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 Section 240.14a-11(c) or Section 240.14a-12
Scotland Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
SCOTLAND BANCORP, INC.
================================
505 SOUTH MAIN STREET
LAURINBURG, NORTH CAROLINA 28352
(910) 276-2703
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
--------------------------------------------------
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Date: January 28, 1999
Time: 4:00 p.m.
Place: Scotland Savings Bank
Laurinburg, North Carolina 28352
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING:
. Approval of the Agreement and Plan of Reorganization and Merger dated
August 26, 1998, between Centura Banks, Inc. and Scotland Bancorp, Inc.
. Election of four directors for three-year terms
. Ratification of appointment of McGladrey & Pullen, LLP as our independent
accountants for the fiscal year ending September 30, 1999
. Any other matters that may be properly brought before the Annual Meeting
The Boards of Directors of Scotland Bancorp and Centura have agreed on a
merger in which Scotland Bancorp will become a wholly owned subsidiary of
Centura and then will merge with and into Centura. Immediately afterwards,
Scotland Bancorp's wholly-owned savings bank subsidiary, Scotland Savings Bank,
Inc. SSB, will merge with and into Centura Bank, Centura's wholly-owned banking
subsidiary.
In the merger each share of Scotland Bancorp common stock will be exchanged
for $11.75 in cash.
The merger cannot be completed unless our stockholders approve it at the
Annual Meeting. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend the Annual Meeting, please take time to
vote by completing and mailing the enclosed proxy card. If you sign, date and
mail the proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the merger. If you fail to return your proxy
card, the effect will be a vote against the merger.
The other actions taken by our stockholders at the Annual Meeting - the
election of four directors and the ratification of the appointment of McGladrey
& Pullen - will be effective until the closing of the merger, if it is approved
by our stockholders, or until the 2000 annual meeting if the merger is not
approved.
This Proxy Statement provides detailed information about the proposed
merger and the other matters under consideration. We encourage you to read it
carefully.
/s/ William C. Fitzgerald, III
William C. Fitzgerald, III
President and Chief Executive Officer
Scotland Bancorp, Inc.
December 29, 1998
SCOTLAND BANCORP, INC.
======================
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 1999
SUMMARY
This summary, in question and answer format, may not contain all the
information that is important to you. For a more complete understanding of the
proposed merger between Scotland Bancorp, Inc. and Centura Bank, Inc., you
should read this entire document carefully, as well as the additional documents
referred to. "We", "our", "Scotland" and the "Company" each refers to Scotland
Bancorp, Inc. "Centura" refers to Centura Banks, Inc. "Scotland Savings" or the
"Bank" each refers to Scotland Savings Bank, Inc. SSB, the Company's wholly-
owned savings bank subsidiary, and "Centura Bank" refers to Centura Bank, the
wholly-owned banking subsidiary of Centura.
QUESTIONS AND ANSWERS ABOUT THE MERGER
WHAT ARE CENTURA AND CENTURA BANK?
Centura, a North Carolina corporation, is a bank holding company registered with
the Federal Reserve System under the Bank Holding Company Act. Centura owns all
of the outstanding shares of Centura Bank, a North Carolina bank corporation.
Centura, through Centura Bank and its subsidiaries, offers a complete line of
banking, investment, leasing, insurance, and trust services through 210 offices
located in 122 communities throughout North Carolina, South Carolina, and the
Hampton Roads region of Virginia and through a variety of alternative delivery
channels.
WHAT ARE THE COMPANY'S REASONS FOR THE MERGER?
The financial services industry has changed significantly in recent years.
Changes include (1) consolidation of the banking industry through mergers,(2)
deregulation of competition among banking, securities and insurance services
providers and (3) a trend towards banks and others offering a broad range of
different financial services and products to customers. In the future, many
expect the extensive use of technology to transform banking services delivery.
For these reasons, the Company's Board of Directors developed concerns about the
Company's small size and limited resources and its ability to meet the
challenges facing it. The Company's Board of Directors was concerned also about
its ability to meet its stockholders' expectations. Increasing stockholder
values in future years would require significant increases in profitability and
growth which would be difficult for the Company to achieve given its small size,
current market conditions and increasing consumer demand for sophisticated
financial services.
Scotland's Board of Directors believes that a merger with Centura at this time
is in the best interests of its stockholders. Trident Financial Corporation has
advised the Board that Centura's offer of $11.75 per share for the Company's
outstanding common stock will result in a return of value that is near the high
end of the range that can be achieved for the Company's stockholders.
Additionally, the Board recognizes that the Bank's customers will benefit from
Centura Bank's sophisticated financial services and depth of resources.
1
WHAT DOES SCOTLAND'S BOARD OF DIRECTORS RECOMMEND?
Scotland's Board of Directors has unanimously approved the merger and recommends
that Scotland stockholders vote FOR the proposal to approve the merger.
WHAT WILL I RECEIVE FOR MY SCOTLAND COMMON STOCK?
Each share of your Scotland common stock will be exchanged for $11.75 in cash.
SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
No. After the merger is completed you will receive written instructions for
exchanging your Scotland certificates for cash.
HOW WILL I BE TAXED ON THE MERGER?
We expect that for US federal income tax purposes, you will have gain or loss
measured by the difference between your cost or other basis in your shares and
the amount of cash received for the shares. You are urged to consult your own
tax advisors concerning specific tax consequences of the merger to you.
WHEN WILL THE MERGER BE COMPLETED?
We are working to complete the merger by the first week in February 1999.
WHAT CIRCUMSTANCES MIGHT PREVENT THE MERGER?
Either Centura or Scotland can withdraw from the merger if, despite its best
efforts:
. the merger is not approved by Scotland's stockholders; or
. the merger does not receive regulatory approval
Scotland and Centura can also withdraw from the merger by mutual consent, and
either can withdraw from the merger if:
. the other party materially breaches the agreement; or
. the merger is not completed by March 31, 1999
WHEN AND WHERE IS THE SCOTLAND STOCKHOLDER MEETING?
The Annual Meeting of Scotland's stockholders to vote on the merger and other
matters to be considered at the Annual Meeting will be held at 4:00 p.m. on
Thursday, January 28, 1999 at the Bank's main office, 505 South Main Street,
Laurinburg, North Carolina 28352.
WHO CAN VOTE ON THE MERGER? WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
Holders of Scotland common stock at the close of business on December 18, 1998,
can vote at the Annual Meeting. The merger must be approved by the holders of a
majority of the outstanding shares of Scotland common stock. As of December 18,
1998, there were 1,913,600 shares of the Company's common stock outstanding.
2
WHAT SHOULD I DO NOW TO VOTE ON THE MERGER AND THE OTHER PROPOSALS TO BE
PRESENTED AT THE ANNUAL MEETING?
Just mail your signed proxy card in the enclosed return envelope as soon as
possible so your shares can be voted at the Annual Meeting.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
Your broker cannot vote your shares with respect to the merger proposal without
your instructions. You should instruct your broker to vote your shares,
following the directions your broker provides. Shares that are not voted
because you do not instruct your broker effectively will be voted against the
merger.
CAN I CHANGE MY VOTE AFTER I MAIL MY PROXY CARD?
Yes, you can change your vote at any time before your proxy is voted at the
Annual Meeting. There are three ways you can change your vote. First, you can
send the Company a written statement that you would like to revoke your proxy.
Second, you can send the Company a new proxy card. You should send your
revocation or new proxy card to the Company's Secretary at the address on the
cover page. Third, you can attend the stockholder meeting and vote in person.
However, your attendance alone will not revoke your proxy. If you instructed a
broker to vote your shares, you must follow your broker's directions for
changing those instructions.
DO SCOTLAND'S OFFICERS OR DIRECTORS HAVE ANY INTERESTS IN THE MERGER?
Scotland's officers and directors may have interests in the merger that differ
from the interests of Scotland's stockholders generally. For example, if the
merger is completed, options to purchase Scotland common stock held by
Scotland's officers and directors will automatically vest and the officers and
directors will have the right to exchange those options for the difference
between the option exercise price of $10.50 per share and $11.75. Also, the
shares of restricted stock granted to officers and directors under the Bank's
Management Recognition Plan will vest automatically and the officers and
directors will be able to exchange those restricted shares for $11.75 per share.
DO THE COMPANY'S STOCKHOLDERS HAVE APPRAISAL RIGHTS?
Under North Carolina law, the Company's stockholders have no right to an
appraisal of the value of their shares in connection with the merger.
WHAT REGULATORY APPROVALS ARE REQUIRED?
Centura must receive the approval of the Board of Governors of the Federal
Reserve System for its merger with Scotland and for Centura Bank's merger with
the Bank. Centura must also receive the approval of the North Carolina
Commissioner of Banks and the North Carolina Banking Commission for the merger
of Scotland Savings into Centura Bank. The Company must receive the approval of
the Administrator of the Savings Institutions Division, North Carolina
Department of Commerce for its merger with Centura and the Bank's merger with
Centura Bank.
Centura and Scotland have filed all the required applications with these
regulatory authorities and received the required approvals.
DID THE COMPANY USE A FINANCIAL ADVISOR?
In deciding to approve the merger, the Board of Directors considered the opinion
of its financial advisor, Trident Financial Corporation, as to the fairness of
Centura's offer from a financial point of view. In connection with delivering
its opinion, Trident performed a variety of analyses that are described in the
Proxy Statement. Trident's fairness opinion is attached as Appendix B to this
Proxy Statement. We encourage you to read Trident's analyses and opinion.
3
CAN THE MERGER AGREEMENT BE AMENDED?
Centura and Scotland may by mutual consent amend the merger agreement before
completion of the merger. However, once Scotland's stockholders approve the
merger, any amendment changing the consideration to be paid in the merger must
be approved by the stockholders.
4
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
GENERAL
These proxy materials are delivered in connection with the solicitation by
Scotland's Board of Directors of proxies to be voted at the 1998 Annual Meeting
of Stockholders and at any adjournment or postponement. You are invited to
attend our Annual Meeting on January 28, 1999, at 4:00 p.m., Eastern Time, at
the main office of Scotland Savings at 505 South Main Street, Laurinburg, North
Carolina. This Proxy Statement and form of proxy are being mailed starting
December 29, 1998. The Company's telephone number is (910) 276-2703.
REVOCABILITY OF PROXY
A proxy may be revoked at any time before its exercise by (1) written
notice to the Secretary of the Company, (2) timely delivery of a valid later-
dated proxy or (3) voting by ballot at the Annual Meeting. However, if you are
a beneficial owner of shares of the Company's outstanding common stock that are
not registered in your own name, you will need appropriate documentation from
the holder of record of your shares to vote personally at the Annual Meeting.
SOLICITATION
The Company will pay the expenses of soliciting proxies. Proxies may be
solicited on our behalf by the Company's and the Bank's directors, officers and
regular employees in person or by telephone, facsimile transmission or by
telegram. We have requested brokerage houses and nominees to forward these
proxy materials to the beneficial owners of shares held of record and, upon
request, we will reimburse them for their reasonable out-of-pocket expenses.
VOTING AT THE ANNUAL MEETING
Regardless of how many shares of common stock you own, your vote is
important to us. Since many of our stockholders cannot attend the Annual
Meeting, it is necessary that a large number be represented by proxy.
Accordingly, the Board of Directors has designated proxies to represent those
stockholders who cannot be present in person.
You are requested to vote by mail by completing, signing, dating and
returning the enclosed proxy in the postage-paid envelope provided by the
Company. You may vote for, against, or withhold authority to vote on any matter
to come before the Annual Meeting. The designated proxies will vote your shares
in accordance with your instructions. If you sign and return a proxy card
without giving specific voting instructions, your shares will be voted as
follows:
. FOR approval of the Agreement and Plan of Reorganization and Merger
---
dated August 26, 1998, between Centura and the Company (the "Merger
Agreement")
. FOR the nominees for election to the Board of Directors named in this
---
Proxy Statement
. FOR ratification of the selection of McGladrey & Pullen, LLP as the
---
Company's independent accountant for the fiscal year ending September
30, 1999
If instructions are given with respect to some but not all proposals, the
proxies will follow the instructions given and will vote FOR the proposals on
---
which no instructions are given. If matters not described in this Proxy
Statement are presented at the meeting, the proxies will use their own judgment
to determine how to vote your shares. We are not now aware of any other matters
to be presented except those described in the Proxy Statement. If the Annual
Meeting is adjourned, your common stock may be voted by the proxies on the new
meeting date as well, unless you have revoked your proxy instructions.
5
You are entitled to vote your common stock if our records showed that you
held your shares as of December 18, 1998 (the "Record Date"). At the close of
business on December 18, 1998, a total of 1,913,600 shares of common stock were
outstanding and entitled to vote. Each share of common stock has one vote on
each matter calling for a vote of stockholders at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote at the Annual
Meeting is necessary to constitute a quorum. The Annual Meeting may be
adjourned in order to permit the further solicitation of proxies if there is an
insufficient number of stockholders present to constitute a quorum.
Abstentions and broker "non-votes" are counted as present and entitled to vote
for purposes of determining a quorum. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received instructions from the beneficial owner.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of a majority of the shares of common stock entitled
to vote is required to approve the Merger Agreement. Abstentions and broker
"non-votes" are not counted for purposes of approval of the Merger Agreement.
A plurality of the votes cast is required for the election of directors.
As a result, those persons nominated for election as directors who receive the
largest number of votes will be elected directors. Abstentions and broker "non-
votes" are not counted for purposes of the election of directors. No
stockholder has the right to cumulatively vote his or her shares in the election
of directors.
The affirmative vote of a majority of the votes cast is required to approve
the appointment of McGladrey & Pullen LLP. Abstentions and broker "non-votes"
are not counted for purposes of approving this matter.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices located in Chicago
(Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511) and in New York (7 World Trade Center, 13th Floor, New
York, New York 10048). Copies of such material can be obtained by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the SEC maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC,
including the Company. The address is (http://www.sec.gov.).
AS FURTHER DESCRIBED BELOW, THIS PROXY STATEMENT INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO THE COMPANY WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. COPIES OF THOSE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS
WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) WILL
BE PROVIDED WITHOUT CHARGE UPON REQUEST DIRECTED TO WILLIAM C. FITZGERALD, III,
PRESIDENT, SCOTLAND BANCORP, INC., 505 SOUTH MAIN STREET, LAURINBURG, NORTH
CAROLINA 28352, TELEPHONE (910) 276-2703. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS BEFORE THE ANNUAL MEETING, ANY SUCH REQUEST SHOULD BE MADE BY
JANUARY 21, 1999.
CENTURA PROVIDED THE INFORMATION CONTAINED IN THE PROXY STATEMENT
CONCERNING CENTURA AND CENTURA BANK.
6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the SEC (SEC
File No. 1-14266) are incorporated by reference into this Proxy Statement: (i)
the Company's Annual Report on Form 10-KSB for the fiscal year ended September
30, 1997, (ii) the Company's Quarterly Reports on Form 10-QSB for the quarterly
periods ended December 31, 1997, March 31, 1998, and June 30, 1998; (iii) the
Company's Current Report on Form 8-K dated August 28, 1998; and (iv) the
description of the Company's common stock contained in its Registration
Statement on Form S-1, Registration No. 33-99916 dated November 30, 1995, as
amended on January 31, 1996 and February 7, 1996.
In addition, all other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date the Annual
Meeting has been finally adjourned shall be deemed to be incorporated by
reference herein from the date of filing of such documents. Any statements
contained in a document incorporated or deemed to be incorporated by reference
herein will be deemed to be modified or superseded for purposes of this Proxy
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part hereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Exchange Act requires that any person who acquires the beneficial
ownership of more than 5% of the common stock of the Company notify the SEC and
the Company. Following is certain information, as of the Record Date, regarding
all persons or "groups", as defined in the Exchange Act, who held of record or
who are known to the Company to own beneficially more than 5% of the Company's
common stock.
AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/1/ CLASS/2/
- ---------------- ------------ ----------
S. T. Snowdon, Jr. 241,702/3/ 12.6%
25863 Snead's Grove Road
Laurel Hill, North Carolina 28351
James E. Milligan 254,702/3/ 13.3%
8 Canterbury Circle
Pinehurst, North Carolina 28352
James S. Mitchener, Jr. 266,002/3/ 13.9%
704 Morrison Lane
Laurinburg, North Carolina 28352
- -----------------------------------
/1/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, by their spouses and minor children, or by other
entities controlled by the named individuals.
/2/ Based upon a total of 1,913,600 shares of common stock outstanding at the
Record Date.
/3/ Mr. Snowdon, Mr. Milligan and Dr. Mitchener serve as a trustees of the
ESOP which holds 233,492 shares of the Company's common stock. The
trustees of such plan share certain voting and investment power of such
shares. Mr. Snowdon, Mr. Milligan and Dr. Mitchener each have 3,450 shares
subject to options which have vested or are exercisable within 60 days
under the Stock Option Plan.
7
Set forth below is certain information, as of the Record Date, regarding those
shares of common stock owned beneficially by each of the members of the Boards
of Directors of the Company and the Bank, each of the executive officers of the
Company and the Bank, and the directors and executive officers of the Company
and the Bank as a group (all persons listed are directors of the Company and the
Bank).
AMOUNT AND
NATURE OF PERCENTAGE
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP/1/ CLASS/2/
- ---------------- ------------ -----------
James W. Mason 33,767/3/ 1.76%
#8 Royal Dornoch Lane
Pinehurst, North Carolina 28374
S. T. Snowdon, Jr., Chairman of 241,702/3/4/ 12.63%
the Boards of Directors
25863 Snead's Grove Road
Laurel Hill, North Carolina 28351
Clifton P. Buie 8,210/3/ 0.43%
421 West Boulevard
Laurinburg, North Carolina 28352
E. S. Hill, Jr. 17,098/3/ 0.89%
7840 Dogwood Drive
Laurinburg, North Carolina 28352
John W. Hudson 8,710/3/ 0.46%
801 Frederick Avenue
Laurinburg, North Carolina 28352
James E. Milligan, Vice Chairman 254,702/3/4/ 13.31%
of the Boards of Directors
8 Canterbury Circle
Pinehurst, North Carolina 28374
James S. Mitchener, Jr. 266,002/3/4/ 13.90%
704 Morrison Lane
Laurinburg, North Carolina 28352
James T. Willis 18,210/3/ 0.95%
12540 Bagpipe Lane
Laurinburg, North Carolina 28352
William C. Fitzgerald, III, President and 75,046/5/ 3.92%
CEO of the Company and the Bank
1303 Dunbar Drive
Laurinburg, North Carolina 28352
John B. Clark, Vice President and 45,429/6/ 2.37%
Secretary of the Company and Senior
Vice President of the Bank
1803 Sherbrooke Circle
Laurinburg, North Carolina 28352
Directors and Executive Officers as a 501,892/7/ 26.23%
Group (10 Persons)
8
- -----------------------------
/1/ Unless otherwise noted, all shares are owned directly or indirectly by the
named individuals, their spouses and minor children, or other
/2/ Based upon a total of 1,913,600 shares of common stock outstanding at the
Record Date.
/3/ Includes 3,450 shares underlying options that have vested or are
exercisable within 60 days under the Stock Option Plan.
/4/ Mr. Snowdon, Mr. Milligan and Dr. Mitchener serve as trustees of the ESOP
which holds 233,492 shares of the Company's common stock. The trustees of
such plan share certain voting and investment power of such shares.
/5/ This number includes 23,000 shares underlying options that have vested or
are exercisable within 60 days under the Stock Option Plan.
/6/ Includes 18,400 shares underlying options that have vested or are
exercisable within 60 days under the Stock Option Plan.
/7/ The 233,492 shares held by the ESOP for which the trustees, Mr. Snowdon,
Mr. Milligan and Dr. Mitchener, share voting and investment power have been
included only once in the total number of shares owned beneficially by the
directors and executive officers as a group. Includes 69,000 shares
underlying options that have vested or are exercisable within 60 days under
the Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of the Company's common stock,
to file reports of ownership and changes in ownership with the SEC. Executive
officers, directors and greater than 10% beneficial owners are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the fiscal year ended September 30,
1998, all of its executive officers and directors and greater than 10%
beneficial owners complied with all applicable Section 16(a) filing
requirements, except that Debora Steagall was late filing a Form 4 concerning
the sale of 400 shares of the Company's common stock. Ms. Steagall timely filed
a Form 5 reporting the sale.
PROPOSAL 1
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
The following information describes certain aspects of the Merger Agreement
and the proposed merger of Scotland into Centura and Scotland Savings into
Centura Bank through a series of transactions described below. This description
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement. A copy is attached to and incorporated in this Proxy
Statement as Appendix A. All stockholders are urged to read the Merger
Agreement in its entirety.
DESCRIPTION OF PROPOSED MERGER
On August 26, 1998, the Company entered into the Merger Agreement with
Centura. The Merger Agreement provides that the Merger will be effected by the
following transactions which will occur virtually simultaneously, except for the
formation of Scotland Acquisition Corporation;
1. Centura will create Scotland Acquisition Corporation, a North Carolina
business corporation, as a wholly-owned subsidiary.
9
2. Scotland Acquisition Corporation will merge with and into the Company,
making the Company a wholly-owned subsidiary of Centura.
3. Scotland Savings will merge with and into Centura Bank, Centura's
wholly-owned banking subsidiary. Thereafter Scotland Savings' two
offices will operate as branches of Centura Bank.
4. The Company will merge with and into Centura.
The transactions described above are collectively referred to herein as the
"Merger".
Each share of the common stock held by stockholders of record on the Record
Date will be exchanged for cash in the amount of $11.75.
BACKGROUND OF AND REASONS FOR THE PROPOSED TRANSACTION
The Company and Its Market Area. The Company is headquartered in
Laurinburg, North Carolina. Its sole subsidiary is the Bank, which is a
traditional savings institution. The Bank's primary market area is Scotland
County and portions of Moore County, North Carolina. The Bank's principal
office is in Laurinburg and it has one full service branch in Pinehurst, North
Carolina.
Approximately 85% of the Bank's deposits are held at the Laurinburg office
and the majority of its customers are residents of Laurinburg and Scotland
County. Scotland County is largely rural with a population of 35,000. Its
economy is diversified among agriculture, manufacturing and services. Although
the economy is diversified and generally stable, population and household
growth, and median and per capita income levels for Scotland County are
generally lower than comparable levels for North Carolina and the nation, while
unemployment levels are generally higher. Management regards the Scotland
County market area as a low growth area in which there is significant
competition among financial services providers for market share. The Company
believes that opportunities for future earnings growth in the Bank's home market
area are limited in light of these factors.
By comparison, in Pinehurst and Moore County, where the Bank has fewer
deposits and customers, growth and income levels exceed North Carolina and
national figures, reflecting the development of Pinehurst and Moore County as
golfing, resort and retirement centers.
The Bank is faced with significant competition from regional and local
banks in its own market area and from financial services firms in the larger
communities nearby.
The financial services industry has changed significantly in recent years.
Changes include consolidation of banking institutions by mergers, deregulation
of competition among banking, securities and insurance services providers, and a
trend toward banks and others offering a broad range of different financial
services and products to customers. In the future, many expect banking services
delivery to be transformed by extensive use of technology.
In view of the foregoing issues and conditions, the Company's Board of
Directors developed concerns about the Company's small size and limited
resources and its ability to meet the challenges facing it. See "INFORMATION
ABOUT THE COMPANY AND THE BANK -- Market and Dividend Information" for a
discussion of the limits on the Company's ability to pay dividends in the
future.
Expression of Interest by Advisors and Other Companies. In early 1998,
William C. Fitzgerald, III, President and Chief Executive Officer of the Company
and the Bank, was contacted by a representative of an independent investment
banking firm who sought to learn Scotland's strategic plans for the Company and,
specifically, its attitude regarding mergers and acquisitions. In informal
conversations, Mr. Fitzgerald told the investment banker that while the Company
was not actively seeking to be acquired, any company would be required to
consider an attractive offer. He said that the Board of Directors would
seriously consider any proposal it determined to be favorable to the Company's
stockholders. Scotland did not retain the investment banker or request that any
steps be taken on the Company's behalf.
10
In late April 1998, the same investment banker called Mr. Fitzgerald and
informed him that a North Carolina banking company was willing to discuss
acquiring the Company on terms that the investment banker believed were
favorable to the Company and its stockholders. In response, a meeting was
arranged between the Board of Directors and the investment banking firm. At that
meeting, the representatives of the investment banking firm advised the Board of
Directors that the firm had surveyed the field of companies that might
potentially acquire Scotland and identified the five companies most likely to do
so on favorable terms. It then contacted each company informally to determine
what interest they may have, informing those companies that the firm did not
represent Scotland.
Based on those contacts, the firm identified one company that was
interested. The firm advised Scotland's directors that the company may be
willing to consider terms in a range of value that was very favorable to
Scotland's stockholders. The investment banking firm then requested that the
Company retain it to determine whether an agreement could be reached.
Meeting with legal counsel and separately from the investment banking firm,
the Board of Directors considered the data presented by the investment banking
firm, the range of possible stockholder values under discussion, advice the
Board had received informally from time to time in the past respecting the value
of the Company (which was below the range of values being considered), and the
strategic challenges the facing the Company. After considering these issues, the
Board retained the investment banking firm to represent the Company as its
exclusive agent respecting any agreement that Scotland might enter into with any
of the five potential acquirors. In addition, the Board agreed to permit the
potential acquiror that had expressed an interest to conduct an examination of
the Company's books and records as a basis for negotiating a possible future
agreement.
During the period when the examination of Scotland's books and records was
taking place, Trident Financial Corporation ("Trident"), which had been
consulting with the Company over a period of years, contacted Mr. Fitzgerald.
Trident proposed that the Board retain it to represent the Company as its agent
respecting potential acquirers other than the five already identified. At the
end of May 1998, the Board decided to retain Trident on that basis.
Centura's Proposal. In May 1998, Trident reported to the Company that
Centura was interested in making a proposal to acquire the Company. The Company
agreed to permit Centura to examine its books and records.
The cash price that Centura proposed to pay for the Company's shares was
higher than any cash price proposed by any competing company. The company that
had first made a proposal was informed that a competing offer had been received.
It was given an opportunity to increase its proposal. It elected not to increase
its proposal.
Based on information that the Board had received about Centura and the
five other companies that had been contacted and based also on advice received
respecting other potential acquirers, the Board determined that there was little
likelihood that Scotland would receive more favorable proposals.
Decision to Negotiate and Enter Definitive Agreement with Centura. With
the assistance of its advisors, Scotland negotiated the terms of a definitive
agreement with Centura. Centura confirmed to the Company terms to which it was
willing to agree during the week of August 17, 1998. The Bank's Board of
Directors met with Trident and legal counsel to consider Centura's final
proposal on August 20, 1998.
At the August 20 meeting, Trident presented to the Board of Directors a
detailed financial analysis of Centura's proposal. Among other factors, Trident
advised the Board that the consideration proposed by Centura was near the high
end of the range of values for the Company as determined by Trident's analyses.
With Trident's assistance and assistance from legal advisors, the Board of
Directors evaluated the financial and market considerations relevant to a
decision to recommend to its stockholders approval of the acquisition of
Scotland by Centura. The terms of the Merger Agreement, including the purchase
price, are the result of arm's-length negotiations. At the August 20, 1998
meeting, the Board concluded that entering into the Merger Agreement is in the
best interests of Scotland and its stockholders. The Board's conclusion was
based on the directors' consideration of the following factors (without
assigning any relative or specific values to any factor):
11
(i) the financial terms of the proposed agreement;
(ii) a comparison of the terms of the proposed agreement with comparable
transactions in North Carolina and elsewhere;
(iii) information concerning the business, financial condition, results
of operations and prospects of Scotland and Centura;
(iv) competitive factors and trends toward consolidation in the banking
industry;
(v) the review by Scotland's Board with its legal and financial
advisors of the provisions of the proposed agreement;
(vi) Trident's opinion rendered to Scotland's Board that the
consideration to be received under the agreement is fair from a
financial point of view to the holders of Scotland's common stock;
(vii) alternatives to being acquired by Centura, including operating as
an independent company, in light of the economic conditions and
prospects of Scotland and North and South Carolina's banking
markets and the competitive environment and the economy generally;
and
(viii) the value received by holders of Scotland common stock in relation
to the historical trading prices, book value and earnings per share
of Scotland common stock.
Scotland's Board of Directors believes that by becoming a part of a larger
organization with greater resources, Scotland will be able to serve its
customers and communities better and to provide services that will be
competitive in the market place.
The Board of Directors also considered provisions made for benefits to
employees, management and members of the Board. The Board concluded that those
terms are fair and reasonable.
While each member of the Board of Scotland individually considered the
foregoing and other factors, 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 based on the unanimous
conclusion reached by its members, in light of the factors that each of them
considered appropriate, that the Merger Agreement is in the best interests of
Scotland's stockholders.
OPINION OF FINANCIAL ADVISOR
The Company retained Trident in May 1998, after the Company had received an
acquisition proposal from another financial institution, to serve as a financial
advisor and to provide valuation services and assistance in evaluating potential
merger or acquisition proposals that could be received by the Company. On
behalf of the Company, Trident initiated negotiations with Centura in May 1998,
which ultimately led to the Merger Agreement. During the course of the
negotiations, Trident consulted orally with the Company on a frequent basis. On
August 20, 1998, Trident delivered a report to the Board of Directors that
summarized its estimate of the value of the Company in a merger or sale of
control (the "Valuation Report") and analyzed the Merger Agreement. At that
time, Trident also provided, among other things, a financial analysis of the
Company, market information with respect to thrift mergers and acquisition
transactions, and an analysis of the Company's projected financial performance.
Trident finally compared the value of Centura's offer to its estimate of the
Company's value in a merger or sale of control, as set forth in the Valuation
Report. Also, on August 20, 1998, Trident delivered its opinion to the Company's
Board of Directors that, as of that date, the consideration to be received by
the Company's stockholders was fair from a financial point of view (the
"Opinion"). The standard employed by Trident in rendering its Opinion was
whether such consideration was within the range of the economic values of
consideration that companies having similar characteristics to that of the
Company and Centura might negotiate in comparable circumstances, not whether the
consideration proposed in the Merger is at or approaching the high end of such
range.
12
Trident confirmed and updated its Opinion, as of the date of this Proxy
Statement, that the consideration to be received by the Company's stockholders
is fair from a financial point of view, as of such date. The Agreement provides
for another update of Trident's Opinion immediately preceding the closing of the
Merger. A copy of the Opinion, which sets forth certain assumptions made,
matters considered and limitations on the reviews undertaken, is attached to
this Proxy Statement as Appendix B. Trident has consented to the inclusion of
the Opinion and summaries of the Valuation Report in this Proxy Statement.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY AND
IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY THE COMPANY'S STOCKHOLDERS BASED ON CONDITIONS
AS THEY EXIST AND CAN BE EVALUATED AS OF THE DATE OF THE OPINION. TRIDENT'S
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY COMPANY STOCKHOLDER AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ANNUAL MEETING. NOR DOES TRIDENT'S
OPINION ADDRESS THE UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER. THIS
SUMMARY OF TRIDENT'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
TEXT OF SUCH OPINION, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B.
STOCKHOLDERS ARE URGED TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A
DESCRIPTION OF THE ASSUMPTIONS MADE AND MATTERS CONSIDERED AND THE LIMITS ON THE
REVIEW UNDERTAKEN IN RENDERING SUCH OPINION.
In connection with rendering its Opinion, Trident reviewed and analyzed,
among other things, the following: (i) this Proxy Statement; (ii) the Merger
Agreement; (iii) certain publicly available information concerning the Company,
including the audited financial statements of the Company for each year in the
three-year period ended September 30, 1997 and unaudited financial statements
for the nine months ended June 30, 1998; (iv) certain other internal
information, primarily financial in nature, concerning the business and
operations of the Company (including previous merger inquiries) furnished to
them by the Company for purposes of their analysis; (v) information with respect
to the trading market for the Company's common stock; (vi) certain publicly
available information with respect to other companies which they believed to be
comparable to the Company and the trading markets for such other companies'
securities; and (vii) certain publicly available information concerning the
nature and terms of other transactions that they considered relevant to their
inquiry. Trident also discussed with certain officers of the Company the
foregoing, as well as other matters they believed relevant to their inquiry.
Neither the Company nor its Board of Directors nor management imposed
limitations with respect to the investigation made or procedures followed by
Trident.
In their review and analysis and in arriving at its Opinion, Trident
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to them by the Company, or that was publicly
available, and the accuracy of the representations and warranties of the Company
and Centura in the Merger Agreement, and did not attempt independently to verify
any such information. Trident did not conduct a physical inspection of the
properties or facilities of the Company, nor did it make or obtain any
independent evaluations or appraisals of any of such properties or facilities.
It did not specifically evaluate the Bank's loan portfolio or the adequacy of
reserves for possible loan losses.
In conducting the analysis and arriving at its Opinion as expressed herein,
Trident considered such financial and other factors as it deemed appropriate
under the circumstances including, among others, the following: (i) the
historical and current financial condition and results of operations of the
Company, including interest income, interest expense, net interest income, net
interest margin, interest sensitivity, non-interest income and expense,
earnings, dividends, book value, return on assets, return on equity,
capitalization, the amount and type of non-performing assets and the reserve for
possible loan losses; (ii) the business prospects of the Company; (iii) the
economy in the Company's market area; (iv) the historical and current market for
the Company's common stock and for the equity securities of certain other
companies that it believed to be comparable to the Company; and (v) the nature
and terms of certain other acquisition transactions that it believed to be
relevant. Trident also took into account its assessment of general economic,
market, financial, and regulatory conditions and trends, as well as its
knowledge of the thrift industry, its experience in connection with similar
transactions, and its knowledge of securities valuation generally. The Opinion
necessarily was based upon conditions as they existed and could be evaluated on
the date thereof. Trident's Opinion is, in any event, limited to the fairness,
from a financial point of view, of the consideration to be received by
13
the holders of the Company's common stock in the Merger and does not address the
Company's underlying business decision to effect the Merger or alternative
business strategies, if any, available to the Company.
The following is a brief summary of the Valuation Report presented by
Trident to the Board of Directors of the Company on August 20, 1998:
Financial Analysis of the Company. Trident examined the Company's
financial performance for the period 1994 through June 30, 1998, by analyzing
the composition of its balance sheet, adjusting and normalizing its earnings,
and calculating a variety of operating and financial ratios for the Company.
Trident also studied the trading performance of the Company's common stock for
the previous twelve months. The financial analysis of the Company indicated
that, among other things, the Company had an extremely high capital level; low
profitability, particularly as measured by return on equity, resulting from the
Company's high capital level coupled with a modest return on assets; good asset
quality, and relatively slow growth. In addition, the Company had undertaken a
significant reduction in equity through a $6.00 per share special return of
capital distribution. The payment of this distribution significantly reduced
the Company's profitability.
Industry Comparative Analysis. Trident reviewed the Company's strengths
and weaknesses by comparing the financial performance of Scotland Savings to
that of the following groups of stockholder-owned and state chartered, FDIC-
insured savings banks based on financial information as of March 31, 1998
(unless otherwise noted): (i) all United States institutions and (ii) all
institutions in the Southeast with assets between $40 million and $100 million;
(the "Aggregates"). This analysis compared a number of the Bank's historical
financial ratios to those of the Aggregates, including but not limited to: (i)
the balance sheet composition as a percentage of total assets; (ii) asset
quality and the level of loan loss reserves; and (iii) income and expense data
for nine months ended June 30, 1998, as compared to similar data for the
Aggregates for the twelve months ended March 31, 1998 (to account for the
Company's reduced profitability after payment of the $6.00 per share return of
capital distribution). Trident identified the Company's strengths to be, among
other things, outstanding asset quality, low risk loan portfolio, productive
employees, and no borrowings. Trident identified the Company's weaknesses to be
excess capital, low profitability, loan attrition, marginal deposit growth, low
level of non-interest income, small and rural market area and small asset size.
Market Approach Valuation Analysis. Trident analyzed certain median pricing
ratios (e.g., price to book value, price to tangible book value, price to
reported earnings, price to assets, and the premium paid over tangible book
value as a percentage of core deposits) resulting from selected completed thrift
merger transactions, as well as recently announced pending transactions. In
applying the market approach, Trident considered the pricing ratios for the
following groups of thrift merger transactions ("recent" transactions are
defined as within 18 months): (i) all pending thrift merger transactions (53
transactions); (ii) all thrift mergers announced during the 90 days prior to
August 12, 1998 (the date of the market data) (23 transactions); (iii) all
recent mergers of Southeastern thrifts (23 transactions); (iv) all recent thrift
mergers in which the aggregate consideration was between $10 million and $50
million (45 transactions); (v) all recent thrift mergers in which the target
thrift had assets between $40 million and $100 million (37 transactions); (vi)
all recent thrift mergers in which the target thrift had a return on assets
between 0.90% and 1.10% (26 transactions); (vii) all recent thrift mergers in
which the target thrift had a return on equity between 2.0% and 6.0% (47
transactions); (viii) all recent thrift mergers in which the target thrift had a
tangible equity ratio between 15% and 30% of assets (20 transactions); and (ix)
all recent thrift mergers in which the target thrift had a ratio of non-
performing assets to assets between zero and 0.5% (69 transactions). Trident
also considered the pricing ratios for nine thrift merger transactions announced
since January 1997 in which the target thrift was of similar size and capital
structure as Scotland Savings, and in which the target thrift had similar
profitability and asset quality. Trident then compared a number of financial
ratios for Scotland Savings to those of the target thrift institutions.
Based on the Company's financial condition and results of operations, as
well as other factors relative to the groups of thrift mergers noted above,
Trident selected ranges of pricing ratios to apply to Scotland. Trident chose
price to book value ratios of 125% to 150%, resulting in per share values of
approximately $10.00 to $12.00; price to tangible book value ratios of 125% to
150%, resulting in per share values of approximately $10.00 to $12.00; price to
earnings multiples of 26.0 to 31.0 times earnings, resulting in per share values
of approximately $9.25 to $11.25; price to assets ratios of 31.0% to 37.0%,
resulting in per share values of approximately $10.00 to $12.00; and premiums
over tangible book value as a percentage of core deposits of 10% to 15%,
resulting in per share values of approximately $10.00 to
14
$11.25. Based on these derived valuation ranges, and after giving each
valuation approach similar consideration, Trident established a valuation range
of $10.00 to $12.00 per share.
Also on August 20, 1998, Trident summarized the financial terms of the
Merger. At $11.75 per share, the aggregate value of Centura' proposal is $22.7
million (after accounting for the purchase of outstanding stock options for
$1.25 each) and represents 147.7% of tangible book value, 38.1 times earnings
(based on annualized earning for the nine months ended June 30, 1998 to account
for the reduced profitability resulting from payment of the return of capital
distribution) and a 17.7% premium over core deposits. As the value of Centura's
offer was within the range of value estimated by Trident, Trident informed the
Company's Board of Directors that, in its opinion, the transaction was fair
from the financial point of view to the Company's stockholders.
In connection with its Opinion dated as of the date of this Proxy
Statement, Trident performed procedures to update certain of their analyses and
reviewed the assumptions on which such analyses were based and the factors
considered in connection therewith.
The summary of Trident's reports set forth above covers all material
presentations made to the Company's Board of Directors and material analyses
performed by Trident but does not purport to be a complete description of the
presentations by Trident of the reports to the Board of Directors or of the
analyses performed by Trident. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial or summary
description. Trident believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses,
without considering all of the analyses, or all of the above summary, would
create an incomplete view of the processes underlying the analyses set forth in
Trident's reports and its Opinion. In addition, Trident may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Trident's view of the actual value of the Company. The fact that
any specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analyses.
In performing its analyses, Trident made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. The specific
analyses performed by Trident are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such individual analyses were prepared solely as
part of Trident's overall analysis of the fairness of the consideration to be
received by the Company's stockholders and were provided to the Board of
Directors in connection with the delivery of Trident's Opinion. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, Trident's
Opinion and presentation to the Board of Directors was one of many factors taken
into consideration by the Board of Directors in making its determination to
approve the Merger Agreement.
Trident, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwriting, and valuations for corporate and
other purposes. Trident has extensive experience with the valuation of
financial institutions. The Board of Directors selected Trident as its financial
advisor because of its previous experience with Trident, because Trident is a
nationally recognized investment banking firm specializing in financial
institutions and because of its substantial experience in transactions similar
to the Merger. Trident Securities, Inc., an affiliate of Trident, served as the
Company's sales agent in Scotland Savings' conversion from mutual to stock form
of ownership in 1996. In addition, in the ordinary course of business, Trident
Securities, Inc. may actively trade the securities of the Company or Centura for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities. Trident is not
affiliated with the Company, Centura or Centura Bank.
For its services as financial advisor, the Company paid Trident a fee of
$40,000 upon execution of the Merger Agreement. An additional fee of
approximately $209,000 is payable to Trident upon consummation of the Merger.
The Company also agreed to indemnify Trident against certain liabilities,
including liabilities under any applicable federal or state laws.
15
EXCHANGE OF THE COMMON STOCK FOR CASH
Stockholders of the Company who are the holders of record of shares of the
common stock on December 18, 1998, the Record Date, will receive $11.75 in cash
for each share of the common stock held by such stockholders at the Effective
Time.
Holders of stock options issued and outstanding under the Scotland Bancorp,
Inc. Stock Option Plan (the "Stock Option Plan") immediately prior to the
Effective Time, automatically shall be converted into the right to receive cash
in an amount equal to $11.75 less the exercise price for each outstanding
option. There are 177,000 options currently outstanding and the exercise price
of those options is $10.50 per share.
Based on the 1,913,600 shares of the common stock and the 177,000 options
outstanding on the Record Date, the total price of the Merger will be
approximately $22,706,050 representing $11.75 exchanged for each common share
and option, less the $10.50 exercise price of each option. Centura will provide
the consideration for the common stock from cash reserves on hand. At September
30, 1998, Centura's cash reserves on hand were approximately $261 million.
PROMPTLY AFTER THE CONSUMMATION OF THE MERGER, CENTURA OR THE COMPANY WILL
NOTIFY THE COMPANY STOCKHOLDERS OF THE PROCEDURES FOR EXCHANGING THE COMMON
STOCK FOR CASH. THE COMPANY STOCKHOLDERS SHOULD NOT SEND IN THEIR SHARE
CERTIFICATES UNTIL THEY RECEIVE TRANSMITTAL FORMS FROM CENTURA OR THE COMPANY.
THE TRANSMITTAL FORMS WILL LIST PERSONS TO CONTACT FOR ASSISTANCE WITH THE
EXCHANGE.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Centura and the Company to consummate the
Merger are subject to the satisfaction or waiver of certain conditions,
including, without limitation:
(i) the approval of the Merger by the Boards of Directors of Centura and
the Company, and by the stockholders of the Company;
(ii) the receipt of all necessary regulatory approvals and expiration of
all notice periods and waiting periods required after the granting of any
such approval, without any condition or requirement contained in any such
approval which, in the reasonable opinion of Centura, is materially
disadvantageous or burdensome or would so adversely impact the business or
economic benefits of the Merger Agreement to Centura as to render
consummation of the Merger inadvisable;
(iii) the absence of any order, decree or injunction which enjoins or
prohibits consummation of the transactions contemplated by the Merger
Agreement;
(iv) the representations of Centura and the Company contained in the
Merger Agreement must be true and correct in all material respects as of
the Effective Time, and the various agreements and covenants of Centura and
the Company required thereunder must have been duly performed and complied
with prior to the Effective Time;
(v) each party shall have received the written opinion of counsel to the
other party as to certain matters addressed in the Merger Agreement;
(vi) Centura shall have received from the Company's independent public
accountants a letter with respect to certain financial information
regarding the Company; and
(vii) the Company shall have received from Trident as of the date of the
Merger Agreement and updated as of the date of the Proxy Statement and the
Effective Time, an opinion that the transaction is fair to the Company's
stockholders from a financial point of view.
16
Either the Company or Centura may waive in writing certain of the
conditions imposed with respect to its or their respective obligations to
consummate the Merger, except for the requirements that the Merger be approved
by the Company's stockholders, that all required regulatory approvals be
received and that all notice periods and waiting periods be expired.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned,
notwithstanding the approval of the Merger Agreement and the Merger by the
Company's stockholders, at any time prior to the Effective Time, upon the
written mutual agreement of the parties, or at the election of either party,
upon written notice from the party electing to terminate the Merger Agreement to
the other party, (i) if the Merger Agreement and the Merger are not approved by
the legally required affirmative vote of the stockholders of Scotland at the
Annual Meeting, or (ii) if any regulatory authority, the approval of which is
required for consummation of the Merger, has denied approval thereof, and such
denial has become nonappealable. The Merger Agreement may also be terminated by
either Centura or Scotland in the event of any breach of any of the obligations,
covenants, or warranties of the other party under the Merger Agreement or if any
representation or statement furnished under the Merger Agreement is false or
misleading in any material respect at the time furnished, which such event shall
not have been remedied to the satisfaction of the other party within 30 days
after receipt by such other party of notice in writing of such event from
Centura or Scotland, as the case may be. Finally, the Merger Agreement will
terminate at either party's election, upon written notice to the other party, if
the Merger has not been consummated on or before March 31, 1999. Such
termination and abandonment would not require the approval of the stockholders
of either party to the Merger Agreement.
If the Merger is abandoned as described above, the Merger Agreement will
become void and have no effect except that certain provisions of the Merger
Agreement, including those relating to the obligation of the parties thereto to
pay certain expenses and the confidentiality of certain information obtained by
each of the parties in connection with the Merger will survive. In addition,
termination of the Merger Agreement will not relieve any breaching party from
liability for any uncured breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended or supplemented in writing by mutual
agreement of Centura and the Company, provided that such amendment or supplement
must be approved by their respective Boards of Directors and provided further
that no amendment or supplement executed after approval of the Merger Agreement
by the Company's stockholders may change the consideration into which each share
of the common stock will be converted without the further approval of the
Company's stockholders.
CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE EFFECTIVE TIME
Pursuant to the Merger Agreement, the Company has agreed, unless it has
obtained the prior consent of Centura, and except as otherwise contemplated by
the Merger Agreement, to operate its business and to engage in transactions only
in the usual, regular, and ordinary course, to preserve intact its business
organization, to keep available the services of its present officers and
employees, and to preserve its present relationships with depositors, suppliers,
customers, and others having business dealings with the Company and the Bank.
In addition, the Company has agreed that, prior to the earlier of the
Effective Time or the termination of the Merger Agreement, the Company may not,
except with the prior written consent of Centura or except as expressly
contemplated by the Merger Agreement, do, or agree or commit to do, any of the
following:
(i) amend its charter or bylaws;
(ii) authorize or establish any other class of capital stock, issue, sell
or otherwise dispose of any shares of any class of capital stock, or
enter into other agreements to issue or sell any shares of any class
of capital stock, or change the number of shares of any class of
common stock outstanding;
17
(iii) repurchase, redeem, or otherwise acquire or exchange any shares of
its capital stock;
(iv) acquire direct or indirect ownership or control of voting shares or
securities convertible into voting shares of, or any other interest
in, any presently non-affiliated corporation, any newly-organized
business entity, any joint venture or other entity, other than in
the ordinary course of business in its fiduciary or custodial
capacity or as a result of debts previously contracted;
(v) declare, set aside, or pay dividends on any shares of any class of
capital stock or make any other distribution of assets to the
holders of any shares of any class of capital stock, except for the
payment of regular quarterly dividends to the Company's
stockholders, which quarterly dividend shall not exceed, in the
aggregate, $0.05 per share;
(vi) sell or lease all or any material part of its assets or business
other than in the ordinary course of business;
(vii) incur any indebtedness for money that becomes due and payable more
than one year after such incurrence;
(viii) enter into or institute any employment contract, deferred
compensation, bonus, stock option, profit-sharing, pension,
retirement, or insurance plan, or terminate or materially amend any
such plan already existing, or grant any increase in compensation or
other benefits to its employees or officers except in the ordinary
course of business and in accordance with past practices;
(ix) enter into any agreement, understanding, or commitment with any
other party that is materially inconsistent with its obligations
under the Merger Agreement;
(x) effect any capital improvement or purchase of equipment or
furnishings involving an expenditure in excess of $50,000; and
(xi) initiate, propose, or otherwise solicit any bids or offers to
purchase or acquire Scotland, cause Scotland to merge into or
consolidate with any other corporation, or acquire all or any
substantial part of the assets of any other corporation, except
where such acquisition relates to foreclosure procedures, or deeds
or transfers in lieu of foreclosure, on extensions of credit by
Scotland.
REGULATORY CONSIDERATIONS
The Merger is subject to certain regulatory approvals, as set forth below.
To the extent that the following information describes statutes and regulations,
it is qualified in its entirety by reference to the particular statutes and
regulations promulgated under such statutes.
Centura's acquisition of the Company, which will be effected through the
Merger, is subject to approval by the Board of Governors of the Federal Reserve
System ("Federal Reserve") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act") which permits a bank holding company, such as Centura to
acquire direct or indirect ownership or control of more than 5% of the voting
shares of any bank or any bank holding company, such as the Company, if the
Federal Reserve has approved the transaction based upon its review of the
financial and managerial resources and future prospects of the existing and
proposed institutions and the convenience and needs of the community to be
served. This consideration includes an evaluation by the Federal Reserve as to
whether the Merger would result in a monopoly or otherwise would substantially
lessen competition or impair the financial and managerial resources and future
prospects of Centura or the Company. In addition, the Federal Reserve must take
into account the records of Centura and the Company in meeting the credit needs
of the entire community served by such institutions, including low- and
moderate-income neighborhoods.
In order to effect the Merger, Centura will form a business corporation
with the name "Scotland Acquisition Corporation" as the wholly owned subsidiary
of Centura; Scotland Acquisition Corporation will merge into the
18
Company, making the Company a wholly-owned subsidiary of Centura. Immediately
thereafter Scotland Savings will merge with and into Centura Bank and the
Company will merge with and into Centura. To accomplish the Merger, Centura has
applied to (i) the Federal Reserve for approval to acquire the Company and to
merge the Company with and into Centura and to merge Scotland Savings with and
into Centura Bank and to establish a new branch office at Scotland Savings'
current address and (ii) North Carolina Commissioner of Banks (the
"Commissioner") and the North Carolina Banking Commission for the merger of
Scotland Savings into Centura Bank and the establishment of a new branch office
at Scotland Savings' current address. The Company has applied to the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce (the "Administrator") for approval of its merger with Scotland
Acquisition Corporation and for the merger of Scotland Savings with and into
Centura Bank.
On November 5, 1998, Centura received approval from the Federal Reserve.
On December 2, 1998, Centura received approval from the Commissioner and the
North Carolina Banking Commission. Scotland received approval from the
Administrator on December 16, 1998. The Merger cannot be consummated until all
required waiting periods have run.
Centura and the Company are not aware of any other governmental approvals
or actions that are required for consummation of the Merger except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought or taken. There can
be no assurance that any such approval or action, if needed, could be obtained,
would not delay consummation of the Merger or would not be conditioned in a
manner that would cause Centura to abandon the Merger.
CLOSING AND EFFECTIVE TIME
The Merger will not be consummated unless and until the Merger Agreement
and the transactions contemplated thereby are approved by the requisite vote of
the stockholders of the Company, the required regulatory approvals are received,
and the other conditions to the Merger are satisfied (or waived to the extent
permitted by applicable law). The Merger Agreement provides that the closing of
the Merger will occur on a date agreed upon by the parties as soon as
practicable after the expiration of any and all required approvals of the Merger
by governmental or regulatory authorities. The Merger will become effective on
the date and time specified in the articles of merger, or such other documents
as are necessary to consummate the Merger, filed with the North Carolina
Secretary of State (the "Effective Time").
TAX CONSEQUENCES OF THE MERGER
Each stockholder of the Company who, pursuant to the Merger Agreement,
receives cash in exchange for shares of the common stock generally will, upon
the payment of such cash in exchange for the surrender of the certificate or
certificates representing such stockholder's shares, realize gain or loss for
federal income tax purposes measured by the difference between such
stockholder's cost or other basis in such shares and the amount of cash received
therefor, and the amount of such gain or loss so realized must be recognized by
such stockholder for federal income tax purposes. Such gain or loss will be
capital gain or loss if the shares held by such stockholder constitute capital
assets in the stockholder's hands, and will be long-term capital gain or loss if
such stockholder's holding period for such shares is more than one year. This
summary is not a complete description of all the tax consequences of the Merger,
and in particular, may not address federal income tax considerations that may
affect the holders of the common stock entitled to special treatment under the
Internal Revenue Code of 1986, as amended (the "Code"), such as insurance
companies, dealers in securities, tax exempt organizations, foreign persons or
corporations, or compensation related acquisitions.
STOCKHOLDERS ARE URGED AND ADVISED TO CONSULT THEIR OWN TAX COUNSELORS AND
ADVISORS WITH REGARD TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE EFFECT OF FEDERAL, STATE,
LOCAL, AND OTHER APPLICABLE TAX LAWS, AND THE EFFECT OF ANY PROPOSED CHANGES IN
THE TAX LAWS.
19
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND EFFECT OF THE MERGER ON EMPLOYEES
AND BENEFIT PLANS
Stock Owned by Officers and Directors. Information as to the stockholdings
of directors and executive officers of the Company is included in the section of
this Proxy Statement entitled "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS."
Management Recognition Plan. Pursuant to the Scotland Savings Bank, Inc.,
SSB Management Recognition Plan and Trust (the "MRP"), the directors, officers
and employees of the Company and Bank were awarded a total of 73,600 restricted
shares of common stock on May 13, 1997. The MRP provides that the shares granted
vest at a rate of 20% on May 13, 1997, and 20% on each subsequent anniversary
date until all shares are vested. Based upon that vesting schedule, 60% or
44,160 of the shares awarded have not yet vested. The Company and Centura have
agreed that all 44,160 unvested shares will become vested at the Effective Time
and the MRP will be terminated. Each vested share will then be exchanged for
$11.75 in cash, or a total of $518,880 for the 44,160 unvested shares. No
additional awards will be made under the MRP prior to the Effective Time.
Stock Option Plan. Pursuant to the Company's Stock Option Plan, the
directors, officers and employees of the Company and Bank have been granted
options to purchase a total of 177,000 shares of common stock at an option
exercise price of $10.50. The Stock Plan provides that the options granted vest
at a rate of 25% on May 13, 1997, and 25% on each subsequent anniversary date
until all shares are vested. Based upon that vesting schedule, 50% of the
options granted have not yet vested. Each option, to the extent not vested or
exercised prior to the Effective Time, shall automatically be converted into the
right to receive $11.75 in cash, less the $10.50 exercise price. Each optionee
will enter into a written agreement to the effect that such optionee's stock
options are terminated, canceled and released as of the Effective Time. A
total of $221,250 will be paid for the outstanding unexercised options.
Employee Stock Ownership Plan. The Bank's Employee Stock Ownership Plan
(the "ESOP"), using funds loaned to the ESOP by the Company and funds received
by the ESOP when the Company paid a return of capital in the form of a special
dividend, has purchased 233,492 shares of common stock for allocation to plan
participants. At September 30, 1998, under the plan's provisions, 17,884 of
those shares have already been, or are committed to be, allocated to the
participants. At the Effective Time, each participant will receive $11.75 in
cash in exchange for each share allocated to them under the plan. Each
unallocated share remaining in the ESOP at the Effective Time will be exchanged
for $11.75 in cash which will be used to repay in full the loan from the Company
to the ESOP. Any cash remaining in the plan after repayment of the loan will be
allocated to participants in accordance with the terms of the ESOP.
Employment Agreements. At the Effective Time, and upon termination of and
in substitution for his current employment agreement with the Bank, Centura and
Centura Bank will enter into an employment agreement with William C. Fitzgerald,
III (the "Employment Agreement"). Mr. Fitzgerald's Employment Agreement will
provide for an initial term of employment of three years and annual cash
compensation of $139,584 per year during the initial term. In addition, Mr.
Fitzgerald will be able to participate in Centura's executive incentive bonus
program up to a maximum amount of $13,018 per year during the three-year term of
the Employment Agreement. A copy of the Employment Agreement is attached as
Exhibit C to the Merger Agreement attached to this Proxy Statement as Appendix
A.
Special Termination Agreement. Centura and Centura Bank will honor the
Special Termination Agreement in effect between the Bank and John B. Clark.
Under the terms of the Special Termination Agreement, in the event of his
termination of employment, Mr. Clark is entitled to payment in an amount equal
to two times his base amount as defined in Section 280G(b)(3) of the Code.
Therefore, at September 30, 1998, Mr. Clark would be entitled to receive
$160,000 under the terms of the Special Termination Agreement.
Employees and Benefit Plans. All the Company's and the Bank's employees
will continue to be employees at the Effective Time and shall become employees
of Centura or Centura Bank following the Effective Time for purposes of ensuring
that all such employees qualify for the rights provided to terminated employees
under the Consolidated Omnibus Budget Reconciliation Action of 1985. Except as
otherwise expressly provided in the Merger Agreement, however, neither Centura
nor Centura Bank has any obligation to employ or continue to employ any such
employee for any period of time. Centura Bank may offer continuing employment
following the Effective Time to some
20
persons now employed by Scotland or the Bank. Any employee who accepts such
offer and becomes employed by Centura Bank, will be provided with the employee
welfare benefits generally available to all similarly situated employees of
Centura Bank, including the group insurance plan of Centura Bank (including
hospitalization, life and disability, and dental coverage) on the same terms and
at the same cost as similarly situated employees of Centura Bank with no
interruption in benefits and with acceptance of all pre-existing conditions
accepted under the comparable plan or plans maintained by the Company to the
extent coverage is provided for such conditions under Centura's plans. Such
benefits will be provided for dependents and/or families of such employees as
permitted by Centura Bank's employee benefits plan on the same terms and at the
same cost as for dependents and/or families of similarly situated Centura Bank
employees.
At the Effective Time, benefit accruals under any employee pension benefit
plan (including any employee stock ownership plan or 401(k) plan) maintained by
the Company or the Bank will cease. The 401(k) plan maintained by the Company
may, at Centura's election, be merged into Centura's or Centura Bank's 401(k)
plan or be terminated. All employees who are retained by Centura will be
eligible to participate in the pension and 401(k) plans of Centura or Centura
Bank, as applicable, in accordance with the terms of such plans and will be
credited for purposes of vesting and eligibility (but not for purposes of
benefit accruals) under such plans with one year of service to Centura Bank for
each year of service to Scotland or the Bank prior to the Effective Time.
Scotland's pension plan shall be terminated with full vesting, and the assets
therein distributed or transferred in accordance with the elections of
participants thereunder made in a manner consistent with the terms of such plan
and the Code.
Severance Plan. Centura and Centura Bank will honor the Bank's Severance
Plan currently in effect as to all employees of the Bank who are employed at the
Effective Time. That plan shall continue in effect as to such employees for a
period of two years following the Effective Time as the plan provides, but shall
not apply to other persons and shall be deemed terminated as to any change-of-
control transaction other than the transactions contemplated by the Merger
Agreement.
Other Agreements. Centura agrees to assume, or to cause Centura Bank to
assume, the Bank's obligations under the provisions of the deferred compensation
agreements between the Bank and three of its non-employee directors. However,
following the Effective Time, no further deferrals will be permitted and no
additional purchases of insurance will be made pursuant to those agreements.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the Company's directors and executive
officers, executive and director compensation and compensation plans, certain
relationships and related transactions and other related matters as to the
Company is contained under "PROPOSAL 2-ELECTION OF DIRECTORS."
ACCOUNTING TREATMENT
Centura and Centura Bank will use the purchase method of accounting in
connection with the Merger.
EXPENSES OF THE MERGER
The Merger Agreement provides that whether or not the Merger Agreement is
terminated or the transactions contemplated thereunder are consummated, the
Company and Centura shall each pay its own legal, accounting and financial
advisory fees and all other costs and expenses incurred in connection with the
proposed transactions.
21
EFFECT OF THE MERGER THE RIGHTS OF THE COMPANY'S STOCKHOLDERS
As a result of the Merger, holders of the common stock will exchange their
shares for cash. Under the Company's current charter, stockholders have voting
rights with respect to certain matters relating to the Company, including the
election of directors. After the Merger, stockholders of the Company will not
be stockholders of the Company, Centura, or Centura Bank and, therefore, will
have no voting rights with respect to the Company, Centura, or Centura Bank,
unless such stockholders otherwise own or purchase voting securities of Centura.
APPRAISAL RIGHTS
Under North Carolina law, the Company's stockholders have no right to an
appraisal of the value of their shares in connection with the Merger.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE MERGER.
---
TO BE APPROVED, A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES ENTITLED TO VOTE
AT THE ANNUAL MEETING MUST VOTE IN FAVOR OF THE MERGER, IN PERSON OR BY PROXY.
INFORMATION ABOUT THE COMPANY AND THE BANK
The Company is a bank holding company registered with the Federal Reserve
under the BHC Act and the savings bank holding company laws of North Carolina.
The Company's and the Bank's principal office is located at 505 South Main
Street, Laurinburg, North Carolina. The Company's activities consist of
investing the proceeds of its initial public offering which were retained at the
holding company level, holding the indebtedness outstanding from the Bank's ESOP
and owning the Bank. The Company's principal sources of income are earnings on
its investments and interest payments received from the ESOP with respect to the
ESOP loan. In addition, the Company will receive any dividends which are
declared and paid by the Bank on its capital stock.
The Bank was originally chartered in 1923 and has been a member of the
Federal Home Loan Bank system since 1933. The deposits of the Bank are insured
by the Savings Association Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC") to the maximum amount permitted by law.
The Bank conducts business through its full service offices in Laurinburg
and Pinehurst, North Carolina. It is primarily engaged in soliciting deposit
accounts from the general public, making mortgage loans to finance the
acquisition and construction of residential dwellings and making limited types
of consumer loans. The Bank's primary source of revenue is interest income from
its lending activities; other major sources of revenue are interest and dividend
income from investments and mortgage-backed securities, interest income from its
interest-bearing deposit balances in other depository institutions and fee
income from its lending and deposit activities. The major expenses of the Bank
are interest on deposits and noninterest expenses such as compensation and
fringe benefits, data processing expenses and branch occupancy and related
expenses.
PRIMARY MARKET AREA
The Bank's primary market area is Scotland County and portions of Moore
County, North Carolina. The Bank's principal office is in Laurinburg, North
Carolina and it has one full-service branch in Pinehurst, North Carolina.
Scotland County is in southeastern North Carolina along the North Carolina/South
Carolina stateline southwest of Fayetteville, North Carolina. Pinehurst is in
Moore County, immediately north of Scotland County and northwest of
Fayetteville.
Approximately 85% of the Bank's deposits are at the Laurinburg office and
the majority of its customers are residents of Laurinburg and Scotland County.
Scotland County is largely rural with a population of 35,000. Its economy is
diversified among agriculture, manufacturing and services. Major area employers
include Abbott Laboratories, Campbell Soup Company, LOF Glass and Westpoint
Stevens. Although the economy is diversified and generally stable,
22
population and household growth, and median and per capita income levels for
Scotland County are generally lower than comparable levels for North Carolina
and the nation, while unemployment levels are generally higher. Management
regards the Scotland County market area as a low growth area in which there is
significant competition among financial services providers for market share. The
Company believes that opportunities for future earnings growth in the Bank's
home market area are limited in light of these factors.
By comparison, in Pinehurst and Moore County, where the Bank has fewer
deposits and customers, growth and income levels exceed North Carolina and
national figures, reflecting the development of Pinehurst and Moore County as
golfing, resort and retirement centers. The major employers in Moore County
include Moore Regional Hospital, Resorts of Pinehurst and Ithaca Industries.
There is significant competition among providers of financial services in these
markets and the Bank's market share is not large.
SUBSIDIARY ACTIVITIES
The Company has no subsidiaries other than the Bank. The Bank has no
subsidiaries.
EMPLOYEES
As of September 30, 1998, the Bank had 13 full-time employees and no part-
time employees. The employees are not represented by a collective bargaining
unit. The Bank believes its relationship with its employees to be good.
PROPERTIES
The following table sets forth the location of the Bank's principal office
in Laurinburg and its full service branch office in Pinehurst, as well as
certain other information relating to these offices as of September 30, 1998.
The Bank owns the Laurinburg office. The Bank is a 50% owner of the Pinehurst
office. A golf course designer owns and has offices in the other half of the
building. All taxes, insurance, utilities and maintenance are paid by each
owner for their respective one-half of the building. The net book value of the
Pinehurst property listed below is for the Bank's one-half interest.
NET BOOK VALUE DEPOSITS
ADDRESS OF PROPERTY (IN THOUSANDS)
------- -------------- --------------
Laurinburg: $556,058 $37,116
505 South Main Street
P.O. Box 1468
Laurinburg, North Carolina 28352
Pinehurst: $162,340 $ 7,155
77 Cherokee Road
Pinehurst, North Carolina 28374
The Bank's management considers the property to be in good condition and is
of the opinion that it is adequately covered by insurance. The total net book
value of the Bank's furniture, fixtures and equipment on September 30, 1998 was
$37,583. Any property acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until such time as it is sold or
otherwise disposed of by the Bank in an effort to recover its investment. As of
September 30, 1998, the Bank had no recorded real estate acquired in settlement
of loans.
LEGAL PROCEEDINGS
In the opinion of management, neither the Company nor the Bank is involved
in any pending legal proceedings other than routine, non-material proceedings
occurring in the ordinary course of business.
23
MARKET AND DIVIDEND INFORMATION
The Company's sources of income consist of dividends paid by the Bank to
the Company and income from investments. Following the payment of a special
dividend totaling $6.00 in 1997, the Company's income from investments was
substantially reduced. Consequently, declarations of cash dividends by the
Company may depend upon dividend payments by the Bank to the Company, which are
subject to various restrictions.
At the time of the Bank's conversion from mutual to stock form of ownership
(the "Conversion"), the Bank established a liquidation account in an amount
equal to $8,861,000, its net worth at December 31, 1995. The liquidation
account is maintained for the benefit of eligible deposit account holders who
continue to maintain their deposit accounts in the Bank after the Conversion.
Only in the event of a complete liquidation would each eligible deposit account
holder be entitled to receive a liquidating distribution in the amount of the
then-current adjusted subaccount balance for the deposit accounts before any
liquidation distribution may be made with respect to the common stock.
Dividends paid by the Bank to the Company cannot reduce the net worth of the
Bank below the amount required for this liquidation account.
Also, the Bank may not declare or pay a cash dividend if its net worth
would be reduced below the minimum regulatory capital requirement imposed by
federal and state regulations. The FDIC requires the Bank to maintain minimum
ratios of Tier 1 capital to quarterly average total assets, Tier 1 capital to
total risk-weighted assets and total capital to risk-weighted assets of 3%, 4%
and 8%, respectively. The Bank's Tier 1 capital to quarterly average total
assets, Tier 1 capital to total risk-weighted assets and total capital to risk-
weighted assets ratios were approximately 20.3%, 33.9% and 34.6%, respectively,
at September 30, 1998. The Administrator requires a net worth equal to at least
5% of assets. At September 30, 1998, the Bank's net worth to average assets
ratio was approximately 21.1%.
In addition, for a period of five years after the Conversion, the Bank is
required, under existing North Carolina regulations, to obtain prior written
approval of the Administrator before it can declare and pay a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) its
net income for the most recent fiscal year, or (ii) the average of its net
income after dividends for the most recent fiscal year and not more than two of
the immediately preceding fiscal years, if applicable. At the Administrator's
request, the Company has provided prior notice to the Administrator of each
dividend paid by the Company. Also, the Bank has obtained the Administrator's
prior approval for each dividend paid by the Bank to the Company.
Retained income at September 30, 1998, includes approximately $1,422,000
for which no provision for federal income tax has been made. This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Payment of dividends by the Bank out of this bad debt allocation would create
taxable income equal to approximately 165% of the dividend for the Bank.
The Company is also subject to limits on dividend payments. The Company is
prohibited, under the North Carolina Business Corporation Act, from paying a
dividend if such payment would (i) cause the Company to be unable to pay its
debts as they become due in the ordinary course of business or (ii) reduce the
Company's total assets below the sum of the Company's total liabilities plus any
amounts which would be needed, if the Company were to be dissolved at the time
of distribution, to satisfy the preferential rights that are superior to holders
of the common stock.
Since the Conversion, the Company's policy has been to pay regular
quarterly dividends ranging from $0.05 to $0.075 per share. In addition, the
Company paid a return of capital in the form of a special dividend in the amount
of $6.00 on September 29, 1997. This return of capital was determined by the
Board of Directors of the Company to be in the best interest of the Company's
stockholders, based upon advice from its financial advisor, due to the (i)
overcapitalization of the Company following the Conversion and the lack of
immediately available investments providing an acceptable rate of return for the
Company's stockholders and (ii) the Company's business and prospects.
The Company's common stock began trading on April 2, 1996. As of December
18, 1998, there were approximately 470 holders of record, not including the
number of persons or entities whose stock is held in nominee or street name
through various brokerage firms or banks. The Company's stock is traded on the
American Stock Exchange under the symbol "SSB."
24
The table below gives the high and low sales prices for each quarter of the
Company's last two fiscal years.
HIGH LOW
------- -------
1998
First Quarter $12.875 $ 9.875
Second Quarter $11.375 $ 9.750
Third Quarter $ 9.750 $ 8.125
Fourth Quarter $11.250 $10.750
1997
First Quarter $14.375 $12.750
Second Quarter $16.750 $14.250
Third Quarter $16.375 $14.750
Fourth Quarter $19.250 $12.500
SELECTED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected financial data and other operating
information of the Company at the dates and for the periods indicated. See "--
Market and Dividend Information" for a discussion of the limits on the Company's
ability to pay dividends in the future.
Year Ended September 30
1998 1997 1996 1995 1994
(Dollars in Thousands, Except Per Share Data)
Financial Condition Data:
Total assets $60,730 $64,399 $68,622 $57,718 $57,715
Investments securities/(1)/ 16,137 16,110 21,464 14,525 19,273
Loans receivable, net 42,485 46,463 45,079 41,204 36,661
Deposits 44,271 43,140 42,410 48,203 48,995
Stockholders' equity/(2)/ 15,337 14,561 24,791 8,580 7,761
Book value per share/(2)/ 8.01 7.61 13.47 -- --
Operating Data:
Interest and dividend income $ 4,564 $ 5,171 $ 4,870 $ 4,313 $ 3,889
Interest expense 2,122 1,983 2,209 2,144 1,753
Net interest income 2,442 3,188 2,661 2,169 2,136
Provision for loan losses 6 24 25 11 20
Noninterest income 74 306 80 73 71
Noninterest expense 1,676 1,680 1,549 1,158 1,263
Income before income taxes 834 1,790 1,167 1,073 924
Income tax expense 305 532 409 352 292
Net income $ 529 $ 1,258 $ 758 $ 721 $ 632
Basic earnings per share/(2)(3)/ $ 0.32 $ 0.74 $ 0.23 $ -- $ --
Diluted earnings per share/(2)(3)/ $ 0.32 $ 0.74 $ 0.25 $ -- $ --
Dividends per share/(2)/ $ 0.20 $ 6.30 $ 0.15 $ -- $ --
Dividend payment ratio/(2)(6)/ 62.50% 851.35% 60.00% -- --
25
Selected Other Data:
Return on average assets 0.86% 1.84% 1.18% 1.25% 1.13%
Return on average equity 3.52% 5.14% 4.31% 8.52% 8.49%
Average equity to average assets 24.41% 35.80% 27.38% 14.67% 13.31%
Interest rate spread 2.89% 3.05% 2.84% 3.27% 3.50%
Net interest margin 4.07% 4.75% 4.15% 3.87% 3.94%
Efficiency ratio/(5)/ 66.62% 48.08% 56.51% 51.65% 57.23%
Allowance for loan losses to nonperforming loans/(4)/ 910.71% 830.00% 714.97% 0.00% 0.00%
Nonperforming loans to total loans 0.06% 0.06% 0.07% 0.00% 0.00%
(1) Includes interest-earning deposits, federal funds sold, investment
securities and mortgage-backed securities.
(2) On March 29, 1996, Scotland Savings converted from a state chartered mutual
savings bank to a state chartered stock savings bank and became a wholly
owned subsidiary of Scotland Bancorp, Inc. The Bank issued regular cash
dividends per share totaling $0.20, $0.30 and $0.15 for the years ended
September 30, 1998, 1997 and 1996 and a return of capital dividend of $6.00
during the year ended September 30, 1997.
(3) Earnings per share has been calculated in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", and is based
on net income for the year, divided by the weighted average number of
shares outstanding for the year. In accordance with the AICPA's SOP 93-6,
unallocated ESOP shares were deducted from outstanding shares used in the
computation of earnings per share. Diluted earnings per share includes the
effect of dilutive common stock equivalents in the weighted average number
of shares outstanding.
(4) Nonperforming loans include mortgage loans and consumer/commercial loans 90
days or more delinquent.
(5) The efficiency ratio represents non-interest expense as a percentage of the
sum of net interest income and non-interest income.
(6) The dividend payment ratio represents dividends per share as a percent of
earnings per share. Dividends per share include a $6.00 return of capital
dividend during the year ended September 30, 1997.
INFORMATION ABOUT CENTURA AND CENTURA BANK
CENTURA
Centura, a North Carolina corporation, is a bank holding company registered
with the Federal Reserve under the BHC Act. Centura owns all of the outstanding
shares of Centura Bank, a North Carolina bank corporation. Centura, through
Centura Bank and its subsidiaries, offers a complete line of banking,
investment, leasing, insurance, and trust services through 210 offices located
in 122 communities throughout North Carolina, South Carolina, and the Hampton
Roads region of Virginia and through a variety of alternative delivery channels.
As of September 30, 1998, Centura had total consolidated assets of approximately
$7.8 billion, total consolidated liabilities of approximately $7.2 billion, and
total consolidated stockholders' equity of approximately $618.4 million.
The principal executive offices of Centura and Centura Bank are located at
134 North Church Street, Rocky Mount, North Carolina 27804, and its telephone
number at such address is (252) 454-4400.
LEGAL PROCEEDINGS
There is no litigation instituted or pending, or, to the knowledge of
Centura, threatened against any Centura subsidiary that is reasonably likely to
have, individually or in the aggregate, a material adverse effect on Centura's
ability to perform its obligations under the Merger Agreement.
26
SELECTED FINANCIAL DATA OF CENTURA
The following table sets forth selected financial data and other operating
information of Centura at the dates and for the periods indicated.
Nine Months Ended
September 30 Year Ended December 31
1998 1997 1997 1996 1995 1994 1993
SUMMARY OF OPERATIONS
(Thousands, except per share)
Interest income $427,933 $377,953 $515,089 $469,760 $417,635 $324,950 $282,819
Interest expense 206,231 181,143 247,184 219,676 192,990 123,657 112,306
-------- -------- -------- -------- -------- -------- --------
Net interest income 221,702 196,810 267,905 250,084 224,645 201,293 170,513
Provision for loan loss 11,069 9,569 13,418 9,596 7,904 7,220 9,151
Noninterest income 100,724 77,759 117,221 100,847 80,110 63,756 66,642
Noninterest expense 202,996 173,852 246,230 233,981 195,777 170,207 157,040
Income taxes 36,695 31,594 42,420 39,203 36,421 31,849 26,688
-------- -------- -------- -------- -------- -------- --------
Net income 71,666 59,554 83,058 68,151 64,653 55,773 44,276
======== ======== ======== ======== ======== ======== ========
Net interest income, taxable equivalent 227,170 202,632 275,632 256,109 229,827 207,033 176,610
======== ======== ======== ======== ======== ======== ========
Cash dividends 22,416 20,373 27,354 24,001 18,731 15,874 12,833
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE
Net income - basic $ 2.72 $ 2.31 $ 3.22 $ 2.66 $ 2.50 $ 2.23 $ 1.92
Net income - diluted 2.67 2.26 3.15 2.60 2.45 2.19 1.90
Cash dividends 0.85 0.79 1.06 1.00 0.85 0.74 0.69
Book value 23.28 20.45 20.82 18.51 17.19 14.95 14.09
SELECTED AVERAGE BALANCES
(Millions)
Assets $ 7,446 $ 6,461 $ 6,601 $ 5,956 $ 5,178 $ 4,478 $ 3,937
Earning assets 6,778 5,934 6,056 5,485 4,754 4,118 3,614
Loans 4,853 4,224 4,309 4,014 3,638 3,005 2,650
Investment securities 1,897 1,679 1,716 1,436 1,083 1,083 905
Core deposits 4,940 4,420 4,512 4,102 3,646 3,445 3,058
Total deposits 5,444 4,784 4,899 4,505 4,036 3,718 3,334
Shareholders' equity 584 503 510 454 425 360 301
SELECTED PERIOD-END BALANCES
(Millions)
Assets $ 7,805 $ 6,891 $ 7,125 $ 6,294 $ 5,785 $ 4,658 $ 4,518
Earning assets 7,127 6,227 6,458 5,720 5,274 4,230 4,091
Loans 5,013 4,511 4,587 4,109 3,898 3,244 2,834
Investment securities 2,094 1,693 1,828 1,578 1,329 966 1,201
Core deposits 5,065 4,799 4,893 4,387 3,948 3,428 3,538
Total deposits 5,569 5,210 5,365 4,733 4,444 3,736 3,854
Shareholders' equity 618 529 538 475 443 369 351
SELECTED RATIOS
Return on average assets 1.29% 1.23% 1.26% 1.14% 1.25% 1.25% 1.12%
Return on average equity 16.42% 15.83% 16.28% 15.02% 15.22% 15.48% 14.73%
Average equity to average assets 7.84% 7.79% 7.73% 7.62% 8.21% 8.04% 7.64%
Dividend payout ratio 31.28% 34.21% 32.93% 35.22% 28.97% 28.46% 28.98%
27
SELECTED PER SHARE DATA OF THE COMPANY AND CENTURA
The following per share data has been derived from the Selected
Consolidated Financial Data of the Company and the Selected Consolidated
Financial Data of Centura contained elsewhere in this Proxy Statement. See
"INFORMATION ABOUT THE COMPANY AND THE BANK - Market and Dividend Information"
for a discussion of the limits on the Company's ability to pay dividends in the
future.
SCOTLAND BANCORP, INC.
Year Ended September 30
-----------------------
1998 1997
---- ----
Per Share Data:
Net Income/(1)/:
Basic $0.32 $0.74
Diluted 0.32 0.73
Cash dividends 0.20 6.30
Book Value 8.01 7.61
_________________
/1/Reflects the change in fair value of the common stock held by the ESOP.
CENTURA BANKS, INC.
Nine Months Ended
September 30 Year Ended December 31
1998 1997 1997 1996 1995 1994 1993
Per Common Share Data:
Net income:
Basic $ 2.72 $ 2.31 $ 3.22 $ 2.66 $ 2.50 $ 2.23 $ 1.92
Diluted 2.67 2.26 3.15 2.60 2.45 2.19 1.90
Cash dividends 0.85 0.79 1.06 1.00 0.85 0.74 0.69
Book value 23.28 20.45 20.82 18.51 17.19 14.95 14.09
28
PROPOSAL 2
ELECTION OF DIRECTORS
Proposals 2 and 3 described below constitute the business customarily transacted
at the Annual Meeting. The actions taken by Scotland's stockholders on such
proposals will be effective until the consummation of the Merger if approved by
the stockholders, and until otherwise acted on at a subsequent annual or special
stockholders meeting if the Merger is not approved by the stockholders.
NOMINEES
The Articles of Incorporation of the Company provide that the number of
directors of the Company shall not be less than five nor more than fifteen, with
the exact number within this range to be fixed from time to time by the Board of
Directors. The Board of Directors has currently fixed the size of the Board at
ten members.
The Articles of Incorporation and Bylaws provide that so long as the total
number of directors is nine or more, the directors will be divided into three
classes, as nearly equal in number as possible. Each director in a class is to
be elected for a term of three years, or until his earlier death, resignation,
retirement, removal or disqualification or until his successor is elected and
qualified.
The Board of Directors has nominated John B. Clark, James E. Milligan,
James S. Mitchener, Jr. and James T. Willis for election as directors, to serve
for the term specified, or until their earlier death, resignation, retirement,
removal or disqualification or until their successors are elected and qualified.
Any other persons nominated must be nominated for a three-year term.
The persons named in the accompanying form of proxy intend to vote any
shares of common stock represented by valid proxies received by them to elect
these four nominees as directors for a three-year term, unless authority to vote
is withheld or such proxies are duly revoked. Each of the nominees for election
is currently a member of the Board of Directors. In the event that any of the
nominees should become unavailable to accept nomination or election, it is
intended that the proxyholders will vote to elect in his stead such other person
as the present Board of Directors may recommend or to reduce the number of
directors to be elected at the Annual Meeting by the number of such persons
unable or unwilling to serve (subject to the requirements of the Company's
Articles of Incorporation). The present Board of Directors has no reason to
believe that any of the nominees named herein will be unable to serve if elected
to office. In order to be elected as a director, a nominee need only receive a
plurality of the votes cast. As a result, those four nominees for terms
expiring at the 2002 annual meeting who receive the largest number of votes will
be elected as directors for that term. Accordingly, shares not voted for any
reason respecting any one or more nominees will not be counted as votes against
such nominees. No stockholder has the right to cumulatively vote his or her
shares in the election of directors.
The following table sets forth as to each nominee, his name, age, principal
occupation during the last five years, the term for which he has been nominated,
and the year he was first elected as a director of the Bank. All of the
nominees currently serve, and have served since the Company's incorporation in
November, 1995, as directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES FOR
---
ELECTION AS DIRECTORS.
29
AGE ON
SEPTEMBER EXISTING
30, PRINCIPAL OCCUPATION TERM DIRECTOR
NAME 1998 DURING LAST FIVE YEARS EXPIRES SINCE
- ---- --------- ---------------------- -------- --------
NOMINEES FOR TERM ENDING AS OF 2002 ANNUAL MEETING
John B. Clark 48 Senior Vice President of the Bank and 1999 1976
Vice President and Secretary of the
Company
James E. Milligan 74 Vice Chairman of the Board; 1999 1973
Retired Newspaper Publisher
James S. Mitchener, Jr. 75 Retired Surgeon 1999 1974
James T. Willis 43 Vice President, Adams & Willis, Inc.; 1999 1994
General Manager of Firestone Store
DIRECTORS CONTINUING IN OFFICE
S.T. Snowdon, Jr. 71 Chairman of the Board; Retired 2000 1959
Architect
E.S. Hill, Jr. 55 General Manager of Eaton Corp., a golf 2000 1990
supply company
William C. Fitzgerald, III 60 President and Chief Executive Officer 2000 1992
of the Bank and the Company
James W. Mason 82 Retired Attorney 2001 1953
Clifton P. Buie 40 Vice President of Manufacturing for 2001 1990
Charles Craft, Inc., a textile company
John W. Hudson 71 Retired Plant Manager of LOF Glass 2001 1994
BOARD OF DIRECTORS OF THE BANK
The Bank also has a ten-member board of directors which is composed of the
same persons who are currently directors of the Company.
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
During fiscal 1998, the Board of Directors of the Company held seven
meetings. All of the existing directors of the Company, except for James W.
Mason, including the nominees for election listed above, attended at least 75%
of the aggregate number of meetings of the Board of Directors and committees of
the Board on which they served during the year ended September 30, 1998.
The Board of Directors of the Company has one standing committee--the Audit
Committee. The Audit Committee of the Board consists of Clifton P. Buie, John
W. Hudson, James S. Mitchener, Jr., and James T. Willis. This Committee meets
annually to obtain and review the annual audit report from the Company's and the
Bank's independent auditor and also meets on an as-needed basis. The Audit
Committee met one time during the fiscal year ended September 30, 1998.
30
In addition, the full Board of Directors acts as a nominating committee
each year prior to the annual meeting of stockholders to nominate persons for
election to the Board of Directors.
The Bank's board of directors has appointed three other standing committees
to which certain responsibilities have been delegated -- the Loan Committee, the
Audit Committee and the Executive Committee. The members of the Company's Audit
Committee also serve on the Bank's Audit Committee. In addition the Bank's
board of directors appoints other committees of its members to perform certain
more limited functions from time to time.
The Executive Committee of the Bank's board of directors serves as the
compensation committee. The Executive Committee determines the compensation of
the executive officers of the Bank and the Company and the Bank's other
employees. During the fiscal year ended September 30, 1998, Messrs. Milligan,
Snowdon, Fitzgerald, and Dr. Mitchener served on the Bank's Executive Committee.
Mr. Fitzgerald does not participate in any deliberations of the Executive
Committee concerning his compensation as an executive officer.
DIRECTOR COMPENSATION
BOARD FEES. Members of the Board of Directors receive a $200 fee for each
meeting attended. All members of the Company's Board of Directors are also
directors of the Bank. For their service on the Bank's board of directors, non-
employee members of the Bank board receive $600 per month. The Chairman
receives an additional $400 per month and the Vice Chairman receives an
additional $100 per month. In addition, non-employee Bank directors who serve
on the Loan Committee, the Executive Committee, and the Audit Committee receive
$75 per each respective meeting attended.
BANK DEFERRED COMPENSATION AGREEMENTS. Three non-employee directors of the
Bank, Messrs. Snowdon and Milligan and Dr. Mitchener participate in deferred
compensation plans under which such directors, or their designated
beneficiaries, are to be paid specified amounts over a ten-year period beginning
in 1994 in return for the deferral of certain amounts of directors fees over a
seven-year period. Under the provisions of the plan, Mr. Snowdon is currently
receiving $735 per month; Mr. Milligan is receiving $647 per month and Dr.
Mitchener is receiving $566 per month. The Bank purchased life insurance
policies with the Bank named as the beneficiary to fund the benefits received
pursuant to these plans. Total expense related to the plans amounted to $10,004
for the year ended September 30, 1998 and the Bank's accrued liability for plan
obligations amounted to $92,685 at September 30, 1998.
STOCK OPTION PLAN. See "Management Compensation -- Stock Option Plan" for
discussion of the stock options granted to members of the Board of Directors
under the Stock Option Plan.
MANAGEMENT RECOGNITION PLAN. See "Management Compensation -- Management
Recognition Plan" for a discussion of the restricted stock awards made to
members of the Board of Directors under the Scotland Savings Bank, Inc., SSB
Management Recognition Plan and Trust (the "MRP").
31
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are executive officers of either the Company or the Bank or both.
EMPLOYED BY
THE BANK OR
AGE ON POSITIONS AND OCCUPATIONS THE COMPANY
NAME SEPTEMBER 30, 1998 DURING LAST FIVE YEARS SINCE
- ---- ------------------ ------------------------- -----------
William C. Fitzgerald, III 60 President and Chief Executive 1992
Officer of the Company and the Bank
John B. Clark 48 Senior Vice President of the Bank 1971
and Vice President and Secretary of
the Company
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the fiscal
years ended September 30, 1998, 1997, and 1996 certain information as to the
cash compensation received by William C. Fitzgerald, III, the President and
Chief Executive Officer of the Company and the Bank and John B. Clark, Senior
Vice President of the Bank and Vice President and Secretary of the Company.
There were no other executive officers whose cash compensation exceeded $100,000
for services rendered in all capacities.
32
ALL OTHER
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS COMPENSATION/6/
------------------------------------- ------------------------------------- ----------------
SECURITIES UNDERLYING
RESTRICTED OPTIONS/STOCK
NAME AND OTHER ANNUAL STOCK APPRECIATION RIGHTS
PRINCIPAL POSITION YEAR SALARY/1/ BONUS/2/ COMPENSATION/3/ AWARDS ("SARS") (IN SHARES)/5/
- ------------------ ---- ---------- -------- --------------- ---------- -----------------------
William C. Fitzgerald, III 1998 $105,483 $24,504 $23,804 ---- 46,000 $42,775
President and Chief
Executive 1997 $ 98,692 $85,505 ---- $230,000/4/ 46,000 $ 2,040
Officer of the Company and
the Bank 1996 $ 89,575 $27,686 ---- ----- ---- $ 2,026
__________________
/1/ In addition to salary, this amount also includes $1,400, $1,400 and $400 in
directors' fees for services on the Company's Board of Directors for 1998,
1997 and 1996.
/2/ For 1998 this amount includes a $15,462 discretionary bonus and a $9,042
annual bonus paid under Mr. Fitzgerald's employment agreement. For 1997,
in addition to a $9,209 discretionary bonus and a $18,796 annual bonus this
amount includes a stock award made to Mr. Fitzgerald pursuant to the MRP
of 3,680 shares of the common stock that vested immediately upon grant.
Such shares had an aggregate fair market value of $57,500 on the date of
grant. See footnote 4 below for more information on the stock grant awards
made to Mr. Fitzgerald and "Management Recognition Plan" for more
information about the terms of the MRP. For 1996, this amount includes a
$12,215 discretionary bonus and a $15,471 annual bonus.
/3/ Under the "Other Annual Compensation" category, perquisites for the fiscal
years ended September 30, 1998, 1997 and 1996 did not exceed the lesser of
$50,000, or 10% of salary and bonus. In 1998, Mr. Fitzgerald received
$23,804 in dividends on shares that vested in 1998 pursuant to the terms of
the MRP. See footnote 4 below.
/4/ This amount represents the fair market value on May 13, 1997, the date of
grant, of 14,720 unvested shares awarded to Mr. Fitzgerald pursuant to the
MRP. On May 13, 1997, Mr. Fitzgerald was awarded 18,400 shares of the
common stock that had a fair market value of $15.625 per share on the date
of grant. On September 30, 1997, the fair market value per share was
$12.50, for an aggregate value of $230,000. Twenty percent of the shares
vested immediately (the value of the vested shares ($57,500) is included
under the "Bonus" category herein). The remaining 80% of the shares will
vest 20% each year thereafter until all such shares are vested on May 13,
2001. Mr. Fitzgerald's unvested shares are being held in the MRP Trust.
All dividends paid on unvested shares are held by the trustees for Mr.
Fitzgerald's benefit and such dividends, with any interest earned, will be
paid to Mr. Fitzgerald after the shares vest. In 1998 an additional 20%
(or 3,680 shares) of the award vested. See footnote 3 above.
/5/ On May 13, 1997, Mr. Fitzgerald was awarded options pursuant to the
Company's Stock Option Plan, entitling Mr. Fitzgerald to purchase, at any
time after vesting and before May 13, 2007, shares of the common stock in
exchange for an exercise price of $15.625 per share, which was the fair
market value per share on the date of grant. These shares vested 25% on
May 13, 1997 and will vest 25% each year thereafter until all such options
are vested on May 13, 2000. On September 29, 1997, the Company paid a
return of capital in the form of a special dividend to its stockholders.
In accordance with the terms of the Stock Option Plan, the Company and Mr.
Fitzgerald mutually agreed to the termination and release of the existing
options. Subsequently, on November 4, 1997, options equal in number to
those awarded initially were granted to Mr. Fitzgerald at an exercise price
of $10.50, the fair market value per share on the date of grant (November
4, 1997). Options become 100% vested upon death, disability, retirement or
change of control, as defined in the Stock Option Plan. See "Stock Option
Plan" and the accompanying tables for more information about the terms of
the Stock Option Plan.
/6/ The amounts shown in this column represent the amounts contributed to the
Bank's 401(k) plan and the ESOP for Mr. Fitzgerald.
33
STOCK OPTION PLAN. On April 17, 1997, the stockholders of the Company
approved the Stock Option Plan which is administered by a committee of the
Company's Board of Directors (the "Committee"). The Company has reserved
184,000 shares of the common stock for issuance upon the exercise of options
which have been granted under the Stock Option Plan. All directors, officers
and employees of the Company, the Bank, and any of the Bank's subsidiaries are
eligible for participation in the Stock Option Plan. Options to purchase
177,000 shares of the common stock were granted during fiscal year 1997. Of
this amount, options to purchase 6,900 shares of the common stock have been
granted to each non-employee director; options to purchase 46,000 shares have
been granted to Mr. Fitzgerald and options to purchase 36,800 shares have been
granted to Mr. Clark. Twenty-five percent of the options granted vested
immediately on May 13, 1997, the date of grant. The remainder will vest in 25%
increments on the next three anniversary dates of the grant.
No cash consideration was paid for the options. On May 13, 1997, the
option exercise price was $15.625, the fair market value of the common stock on
the date of grant. On September 29, 1997, the Company paid a $6.00 per share
return of capital in the form of a special dividend to its stockholders. The
Stock Option Plan provides that the option exercise price may be adjusted under
certain circumstances, including the payment of a return of capital. After
September 30, 1997, the Company and the participants in the Stock Option Plan
mutually agreed to the termination and release of the existing options pursuant
to the Stock Option Plan. Subsequently, options equal in number to those
awarded initially were granted to the employees, directors and officers of the
Company and the Bank on November 4, 1997 at an exercise price of $10.50, the
fair market value per share on the date of grant, in accordance with the Stock
Option Plan. Based upon the closing market price per share paid on September
30, 1998, the fair market value of the common stock underlying the options is
$11.125 per share.
All options granted to participants under the Stock Option Plan shall
become vested and exercisable at the rate determined by the Committee when
making an award. Unvested options may not vest after a participant's employment
with the Company, the Bank or any subsidiary is terminated for any reason other
than the participant's death, disability or retirement. Unless the Committee
shall specifically state otherwise at the time an option is granted, all options
granted to participants shall become vested and exercisable in full on the date
an optionee terminates his employment with or service to the Company, the Bank
or any subsidiary because of his death, disability or retirement. In addition,
all stock options will become vested and exercisable in full in the event that
the optionee ceases to be an employee or director of the Company or the Bank
after a change in control of the Company, as defined in the Stock Option
Agreement.
In the event of a stock split, reverse stock split or stock dividend, the
number of shares of common stock under the Stock Option Plan, the number of
shares to which any option relates and the exercise price per share under any
option shall be adjusted to reflect such increase or decrease in the total
number of shares of common stock outstanding. In addition, in the event the
Company declares another special cash dividend or return of capital, the per
share exercise price of all previously granted options which remain unexercised
as of the date of such declaration may be adjusted to give effect to such
special cash dividend or return of capital.
The following table provides certain information with respect to the grant
of stock options to Mr. Fitzgerald made during the fiscal year ended September
30, 1998. These options replaced those granted on May 13, 1997, which were
terminated and released.
34
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING OPTIONS/SARS GRANTED TO OR BASE EXPIRATION
NAME GRANTED/1/ EMPLOYEES IN FISCAL YEAR PRICE($/SH)/2/ DATE
- ---------------------------- ----------------------- ------------------------- -------------- -----------
William C. Fitzgerald, III 46,000 37.77% $10.50 May 13, 2007
___________________
/1/ Twenty-five percent of the options granted vested on May 13, 1997 under the
initial grant and 25% will vest each year thereafter until all such options
are vested on May 13, 2000.
/2/ Represents the average high and low selling prices of the Company's common
stock on AMEX on the date of grant (November 4, 1997).
No options were exercised by Mr. Fitzgerald during the fiscal year ended
September 30, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
NAME ON EXERCISE REALIZED FISCAL YEAR END/1/ FISCAL YEAR END/2/
- ---- -------------- ----------- ------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ---------------- ------------- --------------
William C. Fitzgerald, III 0 $0 23,000 23,000 $14,375 $14,375
_______________________
/1/ All stock options were granted as of November 4, 1997, replacing the
originally awarded stock options which were terminated and released. Stock
options for 11,500 shares for Mr. Fitzgerald vested in the fiscal year
ended September 30, 1998.
/2/ Dollar amounts shown represent the value of stock options held by Mr.
Fitzgerald as of September 30, 1998. At September 30, 1998, the exercise
price of the stock options was $10.50. On September 30, 1998, the closing
market price per share for the common stock as reported on AMEX was
$11.125.
401(K) PROFIT SHARING PLAN. The Bank maintains a contributory savings plan
for its employees which meets the requirements of Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). All employees who have completed
three months of service and who are at least 21 years of age may elect to
contribute a percentage of their compensation to the plan each year, subject to
certain maximums imposed by federal law. The Bank will match 50% of each
participant's contribution, up to a maximum employer contribution of 2% of the
participant's compensation. For purposes of the 401(k) profit sharing plan,
compensation means a participant's compensation received from the employer as
reported on Form W-2.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts contributed to the plan on their behalf
by the Bank as employer matching contributions and as profit sharing
contributions after four years of service as follows: 1 year, 25%; 2 years, 50%;
3 years, 75%; 4 or more years, 100%.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment. Normal retirement
age under the plan is 65 years of age. During the 1998 fiscal year neither the
Bank nor any of the participants contributed to the 401(k) profit sharing plan.
EMPLOYEE STOCK OWNERSHIP PLAN. The Bank has established the ESOP for
eligible employees of the Bank. Employees with 1,000 hours of employment in a
plan year and who have attained age 21 are eligible to participate. The ESOP
used funds borrowed from the Company to purchase 147,200 of the shares of the
Company's common stock. The Bank's discretionary contributions to the ESOP over
a period of 15 years or less will be used to repay the loan from the Company.
In addition regular, quarterly dividends, if any, paid on shares held by the
ESOP may also be used to
35
reduce the loan. Special dividends which result in a nontaxable return of
capital to the holders of the Company's common stock for federal income tax
purposes that are received on shares held by the ESOP are required by the
Internal Revenue Service to be used to purchase additional shares of the common
stock in the open market. On September 29, 1997, the Company paid a $6.00 per
share return of capital in the form of a special dividend to its stockholders.
As of September 30, 1998, the ESOP had purchased 86,292 shares of common stock
in the open market using funds received as a special dividend in addition to the
147,200 shares purchased in the Conversion and now holds, net of shares
allocated or committed to be allocated to participants' accounts, in the
aggregate, 215,608 shares.
Shares purchased by the ESOP are held in a suspense account for allocation
among participants as the loan is repaid. Contributions to the ESOP and shares
released from the suspense account in an amount proportional to the repayment of
the ESOP loan are allocated among ESOP participants on the basis of relative
compensation in the year of allocation. Benefits vest in annual increments with
full vesting upon attaining five years of service (with credit given for years
of service prior to the conversion of the Bank from mutual form to stock form).
Prior to the completion of five years of credited service, a participant who
terminates employment for reasons other than death, retirement (or early
retirement), or disability will receive only vested benefits under the ESOP.
Forfeitures are reallocated among remaining participating employees in the same
proportion as contributions. Benefits immediately vest and are payable upon
death or disability. The Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
The Bank has established a committee of the board of directors of the Bank
to administer the ESOP and has also appointed trustees for the ESOP. The ESOP
committee may instruct the trustees regarding investment of funds contributed to
the ESOP. Participating employees may instruct the trustees as to the voting of
all shares allocated to their respective ESOP accounts. The unallocated shares
held in the suspense account, and all allocated shares for which voting
instructions are not received, will be voted by the trustees in their discretion
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended.
MANAGEMENT RECOGNITION PLAN. On April 17, 1997, the stockholders of the
Company approved the MRP. Effective May 13, 1997 restricted stock awards of
73,600 shares of the common stock were made to 21 directors, officers and
employees of the Bank. Non-employee directors each received an award of 2,760
shares of restricted stock. Mr. Fitzgerald received an award of 18,400 shares
and Mr. Clark received an award of 14,720 shares. The shares awarded under the
MRP were issued from authorized but unissued shares of common stock and were
issued at no cost to recipients.
The Board of Directors has appointed trustees of the MRP Trust who have the
responsibility to invest all funds contributed by the Bank to the Trust.
Recipients are entitled to direct the trustees as to the voting of MRP shares
which are not yet vested and distributed to the recipient. All dividends and
other cash and noncash distributions declared with respect to each unvested MRP
share will be held by the trustees for the benefit of each recipient, and such
dividends, including any interest earned, will be paid out proportionately by
the trustees to each recipient as soon as practicable after each recipient's MRP
shares vest. Twenty percent of the shares granted vested on the date of the
award (May 13, 1997) and 20% will vest on each of the subsequent four
anniversary dates of the award. Awards of common stock under the MRP would
immediately vest upon the disability or death of a recipient or if the
participant ceases to be employed by the Company or the Bank after a change in
control of the Company, as defined in the MRP. The awards are not forfeitable
upon vesting.
EMPLOYMENT AGREEMENT. The Bank entered into an employment agreement with
William C. Fitzgerald, III in order to establish his duties and compensation and
to provide for his continued employment with the Bank. The agreement provides
for an initial term of employment of three years. Commencing on the first
anniversary date of the agreement and continuing on each anniversary date
thereafter, following a performance evaluation of the employee, the agreement
may be extended for an additional year. The agreement provides that base salary
shall be reviewed by the board of directors of the Bank not less often than
annually. Under the terms of the agreement, Mr. Fitzgerald's annual base salary
was $107,000 for fiscal 1998. In addition, the employment agreement provides
for profitability and discretionary bonuses and participation in all other
pension, profit-sharing or retirement plans maintained by the Bank or by the
Company for employees of the Bank, as well as fringe benefits normally
associated with such employee's office. The employment agreement provides that
it may be terminated by the Bank for cause, as defined in the
36
agreement, and that it may otherwise be terminated by the Bank (subject to
vested rights) or by the employee. In the event of a change in control (as
defined below) in lieu of continuing to be entitled to receive a profitability
bonus, Mr. Fitzgerald's base salary shall be adjusted to include an amount equal
to the average of the two previous years' annual profitability bonus and such
adjusted base salary shall be increased by a minimum of 6% annually.
The employment agreement provides that in the event of a change in control
of the Bank or the Company, the acquiror shall be bound by the terms of the
employment agreement for a period of three years beginning on the date of the
change of control and during such time the nature of the employee's
compensation, duties or benefits may not be diminished except as set forth in
the employment agreement. For purposes of the employment agreement, a change in
control generally will occur if (i) after the effective date of the employment
agreement, any "person" (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to, or are acquired by,
any other entity or group.
Mr. Fitzgerald will enter into an employment agreement with Centura that is
substantially similar to his existing agreement.
SPECIAL TERMINATION AGREEMENT. The Bank entered into a special termination
agreement with John B. Clark. The special termination agreement provides for
payment to Mr. Clark only (i) in the event of a change in control of the Company
or the Bank followed by termination of the employee's employment within 24
months by the Bank for other than "cause," as such term is defined in the
agreement, or (ii) in the event the nature of the employee's compensation,
duties or benefits are diminished within 24 months following a change in control
in the Bank or the Company and the employee terminates his employment within 12
months thereafter. In the event of such a termination of employment, the
employee is entitled to payment in an amount equal to two times his "base
amount" as defined in Section 280G(b)(3) of the Code, payable in a lump sum or
in equal monthly payments. The initial term of the agreement is for a three-
year period commencing upon the effective date of the Conversion. On the first
anniversary date and continuing on each anniversary date thereafter, following a
performance evaluation of the employee, the agreement may be extended for an
additional year. For purposes of the special termination agreement, "change in
control" has the same meaning as contained in the employment agreement to be
entered into with Mr. Fitzgerald. See "--Employment Agreement". Centura and
Centura Bank have agreed to honor the terms of Mr. Clark's special termination
agreement.
37
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
McGladrey & Pullen, LLP, the Company's and the Bank's independent
accountants for the year ended September 30, 1998, has been selected as the
Company's and the Bank's independent auditor for the 1999 fiscal year. Such
selection is being submitted to the Company's stockholders for ratification. A
representative of McGladrey & Pullen, LLP is expected to attend the Annual
Meeting and will be afforded an opportunity to make a statement, if he so
desires, and to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS
---
PROPOSAL.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
It is presently anticipated that the 2000 Annual Meeting of Stockholders
will be held in January of 2000 only if the Merger is not consummated by that
date. If the meeting is held, in order for stockholder proposals to be included
in the proxy material for that meeting, such proposals must be received by the
Secretary of the Company at the Company's principal executive office not later
than August 31, 1999, and meet all other applicable requirements for inclusion
therein.
The Company's Bylaws provide that, in order to be eligible for
consideration at an annual meeting of stockholders, all nominations of
directors, other than those made by the Company's Board of Directors, must be
made in writing and must be delivered to the Secretary of the Company not less
than 30 days nor more than 50 days prior to the meeting at which such
nominations will be made; provided, however, if less than 21 days notice of the
meeting is given to stockholders, such nominations must be delivered to the
Secretary of the Company not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed.
OTHER MATTERS
Management knows of no other matters to be presented for consideration at
the Annual Meeting or any adjournments thereof. If any other matters shall
properly come before the Annual Meeting, it is intended that the proxyholders
named in the enclosed form of proxy will vote the shares represented thereby in
accordance with their judgment, pursuant to the discretionary authority granted
therein.
MISCELLANEOUS
The Annual Report of the Company for the year ended September 30, 1998,
which includes consolidated financial statements audited and reported upon by
the Company's independent accountants, is being mailed along with this Proxy
Statement; however, it is not intended that the Annual Report be deemed a part
of this Proxy Statement or a solicitation of proxies.
THE FORM 10-KSB FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
38
PROVIDED FREE OF CHARGE TO THE COMPANY'S STOCKHOLDERS UPON WRITTEN REQUEST
DIRECTED TO: SCOTLAND BANCORP, INC., 505 SOUTH MAIN STREET, LAURINBURG, NORTH
CAROLINA 28352, ATTENTION: WILLIAM C. FITZGERALD, III.
By Order of the Board of Directors,
/s/ John B. Clark
John B. Clark
Secretary
Laurinburg, North Carolina
December 29, 1998
39
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
August 26, 1998 between Centura Banks, Inc. a North Carolina bank holding
- ---------------
company with its principal office in Rocky Mount, North Carolina ("Centura");
and Scotland Bancorp, Inc., a North Carolina business corporation with its
principal office and place of business located in Laurinburg, North Carolina
("Scotland"); and which will be joined in by Scotland Acquisition Corporation
("Acquisition").
W I T N E S S E T H
WHEREAS, Scotland is the sole shareholder of Scotland Savings Bank,
SSB ("SSB") a North Carolina savings bank with its principal office and place of
business located in Laurinburg, North Carolina;
WHEREAS, Centura is the sole shareholder of Centura Bank, a North
Carolina banking corporation with its principal office and place of business
located in Rocky Mount, North Carolina;
WHEREAS, Acquisition is a proposed North Carolina business corporation
to be formed as a wholly-owned subsidiary of Centura solely for the purpose of
merging with Scotland to effect Centura's acquisition of Scotland and which,
following its incorporation, will execute this Agreement to join as a party
hereto;
WHEREAS, Centura and Scotland have agreed that it is in their mutual
best interests and in the best interests of their respective shareholders for
Acquisition to be merged with and into Scotland (the "Merger") with the effect
that each of the outstanding shares of Scotland's common stock will be converted
into the right to receive cash as described in Section 2.05 below, all in the
manner and upon the terms and conditions contained in this Agreement (all of the
transactions contemplated herein, including the Merger and the Exchange (as
defined herein) are referred to collectively as the "Reorganization");
WHEREAS, Centura and Scotland have mutually agreed that subject to
consummation of the Merger and to receipt of all required approvals of the
Regulatory Authorities (as defined herein), at the Effective Time (as defined
herein), or at such time thereafter as Centura shall determine in its sole
discretion, SSB shall be merged with and into Centura Bank (the "Bank Merger");
1
WHEREAS, Centura and Scotland have mutually agreed that subject to the
consummation of the Merger and to receipt of all required approvals of
Regulatory Authorities, at the Effective Time, or at such time thereafter as
Centura shall determine in its sole discretion, Scotland shall be merged with
and into Centura (the "Corporate Merger").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided in this Agreement, the capitalized terms set
forth below (in their singular and plural forms, as applicable,) shall have the
following meanings:
"Administrator" shall mean the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce.
"Bank Merger" shall mean the merger of SSB with and into Centura Bank, as
provided in this Agreement.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as amended.
"Centura Bank" shall mean Centura Bank, a North Carolina chartered
commercial bank and the principal banking subsidiary of Centura.
"Centura Common Stock" shall mean the existing class of common stock of
Centura, without par value.
"Closing Date" shall mean the date specified pursuant to Section 2.07
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Commissioner of Banks" shall mean the Commissioner of Banks of the State
of North Carolina.
2
"Corporate Merger" shall mean the merger of Scotland with and into Centura,
as provided in this Agreement.
"Directors' Deferred Compensation Plans" shall mean the Retirement Payment
Plans between SSB and certain directors of SSB.
"Effective Time" shall mean the date and time specified pursuant to Section
2.09 hereof as the effective date of the Merger, Bank Merger and Corporate
Merger.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange" shall mean the exchange of all of the issued and outstanding
shares of Scotland's capital stock for shares of Centura Common Stock in
connection with the Merger as provided in Section 2.05 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time.
"Exchange Agent" shall mean Registrar and Transfer Company, Cranford, New
Jersey.
"Exhibits" shall mean the Exhibits referenced herein, which Exhibits are
hereby incorporated by reference and made a part hereof.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve" shall mean the Board of Governors of the Federal Reserve
System and the Federal Reserve Bank of Richmond.
"Financial Statements" shall mean (a) with respect to Centura, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Centura as of December 31, 1997 and 1996 and the related consolidated statements
of income, shareholders' equity, and cash flows (including related notes and
schedules, if any) for each of the three years ended December 31, 1997, 1996,
and 1995 as filed by Centura in the SEC Documents, and (ii) the consolidated
balance sheets of Centura (including related notes and schedules, if any) and
related statements of income, shareholders' equity, and cash flows (including
related notes and schedules, if any) included in the SEC Documents filed with
respect to periods ended subsequent to December 31, 1997, and (b) with respect
to Scotland, (i) the consolidated statements of financial condition (including
related notes and schedules, if any) of Scotland as of September 30, 1997, and
1996 and the related statements of income, stockholders' equity and cash flows
(including related notes and schedules, if any) for each of the three years
ended September 30, 1997, 1996, and 1995, as have been Previously Disclosed,
3
and (ii) the consolidated statements of Scotland's financial condition
(including related notes and schedules, if any) and related statements of
income, stockholders' equity and cash flows (including related notes and
schedules, if any) of Scotland with respect to periods ended subsequent to
September 30,1997, as have been Previously Disclosed, all of which Financial
Statements shall be prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP").
"Merger" shall mean the merger of Acquisition with and into Scotland, as
provided in this Agreement.
"Previously Disclosed" shall mean information disclosed (i) in a letter
delivered prior to the date of this Agreement from the party making such
disclosure to the other party, or (ii) in an SEC Document filed or delivered
prior to the execution of this Agreement by the party making such disclosure to
the other party.
"Proxy Statement" shall mean the proxy statement to be furnished to
Scotland's shareholders soliciting proxies for shareholder approval of this
Agreement and the Reorganization.
"Regulatory Authorities" shall mean, as the context requires, any or all of
the Federal Reserve, the FDIC, the Commissioner of Banks, the Administrator,
the North Carolina Secretary of State, the Commission, North Carolina Banking
Commission, and the United States Department of Justice.
"Scotland Common Stock" shall mean the existing class of common stock of
Scotland, without par value.
"SEC Documents" shall mean all reports and documents filed, or required to
be filed, by Centura or Scotland pursuant to the Securities Laws or the
regulations of the Administrator which incorporate certain of the requirements
of the Securities Laws.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time.
"Securities Laws" shall mean the Securities Act, the Exchange Act, the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of the Commission promulgated thereunder.
4
ARTICLE II
PLAN OF MERGER
2.01. Names of Merging Corporations. The names of the business
corporations proposed to be merged are Scotland Bancorp, Inc. and Scotland
Acquisition Corporation.
2.02. Nature of Transaction. Subject to the provisions of this
Agreement, at the Effective Time, Acquisition will be merged into and with
Scotland.
2.03. Effect of Merger; Surviving Corporation. At the Effective Time
and by reason of the Merger, the separate corporate existence of Acquisition
shall cease while the corporate existence of Scotland 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. The duration of the corporate existence of Scotland,
as the surviving corporation, shall be perpetual and unlimited.
2.04. Assets and Liabilities of Acquisition. 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 Acquisition
(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 Acquisition, whether tangible or intangible) shall be
transferred to and vest in Scotland, and Scotland shall succeed to all the
rights, privileges, immunities, powers, purposes and franchises of a public or
private nature of Acquisition, all without any conveyance, assignment or further
act or deed; and Scotland shall become responsible for all the liabilities,
duties and obligations of every kind, nature and description of Acquisition as
of the Effective Time.
2.05. Conversion and Exchange of Stock.
a. Conversion of Scotland Stock. Except as otherwise provided
herein, at the Effective Time all rights of Scotland's shareholders with respect
to all then outstanding shares (not to exceed an aggregate of 1,913,600 shares
plus such number of shares, if any, that are issued between the date of this
Agreement and the Effective Time upon the exercise of options granted prior to
the date of this Agreement pursuant to the terms of Scotland's stock option
plan) of Scotland Common Stock shall cease to exist and the holders of shares of
Scotland Common Stock shall cease to be, and shall have no further rights as,
shareholders of Scotland. As consideration for and to effectuate the Merger
(and except as otherwise provided herein), each such outstanding share of
Scotland Common Stock, other than shares held by Scotland, Centura or any of
their subsidiary corporations, shall be converted, without any action on the
part of the holder of such share, Centura or Scotland, into the right to receive
$11.75 in cash (the "Exchange Rate") as provided below, and
5
the shares of Scotland Common Stock formerly held by Scotland's shareholders
shall be deemed to have been transferred and assigned to Centura.
b. Scotland Stock After Effective Time. At the Effective Time,
and without any action by Scotland or Centura, Scotland's Common stock transfer
books shall be closed and there shall be no further transfers of Scotland Common
Stock on its stock transfer books or the registration of any transfer of a
certificate evidencing Scotland Common Stock (a "Scotland Certificate") by any
holder thereof. Following the Effective Time, Scotland Certificates shall
evidence only the right of the registered holder thereof to receive, and, upon
their surrender as described below, may be exchanged for a check for cash in the
amount of $11.75 to which holders shall have become entitled on the basis set
forth above.
c. Exchange and Payment Procedures. At the Effective Time,
Centura shall cause to be issued and delivered to Exchange Agent one check for
the aggregate amount of cash to which all holders of Scotland Common Stock shall
have become entitled as provided above, and Scotland shall issue and deliver to
Centura, and register in its name, one stock certificate evidencing all of the
shares of Scotland Common Stock formerly held by its shareholders. As promptly
as practicable, but not more than five business days, following receipt by
Centura from Scotland's Common stock transfer agent of a certified listing of
the names and addresses of Scotland's shareholders immediately prior to the
Effective Time, Centura shall send or cause to be sent to each former
shareholder of Scotland of record immediately prior to the Effective Time
written instructions and transmittal materials (a "Transmittal Letter") for use
in surrendering Scotland Certificates to the Exchange Agent. Upon the proper
surrender and delivery to the Exchange Agent (in accordance with Centura's above
instructions, and accompanied by a properly completed Transmittal Letter) by a
former shareholder of Scotland of his or her Scotland Certificate(s), and in
exchange therefor, the Exchange Agent shall as soon as practicable issue and
deliver to the shareholder a check for the amount of cash to which the
shareholder is entitled.
d. Surrender of Certificates. Subject to Section 2.05(e)
below, no check shall be delivered to any former shareholder of Scotland unless
and until such shareholder shall have properly surrendered to the Exchange Agent
the Scotland Certificate(s) formerly representing his or her shares of Scotland
Common Stock, together with a properly completed Transmittal Letter in such form
as shall be provided to the shareholder by Centura for that purpose. Neither
Scotland, Centura nor the Exchange Agent shall have any obligation to pay any
interest on the cash to which a former Scotland shareholder is entitled for any
period prior to payment.
e. Lost Certificates. Any Scotland shareholder whose Scotland
Certificate has been lost, destroyed, stolen or otherwise is missing shall be
entitled to receive a check for the cash to which he or she is entitled in
accordance with and upon compliance with reasonable conditions imposed by the
Exchange Agent or Centura (including without limitation a requirement that the
6
shareholder provide a lost instruments indemnity or surety bond in form,
substance and amount satisfactory to the Exchange Agent and Centura).
f. Treatment of Scotland's Stock Options. At the Effective
Time, each option to purchase shares of Scotland Common Stock (not to exceed
177,000 shares) granted by Scotland and outstanding on the date of this
Agreement pursuant to the Scotland Bancorp, Inc. Stock Option Plan (the
"Scotland Option Plan") automatically shall be converted into the right to
receive cash in the amount equal to the Exchange Rate (subject to adjustment as
provided in Section 2.05(a) above) less the exercise price for each outstanding
option to acquire Scotland Common Stock.
g. Outstanding Centura Stock. The status of Centura's equity
securities which are outstanding immediately prior to the Effective Time shall
not be affected by the Merger.
2.06. Articles of Incorporation, Bylaws and Management. The Articles
of Incorporation and Bylaws of Scotland in effect at the Effective Time shall be
the Articles of Incorporation and Bylaws of Scotland as the surviving
corporation. The officers and directors of Scotland in office at the Effective
Time shall continue to hold such offices until removed as provided by law or
until the election or appointment of their respective successors. At or
following the Effective Time, Centura, in its capacity as the sole shareholder
of Scotland, shall elect new directors of Scotland to replace its previous
directors, and the directors so appointed shall elect new officers of Scotland
to replace its previous officers.
2.07 Bank Merger. Immediately following the Merger, SSB shall be merged
with and into Centura Bank pursuant to N.C. Gen. Stat. (S) 53-12 and in
accordance with the Agreement and Plan of Bank Merger attached hereto as
Exhibit A.
2.08 Corporate Merger. Immediately following the Merger and the Bank
Merger, Scotland shall be merged with and into Centura pursuant to N.C. Gen.
Stat. (S) 55-11-04 and in accordance with the Agreement and Plan of Holding
Company Merger attached hereto as Exhibit B.
2.09. Closing; Effective Time. The closing of the transactions
contemplated by the Agreement (the "Closing") shall take place at the offices of
Centura in Rocky Mount, North Carolina, or at such other place as Centura shall
designate, on a date mutually agreeable to Scotland and Centura (the "Closing
Date") after the expiration of any and all required waiting periods following
the effective date of required approvals of the Merger, Bank Merger and
Corporate Merger by the Regulatory Authorities (but in no event more than 60
days following the expiration of all such required waiting periods). At the
Closing Centura and Scotland shall take such actions (including without
limitation the delivery of certain closing documents and the execution of
Articles of Merger under North Carolina law) as are required herein and as
otherwise shall be required by law to
7
consummate the Merger, Bank Merger and Corporate Merger and cause each such
merger to become effective.
Subject to the terms and conditions set forth herein (including without
limitation the receipt of all required approvals of the Regulatory Authorities),
the Merger, Bank Merger and Corporate Merger shall become effective on the date
and at the time (the "Effective Time") specified in each respective Articles of
Merger filed with the appropriate governmental body in accordance with law;
provided, however, that the Effective Time shall in no event be more than ten
days following the Closing Date.
2.10. Cooperation to Consummate Mergers. In connection with the
foregoing, Scotland and Centura each shall take all reasonable and necessary
steps and actions to comply with and to secure all approvals for the Merger,
Bank Merger and Corporate Merger as may be required by all applicable state and
federal law, rules, and regulations, including those of the Regulatory
Authorities and shall execute such documents and take such actions as are
reasonably considered necessary or advisable to facilitate or effectuate the
Merger, Bank Merger and Corporate Merger.
ARTICLE III
GENERAL COVENANTS
3.01. Preparation of Proxy Statement; Approval of Scotland Shareholders.
Scotland shall prepare the Proxy Statement to be furnished to Scotland's
shareholders soliciting proxies for shareholder approval of this Agreement and
the transactions contemplated hereby and thereby. The Proxy Statement shall be
filed with the appropriate Regulatory Authorities as soon as reasonably
practicable and this Agreement and the transactions contemplated hereby and
thereby shall be submitted by Scotland to its shareholders at a special meeting
of its shareholders called for such purpose (the "Special Meeting") as soon as
practicable after the Proxy Statement is approved by the appropriate Regulatory
Authorities. Subject to the reasonable exercise of their fiduciary duties by its
members, the Board of Directors of Scotland shall recommend approval of this
Agreement and the transactions contemplated hereby and thereby at the Special
Meeting.
3.02. Reasonable Efforts; Cooperation. Centura and Scotland shall
each use all reasonable efforts to satisfy the conditions to the effectiveness
of the transactions contemplated by this Agreement as soon as is reasonably
practicable. Centura and Scotland will cooperate in the preparation by Centura
or Scotland, as the case may be, of such applications, articles of merger,
petitions, proxy statements, and other documents and materials as Centura or
Scotland, as the case may be, may deem necessary or desirable to submit to the
Regulatory Authorities and, where appropriate, to the various state securities
law authorities and to any other regulatory authority in order to obtain all
approvals of, consents to, and permissions for, the consummation of the
8
transactions contemplated by this Agreement. Each party shall have the right to
review and approve, in advance, all data and characterizations of or relating to
it or any of its subsidiaries which appear in any such applications, petitions,
or other documents or materials prepared by the other party and each party shall
promptly advise the other of comments received from any of the Regulatory
Authorities, whether oral or written, in respect to any such filings or which
may affect the timing or consummation of the transactions contemplated by this
Agreement.
3.03. Confidential Information. Any information obtained by Centura
and Scotland concerning the other in the course of negotiating this Agreement or
of effecting the transactions contemplated hereby shall be kept confidential by
the recipient; provided, however, that (i) any of such information may be
disclosed to the directors, officers, employees, agents, and representatives of
Centura, Centura Bank, Scotland and SSB who need to know such information in
connection with such negotiations or transactions (it being understood that such
persons will be informed of the confidential nature of such information and
shall be directed to keep such information confidential), (ii) any of such
information may be disclosed to the extent necessary (subject to court seal or
other confidential treatment to the extent reasonably available) to a court or
other governmental body having jurisdiction or in any registration statement,
application, or related or similar document filed with any governmental body,
and (iii) and other disclosure of any such information may be made to which the
other consents in writing. Upon termination of this Agreement, all such written
information (including all copies thereof) obtained hereunder by either party
from the other party shall be returned to such party as soon as possible. This
Section 3.03 shall become inoperative with respect to any of such information
that (x) becomes generally available to the public other than as a result of
disclosure not otherwise permitted hereby by the party obtaining such
information or by its directors, employees, agents, or representatives, or (y)
was available to such party on a nonconfidential basis prior to its disclosure
by the other party, or (z) becomes available to such party by any
confidentiality agreement or duty of confidentiality regarding such information.
3.04. Existing Employment Agreement. Centura shall honor and Centura
shall cause SSB and its successors to honor the employment agreement currently
in effect between SSB and William C. Fitzgerald, III, amended as provided in
Exhibit C to this Agreement.
3.05. Existing Termination Agreement. Centura shall honor and Centura
shall cause SSB and its successors to honor the Special Termination Agreement
currently in effect between SSB and John B. Clark according to the terms of that
Agreement.
3.06. Existing Severance Plan. Centura shall honor and Centura shall
cause SSB and its successors to honor the Scotland Savings Bank, SSB Severance
Plan currently in effect as to all employees of SSB who are employed at the
Effective Time. That plan shall continue in effect as to such employees for a
period of two (2) years following the Effective Time as the plan provides, but
shall not apply to other persons and shall be deemed terminated as to any
change-of-control transaction other than the transactions contemplated by this
Agreement.
9
3.07. Stock Options. Scotland shall have obtained and delivered to
Centura a written agreement, in form and substance satisfactory to Centura, of
each holder of a then-outstanding option to purchase shares of Scotland Common
Stock pursuant to the Scotland Option Plan to the effect that the stock option
held by such holder is terminated, canceled and released as of the Effective
Time.
3.08. Management Recognition Plan. Centura and Scotland mutually agree
that all awards granted prior to the date of this Agreement pursuant to the
Scotland Savings Bank, Inc., SSB Management Recognition Plan and Trust that
remain outstanding, to the extent they shall not previously have become vested,
shall become vested in full at the Effective Time.
3.09. Employee Stock Ownership Plan. The Employee Stock Ownership
Plan of Scotland Savings Bank, Inc., SSB ("Scotland ESOP") will be terminated
expeditiously following the Effective Time and plan assets shall be distributed
to participants in accordance with applicable law.
3.10. Directors' Deferred Compensation Plans. Following the Effective
Time, no further deferrals or contributions will be made under the terms of any
Directors' Deferred Compensation Plans. Existing entitlements under such plans,
as to present and future benefits, shall be honored according to the terms of
such plans.
3.11. Employees; Employment; Employee Benefits. All Scotland and SSB
employees shall continue to be employees at the Effective Time and shall become
employees of Centura or Centura Bank following the Effective Time for purposes
of ensuring that all Scotland and SSB employees qualify for the rights provided
to terminated employees under the Consolidated Omnibus Budget Reconciliation Act
of 1985. Except as otherwise expressly provided in this Agreement, however,
neither Centura nor Centura Bank shall have any obligation to employ or continue
to employ any Scotland or SSB employee for any period of time. Centura Bank may
offer continuing employment following the Effective Time to some persons now
employed by Scotland or SSB. Any employee of Scotland who accepts such offer and
becomes employed by Centura Bank (the "Retained Employees"), will be provided
with the employee welfare benefits generally available to all similarly situated
employees of Centura Bank, including the group insurance plan of Centura Bank
(including hospitalization, life and disability, and dental coverage) on the
same terms and at the same cost as similarly situated employees of Centura Bank
with no interruption in benefits and with acceptance of all pre-existing
conditions accepted under the comparable plan or plans maintained by Scotland to
the extent coverage is provided for such conditions under Centura's plans. Such
benefits shall be provided for dependents and/or families of such employees as
permitted by Centura Bank's employee benefits plans on the same terms and at the
same cost as for dependents and/or families of similarly situated Centura Bank
employees.
10
At the Effective Time, benefit accruals under any employee pension benefit
plan (including any employee stock ownership plan or 401(k) plan) maintained by
Scotland or SSB shall cease. The Scotland ESOP will be terminated and, subject
to Internal Revenue Service approval, the benefits therein distributed or
transferred in accordance with the elections of participants thereunder made in
a manner consistent with the terms of such plan and the Code. Any 401(k) plan
maintained by Scotland or SSB may at Centura's election be merged into Centura's
or Centura Bank's 401(k) plan or terminated. All Retained Employees will be
eligible to participate in the pension and 401(k) plans of Centura or Centura
Bank, as applicable, in accordance with the terms of such plans and will be
credited for purposes of vesting and eligibility (but not for purposes of
benefit accruals) under such plans with one year of service to Centura Bank for
each year of service to Scotland prior to the Effective Time. In the event that
Scotland has any other qualified plan in effect at the Effective Time, such
qualified plan of Scotland shall be terminated with full vesting, and the assets
therein distributed or transferred in accordance with the elections of
participants thereunder made in a manner consistent with the terms of such plan
and the Code. It is expressly agreed by the parties hereto that the obligations
under this Section 3.11 with respect to qualified plans shall be performed in
accordance with the requirements of the Code and ERISA, including without
limitation Sections 404 and 415 of the Code, and any other applicable federal or
state statutes or regulations or decisions of any administrative agency or court
interpreting the same.
By acceptance of employment with Centura Bank, each Retained Employee
agrees to be bound by the terms and conditions of this Agreement and the terms
and conditions of the employee benefit plans of Centura Bank on an ongoing basis
and further agrees that the merger or other disposition of the benefit plans and
the treatment of benefits as specified in this Agreement shall be binding upon
said employee and said employee releases any claims for continuation of past
benefits.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY SCOTLAND
Except as Previously Disclosed, which disclosures shall be by specific
reference to the applicable section or sections of this Article IV, Scotland
represents and warrants as follows:
4.01. Organization, Good Standing, and Authority. Scotland and SSB
each are duly organized, validly existing and in good standing (as a business
corporation or savings bank) under the laws of North Carolina. All of SSB's
outstanding capital shares are owned by Scotland, free of any liens, claims, or
assessments thereagainst. In all respects material to the business of Scotland
and SSB taken as a whole, each of Scotland and SSB have all requisite corporate
power and authority to enter into and carry out the provisions of this
Agreement, to conduct their respective businesses as now conducted, to own and
operate their respective properties and assets, and to lease properties used in
their businesses. Neither Scotland nor SSB is in violation of its
organizational
11
documents or bylaws, or, except as Previously Disclosed, of any applicable
federal or state law or regulation in any material respect, or in default with
respect to any order, writ, injunction, or decree of any court, or in default
under any order, license, regulation, or demand of any governmental agency, any
of which violations or defaults would materially and adversely affect the
businesses, properties, financial positions, or result of operations of Scotland
and SSB taken as a whole. SSB's deposits are insured by the FDIC pursuant to the
provisions of the Federal Deposit Insurance Act (the "FDI Act") and SSB has paid
all assessments and filed all reports and statements required to be paid or
filed under the FDI Act.
4.02. Binding Obligations; Due Authorization. Subject to all requisite
shareholder and regulatory approvals, this Agreement constitutes a valid and
binding obligation of Scotland, enforceable against it in accordance with the
terms of such documents, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court. The execution, delivery, and performance of this Agreement
and the transactions contemplated hereby and thereby have been duly authorized
by Scotland's Board of Directors.
4.03. Absence of Default. None of the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby or thereby,
or the fulfillment of the terms hereof or thereof, will conflict with, or result
in a breach of the terms, conditions, or provisions of, or constitute a default
under, the articles of incorporation or bylaws of Scotland or SSB. Except as
Previously Disclosed, none of such execution, consummation, or fulfillment will
conflict with, or result in a breach of the terms, conditions, or provisions of,
or constitute a default under (i) any material agreement or instrument under
which Scotland or the SSB is obligated or (ii) (assuming receipt of required
approvals by Regulatory Authorities and the approval of the shareholders of
Scotland) violate any statute or regulation of any Regulatory Authorities to
which Scotland or the SSB is subject, any of which conflicts, breaches,
defaults, or violations will prevent consummation of the Merger or have a
material adverse effect on the business or operations of Scotland and SSB taken
as a whole.
4.04. Capitalization. Scotland's authorized capital stock consists of
(i) 5,000,000 shares of preferred stock, no par value, none of which have been
issued and (ii) 20,000,000 shares of Scotland Common Stock, no par value, of
which 1,913,600 shares are issued and outstanding. All such outstanding shares
of Scotland Common stock are duly authorized, validly issued, fully paid, and
nonassessable. None of the capital stock of Scotland is subject to any
restrictions upon the transfer thereof under the terms of its Articles of
Incorporation or Bylaws. To the best of Scotland's knowledge and except as
Previously Disclosed, no shareholder is, as of March 31, 1998, the beneficial
owner of or has the contractual right to own beneficially more than five percent
(5%) of the issued and outstanding Scotland Common Stock. For purpose of this
Section 4.04, the term "beneficial owner" shall have the meaning provided in
Rule 13d-3 (17 C.F.R. (S) 240.13d-3) of the
12
Commission, as in effect on the date hereof. Except as Previously Disclosed
there are no outstanding options, rights, securities, or warrants binding upon
Scotland that enable the holder thereof to purchase or otherwise acquire shares
of any class of the capital stock of Scotland or SSB. As of the date hereof,
there were options to acquire 177,000 shares of Scotland Common Stock issued
pursuant to the Scotland Option Plan. The Scotland Common Stock is listed on the
American Stock Exchange and Scotland is in compliance with applicable provisions
of the American Stock Exchange Company Guide where the failure to be so listed
and compliant could have a material adverse effect on Scotland's assets,
properties, liabilities or businesses.
4.05. Subsidiaries; Investments. Scotland owns all of the issued and
outstanding capital stock of SSB. Except as Previously Disclosed, Scotland does
not, directly or indirectly, own, control, or hold with the power to vote any
shares of the capital stock of any "company," as that term is defined by the BHC
Act, other than SSB.
4.06. Filing of Reports. To the best knowledge of Scotland's
management, Scotland and SSB have timely filed all material reports required to
be filed with the applicable Regulatory Authorities and such reports complied in
all material respects with applicable law and regulations.
4.07. Financial Statements. Scotland has Previously Disclosed copies
of Scotland's Financial Statements and such Financial Statements are true,
complete, and correct in all material respects and fairly present the
consolidated financial position of Scotland and SSB as of the dates indicated
and the consolidated results of operations, retained earnings and changes in
financial position or cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis.
4.08. Absence of Certain Developments. Since September 30, 1997 and
prior to the date hereof, except as Previously Disclosed, there has been (i) no
material adverse change in the condition, financial or otherwise, of Scotland or
SSB or in the respective assets, properties, liabilities, or businesses of
Scotland or SSB; (ii) no incurrence by or subjection of Scotland or SSB to any
obligation or liability (whether fixed, accrued, or contingent) or commitment
material to Scotland or SSB not referred to in this Agreement or Previously
Disclosed, except such obligations or liabilities as were or may be incurred in
the ordinary course of business; (iii) except as referred to in Section 9.05
herein, no declarations, setting aside, or payment of any special dividend or
other distribution with respect to any class of capital stock of Scotland; (iv)
no material loss, destruction, or damage to any property of Scotland or SSB,
which loss, destruction, or damage is not adequately covered by insurance; and
(v) no material acquisition or disposition of any asset or contract nor any
other transaction by Scotland or SSB other than for fair value in the ordinary
course of business. Since such date and prior to the date hereof, except as
Previously Disclosed, Scotland and SSB have conducted their respective
businesses in all material respects only in the ordinary course and in
substantial compliance with all laws which govern the ownership of their
respective properties and the conduct of their respective businesses.
13
4.09. Loan Loss Allowances. The allowances for loan losses set forth
in Scotland's most recent Financial Statements are adequate in the opinion of
Scotland's management, as of the date thereof, to absorb reasonably anticipated
losses in the loan portfolio of Scotland in view of the size and character of
such portfolio, current economic conditions, and other pertinent factors.
4.10. Books of Account; Corporate Records. The books of account of
Scotland and SSB are maintained in substantial compliance with all applicable
legal and accounting requirements and in such a manner as to reflect accurately
their respective income and expenses and all of their respective assets,
liabilities, and shareholders' equity. To the best knowledge of Scotland's
management, Scotland and SSB have filed all material reports and returns
required by any law or regulation to be filed by it or them, and it or they have
duly paid or accrued on their books of account all taxes and charges due
pursuant to such reports and returns, or assessed against it or them, including,
without limitation, all such reports and statements, and all such assessments
which Scotland and SSB are required to have filed or paid pursuant to the Act,
none of which reports, statements, or assessments has been the subject of any
material objection by the applicable Regulatory Authorities. Except as
Previously Disclosed, the minute books of Scotland and SSB contain complete and
accurate records in all material respects of the corporate actions of their
respective shareholders and Boards of Directors and of all committees thereof.
4.11. Taxes. Scotland and SSB have filed all material tax returns,
reports, lists, and statements required to be filed by any federal, state,
local, foreign, or other taxing jurisdiction of any nature whatsoever, and paid
all taxes, assessments, and other governmental charges due upon them or any of
their respective income, property, assets, or net worth (other than taxes or
charges which are not yet delinquent, are being contested in good faith, have
not been finally determined, or for which there are adequate reserves that were
established on or before September 30, 1997), and no extensions for the time of
any such payment have been requested or granted. No material additional
assessments of tax by any governmental authority are, as of the date hereof,
pending or, to the best knowledge of Scotland's management, known to be pending,
threatened, or in process of proposal, and no unexpired waivers or other
extensions of the statute of limitations executed by or binding upon Scotland or
SSB with respect to federal or other income taxes or any other taxes are in
effect as of the date hereof. In the opinion of Scotland's management, the
accruals and reserves made for tax liabilities in the September 30, 1997 audited
consolidated balance sheet and subsequent unaudited interim period balance
sheets are adequate for the payment of all federal, state, local, foreign, and
other tax liabilities of any nature whatsoever of Scotland and SSB or with
respect to their assets and properties whether or not proposed, pending,
threatened, or disputed, for all periods ending on or prior to such dates.
4.12. Qualification to Do Business. Except as Previously Disclosed,
Scotland and SSB are duly qualified and licensed to do business and in good
standing in all jurisdictions where the conduct of either's business requires it
to be qualified and licensed to do such business and where
14
the failure to be so qualified and licensed could result in liability or
adversely affect the operations and properties of Scotland or SSB in any
material respect.
4.13. Insurance. Scotland and SSB have in effect insurance coverage
with reputable insurers, including blanket bond coverage, which coverage in
respect of amounts, types, and risks insured is, in the opinion of Scotland's
management, adequate for the businesses conducted by them.
4.14. Litigation. No action, suit, investigation, or proceeding is
pending against, nor has the threat of such been communicated to, Scotland or
SSB before any court or governmental agency, domestic or foreign, nor, to the
best knowledge of Scotland's management, is there any basis for any other
material action, suit, investigation, or proceeding which, in the judgment of
legal counsel for Scotland, has a reasonable prospect for success. On the date
hereof, there is no action, suit, investigation, or proceeding brought by
Scotland or SSB (other than suits to collect on extensions of credit) which
seeks damages in excess of $50,000. On the date hereof, there is no litigation,
proceeding, or governmental investigation pending or, to the best knowledge of
Scotland's management, threatened against Scotland or SSB relating to any of
the transactions contemplated by this Agreement.
4.15. Brokerage; Advisors. Except as Previously Disclosed, neither
Scotland nor any of its officers, directors or employees has employed any
broker, finder, or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein. There are
no claims for brokerage commissions, finder's fees, or similar compensation
arising out of or due to any act of Scotland in connection with the transactions
contemplated by this Agreement or based upon any agreement or arrangement made
by or on behalf of Scotland. Except as Previously Disclosed, Scotland has not
entered into any agreement or understanding with any party relating to financial
advisory services provided or to be provided with respect to the transactions
contemplated by this Agreement. Scotland shall indemnify and hold Centura
harmless against any liability or expenses arising out of such a claim,
agreement, or understanding.
4.16. Real and Personal Property. Except as Previously Disclosed, and
except for property and assets disposed of in the ordinary course of business,
Scotland and SSB own, free and clear of any mortgage, pledge, lien, charge, or
other encumbrance which would materially interfere with the business or
operations of Scotland, all of their respective real or personal property and
the assets reflected in Scotland's most recent Financial Statements or acquired
by them subsequent to the date thereof. The real and personal property, if any,
leased by Scotland or SSB is free from any adverse claim which would materially
interfere with the respective businesses or operations of Scotland and SSB. All
of the properties and equipment owned or leased by Scotland and SSB are in
normal operating condition, free from any known defects, except such minor
defects as do not materially interfere with the continued use thereof in the
conduct of the normal operations of Scotland and SSB.
15
4.17. Fiduciary Activities. Except with respect to retirement
accounts, and except as Previously Disclosed, neither Scotland nor SSB is
directly or indirectly engaged, nor has been so engaged, in any activities
traditionally associated with bank trust activity. Except as Previously
Disclosed and except for pending or threatened legal actions or other
proceedings which are not individually or in the aggregate material to Scotland
, neither Scotland nor SSB have been, nor are, parties to or threatened with any
legal action or other proceeding which sought to surcharge Scotland or SSB or to
obtain any other remedy against either of them or any of their respective
properties relating to the exercise of any such fiduciary and custodial powers.
4.18. Intangible Property. To the best knowledge of Scotland's
management, Scotland and SSB own or possess the right, free of the claims of any
third party, to use the trademarks, service marks, trade names, copyright,
patents, and licenses currently used by them in the conduct of their respective
businesses. To the best knowledge of Scotland's management, no material product
or service offered and no material trademark, service mark, or similar right
used by them infringes any rights of any other person or entity, and, as of the
date hereof, neither Scotland nor SSB have received written or oral notice of
any claim of such infringement.
4.19. Employee Relations and Employee Benefit Plans.
(a) As of the date hereof, Scotland and SSB are in all material respects in
compliance with all federal and state laws, regulations, and orders respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and are not engaged in any unfair labor practice. As of the
date hereof, no dispute exists between Scotland or SSB and any of its or their
employees regarding any employee organization, wages, hours, or conditions of
employment which would materially interfere with the respective businesses or
operations of Scotland or SSB. Except as Previously Disclosed, as of the date
hereof, there are no employment, consulting, labor, or collective bargaining
agreements binding upon Scotland or SSB. As of the date hereof, neither
Scotland nor SSB is aware of any attempts to organize a collective bargaining
unit to represent any of their respective employees. All contributions due on
or prior to the date hereof to any pension, profit-sharing, or similar plan of
Scotland or SSB, if any, have been paid or provided for in accordance with ERISA
and all other applicable federal and state statutes and regulations. As of
April 30, 1998, the cash surrender value of the life insurance policies used to
fund Scotland's obligations under the Directors' Deferred Compensation Plans was
approximately $10,000 less than the accumulated obligations under such plans at
June 30, 1998; however, Scotland anticipates that over the term of the plans the
cash surrender value will be sufficient to fund the obligations as they become
due and payable.
(b) Scotland has Previously Disclosed true and complete copies of all
qualified pension or profit sharing plans, any deferred compensation,
consultant, bonus or group insurance contract, or any other incentive, welfare,
or employee benefit plan or agreement maintained for the benefit of employees or
former employees of Scotland or SSB (for purposes of this Section 4.19, the
"Benefit
16
Plans"), together with (i) the most recent actuarial and financial reports
prepared with respect to any Benefit Plans, (ii) the three most recent annual
reports filed with any government agency, and (iii) all rulings and
determination letters and any open requests for rulings or letters that pertain
to any Benefit Plan. Neither Scotland nor SSB are obligated to provide any post-
retirement welfare benefits to their respective employees, including post-
retirement health or life insurance coverage.
(c) Scotland and SSB have fully complied in all material respects with
all provisions of ERISA and any and all other laws, rules, and regulations
applicable to the Benefit Plans. All reports and descriptions of any Benefit
Plans, required by ERISA have been timely filed and distributed and all notices
required by ERISA, the Code, or any state or federal law or any ruling or
regulation of any state or federal administrative agency with respect to all
Benefit Plans have been appropriately given.
(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each "employee pension benefit plan" (as defined
in Section 3(2) of ERISA) of Scotland and SSB to the effect that such a plan is
qualified under Section 401 of the Code and tax exempt under Section 501 of the
Code. No such letter has been revoked or is threatened to be revoked and
Scotland knows of no ground on which such revocation may be based. Neither
Scotland nor SSB has any material liability under any such plan that is not
reflected in the Financial Statements of Scotland as of September 30, 1997.
Each such plan is and has been administered in all material respects in
accordance with its provisions and applicable law.
(e) Neither Scotland nor SSB (or any pension plan maintained by either
of them) has incurred any material liability to the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect to any pension plan
qualified under Section 401 of the Code except liabilities to the Pension
Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which
have been fully paid. No reportable event under Section 4043(b) of ERISA has
occurred with respect to any such pension plan and there exists no condition or
set of circumstances presenting a material risk of the termination or partial
termination of any such plan which could result in a material liability on the
part of Scotland or SSB to the Pension Benefit Guaranty Corporation or any other
person.
(f) Neither Scotland nor SSB participates in, or has incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal from,
a multi-employer plan (as such term is defined in ERISA).
(g) No "prohibited transaction" (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under Section 408 of ERISA)
has occurred with respect to any Benefit Plan (i) which would result in the
imposition, directly or indirectly, of an excise tax under Section 4975 of the
Code, or (ii) the correction of which would have an adverse effect on the
financial condition, results of operations, or business of Scotland and SSB
taken as a whole.
17
(h) Except as Previously Disclosed, the present value of all benefits,
whether or not vested, under each pension plan maintained by Scotland or SSB did
not exceed as of the most recent actuarial valuation date, and will not exceed
as of the Closing Date, the then current fair market value of the assets of such
plan. For purposes of determining the present value of benefits under any such
plan, the actuarial assumptions and methods used under such plan for the most
recent actuarial valuation shall be used, other than any assumptions relating to
employee turnover (as to which it shall be assumed there will be none).
(i) None of Scotland, SSB, or, to the best knowledge of Scotland 's
management, any administrator or fiduciary of any of such Benefit Plans (or
agent or delegate of any of the foregoing) has engaged in any transaction or
acted or failed to act in any manner which could subject Scotland or SSB to any
direct or indirect liability for a breach of any fiduciary, co-fiduciary, or
other duty under ERISA. No oral or written representation or communication with
respect to any aspect of the Benefit Plans has been made to employees of
Scotland or SSB prior to the Effective Time which is not in accordance with the
written or otherwise preexisting terms and provisions of such Benefit Plans in
effect immediately prior to the Effective Time. There are no unresolved claims
or disputes under the terms of, or in connection with, the Benefit Plans and no
action, legal or otherwise, has been commenced with respect to any claim.
4.20. Contracts and Commitments. Scotland has Previously Disclosed or
made available to Centura or granted access to originals or copies of the
following documents or summary descriptions of the following information
relating to Scotland and SSB, which copies or summary descriptions are complete
and accurate as of the date hereof, except as otherwise expressly provided
hereunder:
(i) all regulatory approvals relating to all acquisitions or the
establishment of de novo operations;
(ii) organizational documents, and bylaws and any amendments thereto, as
well as minutes of all meetings of the respective shareholders and Boards of
Directors and committees thereof since January 1, 1993, except certain minutes
of meetings of Scotland's Board of Directors held since March 31, 1998;
(iii) all employment contracts, deferred compensation, non-competition,
bonus, stock option, profit-sharing, pension, retirement, consultation after
retirement, incentive, insurance arrangements or plans, (including medical,
disability, group life, or other similar insurance plans), and any other
remuneration arrangements applicable to employees of Scotland or SSB,
accompanied by any agreements, including trust agreements, embodying such
contracts, plans, or arrangements, and any actuarial reports and audits relating
to such plans;
18
(iv) any pending application, including any documents or materials
related thereto, which has been filed with any federal or state regulatory
agency with respect to the establishment of a new branch office or the
acquisition or establishment of an additional regulated activity or subsidiary;
and
(v) all federal and state tax returns filed for the years 1995, 1996,
and 1997 (if available), copies of the most recent federal and state revenue
agency examinations, and all tax rulings received from the Internal Revenue
Service since January 1, 1990.
4.21. No Materially Adverse Contracts or Other Types of Agreements.
Without limiting any of the foregoing representations and warranties and except
as Previously Disclosed, on the date hereof:
(i) All policies of insurance (including surety and blanket bonds)
insuring any material risks of Scotland and SSB taken as a whole are in force on
the date hereof and neither Scotland nor SSB is in any material default with
respect to any such policies;
(ii) To the best knowledge of Scotland's management, each material lease,
contract, mortgage, promissory note, deed of trust, loan, credit arrangement, or
other commitment or arrangement of Scotland and SSB is in all material respects
valid and enforceable in accordance with its terms (except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting creditors rights generally and except that the availability of
equitable remedies is within the discretion of the appropriate court) and is not
subject to termination as a result of the Merger without the consent of any
other party, and neither Scotland nor SSB is in default in any material respect
under any such lease, contract, mortgage, promissory note, deed of trust, loan,
or other commitment or arrangement, which default would materially and adversely
affect the business and operations of Scotland and SSB taken as a whole;
(iii) Except in the ordinary course of the business of taking deposits and
extending credit and except as Previously Disclosed, neither Scotland nor SSB is
obligated under (x) any contract, lease, mortgage, or other commitment,
arrangement, or agreement, or subject to any law, regulation, or decree or to
any restriction in its organizational documents or bylaws which materially and
adversely affects their respective businesses, properties, prospects, assets, or
conditions, financial or otherwise, or (y) any lease, contract, promissory note,
deed of trust, or any other commitment which involves an aggregate annual
payment by Scotland or SSB of more than $50,000 or which extends beyond 24
months.
4.22. Environmental Matters.
(a) For purposes of this Section and Section 4.22, the "Premises" means
and includes, collectively, all the real property owned in fee or leased by
Scotland or SSB and Previously Disclosed.
19
(b) For purposes of this Section, "Hazardous Materials" means and
includes petroleum products, any flammable explosives, asbestos or any material
containing asbestos, and/or any hazardous or toxic waste, substance or material
defined as such by the United States Environmental Protection Agency, the North
Carolina Department of Environment, Health, and Natural Resources, or for the
purpose of or by any Environmental Laws as may now or at any time hereafter be
in effect.
(c) For purposes of this section, "Environmental Laws" means and
includes the Comprehensive Environmental Response, Compensation and Liability
Act, the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, the Coastal Area Management Act, any "Superfund" or "Superlien"
law, the North Carolina Oil Pollution and Hazardous Substances Control Act, or
any other decree regulating, relating to, or imposing liability, responsibility
or standards of conduct applicable to environmental conditions and/or releases
(or potential releases) of Hazardous Materials in, on, at or affecting the
Premises, as such may now or at any time hereafter be defined or in effect.
(d) Scotland hereby represents and warrants to Centura for the purposes
of this Agreement and the contemplated transfer, sale and conveyance of the
Premises that:
(i) No Hazardous Materials have been used or placed in, on or at
the Premises in violation of, and the Premises are presently in compliance
with, all applicable Environmental Laws, and there are no circumstances
presently existing in, on, at or relating to the Premises which would
result in violation of any applicable Environmental Law;
(ii) Except as Previously Disclosed, neither Scotland nor SSB have
caused or permitted the installation, storage, treatment, disposal,
discharge, release or threatened release of Hazardous Materials in, on, at
or from the Premises in violation of any Environmental Law nor have engaged
in, or have knowledge of, any activity on or in the vicinity of the
Premises which resulted in, the presence or release of any Hazardous
Materials which may impact the condition of the Premises;
(iii) As of the Closing Date, the Premises shall be free of the
presence of Hazardous Materials, except for those materials used in the
ordinary course of business by Scotland or SSB;
(iv) Scotland and SSB have complied in all material respects with,
and have caused the Premises to comply in all material respects with, all
applicable Environmental Laws relating to or affecting the Premises, and
the Premises are free and clear of any liens imposed pursuant to any
applicable Environmental Laws;
20
(v) Scotland and SSB have, and at all times have had and/or
maintained, all licenses, permits and other governmental or regulatory
authority necessary for compliance with all applicable Environmental Laws;
(vi) Scotland and SSB have complied in all material respects with
all Environmental Laws relating specifically to notification, registration,
record keeping, installation, financial responsibility, leak detection,
equipment, facilities, activities and operations on the Premises;
(vii) There is not now pending or threatened, to Scotland's
knowledge, any action, suit investigation or proceeding against Scotland,
SSB, or the Premises (or against any other party relating to the Premises)
seeking to enforce any right or remedy under any Environmental Laws;
(viii) Neither Scotland nor SSB is now, nor has been, subject to any
order, threatened with any enforcement action, received any notice, or
received any request for information or any other demand or inquiry
pursuant to any Environmental Law with respect to the Premises or any
activity or condition in, or, at or relating to the Premises;
(ix) Scotland immediately shall give Centura oral and written
notice in the event that Scotland or SSB receives any notice from any
governmental agency, entity or any other party with regard to Hazardous
Materials in, on, at or affecting the Premises; and
(x) Scotland shall provide to Centura on or before the Closing
Date, and Scotland has a continuing obligation to provide to Centura,
copies of all information in its possession, under its control or available
to it concerning the environmental condition of the Premises and any and
all properties adjacent to the Premises, the condition of which would
affect the condition of the Premises.
4.23. Proxy Statement Information. When the Proxy Statement or any
amendment thereto shall become effective, and at all times subsequent to such
effectiveness up to and including the Closing Date, such Proxy Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished by Scotland relating to Scotland and SSB, (i) shall comply in
all material respects with the applicable provisions of the Securities Laws, and
(ii) shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements contained therein not false or misleading.
4.24. Information Furnished. Each representation and warranty in this
Article IV and all information furnished or to be furnished to Centura pursuant
to the terms of this Agreement, as of the date hereof or the date furnished, are
and shall be true, accurate, and complete in all material respects.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES BY CENTURA
Except as Previously Disclosed, which disclosures shall be by specific
reference to the applicable section or sections of this Article V, Centura
represents and warrants as follows:
5.01. Organization, Good Standing, and Authority. Centura is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of North Carolina. Centura is a bank holding company duly
registered pursuant to the BHC Act and the North Carolina Bank Holding Company
Act of 1984, and it has all requisite corporate power and authority to enter
into and carry out the provisions of this Agreement. Centura is not in
violation of its organizational documents or bylaws, or of any applicable
federal or state law or regulation in any material respect, or in default with
respect to any order, writ, injunction, or decree of any court, or in default
under any order, license, regulation, or demand of any governmental agency, any
of which violations or defaults would materially and adversely affect any of its
businesses, properties, financial position, or results of operations taken as a
whole. Centura has all requisite corporate power and authority to conduct its
business as now conducted or proposed to be conducted, and to own and operate
and lease the properties and assets used in such business.
5.02. Centura Bank. Centura Bank is a bank corporation duly organized,
validly existing, and in good standing under the laws of the State of North
Carolina, all of the capital stock of which is owned by Centura, free and clear
of any liens, claims, or assessments thereagainst. Centura Bank is not in
violation of its charter documents or bylaws, or of any applicable federal or
state law or regulation in any material respect, or in default with respect to
any order, writ, injunction, or decree of any court, or in default under any
order, license, regulation, or demand of any governmental agency, and of which
violations or defaults would materially and adversely affect the businesses,
properties, financial position, or results of operation of Centura and Centura
Bank taken as a whole. Centura Bank has all requisite corporate power and
authority to conduct its business as now conducted or proposed to be conducted,
and to own and operate and lease the properties and assets used in such
business.
5.03. Binding Obligations; Due Authorization. This Agreement
constitutes a valid and binding obligation of Centura, and, subject to required
regulatory approvals, will be enforceable against it in accordance with the
terms of such documents, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court. The execution, delivery, and performance of this Agreement,
and the transactions contemplated hereby have been, or will be prior to the
Effective Time, duly authorized by the Board of Directors of Centura.
22
5.04. Absence of Default. None of the execution or the delivery of
this Agreement, the consummation of the transactions contemplated hereby or
thereby, or the fulfillment of the terms hereof or thereof, will conflict with,
or result in a breach of the terms, conditions, or provisions of, or constitute
a default under, the Articles of Incorporation or Bylaws of Centura or Centura
Bank, as applicable. None of such execution, consummation, or fulfillment will
conflict with, or result in a breach of the terms, conditions, or provisions of,
or constitute a default under (i) any agreement or instrument under which
Centura or Centura Bank is obligated, or (ii) (assuming receipt of required
approvals of Regulatory Authorities) violate any statute or regulation of any
government or agency to which Centura or Centura Bank is subject, any of which
conflicts, breaches, defaults, or violations will prevent consummation of the
Merger or have a material adverse effect on the business or operations of
Centura or Centura Bank.
5.05. Financial Statements. Centura has Previously Disclosed copies of
Centura's Financial Statements and such Financial Statements are true, complete,
and correct in all material respects and fairly present the consolidated
financial position of Centura and Centura Bank as of the dates indicated and the
consolidated results of operations, retained earnings and changes in financial
position or cash flows for the periods then ended in conformity with generally
accepted accounting principles applied on a consistent basis.
5.06. Filing of Reports. Centura has timely filed all reports required
to be filed with the applicable Regulatory Authorities and such reports, as
filed, complied in all material respects with applicable law and regulations.
Centura has filed all SEC Documents required to be filed by the Securities Laws
and all documents required by any applicable state securities laws and such SEC
Documents and other documents, as filed, complied in all material respects with
the Securities Laws and such state securities laws.
5.07. Proxy Statement Information. When the Proxy Statement, or any
amendment thereto, shall become effective, and at all time subsequent to such
effectiveness up to and including the Closing Date, all information set forth or
incorporated therein furnished by Centura relating to Centura and Centura Bank,
(i) shall comply in all material respects with the applicable provisions of the
Securities Laws, and (ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not false or misleading.
5.08. Information Furnished. Each representation and warranty in this
Article V, all information Previously Disclosed to Scotland, and all information
otherwise furnished or to be furnished to Scotland pursuant to the terms of this
Agreement, as of the date hereof or the date furnished, are and shall be true,
accurate, and complete in all material respects.
5.09. No Shareholder Approval. No approval of Centura's shareholders
is required in order to consummate the Merger.
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5.10. Litigation and Compliance with Law. There are no actions, suits,
arbitrations, controversies or other proceedings or investigations (or, to the
best knowledge and belief of the executive officers of Centura, any facts or
circumstances which reasonably could result in such), including without
limitation any such action by any governmental or regulatory authority, which
currently exist or are ongoing, pending or, to the best knowledge of the
executive officers of Centura, threatened, contemplated or probable of
assertion, against, relating to or otherwise affecting Centura or its
subsidiaries or any of their properties, assets or employees which, if
determined adversely, could have a material adverse effect on the ability of
Centura to consummate the Merger.
5.11. Obstacles to Regulatory Approval. To the best knowledge of
Centura, no fact or condition (including Centura's or Centura Bank's record of
compliance with the Community Reinvestment Act) relating to Centura or Centura
Bank exists that may reasonably be expected to prevent or materially impede or
delay Centura or Scotland from obtaining the regulatory approvals required in
order to consummate the transactions described herein; and, if any such fact or
condition becomes known to the executive officers of Centura, Centura promptly
(and in any event within three days after obtaining such knowledge) shall
communicate such fact or condition to the President of Scotland.
ARTICLE VI
ACCESS TO AND INFORMATION CONCERNING
PROPERTIES AND RECORDS
6.01. Access by Centura. For purposes of this Section 6.01 and Section
6.03 below, the term "Scotland" shall include Scotland and SSB. Scotland, to
the extent permitted by law and except for certain information covered by
confidentiality agreements between Scotland and other parties relating to a
possible acquisition of Scotland by such parties, shall give Centura, its
counsel, accountants, investment bankers, and other representatives full access,
at reasonable times and upon reasonable notice throughout the period through the
Effective Time, to all of Scotland's properties, books, contracts, commitments,
and records, and Scotland shall furnish to Centura during such period all such
information concerning Scotland and its affairs as Centura may reasonably
request. In addition, Scotland shall also make its officers available to discuss
with Centura's representatives the substance of all documents, financial
statements, and other information provided by Scotland to Centura and such other
matters as Centura shall deem pertinent to the transactions contemplated by this
Agreement.
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6.02. Access by Scotland. For purposes of this Section 6.02, the term
"Centura" shall include Centura and Centura Bank. Centura, to the extent
permitted by law, shall give Scotland, its counsel, accountants, investment
bankers, and other representatives access, at reasonable times and upon
reasonable notice throughout the period through the Effective Time, to such
information relating to Centura and to be specified by Scotland as shall be
reasonably necessary and appropriate under the then circumstances for Scotland
to confirm the accuracy of the representations and warranties set forth in
Article IV hereof and to carry out the transactions contemplated by this
Agreement. In addition, Centura shall also make its officers available to
discuss with Scotland's representatives the substance of all documents,
financial statements, and other information provided by Centura to Scotland and
such other matters as Scotland shall deem pertinent to the transactions
contemplated by this Agreement.
ARTICLE VII
AFFIRMATIVE COVENANTS OF SCOTLAND
Except as otherwise consented to or waived by Centura in writing, Scotland
covenants that, throughout the pendency of this Agreement, it will:
7.01. Operation of Business. Maintain and operate its business only in
the usual, regular, and ordinary manner appropriate to entities of comparable
size and character and comply in all material respects with all applicable laws,
regulations, orders, judgments, and decrees except where Scotland is contesting
the validity of any of the foregoing; and, to the extent consistent with such
operation and sound business practices as determined in good faith by Scotland,
make all reasonable efforts to preserve intact its present business organization
(including, but not limited to, Scotland's status as a North Carolina chartered
stock savings bank), keep available the services of its present officers and
employees, and preserve its present relationships with depositors, suppliers,
customers, and others having business dealings with it.
7.02. Payment of Taxes. Punctually pay and discharge all taxes,
assessments, and other governmental charges lawfully imposed upon Scotland or
SSB or any of their property, or upon the income and profits thereof; provided,
however, that nothing herein contained shall prohibit Scotland from contesting
in good faith and by appropriate proceedings the validity of any tax,
assessment, or governmental charge; and, provided further, that any such
contested assessment or charge be reported to Centura.
7.03. Substantial Litigation; Adverse Condition. Promptly upon receipt
of notice, notify Centura of (i) the commencement of any litigation against
Scotland seeking damages in excess of $50,000 or threatening the consummation of
the Merger, or (ii) the existence of severe and adverse business conditions
threatening the continued, normal business operations of Scotland.
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7.04. Properties. At all times maintain, preserve, and keep all
properties in a satisfactory condition so as to ensure their normal use in the
business operations of Scotland, except where failure to do so would not
materially and adversely affect the business or operations of Scotland.
7.05. Contracts. Perform all obligations under all material contracts,
leases, and documents relating to or affecting assets, properties, and business,
except where failure to do so would not materially and adversely affect the
business or operations of Scotland.
7.06. Insurance. Maintain in full force and effect insurance in
amount and scope of coverage which, in the judgment of Scotland's management, is
consistent with the nature and scope of all activities as conducted now or in
the future by Scotland.
7.07. Regulatory Filings and Financial Statements. Provide Centura
promptly with (i) a copy of any and all filings made with the Regulatory
Authorities from the date hereof through the Effective Time, and (ii) each
quarterly consolidated balance sheet, statement of income, statement of changes
in financial position, and statement of changes in shareholders' equity prepared
by Scotland.
7.08. Accounting Principles and Practices. Maintain all of the books
and records, including all financial statements, in accordance with accounting
principles and practices consistent with those used for the most recent
financial statements, except for changes in such principles and practices
required by federal or state regulation or under generally accepted accounting
principles.
7.09. Special Meeting and Approval of Shareholders. Scotland will duly
call and convene the Special Meeting of its shareholders to act upon this
Agreement and the transactions contemplated hereby. Scotland shall assist in
the preparation of, and mail (or otherwise provide) to its shareholders, the
Proxy Statement to solicit the approval of this Agreement, the Merger Agreement,
and the transactions contemplated hereby by the shareholders of Scotland.
Scotland will use its best efforts to obtain the required approval by its
shareholders, including, subject to their legal obligations as directors of
Scotland, a recommendation of a favorable vote on the transactions contemplated
hereby by Scotland's Board of Directors.
7.10. Environmental Assessment. Scotland shall permit Centura to have
performed a Phase II Environmental Site Assessment and any other investigation
and exploration that Centura, in its sole discretion and cost, deems necessary,
of each parcel of the Premises by an individual or organization acceptable to
Centura. Such assessment, investigation or exploration shall include, without
limitation, such matters as shall be applicable to each parcel of the Premises,
and as may be specified by Centura in a writing referring specifically to this
Section 7.10.
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ARTICLE VIII
AFFIRMATIVE COVENANTS OF CENTURA
Except as otherwise consented to or waived by Scotland in writing, Centura
covenants that, throughout the pendency of this Agreement, it will:
8.01. Maintenance of Existence. Maintain its existence as a bank
holding company under the BHC Act and applicable state laws regarding bank
holding companies, and cause Centura Bank to maintain its existence as a North
Carolina bank.
8.02. Filings with Commission. Provide Scotland promptly with a copy
of any and all filings made with the Commission subsequent to the date of this
Agreement and prior to the Closing Date.
8.03. Accounting Principles and Practices. Maintain all of its books
and records, and cause Centura Bank to maintain all of its books and records,
including all financial statements, in accordance with accounting principles and
practices consistent with those used for its December 31, 1997 financial
statements, except for changes in such principles and practices required under
generally accepted accounting principles.
8.04. Substantial Litigation; Adverse Condition. Promptly upon receipt
of notice, notify Scotland of (i) the commencement of any litigation against
Centura or Centura Bank seeking damages threatening the consummation of the
Merger, or (ii) the existence of severe and adverse business conditions
threatening the continued, normal business operations of Centura or Centura
Bank.
ARTICLE IX
NEGATIVE COVENANTS OF SCOTLAND
Scotland covenants that, throughout the pendency of this Agreement, neither
it nor SSB, unless (i) specifically provided herein or permitted hereunder, or
(ii) Centura shall have consented in writing to an exception to any such
covenant, will:
9.01. Amendments. Amend Scotland's charter or bylaws.
9.02. Capitalization. Authorize or establish any other class of
capital stock; issue, sell, or otherwise dispose of any shares of any class of
capital stock or any of its securities convertible into or representing a right
or option to purchase any such shares of any class of capital stock, or
27
change the presently outstanding shares of any class of capital stock into a
greater or lesser number of shares either by way of a stock dividend, stock
split, reclassification, combination, recapitalization, reorganization,
consolidation of shares or the like, or by way of a merger or consolidation.
9.03. Long-Term Indebtedness. Incur any indebtedness for money
borrowed that becomes due and payable more than one year after such occurrence;
provided, however, that the foregoing shall not prohibit Scotland from incurring
such indebtedness (i) in the ordinary course of the taking of deposits or the
funding of a particular loan, (ii) for the purpose of financing capital
expenditures permitted by Section 9.08 hereof, and (iii) for the purpose of
refinancing any indebtedness existing on the date hereof or permitted by this
Agreement on terms at least as favorable to Scotland, so long as the
consummation of the Merger or any related transaction will not constitute a
violation of any term of any such indebtedness.
9.04. Hypothecations. Except in the ordinary course of conducting
operations, purchase, redeem, retire, or otherwise acquire, or hypothecate,
pledge, or otherwise encumber, any shares of any class of its capital stock.
9.05. Dividends. Declare, set aside, or pay dividends on any shares of
any class of capital stock or make any other distribution of assets to the
holders of any shares of any class of capital stock, except for the payment of
regular, quarterly dividends, not to exceed $.05 per share on Scotland Common
Stock, consistent with past practice, to Scotland's shareholders.
9.06. Employee Benefits. Enter into or institute any employment
contract, deferred compensation, bonus, stock option, profit-sharing, pension,
retirement, or insurance plan, or similar employee benefit plan or program, or
terminate or materially amend any such employee benefit or stock option plan or
program now in existence, grant any stock option under any stock option plan or
program now in existence, or except in the ordinary course of business and
consistent with past practices, increase the salaries and other compensation
payable to its directors, officers, and employees. Historically, SSB has paid
an annual bonus to its employees, which bonus is accrued on a monthly basis.
Scotland and SSB intend to continue accruing for such bonus consistent with past
practices through the Effective Time.
9.07. Inconsistent Agreements. Enter into any agreement,
understanding, or commitment, written or oral, with any other party which is
inconsistent in any material respect with Scotland's obligations arising under
this Agreement.
9.08. Capital Improvements. Effect any single capital improvement or
single purchase of equipment or furnishings involving an expenditure in excess
of $50,000. All expenditures in excess of such amount contemplated by Scotland
of the date hereof are Previously Disclosed and
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are hereby consented to by Centura, provided that the aggregate expenditures for
all projects Previously Disclosed shall not exceed $150,000.
9.09. Acquisition of Control. Acquire direct or indirect ownership or
control of voting shares or securities convertible into voting shares of, or any
other interest in, any presently non-affiliated corporation, and newly-organized
business entity, any joint venture or other entity, other than shares or
interests acquired in the ordinary course of business in a fiduciary or
custodial capacity or as a result of debts previously contracted.
9.10. Other Acquisitions and Mergers. Initiate, propose, or otherwise
solicit from any person, corporation, or other group acting in concert any bids
or offers to purchase or acquire Scotland or SSB, cause Scotland or SSB to merge
into or consolidate with any other corporation or person or permit any other
corporation to be merged or consolidated with it, or acquire all or any
substantial part of the assets of any other corporation or person not affiliated
with Scotland of the date hereof, except where such acquisition relates to
foreclosure procedures, or deeds or transfers in lieu of foreclosure, or
extensions of credit of Scotland or SSB.
9.11. Sale of Assets. Sell or lease all or any material portion of its
assets or business other than in the ordinary course of business.
ARTICLE X
NEGATIVE COVENANTS OF CENTURA
Centura covenants that, throughout the pendency of this Agreement, unless
(i) specifically provided herein or permitted hereunder, or (ii) Scotland shall
have consented in writing to an exception to any such covenant, it will not:
10.01. Dividends. Declare, set aside, or pay dividends on any shares of
any class of capital stock or make any other distribution of assets to the
holders of any shares of any class of capital stock if the payment of such
dividends might cause Centura to be unable to meet its obligations under this
Agreement.
10.02. Inconsistent Agreements. Enter into any agreement, understanding,
or commitment, written or oral, with any other party which is inconsistent in
any material respect with the obligations of Centura arising under this
Agreement or which would prevent Centura or Centura Bank from completing the
transactions contemplated by this Agreement; provided; however, nothing in this
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Agreement shall preclude Centura or Centura Bank from negotiating and concluding
transactions with respect to a merger or other form of business combination with
any other corporation or entity, so long as such transaction or transactions
would not prevent, obstruct or delay completing the transactions contemplated by
this Agreement.
ARTICLE XI
INDEMNIFICATION
Each party represents and warrants that all information concerning it which
is included in any statement and application made to any governmental agency in
connection with the transactions contemplated by this Agreement shall be true
and correct in all material respects and shall not omit any material fact
required to be stated therein or necessary to make the statements made, in light
of the circumstances under which they were made, not misleading. The party so
representing and warranting will indemnify and hold harmless the other, each of
its directors and officers, and each person, if any, who controls the other
within the meaning of the Securities Act, from and against any and all losses,
claims, damages, expenses, or liabilities to which any of them may become
subject under applicable laws (including, but not limited to, the Securities Act
and the Exchange Act) and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
actions whether or not resulting in liability, insofar as such losses, claims,
damages, expenses, liabilities, or actions arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
such application or statement or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary in order to make the statements therein not misleading, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing by the representing and
warranting party expressly for use therein. Each party agrees at any time upon
the request of the other to furnish to the other a written letter or statement
confirming the accuracy of the information provided by such person and contained
in any proxy statement, registration statement, report, or other application or
statement, or in any draft of any such document, and confirming that the
information contained in such document or draft was furnished expressly for use
therein or, if such is not the case, indicating the inaccuracies contained in
such document or draft or indicating the information not furnished expressly for
use therein. The indemnity agreement contained in this Article XI shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the other party.
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ARTICLE XII
CONDITIONS PRECEDENT TO THE CLOSING
In addition to the general conditions contained in Section 2.07 hereof, the
following are conditions to the consummation of the Merger and the closing of
the Reorganization, except that (i) any of such conditions may be waived, to the
extent permitted by law, by the mutual consent in writing of Centura and
Scotland; (ii) Centura may unilaterally waive in writing, on behalf of all
parties hereto, to the extent permitted by law, the conditions set forth in
Sections 12.04, 12.05 and 12.06 and (iii) Scotland may unilaterally waive in
writing, on behalf of all parties hereto, to the extent permitted by laws, the
conditions set forth in Sections 12.07, 12.08 and 12.09.
12.01. Restraining Orders. No order, judgment, or decree shall be
outstanding whether against a party hereto or a third party that would have the
effect of preventing completion of the Reorganization; no suit, action, or other
proceeding shall be pending or threatened by any governmental body in which it
is sought to restrain or prohibit the Reorganization; and no suit, action, or
other proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit the Reorganization or obtain other
substantial monetary or other relief against one or more of the parties hereto
in connection with this Agreement, unless in the reasonable opinion of counsel
to the party wishing to proceed (which opinion shall be satisfactory in
substance to the other party in its reasonable judgment), such suit, action, or
proceeding is likely to be resolved in such a way as not to deprive either party
of any of the material benefits to it of the Merger and not to materially
adversely affect the business or financial condition of the party subject
thereto.
12.02. Approval by Regulatory Authorities; Disadvantageous Conditions.
(i) The transactions contemplated by this Agreement shall have been approved, to
the extent required by law, by the Regulatory Authorities having jurisdiction
over such transactions, (ii) no Regulatory Authority shall have withdrawn it
approval of such transactions or imposed any condition on such transactions or
its approval thereof, which condition is reasonably deemed by Centura to so
adversely impact the economic or business benefits of this Agreement to Centura
as to render it inadvisable for it to consummate the Merger, (iii) any
applicable waiting periods following regulatory approvals shall have expired,
and in connection with such approvals, no objections to the Merger shall have
been raised; and (iv) all other consents, approvals and permissions, and the
satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated by this Agreement
shall have been procured.
12.03 Approval by Boards of Directors and Shareholders. The Boards of
Directors of Scotland and Centura shall have duly approved, adopted and ratified
this Agreement by appropriate resolutions, and the shareholders of Scotland
shall have duly approved, ratified and adopted this Agreement at the Special
Meeting, all to the extent required by and in accordance with the provisions
31
of this Agreement, applicable law, and applicable provisions of their respective
Articles or Certificate of Incorporation and ByLaws.
12.04. Scotland's Representations. The representations and warranties
of Scotland with respect to Scotland and SSB contained herein shall have been
true and correct in all material respects on the date made and shall be true and
correct in all material respects at the Effective Time as though made at such
time, excepting any changes occurring in the ordinary course of business, none
of which individually or in the aggregate has been materially adverse, and
excepting any changes contemplated or permitted by this Agreement. Scotland
shall have in all material respects duly performed all covenants, not otherwise
waived by Centura in writing, required by this Agreement to be performed by it
prior to or at the Effective Time. Centura shall have received a certificate of
appropriate officers of Scotland dated such date and certifying in such detail
as Centura may reasonably request to the fulfillment of the foregoing
conditions.
12.05. Opinion of Counsel to Scotland. Centura shall have received an
opinion satisfactory in form and substance to it from Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., counsel to Scotland, dated the Effective Time and
addressed to Centura, in substantially the form attached hereto as Exhibit D,
which opinion may provide that it is given in reasonable reliance upon
information provided by such other counsel as they feel necessary in giving such
opinion.
12.06. Letter of Counsel to Scotland. Centura shall have received a
letter satisfactory in form and substance to it from Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., counsel to Scotland, dated the Effective Time and
addressed to Centura, in substantially the form attached hereto as Exhibit E,
relating to the information contained in the Proxy Statement.
12.07. Accountants' Letter. Centura shall have received from McGladrey
& Pullen, independent public accountants, a letter dated the Effective Time and
addressed to Centura in form and substance satisfactory to Centura to the effect
that:
(i) they are independent public accountants with respect to Scotland;
(ii) in their opinion the audited financial statements of Scotland,
dated September 30, 1998, examined by them and included in the Independent
Certified Public Accountants Report, comply as to form in all material respects
with the applicable requirements of the Securities Act and the applicable
published rules and regulations of the Administrator and FDIC with respect to
the preparation of such reports; and
(iii) they have read the unaudited interim financial statements of
Scotland for the period from the date of the most recent audited financial
statements thought the date of the most recent interim financial statements
available in the ordinary course of business and, based on such review and
except as disclosed in such letter, nothing has come to their attention which
would cause them
32
to believe that such financial statements are not presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements of
Scotland dated September 30, 1998.
12.08. Centura's Representations. The representations and warranties of
Centura contained herein shall have been true and correct in all material
respects on the date made and shall be true and correct in all material respects
at the Effective Time, as though made at such time, excepting any changes
occurring in the ordinary course of business, none of which either individually
or in the aggregate has been materially adverse, and excepting for any changes
contemplated or permitted by this Agreement. Centura shall have in all material
respects duly performed all covenants, not otherwise waived by Scotland in
writing, required by this Agreement or by the Merger Agreement to be performed
by its prior to or at the Effective Time. Scotland shall have received a
certificate of appropriate officers of Centura dated such date and certifying in
such detail as Scotland may reasonably request to the fulfillment of the
foregoing conditions.
12.09. Opinion of Counsel to Centura. Scotland shall have received an
opinion satisfactory in form and substance to it from counsel to Centura, dated
the Effective Time and addressed to Scotland , in substantially the form
attached hereto as Exhibit F.
12.10. Fairness Opinion. Scotland shall have received from Trident
Financial Corporation, an independent financial advisory firm, a letter, dated
as of the date of this Agreement and updated as of the date of the Proxy
Statement and the Closing Date, in form and substance satisfactory to Scotland,
to the effect that, in the opinion of such firm, the Exchange is fair to the
shareholders of Scotland from a financial point of view.
ARTICLE XIII
SURVIVAL OF REPRESENTATIONS,
WARRANTIES, AND COVENANTS
Centura and Scotland agree that no representation, warranty, or covenant
contained in this Agreement or in any exhibit, schedule, letter, certificate, or
other instrument referred to in this Agreement or delivered or made by or on
behalf of any party to either this Agreement or in
33
connection with any transactions contemplated by this Agreement shall survive
either the Effective Time or any termination of this Agreement pursuant to
Article XV hereof, except for (i) the covenants set forth in Sections 3.04,
3.05, 3.06, 3.08, 3.09, 3.10, 3.11, and 16.01, and Article XI hereof which shall
survive the Effective Time, and (ii) the covenants set forth in Sections 3.03
and 16.01 hereof which shall survive the termination of this Agreement and (iii)
Article II of this Agreement which shall survive the Effective Time. Nothing in
this Agreement shall be construed to alter the effectiveness of any legal
opinion, accountant's certificate, or any other letter or report rendered in
connection with the transactions contemplated by this Agreement or the Merger
Agreement.
ARTICLE XIV
ENTIRE AGREEMENT
This Agreement, all exhibits, appendices, schedules, or supplements to
either of such documents, and all other agreements contemplated by either of
such documents, embody the entire agreement between the parties hereto with
respect to the transactions contemplated hereby, and except as expressly
provided herein, this Agreement shall not be affected by reference to any other
document. All prior negotiations, discussions, and agreements by and between
the parties hereto with respect to the transactions contemplated hereby which
are not reflected or set forth in this Agreement therefore have no force or
effect. Each representation, warranty, covenant, condition, or agreement
contained in this Agreement made by any of the parties hereto shall have
independent force and effect and shall not be affected by any other
representation except by specific reference.
ARTICLE XV
TERMINATION OF AGREEMENT
15.01. Mutual Consent; Absence of Shareholder Approval Termination Date.
This Agreement shall terminate at any time when the parties hereto mutually
agree in writing. This Agreement shall terminate at the election of either
Centura or Scotland, upon written notice from the party electing to terminate at
the election of either Centura or Scotland, upon written notice from the party
electing to terminate this Agreement to the other party if this Agreement is not
ratified, confirmed, and approved by the legally required affirmative vote of
the shareholders of Scotland at the Special Meeting or at any continuations of
such Special Meeting after the adjournment thereof or there has been a denial
which is not appealable of any material regulatory approval or consent required
to consummate the Merger.
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15.02. Election by Centura. Notwithstanding the approval of this
Agreement, and the transactions contemplated hereby by the shareholders of
Scotland, this Agreement shall terminate at Centura's election, upon written
notice from Centura to Scotland, if either or both of the following events shall
occur and shall not have been remedied to the satisfaction of Centura within
thirty (30) days after written notice is delivered to Scotland: (i) there shall
have been any material breach of any of the obligations, covenants, or
warranties of Scotland hereunder, or (ii) there shall have been any
representation or statement furnished by Scotland hereunder or under the Merger
Agreement which is false or misleading in any material respect at the time
furnished; provided, however, that Centura shall not have the right to terminate
this Agreement if the breach as defined in subsection (i) of this Section 15.02
or the misstatement as defined in subsection (ii) of this Section 15.02 shall
have been as a result of the alteration of any procedural steps taken to
consummate the acquisition of Scotland as contemplated by this Agreement.
15.03. Election by Scotland. This Agreement shall terminate at
Scotland's election, upon written notice from Scotland to Centura, if either or
both of the following events shall occur and shall not have been remedied to the
satisfaction of Scotland within thirty (30) days after written notice is
delivered to Centura (a) there shall have been any material breach of any of the
obligations, covenants, or warranties of Centura hereunder or (b) there shall
have been any representation or statement furnished by Centura hereunder which
is false or misleading in any material respect at the time furnished. In
addition, this Agreement shall terminate at Scotland's election, upon written
notice from Scotland to Centura, in the event that Centura shall enter into an
agreement in principle or a definitive agreement with respect to a separate
transaction with a third party that would result in the circumstances described
in Section 10.02 of this Agreement.
15.04. Termination Upon Failure to Consummate. This Agreement shall
terminate at any party's election, upon written notice from the terminating
party to the others, if the Merger shall not have been consummated on or before
March 31, 1999.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.01. Expenses. Each party hereto shall bear and pay all costs and
expenses incurred by it in connection with the transactions contemplated in this
Agreement, including the fees and expenses of its own financial consultants,
accountants, and counsel.
16.02. Publicity. Except as may be required to comply with disclosure
obligations imposed by federal or state law or regulation and after reasonable
attempts have been made to comply with this Section 16.02, the form, content,
and timing of all announcements, communications, and press
35
releases of any kind concerning this Agreement or any of the transactions
contemplated hereby or thereby shall be subject to the prior approval of Centura
and Scotland.
16.03. Amendment. This Agreement may not be amended, modified, or
supplemented except by an instrument in writing signed by duly authorized
representatives of each of Centura and Scotland, as applicable. No covenant,
condition, or other provision of this Agreement may be waived, and no exception
may be consented to, except by an instrument in writing by a duly authorized
representative of the party entitled to grant such waiver or consent.
16.04. Governing Law. This Agreement and the transactions contemplated
hereby and thereby shall be governed by and construed in accordance with the
laws of the State of North Carolina, except as otherwise expressly provided in
this Agreement or as federal law may be applicable to the transactions
contemplated by this Agreement.
16.05. Communications. All notices, requests, demands, consents,
waivers, and other communications hereunder shall be in writing and shall be
delivered by hand or sent by certified or registered mail, postage prepaid,
return receipt requested, or by a confirmed telegram, as follows:
If to Centura: With a copy to:
Steven Goldstein Joseph A. Smith, Jr.
Chief Financial Officer General Counsel
Centura Banks, Inc. Centura Banks, Inc.
P. O. Box 1220 P. O. Box 1220
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina 27802
or
If to Scotland: With a copy to:
William C. Fitzgerald, III Edward C. Winslow III, Esq.
President and CEO Brooks, Pierce, McLendon,
Scotland Bancorp, Inc. Humphrey & Leonard, L.L.P.
P. O. Box 1468 Suite 2000, Renaissance Plaza
Laurinburg, North Carolina 28353-1468 230 North Elm Street
Greensboro, North Carolina 27401
Any such notice or other communication so addressed shall be deemed to have been
received by the addresses as of the date of such receipt to confirmation.
36
16.06 Successors and Assigns. The rights and obligations of the
parties hereto shall inure to the benefit of and shall be binding upon the
successors and assigns of each of them; provided, however, that this Agreement
and any of the rights, interests, or obligations hereunder and thereunder shall
not be assigned by either of the parties hereto without the prior written
consent of the other party hereto.
16.07 Cover, Table of Contents, and Headings. The cover, the table of
contents, and the headings of the Articles and Sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of either such document.
16.08 Counterparts. This Agreement may be executed in several
identical counterparts, each of which when executed by the parties hereto and
delivered shall be an original, but all of which together shall constitute a
single instrument. In making proof of this Agreement, it shall not be necessary
to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
CENTURA BANKS, INC.
By: /s/ Steven Goldstein
-------------------------------------
ATTEST:
/s/ Joseph A. Smith, Jr.
- -------------------------------
Secretary
(SEAL)
SCOTLAND BANCORP, INC.
By: /s/ William C. Fitzgerald III
-------------------------------
William C. Fitzgerald, III
ATTEST: President and CEO
John B. Clark
- -------------------------------
Secretary
(SEAL)
37
IN WITNESS WHEREOF, Scotland Acquisition Corporation has caused this Agreement
and Plan of Reorganization and Merger to be executed on its behalf by its
undersigned officer thereunto duly authorized for the purpose of joining as a
party hereto and by such execution, Scotland Acquisition Corporation hereby
adopts and agrees to each of the terms and conditions herein as its own.
SCOTLAND ACQUISITION CORPORATION
By:
-----------------------------
ATTEST:
- -------------------------
Secretary
[Corporate Seal]
38
EXHIBIT A
STATE OF NORTH CAROLINA
AGREEMENT AND PLAN OF BANK MERGER
COUNTY OF NASH
THIS AGREEMENT AND PLAN OF BANK MERGER (the "Merger Agreement"), is made
and entered into as of the _______ day of _______, 199__ by and between CENTURA
BANK, a North Carolina banking corporation having its principal office at Rocky
Mount, North Carolina ("Centura Bank"), and SCOTLAND SAVINGS BANK, INC., SSB, a
North Carolina-chartered savings bank having its principal office at Laurinburg,
North Carolina ("Scotland Savings").
W I T N E S S E T H:
WHEREAS, Centura Banks, Inc. ("Centura") and Scotland Bancorp, Inc.
("Scotland") have entered into an Agreement and Plan of Reorganization and
Merger dated as of August 26, 1998 (the "Reorganization Agreement") whereby
---------
Scotland Acquisition Corporation ("Scotland Acquisition"), a wholly-owned
subsidiary of Centura, will be merged with an into Scotland (the "Acquisition")
with Scotland as the surviving entity; and
WHEREAS, the complete terms of the Acquisition are set forth in the
Reorganization Agreement, the terms of which are incorporated herein by
reference; and
WHEREAS, the Reorganization Agreement contemplates that, after the
Acquisition, Scotland will be merged with and into Centura (the "Corporate
Merger"); and
WHEREAS, the Reorganization Agreement also contemplates that, after the
Acquisition, Scotland's wholly-owned savings bank subsidiary, Scotland Savings,
will be merged with and into Centura's wholly-owned banking corporation
subsidiary, Centura Bank (the "Bank Merger"); and
WHEREAS, the parties desire to enter into this Merger Agreement to provide
for the Bank Merger; and, Centura and Scotland desire to join in the execution
of this Merger Agreement to evidence their approval of the Bank Merger in their
respective capacities as the sole shareholders of Centura Bank and Scotland
Savings.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I. PLAN OF MERGER
1.1 Names of Merging Corporations. The names of the entities proposed to
-----------------------------
be merged are CENTURA BANK, a North Carolina banking corporation which is the
wholly-owned subsidiary of Centura, and SCOTLAND SAVINGS BANK, INC., SSB, a
North Carolina savings bank which is the wholly-owned subsidiary of Scotland.
1.2 Nature of Transaction. Subject to and in accordance with the
---------------------
provisions of this Plan of Merger, at the effective time of the transactions
described herein (the "Effective Time") Scotland Savings shall be merged into
and with Centura Bank pursuant to N.C. Gen. Stat. (S) 53-12.
1.3 Effect of Merger; Surviving Corporation. By reason of the Merger, at
---------------------------------------
the Effective Time and as provided in N.C.Gen. Stat. (S) 53-13, the separate
corporate existence of Scotland Savings shall cease and all of its outstanding
shares shall be canceled, while the corporate existence of Centura Bank as the
surviving corporation in the Bank Merger shall continue with all of its
purposes, objects, rights, privileges, powers and franchises, all of which shall
be unaffected and unimpaired by the Bank Merger. Following the Effective Time,
Centura Bank shall operate as the wholly-owned banking subsidiary of Centura
and, as a North Carolina banking corporation, will continue to conduct its
business and the business of Scotland Savings at all legally established branch
and main offices of Centura Bank and Scotland Savings. The duration of the
corporate existence of Centura Bank as the surviving corporation shall be
perpetual and unlimited.
1.4 Assets and Liabilities of Centura Bank and Scotland Savings. By
-----------------------------------------------------------
reason of the Bank Merger, at the Effective Time and in accordance with
N.C.Gen.Stat. (S)(S) 53-13, 53-17 and 55-11-06, all of Scotland Savings'
property, assets and rights of every kind and character (including without
limitation all real, personal or mixed property, all debts due on whatever
account, all other choses in action and all and every other interest of or
belonging to or due to Scotland Savings, whether tangible or intangible) shall
be transferred to and vest in Centura Bank, and Centura Bank shall succeed to
all the rights, privileges, immunities, powers, purposes and franchises of a
public or private nature (including all trust and fiduciary properties, powers
and rights) of Scotland Savings, all without any conveyance, assignment or
further act or deed; and, Centura Bank shall become responsible for all of the
liabilities, duties and obligations of every kind, nature and description
(including duties as trustee or fiduciary) of Scotland Savings as of the
Effective Time.
1.5 Cancellation of the Shares. At the Effective Time all rights of
--------------------------
Scotland, as the sole shareholder of Scotland Savings, with respect to the
outstanding shares of Scotland Savings' common stock shall cease to exist and
the shares shall be canceled. No cash or shares or other securities or
obligations will be distributed upon cancellation of the shares.
1.6 Articles, Bylaws and Management. The Articles of Incorporation and
-------------------------------
Bylaws of Centura Bank in effect at the Effective Time shall be the Articles of
Incorporation and Bylaws of Centura Bank as the surviving corporation. The
officers and directors of Centura Bank in office at the Effective Time shall
serve in the same capacities as the officers and directors of Centura Bank
2
as the surviving entity in the Bank Merger until removed as provided by law or
until the election or appointment of their respective successors.
ARTICLE II. CLOSING; EFFECTIVE TIME OF MERGER
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the principal office of Centura in Rocky Mount,
North Carolina, or at such other place as the parties shall designate, on the
same date and immediately following, the closing of the Acquisition (the
"Closing Date"). At the Closing, Centura Bank and Scotland Savings shall take
such actions (including without limitation the delivery of certain closing
documents and the execution of Articles of Merger under North Carolina law) as
are required herein and as otherwise shall be required by law to consummate the
Bank Merger and cause it to become effective.
Subject to the terms and conditions set forth herein (including without
limitation the receipt of all required approvals of governmental and regulatory
authorities), the Bank Merger shall become effective on the date and at the time
specified in Articles of Merger filed with the North Carolina Commissioner of
Banks and the North Carolina Secretary of State in accordance with law;
provided, however, that the Effective Time shall in no event be more than ten
days following the Closing Date.
ARTICLE III. CONDITIONS TO CLOSING
The Closing and the obligations of Centura Bank and Scotland Savings to
consummate the Bank Merger are conditioned upon fulfillment of each of the
following conditions:
3.1 Regulatory Approvals. Centura, Scotland, Centura Bank, and Scotland
--------------------
Savings shall have received all approvals of banking regulators required in
order (i) to consummate the Acquisition, (ii) to consummate the Bank Merger,
(iii) to consummate the Corporate Merger, and (iv) for Centura Bank to establish
branch offices at the location of Scotland Savings' current banking offices.
3.2 Expiration of Waiting Periods. All required waiting periods following
-----------------------------
receipt of required regulatory approvals shall have expired.
3.3 Satisfaction of Conditions to Acquisition. All other conditions to
-----------------------------------------
consummation of the Acquisition as specified in the Reorganization Agreement
shall have been satisfied or effectively waived by the party for whose benefit
such condition is provided.
3.4 Consummation of Acquisition. Centura, Scotland, and Scotland
---------------------------
Acquisition shall have consummated the Acquisition in accordance with the terms
of the Reorganization Agreement.
3
ARTICLE IV. TERMINATION
4.1 Methods of Termination. This Agreement may be terminated at any time
----------------------
prior to the Effective Date under the same conditions and in the same manner as
is provided in the Reorganization Agreement for its termination.
4.2 Effect of Termination. In the event this Agreement shall be
---------------------
terminated pursuant to Section 4.1 hereof, written notice thereof shall be given
by the terminating party to the other party. In such event, each party will take
such actions as may be necessary to restore the status of the parties as existed
before the date of this Merger Agreement, which actions shall be limited to the
return of contracts, documents and other written instruments as may have been
exchanged by the parties and which may be deemed confidential and not of a
public nature. The parties will keep all such contracts, documents, written
instruments and all such information exchanged, oral or written, in strict
confidence and agree not to use such confidential information to unfair
advantage, in competition or otherwise.
ARTICLE V. MISCELLANEOUS PROVISIONS
5.1 Waiver. Any term or condition of this Merger Agreement may be waived
------
(except as to matters of regulatory approvals and approvals required by law),
either in whole or in part, at any time by the party which is entitled to the
benefits thereof; provided, that no waiver of any term or condition of this
Merger 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 or any other term or
condition. No failure or delay of any party to exercise any power, or to insist
upon a strict compliance by any other party of any obligation, and no custom or
practice at variance with any terms hereof, shall constitute a waiver of the
right of any party to demand full and complete compliance with such terms.
5.2 Amendment. This Merger Agreement may be amended, modified or
---------
supplemented at any time or from time to time prior to the Effective Time, by an
agreement in writing signed by an authorized officer of each of Centura Bank,
Scotland Savings, Centura and Scotland.
5.3 Inconsistencies with Reorganization Agreement. In the case of any
---------------------------------------------
inconsistencies or conflicts between the language of this Merger Agreement and
that of the Reorganization Agreement, the Reorganization Agreement shall
control.
5.4 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered personally or
by courier or facsimile, or mailed by certified mail, return receipt required,
postage prepaid, and addressed as follows:
4
If to Scotland Savings, to: With a copy to:
Scotland Bancorp, Inc. Edward C. Winslow III, Esq.
505 South Main Street Brooks, Pierce, McLendon, Humphrey
Laurinburg, North Carolina 28352 & Leonard, L.L.P.
Attention: William C. Fitzgerald, III Suite 2000, 230 N. Elm Street
President Greensboro, North Carolina 27401
If to Centura, to: With copy to:
Centura Bank Joseph A. Smith
Post Office Box 1220 General Counsel
Rocky Mount, North Carolina 27802 Centura Banks, Inc.
Attention: Steven J. Goldstein Post Office Box 1220
Chief Financial Officer Rocky Mount, North Carolina 27802
and General Counsel
5.5 Further Assurances. Centura Bank and Scotland Savings each agree to
------------------
furnish to the other such further assurances with respect to the matters
contemplated herein as such other party may reasonably request.
5.6 Headings and Captions. Headings and captions of the sections and
---------------------
paragraphs of this Merger Agreement have been inserted for convenience of
reference only and do not constitute a part hereof.
5.7 Entire Agreement. This Merger Agreement (together with the
----------------
Reorganization Agreement incorporated herein by reference) contains the entire
agreement of the parties with respect to the transactions described herein.
5.8 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 thereof.
5.9 Assignment. This Merger Agreement may not be assigned by any party
----------
hereto except with the prior written consent of the other parties hereto.
5.10 Counterparts. Any number of counterparts of this Merger Agreement may
------------
be signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
5.11 Governing Law. This Merger Agreement is made in and shall be
-------------
construed and enforced in accordance with the laws of North Carolina.
5
IN WITNESS WHEREOF, Centura Bank and Scotland Savings each has caused this
Merger Agreement to be executed in its name by its duly authorized officers and
its corporate seal to be affixed hereto as of the date first above written.
CENTURA BANK
[CORPORATE SEAL]
By:
----------------------------
-------------------------
-------------------------
ATTEST:
- ---------------------
Secretary
- -------
SCOTLAND SAVINGS BANK, INC., SSB
[CORPORATE SEAL]
By:
--------------------------
William C. Fitzgerald, III
President and CEO
ATTEST:
- ---------------------
Secretary
- -------
6
IN WITNESS WHEREOF, CENTURA BANKS, INC. and SCOTLAND BANCORP, INC. have
caused this Merger Agreement to be executed on their respective behalves by
their undersigned officers thereunto duly authorized for the purpose of
approving this Merger Agreement in their respective capacities as the sole
shareholders of Centura Bank and Scotland Savings.
CENTURA BANKS, INC.
[CORPORATE SEAL]
By:
----------------------------
-------------------------
-------------------------
ATTEST:
- ---------------------
Secretary
- -------
SCOTLAND BANCORP, INC.
[CORPORATE SEAL]
By:
--------------------------
William C. Fitzgerald, III
President and CEO
ATTEST:
- ---------------------
Secretary
- -------
7
EXHIBIT B
STATE OF NORTH CAROLINA
AGREEMENT AND PLAN OF
COUNTY OF NASH HOLDING COMPANY MERGER
THIS AGREEMENT AND PLAN OF HOLDING COMPANY MERGER (the "Merger Agreement"),
is made and entered into as of the _______ day of ________, 199__, by and
between CENTURA BANKS, INC., a North Carolina bank holding company having its
principal office at Rocky Mount, North Carolina ("Centura"), and SCOTLAND
BANCORP, INC., a North Carolina bank holding company having its principal office
at Laurinburg, North Carolina ("Scotland").
W I T N E S S E T H:
WHEREAS, Centura and Scotland have entered into an Agreement and Plan of
Reorganization and Merger dated as of August 26, 1998 (the "Reorganization
---------
Agreement") whereby Scotland Acquisition Corporation ("Scotland Acquisition"), a
wholly owned subsidiary of Centura, will be merged with and into Scotland (the
"Acquisition") with Scotland as the surviving entity; and
WHEREAS, the complete terms of the Acquisition are set forth in the
Reorganization Agreement, the terms of which are incorporated herein by
reference; and
WHEREAS, the Reorganization Agreement contemplates that, after the
Acquisition, Scotland will be merged with and into Centura (the "Merger"); and
WHEREAS, the Reorganization Agreement also contemplates that, after the
Acquisition, Scotland's wholly-owned savings bank subsidiary, Scotland Savings
Bank, Inc., SSB ("Scotland Savings"), will be merged with and into Centura's
wholly-owned banking corporation subsidiary, Centura Bank (the "Bank Merger");
and
WHEREAS, the parties desire to enter into this Merger Agreement to provide
for the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I. PLAN OF MERGER
1.1 Names of Merging Corporations. The names of the entities proposed to
-----------------------------
be merged are CENTURA BANKS, INC., a North Carolina bank holding company, and
SCOTLAND BANCORP, INC., a North Carolina bank holding company.
1.2 Nature of Transaction. Subject to and in accordance with the
---------------------
provisions of this Plan of Merger, at the effective time of the transactions
described herein (the "Effective Time") Scotland shall be merged into and with
Centura pursuant to N.C. Gen. Stat. (S) 55-11-04.
1.3 Effect of Merger; Surviving Corporation. By reason of the Merger, at
---------------------------------------
the Effective Time and as provided in N.C.Gen. Stat. (S) 55-11-06, the separate
corporate existence of Scotland shall cease and all of its outstanding shares
shall be canceled, while the corporate existence of Centura 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. The duration of the corporate existence of Centura as
the surviving corporation shall be perpetual and unlimited.
1.4 Assets and Liabilities of Centura and Scotland. By reason of the
----------------------------------------------
Merger, at the Effective Time and in accordance with N.C.Gen.Stat. (S) 55-11-06,
all of Scotland's property, assets and rights of every kind and character
(including without limitation all real, personal or mixed property, all debts
due on whatever account, all other choses in action and all and every other
interest of or belonging to or due to Scotland, whether tangible or intangible)
shall be transferred to and vest in Centura, and Centura shall succeed to all
the rights, privileges, immunities, powers, purposes and franchises of a public
or private nature of Scotland, all without any conveyance, assignment or further
act or deed; and, Centura shall become responsible for all of the liabilities,
duties and obligations of every kind, nature and description of Scotland as of
the Effective Time.
1.5 Cancellation of the Shares. At the Effective Time all rights of the
--------------------------
sole shareholder of Scotland with respect to the outstanding shares of
Scotland's common stock shall cease to exist and the shares shall be canceled.
No cash or shares or other securities or obligations will be distributed upon
cancellation of the shares.
1.6 Articles, Bylaws and Management. The Articles of Incorporation and
-------------------------------
Bylaws of Centura in effect at the Effective Time shall be the Articles of
Incorporation and Bylaws of Centura as the surviving corporation. The officers
and directors of Centura in office at the Effective Time shall serve in the same
capacities as the officers and directors of Centura as the surviving entity in
the Merger until removed as provided by law or until the election or appointment
of their respective successors.
ARTICLE II. CLOSING; EFFECTIVE TIME OF MERGER
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the principal office of Centura in Rocky Mount,
North Carolina, or at such other place as the parties shall designate, on the
same date and immediately following, the closing of the Acquisition (the
"Closing Date"). At the Closing, Centura and Scotland shall take such actions
(including without limitation the delivery of certain closing documents and the
execution of Articles of Merger under North Carolina law) as are required herein
and as otherwise shall be required by law to consummate the Merger and cause it
to become effective.
2
Subject to the terms and conditions set forth herein (including without
limitation the receipt of all required approvals of governmental and regulatory
authorities), the Merger shall become effective on the date and at the time
specified in Articles of Merger filed with the North Carolina Secretary of State
in accordance with law; provided, however, that the Effective Time shall in no
event be more than ten days following the Closing Date.
ARTICLE III. CONDITIONS TO CLOSING
The Closing and the obligations of Centura and Scotland to consummate the
Merger are conditioned upon fulfillment of each of the following conditions:
3.1 Regulatory Approvals. Centura and Scotland shall have received all
--------------------
approvals of banking regulators required in order (i) to consummate the
Acquisition, (ii) to consummate the Merger, (iii) to consummate the Bank Merger,
and (iv) for Centura Bank to establish branch offices at the location of
Scotland Savings' current banking offices.
3.2 Expiration of Waiting Periods. All required waiting periods following
-----------------------------
receipt of required regulatory approvals shall have expired.
3.3 Satisfaction of Conditions to Acquisition. All other conditions to
-----------------------------------------
consummation of the Acquisition as specified in the Reorganization Agreement
shall have been satisfied or effectively waived by the party for whose benefit
such condition is provided.
3.4 Consummation of Acquisition. Centura, Scotland, and Scotland
---------------------------
Acquisition shall have consummated the Acquisition in accordance with the terms
of the Reorganization Agreement.
ARTICLE IV. TERMINATION
4.1 Methods of Termination. This Agreement may be terminated at any time
----------------------
prior to the Effective Date under the same conditions and in the same manner as
is provided in the Reorganization Agreement for its termination.
4.2 Effect of Termination. In the event this Agreement shall be
---------------------
terminated pursuant to Section 4.1 hereof, written notice thereof shall be given
by the terminating party to the other party. In such event, each party will take
such actions as may be necessary to restore the status of the parties as existed
before the date of this Merger Agreement, which actions shall be limited to the
return of contracts, documents and other written instruments as may have been
exchanged by the parties and which may be deemed confidential and not of a
public nature. The parties will keep all such contracts, documents, written
instruments and all such information exchanged, oral or written, in strict
confidence and agree not to use such confidential information to unfair
advantage, in competition or otherwise.
3
ARTICLE V. MISCELLANEOUS PROVISIONS
5.1 Waiver. Any term or condition of this Merger Agreement may be waived
------
(except as to matters of regulatory approvals and approvals required by law),
either in whole or in part, at any time by the party which is entitled to the
benefits thereof; provided, that no waiver of any term or condition of this
Merger 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 or any other term or
condition. No failure or delay of any party to exercise any power, or to insist
upon a strict compliance by any other party of any obligation, and no custom or
practice at variance with any terms hereof, shall constitute a waiver of the
right of any party to demand full and complete compliance with such terms.
5.2 Amendment. This Merger Agreement may be amended, modified or
---------
supplemented at any time or from time to time prior to the Effective Time, by an
agreement in writing signed by an authorized officer of each of Centura and
Scotland.
5.3 Inconsistencies with Reorganization Agreement. In the case of any
---------------------------------------------
inconsistencies or conflicts between the language of this Merger Agreement and
that of the Reorganization Agreement, the Reorganization Agreement shall
control.
5.4 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if delivered personally or
by courier or facsimile, or mailed by certified mail, return receipt required,
postage prepaid, and addressed as follows:
If to Scotland, to: With a copy to:
Scotland Bancorp, Inc. Edward C. Winslow III, Esq.
505 South Main Street Brooks, Pierce, McLendon, Humphrey
Laurinburg, North Carolina 28352 & Leonard, L.L.P.
Attention: William C. Fitzgerald, III Suite 2000, 230 N. Elm Street
President Greensboro, North Carolina 27401
If to Centura, to: With copy to:
Centura Banks, Inc. Joseph A. Smith
Post Office Box 1220 General Counsel
Rocky Mount, North Carolina 27802 Centura Banks, Inc.
Attention: Steven J. Goldstein Post Office Box 1220
Chief Financial Officer Rocky Mount, North
and General Counsel Carolina 27802
4
5.5 Further Assurances. Centura and Scotland each agree to furnish to the
------------------
other such further assurances with respect to the matters contemplated herein as
such other party may reasonably request.
5.6 Headings and Captions. Headings and captions of the sections and
---------------------
paragraphs of this Merger Agreement have been inserted for convenience of
reference only and do not constitute a part hereof.
5.7 Entire Agreement. This Merger Agreement (together with the
----------------
Reorganization Agreement incorporated herein by reference) contains the entire
agreement of the parties with respect to the transactions described herein.
5.8 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 thereof.
5.9 Assignment. This Merger Agreement may not be assigned by any party
----------
hereto except with the prior written consent of the other parties hereto.
5.10 Counterparts. Any number of counterparts of this Merger Agreement may
------------
be signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
5.11 Governing Law. This Merger Agreement is made in and shall be
-------------
construed and enforced in accordance with the laws of North Carolina.
5
IN WITNESS WHEREOF, Centura and Scotland each has caused this Merger
Agreement to be executed in its name by its duly authorized officers and its
corporate seal to be affixed hereto as of the date first above written.
CENTURA BANKS, INC.
[CORPORATE SEAL]
By:
--------------------------------------
--------------------------------------
ATTEST:
- ---------------------
Secretary
- --------
SCOTLAND BANCORP, INC.
[CORPORATE SEAL]
By:
--------------------------------------
ATTEST: William C. Fitzgerald, III
President and CEO
- ---------------------
Secretary
- --------
6
EXHIBIT C
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT to that Employment Agreement dated March 29, 1996, between
Scotland Savings Bank, Inc., SSB and William C. Fitzgerald, III (the Officer),
and joined in by Scotland Bancorp, Inc., is entered into by the foregoing
parties and by Centura Banks, Inc., on the 26th day of August, 1998.
---- ------ ----
WHEREAS, the Employment Agreement (the Agreement) provides that in the
event of a Change in Control as defined in the Agreement, the acquirer shall be
bound by the terms of the Agreement subject to certain provisions for
adjustments contained in the Agreement;
WHEREAS, Centura Banks, Inc. (Centura) has agreed to acquire Scotland
Bancorp Inc. (Scotland) and Scotland Savings Bank, Inc., SSB (SSB) in a
transaction that will constitute a Change in Control as provided in the
Agreement;
WHEREAS, the parties wish to provide for the Agreement to continue in full
force and effect except as modified in this Addendum; and
WHEREAS, the parties wish to clarify the Agreement and in some instances
amend it as set forth herein to be effective only at such time as Centura
consummates its acquisition of Scotland;
NOW THEREFORE, the undersigned parties hereby agree as follows,
1. Amendment Only Effective Upon Acquisition. This Amendment shall
become effective only when Centura consummates its acquisition of Scotland. If
the agreement between Centura and Scotland is terminated, then this Amendment
shall be terminated also.
2. Agreement Shall Continue. The Agreement shall continue in full force
and effect, except as otherwise provided herein.
3. Restated Agreement. The Agreement is amended and restated to read in
its entirety as follows:
****
1. Employment. SSB or its successor (hereinafter "the Bank") and
Centura hereby agree to employ the Officer and the Officer hereby agrees to
accept employment upon the terms and conditions stated herein, as an
officer of the Bank. The Officer shall render such administrative and
management services to the Bank as are customarily performed by persons
situated in a similar executive capacity. The Officer shall promote the
business of the Bank and perform such other duties as shall, from time to
time, be reasonably prescribed by the Bank. The Officer shall not be
transferred to a location outside Scotland County, North Carolina or
assigned duties outside Scotland County, without the Officer's written
consent.
2. Compensation. The Bank or Centura shall pay the Officer
$418,752.00, which shall be paid in cash in equal monthly installments
during the term of this Agreement.
3. Annual Bonus. The Officer shall participate in Centura's Economic
Value Added Bonus Program with a maximum annual benefit of $13,018.00
during the three-year period following the effective time of Centura's
acquisition of Scotland.
4. Term. The term of employment under this Agreement shall be for
the period commencing at the effective time of Centura's acquisition of
Scotland and ending that number of months, not less than 36, that is
necessary to provide that the Officer shall have served the Bank (including
predecessors and successors) for ten calendar years.
5. Retirement, Employee Benefit Plans, Fringe Benefits. The Officer
will receive benefits as follows during the term described in Section 4
above:
(a) Life insurance will be provided pursuant to Centura's flex
credit program. The Officer will receive flex credits
sufficient to purchase coverage equal to 2 1/2 times base
salary. For purposes of this Agreement, base salary shall be
equal to 12 times the monthly installment determined pursuant
to Section 2 above.
(b) The Officer will participate in medical and hospitalization
insurance and benefits and plans, and disability insurance and
benefits and plans on the same terms as all Centura employees.
(c) The Bank or Centura will pay the Officer's regular month dues
for the Officer's membership in the Scotch Meadows Country
Club and the Laurinburg Rotary Club for three calendar years
following the effective time of Centura's acquisition of
Scotland.
(d) The Bank will transfer title to the Officer of the automobile
currently provided for his use by SSB, provided that that book
value of such automobile does not exceed $6,000.
(e) Centura will provide to the Officer the same benefits as are
provided to other Centura officers and employees of the same
rank regarding vacation, sick leave and reimbursement of
expenses.
6. Loyalty. The Officer shall devote sufficient efforts and business
time to the performance of his duties and responsibilities under this
Agreement to ensure that such duties are faithfully and timely performed.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective
businesses of the Bank and Centura, if any, received by him during the term
of this Agreement and will not disclose or make use of such
2
information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Bank or Centura.
7. Standards. The Officer shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards expected of employees with comparable positions in comparable
organizations and as may be established from time to time by the Bank. The
Bank will provide the Officer with the working facilities and staff
customary for similar executives and necessary for him to perform his
duties.
8. Termination and Termination Pay.
(a) The Officer's employment under this Agreement shall be
terminated upon the death of the Officer during the term of this
Agreement, in which event, the Officer's estate shall be entitled
to receive the compensation due the Officer through the last day
of the calendar month in which his death shall have occurred and
for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be
terminated at any time by the Officer upon sixty (60) days'
written notice to the Board of Directors. Upon such termination,
the Officer shall be entitled to receive compensation through the
effective date of such termination.
(c) The Bank may terminate the Officer's employment at any time,
but any termination by the Bank, other than termination for cause,
shall not prejudice the Officer's right to compensation or other
benefits under this Agreement for the remaining period which would
have been covered by this Agreement if such termination had not
occurred. The Officer shall have no right to receive compensation
or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the
Officer's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law,
rule, regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of
any provisions of this Agreement.
9. Additional Regulatory Requirements.
(a) If the Officer is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or Section 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)),
the Bank's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank shall (i) pay
the Officer all of the compensation withheld while its contract
obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations which were suspended.
3
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order
issued under Section 8(e)(4) or Section 8(g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(4) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate as of
the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(c) If the Bank is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all
obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of
the contracting parties.
(d) All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the Agreement
is necessary for the continued operation of the Bank, (i) by the
Federal Deposit Insurance Corporation (the "Corporation"), at the
time the Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the Federal Deposit Insurance Act
(12 U.S.C. (S) 1818(c)); or (ii) by the North Carolina
Commissioner of Banks ("the Commissioner"), at the time the
Commissioner approves a supervisory merger to resolve problems
related to operation of the Bank or when the Bank is determined by
the Commissioner to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not
be affected by such action.
10. Disputes.
In the event any dispute shall arise between the Officer and the Bank
or Centura as to the terms or interpretation of this Agreement whether
instituted by formal legal proceedings or otherwise, including any action
taken by the Officer to enforce the terms of this Agreement or in defending
against any action taken by the Bank or Centura, the Bank or Centura shall
reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Bank or Centura which
shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the
assets of Centura or the Bank.
(b) Since the Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining
the written consent of the Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in
4
writing, signed by the Officer and on behalf of the Bank. No waiver by
either party hereto, at any time, of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein
otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise,
by the laws of North Carolina, except to the extent that federal law shall
be deemed to apply.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and
year first above written.
SCOTLAND SAVINGS BANK, INC., SSB
By:
----------------------------------------
Chairman of the Board:
SCOTLAND BANCORP, INC.
By:
----------------------------------------
Chairman of the Board
CENTURA BANKS, INC.
By:
----------------------------------------
Authorized Officer
(SEAL)
-------------------------------------
William C. Fitzgerald, III
5
EXHIBIT D
Opinion of Scotland Bancorp, Inc.'s Counsel
-------------------------------------------
_________, 1998
Board of Directors
Centura Banks, Inc.
134 North Church Street
Rocky Mount, North Carolina 27804
Re: Agreement and Plan of Reorganization between Centura Banks, Inc.
and Scotland Bancorp, Inc.
Gentlemen:
We have served as special counsel to Scotland Bancorp, Inc. (the
"Company"), a North Carolina corporation, and Scotland Savings Bank, Inc., SSB
(the "Bank"), in connection with the transactions described in that certain
Agreement and Plan of Reorganization and Merger dated _____________ (the
"Agreement" including the Agreement and Plan of Bank Merger and the Agreement
and Plan of Corporate Merger referenced therein), by and between the Company and
Centura Banks, Inc. ("Centura"). These opinions are delivered to you pursuant
to Section 12.05 of the Agreement. Terms used herein which are defined in the
Agreement shall have the respective meanings set forth in the Agreement, unless
otherwise defined herein.
In giving the opinions set forth below, we have relied upon certifications
and letters provided to us by government officials. As to matters of fact set
forth below, and matters of fact which form the basis for any opinion set forth
below, we have relied upon (i) certificates presented at the closing or
otherwise and the statements of officers, employees, and independent accountants
of the Company and the Bank or of Centura and Centura Bank, (ii) the
representations and warranties set forth in the Agreement, and (iii) the state
and federal governmental approvals of the transactions contemplated in the
Agreement which have been obtained by the Company, the Bank, Centura and Centura
Bank. We have not attempted to independently verify any factual matters in
connection with the giving of the opinions set forth below.
In giving the opinions set forth below, we have made the following
assumptions regarding facts that we do not know to be true:
a. Centura is duly incorporated, validly existing and in good
standing under the laws of the State of North Carolina and all other
applicable laws to which it is subject. Centura Bank has been duly
organized, is validly existing and in good standing under the laws of
the State of North Carolina and all other applicable laws
Centura Banks, Inc.
_____________, 1998
Page 2
to which it is subject. Scotland Acquisition Corporation
("Acquisition") has been duly organized and is validly existing and in
good standing under the laws of the State of North Carolina and all
other applicable laws to which it is subject. Each of Centura, Centura
Bank and Acquisition has full power and authority to consummate the
Merger, the Bank Merger and the Corporate Merger and other
transactions as set forth in the Agreement. All transactions described
in the Agreement, and all acts required in connection therewith, have
been duly authorized by all necessary corporate action on the part of
each of Centura, Centura Bank and Acquisition. All documents and
instruments executed by each of Centura, Centura Bank and Acquisition
in connection therewith have been duly executed and delivered on
behalf of, and are binding and enforceable against, each of them.
b. Other than persons executing documents on behalf of the
Company and the Bank, the signatures of all persons signing any
document or instrument delivered in connection with the consummation
of the Merger, the Bank Merger and the Corporate Merger are genuine,
and all such persons executing such documents, have been duly
authorized to execute and deliver such documents and instruments.
c. All natural persons executing any document or instrument
delivered in connection with the consummation of the Merger, the Bank
Merger and the Corporate Merger have legal competency to do so.
d. All documents submitted to us as originals are authentic and
all documents submitted to us as certified or photostatic copies
conform to the original documents, which are themselves authentic.
e. No event will take place subsequent to the date hereof which
would cause any act taken in connection with the Merger, the Bank
Merger and the Corporate Merger to fail to comply with any law, rule,
regulation, order, judgment, decree or duty.
f. Each of Centura, Centura Bank and Acquisition has complied or
will comply with all conditions of all regulatory approvals respecting
the Merger, the Bank Merger and the Corporate Merger and the other
transactions contemplated in the Agreement.
Centura Banks, Inc.
_____________, 1998
Page 3
g. The minutes of the meetings of the Boards of Directors of the
Company and the Bank accurately reflect the actions taken at those
meetings and the meetings were duly called and a quorum was present in
each case.
h. Any certificate, representation, telegram, or other document
on which we have relied that was given or dated on or prior to the
date hereof continues to remain accurate, insofar as relevant to such
opinions from such earlier date through and including the date of this
letter.
i. All certificates of public officials have been properly given
and are accurate and complete.
j. There has been no mutual mistake of fact, fraud, duress or
undue influence in connection with the Agreement or the transactions
described therein, and the conduct of the parties to the Agreement has
complied with any requirement of good faith, fair dealing and
conscionability. Each party to the Agreement has acted without notice
of any defense against the enforcement of any rights created thereby;
and there are no agreements or understanding, or any usage of trade or
course of dealing, among the parties that, in either case, would
define, supplement or qualify the terms of the Agreement.
On the basis of such assumptions, and subject to the qualifications as set
forth herein, we are of the opinion that, except as described in the Proxy
Statement or the Agreement or as Previously Disclosed to Centura by the Company
and the Bank:
1. The Company and the Bank are duly organized and incorporated (as a
business corporation and a state-chartered savings bank, respectively) and,
based solely on written certifications of the North Carolina Secretary of State
and the North Carolina Administrator dated __________, 1998, _________, 1998 and
________, 1998, respectively, are validly existing and in good standing under
the laws of North Carolina.
2. In all respects material to its business, each of the Company and the
Bank has all requisite corporate power and authority to enter into and carry out
the provisions of the Agreement (subject to receipt of all required shareholder
and regulatory approvals), and to conduct its business as now conducted, to own
and operate its property and assets, and to lease properties used in its
business. Neither the Company nor the Bank is in violation of its Articles of
Incorporation or Bylaws, or, to our Actual Knowledge, in default with respect to
any order, writ, injunction, or decree of any court or in default under any
order, license, regulation or demand of any governmental
Centura Banks, Inc.
_____________, 1998
Page 4
agency, any of which violations or defaults would materially and adversely
affect the businesses or properties of the Company and the Bank taken as a
whole.
3. The execution, delivery and performance by the Company and the Bank of
the Agreement, and the consummation by the Company and the Bank of the
transactions contemplated thereby, have been authorized by the Boards of
Directors of the Company and the Bank in accordance with their respective
Bylaws. Subject to the receipt of all required shareholder and regulatory
approvals, the Agreement constitutes, and the Agreement and Plan of Bank Merger
and Agreement and Plan of Corporate Merger will constitute upon execution and
delivery by all parties thereto, valid and binding obligations of the Company
and the Bank, enforceable against them in accordance with their respective
terms, subject, as to enforceability as set forth below.
4. Neither the execution and delivery of the Agreement, the consummation
of the transactions contemplated thereby, nor compliance by the Company and the
Bank with any of the provisions thereof will (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of the
Company or the Bank; (ii) to our Actual Knowledge, conflict with, or constitute
or result in a material breach of, or constitute a default under any material
agreement or instrument to which the Company or the Bank is a party or by which
the Company or the Bank is bound or (assuming receipt of the approvals referred
to in Section ____ of the Agreement and the approval of the shareholders of the
Company) violate in any material respect any existing statute or regulation of
any government or agency to which the Company or the Bank is subject, or be
reasonably likely to materially impair consummation of the transaction
contemplated by the Agreement; or (iii) to our Actual Knowledge, violate any
judgment, order, ruling or decree of any court or other agency or any government
applicable to the Company or the Bank and, it being understood that our opinion
contained in this Paragraph 4 is limited to conflicts, breaches, defaults or
violations which would materially and adversely affect any of the Company's or
the Bank's business or properties or would prevent or be reasonably likely to
materially impair consummation of the Merger or have a material adverse effect
upon the business operations of the Company or the Bank taken as a whole.
5. To our Actual Knowledge, no action, suit, investigation or proceeding
is pending or threatened against the Company or the Bank before any court or
governmental agent, domestic or foreign. To our Actual Knowledge, there is (a)
no action, suit, investigation, or proceeding brought by the Company or the Bank
(other than suits to collect on extensions of credit) which seeks damages in
excess of $50,000, and (b) there is no litigation, proceeding, or governmental
investigation pending or threatened against the Company or the Bank relating to
any of the transactions contemplated by the Agreement.
Centura Banks, Inc.
_____________, 1998
Page 5
6. All regulatory approvals required to be obtained by the Company and
the Bank in connection with the Merger, the Bank Merger and the Corporate Merger
have been received and all applicable waiting periods with respect to such
approvals have expired without adverse action.
7. Based solely on the certificate of the Inspector of Voting appointed
to tabulate and certify the votes of the shareholders of the Company at their
meeting on _______________, 1998, the shareholders of the Company have approved
the Agreement and the consummation of the transactions contemplated thereby.
All the opinions set forth in this letter are expressly limited and
qualified as follows:
1. The opinions expressed herein are limited to matters of North Carolina
law and the laws of the United States of America. No opinion is
expressed as to any issue which is governed by the laws of any other
jurisdiction or to the effect of any such laws on the matters dealt with
in this opinion letter.
2. As used in this opinion, the phrase "Actual Knowledge" means the actual
conscious awareness of information by the following members of our firm:
Edward C. Winslow, Jean C. Brooks, or __________________, constituting
the attorneys in our firm who have given substantive attention to the
transactions contemplated by the Agreement. Except to the extent
expressly stated herein, we have not undertaken any independent
investigation or inquiry to determine the existence or absence of any
facts, and no inference as to our knowledge of the existence or absence
of facts should be drawn from the fact of our representation of the
Company and the Bank.
3. Our opinions are limited to the matters expressly stated herein, and no
opinion may be inferred or implied beyond the matters expressly stated.
4. We express no opinion with respect to compliance by the Company and the
Bank with Environmental Laws or with any other federal, state or local
law, rule, regulation, ordinance, order or decree relating to hazardous
substances, hazardous wastes, hazardous materials or the protection of
the environment, or with respect to any applicable pollution control or
environmental contamination statute, law or regulation.
5. The enforceability of all or various provisions of the Agreement may be
limited by (A) the effect of applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium or
similar laws from time to time in effect
Centura Banks, Inc.
_____________, 1998
Page 6
relating to or limiting the enforcement of creditors' rights generally,
(B) legal and equitable limitations on the availability of injunctive
relief, specific performance and other equitable remedies, (C) general
principles of equity and applicable law or court decisions limiting the
availability of specific performance, injunctive relief and other
equitable remedies (including the enforceability of indemnification
provisions, regardless of whether such enforceability is considered in a
proceeding in equity or at law), (D) federal and/or state bank holding
company, commercial bank, savings bank and deposit insurance laws and
regulations and the application of principles of public policy
underlying such laws and regulations, and (E) limitations on
indemnification rights imposed under various securities laws.
6. Our opinions are being furnished to you pursuant to Section 12.05 of the
Agreement and are solely for your benefit. No other person shall be
entitled to rely on such opinions, and you are not entitled to rely on
such opinions in any other context or for any other purpose. No copy of
this letter or our opinions herein may be delivered to any other person
without our prior written consent.
7. This letter is limited to matters in existence as of the date hereof,
and we undertake no responsibility to revise or supplement this letter
to reflect any change in the law or facts.
8. We have acted as special counsel to the Company and the Bank in the
transactions described in the Agreement and this letter is given solely
in our capacity as special counsel to the Company and the Bank. We have
not acted as counsel to Centura, Centura Bank, Acquisition or any of
Centura's other subsidiaries. As a result, no opinion is expressed
herein as to any matter relating to Centura or any of its subsidiaries,
and not to the Company or the Bank.
Very truly yours,
BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
By:
--------------------------------
Edward C. Winslow III, Partner
EXHIBIT E
___________, 1998
(336) 271-3171
The Board of Directors
Centura Banks, Inc.
134 North Church Street
Rocky Mount, North Carolina 27804
Gentlemen:
We have acted as special counsel to Scotland Bancorp, Inc. (the "Company"),
a North Carolina corporation, and Scotland Savings Bank, Inc., SSB (the "Bank"),
a North Carolina-chartered savings bank and the wholly-owned subsidiary of the
Company, in connection with the transactions described in that certain Agreement
and Plan of Reorganization and Merged dated August __, 1998 (the "Agreement"
including the Agreement and Plan of Bank Merger and the Agreement and Plan of
Corporate Merger referenced therein), by and between the Company and Centura
Banks, Inc. ("Centura"). Pursuant to and in accordance with the terms and
conditions of the Agreement, the Agreement and Plan of Bank Merger and the
Agreement and Plan of Corporate Merger, Scotland Acquisition Corporation, a
wholly-owned subsidiary of Centura, is proposed to be merged into and with the
Company, the Bank is proposed to be merged into and with Centura Bank and the
Company is proposed to be merged into and with Centura, respectively (such
transactions are referred to herein as the "Mergers") and pursuant to and in
accordance with the terms and conditions of the Agreement, each of the
outstanding shares of the Company's common stock will be converted into the
right to receive a cash payment from Centura of $11.75. This letter is
delivered in connection with the consummation and closing of the Mergers and
other transactions described in the Agreement (the "Closing"). Capitalized
terms appearing herein and not otherwise defined are used as defined in the
Agreement. In connection herewith, we have taken such actions and examined,
reviewed and relied upon such documents as are described in our opinion letter
to you of even date herewith.
The Board of Directors
__________________, 1998
Page 2
While we cannot opine as to factual matters, we have participated, in the
course of serving as special counsel to the Company and the Bank, in discussions
and conferences with certain officers and other representatives of the Company
and the Bank, representatives of the independent accounts of the Company and the
Bank, and your representatives and counsel, at which times the contents of the
Proxy Statement were discussed and drafts of the document were reviewed and
revised.
We can advise you that, although we have not independently investigated or
verified the accuracy and completeness of all of the information included in the
Proxy Statement, we have obtained no actual knowledge in the course of our
review of the Proxy Statement and participation in the discussions in connection
with the preparation of that document or otherwise which has led us to believe
that the Proxy Statement, at the time it was distributed to the Company's
stockholders, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein not misleading. We express no view or belief as to any
financial statements, notes to financial statements, financial tables and other
financial and statistical data contained in the Proxy Statement.
This letter does not address any matters other than those expressly
addressed herein. It is given solely for your benefit. No one else is entitled
to rely upon this letter. This letter speaks only as of the date hereof, and we
undertake no responsibility to update or supplement it after such date.
Sincerely yours,
BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
By:
------------------------
Edward C. Winslow III
ECWIII/clv
EXHIBIT F
Opinion of Centura's General Counsel
------------------------------------
_____________, 1998
Board of Directors
Scotland Bancorp, Inc.
505 South Main Street
Laurinburg, North Carolina 28352
Re: Agreement and Plan of Reorganization by and between
Centura Banks, Inc. and Scotland Bancorp, Inc.
Gentlemen:
You have requested my opinion as General Counsel to Centura Banks, Inc.
("Centura") as to certain matters in connection with the acquisition by Centura
of Scotland Bancorp, Inc. ("Scotland") pursuant to an Agreement and Plan of
Reorganization and Merger, dated as of ____________, 1998 (the "Agreement"
including the Agreement and Plan of Bank Merger and the Agreement and Plan of
Holding Company Merger), by and between Centura and Scotland. This letter is
provided to you pursuant to Section 12.08 of the Agreement. Capitalized terms
used herein without definition shall have the meanings attributed to such terms
in the Agreement.
In rendering the opinions set forth below, I have examined the Agreement
and the Exhibits and Schedules attached thereto. I also have examined the
Articles of Incorporation of Centura, as amended, and Bylaws of Centura as
currently in effect, the minutes of the Centura Board of Directors meeting(s)
held on ________________________, and such other corporate records and documents
and certifications of government officials, and I have made such investigations
of law, as I have deemed appropriate for the purposes of the opinions set forth
below.
In rendering these opinions, I have assumed without independent
verification:
(a) The genuineness of all signatures (other than the signatures of
persons executing documents on behalf of Centura and Centura Bank), the
authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as certified, conformed, or photostatic copies;
(b) That the Agreement constitutes the valid, legal and binding
obligations of Scotland enforceable against it in accordance with their
terms; and
Scotland Bancorp, Inc.
______________, 1998
Page 2
(c) That Scotland has complied and will comply with all conditions of
all regulatory approvals respecting the Merger, the Bank Merger and
Corporate Merger and the other transactions contemplated by the Agreement.
Based upon, and subject to, the foregoing and to the additional
qualifications set forth herein, I am of the opinion that:
(i) All regulatory approvals required to be obtained by Centura or
Centura Bank in connection with the Merger, Bank Merger and Corporate
Merger have been received and all applicable waiting periods have expired
without adverse action.
(ii) Centura is a corporation duly incorporated and is validly
existing and in good standing under the laws of the State of North
Carolina. Centura is a bank holding company duly registered pursuant to
the BHC Act and the North Carolina Bank Holding Company Act of 1984, and it
has all requisite corporate power and authority to enter into and carry out
the provisions of the Agreement. Centura is not in violation of its
Articles of Incorporation or Bylaws, or in default with respect to any
order, writ, injunction, or decree of any court, or in default under any
order, license, regulation, or demand of any governmental agency, it being
understood that the foregoing opinion is limited to violations or defaults
which would materially and adversely affect any of Centura's businesses,
properties, financial position, or results of operations taken as a whole
or would prevent or be reasonably likely to materially impair consummation
of the transactions contemplated by the Agreement. In all respects
material to the business of Centura taken as a whole, Centura has all
requisite corporate power and authority to conduct its business as now
conducted, and to own and operate and lease the properties and assets used
in such business.
(iii) Centura Bank is a bank corporation duly incorporated and, based
solely on a written certificate of corporate existence of the North
Carolina Secretary of State dated __________, 1998, is validly existing and
in good standing under the laws of the State of North Carolina, all of the
capital stock of which is held of record by Centura and is free of any
liens, claims, or assessments thereagainst (subject to the right of
assessment permitted pursuant to Section 53-42 of the North Carolina
General Statutes). Centura Bank is not in violation of its Articles of
Incorporation or Bylaws, or in default with respect to any order, writ,
injunction, or decree of any court, or in default under any order, license,
regulation, or demand of any governmental agency, it being understood that
the foregoing opinion is limited to violations or defaults which would
materially and adversely affect the businesses, properties, financial
position, or results of operation of Centura and Centura Bank taken as a
whole or would prevent or be reasonably likely to materially impair
consummation of the
Scotland Bancorp, Inc.
______________, 1998
Page 3
transactions contemplated by the Agreement. In all respects material to the
business of Centura Bank taken as a whole, Centura Bank has all requisite
corporate power and authority to conduct its business as now conducted, and
to own and operate and lease the properties and assets used in such
business.
(iv) Subject to the receipt of regulatory approvals, the Agreement
constitutes, and the Agreement and Plan of Bank Merger and the Agreement
and Plan of Corporate Merger will constitute upon execution and delivery of
by all parties thereto valid and binding obligations of Centura and Centura
Bank, as applicable, and, will be enforceable against them in accordance
with the terms of such documents, except as limited by applicable
bankruptcy, insolvency, arrangement, fraudulent conveyance, reorganization,
moratorium, or other similar laws affecting creditors' rights generally,
except that the availability of equitable remedies (including, without
limitation, specific performance, injunctive relief, and other equitable
remedies) is within the discretion of the appropriate court (regardless of
whether such enforceability is considered in a proceeding in equity or at
law), and except that limitations on indemnification rights may be imposed
under various securities laws. The execution, delivery, and performance of
the Agreement and the transactions contemplated thereby have been duly
authorized by the Boards of Directors of Centura and Centura Bank, as
applicable.
(v) None of the execution or the delivery of the Agreement, the
consummation of the transactions contemplated thereby, or compliance by
Centura or Centura Bank with any of the provisions thereof, will conflict
with, or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, the Articles of Incorporation or Bylaws of
Centura or Centura Bank, as applicable. None of such execution, delivery,
consummation, or compliance will conflict with, or result in a material
breach of the terms, conditions, or provisions of, or constitute a default
under (i) any material agreement or instrument under which Centura or
Centura Bank is obligated, or (ii) (assuming receipt of the approvals
referred to in Section 12.02 of the Agreement) violate in any material
respect any existing statute or regulation of any governmental agency to
which Centura or Centura Bank is subject, it being understood that the
foregoing opinion is limited to conflicts, breaches, defaults or violations
which would prevent or be reasonably likely to materially impair
consummation of the transactions contemplated by the Agreement or have a
material adverse effect on the business or operations of Centura or Centura
Bank.
(vi) Except as Previously Disclosed, there are no actions, suits,
investigations, or proceedings pending or threatened against Centura or
Centura Bank before any court or governmental agency, domestic or foreign,
which, if decided against Centura or Centura
Scotland Bancorp, Inc.
______________, 1998
Page 4
Bank, will have a material adverse effect on the financial condition of
Centura on a consolidated basis or would prevent or be reasonably likely to
materially impair consummation of the transactions contemplated by the
Agreement, and there is no litigation, proceeding, or governmental
investigation pending or threatened against Centura or Centura Bank
relating to any of the transactions contemplated by the Agreement.
These opinions are limited to the matters expressly stated herein, and no
opinion may be inferred or implied beyond the matters expressly stated.
The opinions expressed herein are as of the date hereof only, and I assume
no undertaking to supplement such opinions if facts and circumstances come to my
attention or changes in law occur after the date hereof which could affect such
opinions. This letter does not express any opinions as to the laws of any
jurisdiction other than the laws of the State of North Carolina and the federal
laws of the United States. These opinions are rendered solely for your benefit
and may not be relied upon by any other person without Centura's express written
consent. No copy of this letter or my opinions herein may be delivered to any
other person without Centura's prior consent.
Yours very truly,
By:
-------------------------------------
Joseph A. Smith, Jr., General Counsel
[FORM OF FAIRNESS OPINION]
Board of Directors
Scotland Bancorp
505 South Main Street
Laurinburg, North Carolina 28353
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of common stock (the "Scotland Common Stock")
of Scotland Bancorp, Inc. ("Scotland") of the consideration to be received by
such shareholders in a merger (the "Merger") of Scotland with Centura Banks,
Inc. ("Centura"), pursuant to the Agreement and Plan of Reorganization and
Merger dated August 18, 1998 (the "Agreement"). Unless otherwise noted, all
terms used herein will have the same meaning as defined in the Agreement.
As more specifically set forth in the Agreement, and subject to a
number of conditions and procedures described in the Agreement, in the Merger
each of the issued and outstanding shares of Scotland Common Stock shall be
exchanged for $11.75 of cash. All unexercised options for the right to purchase
shares of Scotland Common Stock will be exchanged for $1.25.
Trident Financial Corporation ("Trident") is a financial consulting
and investment banking firm experienced in the valuation of business enterprises
with considerable experience in the valuation of thrift institutions. In the
past, Trident and its affiliates have provided financial advisory services for
Scotland and have received fees for the rendering of these services. In
addition, in the ordinary course of our business we may actively trade the
securities of Scotland for our own account and for the accounts of our customers
and, accordingly, may at any one time hold a long or short position in such
securities. Trident is not affiliated with Scotland or Centura.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii) certain
publicly available information concerning Scotland, including the audited
financial statements for each year in the three year period ended September 30,
1998; (iii) certain other internal information, primarily financial in nature,
concerning the business and operations of Scotland (including previous merger
inquiries) furnished to us by Scotland for purposes of our analysis; (iv)
information with respect to the trading market for Scotland Common Stock; (v)
certain publicly available information with respect to other companies that we
believe to be comparable to Scotland and the trading markets for such other
companies= securities; and (vi) certain publicly available information
concerning the nature and terms of other transactions that we believe relevant
to our inquiry. We met with certain officers and employees of Scotland to
discuss the foregoing. We have also taken into account our assessment of general
economic, market, financial and regulatory conditions and trends, as well as our
knowledge of the thrift industry, experience in connection with similar
transactions and general knowledge of securities valuation.
Board of Directors
December __, 1998
Page 2
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available. We have not
attempted independently to verify any such information. We have not conducted a
physical inspection of the properties or facilities of Scotland, nor have we
made or obtained any independent evaluations or appraisals of any such
properties or facilities. We did not specifically evaluate Scotland's loan
portfolio or the adequacy of reserves for possible loan losses.
Based upon and subject to the foregoing, we are of the opinion that
the consideration to be received by the holders of Scotland Common Stock in the
Merger is fair, as of the date hereof, from a financial point of view, to such
holders. The standard employed by us in reaching our judgment as to fairness of
such consideration from a financial point of view was whether our estimation of
the economic value of such consideration is within the range of estimated
economic values within which companies having the characteristics of Scotland
and Centura might negotiate a merger transaction at arm's length and not whether
such consideration is at or approaching the higher end of such range.
Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof and does not address Scotland's underlying
business decision to effect the Merger. Finally, our opinion does not constitute
a recommendation to any stockholder of Scotland as to how such stockholder
should vote at the stockholders' meeting held in connection with the Merger.
Board of Directors
December __, 1998
Page 3
This opinion is being delivered to the Board of Directors of
Scotland and may not be summarized, excerpted from, reproduced, disseminated or
delivered to any third party without the express written consent of Trident. We
consent to the reproduction of this opinion in the special meeting proxy
materials to be mailed to the holders of Scotland Common Stock. Our opinion is
as of the date set forth above, and events or circumstances occurring after this
date may adversely impact the validity of the bases of our opinion and/or such
opinion. This opinion will be updated prior to issuing the Proxy Statement in
connection with the Merger.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SCOTLAND BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 1999
4:00 P.M.
The undersigned hereby appoints the official proxy committee consisting of all
the members of the Board of Directors of Scotland Bancorp, Inc. (the "Company"),
each with full power of substitution, to act as attorneys and proxies for the
undersigned, and to vote all shares of common stock of the Company which the
undersigned is entitled to vote only at the Annual Meeting of Stockholders, to
be held at the office of the Company, 505 South Main Street, Laurinburg, North
Carolina, on January 28, 1999, at 4:00 p.m. and at any and all adjournments
thereof, as follows:
1. The approval of the Agreement and Plan of Reorganization and Merger dated
August 26, 1998, between Centura Banks, Inc. and Scotland Bancorp, Inc.
For Withhold Abstain
[_] [_] [_]
2. The approval of the election of the following named directors:
For Withhold For All Except
[_] [_] [_]
John B. Clark, James E. Milligan, James S. Mitchener, Jr. and James T.
Willis who will serve as directors of the Company until the 2002 Annual
Meeting of Stockholders or until their successors are duly elected and
qualify.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
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3. The ratification of McGladrey & Pullen, LLP as the independent accountant of
the Company for the year ending September 30, 1999.
For Withhold For All Except
[_] [_] [_]
PLEASE CHECK BOX IF YOU PLAN TO ATTEND THE ANNUAL MEETING: [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
If no instructions are given, the proxy will be voted (1) for approval of the
Agreement and Plan of Reorganization and Merger; (2) for nominees for election
to the Board of Directors named in this Revocable Proxy and (3) for the
ratification of the selection of McGladrey & Pullen, LLP as the independent
accountant for the Company for the 1999 fiscal year. If instructions are given
with respect to one but not all proposals, such instructions as are given will
be followed and the proxy will be voted for the proposal(s) on which no
instructions are given.
--------------------------------------
Please be sure to Date
sign and date this
Proxy in the box
below
- ---------------------------------------------------------------
- --Stockholder sign above-------Co-Holder (if any) sign above---
+ +
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DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
SCOTLAND BANCORP, INC.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The above signed acknowledges receipt from the Company, prior to the execution
of this Proxy, of a Notice of Annual Meeting and a Proxy Statement dated
December , 1998.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
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