CRB or FCB
contained in this Agreement shall survive or remain in effect following
consummation of the Merger, and no party shall have any right after the
Effective Time to recover damages or any other relief from any other party to
this Agreement by reason of any breach of representation or warranty, any
nonfulfillment or nonperformance of any agreement contained herein (with the
exception of Paragraph 10.02), or otherwise. Notwithstanding any provision in
this Agreement to the contrary, the covenants, agreements, rights and
obligations of the parties pursuant to Paragraphs 7.03, 7.07, 9.02, 9.03, 9.04,
10.01 and this 11.01 shall survive and remain in full force and effect in
accordance with their terms following any termination of this Agreement pursuant
to Article IX above.
11.02. Inspection. Neither the right of CBI and CRB under this
Agreement to investigate or inspect the premises, properties, books, records,
files and other assets or information of FCB, nor the right of FCB to
investigate or inspect the premises, properties, books, records, files and other
assets or information of any of the CBI Companies, in any way shall establish
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any presumption that CBI, CRB or FCB should have conducted any investigation or
that such right has been exercised by any of them or their agents,
representatives or others. Any investigations or inspections actually made by
CBI and CRB, or by FCB, or by their respective agents, representatives or
others, prior to the date of this Agreement or otherwise prior to the Effective
Time shall not be deemed in any way in derogation or limitation of the
covenants, representations and warranties made by or on behalf of the other
parties in this Agreement.
11.03. Waiver. Any term or condition of this Agreement may be
waived (except as to matters of regulatory approvals and other approvals
required by law), either in whole or in part, at any time by the party which is,
and whose shareholders are, entitled to the benefits thereof; provided, however,
that any such waiver shall be effective only upon a determination by the waiving
party (through action of its Board of Directors or, in the case of FCB, by its
Board of Directors or Executive Committee) that such waiver would not adversely
affect the interests of the waiving party or its shareholders; and, provided
further, that no waiver of any term or condition of this Agreement by any party
shall be effective unless such waiver is in writing and signed by the waiving
party, nor shall any such waiver be construed to be a waiver of any succeeding
breach of the same term or condition or a waiver of any other or different term
of condition. No failure or delay of any party to exercise any power, or to
insist upon a strict compliance by the other parties of any obligation, and no
custom or practice at variance with any terms hereof, shall constitute a waiver
of the right of any party to demand full and complete compliance with such
terms.
11.04. Amendment. This Agreement may be amended, modified or
supplemented at any time or from time to time prior to the Effective Time, and
either before or after its approval by the shareholders of CBI, by an agreement
in writing approved by the Boards of Directors of CBI and CRB, and the Board of
Directors or Executive Committee of FCB, and executed in the same manner as this
Agreement; provided, however, that, except with the further approval of CBI's
shareholders of that change or as otherwise provided herein, following approval
of this Agreement by CBI's shareholders no change may be made in the amount of
consideration into which each share of CBI Stock will be converted.
11.05. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered
personally or by recognized overnight courier, or by U.S. mail, first class
postage prepaid, in each case addressed as follows (or to such other address as
shall have been communicated by like notice to the party giving the notice):
If to CBI or CRB, to: With copy to:
Community Bankshares, Inc. George S. King, Jr.
102 Founders Court Haynsworth Sinkler Boyd, P.A.
Orangeburg, South Carolina 29118 1201 Main Street, 22nd Floor
Attn: Samuel L. Erwin, Columbia, South Carolina 29211
Chief Executive Officer
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If to FCB, to: With copy to:
First Citizens Bank and Trust William R. Lathan, Jr.
1230 Main Street Ward and Smith, P.A.
Columbia, South Carolina 29201 1001 College Court
Attn: Craig L. Nix, New Bern, North Carolina 28562
Chief Financial Officer
and
C. Joseph Roof
Sherrill Roof Millender LLP
1122 Lady Street, Suite 700
Columbia, South Carolina 29201
11.06. Further Assurance. CBI, CRB and FCB each agree to
furnish to each other such further assurances with respect to the matters
contemplated in this Agreement and their respective agreements, covenants,
representations and warranties contained herein, including the opinion of legal
counsel, as such other party may reasonably request.
11.07. Headings and Captions. Headings and captions of the
Articles, Paragraphs and Subparagraphs of this Agreement have been inserted for
convenience of reference only and do not constitute a part hereof.
11.08. Gender and Number. As used in this Agreement, the
masculine gender shall include the feminine and neuter, the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
11.09. Entire Agreement. This Agreement (including any
schedules and exhibits attached hereto and any documents incorporated herein by
reference) contains the entire agreement of the parties with respect to the
transactions described herein and supersedes any and all other oral or written
agreement(s) heretofore made, and there are no representations or inducements by
or to, or any agreements between, either of the parties hereto other than those
contained herein in writing.
11.10. Severability of Provisions. The invalidity or
unenforceability of any term, phrase, clause, paragraph, restriction, covenant,
agreement or other provision hereof shall in no way affect the validity or
enforceability of any other provision or part hereof.
11.11. Assignment. This Agreement may not be assigned by any
party hereto except with the prior written consent of the other parties.
11.12. Counterparts. Any number of counterparts of this
Agreement may be signed and delivered, each of which shall be considered an
original and which together shall constitute one agreement.
11.13. Governing Law. This Agreement is made in and shall be
construed and enforced in accordance with the laws of South Carolina and
applicable laws of the United States.
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IN WITNESS WHEREOF, CBI, CRB and FCB each has executed, or
caused this Agreement to be executed in its name by its duly authorized officers
and its corporate seal to be affixed hereto, in each case as of the date first
above written.
[SIGNATURES OMITTED]
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EXHIBIT A
PLAN OF MERGER
BY AND AMONG
COMMUNITY BANKSHARES, INC.
COMMUNITY RESOURCE BANK, N.A.
AND
FIRST CITIZENS BANK AND TRUST COMPANY, INC.
1. Nature of Transaction; Plan of Merger. Subject to the provisions of
this Plan of Merger (the "Plan of Merger"), at the "Effective Time" (as defined
in Paragraph 6 below), CBI and CRB each simultaneously will be merged into and
with FCB pursuant to Section 33-11-101, et. seq., of the Code of Laws of South
Carolina, as amended (the "Merger").
2. Effect of Merger; Surviving Corporation. FCB shall be the surviving
corporation in the Merger. At the Effective Time, and by reason of the Merger,
the separate corporate existences of CBI and CRB shall cease while the corporate
existence of FCB shall continue with all of its purposes, objects, rights,
privileges, powers and franchises, all of which shall be unaffected and
unimpaired by the Merger. Following the Merger, FCB shall continue to operate as
a South Carolina state-chartered bank and will conduct its business at the then
legally established branch and main offices of FCB and CRB. The duration of the
corporate existence of FCB, as the surviving corporation, shall be perpetual and
unlimited.
3. Assets and Liabilities of CBI and CRB. At the Effective Time, and by
reason of the Merger, and in accordance with applicable law, all of the
property, assets and rights of every kind and character of CBI and CRB
(including without limitation all real, personal or mixed property, all debts
due on whatever account, all other choses in action and every other interest of
or belonging to or due to CBI or CRB, whether tangible or intangible) shall be
transferred to and vest in FCB, and FCB shall succeed to all the rights,
privileges, immunities, powers, purposes and franchises of a public or private
nature of CBI and CRB, all without any conveyance, assignment or further act or
deed; and FCB shall become responsible for all of the liabilities, duties and
obligations of every kind, nature and description of CBI and CRB as of the
Effective Time.
4. Conversion and Exchange of Stock.
(a) Conversion of CBI Stock. Except as otherwise provided in
this Agreement, at the Effective Time all rights of CBI's shareholders with
respect to all outstanding shares of CBI's no par value common stock ("CBI
Stock," whether in certificated or uncertificated book-entry form, and including
outstanding shares held by the administrator of the CBI's Dividend Reinvestment
Plan for the accounts of participants in that plan, and outstanding shares
covered by outstanding restricted stock awards previously granted under CBI's
2007 Equity Plan) shall cease to exist and, as consideration for and to effect
the Merger, each such outstanding share (not to exceed an aggregate of the
4,450,556 shares outstanding on the date of this Agreement, and up to 385,098
additional shares which could be issued prior to the Effective Time upon the
exercise of outstanding options to purchase CBI Stock previously granted under
CBI's 2007 Equity Plan (and which shall not previously have been exercised,
terminated or cancelled) shall be converted, without any action by CBI, FCB or
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any CBI shareholder, into the right to receive cash in the amount of $21.00 (the
"Merger Consideration"), all in the manner and subject to the limitations
described in this Plan of Merger. Cash held by the administrator of the CBI's
Dividend Reinvestment Plan at the Effective Time for the accounts of
participants in that plan that have not been invested in CBI Stock shall be
returned to those participants.
At the Effective Time, and without any action by FCB, CBI or
any CBI shareholder, CBI's stock transfer books shall be closed and there shall
be no further transfers of CBI Stock on its stock transfer books or the
registration of any transfer of CBI Stock by any holder thereof, and the holders
of CBI Stock shall cease to be, and shall have no further rights as,
shareholders of CBI other than as provided in this Plan of Merger. Following the
Effective Time, CBI Stock shall evidence only the right of the registered
holders thereof to receive the consideration into which their CBI Stock was
converted at the Effective Time as provided in this Paragraph 4(a).
(b) Cancellation of CRB Stock. At the Effective Time, all
outstanding shares of CRB Stock shall be cancelled, and no cash or other
consideration shall be issued in exchange for or with respect to those shares.
(c) Exchange and Payment Procedures; Surrender of
Certificates.
(i) Prior to the Effective Time, FCB shall designate
CBI's stock transfer agent, Registrar and Transfer Company, to act as agent for
FCB and the holders of the CBI Stock in connection with the Merger (the "Paying
Agent") and to receive in trust from FCB the aggregate Merger Consideration to
which all holders of CBI Stock shall become entitled pursuant to Paragraph 4(a).
(ii) At the Effective Time, FCB shall deposit the
aggregate Merger Consideration with the Paying Agent. The Merger Consideration
shall be held in trust for the benefit of the holders of CBI Stock and such cash
shall not be used for any other purposes; provided, however, that, pending
disbursement of the Merger Consideration to CBI's shareholders, FCB may direct
the Paying Agent to invest such cash in obligations of or guaranteed by the
United States of America, in commercial paper obligations receiving the highest
rating from Standard & Poor's Corporation, or in certificates of deposit of
domestic commercial banks (collectively, the "Permitted Investments"), or in
money market funds which are invested solely in Permitted Investments, any of
which Permitted Investments shall have a maturity that will not prevent or delay
payments to be made pursuant to Paragraph 4(a) and this Paragraph 4(c). All
interest, dividends or other income on the invested funds shall belong solely to
FCB. If for any reason (including losses on invested funds) the funds held by
the Paying Agent are inadequate to pay the amounts to which the holders of CBI
Stock shall be entitled under Paragraph 4(a), FCB shall be liable for the
payment thereof.
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(iii) As promptly as practicable after the Effective
Time, FCB shall cause to be mailed to each record holder, as of the Effective
Time, whose shares of CBI Stock were converted pursuant to Paragraph 4(a) into
the right to receive the Merger Consideration, a letter of transmittal (in such
form and having such other provisions as FCB may reasonably specify), together
with instructions for effecting the surrender of CBI Stock in exchange for the
Merger Consideration.
Upon a CBI shareholder's surrender to FCB or its Paying
Agent of all certificates representing his, her or its CBI Stock ("CBI
Certificates"), together with a letter of transmittal duly executed and
completed in accordance with the instructions thereto and such additional
information as FCB or the Paying Agent shall reasonably request, and
verification of the status and ownership of those shares by Registrar and
Transfer Company in its capacity as registrar and transfer agent for CBI Stock,
the Paying Agent shall promptly deliver a check or, if agreed upon by the Paying
Agent, make an electronic transfer, to that CBI shareholder, in exchange for
his, her or its CBI Stock, in the aggregate amount of the Merger Consideration
into and for which his, her or its CBI Stock has been converted and exchanged,
without any interest thereon, and those CBI Certificates shall be canceled.
Delivery of CBI Certificates shall not be considered to have been effected, and
the risk of loss of a CBI Certificate shall not be considered to have passed to
FCB, until the CBI Certificates shall have been actually delivered to FCB, or to
the Paying Agent, with a properly completed letter of transmittal, in accordance
with the instructions provided by FCB as provided above.
With respect to CBI Stock in uncertificated book-entry
form ("Uncertificated CBI Stock"), upon a CBI shareholder's delivery to FCB or
the Paying Agent of a letter of transmittal duly executed and completed in
accordance with the instructions thereto and such additional information as FCB
or the Paying Agent shall reasonably request, and verification of the status and
ownership of those shares by Registrar and Transfer Company in its capacity as
registrar and transfer agent for CBI Stock, the Paying Agent shall promptly
deliver a check or, if agreed upon by the Paying Agent, make an electronic
transfer, to that CBI shareholder in exchange for his, her or its Uncertificated
CBI Stock, for the aggregate amount of the Merger Consideration into and for
which his, her or its Uncertificated CBI Stock has been converted and exchanged,
without any interest thereon, and that CBI Stock shall be canceled, Constructive
delivery of Uncertificated CBI Stock shall not be considered to have been
effected or to have passed to FCB until a properly completed letter of
transmittal indicating that the holder's shares are Uncertificated CBI Stock
shall have been actually delivered to FCB, or to the Paying Agent, in accordance
with instructions by FCB as provided above.
(iv) At any time following the one-year anniversary of
the Effective Time, FCB shall be entitled to require the Paying Agent to deliver
to it any portion of the Merger Consideration (including any interest received
with respect thereto) previously deposited by FCB with, but which has not been
disbursed by, the Paying Agent, and, thereafter, any CBI shareholders who have
not yet surrendered their CBI Certificates, or complied with the delivery
requirements for Uncertificated CBI Stock, as described in Paragraph 4(c)(iii)
above, shall be entitled to look to FCB only as a general creditor thereof with
respect to the Merger Consideration into which their CBI Stock has been
converted. Upon any such CBI shareholder's later surrender of his, her or its
CBI Certificates to FCB or the Paying Agent, with a properly completed letter of
transmittal, in accordance with the instructions provided by FCB, or that
shareholder's compliance with the delivery requirements for Uncertificated CBI
Stock, in either case as described in Paragraph 4(c)(iii) above, FCB shall
promptly deliver to that CBI shareholder, in exchange for his, her or its CBI
Stock, a check drawn for the aggregate amount of the Merger Consideration into
and for which his, her or its CBI Stock has been converted and exchanged,
without any interest thereon, and any CBI Certificates shall be cancelled;
provided, however, that, notwithstanding anything contained in this Agreement to
the contrary, neither FCB nor the Paying Agent shall be liable to any holder of
CBI Stock for Merger Consideration which previously has been delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. In no event shall any CBI shareholder receive or be entitled to
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interest on the Merger Consideration to which he, she or it is entitled for any
period before or after the Effective Time.
(d) Lost Certificates. CBI shareholders whose CBI Certificates
have been lost, destroyed, stolen, or are otherwise missing shall be entitled to
receive the Merger Consideration to which they are entitled in accordance and
upon compliance with conditions imposed by FCB pursuant to applicable law,
including the requirement that the shareholders provide an affidavit with
respect to the loss, destruction or theft of their CBI Certificates, and an
indemnification agreement and surety bond (or other indemnification satisfactory
to FCB in its sole discretion) in such sum and on such terms as FCB may direct
against any claims made against FCB with respect to shares of CBI Stock
represented by the CBI Certificates claimed to have been lost, destroyed or
stolen.
(e) Antidilutive Adjustments. If, prior to the Effective Time,
CBI shall declare any dividend payable in shares of CBI Stock or other
securities or shall subdivide, split, reclassify or combine the presently
outstanding shares of CBI Stock, then an appropriate and proportionate
adjustment shall be made in the amount of Merger Consideration into which each
share of CBI Stock will be converted at the Effective Time pursuant to this
Agreement.
5. Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and Bylaws of FCB in effect at the Effective Time shall be the
Articles of Incorporation and Bylaws of FCB as the surviving corporation in the
Merger. The directors of FCB in office at the Effective Time shall constitute
the Board of Directors of FCB as the surviving corporation in the Merger and
shall continue to hold such offices until removed as provided by law or until
the election or appointment of their respective successors. The officers of FCB
in office at the Effective Time shall continue to serve in their same positions
as officers of FCB as the surviving corporation in the Merger until removed as
provided by law or until the election or appointment of their respective
successors.
6. Closing; Effective Time. The consummation and closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of FCB in Columbia, South Carolina, or at such other place as FCB
shall designate, on a date mutually agreeable to FCB and CBI (the "Closing
Date") after the expiration of any and all required waiting periods following
the effective date of required approvals of the Merger by governmental or
regulatory authorities). At the Closing, FCB, CBI and CRB shall take such
actions (including without limitation the delivery of certain closing documents
and the execution of Articles of Merger under South Carolina law) as are
required in this Agreement and as otherwise shall be required by law to
consummate the Merger and cause it to become effective.
Subject to the terms and conditions set forth in this
Agreement, the Effective Time of the Merger shall be the date and time specified
in Articles of Merger filed with the South Carolina Secretary of State in
accordance with applicable law; provided, however, that the Effective Time shall
in no event be more than three business days following the Closing Date.
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APPENDIX B
OPINIONS OF ALLEN C. EWING & CO.,
INVESTMENT BANKERS
B-1
EWING
INVESTMENT BANKERS SINCE 1939
June 25, 2008
Board of Directors
Community Bankshares, Inc.
102 Founders Court
Orangeburg, South Carolina 29118
Members of the Board of Directors:
Community Bankshares, Inc. ("CBI"), Community Resource Bank, N.A.
("CRB") and First Citizens Bank and Trust Company, Inc. ("FCB") have entered
into an Agreement and Plan of Merger, dated June 25, 2008 (the "Merger
Agreement"), pursuant to which CBI and CRB will combine with FCB by means of the
merger of CBI and CRB with and into FCB (the "Merger"). Upon consummation of the
Merger, each of the outstanding shares of the common stock, no par value, of CBI
shall be converted into the right to receive cash in the amount of $21.00. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked us to deliver an opinion as to whether the terms of the
Merger are fair, from a financial point of view, to the shareholders of CBI.
In arriving at our opinion, we have held discussions with members of
senior management of CBI concerning CBI's business and the prospects of such
business. We have reviewed, analyzed and otherwise taken into consideration
certain publicly available business and financial information and certain other
information prepared by, or provided to, us in connection with the Merger,
including, among other things, the following:
(1) The Merger Agreement;
(2) CBI's consolidated financial statements for each of the years
ended December 31, 2003 through 2007 and for the quarter ended
March 31, 2008;
(3) certain other historical financial statements and financial
information relating to CBI that we deemed relevant;
(4) CBI's internally prepared consolidated financial projections for
the year ending December 31, 2008;
(5) financial and market information relating to other publicly
traded commercial banking companies considered by us to be
reasonably similar to CBI;
(6) the financial terms of recent business combinations in the
commercial banking industry considered by us to be reasonably
similar to the proposed Merger;
(7) certain publicly available information with respect to historical
market prices and trading activity of CBI common stock;
ALLEN C. EWING & CO.
MEMBER FINRA/SiPC
JACKSONVILLE o CHARLOTTE
B-2
Members of the Board of Directors
Page 2
(8) the current market environment in general and the commercial
banking sector environment in particular; and
(9) such other information, financial studies, valuation techniques,
analyses, inquiries and investigations that we deemed relevant.
In preparing our opinion, we have relied upon the accuracy and
completeness of all publicly available information and all information provided
to us, including the representations and warranties of CBI, CRB and FCB included
in the Merger Agreement, without independent verification. We have not conducted
a physical inspection of the properties and facilities of CBI or CRB nor have we
made or obtained any valuations or appraisals of the assets or liabilities,
contingent or otherwise, of CBI or CRB.
We have assumed that, in the course of obtaining the necessary
regulatory approvals for the Merger, no conditions will be imposed that will
have a material adverse effect on the terms of the Merger.
Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. Events occurring after the date hereof could materially affect this
opinion. Our opinion is directed solely to the fairness, from a financial point
of view, of the terms of the Merger to the shareholders of CBI and does not
address any other aspect of the Merger, nor does it constitute a recommendation
to any shareholder of CBI as to how such shareholder should vote with respect to
the Merger. Our opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for CBI, nor
does it address the effect of any other business combination in which CBI might
engage.
This opinion letter will be superseded by a final opinion letter, and
it is understood that such final opinion letter may be included in its entirety
in the Proxy Statement to be mailed to the shareholders of CBI. Except as
provided in Section 6 of our letter agreement dated September 7, 2007, neither
this opinion nor the final opinion, however, may be summarized, excerpted from
or otherwise publicly referred to without our prior written consent.
Based upon, and subject to the foregoing, we are of the opinion as of
the date hereof that the terms of the Merger are fair, from a financial point of
view, to the shareholders of CBI.
Very truly yours,
/s/ Allen C. Ewing & Co.
Allen C. Ewing & Co
B-3
EWING
INVESTMENT BANKERS SINCE 1939
September 16, 2008
Board of Directors
Community Bankshares, Inc.
102 Founders Court
Orangeburg, South Carolina 29118
Members of the Board of Directors:
Community Bankshares, Inc. ("CBI"), Community Resource Bank, N.A.
("CRB") and First Citizens Bank and Trust Company, Inc. ("FCB") have entered
into an Agreement and Plan of Merger, dated June 25, 2008 (the "Merger
Agreement"), pursuant to which CBI and CRB will combine with FCB by means of the
merger of CBI and CRB with and into FCB (the "Merger"). Upon consummation of the
Merger, each of the outstanding shares of the common stock, no par value, of CBI
shall be converted into the right to receive cash in the amount of $21.00. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked us to confirm our opinion dated June 25, 2008 as to
whether the terms of the Merger are fair, from a financial point of view, to the
shareholders of CBI.
In arriving at our opinion, we have held discussions with members of
senior management of CBI concerning CBI's business and the prospects of such
business. We have reviewed, analyzed and otherwise taken into consideration
certain publicly available business and financial information and certain other
information prepared by, or provided to, us in connection with the Merger,
including, among other things, the following:
(1) The Merger Agreement;
(2) certain historical annual and interim financial statements and
other financial and operating information relating to CBI that
we deemed relevant;
(3) internally prepared consolidated financial projections for CBI
for the year ending December 31, 2008;
(4) financial and market information relating to other publicly
traded commercial banking companies considered by us to be
reasonably similar to CBI;
(5) the financial terms of recent business combinations in the
commercial banking industry considered by us to be reasonably
similar to the proposed Merger;
(6) certain publicly available information with respect to
historical market prices and trading activity of CBI common
stock;
(7) the current market environment in general and the commercial
banking sector environment in particular; and
(8) such other information, financial studies, valuation techniques,
analyses, inquiries and investigations that we deemed relevant.
ALLEN C. EWING & CO.
MEMBER FINRA/SiPC
JACKSONVILLE O CHARLOTTE
B-4
Members of the Board of Directors
Page 2
In preparing our opinion, we have relied upon the accuracy and
completeness of all publicly available information and all information provided
to us, including the representations and warranties of CBI, CRB and FCB included
in the Merger Agreement, without independent verification. We have not conducted
a physical inspection of the properties and facilities of CBI or CRB nor have we
made or obtained any valuations or appraisals of the assets or liabilities,
contingent or otherwise, of CBI or CRB.
In confirming our opinion, we have assured ourselves as to our
appropriate reliance on the analyses used to render our opinion by reviewing the
assumptions upon which such analyses were based, performing procedures to update
certain of the analyses and reviewing other factors considered in connection
therewith.
Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. Events occurring after the date hereof could materially affect this
opinion. Our opinion is directed solely to the fairness, from a financial point
of view, of the terms of the Merger to the shareholders of CBI and does not
address any other aspect of the Merger, nor does it constitute a recommendation
to any shareholder of CBI as to how such shareholder should vote with respect to
the Merger. Our opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for CBI, nor
does it address the effect of any other business combination in which CBI might
engage.
It is understood that this opinion may be included in its entirety in
the Proxy Statement to be mailed to the shareholders of CBI in connection with
their consideration of the Merger. This opinion may not, however, be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
Based upon, and subject to the foregoing, we are of the opinion as of
the date hereof that the terms of the Merger are fair, from a financial point of
view, to the shareholders of CBI.
Very truly yours,
/s/ Allen C. Ewing & Co.
Allen C. Ewing & Co.
B-5
APPENDIX C
CONSOLIDATED FINANCIAL STATEMENTS
OF COMMUNITY BANKSHARES, INC.
(Pursuant to S.C. Code Section 33-11-103)
Audited Annual Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2007 and 2006
Consolidated Statements of Income, Years Ended December 31, 2007, 2006, and
2005
Consolidated Statements of Changes in Shareholders' Equity, Years Ended
December 31, 2007, 2006, and 2005
Consolidated Statements of Cash Flows, Years Ended December 31,2007, 2006,
and 2005
Notes to Consolidated Financial Statements
Unaudited Quarterly Financial Statements
Consolidated Balance Sheets, June 30, 2008 and December 31, 2007
Consolidated Statements of Income, Quarters and Six Months Ended June 30,
2008 and 2007
Consolidated Statements of Changes in Shareholders' Equity, Six Months
Ended June 30, 2008 and 2007
Consolidated Statements of Cash Flows, Six Months June 30, 2008 and 2007
Notes to Unaudited Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of
Community Bankshares, Inc.
We have audited the accompanying consolidated balance sheets of Community
Bankshares, Inc. and subsidiaries (the Company) as of December 31, 2007 and
2006, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2007. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community
Bankshares, Inc. and subsidiaries at December 31, 2007 and 2006, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.
Columbia, South Carolina s/ J. W. Hunt and Company, LLP
March 24, 2008
C-1
COMMUNITY BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................. $ 18,701 $ 17,622
Federal funds sold ...................................................................... 6,985 29,102
--------- ---------
Total cash and cash equivalents ................................................ 25,686 46,724
Interest-bearing deposits with other banks .............................................. 911 1,926
Securities available-for-sale ........................................................... 57,868 84,783
Securities held-to-maturity (estimated fair value
$1,650 for 2007 and $1,750 for 2006) .................................................... 1,650 1,750
Other investments ....................................................................... 3,209 3,246
Loans held for sale ..................................................................... 3,509 9,235
Loans, net of allowance for loan
losses of $5,343 for 2007 and $4,662 for 2006 ........................................... 458,696 405,058
Premises and equipment - net ............................................................ 10,820 10,307
Accrued interest receivable ............................................................. 3,547 3,821
Net deferred income tax assets .......................................................... 1,357 1,231
Goodwill ................................................................................ 4,321 4,321
Core deposit intangible assets .......................................................... 2,345 2,591
Prepaid expenses and other assets ....................................................... 2,648 3,524
--------- ---------
Total assets ................................................................... $ 576,567 $ 578,517
========= =========
Liabilities
Deposits
Demand, noninterest-bearing ......................................................... $ 57,738 $ 61,693
Interest-bearing transaction accounts ............................................... 82,512 81,052
Savings ............................................................................. 89,141 97,168
Certificates of deposit of $100 and over ............................................ 109,204 97,986
Other time deposits ................................................................. 143,112 145,722
--------- ---------
Total deposits ................................................................. 481,707 483,621
Short-term borrowings ................................................................... 9,893 12,948
Long-term debt .......................................................................... 29,679 26,188
Accrued interest payable ................................................................ 1,501 1,578
Accrued expenses and other liabilities .................................................. 142 1,558
--------- ---------
Total liabilities .............................................................. 522,922 525,893
--------- ---------
Commitments and contingent liabilities
Shareholders' equity
Common stock - no par value, 12,000,000 authorized shares; issued and
outstanding - 4,446,456 shares for 2007
and 4,441,220 shares for 2006 ........................................................... 30,505 30,603
Retained earnings ....................................................................... 22,812 22,382
Accumulated other comprehensive income (loss) ........................................... 328 (361)
--------- ---------
Total shareholders' equity ..................................................... 53,645 52,624
--------- ---------
Total liabilities and shareholders' equity ..................................... $ 576,567 $ 578,517
========= =========
See accompanying notes to consolidated financial statements.
C-2
COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands, except per share)
Interest and dividend income
Loans, including fees ............................................. $ 34,768 $ 32,785 $ 28,955
Interest-bearing deposits with other banks ........................ 56 118 49
Debt securities
Taxable ....................................................... 3,741 2,316 1,643
Tax exempt .................................................... 170 180 215
Dividends ......................................................... 214 154 115
Federal funds sold ................................................ 418 1,501 629
-------- -------- --------
Total interest and dividend income ........................ 39,367 37,054 31,606
-------- -------- --------
Interest expense
Deposits
Interest-bearing transaction accounts ......................... 1,040 793 452
Savings ....................................................... 2,472 2,476 1,393
Certificates of deposit of $100 and over ...................... 4,499 3,911 2,852
Other time deposits ........................................... 7,165 6,058 4,043
-------- -------- --------
Total interest on deposits ................................ 15,176 13,238 8,740
Short-term borrowings ............................................. 766 400 198
Long-term debt .................................................... 1,874 1,863 1,867
-------- -------- --------
Total interest expense .................................... 17,816 15,501 10,805
-------- -------- --------
Net interest income ..................................................... 21,551 21,553 20,801
Provision for loan losses ............................................... 3,155 2,950 9,637
-------- -------- --------
Net interest income after provision ..................................... 18,396 18,603 11,164
-------- -------- --------
Noninterest income
Service charges on deposit accounts ............................... 3,805 3,539 3,395
Mortgage brokerage income ......................................... 2,350 3,518 3,699
Gains (losses) on sales of securities ............................. 2 1 (10)
(Losses) gains on sales of loans .................................. (998) 514 -
Gains on disposal of other investments ............................ 712 - -
Deposit box rent .................................................. 58 55 52
Bank card fees .................................................... - 22 35
Loan related insurance commissions ................................ 101 51 78
Other ............................................................. 764 606 754
-------- -------- --------
Total noninterest income .................................. 6,794 8,306 8,003
-------- -------- --------
Noninterest expenses
Salaries and employee benefits .................................... 11,580 10,820 9,532
Premises and equipment ............................................ 2,368 2,233 2,271
Marketing ......................................................... 662 537 421
Regulatory fees ................................................... 272 313 275
Supplies .......................................................... 413 640 261
Director fees ..................................................... 262 287 312
FDIC insurance .................................................... 126 57 57
Provision for recourse liabilities ................................ 588 144 63
Other ............................................................. 4,828 4,196 4,199
-------- -------- --------
Total noninterest expenses ................................ 21,099 19,227 17,391
-------- -------- --------
Income before income taxes .............................................. 4,091 7,682 1,776
Income tax expense ...................................................... 1,519 2,673 765
-------- -------- --------
Net income .............................................................. $ 2,572 $ 5,009 $ 1,011
======== ======== ========
Earnings per share
Basic ............................................................. $ 0.58 $ 1.13 $ 0.23
Diluted ........................................................... 0.57 1.11 0.22
See accompanying notes to consolidated financial statements.
C-3
COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
------------ Accumulated
Number of Retained Other Comprehensive
Shares Amount Earnings Income (Loss) Total
------ ------ -------- ------------- -----
(Dollars in thousands, except per share)
Balance, January 1, 2005 ................................ 4,390,784 $ 30,042 $ 20,075 $ (90) $ 50,027
Comprehensive income
Net income .......................................... - - 1,011 - 1,011
----------
Unrealized net holding losses arising
during the period, net of
income tax effects of $253 .......................... - - - (451) (451)
Reclassification adjustment,
net of income tax effects of $4 ..................... - - - 6 6
----------
Total other comprehensive income (loss) ............. - - - - (445)
----------
Total comprehensive income .......................... - - - - 566
----------
Sale of common stock .................................... 775 14 - - 14
Exercise of stock options ............................... 12,744 146 - - 146
Cash dividends ($.40 per share) ......................... - - (1,761) - (1,761)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 2005 .............................. 4,404,303 30,202 19,325 (535) 48,992
Comprehensive income
Net income .......................................... - - 5,009 - 5,009
----------
Unrealized net holding gains arising
during the period, net of
income tax effects of $169 .......................... - - - 271 271
Reclassification adjustment,
net of income tax effects of $0 ..................... - - - (1) (1)
----------
Total other comprehensive income .................... 270
----------
Total comprehensive income .......................... 5,279
Adjustment to initially apply SFAS
No. 158, net of income taxes of $47 ................. - - - (96) (96)
Sale of common stock .................................... 1,000 16 - - 16
Exercise of stock options ............................... 35,917 385 - - 385
Cash dividends ($.44 per share) ......................... - - (1,952) - (1,952)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 2006 .............................. 4,441,220 30,603 22,382 (361) 52,624
Comprehensive income
Net income .......................................... - - 2,572 - 2,572
----------
Unrealized net holding gains arising
during the period, net of
income tax effects of $300 .......................... - - - 594 594
Reclassification adjustment,
net of income tax effects of $1 ..................... - - - (1) (1)
Adjustment to terminate pension plan under
SFAS No. 158, net of income taxes of $47 ............ - - - 96 96
----------
Total other comprehensive income .................... - - - - 689
----------
Total comprehensive income .......................... - - - - 3,261
----------
Share-based compensation expense ........................ - 38 - - 38
Sale of common stock .................................... 7,500 93 - - 93
Repurchases and cancellation of common stock ............ (46,100) (657) - - (657)
Exercise of stock options ............................... 43,836 428 - - 428
Cash dividends ($.48 per share) ......................... - - (2,142) - (2,142)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 2007 .............................. 4,446,456 $ 30,505 $ 22,812 $ 328 $ 53,645
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
C-4
COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Operating activities
Net income .................................................................... $ 2,572 $ 5,009 $ 1,011
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses ............................................. 3,155 2,950 9,637
Depreciation .......................................................... 837 1,018 937
Provision for recourse liabilities .................................... 588 144 63
Share-based compensation expense ...................................... 38 - -
Writedowns of other real estate ....................................... - 18 -
Amortization of definite-lived purchased intangibles .................. 246 246 246
Deferred income taxes ................................................. (472) 2,158 (2,807)
Securities accretion and premium amortization ......................... (41) 15 67
(Gain) loss on disposition of available-for-sale securities ........... (2) (1) 10
Gain on sale of other investments ..................................... (712) - -
Loss (gain) on sale of loans other than loans held for sale ........... 998 (514) -
Decrease (increase) in accrued interest receivable .................... 274 (687) (715)
(Decrease) increase in accrued interest payable ....................... (77) 366 521
Loss on sale of premises and equipment ................................ 9 - -
Losses (gains) on sale of foreclosed assets ........................... 243 19 (24)
Decrease (increase) in prepaid expenses and other assets .............. 1,150 (991) (290)
(Decrease) increase in accrued expenses and other liabilities ......... (1,874) 162 223
Originations of loans held for sale ................................... (126,739) (234,821) (210,552)
Proceeds of sales of loans held for sale .............................. 132,465 238,033 213,195
--------- --------- ---------
Net cash provided by operating activities .......................... 12,658 13,124 11,522
--------- --------- ---------
Investing activities
Net decrease (increase) in interest-bearing deposits with other banks ......... 1,015 (888) (186)
Purchases of available-for-sale securities .................................... (6,972) (43,449) (16,243)
Maturities of held-to-maturity securities ..................................... 100 100 75
Maturities and calls of available-for-sale securities ......................... 34,821 17,793 7,829
Proceeds from sale of available-for-sale securities ........................... - - 4,412
Proceeds from sales of other investments ...................................... 2,082 642 -
Purchases of other investments ................................................ (1,332) (908) (338)
Proceeds from sales of loans other than loans held for sale ................... 2,683 7,140 -
Net increase in loans made to customers ....................................... (62,265) (13,522) (22,748)
Purchases of premises and equipment ........................................... (1,734) (1,913) (2,610)
Proceeds from sales of premises and equipment ................................. 376 - -
Proceeds from sales of foreclosed assets ...................................... 1,286 788 224
--------- --------- ---------
Net cash used by investing activities .............................. (29,940) (34,217) (29,585)
--------- --------- ---------
Financing activities
Net (decrease) increase in deposits ........................................... (1,914) 19,412 40,751
Net (decrease) increase in short-term borrowings .............................. (3,055) 3,973 2,313
Proceeds from issuance of long-term debt ...................................... 8,640 - 3,000
Repayments of long-term debt .................................................. (5,149) (6,008) (1,377)
Sale of common stock .......................................................... 93 16 14
Exercise of stock options ..................................................... 428 385 146
Common stock repurchased and cancelled ........................................ (657) - -
Cash dividends paid ........................................................... (2,142) (1,952) (1,761)
--------- --------- ---------
Net cash provided by financing activities .......................... (3,756) 15,826 43,086
--------- --------- ---------
(Decrease) increase in cash and cash equivalents ................................... (21,038) (5,267) 25,023
Cash and cash equivalents, beginning ............................................... 46,724 51,991 26,968
--------- --------- ---------
Cash and cash equivalents, ending .................................................. $ 25,686 $ 46,724 $ 51,991
========= ========= =========
See accompanying notes to consolidated financial statements.
C-5
COMMUNITY BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Supplemental disclosures of cash flow information
Cash payments for interest expense, including $7, $21 and $12 ........................ $ 17,901 $ 15,135 $ 10,296
capitalized during construction in 2007, 2006 and 2005, respectively
Cash payments for income taxes ....................................................... 3,452 781 3,869
Supplemental disclosures of non-cash investing activities
Transfers of loans receivable to foreclosed assets ................................... 1,790 1,231 70
Other comprehensive income (loss) .................................................... 689 174 (445)
See accompanying notes to consolidated financial statements.
C-6
COMMUNITY BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Community Bankshares, Inc. (CBI or the Corporation) is a South Carolina
corporation and a bank holding company. CBI commenced operations on July 1,
1993, upon effectiveness of the acquisition of the Orangeburg National Bank as a
wholly-owned subsidiary. In June 1996 CBI acquired all the stock of Sumter
National Bank. In July 1998 CBI acquired all the stock of Florence National
Bank. In July 2002 CBI acquired by merger Ridgeway Bancshares, Inc., the parent
company of the former Bank of Ridgeway.
Orangeburg National Bank was chartered in 1987 as a national bank, and
operated from two offices located in Orangeburg, South Carolina. Sumter National
Bank (the Sumter bank), a national bank, was chartered in 1996 and operated from
two offices located in Sumter, South Carolina. Florence National Bank (the
Florence bank), a national bank, was chartered in 1998 and operated from two
offices located in Florence, South Carolina. Bank of Ridgeway (the Ridgeway
bank), a South Carolina state-chartered bank organized in 1898, operated from
one office in Ridgeway, one office in Winnsboro, one office in Blythewood, and
one office in northeast Richland County on Clemson Road, which opened in January
2008. In November 2001, CBI acquired all the common stock of Resource Mortgage
Inc., a Columbia, South Carolina based mortgage company, and subsequently
renamed it Community Resource Mortgage, Inc. (CRM).
In August 2006, Orangeburg National Bank's name was changed to
Community Resource Bank, N.A. ("CRB" or the "Bank"), and in October 2006, the
Sumter bank, the Florence bank and the Ridgeway bank were merged into CRB. As a
result, the Corporation now consists of the holding company (CBI), the bank
subsidiary (CRB) and the mortgage company (CRM). Effective in January 2007 the
operations of the mortgage company became a division of the Bank. The Bank plans
to continue to conduct mortgage loan origination operations under the name
"Community Resource Mortgage, a division of Community Resource Bank" (the
"Mortgage Division"). CRM remains a separate corporate entity and wholly-owned
subsidiary of the Corporation, but with only limited assets and activities. The
Bank now operates in four geographical regions: Orangeburg, Sumter, Florence and
the Midlands (Fairfield and Richland counties), and the Mortgage Division, which
operates from offices in Columbia, SC and in the banks' regional main branches..
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Corporation and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the balance sheet and
C-7
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of deferred tax
assets.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the Corporation's
activities are with customers located within South Carolina. Note 4 discusses
the types of securities the Corporation purchases. Note 6 discusses the types of
lending in which the Corporation engages. The Bank grants commercial, consumer
and mortgage loans to customers throughout South Carolina. Although the Bank has
a diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent upon the economies of various South Carolina
communities and, as of December 31, 2007, there were concentrations in high
loan-to-value real estate loans. Also, based on use of NAICS codes, there were
loan concentrations in Real Estate, Religious and Similar Organizations, and
Building Construction.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated statements of cash
flows, the Corporation has defined cash and cash equivalents as those amounts
included in the balance sheets under the caption, "Cash and due from banks" and
"Federal funds sold," all of which mature within ninety days.
INTEREST-BEARING DEPOSITS WITH OTHER BANKS - Interest-bearing deposits with
other banks generally mature within one year and are carried at cost.
SECURITIES - Securities that management has both the ability and positive intent
to hold to maturity are classified as held-to-maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using methods
approximating the interest method. The Corporation has decided generally to
avoid acquiring further held-to-maturity securities. Securities that may be sold
prior to maturity for asset/liability management purposes, or that may be sold
in response to changes in interest rates, changes in prepayment risk, increases
in regulatory capital requirements, or other similar factors, are classified as
available-for-sale and are carried at estimated fair value. Unrealized gains and
losses on securities available-for-sale are excluded from earnings and reported
in other comprehensive income. Gains and losses on the sale of securities
available-for-sale are recorded on the trade date and are determined using the
specific identification method. Declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses.
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported in interest and dividends on
securities.
No securities are being held for short-term resale; therefore, the Corporation
does not currently use a trading account classification.
LOANS HELD FOR SALE - The Corporation originates loans held for sale to other
financial institutions under commitments or other arrangements in place prior to
loan origination. These loans are sold on a non-recourse basis. However,
standard contract warranties and representations apply to these sales and the
Corporation may from time to time be required to indemnify investors under those
provisions. Loans originated and intended for sale are residential mortgage
loans and are carried at the lower of cost or estimated fair value in the
aggregate. Gains and losses, if any, on the sale of such loans are determined
using the specific identification method. All fees and other income from these
activities are recognized in income when loan sales are completed.
C-8
LOANS - The Corporation grants mortgage, commercial and consumer loans to
customers. The ability of the Corporation's debtors to honor their contracts is
dependent upon the general economic conditions in its market areas. Loans
receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off generally are carried at
principal amounts outstanding, increased or reduced by deferred net loan costs
or fees and any unamortized purchase premiums or discounts. Interest income on
loans is recognized using the interest method based upon the principal amounts
outstanding. Loan origination and commitment fees and certain direct loan
origination costs (principally salaries and employee benefits) are deferred and
amortized as an adjustment of the related loan's yield. Generally, these amounts
are amortized over the contractual life of the related loans or commitments.
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well collateralized and
in process of collection. Unsecured personal credit lines and certain consumer
finance loans are typically charged off no later than the time the loan is 180
days delinquent.
Other consumer loans are typically charged off at the time the loan is 90 days
delinquent. Generally, loans are placed on nonaccrual or charged off at an
earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash basis or cost recovery method, until the loans
qualify for return to accrual status. Loans are returned to accrual status only
when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established through
a provision for loan losses charged against earnings as losses are estimated to
have occurred. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
It is the policy of Corporation and its subsidiary bank to maintain an allowance
for loan and lease losses which achieves the following objectives:
o Maintenance of the allowance at a level that is adequate to
absorb all estimated inherent losses in the loan portfolio;
o Evaluation and calculation of the allowance with a sound and
consistent analytical framework based on historical data adjusted
for current conditions in conformity with generally accepted
accounting principles and all applicable banking and regulatory
guidance; and
o Reflection in the allowance of all significant, existing
conditions affecting the ability of borrowers to repay.
Management reviews its allowance for loan losses utilizing three broad loan
categories: commercial, financial and agricultural, real estate, and consumer
installment. Within these categories, the allowance for loan losses is composed
of specific allocations and general loan pool amounts. Specific allocation is
made for larger impaired loans in each loan category. Smaller impaired loans in
each category are assigned the average loss percentage of the large impaired
C-9
loan specific allocation. All general loan pool amounts are reserved by using
historical losses within each category. Other factors considered are changes in
policies and procedures, economic conditions, portfolio changes, lending
personnel experience, trend analysis, credit concentrations, external factors,
and the reports of the loan review system.
A loan is considered impaired when, based on current information and events, it
is probable that the Corporation will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified
as impaired. Management determines the significance of payment delays and
payment shortfalls on a case-by-case basis, taking into consideration all of the
known circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower's prior payment record,
and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis by either the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment.
DERIVATIVE FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, requires that all derivatives be recognized as assets or liabilities
in the balance sheet and measured at fair value. In April, 2003, the Financial
Accounting Standards Board issued Statement No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." Among other requirements,
this Statement provides that loan commitment contracts entered into or modified
after June 30, 2003 that relate to the origination of mortgage loans that will
be held for sale shall be accounted for as derivative instruments by the issuer
of the loan commitment. The Corporation issues mortgage loan rate lock
commitments to potential borrowers to facilitate its origination of home
mortgage loans that are intended to be sold. Between the time that the
Corporation issues its commitments and the time that the loans close and are
sold, the Corporation is subject to variability in the selling prices related to
those commitments due to changes in market rates of interest. However, the
Corporation offsets this variability through the use of so-called "forward sales
contracts" to investors in the secondary market. Under these arrangements, an
investor agrees to purchase the closed loans at a predetermined price. The
Corporation generally enters into such forward sales contracts at the same time
that rate lock commitments are issued. The forward sales contracts provide both
specific underwriting guidelines and definitive price quotes. These arrangements
effectively insulate the Corporation from the effects of changes in interest
rates during the time that the commitments are outstanding, but the arrangements
do not qualify, and are not designated, as fair value hedges. In keeping with
SEC Staff Accounting Bulletin 105, no income is recognized as of the original
commitment date on either the interest rate lock commitments or the forward
sales contracts. Subsequently, changes in the fair values of the instruments are
measured as of the end of each reporting period and the changes in the fair
values represent the amounts of the derivative assets and liabilities. In
addition, the changes in fair values of derivatives are recorded in the
statement of income in net gains or losses on loans held for sale. Because the
Corporation has effectively matched its forward sales contracts to investors and
rate lock commitments to potential borrowers, no net gains or losses due to
changes in market interest rates have been recorded in the statement of income
for 2007, 2006 or 2005.
Derivative financial instruments are written in amounts referred to as notional
amounts. Notional amounts provide only the basis for calculating payments
C-10
between counterparties and do not represent amounts to be exchanged between
parties or a measure of financial risk. The table below presents the notional
principal amounts of rate lock commitments and forward sales contracts as of
December 31, 2007 and 2006, and the estimated fair values of those financial
instruments included in other assets and liabilities in the balance sheets as of
those dates.
December 31,
------------
2007 2006
---- ----
Notional Estimated Notional Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(Dollars in thousands)
Commitments to originate loans to be held for sale ................. $ (6,348) $ 13 $(12,868) $ (94)
Forward sales commitments .......................................... 6,348 (13) 12,868 94
-------- -------- -------- --------
Total ............................................ $ - $ - $ - $ -
======== ======== ======== ========
STOCK-BASED COMPENSATION - Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, as amended, encouraged all
entities to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost was measured at the grant date
based on the fair value of the award and recognized over the service period,
which was usually the vesting period. However, it also allowed an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," whereby compensation
cost was the excess, if any, of the quoted market price of the stock at the
grant date (or other measurement date) over the amount an employee was required
to pay to acquire the stock. Stock options issued under the Corporation's stock
option plans had no intrinsic value at the grant date, and under APB Opinion No.
25 no compensation cost was recognized for them. For 2005, the Corporation
elected to continue with the accounting methodology in APB Opinion No. 25 and,
as a result, provided pro forma disclosures of net income and earnings per share
and other disclosures, as if the fair value based method of accounting had been
applied. However, as required by revisions to SFAS No. 123 and Securities and
Exchange Commission rules, the Corporation adopted the accounting methodology of
SFAS No. 123(R) effective January 1, 2006. See "Accounting Changes - Share-Based
Payment." No awards of stock options were made in 2006 and all pre-existing
options awards were fully vested prior to the effective date of SFAS No. 123(R).
Therefore, no compensation costs are included in any period prior to 2007.
Had compensation cost for the Corporation's stock option plans been determined
based on the fair value at the grant dates for awards under the plans consistent
with the method prescribed by SFAS No. 123, the Corporation's net income and
earnings per share would have been adjusted to the pro forma amounts indicated
below:
C-11
Year Ended
December 31,
2005
----
(Dollars in
thousands,
except per share)
Net income, as reported ...................................... $ 1,011
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of any related tax effects .......................... (185)
---------
Pro forma net income ......................................... $ 826
=========
Net income per share, basic
As reported ............................................. $ 0.23
Pro forma ............................................... 0.19
Net income per share, assuming dilution
As reported ............................................. $ 0.22
Pro forma ............................................... 0.18
FORECLOSED ASSETS - Assets (primarily real estate and vehicles) acquired
through, or in lieu of, loan foreclosure are held for sale and are initially
recorded at fair value, less estimated costs to sell, at the date of
foreclosure, establishing a new cost basis. Loan losses arising from the
acquisition of such property are charged against the allowance for loan losses
as of that date. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower of the new cost
basis or fair value, less estimated costs to sell. Revenues and expenses from
operations and changes in any subsequent valuation allowance are included in net
foreclosed assets costs and expenses. The carrying value of foreclosed assets
included in the balance sheets was $852,000 and $591,000 as of December 31, 2007
and 2006, respectively.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation computed principally on the straight-line method over
the estimated useful lives of the assets. Useful lives of assets are outlined
below:
Buildings 32 - 40 years
Building components 5 - 30 years
Vault doors, safe deposit boxes, night depository, etc. 32 - 40 years
Furniture, fixtures and equipment 5 - 25 years
Useful lives for leasehold improvements held under operating lease agreements
are estimated at the lesser of the assets' estimated useful lives as set forth
in the table above or the lease term, including certain renewals which are
deemed probable at lease inception.
INCOME TAXES - Deferred income tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
C-12
Any interest expense and penalties associated with uncertain tax positions are
recognized as a component of income tax expense.
OFF-BALANCE-SHEET CREDIT RELATED FINANCIAL INSTRUMENTS - In the ordinary course
of business the Bank enters into commitments to extend credit and grants standby
letters of credit. Such off-balance-sheet financial instruments are recorded in
the consolidated financial statements when they are funded.
SEGMENTS - Community Bankshares, Inc. through its bank subsidiary provides a
broad range of financial services to individuals and businesses in South
Carolina. These services include demand, time, and savings deposits; lending
services; ATM processing; and similar financial services. While the
Corporation's decision makers monitor the revenue streams of the various
financial products and services, operations are managed and financial
performance is evaluated on a corporate-wide basis. Accordingly, the subsidiary
operations are not considered by management to comprise more than one reportable
operating segment.
COMPREHENSIVE INCOME - Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Certain changes
in assets and liabilities, such as unrealized gains and losses on securities
available-for-sale, are reported as a separate component of the equity section
of the balance sheet. Such items, along with net income, are components of
comprehensive income. Currently, the Corporation's only significant component of
other comprehensive income (loss) is unrealized gains (losses) on securities
available-for-sale.
TRANSFERS OF FINANCIAL ASSETS - Transfers of financial assets are accounted for
as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Corporation, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Corporation does not maintain
effective control over the transferred assets through an agreement to repurchase
them before their maturity.
ACCOUNTING CHANGES
Servicing of Financial Assets - The provisions of Statement of
Financial Accounting Standards No. 156 ("SFAS No. 156"), "Accounting for
Servicing of Financial Assets, an amendment of FASB Statement No. 140" were
effective January 1, 2007. This Statement potentially simplifies the accounting
for separately recognized loan servicing assets and liabilities and any
financial instruments used to hedge risks associated with those assets and
liabilities. Under SFAS 156, separately recognized servicing assets and
liabilities are accounted for initially at fair value, if practicable, and
subsequently are accounted for either at fair value or amortized over the
economic lives of the related loans. If the fair value method of subsequent
valuation is elected, SFAS No. 156 permits income statement recognition of the
potential offsetting changes in the fair values of the financial servicing
rights and liabilities and the derivative instruments used to hedge them in the
same accounting period. The Corporation currently has no separately recognized
loan servicing rights or liabilities and adoption in 2007 had no effect on the
Corporation's consolidated financial statements.
Fair Value Measurements - The provisions of Statement of Financial
Accounting Standards No. 157 ("SFAS No. 157"), "Fair Value Measurements," are
effective for fiscal years beginning after November 15, 2007 (January 1, 2008
C-13
for the Corporation). SFAS No. 157 defines fair value and establishes a
framework for measuring fair value in GAAP. The Statement describes fair value
as being based on a hypothetical transaction to sell an asset or transfer a
liability at a specific measurement date, as considered from the perspective of
a market participant who holds the asset or owes the liability (an exit price
perspective). In addition, fair value should be viewed as a market-based
measurement, rather than an entity-specific measurement. Therefore, fair value
should be determined based on the assumptions that market participants would use
in pricing an asset or liability, including all risks and restrictions that may
be associated with that asset or liability. SFAS No. 157 does not amend the
definition of fair value used in conjunction with Share-Based Payments accounted
for under SFAS No. 123(R). The adoption of SFAS No. 157 in 2008 has not had a
material effect on the Corporation's consolidated financial statements.
Fair Value Option - The provisions of Statement of Financial Accounting
Standards No. 159 ("SFAS No. 159"), "The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115," are
effective for fiscal years beginning after November 15, 2007 (January 1, 2008
for the Corporation). This Statement provides an entity the option to measure
many financial instruments and certain other items at fair value. Changes in the
fair values of items for which the option is selected will be recorded in the
entity's earnings. The objective is to improve financial reporting by allowing
entities to mitigate the earnings volatility that has resulted from the
previously required application of different measurement attributes without the
need to apply complex hedge accounting provisions. The Corporation does not
currently expect that it will apply the Statement's provisions to any items.
Therefore, the adoption of the Statement in 2008 has not had any effect on the
Corporation's consolidated financial statements.
Accounting for Uncertainty in Income Taxes - The provisions of
Financial Accounting Standards Board Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109," clarify the accounting for uncertainty in income tax positions. FIN 48
prescribes a two-step evaluation process that includes both a recognition
threshold and a measurement attribute for tax positions taken or expected to be
taken in a tax return. The provisions of FIN 48 were effective for the
Corporation as of January 1, 2007. The adoption of FIN 48 had no effect on the
Corporation's consolidated financial statements.
ADVERTISING COSTS - The cost of advertising is expensed as incurred.
OTHER - Certain amounts previously reported in the consolidated financial
statements have been reclassified to conform to the current year's presentation
and disclosure requirements. These reclassifications had no effect on previously
reported net income or retained earnings.
NOTE 3 - CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal
Reserve or in available cash. The average daily reserve balance requirements at
December 31, 2007 and 2006 were approximately $3,828,000 and $1,300,000,
respectively. The increase in reserve requirements was the result of the phased
in effect of merging the four banks into one bank. At December 31, 2007 the
Corporation had cash balances with unrelated correspondent banks, including
bankers' banks, totaling approximately $10,857,000, of which $439,000 was fully
insured by the FDIC.
C-14
NOTE 4 - SECURITIES
Securities consist of the following:
December 31,
------------
2007 2006
---- ----
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ---- ----- ------ -----
(Dollars in thousands)
Securities available-for-sale
Government-sponsored enterprises* ......... $54,659 $ 520 $ 42 $55,137 $82,145 $ 81 $ 487 $81,739
States and political
subdivisions ........................... 2,712 20 1 2,731 3,032 13 1 3,044
------- ------- ------- ------- ------- ------- ------- -------
Total securities available-for-sale .... $57,371 $ 540 $ 43 $57,868 $85,177 $ 94 $ 488 $84,783
======= ======= ======= ======= ======= ======= ======= =======
Securities held-to-maturity
States and political
subdivisions ........................... $ 1,650 $ - $ - $ 1,650 $ 1,750 $ - $ - $ 1,750
======= ======= ======= ======= ======= ======= ======= =======
-------
* Government-sponsored enterprises consist of entities such as the Federal Home
Loan Bank, Federal Farm Credit Bank and Federal National Mortgage Association.
The amortized cost and fair value of debt securities at December 31, 2007 by
contractual maturity are detailed below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
December 31, 2007
-----------------
Available-for-sale Held-to-maturity
------------------ ----------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
---- ---------- ---- ----------
(Dollars in thousands)
Securities
Due within one year ................................... $12,812 $12,791 $ - $ -
Due after one through five years ...................... 26,818 27,106 - -
Due after five through ten years ...................... 12,902 13,020 1,650 1,650
Due after ten years ................................... 4,839 4,951 - -
------- ------- ------- -------
Total .............................................. $57,371 $57,868 $ 1,650 $ 1,650
======= ======= ======= =======
C-15
The following tables provide information about the Corporation's securities
holdings which were maintained in an unrealized loss position as of December 31,
2007 and 2006:
December 31, 2007
-----------------
Continuously in Unrealized Loss Position for a Period of
--------------------------------------------------------
Less than 12 Months 12 Months or more Total
------------------- ----------------- -----
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Description of Securities
Government-sponsored enterprises ................. $ - $ - $10,007 $ 43 $10,007 $ 43
States and political subdivisions ................ - - - - - -
--- --- ------- ------- ------- -------
Total securities ................................. $ - $ - $10,007 $ 43 $10,007 $ 43
=== === ======= ======= ======= =======
December 31, 2006
-----------------
Continuously in Unrealized Loss Position for a Period of
--------------------------------------------------------
Less than 12 Months 12 Months or more Total
------------------- ----------------- -----
Estimated Unrealized Estimated Unrealized Estimated Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Description of Securities
Government-sponsored enterprises ............... $33,901 $ 164 $25,374 $ 323 $59,275 $ 487
States and political subdivisions .............. - - 1,279 1 1,279 1
------- ------- ------- ------- ------- -------
Total securities ............................... $33,901 $ 164 $26,653 $ 324 $60,554 $ 488
======= ======= ======= ======= ======= =======
At December 31, 2007, the Corporation held no securities that had been in an
unrealized loss position for less than 12 months and 13 securities that had been
in an unrealized loss position for 12 months or more. At December 31, 2006, the
Corporation held 36 securities that had been in an unrealized loss position for
less than 12 months and 35 securities that had been in an unrealized loss
position for 12 months or more. In assessing whether securities that had been in
an unrealized loss position for 12 months or more were other-than-temporarily
impaired, the Corporation considered numerous factors about each of the
securities, including the length of time of the impairment, near-term prospects
for recovery, and the expectations for changes in interest rates. Unrealized
losses reflected in this table generally are the result of interest rate changes
that have occurred since the securities were purchased. The Corporation has the
intent and ability to hold these securities until maturity and no loss is
expected on any of these securities if they are held until their maturities.
Accordingly, these losses are not considered to be other-than-temporary.
At December 31, 2007 and 2006, investment securities with a carrying value of
$37,360,000 and $38,921,000, respectively, were pledged to secure public
deposits, repurchase agreements and for other purposes required and permitted by
law.
For the years ended December 31, 2007, 2006 and 2005, proceeds from sales or
dispositions of securities available-for-sale were $0, $0 and $4,412,000,
respectively. In 2007 and 2006, the Corporation realized gains of $2,000 and
$1,000, respectively, on the call of securities at an amount in excess of par
C-16
value. There have been no gross realized gains from sales in the three-year
period ended December 31, 2007. Gross realized losses of $10,000 were recorded
for 2005, with no such losses since. The tax benefit applicable to the net
realized gains and losses in 2005 was $4,000.
NOTE 5 - OTHER INVESTMENTS
Other investments consist of restricted stocks of the Federal Reserve Bank of
Richmond, the Federal Home Loan Bank of Atlanta, and correspondent bankers'
banks which are carried at cost. Management periodically evaluates these
investments for impairment, with any appropriate downward adjustments being made
when necessary. In 2007, the Corporation sold a portion of its investment in the
stock of Silverton Bank (formerly, The Bankers Bank) and realized a gain of
$712,000. This disposition eliminated the Bank's excess ownership position which
arose upon the merger of the Corporation's four former subsidiary Banks.
NOTE 6 - LOANS
The following is a summary of loans by category:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Commercial, financial and agricultural ......... $ 71,249 $ 86,080
Real estate- construction ...................... 49,898 40,541
Real estate - mortgage ......................... 313,178 253,423
Consumer installment ........................... 29,714 29,676
--------- ---------
Total ..................................... 464,039 409,720
Allowance for loan losses ...................... (5,343) (4,662)
--------- ---------
Loans - net ............................... $ 458,696 $ 405,058
========= =========
Net deferred loan (fees) and costs of $(212,000) and $(104,000) were allocated
to the various loan categories as of December 31, 2007 and 2006, respectively.
Overdrawn deposits totaling $418,000 and $665,000 have been reclassified as loan
balances at December 31, 2007 and 2006, respectively.
Gross proceeds from sales of mortgage loans originated for resale were
approximately $132,465,000, $238,033,000, and $213,195,000 for the years ended
December 31, 2007, 2006, and 2005, respectively. Income from this activity is
recognized as mortgage brokerage income.
Loans outstanding to directors, executive officers, principal holders of equity
securities, or to any of their associates totaled $6,574,000 at December 31,
2007 and $4,051,000 at December 31, 2006. A total of $7,437,000 in loans were
made or added, while a total of $4,914,000 were repaid or deducted during 2007.
Related party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal risk of
collectibility. Changes in the composition of the board of directors or the
group comprising executive officers also result in additions to or deductions
from loans outstanding to directors, executive officers or principal holders of
equity securities.
C-17
The Corporation generally does not engage in originating, holding, guaranteeing,
servicing or investing in loans where the terms of the loan product may give
rise to a concentration of credit risk as that term is used in Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Values of
Financial Instruments." However, at December 31, 2006, the Corporation had a
concentration involving loans for the construction of speculative residential
housing units totaling $25,797,000 or 48% of capital. As of December 31, 2007
and 2006, there were concentrations in real estate loans with high loan-to-value
ratios of $35,592,000 and $24,835,000, or 66% and 46% of capital, respectively.
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Balance at January 1 ....................... $ 4,662 $ 11,641 $ 4,347
Transfer of allowance for off-balance-sheet - - (305)
contingencies to other liabilities
Provision charged to expense ............... 3,155 2,950 9,637
Recoveries ................................. 1,514 1,436 207
Charge-offs ................................ (3,988) (11,365) (2,245)
-------- -------- --------
Balance at December 31 ..................... $ 5,343 $ 4,662 $ 11,641
======== ======== ========
The following is summary information pertaining to impaired loans:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Impaired loans without a valuation allowance ................. $ - $ -
Impaired loans with a valuation allowance .................... 6,542 4,714
------ ------
Total impaired loans ..................................... $6,542 $4,714
====== ======
Allowance for loan losses on impaired loans at year end ...... $1,533 $1,381
====== ======
Average total investment in impaired loans during the year ... $6,764 $9,828
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Impaired loans without a valuation allowance ................. $ - $ -
Impaired loans with a valuation allowance .................... 6,542 4,714
------ ------
Total impaired loans ..................................... $6,542 $4,714
====== ======
Allowance for loan losses on impaired loans at year end ...... $1,533 $1,381
====== ======
Average total investment in impaired loans during the year ... $6,764 $9,828
No additional funds are irrevocably committed to be advanced in connection with
impaired loans.
Nonaccrual and past due loans at December 31, 2007 and 2006 were as follows:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Nonaccrual loans ................................. $6,542 $4,714
Accruing 90 days or more past due ................ - 232
------ ------
Total ..................................... $6,542 $4,946
====== ======
C-18
Gross interest income that would have been recorded for the years ended December
31, 2007, 2006, and 2005 if nonaccrual loans had been performing in accordance
with their original terms was approximately $542,000, $429,000, and $448,000,
respectively. No material amounts of cash basis income were recognized on such
loans during 2007, 2006 and 2005.
From time to time in the normal course of business, the Mortgage Division may be
required to repurchase loans sold into the secondary market because of investor
recourse rights. These recourse rights relate to early payment default or defect
in the documentation for the loan. Management has identified certain real
estate-secured loans, with aggregate principal amounts outstanding of $1,146,000
on which the investors have requested indemnification pursuant to their recourse
rights. This amount does not represent management's estimate of anticipated loss
and, at this time, management is in the process of determining a probable loss
amount associated with these loans. During 2007, 2006 and 2005, the Corporation
recognized $588,000, $144,000 and $63,000 in recourse loan provision,
respectively. Management will continue to regularly evaluate the estimated fair
value of these loans, and other such loans that may come to the attention of
management, and will make any appropriate accounting adjustment that may become
necessary. At year end 2007 the Bank had an allowance of $387,000 for such loss
contingencies.
NOTE 7 - PREMISES AND EQUIPMENT; OPERATING LEASES
Premises and equipment at December 31, 2007 and 2006 consist of the following:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Land ........................................... $ 2,595 $ 2,808
Buildings and components ....................... 5,181 5,209
Furniture, fixtures and equipment .............. 8,387 7,729
Construction in process - gross ................ 906 7
------- -------
Total ..................................... 17,069 15,753
Less, accumulated depreciation ................. 6,249 5,446
------- -------
Premises and equipment - net .............. $10,820 $10,307
======= =======
Depreciation expense was approximately $837,000, $1,018,000, and $937,000, for
the years ended December 31, 2007, 2006, and 2005, respectively. During 2007,
2006 and 2005, the Corporation capitalized interest of $7,000, $21,000 and
$12,000, respectively, to construction in progress.
C-19
As of December 31, 2007 future minimum rent commitments under various
non-cancelable operating leases are as follows:
Year Amount
---- ------
(Dollars in thousands)
2008 $ 430
2009 322
2010 233
2011 236
2012 242
Thereafter 4,329
-------
Total $ 5,792
=======
Total rent expense for the years ended December 31, 2007, 2006, and 2005 was
$687,000, $512,000, and $413,000, respectively. Some leases provide for the
payment of executory costs and contain options to renew; lease payments for such
renewal periods are generally higher than during the original lease term.
NOTE 8 - INTANGIBLE ASSETS
Changes in the carrying amounts of goodwill for the years ended December 31,
2007 and 2006 are as follows:
Years Ended December 31,
------------------------
2007 2006
---- ----
(Dollars in thousands)
Balance, beginning of year ....................... $4,321 $4,321
Goodwill acquired during the year ................ - -
Impairment losses ................................ - -
------ ------
Balance, end of year ............................. $4,321 $4,321
====== ======
Goodwill is tested for impairment annually. As of December 31, 2007, no
impairment has been determined.
As part of the valuation of Ridgeway Bancshares, Inc., conducted by a third
party firm in conjunction with its acquisition by the Corporation, a core
deposit intangible was computed. Such amortizable intangible assets are
evaluated annually to determine whether any revisions of their estimated useful
lives are warranted. For the years ended December 31, 2007 and 2006, and 2005,
no such revisions have resulted.
The following tables present the gross carrying amounts and accumulated
amortization for the Corporation's amortizable intangible assets as of December
31, 2007 and 2006, and the estimated amounts of amortization expense to be
recognized for each of the five succeeding fiscal years, as of December 31, 2007
and 2006. Such assets are being amortized on a straight-line basis over fifteen
years, a period which represents the expected runoff period of the deposits
acquired.
C-20
December 31,
------------
2007 2006
---- ----
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
(Dollars in thousands)
Amortizable intangible asset class
Core deposit intangible .................................... $3,698 $1,353 $3,698 $1,107
====== ====== ====== ======
Estimated amounts of amortization expense to be recognized in each of the next
five succeeding years are:
December 31,
------------
2007 2006
---- ----
Year (Dollars in thousands)
----
2007 $ - $ 246
2008 246 246
2009 246 246
2010 246 246
2011 246 246
2012 246 NA
NOTE 9 - DEPOSITS
At December 31, 2007, the scheduled maturities of certificates of deposit and
other time deposits are as follows:
Year Amount
---- ------
(Dollars in thousands)
2008 $ 242,536
2009 7,666
2010 1,030
2011 674
2012 410
Thereafter -
-
---------
Total $ 252,316
=========
Deposits of directors and officers and their related business interests totaled
approximately $3,616,000 and $4,033,000 at December 31, 2007 and 2006,
respectively.
NOTE 10 - SHORT-TERM BORROWINGS
The Corporation's short-term borrowings generally consist of federal funds
purchased and securities sold under agreements to repurchase. Federal funds
C-21
purchased and securities sold under agreements with customers to repurchase
generally mature within one to four days from the transaction date. Securities
sold under agreements to repurchase are reflected at the amount of cash received
in connection with the transaction. The Corporation monitors the fair value of
the underlying securities on an ongoing basis and it is the Bank's policy to
maintain a collateral value greater than the principal and accrued interest of
the transaction. All securities underlying these agreements are
institution-owned securities.
Short-term borrowings are summarized as follows:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Securities sold under agreements to repurchase ......... $ 9,893 $12,948
======= =======
The following table summarizes information about short-term borrowings during
each of the periods presented:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Balance outstanding at end of year ....................... $ 9,893 $12,948
Weighted average interest rate at end of the period ...... 2.97% 4.00%
Interest expense ......................................... $ 766 $ 400
Maximum outstanding at any month end during the period ... $35,322 $14,058
Average outstanding during the period .................... $18,783 $13,680
Weighted average interest rate during the period ......... 4.08% 2.92%
As of December 31, 2007, the Bank had unused credit availabilities under federal
funds lines established with unrelated correspondent banks totaling $30,000,000.
NOTE 11 - LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Advances from Federal Home Loan Bank of Atlanta to
subsidiary bank, varying maturities to 2023 with interest
rates from 2.00% to 6.14% ................................ $19,369 $15,878
Junior Subordinated Debt to Unconsolidated Trusts (1), ..... 10,310 10,310
------- -------
dated April 7, 2004, maturing April 7, 2034,
with variable interest rate based on 3-month LIBOR
Total long-term debt ....................... $29,679 $26,188
======= =======
-------
(1) Securities qualify as Tier 1 capital under the regulatory risk-based capital
guidelines, subject to certain limitations.
C-22
Collateral for the Advances from Federal Home Loan Bank of Atlanta consists of
blanket liens on the Bank's one-to-four family first lien residential mortgage
loans and the Bank's stock in the FHLB. Such collateral was carried in the
consolidated balance sheet at approximately $90,389,000 and $76,694,000 at
December 31, 2007 and 2006, respectively.
Under the blanket lien agreements, the Bank had the ability to borrow additional
funds approximating $52,942,000 from the FHLB as of December 31, 2007. Any such
borrowings would be subject to the FHLB's normal approval process and would be
subject to interest rates established by the FHLB at the time of each such
transaction. The FHLB may terminate the availability at any time.
On March 8, 2004, the Corporation sponsored the creation of a Delaware trust,
SCB Capital Trust I (the "Trust"), and is the sole owner of the common
securities issued by the Trust. The Trust is a variable interest entity under
FIN 46R, but is not subject to consolidation by the Corporation since
substantially all risk of loss has been transferred to other entities through
the Trust's March 10, 2004 issuance of $10,000,000 in floating rate capital
securities. The proceeds of this issuance, and the amount of CBI's capital
investment, were used to acquire $10,310,000 principal amount of CBI's floating
rate junior subordinated deferrable interest debt securities ("Debentures") due
April 7, 2034, which securities, and the accrued interest thereon, now
constitute the Trust's sole assets. The interest rate associated with the debt
securities, and the distribution rate on the common securities of the Trust, was
established initially at 3.91% and is adjustable quarterly at the three month
LIBOR rate plus 280 basis points. The index rate (LIBOR) may not be lower than
1.11%. As of December 31, 2007, the interest rate associated with the debt was
4.70%. CBI may defer interest payments on the Debentures for up to twenty
consecutive quarters, but not beyond the stated maturity date of the Debentures.
In the event that such interest payments are deferred by CBI, the Trust may
defer distributions on the common securities. In such an event, CBI would be
restricted in its ability to pay dividends on its common stock and perform under
other obligations that are not senior to the junior subordinated Debentures.
The Debentures are redeemable at par at the option of CBI, in whole or in part,
on any interest payment date on or after April 7, 2009. Prior to that date, the
Debentures are redeemable at 105% of par upon the occurrence of certain events
that would have a negative effect on the Trust or that would cause it to be
required to be registered as an investment company under the Investment Company
Act of 1940 or that would cause trust preferred securities not to be eligible to
be treated as Tier 1 capital by the Federal Reserve Board. Upon repayment or
redemption of the Debentures, the Trust will use the proceeds of the transaction
to redeem an equivalent amount of trust preferred securities and trust common
securities. The Trust's obligations under the trust preferred securities are
unconditionally guaranteed by CBI.
The Corporation's investment in the Trust is carried at cost in other assets and
the debentures are included in long-term debt in the consolidated balance sheet.
In consideration of current market conditions during the first quarter of 2008,
the Bank elected to borrow two new advances from the FHLB. In February 2008 the
Bank borrowed $7.5 million at 2.167% with a ten year maturity, subject to
quarterly call beginning in February 2009. The Bank also borrowed an additional
$7.5 million at 2.526% with a five year maturity, subject to a one time call in
February 2010.
C-23
Required future principal reductions of the Corporation's long-term debt are
summarized as follows:
Year Amount
---- ------
(Dollars in thousands)
2008 $ 2,500
2009 2,000
2010 7,200
2011 -
2012 7,500
Thereafter 10,479
--------
Total $ 29,679
========
NOTE 12 - DIVIDEND REINVESTMENT PLAN, STOCK REPURCHASE PLAN, AND STOCK OPTIONS
Under the Corporation's Dividend Reinvestment Plan, shareholders may reinvest
all or part of their cash dividends in shares of common stock and also purchase
additional shares of common stock. During the three-year period ended December
31, 2007 all shares purchased under this plan were purchased in the market by
Registrar and Transfer Company, the plan administrator, not issued by the
Corporation. At December 31, 2007, 624,665 common shares were reserved for
issuance pursuant to the dividend reinvestment and additional stock purchase
plan.
During 2007, the Corporation's Board of Directors approved a stock repurchase
program which authorized the repurchase of up to 500,000 of the Corporation's
common stock. During 2007 the Corporation repurchased 46,100 shares at an
aggregate cost of $657,000 for an average share cost of $14.26.
During 2001, the Corporation amended its 1997 Stock Option Plan (the "1997
Plan") to increase by 200,000 shares the number of shares reserved for issuance
upon exercise of options and to permit participation in the plan by non-employee
directors. During 2003, the Corporation amended the 1997 Plan to increase by
300,000 shares the number of shares reserved for issuance upon exercise of
employee incentive stock options. Under the 1997 Plan, as amended, up to 785,600
shares of common stock were authorized to be granted to selected officers, other
employees, and non-employee directors of the Corporation and/or its subsidiaries
pursuant to exercise of incentive and nonqualified stock options. Of such
shares, 590,050 were reserved for issuance pursuant to exercise of incentive
stock options and 195,550 were reserved for issuance pursuant to exercise of
nonqualified stock options. The 1997 Plan terminated according to its terms on
March 16, 2007, with 424,439 shares remaining reserved for awards. Because the
1997 Plan has terminated, however, no further awards may be made under that
Plan. However, options outstanding under the 1997 Plan continue to be
exercisable until the earlier of the termination dates set forth in the
individual award agreements or ten years from the date of the grant.
During 2007 the Corporation's Board of Directors adopted and the shareholders
approved the 2007 Equity Plan to replace the terminated 1997 Plan. The 2007 Plan
provides for awards of incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock and other forms of equity based
compensation. Up to 350,000 shares may be issued under provisions of the 2007
Plan. The 2007 Plan terminates in 2017. At December 31, 2007, 308,500 of the
Corporation's authorized common shares remained to be awarded under the 2007
Plan.
C-24
The exercise price of any incentive option granted is equal to the fair value of
the common stock on the date the option is granted. Nonqualified options can be
issued for less than fair value; however, the Corporation has not elected to
issue these options for less than fair value at the date of the grant.
A summary of the status of options issued pursuant to the plans is presented
below:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
Weighted Weighted Weighted
Average Intrinsic Average Intrinsic Average
Number of Exercise Value Number of Exercise Value Number of Exercise
Shares Price (000s) Shares Price (000s) Shares Price
- ------- ----- ------ -------- ----- ------ -------- -----
Outstanding at beginning of year 437,981 $ 14.41 512,073 $ 14.46 482,817 $ 14.14
Granted 51,500 $ 15.07 - $ - 45,500 $ 17.34
Exercised (43,836) $ 9.52 (35,917) $ 10.72 (12,744) $ 11.44
Forfeited or expired (42,984) $ 16.56 (38,175) $ 18.60 (3,500) $ 18.50
------- ------- -------
Outstanding at end of year 402,661 $ 14.80 $ 316 437,981 $ 14.41 $ 888 512,073 $ 14.46
======= ======= =======
Options exercisable at year end 361,161 $ 14.82 $ 316 437,981 $ 14.41 $ 1,069 512,073 $ 14.46
The weighted average fair values of options granted each year are computed using
the Black-Scholes option pricing model using the assumptions detailed below:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
Weighted average fair value of options
granted during the year ................ $ 3.20 $ - $ 2.33
Risk-free interest rate ..................... 4.73% NA 3.80%
Expected life (years) ....................... 6.15 NA 3.00
Expected volatility ......................... 21.70% NA 18.75%
Yield ....................................... 3.00% NA 2.60%
The following table summarizes information about the options outstanding:
C-25
December 31, 2007
-----------------
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Life Exercies Number Exercise
Range of Exercise Prices Outstanding (Years) Price Outstanding Price
------------------------ ----------- ------- ----- ----------- -----
$ 7.62 to $ 11.00 107,350 3.2 $ 11.00 107,350 $ 11.00
$ 12.83 to $ 18.85 295,311 4.6 $ 16.18 253,811 $ 16.43
------- -------
402,661 4.2 $ 14.80 361,161 $ 14.82
======= =======
Until January 1, 2006, the Corporation applied APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation cost was recognized prior to that date. Effective
January 1, 2006, the Corporation adopted the provisions of SFAS No. 123(R) using
the modified prospective method. All previously issued option grants had fully
vested prior to the implementation of SFAS 123(R). Consequently, because
adoption of SFAS No. 123(R) under the modified prospective method required the
recognition of compensation costs related only to the future vesting of stock
option awards and no options were granted in 2006, no compensation costs were
included in the determination of income from operations, net income, or any
earnings per share amounts for 2006. During 2007, the Corporation awarded grants
of 51,500 stock options and recognized expenses of $38,000 which are included in
salaries and employee benefits.
NOTE 13 - INCOME TAXES
The Corporation files consolidated federal income tax returns on a calendar-year
basis.
The provision for income taxes consists of the following:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Current
Federal ................................. $ 1,843 $ 161 $ 3,396
State ................................... 148 231 202
------- ------- -------
Total current .................. 1,991 392 3,598
Deferred
Federal ................................. (472) 2,281 (2,833)
------- ------- -------
Total income tax expense ....... $ 1,519 $ 2,673 $ 765
======= ======= =======
The provision for income taxes differs from that computed by applying federal
statutory rates at 34% to income before income tax expense as indicated in the
following summary:
C-26
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Tax expense at statutory rate .............. $ 1,391 $ 2,611 $ 603
State income tax, net of federal
income tax benefit ..................... 98 153 134
Tax-exempt interest income ................. (81) (78) (87)
Amortization of organization costs and
core deposit intangibles ............... 84 84 84
Other, net ................................. 27 (97) 31
------- ------- -------
Total ......................... $ 1,519 $ 2,673 $ 765
======= ======= =======
Temporary differences, which give rise to deferred tax assets and liabilities,
are as follows:
December 31,
2007 2006
---- ----
(Dollars in thousands)
Deferred tax assets
Allowance for loan losses ...................... $ 1,654 $ 1,273
Unrealized net holding losses on
available-for-sale securities ................ - 130
State net operating loss ....................... 214 162
Other .......................................... 328 210
------- -------
Gross deferred tax assets ............. 2,196 1,775
Valuation allowance ............................ (214) (162)
------- -------
Total ................................. 1,982 1,613
------- -------
Deferred tax liabilities
Accelerated depreciation ....................... 456 348
Accretion ...................................... - 12
Unrealized net holding gains on
available-for-sale securities ................ 169 -
Purchase adjustments - securities .............. - 14
Purchase adjustments - loans ................... - 8
------- -------
Gross deferred tax liabilities ........ 625 382
------- -------
Net deferred income tax assets ..................... $ 1,357 $ 1,231
======= =======
The state of South Carolina has different tax rates and rules governing banks
and regular corporations. The Corporation (holding company only) and the
mortgage company (CRM) are regular corporations and file a consolidated state
tax return separate from a state bank tax return that is filed by CRB.
Accordingly, at December 31, 2007 and December 31, 2006, valuation allowances of
$214,000 and $162,000 were established to offset deferred tax assets, which
management does not consider likely to be realizable, arising from state net
operating loss carryforwards of the Corporation (parent company only) and CRM.
The Corporation had no available carrybacks, and realization of the remainder of
the net operating loss deductions is dependent upon the Corporation (parent
company only) and CRM having aggregate future taxable income. Management expects
that the holding company and CRM have limited prospects to generate future
taxable income. The state net operating loss carryforwards at December 31, 2007
C-27
total $4,433,000 and expire as follows: 2024 - $1,408,000; 2025 - $763,000; 2026
- $1,071,000; 2027 - $1,191, 000.)
Effective January 1, 2007, the Corporation adopted the provisions of Financial
Accounting Standards Board Interpretation N0. 48 ("FIN 48"), Accounting for
Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109." FIN
48 established a recognition threshold and measurement for income tax positions
recognized in the Corporation's financial statements in accordance with SFAS No.
109, "Accounting for Income Taxes." In evaluating a tax position for
recognition, the Corporation judgmentally evaluates whether it is
more-likely-than-not that a tax position will be sustained upon examination,
including resolution of related appeals or litigation processes, based on the
technical merits of the position. If the tax position meets the
more-likely-than-not recognition threshold, the tax position is measured and
recognized in the financial statements as the largest amount of tax benefit that
is greater than 50% likely of being realized upon ultimate resolution. There
were no uncertain tax positions as of December 31, 2007. If such uncertain tax
positions were to arise in the future, the Corporation would recognize interest
and penalties associated with uncertain tax positions as income tax expense in
its financial statements.
The Corporation files income tax returns in the U.S. federal and State of South
Carolina jurisdictions. With few exceptions, the Corporation is no longer
subject to tax examinations by federal tax authorities for years before 2005 and
by state tax authorities for years before 2001. As of December 31, 2007, there
were no unresolved issues outstanding with respect to tax examinations conducted
by either jurisdiction.
The following table shows the amounts of expenses recognized during, and the
amounts of liabilities as of the end of, each year indicated related to
unrecognized tax benefits:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Expenses of unrecognized tax benefits
included in earnings for the year:
Interest expense ..................... $ - $ - $ -
Other expenses ....................... - - -
Liabilities related to unrecognized
tax benefits as of each year end:
Included in accrued interest expense . - - -
Included in other liabilities ........ - - -
As of December 31, 2007, there were no tax positions for which it is reasonably
possible that the total amount of unrecognized tax benefits will significantly
increase or decrease within 12 months.
As of December 31, 2007, there were no unrecognized tax benefits that, if
recognized, would affect the effective tax rate.
C-28
NOTE 14 - EMPLOYEE BENEFIT PLANS
The Corporation provides a defined contribution plan qualified under Internal
Revenue Code Section 401(k). All employees who are eligible employees and who
are age 21 or older may participate in the plan. Eligible employees are defined
as employees not represented by a bargaining unit which has bargained with the
Corporation in good faith on the subject of retirement benefits.
A participant may elect to make tax deferred contributions up to a maximum of
$15,000 (plus $5,000 catch-up contributions if they were at least 50 years old)
in the 2007 plan year. The Corporation makes matching contributions on behalf of
each participant for 100% of the elective deferral up to 3% of the participant's
eligible compensation, which excludes incentive awards and bonuses, plus 50% of
the incremental elective deferral up to 5% of the participant's eligible
compensation, for a maximum matching contribution of 4%. The Corporation may
also make additional contributions determined at the discretion of the Board of
Directors.
The Corporation's contributions for 401(k) related profit sharing for the years
ended December 31, 2007, 2006, and 2005 totaled approximately $299,000,
$291,000, and $174,000, respectively. Since 2001, the senior officers of the
Corporation have not participated in the profit sharing program.
A defined benefit pension plan covers the majority of the employees of the
former Bank of Ridgeway. This plan was in place prior to the Corporation's
acquisition of Ridgeway Bancshares, Inc. in 2002. Because there were no such
plans for the Corporation's other subsidiaries and there were no intentions to
establish any other such plans, the Corporation froze benefit accruals and
discontinued additional participation in and voluntary contributions to the plan
during 2003. The Corporation has filed for permission, and presently intends, to
formally terminate the plan and distribute its assets to its participants in
2008. The estimated amounts to be distributed from the pension plan totaled
$624,000 as of December 31, 2007 and plan assets totaled $609,000.
The following table presents information about pension-related amounts flowing
through or included in accumulated other comprehensive income during, or as of
the end of, each of the years indicated.
C-29
As of or for the Year Ended December 31,
----------------------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Amounts recognized in other comprehensive income during the period
Net (gain) or loss arising during the period .................................................. $ - $ - $ -
Net gain or (loss) reclassified as a component of periodic benefit cost (143) ................. - -
Amounts recognized in other comprehensive income at the
end of the period
Net (gain) or loss ............................................................................ - 143 -
Net prior service cost or (credit) ............................................................ - - -
Net transition asset or obligation ............................................................ - - -
Amounts included in other comprehensive income at period end that are expected
to be recognized as components of net periodic benefit cost in the next
succeeding year
Net (gain) or loss ............................................................................ - 141 NA
Net prior service cost or (credit) ............................................................ - - NA
Net transition asset or obligation ............................................................ - - NA
Amount of any plan assets expected to be returned to the Corporation
during the next 12-month period ............................................................... - - NA
As of December 31, 2007 and 2006, pension plan assets consisted primarily of the
following:
Percentage of Plan Assets
at December 31,
---------------
Asset Category 2007 2006
---- ----
Equities ....................................... 0% 50%
Bonds .......................................... 40% 26%
Cash ........................................... 60% 2%
Stable value instruments ....................... 0% 22%
--- ---
Total ............................... 100% 100%
=== ===
The plan did not hold any direct investment in the Corporation's common stock.
The Corporation expects to contribute $60,000 to the pension plan in 2008.
The Corporation maintains no other post-retirement or post-employment benefit
plans.
NOTE 15 - OFF-BALANCE-SHEET COMMITMENTS
The Bank is party to credit-related financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Such commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated balance sheets.
C-30
The Bank's exposure to credit loss is represented by the contractual notional
amount of these commitments. The Bank generally uses the same credit policies in
making these commitments as it does for on-balance-sheet instruments.
At December 31, 2007 and 2006, the following financial instruments were
outstanding whose contract amounts represent credit risk:
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Loan commitments ................................... $12,372 $21,833
Unfunded commitments under lines of credit ......... 63,740 49,104
Standby letters of credit .......................... 1,953 2,545
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies but may include personal
residences, accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those letters of
credit are primarily issued to support private borrowing arrangements. All
letters of credit are short-term guarantees. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank generally holds collateral supporting those
commitments if deemed necessary. Since many of the standby letters of credit are
expected to expire without being drawn upon, the total letter of credit amounts
do not necessarily represent future cash requirements. To reduce credit risk
related to the use of credit-related financial instruments, the Bank might deem
it necessary to obtain collateral. The amount and nature of the collateral
obtained is based on the Bank's credit evaluation of the customer. Collateral
held varies but may include cash, securities, accounts receivable, inventory,
property, plant and equipment and real estate.
In March 2007, the Bank entered into an agreement to construct a new branch
banking office on Clemson Road in northeast Richland County for a cost of
approximately $800,000. The office became operational in the first quarter of
2008.
NOTE 16 - EARNINGS PER SHARE
Basic earnings per share represent income available to common shareholders
divided by the weighted-average number of shares outstanding during the year.
Diluted earnings per share reflect additional common shares that would have been
outstanding if all dilutive potential stock options were exercised at the
beginning of each year and the proceeds used to purchase shares of the
C-31
Corporation's common stock at the average market price during the year. Dilutive
potential common shares that may be issued by the Corporation relate solely to
outstanding stock options.
Earnings per common share were computed based on the following:
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands, except per share)
Net income per share, basic
Numerator - net income ................................................. $ 2,572 $ 5,009 $ 1,011
========== ========== ==========
Denominator
Weighted average common shares issued and outstanding .................. 4,458,839 4,432,480 4,401,718
========== ========== ==========
Net income per share, basic ............................... $ .58 $ 1.13 $ .23
========== ========== ==========
Net income per share, assuming dilution
Numerator - net income ................................................. $ 2,572 $ 5,009 $ 1,011
========== ========== ==========
Denominator
Weighted average common shares issued and outstanding .................. 4,458,839 4,432,480 4,401,718
Effect of dilutive stock options ....................................... 38,301 72,041 100,017
---------- ---------- ----------
Total shares .............................................. 4,497,140 4,504,521 4,501,735
========== ========== ==========
Net income per share, assuming dilution ................... $ .57 $ 1.11 $ .22
========== ========== ==========
NOTE 17 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for the Corporation's various
financial instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the
fair value estimates may not be realized in an immediate settlement of the
instrument. SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," as amended, excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the
underlying fair value of the Corporation.
The following methods and assumptions were used by the Corporation in estimating
fair values of financial instruments as disclosed herein:
Cash and cash equivalents. The carrying amounts of cash and cash
equivalents approximate fair values.
Interest-bearing deposits with other banks. The carrying amounts of
interest-bearing deposits with banks approximate their fair values.
Securities available-for-sale and held-to-maturity. Fair values for
securities are based on quoted market prices. The market values of state
and local government securities are established with the assistance of an
C-32
independent pricing service. The values are based on data which often
reflect transactions of relatively small size and are not necessarily
indicative of the value of the securities when traded in large volumes.
Other investments. Fair values of other investments, consisting of
restricted securities, approximate the carrying amounts and are based on
the redemption provisions of the issuers.
Loans held for sale. The carrying amounts approximate their fair values.
Loans. Fair values for performing loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for
non-performing loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
Accrued interest. The carrying amounts of accrued interest receivable and
payable approximate fair value.
Deposits. The fair values disclosed for demand deposits are equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for certificates of deposit and other time deposits
are estimated using a discounted cash flow calculation that applies
interest rates currently offered on certificates to a schedule of
aggregated expected monthly maturities of time deposits.
Short-term borrowings. The carrying amounts of federal funds purchased and
borrowings under repurchase agreements approximate their fair values
because of the associated variable interest rates.
Long-term debt. The fair value of fixed-rate long-term debt is estimated
using discounted cash flow analyses based on the Corporation's current
incremental borrowing rates for similar types of borrowing arrangements.
The fair value of variable-rate long-term debt is estimated at the carrying
amount of the debt.
Off-balance-sheet commitments. Fair values for off-balance-sheet
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings. The vast majority of loan commitments
do not involve the charging of a fee, and costs associated with outstanding
letters of credit are not material. For loan commitments and standby
letters of credit, the committed interest rates are either variable or
approximate current interest rates offered for similar commitments.
Therefore, the estimated fair values of these off-balance-sheet commitments
are nominal.
C-33
The estimated fair values and related carrying or notional amounts of the
Corporation's financial instruments at December 31, 2007 and 2006, are as
follows:
December 31,
------------
2007 2006
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
of Assets of Assets of Assets of Assets
(Liabilities) (Liabilities) (Liabilities) (Liabilities)
------------- ------------- ------------- -------------
(Dollars in thousands)
Cash and cash equivalents .................................. $ 25,686 $ 25,686 $ 46,724 $ 46,724
Interest bearing deposits with other banks ................. 911 911 1,926 1,926
Securities available-for-sale .............................. 57,868 57,868 84,783 84,783
Securities held-to-maturity ................................ 1,650 1,650 1,750 1,750
Other investments .......................................... 3,209 3,209 3,246 3,246
Loans held for sale ........................................ 3,509 3,509 9,235 9,235
Loans, net ................................................. 458,696 448,770 405,058 404,383
Accrued interest receivable ................................ 3,547 3,547 3,821 3,821
Deposits ................................................... (481,707) (483,224) (483,621) (484,172)
Short-term borrowings ...................................... (9,893) (9,893) (12,948) (12,948)
Long-term debt ............................................. (29,679) (29,092) (26,188) (27,236)
Accrued interest payable ................................... (1,501) (1,501) (1,578) (1,578)
Off-balance-sheet commitments
Loan commitments ........................................... $ (12,372) $ - $ (21,833) $ -
Unfunded commitments under lines of credit ................. (63,740) - (49,104) -
Standby letters of credit .................................. (1,953) - (2,545) -
On January 1, 2008, the Corporation will adopt the provisions of SFAS No. 157
and certain aspects of the Corporation's fair value estimation process will
change. See the discussion of Accounting Changes included in Note 2.
NOTE 18 - CONTINGENCIES
The Corporation is subject at times to claims and lawsuits arising out of the
normal course of business. As of December 31, 2007, no claims or lawsuits were
pending or threatened which, in the opinion of management, are likely to have a
material effect on the Corporation's consolidated financial statements.
NOTE 19 - REGULATORY MATTERS
The Bank is subject to dividend restrictions set forth by various banking
regulators. Under such restrictions, the Bank may not, without prior approval,
declare dividends in excess of the sum of the current year's earnings (as
defined) plus the retained earnings (as defined) from the prior two years. In
addition, dividends paid by the Bank to the Corporation would be prohibited if
the effect thereof would cause the Bank's capital to be reduced below applicable
minimum capital requirements. At December 31, 2007, the dividends that the Bank
could declare without the approval of its primary bank regulator amounted to
approximately $3,955,000. The Bank is also restricted by law as to the amount it
C-34
may lend to any non-depository affiliate, including the Corporation and CRM.
Such loans are subject to the requirements of Section 23A of the Federal Reserve
Act including a general limitation to not more than 10% of capital and specified
ratios of the fair market value of allowable collateral to loan amounts. There
were no such loans outstanding during 2007.
The Corporation (on a consolidated basis) and the Bank are each subject to
various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material adverse effect on the Corporation's and
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation and the Bank
must meet specific capital guidelines that involve quantitative measures of
their assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Prompt corrective action provisions are not
applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined). Management believes, as of December 31, 2007 and
2006, that the Corporation and the Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 2007, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since the notifications
that management believes have changed the Bank's category. The Corporation's and
the Bank's actual capital amounts and ratios are presented in the following
table.
C-35
Minimum for Minimum to be
Actual Capital Adequacy Well Capitalized
------ ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2007 (Dollars in thousands)
Tier 1 Capital (to Average Assets)
Consolidated ....................................... $56,652 9.7% $23,352 4.0% NA NA
Community Resource Bank ............................ 50,053 8.6% 23,209 4.0% $29,011 5.0%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated ....................................... $56,652 12.5% $18,105 4.0% NA NA
Community Resource Bank ............................ 50,053 11.1% 17,982 4.0% $26,974 6.0%
Total Capital (to Risk Weighted Assets)
Consolidated ....................................... $62,018 13.7% $36,210 8.0% NA NA
Community Resource Bank ............................ 55,419 12.3% 35,965 8.0% $44,956 10.0%
December 31, 2006
Tier 1 Capital (to Average Assets)
Consolidated ....................................... $57,005 10.1% $22,624 4.0% NA NA
Community Resource Bank ............................ 49,238 8.8% 22,419 4.0% $28,024 5.0%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated ....................................... $57,005 13.6% $16,752 4.0% NA NA
Community Resource Bank ............................ 49,238 11.8% 16,631 4.0% $24,946 6.0%
Total Capital (to Risk Weighted Assets)
Consolidated ....................................... $61,667 14.7% $33,505 8.0% NA NA
Community Resource Bank ............................ 53,885 13.0% 33,262 8.0% $41,577 10.0%
C-36
NOTE 20 - CONDENSED FINANCIAL STATEMENTS
Presented below are the condensed financial statements for Community Bankshares,
Inc. (Parent Company only):
COMMUNITY BANKSHARES, INC. (PARENT COMPANY ONLY)
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Condensed Balance Sheets
Assets
Cash ........................................... $ 3,158 $ 4,541
Investment in banking subsidiary ............... 56,126 54,868
Investment in nonbanking subsidiaries .......... 1,462 1,806
Securities available-for-sale, at fair value ... 96 96
Premises and equipment - net ................... 1,620 1,633
Goodwill ....................................... 921 921
Other assets ................................... 825 96
------- -------
Total assets ................................ $64,208 $63,961
======= =======
Liabilities
Long-term debt ................................. $10,310 $10,310
Other liabilities .............................. 253 1,027
Shareholders' equity .............................. 53,645 52,624
------- -------
Total liabilities and shareholders' equity .. $64,208 $63,961
======= =======
C-37
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Condensed Statements of Income
Income
Management fees from subsidiaries .......................................... $ - $ 249 $ 3,086
Dividends received from banking subsidiaries ............................... 3,000 2,480 4,266
Interest income ............................................................ 156 241 428
Other income ............................................................... 156 4 4
------- ------- -------
Total income ............................................................ 3,312 2,974 7,784
------- ------- -------
Expenses
Salaries and employee benefits ............................................. - - 1,868
Premises and equipment ..................................................... 49 48 683
Supplies ................................................................... - - 80
Directors' fees ............................................................ - - 62
Interest expense ........................................................... 899 890 675
Other expenses ............................................................. 296 203 1,447
------- ------- -------
Total expenses .......................................................... 1,244 1,141 4,815
------- ------- -------
Income before income taxes and equity in
undistributed earnings of subsidiaries ..................................... 2,068 1,833 2,969
Income tax (benefit) .......................................................... (317) (246) (441)
Equity in undistributed earnings (loss) of banking subsidiaries ............... 531 2,920 (2,507)
Equity in undistributed (loss) earnings of nonbanking subsidiary .............. (344) 10 108
------- ------- -------
Net income .................................................................... $ 2,572 $ 5,009 $ 1,011
======= ======= =======
C-38
Years Ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Condensed Statements of Cash Flows
Operating activities
Net income ................................................................. $ 2,572 $ 5,009 $ 1,011
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed (earnings) loss
of subsidiaries ................................................ (187) (2,930) 2,399
Depreciation and amortization .................................... 49 48 354
(Increase) decrease in other assets .............................. (729) 2,071 (2,071)
(Decrease) increase in other liabilities ......................... (774) 262 9
------- ------- -------
Net cash provided by
operating activities ........................................ 931 4,460 1,702
------- ------- -------
Investing activities
Net decrease (increase) in loans to nonbanking subsidiaries ................ - 3,813 1,070
Investments in banking subsidiaries ........................................ - (719) (3,000)
Investment in nonbanking subsidiary ........................................ - - (218)
Purchases of premises and equipment ........................................ (36) (826) (2,580)
------- ------- -------
Net cash provided (used) by investing activities ............... (36) 2,268 (4,728)
------- ------- -------
Financing activities
(Decrease) increase in short-term borrowings, net .......................... - (2,000) 2,000
Sale of common stock ....................................................... 93 16 14
Exercise of stock options .................................................. 428 385 146
Common stock repurchases and cancelled ..................................... (657) - -
Cash dividends paid ........................................................ (2,142) (1,952) (1,761)
------- ------- -------
Net cash provided (used) by financing activities ............... (2,278) (3,551) 399
------- ------- -------
(Decrease) increase in cash and cash equivalents .............................. (1,383) 3,177 (2,627)
Cash and cash equivalents, beginning .......................................... 4,541 1,364 3,991
------- ------- -------
Cash and cash equivalents, ending ............................................. $ 3,158 $ 4,541 $ 1,364
======= ======= =======
C-39
NOTE 21 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Years Ended December 31,
------------------------
2007 2006
---- ----
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share)
Interest and dividend income .............. $ 10,059 $ 10,124 $ 9,751 $ 9,433 $ 9,722 $ 9,616 $ 9,103 $ 8,613
Interest expense .......................... 4,519 4,672 4,434 4,191 4,307 4,072 3,736 3,386
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income ....................... 5,540 5,452 5,317 5,242 5,415 5,544 5,367 5,227
Provision for loan losses ................. 2,230 375 175 375 995 665 675 615
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after provision ....... 3,310 5,077 5,142 4,867 4,420 4,879 4,692 4,612
Noninterest income ........................ 463 1,739 2,055 1,823 2,354 1,958 2,060 1,933
Gains (losses) on sales of securities ..... - - 712 2 - - - 1
Noninterest expenses ...................... 4,973 5,411 5,601 5,114 5,062 4,906 4,632 4,627
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes ......... (1,200) 1,405 2,308 1,578 1,712 1,931 2,120 1,919
Provision for income taxes ................ (425) 533 838 573 478 730 747 718
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) ......................... $ (775) $ 872 $ 1,470 $ 1,005 $ 1,234 $ 1,201 $ 1,373 $ 1,201
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share
Basic ..................................... $ (0.17) $ 0.20 $ 0.33 $ 0.23 $ 0.28 $ 0.27 $ 0.31 $ 0.27
Diluted ................................... (0.17) 0.19 0.32 0.22 0.27 0.27 0.30 0.27
C-40
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2008 2007
---- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................. $ 23,860 $ 18,701
Federal funds sold ...................................................................... 7,631 6,985
--------- ---------
Total cash and cash equivalents .................................................. 31,491 25,686
Interest-bearing deposits with other banks .............................................. 364 911
Securities available-for-sale ........................................................... 78,463 57,868
Securities held-to-maturity (estimated fair value $1,650 for 2008
and $1,650 for 2007) ............................................................... 1,650 1,650
Other investments ....................................................................... 3,768 3,209
Loans held for sale ..................................................................... 5,392 3,509
Loans receivable ........................................................................ 446,268 464,039
Less, allowance for loan losses ..................................................... (5,939) (5,343)
--------- ---------
Net loans ........................................................................ 440,329 458,696
Premises and equipment - net ............................................................ 10,904 10,820
Accrued interest receivable ............................................................. 3,212 3,547
Net deferred income tax assets .......................................................... 2,079 1,357
Goodwill ................................................................................ 4,321 4,321
Core deposit intangible assets .......................................................... 2,222 2,345
Prepaid expenses and other assets ....................................................... 2,690 2,648
--------- ---------
Total assets ..................................................................... $ 586,885 $ 576,567
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................. $ 59,342 $ 57,738
Interest-bearing .................................................................... 422,998 423,969
--------- ---------
Total deposits ................................................................... 482,340 481,707
Short-term borrowings ................................................................... 6,333 9,893
Long-term debt .......................................................................... 42,174 29,679
Accrued interest payable ................................................................ 1,193 1,501
Accrued expenses and other liabilities .................................................. 1,747 142
--------- ---------
Total liabilities
533,787 522,922
--------- ---------
Shareholders' equity
Common stock - no par value; 12,000,000 shares authorized; issued and
outstanding - 4,450,556 for 2008 and 4,446,456 for 2007 ............................. 30,399 30,505
Retained earnings ....................................................................... 23,773 22,812
Accumulated other comprehensive income .................................................. (1,074) 328
--------- ---------
Total shareholders' equity ....................................................... 53,098 53,645
--------- ---------
Total liabilities and shareholders' equity ....................................... $ 586,885 $ 576,567
========= =========
See accompanying notes to unaudited consolidated financial statements.
C-41
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Income
(Unaudited)
Period Ended June 30,
Three Months Six Months
------------ ----------
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in thousands, except per share)
Interest and dividend income
Loans, including fees ..................................... $ 7,728 $ 8,628 $16,169 $16,785
Interest bearing deposits with other banks ................ 1 13 12 46
Debt securities ........................................... 929 984 1,675 2,000
Dividends ................................................. 63 46 122 93
Federal funds sold ........................................ 89 80 270 260
------- ------- ------- -------
Total interest and dividend income ................. 8,810 9,751 18,248 19,184
------- ------- ------- -------
Interest expense
Deposits
Time deposits $100M and over .......................... 1,055 1,080 2,298 2,073
Other deposits ........................................ 1,823 2,692 4,056 5,337
------- ------- ------- -------
Total interest expense on deposits ................. 2,878 3,772 6,354 7,410
Short-term borrowings ..................................... 29 187 88 303
Long-term debt ............................................ 461 475 952 912
------- ------- ------- -------
Total interest expense ............................. 3,368 4,434 7,394 8,625
------- ------- ------- -------
Net interest income ............................................ 5,442 5,317 10,854 10,559
Provision for loan losses ...................................... 540 175 1,010 550
------- ------- ------- -------
Net interest income after provision ............................ 4,902 5,142 9,844 10,009
------- ------- ------- -------
Noninterest income
Service charges on deposit accounts ....................... 892 939 1,819 1,830
Mortgage loan brokerage income ............................ 473 744 995 1,399
Net securities gains ...................................... - - 34 2
Gains on sales of other investments ....................... - 712 - 712
Other ..................................................... 332 372 616 649
------- ------- ------- -------
Total noninterest income ........................... 1,697 2,767 3,464 4,592
------- ------- ------- -------
Noninterest expenses
Salaries and employee benefits ............................ 2,918 3,084 5,765 6,018
Premises and equipment .................................... 578 619 1,201 1,181
Advertising ............................................... 188 138 349 281
Supplies .................................................. 97 110 194 235
Other ..................................................... 1,320 1,650 2,578 3,000
------- ------- ------- -------
Total noninterest expenses ......................... 5,101 5,601 10,087 10,715
------- ------- ------- -------
Income before income taxes ..................................... 1,498 2,308 3,221 3,886
Income tax expense ............................................. 571 838 1,193 1,411
------- ------- ------- -------
Net income ..................................................... $ 927 $ 1,470 $ 2,028 $ 2,475
======= ======= ======= =======
Per share
Net income ................................................ $ 0.21 $ 0.33 $ 0.46 $ 0.56
Net income - diluted ...................................... 0.20 0.32 0.45 0.55
Cash dividends declared ................................... 0.12 0.12 0.24 0.24
See accompanying notes to unaudited consolidated financial statements.
C-42
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common Stock
------------ Accumulated
Number of Retained Other Comprehensive
Shares Amount Earnings Income (Loss) Total
------ ------ -------- ------------- -----
(Dollars in thousands, except per share)
Balance, January 1, 2007 ................................ 4,441,220 $ 30,603 $ 22,382 $ (361) $ 52,624
----------
Comprehensive income
Net income .......................................... - - 2,475 - 2,475
----------
Unrealized holding gains and (losses)
on available-for-sale securities arising
during the period, net of income taxes of $174 ... - - - (351) (351)
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $1 .... - - - (1) (1)
----------
Total other comprehensive income (loss) ... ..... - - - - (352)
----------
Total comprehensive income .................... - - - - 2,123
----------
Share-based compensation ................................ - 27 - - 27
Proceeds of sale of common stock ........................ 500 8 - - 8
Exercise of employee stock options ...................... 41,836 406 - - 406
Cash dividends declared, $.24 per share ................. - - (1,075) - (1,075)
---------- ---------- ---------- ---------- ----------
Balance, June 30, 2007 .................................. 4,483,556 $ 31,044 $ 23,782 $ (713) $ 54,113
========== ========== ========== ========== ==========
Balance, January 1, 2008 ................................ 4,446,456 $ 30,505 $ 22,812 $ 328 $ 53,645
----------
Comprehensive income
Net income .......................................... - - 2,028 - 2,028
----------
Unrealized holding gains and (losses)
on available-for-sale securities arising
during the period, net of income taxes of $711 ... - - - (1,380) (1,380)
Reclassification adjustment for losses (gains)
realized in income, net of income taxes of $12 ... - - - (22) (22)
----------
Total other comprehensive income (loss) ......... - - - - (1,402)
----------
Total comprehensive income .................... - - - - 626
----------
Share-based compensation ................................ - 18 - - 18
Proceeds of sale of common stock ........................ 10,600 119 - - 119
Exercise of employee stock options ...................... 1,000 11 - - 11
Common stock repurchased and cancelled .................. (20,700) (254) - - (254)
Restricted stock grants to employees .................... 13,200 - - - -
Cash dividends declared, $.24 per share ................. - - (1,067) - (1,067)
---------- ---------- ---------- ---------- ----------
Balance, June 30, 2008 .................................. 4,450,556 $ 30,399 $ 23,773 $ (1,074) $ 53,098
========== ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
C-43
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2008 2007
----- ----
(Dollars in thousands)
Operating activities
Net income ............................................................................ $ 2,028 $ 2,475
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ...................................................... 1,010 550
Depreciation and amortization .................................................. 571 537
Net accretion of securities .................................................... (86) (15)
Net securities gains ........................................................... (34) (2)
Gains on sales of other investments ............................................ - (712)
Proceeds of sales of loans held for sale ....................................... 48,533 77,439
Originations of loans held for sale ............................................ (49,421) (75,926)
Gains on sales of loans held for sale .......................................... (995) (1,399)
Decrease in accrued interest receivable ........................................ 335 284
(Increase) decrease in other assets ............................................ (94) 868
Gains on sales of foreclosed assets ............................................ (101) (48)
Decrease in accrued interest payable ........................................... (308) (53)
Increase (decrease) in other liabilities ....................................... 1,458 (647)
Provision for off balance sheet credit exposure ................................ 160 144
Share-based compensation ....................................................... 18 27
-------- --------
Net cash provided by operating activities .................................. 3,074 3,522
-------- --------
Investing activities
Net decrease in interest-bearing deposits with other banks ............................ 547 1,477
Purchases of available-for-sale securities ............................................ (60,371) (1,966)
Maturities, calls and paydowns of available-for-sale securities ....................... 37,772 7,546
Proceeds of sales of other investments ................................................ 116 1,182
Purchases of other investments ........................................................ (675) (338)
Net decrease (increase) in loans made to customers .................................... 17,280 (38,831)
Purchases of premises and equipment ................................................... (532) (530)
Proceeds from sales and other disposals of premises and equipment ..................... - 44
Proceeds from sales of foreclosed assets .............................................. 217 578
-------- --------
Net cash used by investing activities ...................................... (5,646) (30,838)
-------- --------
Financing activities
Net increase (decrease) in deposits ................................................... 633 (3,376)
Net (decrease) increase in short-term borrowings ...................................... (3,560) 6,000
Proceeds from issuing long-term debt .................................................. 15,000 7,500
Repayment of long-term debt ........................................................... (2,505) (4,005)
Exercise of employee stock options .................................................... 11 406
Sale of common stock .................................................................. 119 8
Common stock repurchased and cancelled ................................................ (254) -
Cash dividends paid ................................................................... (1,067) (1,075)
-------- --------
Net cash provided by financing activities .................................. 8,377 5,458
-------- --------
Increase (decrease) in cash and cash equivalents ........................................... 5,805 (21,858)
Cash and cash equivalents, beginning of period ............................................. 25,686 46,724
-------- --------
Cash and cash equivalents, end of period ................................................... $ 31,491 $ 24,866
======== ========
See accompanying notes to unaudited consolidated financial statements.
C-44
COMMUNITY BANKSHARES, INC.
Consolidated Statements of Cash Flows (continued)
(Unaudited)
Six Months Ended
June 30,
2008 2007
----- ----
(Dollars in thousands)
Supplemental disclosures of cash flow information
Cash payments for interest .......................................................... $7,702 $8,678
====== ======
Cash payments for income taxes ...................................................... $ 897 $1,625
====== ======
Supplemental disclosures of non-cash investing activities
Transfers of loans receivable to foreclosed assets .................................. $ 77 $1,127
====== ======
See accompanying notes to unaudited consolidated financial statements.
COMMUNITY BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements
Accounting Principles - A summary of significant accounting policies and the
audited financial statements for 2007 are included in Community Bankshares,
Inc.'s (the "Company" or "CBI") Annual Report on Form 10-K for the year ended
December 31, 2007 filed with the Securities and Exchange Commission. Certain
amounts in the 2007 financial statements have been reclassified to conform to
the current presentation.
Management Opinion - The interim financial statements in this report are
unaudited. In the opinion of management, all the adjustments necessary to
present a fair statement of the results for the interim period have been made.
Such adjustments are of a normal and recurring nature. The results of operations
for any interim period are not necessarily indicative of the results to be
expected for an entire year. These interim financial statements should be read
in conjunction with the annual financial statements and notes thereto contained
in the 2007 Annual Report on Form 10-K.
Nonperforming Loans - As of June 30, 2008, there were $8,976,000 in nonaccrual
loans and $7,000 in loans 90 or more days past due and still accruing interest.
Earnings Per Share - Basic earnings per share is computed by dividing net income
applicable to common shares by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing applicable net
income by the weighted average number of shares outstanding and any dilutive
potential common shares and dilutive stock options. It is assumed that all
dilutive stock options are exercised at the beginning of each period and that
the proceeds are used to purchase shares of the Company's common stock at the
average market price during the period. Net income per share basic and net
income per share, assuming dilution, were computed as follows:
C-45
(Unaudited)
Period Ended June 30,
---------------------
Three Months Six Months
------------ ----------
2008 2007 2008 2007
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income per share, basic
Numerator - net income ............................... $ 927 $ 1,470 $ 2,028 $ 2,475
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding .......................... 4,453,360 4,476,229 4,451,408 4,462,464
========== ========== ========== ==========
Net income per share, basic ..................... $ .21 $ .33 $ .46 $ .56
========== ========== ========== ==========
Net income per share, assuming dilution
Numerator - net income ............................... $ 927 $ 1,470 $ 2,028 $ 2,475
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding .......................... 4,453,360 4,476,229 4,451,408 4,462,464
Effect of dilutive stock options .................. 96,660 49,123 80,049 52,981
---------- ---------- ---------- ----------
Total shares ............................ 4,550,020 4,525,352 4,531,457 4,515,445
========== ========== ========== ==========
Net income per share, assuming dilution ......... $ .20 $ .32 $ .45 $ .55
========== ========== ========== ==========
Stock Based Compensation - Effective January 1, 2006, the Company began
accounting for compensation expenses related to stock options granted to
employees and directors under the recognition and measurement principles of
Statement of Accounting Standards No. 123(R) "Share-Based Payment" ("SFAS
123(R)") using the modified prospective application method. The Company had
previously elected to continue using the methodology of Accounting Principles
Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees,"
to account for compensation expenses related to stock-based compensation until
the mandatory effective date for SFAS 123(R).
On March 31, 2008, the Company awarded 13,200 shares of restricted
stock and 45,650 stock appreciation rights ("SARS") to certain employees under
the 2007 Equity Plan. The restricted shares will vest in five years. The SARs
will vest 20% per year over the next five years. Recognition of compensation
expense for these awards began in the second quarter of 2008. Accordingly,
$18,000 of such expenses are included in salaries and employee benefits in the
statements of income. The Company's 2007 Equity Compensation Plan provides that
in the event of a change in control, such as the pending merger plan with First
Citizens discussed below, outstanding and unvested options, SARs, or other types
of equity compensation become immediately vested.
Variable Interest Entity - On March 8, 2004, CBI sponsored the creation of a
Variable Interest Entity ("VIE"), SCB Capital Trust I (the "Trust"), and is the
sole owner of the common securities issued by the Trust. On March 10, 2004, the
Trust issued $10,000,000 in floating rate capital securities. The proceeds of
this issuance, and the amount of CBI's capital investment, were used to acquire
$10,310,000 principal amount of CBI's floating rate junior subordinated
deferrable interest debt securities ("Debentures") due April 7, 2034, which
securities, and the accrued interest thereon, now constitute the Trust's sole
assets. The interest rate associated with the debt securities, and the
distribution rate on the common securities of the Trust, was established
initially at 3.91% and is adjustable quarterly at 3 month LIBOR plus 280 basis
points. The index rate (LIBOR) may not be lower than 1.11%. CBI may defer
C-46
interest payments on the Debentures for up to twenty consecutive quarters, but
not beyond the stated maturity date of the Debentures. In the event that such
interest payments are deferred by CBI, the Trust may defer distributions on the
common securities. In such an event, CBI would be restricted in its ability to
pay dividends on its common stock and to perform under other obligations that
are not senior to the junior subordinated Debentures.
The Debentures are redeemable at par at the option of CBI, in whole or
in part, on any interest payment date on or after April 7, 2009. Prior to that
date, the Debentures are redeemable at 105% of par upon the occurrence of
certain events that would have a negative effect on the Trust or that would
cause it to be required to be registered as an investment company under the
Investment Company Act of 1940 or that would cause trust preferred securities
not to be eligible to be treated as Tier 1 capital by the Federal Reserve Board.
Upon repayment or redemption of the Debentures, the Trust will use the proceeds
of the transaction to redeem an equivalent amount of trust preferred securities
and trust common securities. The Trust's obligations under the trust preferred
securities are unconditionally guaranteed by CBI. In accordance with Financial
Accounting Standards Board Interpretation 46(R), the Trust is not consolidated
in the Company's financial statements.
The Company's investment in the Trust is carried at cost in other
assets and the debentures are included in long-term debt in the consolidated
balance sheet.
Fair Value Measurements
The Company implemented Statement of Financial Accounting Standards No.
157, "Fair Value Measurements," ("SFAS No. 157") as required on January 1, 2008.
SFAS No. 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly fashion between market
participants at the measurement date, and establishes a framework for measuring
fair value. It also establishes a three-level hierarchy for fair value
measurements based upon the transparency of inputs to the valuation of an asset
or liability as of the measurement date, eliminates the consideration of large
position discounts for financial instruments quoted in active markets, requires
consideration of the Company's creditworthiness when valuing its liabilities,
and expands disclosures about instruments measured at fair value. The following
is a summary of the measurement attributes applicable to financial assets and
liabilities that are measured at fair value on a recurring basis:
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description June 30, 2008 (Level 1) (Level 2) (Level 3)
----------- ------------- --------- --------- ---------
Assets (Dollars in thousands)
Securities available-for-sale ....... $ - $78,463 $ -
Derivatives ......................... - 7 -
Liabilities
Derivatives ......................... - 7 -
Pricing for the Company's securities available-for-sale is obtained
from an independent third-party that uses a process that may incorporate current
market prices, benchmark yields, broker/dealer quotes, issuer spreads, two-sided
C-47
markets, benchmark securities, bids, offers, other reference data and industry
and economic events that a market participant would be expected to use in
valuing the securities. Not all of the inputs listed apply to each individual
security at each measurement date. The independent third party assigns specific
securities into an "asset class" for the purpose of assigning the applicable
level of the fair value hierarchy used to value the securities. The techniques
used after adoption of SFAS No. 157 are consistent with the methods used
previously.
No cumulative effect adjustments were required upon initial application
of SFAS No. 157. Available-for-sale securities continue to be measured at fair
value with unrealized gains or losses recorded in other comprehensive income.
The following is a summary of the measurement attributes applicable to
assets and liabilities that are measured at fair value on a non-recurring basis:
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description June 30, 2008 (Level 1) (Level 2) (Level 3)
----------- ------------- --------- --------- ---------
(Dollars in thousands)
Collateral dependent impaired loans $ - $ - $ 8,976
Foreclosed Assets - 813 -
Goodwill - - 4,321
Core deposit intangibles - - 2,222
Collateral dependent impaired loans consist of nonaccrual loans for
which the underlying collateral provides the sole repayment source. The Company
measures the amount of the impairment for such loans by determining the
difference between the fair value of the underlying collateral and the recorded
amount of the loan. The fair value of the underlying collateral generally is
based on appraisals performed in accordance with applicable appraisal standards
by independent appraisers engaged by the Company. In many cases, management
updates values reflected in older appraisals obtained at the time of loan
origination and already in the Company's possession using its own knowledge,
judgments and assumptions about current market and other conditions in lieu of
obtaining a new independent appraisal. If the fair value of the collateral is
less than the recorded amount of the loan, a valuation allowance is established
for the difference; otherwise, no valuation allowance is established. The
valuation allowance for impaired loans is a component of the allowance for loan
losses. Periodically, management reevaluates the fair value of the collateral
and makes adjustments to the valuation allowance as appropriate. However, if the
fair value of the collateral subsequently recovers in value such that it exceeds
the recorded loan amount, no adjustment is made in the loan's value for the
excess. The amount of the valuation allowance for the Company's collateral
dependent impaired loans was $1,168,000 as of June 30, 2008.
Foreclosed assets consist of assets acquired through, or in lieu of,
loan foreclosure, and are held for sale and initially were recorded at fair
value, less estimated costs to sell at the date of acquisition, thus
establishing a new cost basis. Loan losses arising from the acquisitions of such
property are charged against the allowance for loan losses at the date the
property is acquired. Subsequent to acquisition, valuations are performed
periodically and the assets are carried at the lower of the new cost basis or
C-48
fair value. Revenues and expenses from operations and changes in any subsequent
valuation allowance are included in net foreclosed assets costs and expenses.
Goodwill was initially recorded as the difference between the purchase
price and the fair values of tangible assets, separately identifiable intangible
assets, and liabilities acquired in prior business combination transactions.
Goodwill is tested for impairment no less than annually. The Company previously
has not recognized any impairment of goodwill.
Core deposit intangibles represent the excess of the purchase price of
core deposits over their fair values at the date of their acquisition in a
purchase transaction. The core deposit intangible is amortized as a component of
other expense over the estimated lives of the deposits acquired. During the
first two quarters of 2008, $123,000 of such amortization was included in net
income.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 159 "The Fair Value Option for Financial Assets and
Financial Liabilities," ("SFAS No. 159" or the "Statement") which was effective
for the Company as of January 1, 2008. Under the provisions of SFAS No. 159,
entities may choose, but are not required, to measure many financial instruments
and certain other items at their fair values, with changes in the fair values of
those instruments reported in earnings. The Company has not elected to measure
at fair value any financial instruments under the provisions of SFAS No. 159.
The adoption of the Statement had no effect on the Company's financial
statements.
Proposed Merger Transaction
On June 25, 2008, the Company, Community Resource Bank, N. A., (CRB)
and First Citizens Bank and Trust Company, Inc., (FCB) a wholly-owned subsidiary
of First Citizens Bancorporation, Inc. executed a definitive agreement to merge,
subject to approvals by regulatory agencies and the Company's shareholders. The
transaction, which is expected to close in the fourth quarter of 2008, requires
FCB to pay the Company's shareholders $21.00 in cash for each outstanding share
of the Company's common stock. FCB will be the surviving corporation of the
merger, and the Company and CRB will cease to exist.
New Accounting Pronouncements
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 "Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 is
effective for years beginning after December 31, 2008 and is to be applied
prospectively with retrospective presentation and disclosure requirements for
comparative financial statements. Early adoption is prohibited. SFAS No. 160
seeks to improve the relevance, comparability and transparency of financial
information that a reporting entity provides in its consolidated financial
statements by separately identifying and reporting several financial statement
components into amounts that are attributable to the reporting entity or that
are attributable to noncontrolling interests. SFAS No. 160 also specifies the
conditions under which an entity is required to deconsolidate its interest in a
subsidiary. The Company currently has no consolidated subsidiaries that are not
wholly owned nor are any transactions contemplated that would result in such a
condition. Therefore, it is expected that the adoption of SFAS No. 160 in
January 2009 will have no effect on the Company's consolidated financial
statements.
C-49
APPENDIX D
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF COMMUNITY RESOURCE BANK, N.A.
(Pursuant to S.C. Code Section 33-11-103)
Section 33-11-103 of the Code of Laws of South Carolina, 1976, as amended,
requires that the notice of the meeting of shareholders at which a plan of
merger will be voted upon be accompanied by balance sheets for each corporation
participating in the merger as of the close of the preceding two fiscal years as
well as income statements for each participating corporation for each of the
preceding three fiscal years. The attached unaudited condensed consolidated
balance sheets and income statements for Community Resource Bank, N.A., are
presented to satisfy the requirements of Section 33-11-103. For the reasons
discussed below, they do not contain all of the disclosure required for audited
financial statements under United States Generally Accepted Accounting
Principles ("GAAP") or Regulation S-X promulgated by the Securities and Exchange
Commission.
Because Community Resource Bank is a subsidiary of a holding company,
Community Resource Bank's financial statements are not audited separately from
those of the holding company, and Community Resource Bank does not prepare or
publish separate audited financial statements. However, Community Resource Bank
submits "Call Reports" to the Office of the Comptroller of the Currency (called
"Consolidated Reports of Condition and Income for a Bank with Domestic Offices
Only") containing separate consolidated financial information for Community
Resource Bank and its subsidiary that is prepared in accordance with regulatory
instructions issued by the Federal Financial Institutions Examination Council
("FFIEC"). Because of the special supervisory, regulatory and economic policy
needs served by the Call Reports, the regulatory instructions and accounting
procedures used in preparing Call Reports may differ from GAAP. In 2006 Florence
National Bank, Sumter National Bank and The Bank of Ridgeway, all wholly owned
subsidiaries of Community Resource Bank's holding company, merged with and into
Community Resource Bank. Because all of the banks in the merger had a common
holding company parent, the merger was accounted for as a pooling of interests.
Accordingly, the unaudited consolidated statements of income for Community
Resource Bank for the year ended December 31, 2006, reflect the pooled results
of operations for all four banks with any intra-bank transactions removed. The
unaudited consolidated statements of income for Community Resource Bank for the
year ended December 31, 2005 reflect the results of operations for Community
Resource Bank only.
The information in the attached condensed balance sheets and income
statements is taken from, and is qualified in its entirety by reference to and
should be read in conjunction with, Community Resource Bank's unaudited
financial information contained in its Call Reports for each of the indicated
periods. The Call Reports are available on the FFIEC website at
https://cdr.ffiec.gov/public. Community Resource Bank's historical financial
condition and results of operations are not necessarily indicative of its future
financial condition and results.
D-1
COMMUNITY RESOURCE BANK, N. A.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31,
------------
2007 2006
---- ----
(Dollars in thousands)
Assets
Cash and due from banks ...................................................... $ 19,360 $ 17,777
Federal funds sold ........................................................... 6,985 29,102
--------- ---------
Total cash and cash equivalents ....................................... 26,345 46,879
Interest-bearing deposits with other banks ................................... 911 1,790
Securities available-for-sale ................................................ 57,868 84,783
Securities held-to-maturity .................................................. 1,650 1,750
Loans held for sale .......................................................... 3,509 9,234
Loans receivable ............................................................. 463,207 409,326
Less, allowance for loan losses .......................................... (5,128) (4,647)
--------- ---------
Net loans ............................................................. 458,079 404,679
Premises and equipment - net ................................................. 9,201 8,525
Goodwill ..................................................................... 3,400 3,400
Core deposit intangible assets ............................................... 2,345 2,591
Prepaid expenses and other assets ............................................ 10,719 11,881
--------- ---------
Total assets .......................................................... $ 574,027 $ 575,512
========= =========
Liabilities
Deposits
Noninterest bearing ...................................................... $ 59,215 $ 62,568
Interest-bearing ......................................................... 426,638 426,365
--------- ---------
Total deposits ........................................................ 485,853 488,933
Short-term borrowings ........................................................ 9,893 12,948
Long-term debt ............................................................... 19,369 15,878
Other liabilities ............................................................ 2,786 2,885
--------- ---------
Total liabilities ..................................................... 517,901 520,644
--------- ---------
Shareholders' equity
Common stock ................................................................. 15,000 15,000
Surplus ...................................................................... 20,691 20,653
Retained earnings ............................................................ 20,107 19,576
Accumulated other comprehensive income (loss) ................................ 328 (361)
--------- ---------
Total shareholders' equity ............................................ 56,126 54,868
--------- ---------
Total liabilities and shareholders' equity ............................ $ 574,027 $ 575,512
========= =========
D-2
COMMUNITY RESOURCE BANK, N. A.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Years ended December 31,
------------------------
2007 2006 2005
---- ---- ----
(Dollars in thousands)
Interest and dividend income
Loans, including fees ........................................... $ 34,753 $ 32,013 $ 11,073
Interest bearing deposits with other banks ...................... 51 87 12
Debt securities ................................................. 3,911 2,469 1,072
Other ........................................................... 186 154 46
Federal funds sold .............................................. 418 1,501 294
-------- -------- --------
Total interest and dividend income ....................... 39,319 36,224 12,497
-------- -------- --------
Interest expense
Deposits
Time deposits $100M and over ................................ 4,512 3,916 1,036
Other deposits .............................................. 10,794 9,435 2,110
-------- -------- --------
Total interest expense on deposits ....................... 15,306 13,351 3,146
Short-term borrowings ........................................... 765 359 65
Long-term debt .................................................. 975 956 550
-------- -------- --------
Total interest expense ................................... 17,046 14,666 3,761
-------- -------- --------
Net interest income ................................................... 22,273 21,558 8,736
Provision for loan losses ............................................. 2,900 2,840 425
-------- -------- --------
Net interest income after provision ................................... 19,373 18,718 8,311
-------- -------- --------
Noninterest income
Service charges on deposit accounts ............................. 3,764 3,475 1,344
Mortgage loan brokerage income .................................. 1,350 819 188
Net securities gains ............................................ 2 1 (11)
Gains on sales of other investments ............................. 712 - -
Other ........................................................... 941 795 424
-------- -------- --------
Total noninterest income ................................. 6,769 5,090 1,945
-------- -------- --------
Noninterest expenses
Salaries and employee benefits .................................. 11,581 8,314 1,936
Premises and equipment .......................................... 2,475 1,886 334
Other ........................................................... 6,541 5,293 2,239
-------- -------- --------
Total noninterest expenses ............................... 20,597 15,493 4,509
-------- -------- --------
Income before income taxes ............................................ 5,545 8,315 5,747
Income tax expense .................................................... 2,014 2,914 2,053
-------- -------- --------
Net income ............................................................ $ 3,531 $ 5,401 $ 3,694
======== ======== ========
D-3
APPENDIX E
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
OF FIRST CITIZENS BANK AND TRUST COMPANY, INC.
(Pursuant to S.C. Code Section 33-11-103)
Section 33-11-103 of the Code of Laws of South Carolina, 1976, as amended,
requires that the notice of the meeting of shareholders at which a plan of
merger will be voted upon be accompanied by balance sheets for each corporation
participating in the merger as of the close of the preceding two fiscal years as
well as income statements for each participating corporation for each of the
preceding three fiscal years. The attached unaudited condensed consolidated
balance sheets and income statements for First Citizens Bank and Trust Company,
Inc., are presented to satisfy the requirements of Section 33-11-103. For the
reasons discussed below, they do not contain all of the disclosure required for
audited financial statements under United States Generally Accepted Accounting
Principles ("GAAP") or Regulation S-X promulgated by the Securities and Exchange
Commission.
Because First Citizens is a subsidiary of a holding company, First
Citizens' financial statements are not audited separately from those of the
holding company, and First Citizens does not prepare or publish separate audited
financial statements. However, First Citizens submits "Call Reports" to the
Federal Deposit Insurance Corporation (called "Consolidated Reports of Condition
and Income for a Bank with Domestic Offices Only") containing separate
consolidated financial information for First Citizens and its subsidiaries that
is prepared in accordance with regulatory instructions issued by the Federal
Financial Institutions Examination Council ("FFIEC"). Because of the special
supervisory, regulatory and economic policy needs served by the Call Reports,
the regulatory instructions and accounting procedures used in preparing Call
Reports may differ from GAAP.
The information in the attached condensed balance sheets and income
statements is taken from, and is qualified in its entirety by reference to and
should be read in conjunction with, First Citizens' unaudited financial
information contained in its Call Reports for each of the indicated periods. The
Call Reports are available on the FFIEC website at https://cdr.ffiec.gov/public.
First Citizens' historical financial condition and results of operations are not
necessarily indicative of its future financial condition and results.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands; unaudited)
As of December 31,
------------------
2007 2006
---- ----
Cash and due from bank ......................... $ 200,350 $ 207,453
Federal funds sold ............................. 218,727 292,000
Investment securities .......................... 992,527 1,007,684
Loans .......................................... 4,141,231 3,782,541
Allowance for loan losses ...................... (51,787) (48,332)
Other assets ................................... 434,138 435,508
----------- -----------
Total assets ................................... $ 5,935,186 $ 5,676,854
=========== ===========
Deposits ....................................... $ 4,939,608 $ 4,748,730
Other liabilities .............................. 404,445 392,410
Shareholders' equity ........................... 591,133 535,714
----------- -----------
Total liabilities and shareholders' equity ..... $ 5,935,186 $ 5,676,854
=========== ===========
E-1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands; unaudited)
For the Year ended December 31,
-------------------------------
2007 2006 2005
---- ---- ----
Interest income ........................................................ $351,894 $309,161 $244,273
-------- -------- --------
Interest expense ....................................................... 145,715 115,319 68,537
-------- -------- --------
Net interest income .................................................... 206,179 193,842 175,736
Provision for loan losses .............................................. 9,381 5,571 4,106
-------- -------- --------
Net interest income after provision for loan losses .................... 196,798 188,271 171,630
Noninterest income ..................................................... 79,276 69,224 65,192
Noninterest expense .................................................... 181,605 168,473 152,775
-------- -------- --------
Income before income taxes ............................................. 94,469 89,022 84,047
Income taxes ........................................................... 34,292 32,270 30,467
-------- -------- --------
Net income ............................................................. $ 60,177 $ 56,752 $ 53,580
======== ======== ========
E-2
REVOCABLE PROXY
COMMUNITY BANKSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS -WEDNESDAY, OCTOBER 15, 2008
Michael A. Wolfe and William W. Traynham or either of them, with full
power of substitution, are hereby appointed as agent(s) of the undersigned to
vote as proxies all of the shares of common stock of Community Bankshares, Inc.
held of record by the undersigned on the record date at the Special Meeting of
Shareholders to be held on October 15, 2008, and at any adjournment thereof, as
follows:
1. Approval of the Agreement and Plan of Merger, dated June 25, 2008, among
Community Bankshares, Inc., Community Resource Bank, N.A. and First
Citizens Bank and Trust Company, Inc., which provides for the merger of
Community Bankshares, Inc. and Community Resource Bank, N.A. with and into
First Citizens Bank and Trust Company, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Approval of the proposal to authorize adjournment of the special meeting to
allow time for further solicitation of proxies in the event there are
insufficient votes present at the special meeting, in person or by proxy,
to approve the Agreement and Plan of Merger.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct of
the meeting. (Management at present knows of no other business to be
brought before the meeting.)
THIS PROXY WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.
Please be sure to date and sign Date
this proxy card in the box below.
-----------------
-----------------------------------
------------------------------------- ------------------------
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Detach above card, sign, date and mail in postage paid envelope provided.
COMMUNITY BANKSHARES, INC.
--------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Please sign exactly as name appears below. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title. If more than one
trustee, all should sign. All joint owners must sign.
--------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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