AGREEMENT AND PLANOF REORGANIZATION AND MERGER

EXHIBIT 2.1

A GREEMENT AND P LAN OF

R EORGANIZATION AND M ERGER

BY AND BETWEEN

R ANDOLPH B ANK  & T RUST C OMPANY

AND

B ANK OF THE C AROLINAS

AND JOINED IN BY

B ANK OF THE C AROLINAS C ORPORATION

April 12, 2007

TABLE OF CONTENTS

 

AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

By and Between

RANDOLPH BANK & TRUST COMPANY

and

BANK OF THE CAROLINAS

and joined in by

BANK OF THE CAROLINAS CORPORATION

THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the “Agreement”) is entered into as of the 12th day of April, 2007, by and between RANDOLPH BANK & TRUST COMPANY (“Randolph”) and BANK OF THE CAROLINAS (“BOC”), and joined in by BANK OF THE CAROLINAS CORPORATION (“BOCC”) to evidence its approval of this Agreement and its consent to the terms of this Agreement that apply to it.

WHEREAS , BOC is a North Carolina banking corporation with its principal office and place of business located in Mocksville, Davie County, North Carolina; and,

WHEREAS , BOCC is a North Carolina business corporation with its principal office and place of business located in Mocksville, Davie County, North Carolina, and is the owner of all the outstanding shares of BOC stock; and,

WHEREAS , Randolph is a North Carolina banking corporation with its principal office and place of business located in Asheboro, Randolph County, North Carolina; and,

WHEREAS , Randolph and BOC have agreed that it is in their mutual best interests, and in the best interests of their respective shareholders, for Randolph to be merged with and into BOC in the manner and upon the terms and conditions contained in this Agreement; and,

WHEREAS , to effectuate the foregoing, Randolph, BOC and BOCC desire to adopt this Agreement as a plan of reorganization in accordance with the provisions of Section 368 of the Internal Revenue Code of 1986, as amended; and,

WHEREAS , Randolph’s Board of Directors has approved this Agreement and will recommend to Randolph’s shareholders that they approve the transactions described herein; and,

WHEREAS , BOC’s and BOCC’s Boards of Directors have approved this Agreement, BOC’s Board of Directors recommends that BOCC as its sole shareholder approve the transactions described in this Agreement, and BOCC’s Board of Directors approve the transaction on behalf of BOCC as sole shareholder of BOC, and BOCC’s Board of Directors will recommend to BOCC’s shareholders that they approve the transactions described in this Agreement.

NOW, THEREFORE , in consideration of the premises, the mutual benefits to be derived from this Agreement, and the representations, warranties, conditions, covenants and promises herein contained, and subject to the terms and conditions hereof, Randolph, BOC, and BOCC hereby adopt and make this Agreement and mutually agree as follows:

ARTICLE I. THE MERGER

1.01 Names of Participating Corporations . The names of the corporations proposing to merge are RANDOLPH BANK & TRUST COMPANY (“Randolph”) and BANK OF THE CAROLINAS (“BOC”).

1.02 Nature of Transaction . Subject to the provisions of this Agreement, at the “Effective Time” (as defined in Paragraph 1.06 below), Randolph will be merged into BOC with the effects provided for under N.C. Gen. Stat. §§ 53-12, 55-11-01 and 55-11-06 (the “Merger”).

1.03 Effect of Merger . At the Effective Time, and by reason of the Merger, the separate corporate existence of Randolph shall cease while the corporate existence of BOC as the surviving corporation in the Merger shall continue with all of its purposes, objects, rights, privileges, powers and franchises, all of which shall be unaffected and unimpaired by the Merger. Following the Merger, BOC shall continue to operate as a North Carolina banking corporation and will conduct its business at the then legally established branch and main offices of BOC and Randolph. The duration of the corporate existence of BOC, as the surviving corporation, shall be perpetual and unlimited.

1.04 Conversion and Exchange of Randolph Stock .

(a) Consideration . Except as otherwise provided in this Agreement, at the Effective Time, as consideration for and to effect the Merger, (i)  all rights of Randolph’s shareholders with respect to all outstanding shares of Randolph’s $5.00 par value common stock (“Randolph Common Stock”) shall cease to exist and each such outstanding share shall be converted, without any action by Randolph, BOC, BOCC or any Randolph shareholder, into the right to receive 2.67 shares (the “Exchange Ratio”) of BOCC $5.00 par value common stock (“BOCC Stock”), subject to the provisions of Paragraph 1.04(f) below as to fractional shares resulting from the exchange, and (ii)  all rights of Randolph’s shareholders with respect to all outstanding shares of Randolph’s $5.00 par value Series A preferred stock (“Randolph Preferred Stock”) shall cease to exist and each such outstanding share shall be converted, without any action by Randolph, BOC, BOCC or any Randolph shareholder, into the right to receive cash in the amount of $1,000.00, plus any amount of unpaid quarterly dividends on the Randolph Preferred Stock beginning January 1, 2007, prorated on a daily basis for partial quarters. Randolph Common Stock and Randolph Preferred Stock are sometimes referred to collectively in this Agreement as “Randolph Stock.”

(b) Randolph Certificates . At the Effective Time, and without any action by Randolph, BOC, BOCC or any Randolph shareholder, Randolph’s stock transfer books shall be closed and there shall be no further transfers of Randolph Stock on its stock transfer

 

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books or the registration of any transfer of a certificate evidencing Randolph Stock (a “Randolph Certificate”) by any holder thereof, and the holders of Randolph Certificates shall cease to be, and shall have no further rights as, stockholders of Randolph other than as provided in this Agreement. Following the Effective Time, (i)  Randolph Certificates for Randolph Common Stock shall evidence only the right of the registered holders thereof to receive certificates evidencing the numbers of whole shares of BOCC Stock into which their Randolph Common Stock was converted at the Effective Time, together with cash for any fractional shares calculated as described in Paragraph 1.04(f) below, and (ii)  Randolph Certificates for Randolph Preferred Stock shall evidence only the right of the registered holders thereof to receive the cash into which their Randolph Preferred Stock was converted at the Effective Time; provided, however , that any holders of Randolph Stock who have properly exercised their right of dissent and appraisal (“Dissenters’ Rights”) under Article 13 of Chapter 55 of the North Carolina General Statutes (the “Dissent Statute”) shall receive cash as provided in the Dissent Statute.

(c) Exchange and Payment Procedures; Surrender of Certificates . As promptly as practicable, but not more than ten business days following the Effective Time, BOCC and BOC shall send or cause to be sent to each former Randolph shareholder of record immediately prior to the Effective Time written instructions and transmittal materials (a “Transmittal Letter”) for use in surrendering Randolph Certificates to BOCC and BOC or to an exchange agent appointed by BOCC and BOC. Upon the proper surrender and delivery to BOCC and BOC or their agent (in accordance with its instructions, and accompanied by a properly completed Transmittal Letter) by a former shareholder of Randolph of his or her Randolph Certificate(s), and in exchange therefor, (i)  BOCC shall as soon as practicable issue and deliver, to each holder of Randolph Common Stock, stock certificates evidencing the numbers of whole shares of BOCC Stock into which the shareholder’s Randolph Common Stock was converted at the Effective Time, together with cash for any fractional shares calculated as described in Paragraph 1.04(f) below, and (ii)  BOC shall as soon as practicable issue and deliver, to each holder of Randolph Preferred Stock, a check for the cash into which the shareholder’s Randolph Preferred Stock was converted at the Effective Time.

Subject to Paragraph 1.04(g), no consideration shall be issued or delivered to any former Randolph shareholder unless and until that shareholder shall have properly surrendered to BOCC and BOC or their agent the Randolph Certificate(s) formerly representing his or her shares of Randolph Stock, together with a properly completed Transmittal Letter. Further, until a former shareholder’s Randolph Certificates for Randolph Common Stock are so surrendered and certificates evidencing the BOCC Stock into which his or her Randolph Common Stock was converted at the Effective Time actually are issued to him or her, no dividend or other distribution payable by BOCC with respect to that BOCC Stock as of any date subsequent to the Effective Time shall be paid or delivered to the former Randolph shareholder. However, upon the proper surrender of the shareholder’s Randolph Certificate for Randolph Common Stock and the issuance to that shareholder of certificates representing the BOCC Stock to which the shareholder is entitled, if BOCC shall have paid any dividend or made any distribution to the holders of its BOCC Stock of record as of a date after the Effective Time, BOCC shall pay the former Randolph shareholder the amount of that dividend or distribution related to the BOCC Stock being issued to the former Randolph shareholder. No interest shall be paid on any cash due a shareholder for shares of Randolph Preferred Stock, for fractional shares of Randolph Common Stock, or for dividends on any BOCC Stock.

 

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(d) Antidilutive Adjustments . If, prior to the Effective Time, Randolph or BOCC shall declare any dividend payable in shares of Randolph Stock in the case of Randolph, or BOCC Stock in the case of BOCC, or shall subdivide, split, reclassify or combine the presently outstanding shares of Randolph Stock or BOCC Stock, then an appropriate and proportionate adjustment shall be made in the number of shares of BOCC Stock or cash into which each share of Randolph Stock will be converted at the Effective Time pursuant to this Agreement.

(e) Dissenters . Any shareholder of Randolph who properly exercises Dissenters’ Rights shall be entitled to receive payment of the fair value of his or her shares of Randolph Stock in the manner and pursuant to the procedures provided for in the Dissent Statute. Shares of Randolph Stock held by persons who exercise Dissenters’ Rights shall not be converted as described in Paragraph 1.04(a). However, if any shareholder of Randolph who exercises Dissenters’ Rights shall fail to perfect those rights, or effectively shall waive or lose such rights, then each of his or her shares of Randolph Common Stock shall be deemed to have been converted into BOCC Stock, and each of his or her shares of Randolph Preferred Stock shall be deemed to have been converted into cash, as of the Effective Time as provided in Paragraph 1.04(a).

(f) Fractional Shares . If the conversion of the shares of Randolph Common Stock held by any Randolph shareholder results in a fraction of a share of BOCC Stock, then, in lieu of issuing that fractional share, BOC will pay to that shareholder cash in an amount equal to that fraction multiplied by the closing price of BOCC shares at the Effective Time as determined by BOCC based on quotations on the Nasdaq Capital Market on such date, which determination shall be conclusive absent manifest error.

(g) Lost Certificates . Following the Effective Time, shareholders of Randolph whose Randolph Certificates have been lost, destroyed, stolen, or otherwise are missing shall be entitled to receive the applicable consideration set forth in Paragraph 1.04(a) in accordance with and upon compliance with reasonable conditions imposed by BOCC, including without limitation a requirement that those shareholders provide lost instruments indemnities or surety bonds in form, substance and amount satisfactory to BOCC.

1.05 Articles of Incorporation, Bylaws and Management . The Articles of Incorporation and Bylaws of BOC in effect at the Effective Time shall be the Articles of Incorporation and Bylaws of BOC as the surviving corporation in the Merger. The directors of BOC in office at the Effective Time shall constitute the Board of Directors of BOC as the surviving corporation in the Merger and shall continue to hold such offices until removed as provided by law or until the election or appointment of their respective successors. The officers of BOC in office at the Effective Time shall continue to serve in their same positions as officers of BOC as the surviving corporation in the Merger until removed as provided by law or until the election or appointment of their respective successors.

 

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1.06 Closing; Effective Time . The consummation and closing of the Merger and other transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of BOC’s and BOCC’s legal counsel, Ward and Smith, P.A., in Raleigh, North Carolina, or at such other place as BOCC shall designate, on a date mutually agreed upon by Randolph, BOC, and BOCC (the “Closing Date”) after the expiration of any and all required waiting periods following the effective date of required approvals of the Merger by governmental or regulatory authorities (but, subject to Paragraph 8.02(c), in no event more than thirty (30) days following the expiration of all such required waiting periods). At the Closing, Randolph, BOC, and BOCC shall take such actions (including without limitation the delivery of certain closing documents and the execution of the Articles of Merger under North Carolina law) as are required in this Agreement and as otherwise shall be required by law to consummate the Merger and cause it to become effective.

Subject to the terms and conditions set forth in this Agreement, the Merger shall become effective on the date and at the time (the “Effective Time”) specified in Articles of Merger executed by BOC and filed by it with the North Carolina Secretary of State in accordance with applicable law; provided, however, that the Effective Time shall in no event be more than ten (10) days following the Closing Date.

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF RANDOLPH

Except as otherwise specifically provided in this Agreement or as “Previously Disclosed” (as defined in Paragraph 10.13) by Randolph, Randolph hereby makes the following representations and warranties to BOC and BOCC.

The term “Randolph Material Effect” shall mean a material adverse effect on Randolph, or on its financial condition, results of operations, prospects, businesses, assets, loan portfolio, investments, properties or operations, or a material adverse effect on Randolph’s ability to consummate the transactions described herein, or the acceleration of any material obligation or indebtedness of Randolph, and the term “Randolph Material Change” shall mean a material adverse change in or affecting the financial condition of Randolph or its results of operations, prospects, business, assets, loan portfolio, investments, properties or operations; provided, however, that these terms shall not include any change or effect resulting directly or indirectly from: (a)  the transactions contemplated by this Agreement or their announcement, (b)  general economic, industry or financial conditions or events that affect the banking industry as a whole, (c)  the impact of laws, rules, regulations and court decisions (other than court decisions related to litigation in which Randolph is a party, or (d)  acts of war or terrorism.

2.01 Organization; Standing; Power . Randolph (a)  is duly organized and incorporated, validly existing and in good standing as a banking corporation under the laws of North Carolina; (b)  has all requisite power and authority (corporate and other) to own, lease and operate its properties and to carry on its business as it now is being conducted; (c)  is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned, leased or operated by it therein, or in which the transaction of its business, makes such qualification necessary, except where failure so to qualify would not have a Randolph Material Effect; and (d)  is not transacting business or operating any properties owned

 

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or leased by it in violation of any provision of federal, state or local law or any rule or regulation promulgated thereunder, except where such violation would not have a Randolph Material Effect.

2.02 Capital Stock . Randolph’s authorized capital stock consists of (a)  2,500,000 shares of Randolph Common Stock, of which 986,267 shares are issued and outstanding, and (b)  1,000,000 shares preferred stock, $5.00 par value, including 10,000 shares of Randolph Preferred Stock, of which 2,300 shares are issued and outstanding. Randolph has issued and outstanding options to purchase 28,330 shares of Randolph Common Stock pursuant to Randolph’s 1998 Omnibus Stock Plan (the “Randolph Stock Options”). The issued and outstanding shares of Randolph Common Stock, Randolph Preferred Stock and the issued and outstanding Randolph Stock Options constitute Randolph’s only outstanding securities or options on equity securities. The exercise price of the outstanding Randolph Stock Options has not been changed since Randolph began negotiations related to this Agreement with BOC and BOCC.

Each outstanding share of Randolph Stock (i)  has been duly authorized and is validly issued and outstanding, and is fully paid and, except as provided in Section 53-42 of the North Carolina General Statutes, nonassessable, and (ii)  has not been issued in violation of the preemptive rights of any shareholder. The Randolph Common Stock is registered under the Securities Exchange Act of 1934, as amended (the “1934 Act”) and Randolph is subject to the reporting requirements of the 1934 Act.

2.03 Principal Shareholders . Except as otherwise described below, to the “Best Knowledge” (as defined in Paragraph 10.14 below) of Randolph, no person or entity beneficially owns, directly or indirectly, more than five percent (5%) of the outstanding shares of Randolph Common Stock.

As of the date of this Agreement, the following persons owned, beneficially and of record, more than five percent (5%) of the outstanding shares of Randolph Common Stock:

 

2.04 Subsidiaries . Randolph owns all of the issued and outstanding shares of Randolph Investment Services Company, a North Carolina corporation (“Randolph Investment”). Other than Randolph Investment, Randolph has no subsidiaries, direct or indirect. Except for equity securities included in its investment portfolio at April 12, 2007, and Previously Disclosed to BOCC pursuant to Paragraph 10.13 below, Randolph does not own any stock or other equity interest in any other corporation, service corporation, joint venture, partnership or other entity.

2.05 Convertible Securities, Options, Etc . With the exception of the Randolph Stock Options, Randolph does not have any outstanding (a)  securities or other obligations (including debentures or other debt instruments) which are convertible into shares of Randolph Stock or any other securities of Randolph, (b)  options, warrants, rights, calls or other

 

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commitments of any nature which entitle any person to receive or acquire any shares of Randolph Stock or any other securities of Randolph, or (c)  plan, agreement or other arrangement pursuant to which shares of Randolph Stock or any other securities of Randolph, or options, warrants, rights, calls or other commitments of any nature pertaining to any securities of Randolph, have been or may be issued.

2.06 Authorization and Validity of Agreement . This Agreement has been duly and validly approved by Randolph’s Board of Directors in such a manner that the 80% shareholder approval requirement of Article VIII of Randolph’s Amended and Restated Articles of Incorporation does not apply to the Merger. Subject only to approval of this Agreement by the shareholders of Randolph, BOC and BOCC in the manner required by law and required approvals of federal, state, or local governmental, regulatory, or judicial authorities having jurisdiction over Randolph, BOC and BOCC, or any of their business operations, properties or assets, or the transactions described herein (collectively, the “Regulatory Authorities”) (as contemplated by Paragraph 6.02), (a)  Randolph has the corporate power and authority to execute and deliver this Agreement and to perform its obligations and agreements and carry out the transactions described in this Agreement, (b)  all corporate proceedings and approvals required to authorize Randolph to enter into this Agreement and to perform its obligations and agreements and carry out the transactions described herein have been duly and properly completed or obtained, and (c)  this Agreement constitutes the valid and binding agreement of Randolph and is enforceable in accordance with its terms (except to the extent enforceability may be limited by (i)  applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect which affect creditors’ rights generally, (ii)  legal and equitable limitations on the availability of injunctive relief, specific performance and other equitable remedies, and (iii)  general principles of equity and applicable laws or court decisions limiting the enforceability of indemnification provisions).

2.07 Validity of Transactions; Absence of Required Consents or Waivers . Subject to approval of this Agreement by the shareholders of Randolph, BOC, and BOCC in the manner required by law and receipt of required approvals of Regulatory Authorities (as contemplated by Paragraph 6.02), neither the execution and delivery of this Agreement, nor the consummation of the transactions described herein, nor compliance by Randolph with any of its obligations or agreements contained herein, nor any action or inaction by Randolph required herein, will: (a)  conflict with or result in a breach of the terms and conditions of, or constitute a default or violation under any provision of, the Articles of Incorporation or Bylaws of Randolph, or any material contract, agreement, lease, mortgage, note, bond, indenture, license, obligation or understanding (oral or written) to which Randolph is bound or by which it or its business, capital stock or any of its properties or assets may be affected; (b)  result in the creation or imposition of any material lien, claim, interest, charge, restriction or encumbrance upon any of the properties or assets of Randolph; (c)  violate any applicable federal or state statute, law, rule, or regulation, or any judgment, order, writ, injunction or decree of any court, administrative or regulatory agency or governmental body, which violation will or may have a Randolph Material Effect; or (d)  result in the acceleration of any obligation or indebtedness of Randolph.

No consents, approvals or waivers are required to be obtained from any person or entity in connection with Randolph’s execution and delivery of this Agreement, or the

 

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performance of its obligations or agreements or the consummation of the transactions described herein, except for required approvals of Randolph’s, BOC’s, and BOCC’s shareholders and of Regulatory Authorities (as contemplated by Paragraph 6.02).

2.08 Randolph Books and Records . Randolph’s and Randolph Investment’s respective books of account and business records have been maintained in all material respects in compliance with all applicable legal and accounting requirements, and such books and records are complete and reflect accurately in all material respects their respective items of income and expense and all of their respective assets, liabilities, and stockholders’ equity. The respective minute books of Randolph and Randolph Investment are complete and accurately reflect in all material respects all corporate actions which their respective shareholders and boards of directors, and all committees thereof, have taken during the time periods covered by such minute books, and all such minute books have been or will be made available to BOC and its representatives.

2.09 Randolph Reports . To the “Best Knowledge” (as defined in Paragraph 10.14) of Randolph, since January 1, 2002, Randolph has filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file with (i)  the North Carolina Commissioner of Banks (the “Commissioner”), (ii)  the Federal Deposit Insurance Corporation (the “FDIC”), and (iii)  any other Regulatory Authorities with supervisory responsibility over Randolph or Randolph Investment. These reports, registrations and statements filed by Randolph are collectively referred to in this Agreement as the “Randolph Reports.” To the Best Knowledge of Randolph, the Randolph Reports complied in all material respects with all the statutes, rules and regulations enforced or promulgated by the Regulatory Authorities with which they were filed and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Randolph has not been notified that any such Randolph Reports were deficient in any material respect as to form or content.

2.10 Randolph Financial Statements . Randolph has Previously Disclosed copies of its audited consolidated statements of financial condition as of December 31, 2005, and its audited consolidated statements of income, stockholders’ equity and cash flows for the two years ended December 31, 2005 and 2004, together with notes thereto, and Randolph will have prepared and will deliver by April 30, 2007, copies of its audited consolidated statements of financial condition as of December 31, 2006, and its audited consolidated statements of income, stockholders’ equity and cash flows for the year ended December 31, 2006, together with notes thereto (collectively, the “Randolph Audited Financial Statements”). Randolph has Previously Disclosed copies of its unaudited consolidated statement of financial condition as of September 30, 2006, and unaudited consolidated statements of income and cash flows for the nine-months ended September 30, 2006 and 2005, together with notes thereto (collectively, the “Randolph Interim Financial Statements”). Randolph also has Previously Disclosed a draft of the Randolph Audited Financial Statements for the year ending December 31, 2006 (the “Randolph Draft Financial Statements”). Following the date of this Agreement, Randolph promptly will prepare and deliver to BOC all subsequent annual or interim financial statements prepared by or for Randolph. The Randolph Audited Financial Statements and the Randolph Interim Financial

 

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Statements (a)  have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated, (b)  are in accordance with Randolph’s books and records, and (c)  present fairly Randolph’s consolidated financial condition, assets and liabilities, results of operations, changes in stockholders’ equity and changes in cash flows as of the dates indicated and for the periods specified therein. The Randolph Audited Financial Statements have been audited by Dixon Hughes PLLC, which serves as Randolph’s independent registered public accounting firm.

2.11 Randolph Tax Returns and Other Tax Matters . (a)  Randolph has timely filed or caused to be filed all federal, state and local income tax returns and reports which are required by law to have been filed, and, to the Best Knowledge of Randolph, all such returns and reports were true, correct and complete in all material respects and contained all material information required to be contained therein; (b)  all federal, state and local income taxes reflected in such returns, and all profits, franchise, sales, use, occupation, property, excise, withholding, employment and other taxes (including interest and penalties), charges and assessments, which have become due from or been assessed or levied against Randolph or its properties have been fully paid or, if not yet due, a reserve or accrual, which is adequate in all material respects for the payment of all such taxes to be paid and the obligation for such unpaid taxes, is reflected on the Randolph Interim Financial Statements; (c)  the income, profits, franchise, sales, use, occupation, property, excise, withholding, employment and other tax returns and reports of Randolph have not been subjected to audit by the Internal Revenue Service (the “IRS”) or the North Carolina Department of Revenue in the last ten years and Randolph has not received any indication of the pendency of any audit or examination in connection with any such tax return or report and, to the Best Knowledge of Randolph, no such return or report is subject to adjustment; and (d)  Randolph has not executed any waiver or extended the statute of limitations (or been asked to execute a waiver or extend a statute of limitations) with respect to any tax year, the audit of any such tax return or report, or the assessment or collection of any tax.

2.12 Absence of Changes or Certain Other Events .

(a) Since December 31, 2006, Randolph has conducted its business only in the ordinary course, and there has been no Randolph Material Change, and there has occurred no event or development, and there currently exists no condition or circumstance, which, with the lapse of time or otherwise, may or could cause, create or result in a Randolph Material Change.

(b) Since December 31, 2006, and except as described in Paragraph 2.13 below, Randolph has not incurred any material liability, engaged in any material transaction, entered into any material agreement, increased the salaries, compensation or general benefits payable or provided to its employees (with the exception of routine increases in the salaries of employees effected by Randolph at such times and in such amounts as is consistent with its past practices and its salary administration and review policies and procedures in effect prior to December 31, 2006), suffered any material loss, destruction, or damage to any of its properties or assets, or made a material acquisition or disposition of any assets or entered into any material contract or lease.

 

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2.13 Absence of Undisclosed Liabilities . Randolph does not have any material liabilities or obligations, whether known or unknown, matured or unmatured, accrued, absolute, contingent or otherwise, whether due or to become due (including without limitation tax liabilities or unfunded liabilities under employee benefit plans or arrangements), other than (a)  those reflected in the Randolph Audited Financial Statements, (b)  increases in deposit accounts in the ordinary course of Randolph’s business since December 31, 2006, or (iii)  unfunded commitments to make, issue or extend loans, lines of credit, letters of credit or other extensions of credit entered into in the ordinary course of Randolph’s business and in accordance with its normal lending policies and practices.

2.14 Compliance with Existing Obligations . Randolph has performed in all material respects all obligations required to be performed by it under, and it is not in default in any material respect under, or in violation in any material respect of, the terms and conditions of, its Articles of Incorporation, Bylaws and/or any material contract, agreement, lease, mortgage, note, bond, indenture, license, obligation, understanding or other undertaking (whether oral or written) to which it is bound or by which its business, operations, capital stock, properties or assets may be affected and which default or violation would have, either individually or cumulatively with other such defaults or violations, a Randolph Material Effect.

2.15 Litigation and Compliance with Law .

(a) There are no actions, suits, arbitrations, controversies or other proceedings or investigations (or, to the Best Knowledge of Randolph, any facts or circumstances which reasonably could be expected to result in such), including without limitation any such action by any Regulatory Authority, which currently exist or are ongoing, pending or, to the Best Knowledge of Randolph, threatened, contemplated or probable of assertion, against Randolph or any of its respective properties or assets or, to the Best Knowledge of Randolph, otherwise relating to or affecting Randolph or its business.

(b) Randolph has all licenses, permits, orders, authorizations or approvals (“Permits”) of all federal, state, local or foreign governmental or regulatory agencies that are material to or necessary for the conduct of its business or to own, lease and operate its properties, all such Permits are in full force and effect, no violations have occurred with respect to any such Permits, and no proceeding is pending or, to the Best Knowledge of Randolph, threatened or probable of assertion, to suspend, cancel, revoke or limit any Permit, except where the same would not have, either individually or cumulatively with other such violations or proceedings, a Randolph Material Effect.

(c) With the exception of the Memorandum of Understanding between Randolph, the Commissioner and the FDIC dated March 16, 2005, Randolph is not subject to any supervisory agreement, enforcement order, writ, injunction, capital directive, supervisory directive, memorandum of understanding or other similar agreement, order, directive, memorandum or consent of, with or issued by any Regulatory Authority (including without limitation the Commissioner and the FDIC) relating to its financial condition, directors or officers, employees, operations, capital, regulatory compliance or any other matter; there are no judgments, orders, stipulations, injunctions, decrees or awards against Randolph which limit,

 

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restrict, regulate, enjoin or prohibit in any material respect any present or past business or practice of Randolph; and Randolph has not been advised, nor has any reason to believe, that any Regulatory Authority or any court is contemplating, threatening or requesting the issuance of any such agreement, order, writ, injunction, directive, memorandum, judgment, stipulation, decree or award.

(d) To the Best Knowledge of Randolph, Randolph is not in violation or default in any material respect under, and has complied in all material respects with, all laws, statutes, ordinances, rules, regulations, orders, writs, injunctions or decrees of any Regulatory Authority (including without limitation all provisions of North Carolina law relating to usury, the Consumer Credit Protection Act, and all other federal and state laws and regulations applicable to extensions of credit), except where its failure to comply would not have, either individually or cumulatively with such other failures, a Randolph Material Effect. To the Best Knowledge of Randolph, there is no basis for any claim by any person or authority for compensation, reimbursement, damages, or other penalties or relief for any violations described in this subparagraph (d).

2.16 Real Properties .

(a) Randolph has Previously Disclosed a list of all parcels of real property owned or leased by Randolph or Randolph Investment (“Real Property”). With respect to each such parcel of owned Real Property, Randolph or Randolph Investment has good and marketable fee simple title to that Real Property and owns the same free and clear of all mortgages, liens, leases, encumbrances, title defects and exceptions to title other than (i)  the lien of current taxes not yet due and payable, and (ii)  such imperfections of title and restrictions, covenants and easements (including utility easements) which do not materially and adversely affect the economic value or marketability of that Real Property or materially detract from, interfere with or restrict the present or future use of that Real Property for the purposes for which it currently is used.

(b) Randolph has Previously Disclosed to BOC a list of all parcels of Real Property in which Randolph or Randolph Investment has a leasehold interest, together with true and complete copies of the lease agreement pertaining to each such parcel (the “Lease Agreements”). With respect to each such parcel, (i)  Randolph or Randolph Investment has unconditionally accepted occupancy of and currently is occupying that property; (ii)  the lease term, commencement date, expiration date, renewal terms, and current rent applicable to that parcel is as set forth in the Lease Agreement pertaining to it; (iii)  the Lease Agreement pertaining to that parcel is in full force and effect and has not been modified or amended; (iv)  the terms and conditions of the Lease Agreement pertaining to that parcel will continue without modification notwithstanding the Merger, and the Merger will not be deemed to be a transfer or assignment in violation of or otherwise to violate the Lease Agreement, to require the approval of the landlord under the Lease Agreement, or to prevent the exercise of or result in the loss of any right or option to renew or extend the Lease Agreement or to purchase that parcel; (v)  Randolph or Randolph Investment has performed all of the lessee’s obligations (including the payment of rent) under the Lease Agreement pertaining to that parcel, and no event of default by the lessee exists or has occurred under that Lease Agreement (including without limitation any default that would

 

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prevent the exercise of or result in the loss of any right or option to renew or extend the Lease Agreement or to purchase that parcel); and (vi)  to the Best Knowledge of Randolph, the landlord with respect to that parcel has performed all of the landlord’s obligations under the Lease Agreement pertaining to that parcel, and no event of default by the landlord exists or has occurred under that Lease Agreement.

(c) The Real Property complies in all material respects with all applicable federal, state and local laws, regulations, ordinances or orders of any governmental or regulatory authority, including without limitation those relating to zoning, building and use permits, as well as the Americans with Disabilities Act. The parcels of Real Property upon Randolph and Randolph Investment offices are situated, or which are used by Randolph or Randolph Investment in conjunction with their respective businesses, may, under applicable zoning ordinances, be used for the purposes for which they currently are used as a matter of right rather than as a conditional or nonconforming use.

(d) With respect to each parcel of Real Property that currently is used by Randolph or Randolph Investment as an office, (i)  all improvements and fixtures included in or on that Real Property are in satisfactory condition and repair and performing the functions and operations for which they were designed, ordinary wear and tear excepted, and (ii)  there does not exist any condition which materially and adversely affects the economic value or marketability of that Real Property or materially detracts from, interferes with or restricts Randolph’s or Randolph Investment’s present use (or BOCC’s or BOC’s use after the Merger) of that Real Property or those improvements and fixtures for the purposes for which they currently are used.

2.17 Loans, Accounts, Notes and Other Receivables .

(a) All loans, accounts, notes and other receivables reflected as assets on Randolph’s books and records (i)  have resulted from bona fide business transactions in the ordinary course of its operations, (ii)  in all material respects were made in accordance with Randolph’s standard practices and procedures, and (iii)  are owned by Randolph free and clear of all liens, encumbrances, assignments, repurchase agreements or other exceptions to title or, to the Best Knowledge of Randolph, to the ownership or collection rights of any other person or entity.

(b) All records of Randolph regarding all outstanding loans, accounts, notes and other receivables, and all other real estate owned, are accurate in all material respects, and each loan which Randolph loan documentation indicates is secured by any real or personal property or property rights (“Loan Collateral”) is secured by valid, perfected and enforceable liens on all such Loan Collateral having the priority described in Randolph records of such loan (except for immaterial defects in perfection or priority that, individually or in the aggregate, will not have a Randolph Material Effect).

(c) To the Best Knowledge of Randolph, each loan reflected as an asset on Randolph’s books, and each guaranty therefor, is the legal, valid and binding obligation of the obligor or guarantor thereon (subject to the application of general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws), and no defense, offset or counterclaim has been asserted with respect to any such loan or guaranty.

 

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(d) Randolph has Previously Disclosed to BOCC a written listing of (i)  each loan or other asset of Randolph which, as of March 31, 2007, was classified by any Regulatory Authority as “Loss,” “Doubtful,” “Substandard” or “Special Mention” (or otherwise by words of similar import), or which Randolph otherwise placed on any “watch list” because of concerns regarding the ultimate collectibility or deteriorating condition of such asset or any obligor or Loan Collateral therefor, (ii)  each loan of Randolph which, as of March 31, 2007, was past due more than 30 days as to the payment of principal and/or interest, and (iii)  each loan as to which any obligor thereon (including the borrower or any guarantor) was in default (other than as a result of nonpayment of principal or interest), was, to the Best Knowledge of Randolph, the subject of a proceeding in bankruptcy, or on which any such obligor has expressly indicated any inability or intention not to repay such loan in accordance with its terms, and that do not appear in the loans Previously Disclosed pursuant to (i) or (ii) above.

(e) To the Best Knowledge of Randolph, each of the loans of Randolph (with the exception of those loans Previously Disclosed to BOC as described in Paragraph 2.17(d) above) is collectible in the ordinary course of Randolph’s business in an amount which is not less than the amount at which it is carried on Randolph’s books and records.

(f) Randolph’s reserve for possible loan losses (the “Loan Loss Reserve”) has been established in conformity with GAAP, sound banking practices and, to the Best Knowledge of Randolph, all applicable requirements, rules and policies of the Commissioner and the FDIC and, in the best judgment of management and the Board of Directors of Randolph, is reasonable in view of the size and character of Randolph’s loan portfolio, current economic conditions and other relevant factors, and is adequate to provide for losses relating to or the risk of loss inherent in Randolph’s loan portfolio and other real estate owned.

2.18 Securities Portfolio and Investments . Randolph has Previously Disclosed a listing of all securities owned, of record or beneficially, by Randolph and Randolph Investment as of the last day of the calendar year immediately preceding the date of this Agreement. All securities owned, of record or beneficially, by Randolph and Randolph Investment as of the date hereof are held free and clear of all mortgages, liens, pledges, encumbrances or any other restriction or rights of any other person or entity, whether contractual or statutory (other than customary pledges in the ordinary course of Randolph’s business to secure public funds deposits and restrictions imposed by and the rights of the issuers of such securities), which would materially impair the ability of Randolph or Randolph Investment to dispose freely of any such security and/or otherwise to realize the benefits of ownership thereof at any time. There are no voting trusts or other agreements or undertakings to which Randolph or Randolph Investment is a party with respect to the voting of any such securities. With respect to all “repurchase agreements” under which Randolph or Randolph Investment has “purchased” securities under agreement to resell, Randolph has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement, and the value of the collateral securing each such repurchase agreement equals or exceeds the amount of the debt owed to it which is secured by such collateral.

 

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Since December 31, 2006, there has been no material deterioration or adverse change in the quality, or any material decrease in the value, of Randolph’s securities portfolio as a whole.

2.19 Personal Property and Other Assets . All banking equipment, data processing equipment, vehicles, and other personal property used by Randolph and material to the operation of its business are owned by it free and clear of all liens, encumbrances, leases, title defects or exceptions to title. To the Best Knowledge of Randolph, all of Randolph’s personal property material to its business is in good operating condition and repair, ordinary wear and tear excepted.

2.20 Patents and Trademarks . To the Best Knowledge of Randolph, Randolph owns, possesses or has the right to use any and all patents, licenses, trademarks, trade names, copyrights, trade secrets and proprietary and other confidential information necessary to conduct its business as now conducted; and, Randolph has not violated, and is not in conflict with, any patent, license, trademark, trade name, copyright or proprietary right of any other person or entity, except where such violation or conflict would not have a Randolph Material Effect.

2.21 Environmental Matters .

(a) As used in this Agreement, “Environmental Laws” shall mean:

(i) all federal, state, and local statutes, regulations and ordinances,

(ii) all common law, and

(iii) all orders, decrees, and similar provisions having the force or effect of law and to which Randolph is subject, which, in the case of any of the above, concern or relate to pollution or protection of the environment, standards of conduct and bases of obligations or liability relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, reporting, testing, processing, discharge, release, threatened release, control, or clean-up of any “Hazardous Substances” (as defined below), or public or worker health and safety.

“Hazardous Substance” shall mean any materials, substances, wastes, chemicals, or mixtures presently listed, defined, designated, or classified as hazardous, toxic, or dangerous, or otherwise regulated, under any Environmental Laws, whether by type or quantity, including without limitation pesticides, pollutants, contaminants, toxic chemicals, oil, or other petroleum products or byproducts, asbestos or materials containing (or presumed to contain) asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, lead, radon, methyl tertiary butyl ether, or radioactive material.

(b) Randolph has Previously Disclosed, and provided BOC with copies of, all written reports, correspondence, notices or other information or materials, if any, in its possession pertaining to environmental surveys or assessments of the Real Property and any

 

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improvements thereon, the presence of any Hazardous Substance on any of the Real Property, or any violation or alleged violation of Environmental Laws on, affecting or otherwise involving the Real Property or involving Randolph.

(c) To the Best Knowledge of Randolph, there has been no presence, use, production, generation, handling, transportation, treatment, storage, disposal, emission, discharge, release, or threatened release of any Hazardous Substances by any person on, from or relating to the Real Property which constitutes a violation of any Environmental Laws, or any removal, clean-up or remediation of any Hazardous Substances from, on or relating to the Real Property.

(d) Randolph has not violated any Environmental Laws relating to any of the Real Property, and there has been no violation of any Environmental Laws relating to any of the Real Property by any other person or entity for whose liability or obligation with respect to any particular matter or violation for which Randolph is or may be responsible or liable.

(e) To the Best Knowledge of Randolph, Randolph is not subject to any claims, demands, causes of action, suits, proceedings, losses, damages, penalties, liabilities, obligations, costs or expenses of any kind and nature which arise out of, under or in connection with, or which result from or are based upon the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, reporting, testing, processing, emission, discharge, release, threatened release, control, removal, clean-up or remediation of any Hazardous Substances on, from or relating to the Real Property or by any person or entity.

(f) To the Best Knowledge of Randolph, no facts, events or conditions relating to the Real Property, or the operations of Randolph at any of its office locations, will prevent, hinder or limit continued compliance with Environmental Laws or give rise to any investigatory, emergency removal, remedial or corrective actions, obligations or liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to Environmental Laws.

(g) To the Best Knowledge of Randolph, (i)  there has been no violation of any Environmental Laws with respect to any Loan Collateral by any person or entity for whose liability or obligation with respect to any particular matter or violation for which Randolph is or may be responsible or liable, (ii)  Randolph is not subject to any claims, demands, causes of action, suits, proceedings, losses, damages, penalties, liabilities, obligations, costs or expenses of any kind and nature which arise out of, under or in connection with, or which result from or are based upon, the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, reporting, testing, processing, emission, discharge, release, threatened release, control, removal, clean-up or remediation of any Hazardous Substances on, from or relating to any Loan Collateral, by any person or entity, and (iii)  there are no facts, events or conditions relating to any Loan Collateral that will give rise to any investigatory, emergency removal, remedial or corrective actions, obligations or liabilities pursuant to Environmental Laws.

 

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2.22 Absence of Brokerage or Finders Commissions . Except for the engagement by Randolph of Sterne, Agee & Leach, Inc., (a)  all negotiations relative to this Agreement and the transactions described herein have been carried on by Randolph directly (or through its legal counsel) with BOC and BOCC, and no person or firm has been retained by or has acted on behalf of, pursuant to any agreement, arrangement or understanding with, or under the authority of Randolph or its Board of Directors, as a broker, finder or agent or has performed similar functions or otherwise is or may be entitled to receive or claim a brokerage fee or other commission in connection with or as a result of the transactions described herein; and (b)  Randolph has not agreed, and has no obligation, to pay any brokerage fee or other commission, fee or other compensation to any person or entity in connection with or as a result of the transactions described herein.

2.23 Material Contracts . Other than a benefit plan or employment agreement Previously Disclosed pursuant to Paragraph 2.25, and with the exception of loans and deposit accounts made or accepted by Randolph in the ordinary course of its business, neither Randolph nor Randolph Investment is a party to or bound by any agreement (a)  involving money or other property in an amount or with a value in excess of $25,000, (b)  which is not to be performed in full prior to December 31, 2007, (c)  which calls for the provision of goods or services and which cannot be terminated without material penalty upon not more than 30 days notice to the other party thereto, (d)  which otherwise is material to it and was not entered into in the ordinary course of business, (e)  which involves hedging, options or any similar trading activity, or interest rate exchanges or swaps, (f)  which commits it to make, issue or extend any loan other than commitments in the ordinary course of Randolph’s business for loans which do not exceed an aggregate of $250,000 in the case of one or more loan commitments to any one borrower or group of related borrowers or $500,000 in the aggregate for all loan commitments to all borrowers), (g)  which involves the sale of any assets of it which are used in and material to the operation of its business, (h)  which involves any purchase or sale of real property in any amount, or which involves the purchase or sale of any other assets in the amount of more than $2,500 in the case of any single transaction or $10,000 in the case of all such transactions, (i)  other than the Randolph Stock Option agreements, which involves the purchase, sale, issuance, redemption or transfer of any of its capital stock or other securities, or (j)  with any director, officer or principal shareholder of Randolph or Randolph Investment (including without limitation any consulting agreement, but not including any agreements relating to loans or other banking services which were made in the ordinary course of Randolph’s business and on substantially the same terms and conditions as were prevailing at that time for similar agreements with unrelated persons).

Neither Randolph nor Randolph Investment is in default in any material respect, and there has not occurred any event which with the lapse of time or giving of notice or both would constitute such a default by Randolph or Randolph Investment, under any contract, lease, insurance policy, commitment or arrangement to which it is a party or by which it or its property is or may be bound or affected or under which it or its property receives benefits, where the consequences of such default, either individually or cumulatively with other such defaults, would have a Randolph Material Effect.

 

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2.24 Employment Matters; Employee Relations . Randolph and Randolph Investment each (a)  has in all material respects paid in full to or accrued on behalf of all its respective directors, officers and employees all wages, salaries, commissions, bonuses, fees and other direct compensation for all labor or services performed by them to the date of this Agreement, and all vacation pay, sick pay, severance pay, overtime pay and other amounts for which it is obligated under applicable law or its existing agreements, benefit plans, policies or practices, and (b)  is in compliance with all applicable federal, state and local laws, statutes, rules and regulations with regard to employment and employment practices, terms and conditions, wages and hours and other compensation matters, except where a failure of compliance, either individually or cumulatively with other such failures, would not have a Randolph Material Effect; and no person has, to the Best Knowledge of Randolph, asserted that either Randolph or Randolph Investment is liable in any amount for any arrearage in wages or employment taxes or for any penalties for failure to comply with any of the foregoing.

There is no action, suit or proceeding by any person pending or, to the Best Knowledge of Randolph, threatened, against Randolph or Randolph Investment (or any of their employees), involving employment discrimination, sexual harassment, wrongful discharge or similar claims.

Neither Randolph nor Randolph Investment is a party to or bound by any collective bargaining agreement with any of its employees, any labor union or any other collective bargaining unit or organization. There is no pending or threatened labor dispute, work stoppage or strike involving Randolph or Randolph Investment and any of their employees, or any pending or threatened proceeding in which it is asserted that Randolph or Randolph Investment has committed an unfair labor practice; and to the Best Knowledge of Randolph, there is no activity involving it or Randolph Investment or any of their employees seeking to certify a collective bargaining unit or engaging in any other labor organization activity.

2.25 Employment Agreements; Employee Benefit Plans .

(a) Randolph has Previously Disclosed a true and complete list of all bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans; all employment and severance contracts; all medical, dental, health, and life insurance plans; all vacation, sickness and other leave plans, all disability and death benefit plans; and all other employee benefit plans, contracts, or arrangements (collectively, “Plans”) maintained or contributed to by Randolph or Randolph Investment for the benefit of any of their respective current or former employees or directors or any of their beneficiaries . Each Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA and which is intended to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”) has received or applied for a favorable determination letter from the IRS to the effect that they are so qualified, and neither Randolph nor Randolph Investment is aware of any circumstances reasonably likely to result in the revocation or denial of any such favorable determination letter. All reports and returns with respect to the Plans (and any Plans previously maintained by Randolph or Randolph Investment) required to be filed with any governmental department, agency, service or other authority, including without limitation Internal Revenue Service Form 5500 (Annual Report), have been properly and timely filed.

 

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(b) All Plans maintained by or otherwise covering employees or former employees of Randolph or Randolph Investment, to the extent subject to ERISA, currently are, and at all times have been, in compliance with all material provisions and requirements of ERISA. There is no pending or threatened litigation relating to any Plan or any employee benefit plan, contract or arrangement previously maintained by Randolph or Randolph Investment. Neither Randolph nor Randolph Investment has engaged in a transaction with respect to any Plan that could subject either of them to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.

(c) All retirement Plans maintained by either Randolph or Randolph Investment which are intended to be plans qualified under Section 401(a) of the Code (a “Retirement Plans”), are qualified under the provisions of Section 401(a) of the Code, the trusts under the Retirement Plans are exempt trusts under Section 501(a) of the Code, and determination letters have been issued or applied for with respect to each such qualification and exemption, including determination letters covering the current terms and provisions of the Retirement Plans. The Retirement Plans have been amended to comply with the Uruguay Round Agreements Act, the Small Business Job Protection Act of 1996, the Uniformed Services Employment and Re-Employment Rights Act of 1994, the Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998 (collectively, “GUST”). There are no issues relating to said qualification or exemption of the Retirement Plans currently pending before the IRS, the United States Department of Labor, the Pension Benefit Guaranty Corporation or any court. The Retirement Plans and the administration thereof meet (and have met since the establishment of the Retirement Plans) in all material respects all of the applicable requirements of ERISA, the Code, and all other provisions, laws, rules and regulations applicable to the Retirement Plans and do not violate (and since the establishment of the Retirement Plans have not violated) in any material respect any of the applicable provisions of the Retirement Plans, ERISA, the Code, and such other laws, rules and regulations. Without limiting the generality of the foregoing, all reports and returns with respect to the Retirement Plans required to be filed with any governmental department, agency, service or other authority have been properly and timely filed. There are no issues or disputes with respect to the Retirement Plans or the administration thereof currently existing between Randolph or Randolph Investment, or any trustee or other fiduciary thereunder, and any governmental agency, any current or former employee of Randolph or Randolph Investment or beneficiary of any such employee, or any other person or entity. No “reportable event” within the meaning of Section 4043 of ERISA has occurred at any time with respect to the Retirement Plans.

(d) No liability under subtitle C or D of Title IV of ERISA has been or is expected to be incurred by Randolph or Randolph Investment with respect to the Retirement Plans or with respect to any other ongoing, frozen or terminated defined benefit pension plan currently or formerly maintained by Randolph or Randolph Investment. Neither Randolph nor Randolph Investment presently contributes to a “Multiemployer Plan” and neither of them has contributed to such a plan since December 31, 2002. All contributions required to be made pursuant to the terms of each of the Plans (including without limitation the Retirement Plans and

 

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any other “pension plan” as defined in Section 3(2) of ERISA maintained by Randolph or Randolph Investment) have been timely made. Neither the Retirement Plans nor any other “pension plan” maintained by Randolph or Randolph Investment have an “accumulated funding deficiency” (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither Randolph nor Randolph Investment has provided, and neither of them is required to provide, security to any “pension plan” or to any “Single Employer Plan” pursuant to Section 401(a)(29) of the Code. Under the Retirement Plans and any other “pension plan” maintained by Randolph or Randolph Investment as of the last day of the most recent Plan year ended prior to the date hereof, the actuarially determined present value of all “benefit liabilities,” within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the Plan’s most recent actuarial valuation), did not exceed the then current value of the assets of such Plan, and there has been no material change in the financial condition of any such Plan since the last day of the most recent Plan year.

(e) Except as provided in the terms of the Retirement Plans themselves, there are no restrictions on the rights of Randolph or Randolph Investment to amend or terminate any Retirement Plan without incurring any liability thereunder. Neither the execution and delivery of this Agreement nor the consummation of the transactions described herein will, except as otherwise specifically provided in this Agreement, (i)  result in any payment to any person (including without limitation any severance compensation or payment, unemployment compensation, “golden parachute” or “change in control” payment, or otherwise) becoming due under any Plan or agreement to any director, officer, employee or consultant, (ii)  increase any benefits otherwise payable under any Plan or agreement, or (iii)  result in any acceleration of the time of payment or vesting of any such benefit.

2.26 Insurance . Randolph has Previously Disclosed a listing of each blanket bond and liability insurance, property and casualty, workers’ compensation and employer liability, life, or other insurance policy in effect as of the date of this Agreement insuring Randolph or Randolph Investment (the “Policies”). The Policies provide coverage in such amounts and against such liabilities, casualties, losses or risks as Randolph or Randolph Investment are required by applicable law or regulation to maintain; and, in the reasonable opinion of management of Randolph, the insurance coverage provided under the Policies is reasonable and adequate in all respects for Randolph and Randolph Investment. Each of the Policies is in full force and effect and is valid and enforceable in accordance with its terms (subject to general principles of equity and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws), and is underwritten by an insurer qualified to issue those policies in North Carolina; and Randolph and Randolph Investment each has complied in all material respects with requirements (including the giving of required notices) under each such Policy in order to preserve all rights thereunder with respect to all matters. Neither Randolph nor Randolph Investment is in default under the provisions of, has received notice of cancellation or nonrenewal of or any premium increase on, or has failed to pay any premium on, any Policy (where, in the case of failure to pay any premium, such failure gives rise to a current right of cancellation), and, to the Best Knowledge of Randolph, there has not been any material inaccuracy in any application for any Policy which would give the insurer a valid defense against paying a claim under that Policy. There are no pending claims with respect to any Policy, and, to the Best Knowledge of Randolph, there currently are no conditions, and there has occurred no event, that is reasonably likely to form the basis for any such claim.

 

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2.27 Insurance of Deposits . All deposits of Randolph are insured by the FDIC to the maximum extent permitted by law, all deposit insurance premiums due from Randolph to the FDIC have been paid in full in a timely fashion, and to the Best Knowledge of Randolph, no proceedings have been commenced or are contemplated by the FDIC or otherwise to terminate such insurance.

2.28 Indemnification Obligations . Except to the extent provided by their respective Articles of Incorporation or Bylaws in effect on the date of this Agreement, or as otherwise required by the North Carolina Business Corporation Act, neither Randolph nor Randolph Investment have any obligation to indemnify or hold harmless any of their current or former directors, officers or employees, or any other person, against or from any costs or expenses (including attorneys’ fees), judgments, fines, amounts paid in settlement, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative.

2.29 Obstacles to Regulatory Approval . To the Best Knowledge of Randolph, there exists no fact or condition (including without limitation Randolph ‘s record of compliance with the Community Reinvestment Act) that may reasonably be expected to prevent or materially impede or delay BOC or Randolph from obtaining the regulatory approvals required in order to consummate the transactions described in this Agreement; and if any such fact or condition becomes known to Randolph, Randolph shall promptly (and in any event within three days after obtaining such Knowledge) give notice of such fact or condition to BOC in the manner provided herein.

2.30 Disclosure . To the Best Knowledge of Randolph, no written statement, certificate, schedule, list or other written information prepared by or on behalf of Randolph and furnished to BOCC in connection with this Agreement and the transactions described herein, when considered as a whole, contains or has contained any untrue statement of a material fact or omits or has omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BOC and BOCC

Except as otherwise specifically described in this Agreement or as Previously Disclosed to Randolph, BOC and BOCC, as applicable, hereby make the following representations and warranties to Randolph.

The term “BOC Material Effect” shall mean a material adverse effect on BOCC or BOC considered as one enterprise, or on the financial conditions, results of operations, prospects, businesses, assets, loan portfolios, investments, properties or operations, or a material adverse effect on BOC’s or BOCC’s ability to consummate the transactions described herein, or the acceleration of any material obligation or indebtedness of BOCC or BOC, and the term “BOC Material Change” shall mean a material adverse change in or affecting the financial condition of

 

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BOCC or BOC considered as one enterprise or their results of operations, prospects, businesses, assets, loan portfolios, investments, properties or operations; provided, however, that these terms shall not include any change or effect resulting directly or indirectly from: (a)  the transactions contemplated by this Agreement or their announcement, (b)  general economic, industry or financial conditions or events that affect the banking industry as a whole, (c)  the impact of laws, rules, regulations and court decisions (other than court decisions related to litigation in which BOCC or BOC is a party, or (d)  acts of war or terrorism.

3.01 Organization; Standing; Power . BOCC and BOC each (i)  is duly organized and incorporated, validly existing and in good standing under the laws of North Carolina, (ii)  has all requisite power and authority (corporate and other) to own its respective properties and conduct its respective business as it now is being conducted, and (iii)  is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it therein, or in which the transaction of its respective business, makes such qualification necessary, except where failure so to qualify would not have a BOC Material Effect.

3.02 Capital Stock . BOCC’s authorized capital stock consists of 15,000,000 shares of BOCC Stock, $5 par value, of which 3,832,092 shares are issued and outstanding. BOCC has issued and outstanding options to purchase 294,914 shares of BOCC Stock pursuant to employee and director stock option plans (the “BOCC Stock Options”). The outstanding shares of BOCC Stock and the BOCC Stock Options constitute BOCC’s only outstanding equity securities or options on equity securities. The shares of BOCC Common Stock into which shares of Randolph Common Stock are converted at the Effective Time pursuant to this Agreement will, at the time of issuance, be duly authorized, validly issued, fully paid, and nonassessable. All outstanding shares of BOC are owned by BOCC.

3.03 Authorization and Validity of Agreement . This Agreement has been duly and validly approved by BOC’s and BOCC’s Boards of Directors. Subject only to receipt of required approvals of Regulatory Authorities (as contemplated by Paragraph 6.02) and the approval of BOCC’s shareholders (as contemplated by Paragraph 5.01), (a)  BOC and BOCC have the corporate power and authority to execute and deliver this Agreement and to perform their obligations and agreements and carry out the transactions described herein, (b)  all corporate proceedings required to be taken to authorize BOC and BOCC to enter into this Agreement and to perform their obligations and agreements and carry out the transactions described herein have been duly and properly taken, and (c)  this Agreement constitutes the valid and binding agreement of BOC and BOCC and is enforceable in accordance with its terms (except to the extent enforceability may be limited by (i)  applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect which affect creditors’ rights generally, (ii)  legal and equitable limitations on the availability of injunctive relief, specific performance and other equitable remedies, and (iii)  general principles of equity and applicable laws or court decisions limiting the enforceability of indemnification provisions).

3.04 Validity of Transactions; Absence of Required Consents or Waivers . Subject to receipt of required approvals of Regulatory Authorities (as contemplated by Paragraph 6.02), neither the execution and delivery of this Agreement, nor the consummation of

 

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the transactions described herein, nor compliance by BOC and BOCC with any of their obligations or agreements contained herein, will: (a ) conflict with or result in a breach of the terms and conditions of, or constitute a default or violation under any provision of, BOC’s or BOCC’s Articles of Incorporation or Bylaws, or, except where the same would not have a BOC Material Effect, any material contract, agreement, lease, mortgage, note, bond, indenture, license, or obligation or understanding (oral or written) to which BOCC or BOC is bound or by which either of them, or their respective businesses, capital stock or any of their respective properties or assets may be affected; (b)  result in the creation or imposition of any material lien, claim, interest, charge, restriction or encumbrance upon any of BOCC’s or BOC’s properties or assets, except where the same would not have a BOC Material Effect; (c)  violate any applicable federal or state statute, law, rule or regulation, or any order, writ, injunction or decree of any court, administrative or regulatory agency or governmental body, which violation will or may have a BOC Material Effect or a material adverse effect on BOC’s or BOCC’s abilities to consummate the transactions described herein; or (d)  result in the acceleration of any material obligation or indebtedness of BOCC or BOC.

No consents, approvals or waivers are required to be obtained from any person or entity in connection with BOC’s and BOCC’s execution and delivery of this Agreement, or the performance of their obligations or agreements or the consummation of the transactions described herein, except for required approvals of Regulatory Authorities described in Paragraph 6.02 and the approval of BOCC’s shareholders described in Paragraph 5.01.

3.05 Convertible Securities, Options, Etc . With the exception of outstanding options to purchase shares of BOCC Stock granted pursuant to BOCC’s employee and director stock option plans, neither BOC nor BOCC has any outstanding (a)  securities or other obligations (including debentures or other debt instruments) which are convertible into shares of BOC Stock or BOCC Stock or any other securities of BOC or BOCC, (b)  options, warrants, rights, calls or other commitments of any nature which entitle any person to receive or acquire any shares of BOC Stock or BOCC Stock or any other securities of BOC or BOCC, or (c)  plan, agreement or other arrangement pursuant to which shares of BOC Stock or BOCC Stock or any other securities of BOC or BOCC, or options, warrants, rights, calls or other commitments of any nature pertaining to any securities of BOC or BOCC, have been or may be issued.

3.06 BOCC Books and Records . BOCC’s and BOC’s respective books of account and business records have been maintained in all material respects in compliance with all applicable legal and accounting requirements, and such books and records are complete and reflect accurately in all material respects their respective items of income and expense and all of their respective assets, liabilities and stockholders’ equity. The minute books of BOCC and BOC are complete and accurately reflect in all material respects all corporate actions which their respective shareholders and boards of directors, and all committees thereof, have taken during the time periods covered by such minute books, and all such minute books have been or will be made available to Randolph and its representatives.

3.07 BOC Reports . To the “Best Knowledge” (as defined in Paragraph 10.14) of BOCC and BOC, since December 31, 2002, BOCC and BOC each has filed all reports, registrations and statements, together with any amendments required to be made with respect

 

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thereto, that it or they were required to file with (a)  the Commissioner), (b)  the FDIC, (c)  the Federal Reserve Bank of Richmond (“FRB), (iv)  the Securities and Exchange Commission (“SEC”), or (v)  any other Regulatory Authorities. Each such report, registration and statement filed by BOCC or BOC with the Commissioner, the FDIC, the FRB, the SEC, or any other Regulatory Authorities are collectively referred to in this Agreement as the “BOC Reports.” To the Best Knowledge of BOC, the BOC Reports complied in all material respects with all the statutes, rules and regulations enforced or promulgated by the Regulatory Authorities with which they were filed and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Neither BOCC nor BOC has been notified that any such BOC Reports were deficient in any material respect as to form or content.

3.08 BOCC Financial Statements .  BOCC has provided Randolph with a copy of its audited consolidated statements of financial condition as of December 31, 2006 and 2005, and its audited consolidated statements of income, stockholders’ equity and cash flows for the three years ended December 31, 2006, 2005 and 2004, together with notes thereto (collectively, the “BOCC Audited Financial Statements”). By April 30, 2007, BOCC promptly will prepare and deliver to Randolph its unaudited consolidated statements of financial condition as of March 31, 2007, and unaudited consolidated statements of income and cash flows for the three-months ended March 31, 2006 and 2005, together with notes thereto (collectively, the “Randolph Interim Financial Statements”). The BOCC Audited Financial Statements and the BOCC Interim Financial Statements (i)  were or will have been prepared in accordance with GAAP applied on a consistent basis throughout the periods indicated, (ii)  are or will be in accordance with BOCC’s books and records, and (iii)  present fairly or will present fairly BOCC’s consolidated financial condition, assets and liabilities, results of operations, changes in stockholders’ equity and changes in cash flows as of the dates indicated and for the periods specified therein. The BOCC Audited Financial Statements have been audited by Dixon Hughes PLLC, which serves as BOCC’s independent registered public accounting firm.

3.09 BOCC Tax Returns and Other Tax Matters . (a)  BOCC and BOC each has timely filed or caused to be filed all federal, state and local income tax returns and reports which are required by law to have been filed, and, to the Best Knowledge of BOCC, all such returns and reports were true, correct and complete in all material respects and contained all material information required to be contained therein; (b)  all federal, state and local income taxes reflected in such returns, and all profits, franchise, sales, use, occupation, property, excise, withholding, employment and other taxes (including interest and penalties), charges and assessments, which have become due from or been assessed or levied against BOCC, BOC or their respective properties have been fully paid or, if not yet due, a reserve or accrual, which is adequate in all material respects for the payment of all such taxes to be paid and the obligation for such unpaid taxes, is reflected on the BOCC Interim Financial Statements; (c)  the income, profits, franchise, sales, use, occupation, property, excise, withholding, employment and other tax returns and reports of BOCC and BOC have not been subjected to audit by the Internal Revenue Service (the “IRS”) or the North Carolina Department of Revenue in the last ten years, except for an audit in 2006 by the North Carolina Department of Revenue which has been fully

 

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resolved, and neither BOCC nor BOC has received any indication of the pendency of any audit or examination in connection with any such tax return or report and, to the Best Knowledge of BOCC, no such return or report is subject to adjustment; and (d)  neither BOCC nor BOC has executed any waiver or extended the statute of limitations (or been asked to execute a waiver or extend a statute of limitations) with respect to any tax year, the audit of any such tax return or report, or the assessment or collection of any tax.

3.10 Absence of Material Adverse Changes or Certain Other Events . Since December 31, 2006, there has been no material adverse change in BOCC’s consolidated assets, liabilities or operations, and there currently exists no condition or circumstance in BOCC’s consolidated assets, liabilities or operations which, with the lapse of time or otherwise, may or could cause, create or result in a BOCC Material Change).

3.11 Absence of Undisclosed Liabilities .  Neither BOCC nor BOC has any material liabilities or obligations, whether known or unknown, matured or unmatured, accrued, absolute, contingent or otherwise, whether due or to become due (including without limitation tax liabilities or unfunded liabilities under employee benefit plans or arrangements), other than (a)  those reflected in the BOCC Audited Financial Statements, (b)  increases in deposit accounts in the ordinary course of BOC’s business since December 31, 2006, or (iii)  unfunded commitments to make, issue or extend loans, lines of credit, letters of credit or other extensions of credit entered into in the ordinary course of BOC’s business and in accordance with its normal lending policies and practices.

3.12 Litigation and Compliance with Law .

(a) There are no actions, suits, arbitrations, controversies or other proceedings or investigations (or, to the Best Knowledge of BOC and BOCC, any facts or circumstances which reasonably could result in such), including without limitation any such action by any Regulatory Authority, which currently exist or are ongoing, pendi