AGREEMENT PLAN OF MERGER

Exhibit 10.VIII

AGREEMENT AND PLAN OF MERGER

by and between

PROGRESSIVE STATE BANK

and

NEW CENTURY BANK SOUTH

and

NEW CENTURY BANCORP, INC.

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is entered into as of the 2nd day of February, 2006 by and between PROGRESSIVE STATE BANK, a North Carolina banking corporation (“PSB”), NEW CENTURY BANK SOUTH, a North Carolina banking corporation (the “Bank”) and NEW CENTURY BANCORP, INC., a North Carolina corporation and registered bank holding company (“Bancorp”);

W I T N E S S E T H:

WHEREAS, the parties hereto have agreed that it is in their mutual best interests and in the best interests of their respective shareholders for PSB to be merged with and into the Bank pursuant to a plan of merger (the “Plan of Merger”) in the form attached hereto as Schedule A , with the effect that each of the outstanding shares of PSB’s common stock will be converted into cash in the manner set forth herein, and the parties desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the Merger (as hereinafter defined) and transactions contemplated hereby.

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

ARTICLE I. THE MERGER

1.1 Merger . Subject to the provisions of this Agreement and the Plan of Merger, as of the Effective Time (as defined in Section 1.9 hereof), PSB shall be merged with and into the Bank pursuant to Section 53-12 of the North Carolina General Statutes (the “Merger”), the separate corporate existence of PSB shall cease and the corporate existence of the Bank, as the surviving corporation in the Merger, shall continue under the laws of the State of North Carolina. The Bank, as the surviving corporation in the Merger, is hereinafter sometimes referred to as the “Surviving Corporation.”

1.2 Effect of the Merger . 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 PSB 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 PSB, whether tangible or intangible, shall vest in the Surviving Corporation, and the Surviving

Corporation shall succeed to all the rights, privileges, immunities, powers, purposes and franchises of a public or private nature of PSB, all without any conveyance, assignment or further act or deed; and the Surviving Corporation shall become responsible for all of the liabilities, duties and obligations of every kind, nature and description of PSB as of the Effective Time.

1.3 Articles of Incorporation, Bylaws and Management . The Articles of Incorporation and bylaws of the Bank in effect at the Effective Time shall be the Articles of Incorporation and bylaws of the Surviving Corporation until thereafter amended in accordance with applicable laws. The officers and directors of the Bank at the Effective Time shall continue to hold such offices and positions of the Surviving Corporation until removed as provided by law or until the election or appointment of their respective successors.

1.4 Conversion of Shares and Merger Consideration .

(a) Bancorp and Bank Stock . Each share of common stock of Bancorp, par value $1.00 per share (“Bancorp Stock”), and of the Bank, par value $5.00 per share, issued and outstanding immediately prior to the Effective Time shall continue to be issued and outstanding and shall not be affected by the Merger.

(b) PSB Stock . Except as otherwise provided herein, at the Effective Time, all rights of PSB’s shareholders with respect to all then outstanding shares of the common stock of PSB, $1.00 par value per share (“PSB Stock”), shall cease to exist, and the holders of shares of PSB Stock shall cease to be and shall have no further rights as shareholders of PSB. At the Effective Time, each such outstanding share of PSB Stock (except for shares held, other than in a fiduciary capacity or as a result of debts previously contracted, by PSB, the Bank or Bancorp, which shall be canceled in the Merger, and for Dissenting Shares (as defined in Section 1.7)) shall be converted, without any action on the part of the holder of such shares, into the right to receive the Per Share Cash Consideration (as defined in Section 1.4(d)) in accordance with this Article I. Following the Effective Time, certificates representing shares of PSB Stock outstanding at the Effective Time shall evidence only the right to receive the Per Share Cash Consideration. No share of PSB Stock, other than Dissenting Shares (as defined in Section 1.7), shall be deemed to be outstanding or have any rights other than those set forth in this Section 1.4 after the Effective Time.

(c) Treatment of PSB Options . At the Effective Time, each unexpired and unexercised outstanding option, whether or not then vested or exercisable in accordance with its terms, to purchase shares of PSB Stock (the “PSB Options”) previously granted by PSB pursuant to a written stock option agreement (each a “PSB Option Agreement”) shall be cancelled and converted, without any action on the part of the holder of such PSB Option, into the right to receive via certified check from Bancorp within 10 days following the Effective Time the Per Share Cash Consideration (as defined in Section 1.4(d)) minus the exercise price per share for each PSB Option held as evidenced in the PSB Option Agreement governing such PSB Option. Following the Effective Time, PSB Option Agreements representing PSB Options shall evidence only the right to receive the Per Share Cash Consideration minus the exercise price per share of the PSB Options. No PSB Option shall be deemed to be outstanding or have any rights other than those set forth in this Section 1.4 after the Effective Time.

 

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(d) Per Share Cash Consideration . For purposes of this Agreement, the “Per Share Cash Consideration” shall be $21.30, subject to appropriate adjustment in the event of a stock split, stock dividend, or other change in capitalization effecting PSB Stock.

1.5 Closing Payment . Prior to the Effective Time, Bancorp or the Bank shall deposit, or shall cause to be deposited, with Registrar and Transfer Company, Cranford, New Jersey, transfer agent of Bancorp Stock (the “Exchange Agent”), for the benefit of each holder of PSB Stock for exchange in accordance with this Article I the aggregate amount of cash to be delivered to holders of PSB Stock as cash consideration to be paid pursuant to this Article I for outstanding shares of PSB Stock (such cash referred to as the “Exchange Fund”). Immediately after the Effective Time, the Exchange Agent shall, pursuant to irrevocable instructions in accordance with this Article I, deliver cash contemplated to be paid with respect to PSB Stock out of the Exchange Fund to each shareholder of PSB Stock who has surrendered in accordance with the provisions of Section 1.6 below one or more certificates representing shares of PSB Stock. The Exchange Fund shall not be used for any other purpose. The Exchange Agent shall invest all cash included in the Exchange Fund, as directed by Bancorp, on a daily basis. Any interest and other income resulting from such investments shall be paid to Bancorp.

1.6 Exchange of Shares .

(a) Exchange Procedures . Prior to the Effective Time, Bancorp or the Bank shall cause the Exchange Agent to mail to the shareholders of PSB of record as of the date of such mailing, transmittal materials and other appropriate written instructions (collectively, a “Transmittal Letter”) (which shall specify that delivery shall be effected, and risk of loss and title to the certificate representing shares of PSB Stock prior to such Effective Time shall pass, only upon proper delivery of such certificates to the Exchange Agent and which shall be in such form and have such other provisions as Bancorp may reasonably specify). At the Effective Time and upon the proper surrender of certificate(s) representing shares of PSB Stock to the Exchange Agent, together with a properly completed and duly executed Transmittal Letter, the holder of such certificate(s) shall receive, in exchange therefor, the Per Share Cash Consideration subject to any required withholding of applicable taxes. Notwithstanding anything else herein contained, neither Bancorp, the Bank nor the Exchange Agent shall be obligated to deliver any of such payments in cash unless and until such holder has surrendered the certificate(s) representing such holder’s PSB Stock. The certificate(s) so surrendered shall be duly endorsed as the Exchange Agent may require and shall be held in escrow by the Exchange Agent pending the Effective Time. If there is a transfer of ownership of any shares of PSB Stock not registered in the transfer records of PSB, the appropriate cash consideration shall be paid to the transferee thereof if the certificates representing such PSB Stock are presented to the Exchange Agent, accompanied by all documents required, in the reasonable judgment of Bancorp, the Bank and the Exchange Agent, to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. Any portion of the Exchange Fund which remains undistributed to the holders of certificates representing PSB Stock for six months after the Effective Time shall be delivered to Bancorp, upon demand, and any shareholders of PSB who have not previously complied with the provisions of this Article I shall thereafter look only to Bancorp for payment of their claim for cash. Any portion of the Exchange Fund remaining unclaimed by holders of PSB Stock five years after the Effective Time (or such earlier date immediately prior to such time as such portion would otherwise escheat to or become property of any government entity)

 

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shall, to the extent permitted by applicable law, become the property of Bancorp free and clear of any claims or interest of any person previously entitled therein. Any other provision of this Agreement notwithstanding, neither Bancorp, the Bank nor the Exchange Agent shall be liable to any holder of shares of PSB Stock for any amounts paid or properly delivered in good faith to a public official pursuant to any applicable abandoned property law.

(b) Lost Certificates . Any shareholder of PSB whose certificate representing shares of PSB Stock has been lost, destroyed, stolen or otherwise is missing shall be entitled to receive any cash to which he, she or it is entitled in accordance with and upon compliance with conditions reasonably imposed by the Exchange Agent or Bancorp (including, without limitation, a requirement that the shareholder provide a lost instruments indemnity bond in form, substance and amount reasonably satisfactory to the Exchange Agent and Bancorp).

(c) Rights of Former PSB Shareholders . At the Effective Time, the stock transfer books of PSB shall be closed as to holders of PSB Stock immediately prior to the Effective Time and no transfer of PSB Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 1.6(a) of this Agreement, each certificate theretofore representing shares of PSB Stock (other than shares to be canceled pursuant to Section 1.4(b) of this Agreement and Dissenting Shares) shall from and after the Effective Time represent for all purposes only the right to receive the appropriate cash consideration. If, after the Effective Time, certificates representing PSB Stock are presented to PSB, Bancorp, the Bank or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article I.

1.7 Dissenting Shares . Notwithstanding any other provision of this Agreement to the contrary, shares of PSB Stock that are outstanding immediately prior to the Effective Time and that are held by shareholders who shall have not voted in favor of the Merger or consented thereto in writing and who properly shall have demanded appraisal for such shares in accordance with N.C. Gen. Stat. § 55-13-01 et seq. (collectively, the “Dissenting Shares”) shall not be converted into or represent the right to receive the appropriate cash consideration. Such shareholders instead shall be entitled to receive payment of the appraised value of such shares held by them in accordance with the provisions of N.C. Gen. Stat. § 55-13-01 et seq. except that all Dissenting Shares held by shareholders who shall have failed to perfect or who effectively shall have withdrawn or otherwise lost their rights to appraisal of such shares under N.C. Gen. Stat. § 55-13-01 et seq. shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the appropriate cash consideration upon surrender in the manner provided in Section 1.6 of the certificate or certificates that, immediately prior to the Effective Time, evidenced such shares. PSB shall give Bancorp (i) prompt notice of any written demand for appraisal of any shares of PSB Stock, attempted withdrawals of such demands for appraisal or any other instruments served pursuant to N.C. Gen. Stat. § 55-13-01 et seq. and received by PSB relating to shareholders’ rights of appraisal, and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands under N.C. Gen. Stat. § 55-13-01 et seq. consistent with the obligations of PSB thereunder. PSB shall not, except with the prior written consent of Bancorp, (x) make any payment with respect to such demand, (y) offer to settle or settle any demand for appraisal, or (z) waive any failure to timely deliver a written demand for appraisal or timely take any other action to perfect appraisal rights in accordance with N.C. Gen. Stat. § 55-13-01 et seq .

 

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1.8 Closing . The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Bancorp in Dunn, North Carolina, or at such other place as Bancorp shall designate, on a date mutually agreeable to PSB and Bancorp (the “Closing Date”) after the expiration of any and all required waiting periods following the effective date of all required approvals of the Merger by the Federal Deposit Insurance Corporation (“FDIC”), the North Carolina Commissioner of Banks (the “Commissioner”) and any other governmental or regulatory authorities (as soon as practicable, but in no event to be more than 90 days following the expiration of all such required waiting periods). At the Closing, Bancorp and PSB 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.

1.9 Effective Time . Subject to satisfaction or waiver of all conditions precedent set forth in this Agreement, the Merger shall become effective on the date and at the time (the “Effective Time”) on which Articles of Merger and the other provisions required by, and executed in accordance with applicable North Carolina shall have been accepted for filing by the Secretary of State of the State of North Carolina (or such later time as may be specified in the Articles of Merger); provided, however, that unless otherwise mutually agreed upon by the parties hereto, the Effective Time shall in no event be more than ten days following the Closing Date.

1.10 Further Assurances . If at any time after the Effective Time, Bancorp or the Bank shall consider or be advised that any further deeds, assignments or assurances in law or any other actions are necessary, desirable or proper to vest, perfect or confirm of record or otherwise, in the Surviving Corporation, the title to any property or rights of PSB acquired or to be acquired by reason of, or as a result of, the Merger, PSB, and its officers and directors shall execute and deliver all such proper deeds, assignments and assurances in law and do all things necessary, desirable or proper to vest, perfect or confirm title to such property or rights in Bancorp or the Bank, as applicable and otherwise to carry out the purpose of this Agreement, and that the officers and directors of Bancorp or the Bank, as applicable, are fully authorized and directed in the name of PSB or otherwise to take any and all such actions.

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PSB

Except as otherwise specifically provided herein or as “Previously Disclosed” to Bancorp, PSB hereby makes the following representations and warranties to Bancorp. (“Previously Disclosed” shall mean, as to PSB, the disclosure of information in a letter delivered by PSB to Bancorp specifically referring to this Agreement and arranged in sections corresponding to the sections, subsections and items of this Agreement applicable thereto, and which letter has been delivered prior to the execution of this Agreement. Information shall be deemed Previously Disclosed for the purpose of a given section, subsection or item of this Agreement only to the extent that a specific reference thereto is made in connection with disclosure of such information at the time of such delivery.)

 

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2.1 Corporate Organization, Capacity and Authority .

(a) Organization . PSB is a banking corporation duly organized and incorporated and validly existing under the laws of the State of North Carolina with its deposits insured up to applicable limits by the FDIC. Other than Progressive Financial Services, Ltd., PSB has no direct or indirect subsidiaries.

(b) Power and Authority. PSB has all requisite power and authority (corporate and other) to own, lease and operate its properties and to carry on its business as it is now being conducted, is duly qualified to do business and is in good standing in each other 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 to so qualify would not have a Material Adverse Effect (as defined herein) on PSB, and, to the best knowledge and belief of the management of PSB, is not transacting business or operating any properties owned or leased by it in violation of any provision of federal, state or local law or any rule or regulation promulgated thereunder, which violation would have a Material Adverse Effect on PSB. For purposes of this Article II, “Material Adverse Effect” shall mean any event or change that (i) is material and adverse to the financial position, results of operations or business of PSB, or (ii) would materially impair the ability of PSB to perform its obligations under this Agreement or otherwise materially impede the consummation of the Merger; provided, however, that “Material Adverse Effect” shall not be deemed to include the impact of (A) changes in banking and similar laws of general applicability or interpretations thereof by any applicable governmental authority, (B) changes in generally accepted accounting principles (“GAAP”) or regulatory accounting requirements applicable to banks and their holding companies generally, (C) changes in general economic conditions, including interest rates, affecting banks and their holding companies generally, (D) any modifications or changes to valuation policies and practices, or expenses incurred, in connection with the Merger or restructuring charges taken in connection with the Merger, in each case in accordance with GAAP, and (E) the effects of any action or omission taken with the prior consent of Bancorp or as otherwise contemplated by the Agreement.

(c) Constituent Documents . PSB has previously delivered to Bancorp true, accurate and complete copies of the currently effective charter and bylaws or equivalent organizational documents of PSB and Progressive Financial Services, Ltd., including all amendments and proposed amendments thereto.

2.2 Capital Stock . The authorized capital stock of PSB consists of 1,600,000 shares of common stock, $1.00 par value per share, of which 767,317 shares are issued and outstanding as of the date hereof. Other than the PSB Stock, PSB has no outstanding class of capital stock. Each outstanding share of PSB Stock has been duly authorized and validly issued, is fully paid and nonassessable except to the extent set forth in N.C. Gen. Stat. § 53-42, has been issued in compliance with applicable federal and state securities laws and has not been issued in violation of the preemptive rights of any shareholder.

2.3 Principal Shareholders . Except as “Previously Disclosed,” there are no persons or entities known to PSB that own beneficially, directly or indirectly, more than 5% of the outstanding shares of PSB Stock.

 

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2.4 Convertible Securities, Options, Etc . Except as Previously Disclosed, PSB does not have any outstanding (i) securities or other obligations (including debentures or other debt instruments) which are convertible into shares of PSB Stock or any other securities of PSB, (ii) options, warrants, rights, calls or other commitments of any nature which entitle any person to receive or acquire any shares of PSB Stock or any other securities of PSB, or (iii) plan, agreement or other arrangement pursuant to which shares of PSB Stock or any other securities of PSB or options, warrants, rights, calls or other commitments of any nature pertaining thereto, have been or may be issued.

2.5 Authorization and Validity of Agreement . This Agreement has been duly and validly approved by PSB’s board of directors. Subject only to approval of the Plan of Merger by the shareholders of PSB, (i) PSB has the corporate power and authority to execute and deliver this Agreement and to perform its obligations and agreements and carry out the transactions described herein, (ii) all corporate proceedings and approvals required to be taken to authorize PSB to enter into this Agreement and to perform its obligations and agreements and to carry out the transactions described herein have been duly and properly taken, and (iii) this Agreement constitutes the valid and binding agreement of PSB enforceable in accordance with its terms (except to the extent enforceability may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect which affect creditors’ rights generally, (B) legal and equitable limitations on the availability of injunctive relief, specific performance and other equitable remedies, and (C) general principles of equity and applicable laws or court decisions limiting the enforceability of indemnification provisions).

2.6 Validity of Transactions; Absence of Required Consents or Waivers . Provided the required approvals of PSB’s shareholders and of governmental or regulatory authorities are obtained, neither the execution and delivery of this Agreement, nor the consummation of the transactions described herein, nor compliance by PSB with any of its obligations or agreements contained herein, will: (i) 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 or the equivalent organizational documents of PSB, or any material contract, agreement, lease, mortgage, note, bond, indenture, license, or obligation or understanding (oral or written) to which PSB is bound or by which it or its business, capital stock or any of its properties or assets may be affected; (ii) result in the creation or imposition of any lien, claim, interest, charge, restriction or encumbrance upon any of the properties or assets of PSB; (iii) to the best knowledge of management of PSB, 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; (iv) result in the acceleration of any obligation or indebtedness of PSB; or (v) interfere with or otherwise adversely affect the ability of PSB to carry on its business as presently conducted, or interfere with or otherwise adversely affect the ability of Bancorp and the Bank to carry on such business after the Effective Time. No consents, approvals or waivers are required to be obtained from any person or entity in connection with PSB’s execution and delivery of this Agreement, or the performance of its obligations or agreements or the consummation of the transactions described herein, except for required approvals of PSB’s shareholders as described in Section 7.1(a) below and of governmental or regulatory authorities as described in Section 7.1(b) below and approvals previously obtained.

 

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2.7 Books and Records . The books of account of PSB have been maintained in material compliance with all applicable legal and accounting requirements and in accordance with good business practices, and such books of account are complete and reflect accurately in all material respects PSB’s items of income and expense and all of its assets, liabilities and shareholders’ equity. The minute books of PSB accurately reflect in all material respects the corporate actions which its shareholders and board of directors, and all committees thereof, have taken during the time periods covered by such minute books. All such minute books have been or will be made available to Bancorp and its representatives.

2.8 Regulatory Reports . Since its date of incorporation, PSB has filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed with (i) the FDIC, (ii) the Commissioner, and (iii) any other governmental or regulatory authorities having jurisdiction over PSB except to the extent that failure to file such reports, registrations and statements would not have a Material Adverse Effect on PSB. All such reports, registrations and statements filed by PSB with the FDIC, the Commissioner or other such regulatory authority are collectively referred to herein as the “PSB Reports.” As of their respective dates and to the best knowledge of management of PSB, the PSB Reports complied in all material respects with all the statutes, rules and regulations enforced or promulgated by the regulatory authority 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; and PSB has not been notified that any such PSB Reports were deficient as to form or content. Following the date of this Agreement, PSB shall deliver to Bancorp, simultaneous with the filing thereof, a copy of each report, registration, statement or other regulatory filing made thereafter by PSB, with the FDIC, the Commissioner or any other such regulatory authority.

2.9 Shareholder Communications and FDIC Filings; Financial Statements .

(a) Shareholder Communications and FDIC Filings . PSB has made available to Bancorp true, accurate and complete copies of all communications by PSB to its shareholders generally since December 31, 2002 (collectively, the “PSB Shareholder Reports”). The PSB Shareholder Reports did not as of their respective dates contain any untrue statement of a material fact or omit to state a material fact required to be stated in such PSB Shareholder Reports or necessary in order to make the statements in such PSB Shareholder Reports, in light of the circumstances under which they were made, not misleading.

(b) Financial Statements . PSB has made available to Bancorp the following financial statements (collectively, the “PSB Financial Statements”): (i) its balance sheets as of September 30, 2005 and 2004 and December 31, 2004 and 2003 and its statements of operations for the three and nine month periods ended September 30, 2005 and for the years ended December 31, 2004, 2003 and 2002, together with notes thereto. Following the date of this Agreement, PSB promptly will deliver to Bancorp all other annual or interim financial statements prepared by or for PSB. The PSB Financial Statements (including any related notes and schedules thereto) are in accordance with PSB’s books and records and present fairly PSB’s financial condition, assets and liabilities and results of operations as of the dates indicated and for the periods specified therein subject, in the case of unaudited interim financial statements, to normal year-end adjustments and any other adjustments described therein, which adjustments will not be material in amount or effect.

 

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2.10 Tax Returns and Other Tax Matters . To the best knowledge of management of PSB, (i) PSB has timely filed or caused to be filed, or obtained proper extensions of time for filing, all federal, state and local income tax returns and reports which are required by law to have been filed, and all such returns and reports were true, correct and complete in all material respects and contained all material information required to be contained therein; (ii) all federal, state and local income, 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 PSB, or its respective properties have been fully paid or, if not yet due, a reserve or accrual which is reasonably believed by the management of PSB to be 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 PSB Financial Statements; (iii) tax returns and reports of PSB have not been subject to audit by the Internal Revenue Service (the “IRS”) or the North Carolina Department of Revenue since December 31, 2000 and PSB has not received any indication of the pendency of any audit or examination in connection with any such tax return or report or has any knowledge that any such return or report is subject to adjustment; and (iv) PSB 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.

2.11 Absence of Material Adverse Effects or Certain Other Events .

(a) To the best knowledge of management of PSB, since December 31, 2004, PSB has conducted business only in the ordinary course, and there has been no Material Adverse Effect, 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 Material Adverse Effect, on PSB.

(b) To the best knowledge of management of PSB, since December 31, 2004, and other than in the ordinary course of its business, PSB has not incurred any material liability or engaged in any material transaction or entered into any material agreement, suffered any loss, destruction or damage to any of its respective properties or assets, or made a material acquisition or disposition of any assets or entered into any material contract or lease.

(c) PSB has Previously Disclosed to Bancorp any and all “Raises” approved or actually effected since December 31, 2004. For purposes of this Section 2.11(c), “Raises” shall be defined to include (i) any bonus; and (ii) any increase in the salaries, compensation or general benefits payable to employees of PSB.

2.12 Absence of Undisclosed Liabilities . To the best knowledge of management of PSB, PSB has no 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 (i) those reflected in the PSB Financial Statements, or (ii) obligations or liabilities incurred in the ordinary course of its business since December 31, 2004 and which are not, individually or in the aggregate, material to PSB. No facts or circumstances exist that could reasonably be expected to serve as the basis for any other liabilities of PSB.

 

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2.13 Litigation and Compliance with Law .

(a) There are no actions, suits, arbitrations, controversies or other proceedings or investigations (or, to the best knowledge and belief of management of PSB, 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 and belief of management of PSB, threatened, contemplated or probable of assertion, against, relating to or otherwise affecting PSB, or any of their respective properties, assets or employees which, if determined adversely, could result in liability on the part of PSB for, or subject PSB to, material monetary damages, fines or penalties or an injunction, or which could have a Material Adverse Effect on PSB or on PSB’s ability to consummate the Merger.

(b) Except for such licenses, permits, orders, authorizations or approvals (“Permits”) the absence of which would not have a Material Adverse Effect on PSB, PSB has all Permits of any federal, state, local or foreign governmental or regulatory body that are material to or necessary for the conduct of its respective business or to own, lease and operate its respective properties. Except as would not have a Material Adverse Effect on PSB, all such Permits are in full force and effect and no violations are or have been recorded in respect of any such Permits. No proceeding is pending or, to the best knowledge and belief of management of PSB, threatened or probable of assertion to suspend, cancel, revoke or limit any Permit.

(c) PSB 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 or other governmental authority (including, without limitation, the Commissioner or the FDIC) relating to its financial condition, directors or officers, employees, operations, capital, regulatory compliance or otherwise; there are no judgments, orders, stipulations, injunctions, decrees or awards against PSB that in any manner limit, restrict, regulate, enjoin or prohibit any present or past business or practice of PSB; and PSB has not been advised and has no reason to believe that any regulatory or other governmental authority or any court is contemplating, threatening or requesting the issuance of any such agreement, order, injunction, directive, memorandum, judgment, stipulation, decree or award.

(d) PSB is not in violation or default under, and has complied with, all laws, statutes, ordinances, rules, regulations, orders, writs, injunctions or decrees of any court or federal, state, municipal or other governmental or regulatory authority having jurisdiction or authority over it or its business operations, properties or assets (including, without limitation, all provisions of North Carolina law relating to usury, consumer protection and all other laws and regulations applicable to extensions of credit) except for any such violation, default or noncompliance as does not or would not have a Material Adverse Effect on PSB, and, to the best knowledge and belief of management of PSB, there is no basis for any claim by any person or authority for compensation, reimbursement or damages or otherwise for any violation of any of the foregoing.

 

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2.14 Real Properties . PSB has Previously Disclosed to Bancorp a listing of all real property owned or leased by PSB (the “Real Property”) and all leases pertaining to any such Real Property to which PSB is a party (the “Real Property Leases” and each a “Real Property Lease”). With respect to all Real Property, PSB has good and marketable fee simple title to, or a valid and subsisting leasehold interest in, such 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 affect the value of the Real Property and which do not and will not materially detract from, interfere with or restrict the present or future use of the properties subject thereto or affected thereby. With respect to each Real Property Lease (x) such lease is valid and enforceable in accordance with its terms, (y) there currently exists no circumstance or condition which constitutes an event of default by PSB (as lessor or lessee) or its respective lessor or lessee or which, with the passage of time or the giving of required notices will or could constitute such an event of default, and (z) subject to any required consent of PSB’s lessor, each such Real Property Lease may be assigned to the Bank or Bancorp and the execution and delivery of this Agreement does not constitute an event of default thereunder. To the best knowledge and belief of management of PSB, the Real Property complies with all applicable federal, state and local laws, regulations, ordinances or orders of any governmental authority, including those relating to zoning, building and use permits, except for such noncompliance as does not or would not have a Material Adverse Effect on PSB, and the Real Property may be used under applicable zoning ordinances for commercial banking facilities as a matter of right rather than as a conditional or nonconforming use. All improvements and fixtures included in or on the Real Property are in good condition and repair, ordinary wear and tear excepted, and there does not exist any condition which materially adversely affects the economic value thereof or materially adversely interferes (or will interfere after the Merger) with the contemplated use thereof.

2.15 Loans, Accounts, Notes and Other Receivables .

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

(b) All of the records of PSB regarding all outstanding loans, accounts, notes and other receivables, and all other real estate owned, are accurate in all material respects, and, with respect to such loans the loan documentation of which indicate are secured by any real or personal property or property rights (“Loan Collateral”), such loans are in all material respects secured by valid, perfected and enforceable liens on all such Loan Collateral having the priority described in the records of such loan. PSB has not engaged in any form of indirect lending and no such indirect loans are outstanding.

(c) To the best knowledge and belief of management of PSB, each loan reflected as an asset on the books of PSB and each guaranty therefor, is the legal, valid and binding obligation of the obligor or guarantor thereon, and no defense, offset or counterclaim has been asserted with respect to any such loan or guaranty.

 

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(d) PSB has previously delivered to Bancorp (i) a written listing of each loan, extension of credit or other asset of PSB which, as of December 31, 2005, is classified by the FDIC or the Commissioner as “Loss,” “Doubtful,” “Substandard” or “Special Mention” (or otherwise by words of similar import), or which it has designated as a special asset or for special handling or 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, and (ii) a written listing of each loan or extension of credit that, as of December 31, 2005, was past due as to the payment of principal or interest or both, or as to which any obligor thereon (including the borrower or any guarantor) otherwise was in default, is the subject of a proceeding in bankruptcy or otherwise has indicated any inability or intention not to repay such loan or extension of credit. Each such listing is accurate and complete in all material respects as of the date indicated.

(e) As of December 31, 2004 and 2005, PSB’s, reserve for possible loan losses (the “Loan Loss Reserve”) has been established in conformity with GAAP, sound banking practices and all applicable requirements, rules and policies of the FDIC and the Commissioner and, in the best judgment of management of PSB, is reasonable in view of the size and character of its 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 its loan portfolio.

(f) To the best knowledge and belief of management of PSB, each of the loans carried on PSB’s books and records (with the exception of those loans Previously Disclosed to Bancorp pursuant to subparagraph (d) of this Section 2.15) is collectible in the ordinary course of PSB’s business in an amount which is not less than the amount at which it is carried on PSB’s books and records.

2.16 Securities Portfolio and Investments . Except as Previously Disclosed, all securities owned by PSB (whether owned of record or beneficially) are held free and clear of all mortgages, liens, pledges, encumbrances or any other restriction or rights of any other person or entity, whether contractual or statutory, which would materially impair the ability of PSB to dispose freely of any such security or otherwise to realize the benefits of ownership thereof at any time. There are no voting trusts or other agreements or undertakings to which PSB is a party with respect to the voting of any such securities. With respect to all “repurchase agreements” to which PSB has “purchased” securities under agreement to resell, PSB 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 that is secured by such collateral. Except for fluctuations in the market values of its investment securities, since December 31, 2004, there has been no significant deterioration or material adverse change in the quality, or any material decrease in the value, of PSB’s securities portfolio as a whole.

2.17 Personal Property and Other Assets . All tangible personal property of PSB material to the business operations of PSB (including, without limitation, all banking equipment, data processing equipment, vehicles, and all other tangible personal property located in any office of or used by PSB in the operation of its business) is owned or leased by PSB free and

 

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clear of all liens, encumbrances, leases, title defects or exceptions to title other than such as are not material in character, amount or extent, and which do not materially detract from the value of, or interfere with the present or future use or ability to convey, the property subject thereto or affected thereby. All of PSB’s tangible personal property material to its business is in good operating condition and repair, ordinary wear and tear excepted.

2.18 Patents and Trademarks . PSB 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. PSB has not violated, and currently is not in conflict with, any patent, license, trademark, trade name, copyright or proprietary right of any other person or entity. PSB owns, possesses or has the right to use any and all licenses necessary to lawfully use any and all software, applications and code currently installed or otherwise in use on any computer hardware of PSB or otherwise used by PSB in the conduct of its business.

2.19 Environmental Matters .

(a) PSB has Previously Disclosed to Bancorp copies of all written reports, correspondence, notices or other materials, if any, in its possession pertaining to: (i) environmental surveys or assessments of the Real Property or any of its Loan Collateral and any improvements thereon; or (ii) to any violation of “Environmental Laws” (as defined in Section 2.19(f) below) on, affecting or otherwise involving the Real Property or any Loan Collateral.

(b) Except as Previously Disclosed, there has been no 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” (as defined in Section 2.19(g) below) by any person prior to the date hereof on, from or relating to the Real Property or, to the best knowledge and belief of management of PSB, the Loan Collateral, which constitutes a violation of any Environmental Laws.

(c) PSB has not violated any federal, state or local law, rule, regulation, order, permit or other requirement relating to health, safety or the environment or imposing liability, responsibility or standards of conduct applicable to environmental conditions, and there has been no violation of any Environmental Laws (as defined below) (including, to the best knowledge and belief of management of PSB, any violation with respect to or relating to any Loan Collateral) by any other person or entity for whose liability or obligation with respect to any particular matter or violation PSB is or may be responsible or liable, except to the extent any violations of which, when taken as a whole, would not have a Material Adverse Effect on PSB.

(d) PSB 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, to the best knowledge and belief of management of PSB, any Loan Collateral by any person or entity.

 

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(e) No facts, events or conditions relating to the Real Property or, to the best knowledge and belief of management of PSB, any Loan Collateral, or the operations of PSB, 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.

(f) For purposes of this Agreement, “Environmental Laws” shall include:

(i) all federal, state and local statutes, regulations, ordinances, orders, decrees, and similar provisions having the force or effect of law,

(ii) all contractual agreements, and

(iii) all common law

concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all standards of conduct and bases of obligations relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, reporting, testing, processing, discharge, release, threatened release, control, emergency removal, clean-up or remediation of any Hazardous Substances (including without limitation the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendment and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide 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, any “Superfund” or “Superlien” law, the Americans with Disabilities Act, and the Occupational Safety and Health Act), as such may now, or at any time prior to the effective time, be defined or in effect.

(g) For purposes of this Agreement, “Hazardous Substances” shall include hazardous, toxic or otherwise regulated materials, substances or wastes; chemical substances or mixtures; pesticides; pollutants; contaminants; toxic chemicals; oil or other petroleum products, byproducts, additives, or constituents (including but not limited to crude oil, diesel oil, fuel oil, gasoline, lubrication oil, oil refuse, oil mixed with other waste, oil sludge, MTBE and all other liquid hydrocarbons regardless of specific gravity); asbestos or asbestos containing material; flammable explosives; polychlorinated biphenyls (“PCBs”) or any material containing PCBs; radioactive materials; biological micro-organisms, viruses, fungi, spores; environmental tobacco smoke; radon or radon gas; formaldehyde or any material containing formaldehyde; fumigants; any material or substance comprising or contributing to conditions known as “sick building syndrome,” “building-related illness” or similar conditions or exposures; and/or any hazardous, toxic, regulated or dangerous waste, substance or material defined as such by the United States Environmental Protection Agency or any other federal, state or local governmental agency or political subdivision thereof, or for the purpose of or by any Environmental Laws, as now or at any time prior to the Effective Time may be defined or in effect.

 

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2.20 Brokerage or Finders’ Commissions . All negotiations relative to this Agreement and the transactions described herein have been carried on by PSB or its legal counsel directly with Bancorp or its representatives, 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, PSB 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.

2.21 Material Contracts .

(a) Except as Previously Disclosed, PSB is not a party to or bound by any agreement, other than loans made in the ordinary course of business, (i) involving money or other property in an amount or with a value in excess of $25,000, (ii) which calls for the provision of goods or services to PSB and cannot be terminated without material penalty upon written notice to the other party thereto, (iii) which is material to PSB and was not entered into in the ordinary course of business, (iv) which involves hedging, options or any similar trading activity, or interest rate exchanges or swaps, (v) which commits PSB to extend any loan or credit (with the exception of letters of credit, lines of credit and loan commitments extended in the ordinary course of business), (vi) which involves the purchase or sale of any assets of PSB, or the purchase, sale, issuance, redemption or transfer of any capital stock or other securities of PSB, or (vii) with any director, officer or principal shareholder of PSB (including, without limitation, any consulting agreement, but not including any agreement relating to loans or other banking services which were made in the ordinary course of its business and on substantially the same terms and conditions as were prevailing at that time for similar agreements with unrelated persons).

(b) PSB is not in default, and there has not occurred any event which with the lapse of time or giving of notice or both would constitute such a default, 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.

2.22 Employment Matters; Employee Relations .

(a) PSB (i) has 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 rendered, including 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 and other amounts promised to the extent required by law or its existing policies or practices, and (ii) to the best knowledge of management of PSB, is in compliance in all material respects with all applicable federal, state and local laws, statutes, rules and regulations with regard to employment and employment practices, terms and conditions, and wages and hours and other compensation matters; and no person has, to the best knowledge and belief of management of PSB, asserted that PSB is liable in any amount for any arrearages in wages or employment taxes or for any penalties for failure to comply with any of the foregoing.

 

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(b) There is no action, suit or proceeding by any person pending or, to the best knowledge and belief of management of PSB, threatened against PSB (or its employees), involving employment discrimination, harassment, wrongful discharge or similar claims. PSB is not a party to or bound by any collective bargaining agreement with any of its employees, any labor union or any other collective bargaining unit or organization. There is no pending or, to PSB’s best knowledge, threatened labor dispute, work stoppage or strike involving PSB, or any of its employees, or any pending or, to PSB’s best knowledge, threatened proceeding in which it is asserted that PSB has committed an unfair labor practice; and, PSB is not aware of any activity involving it or any of its employees seeking to certify a collective bargaining unit or engaging in any other labor organization activity.

2.23 Employment Agreements; Employee Benefit Plans .

(a) PSB has Previously Disclosed to Bancorp 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 and agreements; all employment and severance contracts; all medical, dental, health, and life insurance plans; all vacation, sickness and other leave plans, disability and death benefit plans; and all other employee benefit plans, contracts, or arrangements maintained or contributed to by PSB for the benefit of any employees, former employees, directors, former directors or any of their beneficiaries (collectively, the “Plans”). True and complete copies of all Plans, including, but not limited to, any trust instruments or insurance contracts, if any, forming a part thereof, and all amendments thereto, previously have been supplied to Bancorp. PSB does not maintain, sponsor, contribute to or otherwise participate in any “Employee Benefit Plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), any “Multiemployer Plan” within the meaning of Section 3(37) of ERISA, or any “Multiple Employer Welfare Arrangement” within the meaning of Section 3(40) of ERISA. Each Plan that 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 Code, has received or applied for a favorable determination letter from the IRS and PSB is not aware of any circumstances reasonably likely to result in the revocation or denial of any such favorable determination letter. To the best knowledge of management of PSB, all reports and returns with respect to the Plans (and any Plans previously maintained by PSB) 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.

(b) All “Employee Benefit Plans” maintained by or otherwise covering employees or former employees of PSB currently are, and at all times have been, in compliance with all provisions and requirements of ERISA except those the noncompliance of which, when taken as a whole, would not have a Material Adverse Effect on PSB. There is no pending or, to PSB’s best knowledge, threatened litigation relating to any Plan or any such Plan previously maintained by PSB. PSB has not engaged in a transaction with respect to any Plan that has subjected it, or absent the exemption under which the transaction was effected, would subject it to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.

(c) PSB has Previously Disclosed to Bancorp a true, correct and complete copy (including copies of all amendments thereto) of each of its retirement plans that is intended to be

 

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qualified under Section 401(a) of the Code (collectively, the “Retirement Plans”), together with true, correct and complete copies of the summary plan descriptions relating to the Retirement Plans, the most recent determination letters received from the IRS regarding the Retirement Plans, and the most recent Annual Reports (Form 5500 series) and related schedules, if any, for the Retirement Plans. The 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 the Retirement Plans to said effect, including determination letters covering the current terms and provisions of the Retirement Plans. 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) the requirements of ERISA, the Code and all other laws, rules and regulations applicable to the Retirement Plans and do not violate (and since the establishment of the Retirement Plans have not violated) any of the provisions of ERISA, the Code and such other laws, rules and regulations, except to the extent such violation, when taken as a whole, would not have a Material Adverse Effect on PSB. 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 disputes or unresolved disagreements with respect to the Retirement Plans or the administration thereof currently existing between PSB, or any trustee or other fiduciary thereunder, and any governmental agency, any current or former employee of PSB, or beneficiary of any such employee or any other person or entity. No “reportable event” within the meaning of Section 4043(b) of ERISA has occurred at any time with respect to the Retirement Plans, other than those that, when taken as a whole, would not have a Material Adverse Effect on PSB.

(d) No material liability under subtitle C or D of Title IV of ERISA has been or is expected to be incurred by PSB 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 PSB. PSB presently does not contribute to a “Multiemployer Plan” or has ever contributed to such a plan. All contributions required to be made pursuant to the terms of each of the Plans (including without limitation the Retirement Plans and any other “pension plan” (as defined in Section 3(2) of ERISA, provided such plan is intended to qualify under the provisions of Section 401(a) of the Code) maintained by PSB have been timely made. Neither the Retirement Plans nor any other “pension plan” maintained by PSB have an “accumulated funding deficiency” (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. PSB has not provided, and is not 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 PSB 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) There are no restrictions on the rights of PSB to amend or terminate any Plan. Except as Previously Disclosed, neither the execution and delivery of this Agreement nor the

 

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consummation of the transactions contemplated hereby will (except as otherwise specifically provided for or contemplated by the transactions described 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.

2.24 Insurance . PSB has in effect a “financial institutions bond” and such other policies of general liability, casualty, directors and officers liability, employee fidelity, errors and omissions and other property and liability insurance as have been Previously Disclosed to Bancorp (the “Policies”). The Policies provide coverage in such amounts and against such liabilities, casualties, losses or risks as is required by applicable law or regulation; and, in the judgment of management of PSB, the insurance coverage provided under the Policies is reasonable and adequate in all respects for PSB. Each of the Policies is in full force and effect and is valid and enforceable in accordance with its terms, and is underwritten by an insurer of recognized financial responsibility that is qualified to transact business in North Carolina; and PSB has taken all requisite actions (including the giving of required notices) under each such Policy to preserve all rights thereunder with respect to all matters. PSB is not in default under the provisions of, has received notice of cancellation or nonrenewal of, or any premium increase on, or has any knowledge of any failure to pay any premium on or any inaccuracy in any application for any Policy. There are no pending claims under any Policy, and PSB has no knowledge of any facts or of the occurrence of any event that is reasonably likely to result in any such claim.

2.25 Insurance of Deposits . PSB is an “insured institution” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder. The deposits of each depositor in PSB are insured by the FDIC to the maximum amount provided by law, all deposit insurance premiums due from PSB to the FDIC have been paid in full in a timely fashion, and, to the best knowledge and belief of PSB, no proceedings have been commenced or are contemplated by the FDIC or otherwise to terminate such insurance.

2.26 Compensation; Stock Ownership . PSB has Previously Disclosed (i) the name and current salary or wage rate for each present employee of PSB, and (ii) the name of and number of shares of PSB Stock beneficially owned by each of the directors and officers of PSB and by any person or entity known to PSB to own beneficially 5% or more of the issued and outstanding shares of PSB Stock.

2.27 Disclosure . To the best knowledge and belief of management of PSB, no written statement, certificate, schedule, list or other written information furnished by or on behalf of PSB at any time to Bancorp in connection with this Agreement (including without limitation the statements contained herein), when considered as a whole, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. Each document delivered or to be delivered by PSB to Bancorp is or will be a true and complete copy of such document, unmodified except by another document delivered by PSB.

 

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ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BANCORP AND BANK

Except as otherwise specifically described herein or as “Previously Disclosed” to PSB, Bancorp hereby makes the following representations and warranties to PSB. (“Previously Disclosed” shall mean, as to Bancorp, the disclosure of information in a letter delivered by Bancorp to PSB specifically referring to this Agreement and arranged in sections corresponding to the sections, subsections and items of this Agreement applicable thereto, and which letter has been delivered prior to the execution of this Agreement. Information shall be deemed Previously Disclosed for the purpose of a given section, subsection or item of this Agreement only to the extent a specific reference thereto is made in connection with disclosure of such information at the time of such delivery.)

3.1 Corporate Organization, Capacity and Authority .

(a) Organization . Bancorp is a corporation duly organized and validly existing under the laws of the State of North Carolina and is registered with the Commissioner as a commercial bank holding company and with the Federal Reserve Board as a bank holding company under the Bank Holding Company Act of 1956, as amended.

(b) Subsidiaries . Bancorp has two wholly owned bank subsidiaries, the Bank and New Century Bank. Bancorp also owns 100% of the issued and outstanding common securities of New Century Statutory Trust I, a special purpose entity organized as a statutory trust under the laws of the State of Delaware and formed to allow Bancorp to issue trust preferred securities. Other than the Bank, New Century Bank and New Century Statutory Trust I, Bancorp has no subsidiaries, direct or indirect, and does not own, directly or indirectly, any stock or other equity interest in any other corporation, service corporation, joint venture, partnership or other entity, except for equity issues reflected in Bancorp’s investment portfolio and securities held in a fiduciary capacity.

(c) Organization of Subsidiary . The Bank is duly organized and validly existing under the laws of the State of North Carolina. All of the outstanding capital stock of the Bank is owned of record and beneficially, free and clear of all security interests and claims, by Bancorp. All of the outstanding shares of capital stock of the Bank are duly authorized, validly issued, fully paid and nonassessable, except to the extent set forth in N.C. Gen. Stat. § 53-42.

(d) Power and Authority . Each of Bancorp and the Bank has all requisite power and authority (corporate and other) to own, lease and operate its properties and conduct its business as now being conducted, is duly qualified to do business and is in good standing in each other jurisdiction in which the character of the properties owned or leased 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 Material Adverse Effect (as defined herein) on Bancorp and the Bank, and is not transacting business, or operating any properties owned or leased by it, in violation of any provision of federal or state law or any rule or regulation promulgated thereunder, which violation would have a Material Adverse Effect on Bancorp and the Bank. For purposes of this Article III, “Material Adverse Effect” shall mean: (a) with respect to references to Bancorp, any change in the business of Bancorp that is or could be materially adverse to the financial condition, results of operations, prospects, business, assets, investments,

 

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properties or operations of Bancorp, or (b) with respect to references to the Bank, any change in the business of the Bank that is or could be materially adverse to the financial condition, results of operations, prospects, business, assets, loan portfolio, investments, properties or operations of Bancorp and the Bank considered as one enterprise. “Material Adverse Effect” shall not be deemed to include the impact of (A) changes in banking and similar laws of general applicability or interpretations thereof by any applicable governmental authority, (B) changes in generally accepted accounting principles (“GAAP”) or regulatory accounting requirements applicable to banks and their holding companies generally, (C) changes in general economic conditions, including interest rates, affecting banks and their holding companies generally, (D) any modifications or changes to valuation policies and practices, or expenses incurred, in connection with the Merger or restructuring charges taken in connection with the Merger, in each case in accordance with GAAP, and (E) the effects of any action or omission taken with the prior consent of Bancorp or as otherwise contemplated by the Agreement.

(e) Constituent Documents . Bancorp has previously delivered to PSB true, accurate and complete copies of the currently effective charter and bylaws or equivalent organizational documents of each of Bancorp and the Bank, including all amendments and proposed amendments thereto.

3.2 Authorization and Validity of Agreement . This Agreement has been duly and validly approved by the respective boards of directors of Bancorp and the Bank. (i) Bancorp and the Bank 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, (ii) all corporate proceedings and approvals required to be taken to authorize Bancorp and the Bank to enter into this Agreement and to perform its respective obligations and agreements and to carry out the transactions described herein have been duly and properly taken, and (iii) this Agreement constitutes the valid and binding agreement of Bancorp and the Bank enforceable in accordance with its terms (except to the extent enforceability may be limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect which affect creditors’ rights generally, (B) legal and equitable limitations on the availability of injunctive relief, specific performance and other equitable remedies, and (C) general principles of equity and applicable laws or court decisions limiting the enforceability of indemnification provisions).

3.3 Validity of Transactions; Absence of Required Consents or Waivers . Provided the required approvals of governmental or regulatory authorities are obtained, neither the execution and delivery of this Agreement, nor the consummation of the transactions described herein, nor compliance by Bancorp or the Bank with any of its obligations or agreements contained herein, will: (i) 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 or the equivalent organizational documents of Bancorp or the Bank, or any material contract, agreement, lease, mortgage, note, bond, indenture, license, or obligation or understanding (oral or written) to which Bancorp or the Bank, is bound or by which it, its business, capital stock or any of its properties or assets may be affected; (ii) result in the creation or imposition of any lien, claim, intere