Certain Paragon Unaudited Prospective Financial
Information
Paragon
does not as a matter of course make public projections as to future
performance, revenues, earnings or other financial results due to,
among other reasons, the uncertainty of the underlying assumptions
and estimates. However, Paragon is including in this proxy
statement/prospectus certain unaudited prospective financial
information that was made available to Raymond James,
Paragon’s financial advisor, and Sandler O’Neill,
TowneBank’s financial advisor, in connection with the merger.
The inclusion of this information should not be regarded as an
indication that any of Paragon, TowneBank, Raymond James, Sandler
O’Neill, their respective representatives or any other
recipient of this information considered, or now considers, it to
be necessarily predictive of actual future results, or that it
should be construed as financial guidance, and it should not be
relied on as such.
Paragon’s
management approved the use of the following unaudited prospective
financial information. This information was prepared solely for
internal use and is subjective in many respects. While presented
with numeric specificity, the unaudited prospective financial
information reflects numerous estimates and assumptions made with
respect to business, economic, market, competition, regulatory and
financial conditions and matters specific to Paragon’s
business, all of which are difficult to predict and many of which
are beyond Paragon’s control. The unaudited prospective
financial information reflects both assumptions as to certain
business decisions that are subject to change and, in many
respects, subjective judgment, and thus is susceptible to multiple
interpretations and periodic revisions based on actual experience
and business developments. Paragon can give no assurance that the
unaudited prospective financial information and the underlying
estimates and assumptions will be realized. In addition, since the
unaudited prospective financial information covers multiple years,
such information by its nature becomes less predictive with each
successive year. Actual results may differ materially from those
set forth below, and important factors that may affect actual
results and cause the unaudited prospective financial information
to be inaccurate include, but are not limited to, risks and
uncertainties relating to Paragon’s business, industry
performance, general business and economic conditions, competition
and adverse changes in applicable laws, regulations or rules, and
the various risks set forth in Paragon’s reports filed with
the SEC.
The unaudited prospective financial information
was not prepared with a view toward public disclosure, nor was it
prepared with a view toward compliance with GAAP, published
guidelines of the SEC or the guidelines established by the American
Institute of Certified Public Accountants for preparation and
presentation of prospective financial information. In addition, the
unaudited prospective financial information requires significant
estimates and assumptions that make it inherently less comparable
to the similarly titled GAAP measures in Paragon’s historical
GAAP financial statements. Neither Paragon’s independent
public accountants, nor any other independent accountants, have
compiled, examined or performed any procedures with respect to the
unaudited prospective financial information contained herein, nor
have they expressed any opinion or any other form of assurance on
such information or its achievability. Furthermore, the unaudited
prospective financial information does not take into account any
circumstances or events occurring after the date it was prepared.
Paragon can give no assurance that, had the unaudited prospective
financial information been prepared either as of the date of the
merger agreement or as of the date of this proxy
statement/prospectus, similar estimates and assumptions would be
used. Paragon does not intend to, and disclaims any obligation to,
make publicly available any update or other revision to the
unaudited prospective financial information to reflect
circumstances existing since their preparation or to reflect the
occurrence of unanticipated events, even in the event that any or
all of the underlying assumptions are shown to be in error, or to
reflect changes in general economic or industry conditions. The
unaudited prospective financial information does not take into
account the possible financial and other effects on either Paragon
or TowneBank, as applicable, of the merger and does not attempt to
predict or suggest future results of the surviving company. The
unaudited prospective financial information does not give effect to
the merger, including the impact of negotiating or executing the
merger agreement, the expenses that may be incurred in connection
with completing the merger, the potential synergies that may be
achieved by the surviving company as a result of the merger, the
effect on either Paragon or TowneBank, as applicable, of any
business or strategic decision or action that has been or will be
taken as a result of the merger agreement having been executed, or
the effect of any business or strategic decisions or actions that
would likely have been taken if the merger agreement had not been
executed, but which were instead altered, accelerated, postponed or
not taken in anticipation of the merger. Further, the unaudited
prospective financial information does not take into account the
effect on either Paragon or TowneBank, as applicable, of any
possible failure of the merger to occur. None of Paragon,
TowneBank, Raymond James, Sandler O’Neill
or
their respective affiliates, officers, directors, advisors or other
representatives has made, makes or is authorized in the future to
make any representation to any Paragon or TowneBank stockholder or
other person regarding Paragon’s ultimate performance
compared to the information contained in the unaudited prospective
financial information or that the projected results will be
achieved. The inclusion of the unaudited prospective financial
information in this proxy statement/prospectus should not be deemed
an admission or representation by Paragon or TowneBank that it is
viewed as material information of Paragon, particularly in light of
the inherent risks and uncertainties associated with such
forecasts. The summary of the unaudited prospective financial
information included below is not being included to influence your
decision whether to vote for the merger proposal, but is being
provided solely because it was made available to the respective
financial advisors to Paragon and TowneBank in connection with the
merger.
In
light of the foregoing, and considering that the special meeting
will be held many months after the unaudited prospective financial
information was prepared, as well as the uncertainties inherent in
any forecasted information, stockholders of Paragon are cautioned
not to place unwarranted reliance on such information, and Paragon
urges all Paragon stockholders to review Paragon’s financial
statements and other information contained elsewhere in this proxy
statement/prospectus for a description of Paragon’s business
and reported financial results.
The
following table presents a summary of selected Paragon unaudited
prospective financial data for the years 2017 through 2019 (dollars
in thousands, except per share amounts):
|
|
|
|
|
|
|
|
Balance Sheet
|
|
|
|
Total
assets
|
$
1,728,820
|
$
1,969,215
|
$
2,209,447
|
Total
loans
|
1,399,074
|
1,608,935
|
1,818,097
|
Total
deposits
|
1,325,364
|
1,521,453
|
1,735,835
|
Total
stockholders’
equity
|
151,027
|
168,724
|
189,400
|
|
|
|
|
Income Statement
|
|
|
|
Net interest
income
|
$
52,684
|
$
59,916
|
$
67,782
|
Provision for loan
losses
|
1,626
|
1,894
|
2,589
|
Noninterest
income
|
1,606
|
1,554
|
1,748
|
Noninterest
expense
|
30,263
|
32,948
|
35,694
|
Tax
expense
|
7,475
|
8,933
|
10,571
|
Net
income
|
14,926
|
17,697
|
20,676
|
Earnings per
share
|
$
2.75
|
$
3.24
|
$
3.77
|
Opinion of Paragon’s Financial Advisor
Paragon
retained Raymond James as financial advisor on May 21, 2013.
Pursuant to that engagement, the Paragon board of directors
requested that Raymond James deliver its opinion as to the
fairness, from a financial point of view, to the holders of
Paragon’s outstanding common stock of the exchange ratio to
be received by such holders pursuant to the merger
agreement.
At the
April 26, 2017 meeting of the Paragon board of directors,
representatives of Raymond James rendered its written opinion to
the board, dated April 26, 2017, as to the fairness, as of such
date, from a financial point of view, to the holders of
Paragon’s outstanding common stock of the exchange ratio to
be received by such holders in the merger pursuant to the merger
agreement, based upon and subject to the qualifications,
assumptions and other matters considered in connection with the
preparation of its opinion.
The
full text of the written opinion of Raymond James is attached as
Appendix B
to this
proxy statement/prospectus. The summary of the opinion of Raymond
James set forth in this section is qualified in its entirety by
reference to the full text of such written opinion. Holders of
Paragon common stock are urged to read the opinion in its
entirety.
Raymond
James provided its opinion for the information of the Paragon board
of directors (solely in each director’s capacity as such) in
connection with, and for purposes of, its consideration of the
merger and its opinion only addresses whether the exchange ratio to
be received by holders of Paragon common stock in the merger
pursuant to the merger agreement was fair, from a financial point
of view, to such holders. The opinion of Raymond James did not
address any other term or aspect of the merger agreement or the
merger contemplated thereby. The Raymond James opinion did not
constitute a recommendation to the Paragon board or to any holder
of Paragon common stock as to how the Board, such stockholder or
any other person should vote or otherwise act with respect to the
merger or any other matter. Raymond James does not express any
opinion as to the likely trading range of Paragon or TowneBank
common stock following the date of the opinion, which may vary
depending on numerous factors that generally impact the price of
securities or on the financial condition of Paragon and TowneBank
at that time. Raymond James also does not express any opinion as to
the trading price of Paragon or TowneBank common stock relative to
their historical or future financial condition or results of
operations.
In
connection with its review of the proposed merger and the
preparation of its opinion, Raymond James, among other
things:
●
reviewed the
financial terms and conditions as stated in the draft of the merger
agreement;
●
reviewed certain
information related to the historical, current and future
operations, financial condition and prospects of Paragon and
Paragon Bank made available to Raymond James by Paragon, including,
but not limited to, financial projections prepared by the
management of Paragon and Paragon Bank relating to Paragon for the
period ending December 31, 2022, as approved for Raymond
James’ use by Paragon, which is referred to in this section
as the “Projections;”
●
reviewed
Paragon’s, Paragon Bank’s and TowneBank’s recent
public filings and certain other publicly available information
regarding Paragon, Paragon Bank and TowneBank;
●
reviewed financial,
operating and other information regarding Paragon, Paragon Bank and
TowneBank and the industry in which they operate;
●
reviewed the
financial and operating performance of Paragon, Paragon Bank and
those of other selected public companies that Raymond James deemed
to be relevant;
●
considered the
publicly available financial terms of certain transactions that
Raymond James deemed to be relevant;
●
reviewed the
current and historical market prices and trading volume for
Paragon’s common stock, and the current market prices of the
publicly traded securities of certain other companies that Raymond
James deemed to be relevant;
●
conducted such
other financial studies, analyses and inquiries and considered such
other information and factors, as Raymond James deemed appropriate;
and
●
discussed with
members of the senior management of Paragon and Paragon Bank
certain information relating to the aforementioned and any other
matters which Raymond James deemed relevant to its
inquiry.
With
Paragon’s consent, Raymond James assumed and relied upon the
accuracy and completeness of all information supplied by or on
behalf of
Paragon or
Paragon Bank, or otherwise reviewed by or discussed with Raymond
James, and Raymond James did not undertake any duty or
responsibility to, nor did Raymond James, independently verify any
of such information. Raymond James did not make or obtain an
independent appraisal of the assets or liabilities (contingent or
otherwise) of Paragon or Paragon Bank. Raymond James is not an
expert in the evaluation of loan and lease portfolios for purposes
of assessing the adequacy of the allowances for loan losses;
accordingly, it assumed that such allowances for losses are in the
aggregate adequate to cover such losses. With respect to the
Projections and any other information and data provided to or
otherwise reviewed by or discussed with Raymond James, Raymond
James, with Paragon’s consent, assumed that the Projections
and such other information and data were reasonably prepared in
good faith on bases reflecting the best currently available
estimates and judgments of management of Paragon and Paragon Bank
and Raymond James relied upon Paragon and Paragon Bank to advise
Raymond James promptly if any information previously provided
became inaccurate or was required to be updated during the period
of its review. Raymond James expressed no opinion with respect to
the Projections or the assumptions on which they were based.
Raymond James relied upon, without independent verification,
Paragon’s assessment of its management and its legal, tax,
accounting and regulatory advisors with respect to all legal, tax,
accounting and regulatory matters, including without limitation
that the merger will qualify as a reorganization under the
provisions of Section 368(a) of the Code. Raymond James assumed
that the final form of the merger agreement would be substantially
similar to the draft merger agreement reviewed by Raymond James and
that the merger would be consummated in accordance with the terms
of the merger agreement without waiver of or amendment to any of
the conditions thereto and without adjustment to the exchange
ratio. Furthermore, Raymond James assumed, in all respects material
to its analysis, that the representations and warranties of each
party contained in the merger agreement were true and correct and
that each party will perform all of the covenants and agreements
required to be performed by it under the merger agreement without
being waived. Raymond James also relied upon and assumed, without
independent verification, that (i) the merger would be consummated
in a manner that complies in all respects with all applicable
international, federal and state statutes, rules and regulations,
and (ii) all governmental, regulatory or other consents and
approvals necessary for the consummation of the merger would be
obtained and that no delay, limitations, restrictions or conditions
would be imposed or amendments, modifications or waivers made that
would have an effect on the merger, Paragon or Paragon Bank that
would be material to its analysis or opinion.
Raymond
James expressed no opinion as to the underlying business decision
to effect the merger, the structure or tax consequences of the
merger, or the availability or advisability of any alternatives to
the merger. The Raymond James opinion is limited to the fairness,
from a financial point of view, of the exchange ratio to be
received by the holders of Paragon common stock. Raymond James
expressed no opinion with respect to any other reasons (legal,
business, or otherwise) that may support the decision of
Paragon’s board of directors to approve or consummate the
merger. Furthermore, no opinion, counsel or interpretation was
intended by Raymond James on matters that require legal, accounting
or tax advice. Raymond James assumed that such opinions, counsel or
interpretations had been or would be obtained from appropriate
professional sources. Furthermore, Raymond James relied, with the
consent of Paragon, on the fact that Paragon was assisted by legal,
accounting and tax advisors, and, with the consent of Paragon
relied upon and assumed the accuracy and completeness of the
assessments by Paragon, Paragon Bank and their advisors, as to all
legal, accounting and tax matters with respect to Paragon and the
merger.
In
formulating its opinion, Raymond James considered only the exchange
ratio to be received by the holders of common stock of Paragon, and
Raymond James did not consider, and its opinion did not address,
the fairness of the amount or nature of any compensation to be paid
or payable to any of Paragon’s or Paragon Bank’s
officers, directors or employees, or such class of persons, in
connection with the merger whether relative to the exchange ratio
or otherwise. Raymond James was not requested to opine as to, and
its opinion did not express an opinion as to or otherwise address,
among other things: (1) the fairness of the merger to the holders
of any class of securities, creditors or other constituencies of
Paragon or Paragon Bank, or to any other party, except and only to
the extent expressly set forth in the last sentence of its opinion
or (2) the fairness of the merger to any one class or group of
Paragon’s or any other party’s security holders or
other constituents vis-à-vis any other class or group of
Paragon’s or such other party’s security holders or
other constituents (including, without limitation, the allocation
of any consideration to be received in the merger amongst or within
such classes or groups of security holders or other constituents).
Raymond James expressed no opinion as to the impact of the merger
on the solvency or viability of Paragon, Paragon Bank or TowneBank
or the ability of Paragon, Paragon Bank or TowneBank to pay their
respective obligations when they come due.
Material Financial
Analyses.
The following summarizes the material financial
analyses reviewed by Raymond James with the Paragon board of
directors at its meeting on April 26, 2017, which material was
considered by Raymond James in rendering its opinion. No company or
transaction used in the analyses described below is identical or
directly comparable to Paragon, TowneBank or the contemplated
merger.
Selected Companies Analysis.
Raymond
James analyzed the relative valuation multiples of 12
publicly-traded bank holding companies, banks, and thrifts
headquartered in the Southeast (Alabama, Arkansas, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia and West Virginia) with the following characteristics: (i)
listed on either the NASDAQ, NYSE, or NYSE MKT exchanges; (ii)
total assets between $1.0 billion and $2.0 billion; and (iii)
nonperforming assets to total assets ratio (NPAs / Assets) less
than 2.00%. The aforementioned financial characteristics were shown
for the bank subsidiary if consolidated data was unavailable, and
the financial characteristics were based on the most recent last
twelve month (“LTM”) period reported as of April 25,
2017. Raymond James excluded mutual holding companies, targets of
announced mergers, and the four following companies: (i) Access
National Corporation, which was the subject of a recently completed
merger of equals transaction; (ii) Southern National Bancorp of
Virginia, Inc., which was the subject of an announced merger of
equals transaction; (iii) Live Oak Bancshares, Inc., which was not
comparable due to its unique business model; and (iv) C&F
Financial Corporation, which was not comparable due to its unique
business model. The selected companies that Raymond James deemed
relevant included the following:
●
American National
Bankshares Inc.
●
Southern First
Bancshares, Inc.
●
Charter Financial
Corporation
●
Entegra Financial
Corp.
●
CapStar Financial
Holdings, Inc.
●
Community Bankers
Trust Corporation
●
National
Bankshares, Inc.
●
Peoples Bancorp of
North Carolina, Inc.
●
Citizens Holding
Company
●
First South
Bancorp, Inc.
Raymond
James calculated various financial multiples for each company,
including: price per share at close on April 25, 2017 compared to
(i) tangible book value (“TBV”) per share at the later
of December 31, 2016 and March 31, 2017 as reported; (ii) LTM
earnings per share (“EPS”) for the most recent LTM
period reported; (iii) consensus forward operating EPS for the 2017
calendar year based on FactSet Research Systems Inc. data and as
shown by S&P Global Market Intelligence; and (iv) consensus
forward operating EPS for the 2018 calendar year based on FactSet
Research Systems Inc. data and as shown by S&P Global Market
Intelligence. The estimates published by Wall Street research
analysts were not prepared in connection with the merger or at the
request of Raymond James and may or may not prove to be accurate.
All financial multiples—TBV per share, LTM EPS, 2017 forward
EPS, and 2018 forward EPS—greater than two standard
deviations away from the unadjusted mean were considered not
meaningful. Raymond James reviewed the 75
th
percentile, mean,
median and 25
th
percentile relative
valuation multiples of the selected public companies. The results
of the selected public companies analysis are summarized
below:
|
|
|
|
|
|
|
75th
Percentile
|
178
%
|
22.2
x
|
20.1
x
|
16.0
x
|
Mean
|
164
%
|
20.0
x
|
18.0
x
|
15.0
x
|
Median
|
159
%
|
20.1
x
|
17.2
x
|
15.5
x
|
25
th
Percentile
|
148
%
|
17.6
x
|
16.4
x
|
13.8
x
|
|
|
|
|
|
Implied Transaction
Metric
|
223
%
|
20.7
x
|
20.2
x
|
17.1
x
|
Furthermore,
Raymond James applied the 75
th
percentile, mean,
median and 25
th
percentile relative
valuation multiples for each of the metrics to Paragon’s
actual and projected financial results and then divided those
values by TowneBank’s 10-day average closing price of $32.21
as of April 25, 2017 to derive an implied exchange ratio for shares
of common stock of Paragon. Raymond James then compared those
implied exchange ratios to the exchange ratio of 1.7250. The
results of this are summarized below:
|
|
|
|
|
|
|
75
th
Percentile
|
1.3773
|
1.8472
|
1.7149
|
1.6124
|
Mean
|
1.2688
|
1.6620
|
1.5375
|
1.5098
|
Median
|
1.2290
|
1.6718
|
1.4634
|
1.5573
|
25
th
Percentile
|
1.1494
|
1.4661
|
1.3959
|
1.3864
|
|
|
|
|
|
Exchange
Ratio
|
1.7250
|
1.7250
|
1.7250
|
1.7250
|
Selected Transaction Analysis.
Raymond
James analyzed publicly available information relating to selected
regional transactions announced since January 1, 2015 involving
targets headquartered in the Southeast with total assets between
$1.0 billion and $2.0 billion. Raymond James also analyzed publicly
available information relating to selected national transactions
announced since the U.S. presidential election on November 8, 2016
involving targets headquartered in the United States with total
assets between $1.0 billion and $2.0 billion. Total assets for the
selected targets were based on the most recent quarterly period
reported as of April 25, 2017. Both regional and national selected
transaction analyses excluded (i) transactions without publicly
disclosed deal value or key financial information; (ii)
transactions with cumulative equity ownership acquired less than
100%; (iii) investor recapitalizations; and (iv) mergers of equals
transactions. The selected transactions (with respective
transaction announcement dates shown) used in the analyses
included:
Regional:
●
Acquisition of
Metropolitan BancGroup, Inc. by Renasant Corporation
(01/17/17)
●
Acquisition of
Southeastern Bank Financial Corporation by South State Corporation
(06/17/16)
●
Acquisition of
Avenue Financial Holdings, Inc. by Pinnacle Financial Partners,
Inc. (01/28/16)
●
Acquisition of
Monarch Financial Holdings, Inc. by TowneBank
(12/17/15)
●
Acquisition of C1
Financial, Inc. by Bank of the Ozarks, Inc. (11/09/15)
●
Acquisition of
CNLBancshares, Inc. by Valley National Bancorp
(05/27/15)
●
Acquisition of
Palmetto Bancshares, Inc. by United Community Banks, Inc.
(04/22/15)
●
Acquisition of
First Security Group, Inc. by Atlantic Capital Bancshares, Inc.
(03/25/15)
National:
●
Acquisition of
Independent Alliance Banks, Inc. by First Merchants Corporation
(02/17/17)
●
Acquisition of
Citywide Banks of Colorado, Inc. by Heartland Financial USA, Inc.
(02/13/17)
●
Acquisition of
First Community Financial Partners, Inc. by First Busey Corporation
(02/06/17)
●
Acquisition of
Centrue Financial Corporation by Midland States Bancorp, Inc.
(01/26/17)
●
Acquisition of
Metropolitan BancGroup, Inc. by Renasant Corporation
(01/17/17)
●
Acquisition of
Sovereign Bancshares, Inc. by Veritex Holdings, Inc.
(12/14/16)
●
Acquisition of
Heritage Oaks Bancorp by Pacific Premier Bancorp, Inc.
(12/13/16)
Raymond
James examined valuation multiples of transaction value compared to
the target companies’ (i) most recent quarter TBV per share;
(ii) most recent LTM EPS; (iii) forward operating EPS; and (iv)
core deposits (total deposits less time deposits greater than
$100,000). Where available, forward operating EPS multiples for the
next four fiscal quarters (NTM EPS) were based on mean analyst
estimates per FactSet Research Systems Inc.; otherwise, EPS
estimates for the 2017 calendar year per public filings were used.
The estimates published by Wall Street research analysts and the
companies involved in the selected transaction analysis were not
prepared in connection with the merger or at the request of Raymond
James and may or may not prove to be accurate. All financial
multiples—TBV, LTM EPS, NTM EPS and core
deposits—greater than two standard deviations away from the
unadjusted mean were considered not meaningful. TBV per share, LTM
EPS and NTM EPS transaction valuation multiples were shown on a per
share basis where possible, and if per share valuation metrics were
unavailable, aggregate pricing multiples were used. Valuation
multiples based on core deposits were based on aggregate
transaction values. Raymond James reviewed the 75
th
percentile, mean,
median and 25
th
percentile relative
valuation multiples of the selected transactions. Furthermore,
Raymond James applied the 75
th
percentile, mean,
median and 25
th
percentile relative
valuation multiples to Paragon’s actual TBV per share, LTM
EPS and core deposits and projected NTM EPS and divided those
values by TowneBank’s 10-day average closing price of $32.21
as of April 25, 2017 to determine the implied exchange ratio for
shares of common stock of Paragon. Raymond James then compared
those implied exchange ratios to the exchange ratio of 1.7250. The
results of the selected transactions analysis are summarized
below:
Regional:
|
|
|
|
|
|
75
th
Percentile
|
204
%
|
1.5832
|
Mean
|
190
%
|
1.4719
|
Median
|
189
%
|
1.4668
|
25
th
Percentile
|
175
%
|
1.3545
|
|
|
|
Implied Transaction
Metric
|
223
%
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
27.4
x
|
2.2768
|
Mean
|
23.7
x
|
1.9760
|
Median
|
24.4
x
|
2.0281
|
25th
Percentile
|
20.4
x
|
1.6947
|
|
|
|
Implied Transaction
Metric
|
20.7
x
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
21.1
x
|
1.7956
|
Mean
|
19.8
x
|
1.6917
|
Median
|
20.0
x
|
1.7059
|
25th
Percentile
|
18.0
x
|
1.5335
|
|
|
|
Implied Transaction
Metric
|
20.2
x
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
13.9
%
|
1.6040
|
Mean
|
12.4
%
|
1.5122
|
Median
|
12.2
%
|
1.5014
|
25th
Percentile
|
10.3
%
|
1.3858
|
|
|
|
Implied Transaction
Metric
|
16.0
%
|
1.7250
|
National:
|
|
|
|
|
|
75th
Percentile
|
215
%
|
1.6637
|
Mean
|
198
%
|
1.5371
|
Median
|
199
%
|
1.5395
|
25th
Percentile
|
184
%
|
1.4272
|
|
|
|
Implied Transaction
Metric
|
223
%
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
26.5
x
|
2.2014
|
Mean
|
25.1
x
|
2.0895
|
Median
|
25.9
x
|
2.1586
|
25th
Percentile
|
21.0
x
|
1.7466
|
|
|
|
Implied Transaction
Metric
|
20.7
x
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
21.9
x
|
1.8679
|
Mean
|
20.2
x
|
1.7188
|
Median
|
19.4
x
|
1.6546
|
25th
Percentile
|
15.8
x
|
1.3478
|
|
|
|
Implied Transaction
Metric
|
20.2
x
|
1.7250
|
|
|
|
|
|
|
75th
Percentile
|
16.2
%
|
1.7417
|
Mean
|
14.1
%
|
1.6165
|
Median
|
15.4
%
|
1.6916
|
25th
Percentile
|
11.2
%
|
1.4450
|
|
|
|
Implied Transaction
Metric
|
16.0
%
|
1.7250
|
Discounted Cash Flow Analysis.
Raymond
James analyzed the discounted present value of Paragon’s
projected free cash flows for the years ending December 31, 2017
through December 31, 2022 on a stand-alone basis. Raymond James
used tangible common equity in excess of a target ratio of 8.0% at
the end of each projection period for free cash flow.
The
discounted cash flow analysis was based on the Projections.
Consistent with the periods included in the Projections, Raymond
James used calendar year 2022 as the final year for the analysis
and applied multiples, ranging from 13.0x to 17.0x, to calendar
year 2022 adjusted net income in order to derive a range of
terminal values for Paragon in 2022. Raymond James selected the
range of terminal price-to-earnings multiples based upon the
long-term average of the price-to-earnings multiple of selected
banking indexes and current multiples for similar public
companies.
The
projected free cash flows and terminal values were discounted using
rates ranging from 10.5% to 12.5%. The resulting range of equity
values was adjusted for options outstanding and divided by the
number of diluted shares outstanding in order to arrive at a range
of present values per Paragon share. The aforementioned present
values were divided by TowneBank’s 10-day average closing
price of $32.21 as of April 25, 2017 to derive a range of implied
exchange ratios. Raymond James reviewed the range of exchange
ratios derived in the discounted cash flow analysis and compared
them to the exchange ratio. The results of the discounted cash flow
analysis are summarized below:
|
|
Maximum
|
1.9716
|
Minimum
|
1.4197
|
|
|
Exchange
Ratio
|
1.7250
|
Additional
Considerations.
The preparation of a fairness opinion is a
complex process and is not susceptible to a partial analysis or
summary description. Raymond James believes that its analyses must
be considered as a whole and that selecting portions of its
analyses, without considering the analyses taken as a whole, would
create an incomplete view of the process underlying its opinion. In
addition, Raymond James considered the results of all such analyses
and did not assign relative weights to any of the analyses, but
rather made qualitative judgments as to significance and relevance
of each analysis and factor, so the ranges of valuations resulting
from any particular analysis described above should not be taken to
be the view of Raymond James as to the actual value of
Paragon.
In
performing its analyses, Raymond James made numerous assumptions
with respect to industry performance, general business, economic
and regulatory conditions and other matters, many of which are
beyond the control of Paragon. The analyses performed by Raymond
James are not necessarily indicative of actual values, trading
values or actual future results which might be achieved, all of
which may be significantly more or less favorable than suggested by
such analyses. Such analyses were provided to the Paragon board of
directors (solely in each director’s capacity as such) and
were prepared solely as part of the analysis of Raymond James of
the fairness, from a financial point of view, to the holders of
common stock of Paragon of the exchange ratio to be received by
such holders in connection with the proposed merger pursuant to the
merger agreement. The analyses do not purport to be appraisals or
to reflect the prices at which companies may actually be sold, and
such estimates are inherently subject to uncertainty. The opinion
of Raymond James was one of many factors taken into account by the
Paragon board in making its determination to approve the merger.
Neither Raymond James’ opinion, nor the analyses described
above should be viewed as determinative of the Paragon board of
directors’ or Paragon management’s views with respect
to Paragon, TowneBank, or the merger. Raymond James provided advice
to Paragon with respect to the proposed transaction. Raymond James
did not, however, recommend any specific amount of consideration to
the Paragon board or that any specific exchange ratio constituted
the only appropriate exchange ratio for the merger. Paragon placed
no limits on the scope of the analysis performed, or opinion
expressed, by Raymond James.
The
Raymond James opinion was necessarily based upon market, economic,
financial and other circumstances and conditions existing and
disclosed to it as of April 25, 2017, and any material change in
such circumstances and conditions may affect the opinion of Raymond
James, but Raymond James does not have any obligation to update,
revise or reaffirm that opinion. Raymond James relied upon and
assumed, without independent verification, that there had been no
change in the business, assets, liabilities, financial condition,
results of operations, cash flows or prospects of Paragon or
Paragon Bank since the respective dates of the most recent
financial statements and other information, financial or otherwise,
provided to Raymond James that would be material to its analyses or
its opinion, and that there was no information or any facts that
would make any of the information reviewed by Raymond James
incomplete or misleading in any material respect.
During
the two years preceding the date of Raymond James’ written
opinion, Raymond James has been engaged by or otherwise performed
services for Paragon for which it was paid an aggregate of
$1,490,022 in fees and expense reimbursements (separately from any
amounts that were paid to Raymond James under the engagement letter
described in this proxy statement pursuant to which Raymond James
was retained as a financial advisor to the Company to assist in
reviewing strategic alternatives).
For its
services as financial advisor to Paragon in connection with the
proposed merger, Raymond James will receive a transaction fee equal
to 1.40% of the aggregate transaction value of the proposed merger,
a substantial portion of which is contingent upon completion of the
merger. Upon the rendering of its opinion, Raymond James became
entitled to a fee of $250,000, which is creditable against the
transaction fee and which is not contingent upon the completion of
the proposed merger or the conclusion reached in the opinion.
Paragon paid to Raymond James a retainer of $35,000 upon execution
of the Raymond James engagement letter. Paragon also agreed to
reimburse Raymond James for its expenses incurred in connection
with its services up to a limit of $25,000, including the fees and
expenses of its counsel, and will indemnify Raymond James against
certain liabilities arising out of its engagement.
Raymond
James is actively involved in the investment banking business and
regularly undertakes the valuation of investment securities in
connection with public offerings, private placements, business
combinations and similar transactions. In the ordinary course of
business, Raymond James may trade in the securities of Paragon and
TowneBank for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in
such securities. Raymond James may provide investment banking,
financial advisory and other financial services to Paragon and/or
TowneBank or other participants in the merger in the future, for
which Raymond James may receive compensation.
Interests of Certain Paragon Directors and Executive Officers in
the Merger
In
considering the recommendations of the Paragon board of directors
that Paragon stockholders vote in favor of the merger proposal,
Paragon stockholders should be aware that Paragon directors and
executive officers may have interests in the merger that differ
from, or are in addition to, their interests as stockholders of
Paragon. The Paragon board of directors was aware of these
interests and took them into account in its decision to approve the
merger agreement and the merger.
Indemnification and
Insurance.
TowneBank has agreed to indemnify the officers
and directors of Paragon against certain liabilities arising before
the effective date of the merger. TowneBank has also agreed to
purchase a six-year “tail” prepaid policy, on the same
terms as Paragon’s existing directors’ and
officers’ liability insurance, for the current officers and
directors of Paragon, subject to a cap on the cost of such policy
equal to 250% of Paragon’s last annual premium.
Director Appointments and
Compensation.
Pursuant to the merger agreement, TowneBank
will appoint two Paragon directors to the TowneBank board of
directors effective upon consummation of the merger. Each of Robert
C. Hatley and Howard Jung will be appointed to TowneBank’s
board of directors to serve in such capacity until the next annual
meeting of the stockholders of TowneBank after the effective date
of the merger, and, subject to the good faith consideration by the
Nominating Committee of TowneBank’s board of the selection
criteria set forth in its charter, such persons are to be nominated
to sit for election at such annual meeting. Subject to the good
faith approval of TowneBank’s board of directors, Messrs.
Hatley and Jung will also be appointed to the Executive Committee
of TowneBank’s board.
At the
effective date of the merger, TowneBank will establish a TowneBank
Raleigh board of directors, a TowneBank Cary board of directors,
and a TowneBank Charlotte board of directors. We refer to these
boards collectively as the “TowneBank NC Boards.” The
TowneBank NC Boards will initially be composed of the current
members of each of the advisory boards of directors established by
Paragon for each of these regions, together with representatives
from the boards of directors of Paragon and Paragon Bank, as
appropriate for each geographical region.
Each of
the Paragon directors that will serve on the board of directors of
TowneBank and the TowneBank NC Boards has signed an agreement
providing that such individual will not engage in activities
competitive with TowneBank until the later of the date that is one
year following the merger or the date on which he or she ceases to
be a member of such board.
Mr.
Jung will be compensated in accordance with TowneBank’s
director compensation policy for non-executive officers as then in
effect. Mr. Hatley will not be separately compensated for his
service on the TowneBank board of directors while he is receiving
compensation as an employee or consultant of TowneBank. Each
non-executive officer member of the board of directors of TowneBank
currently receives $300 for attending each board meeting. In
addition, standing committee members receive $175 for each
committee meeting attended. As compensation for their services
during 2017, each member of the TowneBank board of directors
received an annual retainer of $22,000. The non-employee directors
of Paragon that will serve on the TowneBank NC Boards will receive
$300 for attending each board meeting.
Information about
each Paragon director to be appointed to the board of directors of
TowneBank is provided in Paragon’s Annual Report on Form 10-K
for the year ended December 31, 2016, as amended, which information
is incorporated by reference into this proxy
statement/prospectus.
Officer Positions.
As set forth below, TowneBank will appoint certain named executive
officers of Paragon to officer positions with TowneBank, effective
upon consummation of the merger. As defined by the SEC, the phrase
“named executive officer” refers to Paragon’s
principal executive officer and the two other most highly
compensated executive officers.
●
Robert C. Hatley,
President and Chief Executive Officer of Paragon, will be appointed
President of TowneBank North Carolina.
●
Matthew C. Davis,
Executive Vice President and Chief Operating Officer of Paragon
Bank, will be appointed Executive Vice President and Chief
Operating Officer of TowneBank North Carolina.
In
connection with entering into the merger agreement, TowneBank has
entered into certain employment-related agreements with these
officers concerning their employment with TowneBank following
consummation of the merger. The agreements are summarized below.
TowneBank has also entered into employment-related agreements with
numerous other officers of Paragon and Paragon Bank pursuant to
which such officers will serve as officers of TowneBank after
consummation of the merger.
Employment-Related
Agreements for Paragon Named Executive Officers.
Paragon
currently has an employment agreement with Mr. Hatley, change in
control agreements with Mr. Davis and with Steven E. Crouse,
Executive Vice President and Chief Financial Officer of Paragon and
Paragon Bank, and salary continuation agreements with Messrs.
Hatley, Davis and Crouse. Messrs. Hatley, Davis, and Crouse are
“named executive officers” of Paragon. These officers
are entitled to certain benefits under their agreements with
Paragon that are expected to be triggered by the consummation of
the merger. In addition, in connection with entering into the
merger agreement, TowneBank has entered into an employment and
consulting agreement with Mr. Hatley and an employment agreement
with Mr. Davis that will, upon the consummation of the merger,
supersede their agreements with Paragon. These benefits and
agreements are described in further detail below.
Robert C.
Hatley
.
Paragon Employment Agreement
with Mr. Hatley.
Paragon and
Paragon Bank entered into an employment agreement, dated September
1, 2013 and amended on October 27, 2015 and December 29, 2016, with
Mr. Hatley. The employment agreement automatically extends for one
year on December 31
st
of each year, unless the Paragon and
Paragon Bank boards determine not to extend the term. The
employment agreement establishes the terms and conditions of Mr.
Hatley’s employment relationship, including his initial base
salary, and also provides for certain fringe benefits, such as use
of an automobile, payment of certain club dues and reimbursement of
reasonable business expenses. Mr. Hatley’s annual base salary
for 2017 is set at $455,000. Mr. Hatley is also entitled to
participate in any and all officer or employee compensation, bonus,
incentive, and benefit plans, including plans providing pension,
medical, dental, disability, and group life
benefits.
Pursuant
to his employment agreement, if a change in control of Paragon or
Paragon Bank occurs while Mr. Hatley’s employment agreement
is in effect, Mr. Hatley is entitled to receive a lump-sum cash
payment equal to 2.99 times the sum of (i) his annual base salary
in effect as of the time of the change in control and (ii) any
bonuses or incentive compensation earned for the calendar year
ended immediately before the year in which the change in control
occurs. In connection with the merger, Mr. Hatley entered into an
excess parachute payment agreement, dated April 26, 2017, with
Paragon and Paragon Bank pursuant to which he has agreed to waive
any portion of this change in control payment that, when aggregated
with any other payments in the nature of compensation that are
contingent on a change in control of Paragon or Paragon Bank, would
cause Mr. Hatley to receive an “excess parachute
payment” (as defined in Section 280G of the Code) in
connection with the proposed merger with TowneBank. The receipt of
an “excess parachute payment” would subject Mr. Hatley
to excise taxes under Section 4999 of the Code and the payment of
an “excess parachute payment” would cause Paragon and
Paragon Bank (or TowneBank as the successor in the merger) to lose
tax deductions associated with certain compensation paid to Mr.
Hatley. Assuming the merger closes in January 2018, the change in
control payment owed to Mr. Hatley under his employment agreement,
as reduced as set forth in the excess parachute payment agreement,
would be approximately $1,790,000.
Paragon Salary Continuation Agreement with Mr.
Hatley.
Paragon Bank has
entered into a restated salary continuation agreement with Mr.
Hatley. Mr. Hatley is fully vested in the accrued benefit under the
restated agreement. TowneBank has agreed to assume Mr.
Hatley’s restated salary continuation agreement in the
merger.
TowneBank Employment and Consulting Agreement
with Mr. Hatley.
TowneBank has entered into an employment
and consulting agreement, dated April 26, 2017, with Mr. Hatley to
serve as President, TowneBank North Carolina, and also to provide
consulting services to TowneBank. The agreement becomes effective
upon the closing of the merger and will continue until the fifth
anniversary of the closing of the merger. Mr. Hatley’s
employment under the agreement will continue until December 31,
2018, subject to extension by TowneBank. In no event will Mr.
Hatley’s employment extend beyond December 21, 2020.
Immediately following the end of Mr. Hatley’s employment
under the agreement, he will begin providing services as a special
consultant to TowneBank. He will continue providing these services
until the earlier of (i) the fifth anniversary of the merger
closing or (ii) the termination of the consulting arrangement by
either TowneBank or Mr. Hatley as described in the
agreement.
During
the employment period, Mr. Hatley will receive an annual base
salary of $455,000. During this period, he will also be entitled to
receive annual incentive payments and stock awards in such amounts
and at such times as may be determined by TowneBank pursuant to its
incentive plans and programs.
Subject
to the approval of the TowneBank board and as soon as practicable
after the merger closing, TowneBank will make a restricted stock
grant to Mr. Hatley covering shares of TowneBank common stock with
a market value of $400,000 as of the grant date. The restricted
shares will vest in five equal annual increments beginning on the
first anniversary of the date of grant, provided that Mr. Hatley
remains employed by TowneBank on such anniversary date or is
providing consulting services to TowneBank on such anniversary
date.
During
the employment period, Mr. Hatley will have access to
TowneBank’s family health, dental, and supplemental
disability insurance benefits on the same basis as other similarly
situated officers of TowneBank. He will also be entitled to
participate in all incentive, savings, retirement, life insurance,
medical, sick leave, vacation, and other employee benefits plans
and programs of TowneBank. TowneBank will pay or reimburse Mr.
Hatley for reasonable expenses incurred by him in the performance
of his duties pursuant to the employment and consulting agreement.
During both the employment and consulting periods, TowneBank will
provide Mr. Hatley with an automobile or automobile allowance,
including insurance coverage, fuel, and maintenance expenses in
accordance with TowneBank policies.
If Mr.
Hatley dies while employed by TowneBank, TowneBank will pay his
beneficiary or estate his “accrued obligations” through
the end of the calendar month in which his death occurs. The
agreement defines “accrued obligations” as the sum of
(i) annual base salary through the termination date at the rate in
effect just prior to the time a notice of termination is given,
(ii) the amount of any incentive or bonus earned but unpaid at the
time of termination, and (iii) any benefits or awards earned but
unpaid at the time of termination.
If Mr.
Hatley becomes disabled while employed by TowneBank, TowneBank may
give him written notice of its intention to terminate his
employment, in which event his employment would terminate on the
30
th
day
after receipt of such notice. If Mr. Hatley’s employment is
terminated due to disability, he will receive his accrued
obligations (as described above) through the date of termination.
Mr. Hatley will be considered “disabled” if he is
entitled to receive long-term disability benefits under
TowneBank’s long-term disability plan, or, if there is no
such plan, if he is unable to perform any of his essential job
functions and the disability lasts for an uninterrupted period of
at least 180 days or a total of at least 240 days out of any
consecutive 360-day period as a result of his incapacity due to
physical or mental illness (as determined by an independent
physician).
TowneBank may
terminate Mr. Hatley’s employment at any time for
“cause.” If Mr. Hatley’s employment is terminated
for cause, he will have no right to render services or to receive
compensation or other benefits from TowneBank following
termination. The following constitute “cause” for
termination: (i) willful misconduct or deliberate neglect in the
performance of Mr. Hatley’s duties and responsibilities or
willful failure to follow reasonable instructions or policies,
after being advised in writing and being given a period of at least
10 days to remedy such misconduct; (ii) conviction of or entering
of a guilty plea or plea of no contest with respect to a felony,
crime of moral turpitude, or any other crime with respect to which
imprisonment is a possible punishment, or committing fraud or
embezzlement against TowneBank or its affiliates; (iii) breach of a
material term of the employment and consulting agreement, or
material violation of any code or standard of behavior applicable
to officers of TowneBank, after being advised in writing of such
breach and being given a period of at least 10 days to remedy such
breach; or (iv) willful engagement in misconduct that is reasonably
likely to result, or has resulted, in material injury to TowneBank,
reputational or otherwise.
If Mr.
Hatley terminates his employment without “good reason,”
then he will have no right to render services or to receive
compensation or other benefits following such termination. Mr.
Hatley will have “good reason” to terminate his
employment if any of the following actions occur without his
written consent: (i) any action taken by TowneBank that results in
a substantial reduction in Mr. Hatley’s status with
TowneBank, including a material diminution in base salary,
position, authority, duties, or responsibilities; (ii) relocation
of Mr. Hatley’s primary office by more than 35 miles from its
location in Raleigh, North Carolina; or (iii) TowneBank’s
failure to comply with the compensation provisions of the
employment and consulting agreement or a material breach by
TowneBank of any other provision of the employment and consulting
agreement or any other written agreement between Mr. Hatley and
TowneBank.
If
TowneBank terminates Mr. Hatley’s employment without cause
before the end of the employment period or if Mr. Hatley terminates
his employment for good reason, he will receive the accrued
obligations through the date of termination. In addition, he will
receive the benefits described below if he signs a release and
waiver of claims in favor of TowneBank: (i) continuation of base
salary until the end of his employment period; (ii) if Mr. Hatley
elects continuation coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“COBRA”), TowneBank will
reimburse the difference between Mr. Hatley’s monthly COBRA
premium and the monthly amount paid by similarly situated active
employees until the earliest of (a) 18 months after termination,
(b) the date Mr. Hatley is no longer eligible for COBRA coverage,
or (c) the date Mr. Hatley becomes eligible to receive similar
coverage from another employer; (iii) if the 18-month period
referenced above is not sufficient to cover the period between
termination of employment and the end of the employment period and
TowneBank is not permitted to extend COBRA coverage until the end
of the employment period, TowneBank will pay Mr. Hatley a lump sum
equal to the number of months between the end of COBRA coverage and
the end of the employment period multiplied by the COBRA subsidy
described in (ii) above; (iv) TowneBank will pay to Mr. Hatley the
consulting fees that would have been payable during the consulting
period had it commenced at the end of his employment period. The
consulting fees are described below.
During
the consulting period, Mr. Hatley will provide consulting services
as reasonably requested in the nature of customer and community
relations, business development, employee relations, and general
advice and assistance relating to TowneBank’s customers and
employees and to the growth and development of TowneBank’s
business in North Carolina and surrounding areas. Mr. Hatley will
not be required to maintain records of hours worked or to work in
accordance with any fixed schedule during the consulting period.
During this period, Mr. Hatley will be an independent contractor
and not an employee or officer of TowneBank. As such, he will not
be entitled to participate in any of TowneBank’s employee
benefit plans.
TowneBank will pay
Mr. Hatley $20,833.33 per month for the first two years of the
consulting period and $8,333.33 per month thereafter.
If
TowneBank terminates the consulting relationship, it will continue
to pay Mr. Hatley as described above until the end of the
consulting period. If (i) Mr. Hatley terminates the consulting
relationship, (ii) Mr. Hatley fails to render the consulting
services as requested, or (iii) Mr. Hatley violates the covenants
in the employment and consulting agreement, then the consulting
relationship will end and Mr. Hatley will not be entitled to any
further consulting payments from TowneBank.
Mr.
Hatley will be subject to a covenant not to compete and a covenant
not to solicit customers or employees of TowneBank. These
restrictions apply during the employment period and for the longer
of (i) two years following the expiration of the employment period
or, if sooner, termination of employment for any reason, or
(ii) the consulting period. In the event of a change in
control of TowneBank, (i) the non-competition restrictions will not
apply after Mr. Hatley ceases to be employed by TowneBank and (ii)
the non-solicitation restrictions will only apply for one year
following termination of employment.
Steven E. Crouse
.
Paragon Change in Control Agreement with Mr.
Crouse.
Paragon and Paragon Bank entered into a change in
control agreement, dated March 28, 2013 and amended on May 20,
2014, with Mr. Crouse. The agreement automatically extends for one
year on March 31
st
of each year,
unless the Paragon and Paragon Bank boards determine not to extend
the term.
The
change in control agreement provides that if a “change in
control” (as defined in the change in control agreement)
occurs during the term of the agreement and, within one year of
such change in control, Mr. Crouse is terminated involuntarily
without “cause” (as defined in the change in control
agreement) or voluntarily with “good reason” (as
defined in the change in control agreement), then Mr. Crouse will
be entitled to certain severance benefits, including a payment
(paid in 18 equal monthly installments) of 2.0 times the sum of (i)
his annual base salary in effect as of the time of the change in
control or at the time of termination, whichever is greater, and
(ii) any bonuses or incentive compensation earned for the calendar
year ended immediately before the year in which the change in
control occurs or in which the termination occurs, whichever is
greater. Assuming the merger closes in January 2018, this change in
control payment would be approximately $792,000. He will also be
entitled to continued life, health and disability insurance
coverage for him and his family for the year following the
termination unless he becomes employed by another employer first,
and a cash bonus equal to any contribution that would have been
made under any 401(k), retirement or profit-sharing plan had the
termination not occurred before the end of the plan year. Mr.
Crouse will not be entitled to severance benefits if he (a) dies or
becomes “totally disabled” (as defined in the change in
control agreement) while actively employed by Paragon or Paragon
Bank or (b) is terminated for cause.
Paragon Salary Continuation Agreement with Mr.
Crouse.
Paragon Bank entered into an amended and restated
salary continuation agreement with Mr. Crouse effective January 1,
2017. Under the salary continuation agreement, assuming Mr. Crouse
remains employed through his normal retirement age, which is 65
years old under the agreement, he will be entitled to an annual
benefit, paid in equal monthly installments, of $132,000 for a
period of 20 years.
If Mr. Crouse has
a “separation from service” that is a “voluntary
termination with good reason” within 24 months after a
“change in control” of Paragon or Paragon Bank (as such
terms are defined in the salary continuation agreement), he will be
fully-vested in this benefit and will be entitled to receive a lump
sum payment equal to the present value of the full benefit amount.
Assuming the merger closes in January 2018, the lump sum payment
would be approximately $1,163,000 using a 4% discount rate. A
“voluntary termination with good reason” is considered
to have occurred if any of the following occur without Mr.
Crouse’s advance written consent:
(i)
a material diminution of base salary; (ii) a
material diminution of authority, duties, or
responsibilities;
(iii)
a
material diminution in the authority, duties, or responsibilities
of the supervisor to whom Mr. Crouse is required to report; (iv) a
material diminution in the budget over which Mr. Crouse retains
authority; (v) a material change in the geographic location at
which Mr. Crouse must perform services for Paragon Bank; or
(vi)
any other action or inaction that
constitutes a material breach by Paragon Bank of the agreement
under which Mr. Crouse provides services to Paragon Bank. Mr.
Crouse is expected to have grounds to assert a “voluntary
termination with good reason” as a result of the
merger.
Matthew C. Davis
.
Paragon Change in Control Agreement with Mr.
Davis.
Paragon and Paragon Bank entered into a change in
control agreement, dated March 28, 2013 and amended May 20, 2014,
with Mr. Davis. The terms of Mr. Davis’s change in control
agreement are identical to Mr. Crouse’s change in control
agreement with Paragon and Paragon Bank. As described below, Mr.
Davis has entered into an employment agreement with TowneBank that
will supersede his change in control agreement with Paragon and
Paragon Bank as of the effective date of the merger, and he will
not be entitled to severance benefits in connection with the merger
pursuant to his change in control agreement with Paragon and
Paragon Bank. Paragon intends to pay to Mr. Davis a retention bonus
of $396,000 immediately prior to the consummation of the merger,
provided that he remains employed by Paragon as of such date, which
will partially offset the severance benefits to which Mr. Davis
would be entitled under his change in control agreement with
Paragon and Paragon Bank had he not entered into an employment
agreement with TowneBank.
TowneBank Employment Agreement with Mr.
Davis.
TowneBank has entered into an employment agreement,
dated April 26, 2017, with Mr. Davis to serve as Executive Vice
President and Chief Operating Officer, TowneBank of North Carolina.
Paragon Bank is a party to the agreement solely with respect to the
restrictive covenants so that such covenants are enforceable by
Paragon Bank prior to consummation of the merger. The agreement
became effective on April 26, 2017 and will expire on the third
anniversary of the closing of the merger. In the event the merger
agreement is terminated, the employment agreement will expire and
be of no further force or effect.
During
the employment period, Mr. Davis will receive an annual base salary
in an amount to be determined by TowneBank, but in no event less
than $350,000. He will also be entitled to receive annual incentive
payments and stock awards in such amounts and at such times as may
be determined by TowneBank pursuant to its incentive plans and
programs.
Subject
to the approval of the TowneBank board and as soon as practicable
after the merger closing, TowneBank will make a restricted stock
grant to Mr. Davis covering shares of TowneBank common stock with a
market value of $400,000 as of the grant date. The restricted
shares will vest in four equal annual increments beginning on the
first anniversary of the date of grant, provided that Mr. Davis
remains employed by TowneBank on such anniversary date or is
providing consulting services to TowneBank on such anniversary
date.
During
the employment period, Mr. Davis will have access to
TowneBank’s family health, dental, and supplemental
disability insurance benefits on the same basis as other similarly
situated officers of TowneBank. He will also be entitled to
participate in all incentive, savings, retirement, life insurance,
medical, sick leave, vacation, and other employee benefits plans
and programs of TowneBank. TowneBank will pay or reimburse Mr.
Davis for reasonable expenses incurred by him in the performance of
his duties pursuant to the employment agreement. During the
employment period, TowneBank will provide Mr. Davis with an
automobile or automobile allowance, including insurance coverage,
fuel, and maintenance expenses in accordance with TowneBank
policies.
The
provisions of Mr. Davis’s employment agreement with respect
to termination as a consequence of death or disability, termination
for cause, and termination without good reason, and termination for
good reason are substantially the same as those included Mr.
Hatley’s employment and consulting agreement with TowneBank
described above. In the event Mr. Davis’s employment is
terminated by TowneBank without cause, Mr. Davis will receive the
same benefits as Mr. Hatley, except (i) his base salary will be
continued until the third anniversary of the merger and (ii) Mr.
Davis is not entitled to any consulting fees.
Mr.
Davis will be subject to a covenant not to compete and a covenant
not to solicit customers of employees of TowneBank. The
non-competition restrictions apply during the term of the
employment agreement and until after the third anniversary of the
merger. The non-solicitation restrictions apply (i) during the term
of the employment agreement; (ii) until the later of (a) the second
anniversary of the termination of employment or (b) the third
anniversary of the merger if Mr. Davis’s employment is
terminated for any reason prior to the third anniversary of the
merger; or (iii) until after the fifth anniversary of the merger if
Mr. Davis’s employment is terminated for any reason after the
third anniversary of the merger.
Paragon Salary Continuation
Agreements with Mr. Davis.
Paragon Bank entered into a
salary continuation agreement and an amended and restated salary
continuation agreement with Mr. Davis, each of which became
effective on January 1, 2017. Under the salary continuation
agreements, assuming Mr. Davis remains employed through his normal
retirement age, which is 65 years old under the agreements, he will
be entitled to an aggregate annual benefit, paid in equal monthly
installments, of $132,000 for a period of 20 years. The terms of
Mr. Davis’s salary continuation agreements are identical to
the terms of Mr. Crouse’s salary continuation agreement with
Paragon Bank.
If Mr. Davis has a
“separation from service” that is a “voluntary
termination with good reason” within 24 months after a
“change in control” of Paragon or Paragon Bank (as such
terms are defined in the salary continuation agreement), assuming
the merger closes in January 2018, the lump sum payment would be
approximately $1,055,000 using a 4% discount rate. In connection
with the merger, on April 26, 2017, Paragon Bank and Mr. Davis
amended Mr. Davis’s salary continuation agreements effective
as of the effective date of the merger. Pursuant to the amendments,
Mr. Davis and Paragon Bank agreed that Mr. Davis’s entering
into an employment agreement with TowneBank constitutes advance
written consent to any diminution or change in Mr. Davis’s
position, title, supervisor, or duties that would otherwise give
Mr. Davis the right to assert a “voluntary termination with
good reason” as a result of the merger and receive the lump
sum payment. TowneBank has agreed to assume Mr. Davis’s
amended salary continuation agreements in the
merger.
TowneBank Supplemental Executive Retirement
Plan with Mr. Davis.
TowneBank has agreed to enter into a
supplemental executive retirement plan (“SERP”) with
Mr. Davis that will provide, if applicable, an enhanced annual
retirement benefit equal to the difference between (i) Mr.
Davis’s retirement benefit as provided under his salary
continuation agreements with Paragon Bank (assuming 100% vesting of
such benefit) and (ii) if greater, 30% of his initial base salary
with TowneBank for 2017, assuming an annual 4% increase in base
salary, until age 65, payable for 20 years beginning at age 65 or
until separation from service after age 65. The enhanced benefit
will vest on an annual basis over the number of years from the
effective date of the SERP through Mr. Davis’s attainment of
age 65, subject to earlier vesting in some
circumstances.
Restricted Shares of
Paragon Common Stock.
As of the record date for the special
meeting, the Paragon and Paragon Bank directors and executive
officers owned, in the aggregate, 36,350 restricted
shares of Paragon common stock granted under a Paragon equity
compensation plan. On the effective date of the merger, all of such
restricted shares owned by executive officers and directors of
Paragon and Paragon Bank that are outstanding immediately prior to
the merger will vest under the terms of the restricted stock
agreements pursuant to which these restricted shares were granted
and will be freely transferable. Once vested, these shares will be
converted into shares of TowneBank common stock upon consummation
of the merger in accordance with the exchange ratio.
Employee Benefit
Plans.
At its election, TowneBank will either (i) provide
generally to officers and employees of Paragon who become employees
of TowneBank employee benefits under TowneBank’s benefit
plans (with no break in coverage) on terms and conditions which are
the same as for similarly situated officers and employees of
TowneBank or (ii) maintain for the benefit of such employees the
benefit plans maintained by Paragon immediately prior to the
effective date of the merger. Subject to certain exceptions, these
employees will receive credit for their years of service to Paragon
for participation, vesting and benefit accrual
purposes.
Employee Severance
Benefits.
A Paragon employee whose employment is
involuntarily terminated other than for cause within six months
from the effective date of the merger, excluding any employee who
has a contract providing for severance, will receive severance pay
equal to two weeks of pay, at his or her rate of pay in effect at
the time of termination, for each full year of continuous service
with Paragon and TowneBank, subject to a minimum of four weeks and
a maximum of 26 weeks of pay. Such severance payments will be in
lieu of any payment under any severance pay plans that may be in
effect at Paragon prior to the effective date of the
merger.
Regulatory Approvals
TowneBank,
Paragon and Paragon Bank cannot complete the merger without prior
approval from the FDIC, the Virginia SCC and the NCCOB. The parties
have received the required approvals from each of the FDIC,
Virginia SCC and NCCOB. The parties have also received a waiver
from the Reserve Bank of the requirement to file an application
under Section 3 of the Bank Holding Company Act of 1956, as
amended, for approval of the merger. Accordingly, all regulatory
approvals and waivers required for the merger have been
obtained.
Appraisal or Dissenters’ Rights in the Merger
Under
North Carolina law, the stockholders of Paragon are not entitled to
dissenters’ or appraisal rights in connection with the
merger.
Certain Differences in Rights of Stockholders
TowneBank is a
Virginia corporation governed by the Virginia SCA. Paragon is a
North Carolina corporation governed by the North Carolina BCA. In
addition, the rights of TowneBank and Paragon stockholders are
governed by their respective articles of incorporation and bylaws.
Upon completion of the merger, Paragon stockholders will become
stockholders of TowneBank, and as such their stockholder rights
will then be governed by the articles of incorporation and bylaws
of TowneBank, each as amended, and by the Virginia SCA. The rights
of stockholders of TowneBank differ in certain respects from the
rights of stockholders of Paragon.
A
summary of the material differences between the rights of a Paragon
stockholder under the North Carolina BCA and Paragon’s
articles of incorporation and bylaws, on the one hand, and the
rights of a TowneBank stockholder under the Virginia SCA and the
articles of incorporation and bylaws of TowneBank, on the other
hand, is provided in this proxy statement/prospectus in the section
“Comparative Rights of Stockholders” on
page
84.
Accounting Treatment
The
merger will be accounted for under the acquisition method of
accounting pursuant to GAAP. Under the acquisition method of
accounting, the assets and liabilities, including identifiable
intangible assets arising from the transaction, of Paragon and
Paragon Bank will be recorded, as of completion of the merger, at
their respective fair values and added to those of TowneBank. Any
excess of purchase price over the fair values is recorded as
goodwill. Financial statements and reported results of operations
of TowneBank issued after completion of the merger will reflect
these values, but will not be restated retroactively to reflect the
historical financial position or results of operations of Paragon
and Paragon Bank. See also “Unaudited Pro Forma Condensed
Combined Financial Information” beginning on page
19.
THE MERGER AGREEMENT
The following is a summary description of the material provisions
of the merger agreement. It is subject to and is qualified in its
entirety by reference to the merger agreement, which is attached as
Appendix A
to this
proxy statement/prospectus and incorporated herein by reference. We
urge you to read the merger agreement in its entirety as it is the
legal document governing the merger.
Structure of the Merger
The
TowneBank board of directors and the Paragon board of directors
have each approved the merger agreement. Pursuant to the merger
agreement, Paragon will merge with and into Merger Sub, with Merger
Sub as the surviving entity, and, immediately thereafter, Paragon
Bank will merge with and into TowneBank, with TowneBank as the
surviving entity.
Merger Consideration
General.
In the
proposed merger, holders of Paragon common stock will receive
1.7250 shares of common stock of TowneBank for each share of
Paragon common stock outstanding immediately before the effective
date of the merger. This exchange ratio is fixed and will not be
adjusted based upon changes in the market price of TowneBank common
stock and Paragon common stock prior to the effective date of the
merger. Based on the closing sale price for TowneBank common stock
on the NASDAQ Global Select Market on April 26, 2017 ($34.35), the
last trading day before public announcement of the merger, the
1.7250 exchange ratio represented approximately $59.25 in value for
each share of Paragon common stock, or approximately $323.6 million
in the aggregate based on the number of shares of Paragon common
stock outstanding on such date. Based on the closing sale price for
TowneBank common stock on the NASDAQ Global Select Market on
November 24, 2017, the last trading day before the
date of this proxy statement/prospectus, the 1.7250 exchange ratio
represented approximately $57.36 in value for each
share of Paragon common stock, or approximately $313.2
million in the aggregate based on the number of shares of Paragon
common stock outstanding on such date.
If the
number of shares of TowneBank common stock changes before the
merger is completed because of a reclassification,
recapitalization, stock dividend, stock split, reverse stock split
or similar event, then a proportionate adjustment will be made to
the exchange ratio.
TowneBank’s
stockholders will continue to own their existing shares of
TowneBank common stock. Each share of TowneBank common stock will
continue to represent one share of TowneBank common stock following
the merger.
Fractional Shares.
TowneBank will not issue any fractional shares of common stock.
Instead, a Paragon stockholder who would otherwise have received a
fraction of a share of TowneBank common stock will receive an
amount of cash equal to the fraction of a share of TowneBank common
stock to which such holder would otherwise be entitled multiplied
by the average closing price per share of TowneBank common stock,
as reported on the NASDAQ Global Select Market, for the ten (10)
consecutive trading days ending on and including the fifth trading
day prior to the effective date of the merger.
Treatment of Paragon Stock Options and Restricted Stock
Awards
Stock
Options.
In the
merger, each outstanding option to purchase shares of Paragon
common stock will be converted into an option to acquire, on the
same terms and conditions (except as otherwise described herein) as
were applicable under such Paragon stock option, the number of
shares of TowneBank common stock equal to the product of (i) 1.7250
multiplied by (ii) the number of shares of Paragon common
stock subject to the Paragon stock option. Such product shall be
rounded down to the nearest whole number. The exercise price per
share (rounded up to the next whole cent) of such replacement
TowneBank stock option shall equal (i) the exercise price per share
of shares of Paragon common stock that were purchasable pursuant to
the Paragon stock option divided by (ii) 1.7250. As of the date of
this proxy statement/prospectus, there were 19,375
options outstanding to purchase shares of Paragon common
stock.
Restricted Stock.
In
the merger, all outstanding Paragon restricted stock awards that
are unvested or contingent will be converted into TowneBank
restricted stock awards, with the same terms and conditions (except
as otherwise described herein) as were in effect immediately prior
to the completion of the merger, subject to any accelerated vesting
as a result of the merger to the extent provided by the terms of
the applicable plan or agreements under such plans. The number of
shares subject to the restricted stock awards will be adjusted
based on the exchange ratio. As of the date of this proxy
statement/prospectus, there were 36,350 shares subject
to unvested restricted stock awards granted under Paragon’s
equity compensation plans.
Effective Date and Time; Closing
Pursuant to the
merger agreement, the effective date and the effective time of the
merger shall be the date and time set forth in the articles of
merger filed with the Virginia SCC and North Carolina SOS. Subject
to the satisfaction or waiver of the closing conditions in the
merger agreement, including the receipt of all necessary
stockholder and regulatory approvals, and taking into consideration
the date Paragon Bank’s data processing systems are expected
to be integrated with TowneBank’s operating systems, the
parties will use their commercially reasonable efforts to cause the
effective date to occur in January 2018. See “—
Conditions to Completion of the Merger” on page
74.
There
can be no assurances as to if or when the stockholder and
regulatory approvals will be obtained or that the merger will be
completed within the expected timeframe, or at all.
Exchange of Paragon Shares for TowneBank Shares in the
Merger
TowneBank Common
Stock
.
Each share of
TowneBank common stock issued and outstanding immediately before
the effective date of the merger will remain issued and outstanding
immediately after completion of the merger as a share of TowneBank
common stock. As a result, there is no need for TowneBank
stockholders to submit their stock certificates to TowneBank, the
exchange agent or to any other person in connection with the
merger, or otherwise take any action as a result of the completion
of the merger.
Paragon Common
Stock.
On or before the closing date of the merger,
TowneBank will cause to be deposited with its transfer agent,
Computershare, Inc. (the “exchange agent”),
certificates or book-entry shares, or a combination thereof,
representing shares of TowneBank common stock for the benefit of
the holders of certificates or book-entry shares representing
shares of Paragon common stock, and cash in lieu of any fractional
shares that would otherwise be issued to Paragon stockholders in
the merger.
Promptly after the
completion of the merger, the exchange agent will send transmittal
materials to each holder of a certificate and/or book-entry share
for Paragon common stock for use in exchanging Paragon stock
certificates and Paragon book-entry shares for certificates or
book-entry shares representing shares of TowneBank common stock,
and cash in lieu of fractional shares, if applicable. The exchange
agent will deliver certificates and/or book-entry shares
representing TowneBank common stock and a check in lieu of any
fractional shares, once it receives the properly completed
transmittal materials together with certificates and/or book-entry
shares representing a holder’s Paragon common
stock.
Paragon stock certificates or Paragon
book-entry shares
should NOT
be returned with the enclosed proxy card. They also should NOT be
forwarded to the exchange agent until you receive a transmittal
letter following completion of the merger.
Paragon
stock certificates and book-entry shares may be exchanged for new
TowneBank stock certificates and/or TowneBank book-entry shares
with the exchange agent for up to 12 months after the completion of
the merger. At the end of that period, any TowneBank stock
certificates, book-entry shares and cash in lieu of fractional
shares will be returned to TowneBank. Any holders of Paragon stock
certificates or Paragon book-entry shares who have not exchanged
their certificates or book-entry shares will be entitled to look
only to TowneBank for new stock certificates or book-entry shares
and any cash to be received in lieu of fractional shares of
TowneBank common stock.
Until
you exchange your Paragon stock certificates or Paragon book-entry
shares for new TowneBank shares, you will not receive any dividends
or other distributions in respect of shares of TowneBank common
stock. Once you exchange your Paragon stock certificates or Paragon
book-entry shares for new TowneBank shares, you will receive,
without interest, any dividends or distributions with a record date
after the effective date of the merger and payable with respect to
your shares.
If you
own Paragon common stock in book-entry form or through a broker,
bank or other holder of record, you will not need to obtain Paragon
stock certificates to surrender to the exchange agent.
If your
Paragon stock certificate has been lost, stolen or destroyed, you
may receive a new stock certificate upon the making of an affidavit
of that fact. TowneBank may require you to post a bond in a
reasonable amount as an indemnity against any claim that may be
made against TowneBank with respect to the lost, stolen or
destroyed Paragon stock certificate.
Neither
TowneBank nor Paragon, nor any other person, will be liable to any
former holder of Paragon stock for any amount properly delivered to
a public official pursuant to applicable abandoned property,
escheat or similar laws.
Corporate Governance
At
the effective date of the merger, the articles of incorporation of
TowneBank in effect immediately prior to the effective date of the
merger will be the articles of incorporation of TowneBank after
completion of the merger until thereafter amended in accordance
with their terms and applicable law.
TowneBank
has
agreed to amend its bylaws prior to the effective date of the bank
merger to increase the number of directors that serve on
TowneBank’s board of directors to the extent necessary to
accommodate the current directors of Paragon that will be appointed
as directors of TowneBank as of the effective date of the bank
merger. Pursuant to the merger agreement, TowneBank will appoint
each of Robert C. Hatley and Howard Jung to TowneBank’s board
of directors to serve in such capacity until the next annual
meeting of the stockholders of TowneBank after the effective date
of the bank merger, and, subject to the good faith consideration by
the Nominating Committee of TowneBank’s board of the
selection criteria set forth in its charter, such persons are to be
nominated to sit for election at such annual meeting.
At
the effective date of the bank merger, the bylaws of TowneBank in
effect immediately prior to the effective date of the bank merger
(with the amendment described above) will be the bylaws of
TowneBank after completion of the bank merger until thereafter
amended in accordance with their respective terms and applicable
law.
At
the effective date of the bank merger, TowneBank will establish a
TowneBank Cary board of directors, a TowneBank Charlotte board of
directors, and a TowneBank Raleigh board of directors
(collectively, the “TowneBank NC Boards”). The
TowneBank NC Boards shall initially be composed of the current
members of each of the advisory boards of directors maintained by
Paragon Bank for each of these regions, together with
representatives from the boards of directors of Paragon and Paragon
Bank, as appropriate for each geographical region, and other
business and community leaders chosen by TowneBank after
consultation with Paragon.
Each of
the Paragon directors that will serve on the board of directors of
TowneBank and the TowneBank NC Boards has signed an agreement
providing that such individual will not engage in activities
competitive with TowneBank until the later of the date that is two
years following the bank merger or the date on which he or she
ceases to be a member on such board.
Representations and Warranties
The
merger agreement contains representations and warranties relating
to TowneBank and Paragon’s respective businesses,
including:
●
corporate
organization, standing and power, and subsidiaries;
●
requisite corporate
authority to enter into the merger agreement and to complete the
contemplated transactions;
●
absence of
conflicts with or breaches of organizational documents or other
obligations as a result of entering into the merger
agreement;
●
required
governmental filings and consents;
●
TowneBank’s
FDIC filings or Paragon’s SEC filings, financial statements
included in certain of those filings and accounting
controls;
●
regulatory reports
filed with governmental agencies and other regulatory
matters;
●
absence of certain
changes or events and absence of certain undisclosed
liabilities;
●
legal proceedings
and compliance with applicable laws;
●
tax matters and tax
treatment of merger;
●
employee benefit
plans;
●
allowance for loan
losses;
●
required
stockholder vote to approve the merger agreement; and
●
engagement of
financial advisors and receipt of fairness opinions.
In
addition, the merger agreement contains representations and
warranties relating to Paragon’s business specifically, such
as:
●
ownership and
leasehold interests in properties;
●
loan portfolio and
mortgage loan buy-backs;
●
derivative
instruments;
●
investment
securities; and
●
transactions with
affiliates.
With
the exception of specified representations and warranties relating
to corporate authority, that must be true and correct in all
material respects, and representations and warranties relating to
absence of conflict with organizational documents, capitalization
(except de minimis in amount and effect) and absence of certain
changes reasonably likely to have a material adverse effect, which
must be true and correct in all respects, no representation or
warranty will be deemed untrue or incorrect as a consequence of the
existence or absence of any fact, event or circumstance unless that
fact, event or circumstance, individually or taken together with
all other facts, events or circumstances, has had or is reasonably
likely to have a material adverse effect (as such term is defined
in the merger agreement) on the party making the representation or
warranty, disregarding for these purposes (i) any qualification or
exception for, or reference to, materiality in any such
representation or warranty and (ii) any use of the terms
“material,” “materially,” “in all
material respects,” “material adverse effect” or
similar terms or phrases in any such representation or
warranty.
The
representations and warranties described above and included in the
merger agreement were made for purposes of the merger agreement and
are subject to qualifications and limitations agreed to by the
parties in connection with negotiating the terms of the merger
agreement, including being qualified by confidential disclosures,
and were made for the purposes of allocating contractual risk
between TowneBank and Paragon instead of establishing these matters
as facts. In addition, certain representations and warranties were
made as of a specific date and may be subject to a contractual
standard of materiality different from what might be viewed as
material to stockholders. The representations and warranties and
other provisions of the merger agreement should not be read alone,
but instead should only be read together with the information
provided elsewhere in this proxy statement/prospectus, in the
documents incorporated by reference into this proxy
statement/prospectus by TowneBank and Paragon, and in the periodic
and current reports and statements that TowneBank files with the
FDIC and Paragon files with the SEC. See “Where You Can Find
More Information” beginning on page
97.
Business Pending the Merger
TowneBank, Paragon
and Paragon Bank have made customary agreements that place
restrictions on them until the completion of the merger. In
general, TowneBank, Paragon and Paragon Bank are required to (i)
conduct their respective businesses in the ordinary and usual
course consistent with past practice, (ii) take no action that
would adversely affect or delay the ability to obtain the required
approvals and consents for the merger, perform the covenants and
agreements under the merger agreement or complete the merger on a
timely basis, (iii) take no action that would prevent the merger
from qualifying as a reorganization within the meaning of Section
368(a) of the Code and (iv) take no action that would make any of
its representation or warranties untrue, taking into account the
material adverse effect standard set forth in the merger
agreement.
Paragon
and Paragon Bank also agreed that, until the effective date of the
merger and with certain exceptions, it will not, and will not
permit any of its subsidiaries to, without the prior written
consent of TowneBank (which may not to be unreasonably withheld or
delayed):
●
amend, repeal or
modify any articles of incorporation, bylaws or other similar
governing instruments;
●
issue or sell any
additional shares of capital stock, other than pursuant to stock
options outstanding as of the date of the merger agreement, or
grant any stock options, restricted shares or other stock-based
awards;
●
enter into or amend
or renew any employment or severance agreement or similar
arrangement with any of its directors, officers or employees, or
grant any salary or wage increase or increase any employee benefit,
except for normal individual merit increases in the ordinary course
of business consistent with past practice that do not exceed 5% on
an individual basis and except for incentive or bonus payments that
do not exceed 15% on an individual basis, provided that such merit
increases, incentive payments and bonus payments shall not exceed
$500,000 in the aggregate;
●
enter into,
establish, adopt, amend, terminate or make any contributions to
(except as required by law, to satisfy contractual obligations as
previously disclosed to TowneBank or to comply with the
requirements of the merger agreement), any pension, retirement,
stock option, restricted stock, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance
or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of
any director, officer or employee or take any action to accelerate
the vesting or exercise of any benefits payable
thereunder;
●
hire any person as
an employee or promote any employee, except (i) to satisfy
contractual obligations as previously disclosed to TowneBank and
(ii) persons whose employment is terminable at will and who are not
contractually entitled to any severance or similar benefits or
payments that would become payable as a result of the merger or
bank merger, or the completion thereof, except as otherwise set
forth in the merger agreement;
●
make, declare, pay
any dividend on, or redeem, purchase or otherwise acquire any
shares of capital stock, or adjust, split, combine or reclassify
any shares of capital stock, except Paragon Bank may declare and
pay dividends to Paragon in the ordinary course of business
consistent with past practice;
●
make any capital
expenditures, other than capital expenditures in the ordinary
course of business consistent with past practice, in amounts not
exceeding $25,000 individually or $100,000 in the
aggregate;
●
implement, or
adopt, any change in its tax or financial accounting principles,
practices or methods, including reserving methodologies, other than
as may be required by generally accepted accounting principles in
the U.S., regulatory accounting guidelines or applicable
law;
●
sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of
its assets, deposits, business or properties except for (i) other
real estate owned properties sold in the ordinary course of
business consistent with past practice and (ii) transactions in the
ordinary course of business consistent with past practice in
amounts that do not exceed $25,000 individually or $50,000 in the
aggregate;
●
acquire all or any
portion of the assets, business, securities (excluding investment
securities in the ordinary course of business consistent with past
practice), deposits or properties of any other person, except for
acquisitions (i) by way of foreclosures or of control in a bona
fide fiduciary capacity or in satisfaction of debts previously
contracted in good faith and in amounts that do not exceed $500,000
individually or $1,000,000 in the aggregate, and (ii) in the
ordinary course of business consistent with past practice in
amounts that do not exceed $25,000 individually or $50,000 in the
aggregate;
●
enter into, amend,
modify, cancel, fail to renew or terminate any agreement, contract,
lease, license, arrangement, commitment or understanding that is
identified under the material contract representation and warranty
in the merger agreement;
●
enter into any
settlement or similar agreement with respect to any action, suit,
proceeding, order or investigation to which it is or becomes a
party after the date of the merger agreement, which settlement,
agreement or action involves payment of an amount that exceeds
$50,000 and/or would impose any material restriction on the
business of Paragon;
●
enter into any new
material line of business; introduce any material new products or
services; make any material change to deposit products or deposit
gathering or retention policies or strategies; change its material
lending, investment, underwriting, pricing, servicing, risk and
asset liability management and other material banking, operating or
board policies or otherwise fail to follow such policies, except as
required by applicable law, regulation or policies imposed by any
governmental authority, or the manner in which its investment
securities or loan portfolio is classified or reported; invest in
any mortgage-backed or mortgage-related security that would be
considered “high risk” under applicable regulatory
guidance; or file any application or enter into any contract with
respect to the opening, relocation or closing of, or open, relocate
or close, any branch, office, service center or other
facility;
●
introduce any
material marketing campaigns or any material new sales compensation
or incentive programs or arrangements (except those the material
terms of which have been fully disclosed in writing to, and
approved by, TowneBank prior to the date of the merger
agreement);
●
(i) make, renew,
restructure or otherwise modify any loan to be held in its loan
portfolio other than loans made or acquired in the ordinary course
of business consistent with past practice and that have (a) in the
case of unsecured loans, a principal balance not in excess of
$1,000,000 in total, (b) in the case of new secured loans, a
principal balance not in excess of $10,000,000 in total, or (c) in
the case of renewal of existing loans, total corporate exposure to
such borrower not in excess of $10,000,000, (ii) except in the
ordinary course of business, take any action that would result in
any discretionary release of collateral or guarantees or otherwise
restructure the respective amounts set forth in subsection (i)
above, or (iii) enter into any loan securitization or create any
special purpose funding entity (TowneBank will have observation
rights in connection with the consideration by Paragon Bank’s
Management Loan Committee of any new loan with total corporate
exposure to a borrower in excess of $5,000,000);
●
incur any
indebtedness for borrowed money, or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the
obligations of any other person, other than with respect to
(i) borrowings from the Federal Home Loan Bank of Atlanta or
existing federal funds accommodation lines of credit with
correspondent banks in the ordinary course of business consistent
with past practice, or (ii) the collection of checks and other
negotiable instruments in the ordinary course of business
consistent with past practice;
●
acquire (other than
by way of foreclosures or acquisitions in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good
faith, or otherwise in accordance with the existing investment
policy of Paragon Bank, in each case in the ordinary course of
business consistent with past practice) any debt security or equity
investment other than federal funds or U.S. Government securities
or U.S. Government agency securities, in each case with a term of
three years or less, or dispose of any debt security or equity
investment;
●
enter into or
settle any derivative contract, except for
contracts used to hedge mortgage
rate risk in the ordinary course of business as currently
conducted;
●
other than as a
loan or in connection with a debt previously contracted and in
order to protect Paragon Bank from loss, make any investment or
commitment to invest in real estate or in any real estate
development project, other than as a loan (and other than by way of
foreclosure or acquisitions in a bona fide fiduciary capacity or in
satisfaction of a debt previously contracted in good faith, in each
case in the ordinary course of business consistent with past
practice);
●
make or change any
material tax election in a manner inconsistent with past practice,
settle or compromise any material tax liability, agree to an
extension or waiver of the statute of limitations with respect to
the assessment or determination of a material amount of taxes,
enter into any closing agreement with respect to any material
amount of taxes or surrender any right to claim a material tax
refund, adopt or change any method of accounting in a manner
inconsistent with past practice, with respect to taxes or file any
amended tax return; or
●
agree to take any
of the actions prohibited by the preceding bullet
points.
TowneBank also
agreed that until the effective date of the merger it will not,
without the prior written consent of Paragon (which may not to be
unreasonably withheld or delayed), amend, repeal or modify its
articles of incorporation, bylaws or other similar governing
instruments in a manner which would have a material adverse effect
on Paragon or its stockholders or the transactions contemplated by
the merger agreement.
Assumption of Trust Preferred Capital Securities
TowneBank, Merger
Sub and Paragon will take all actions necessary for Paragon and
either or both of TowneBank or Merger Sub to enter into
supplemental indentures with the trustees of Paragon’s
$18,558,000 trust preferred capital securities to evidence the
succession of either or both of TowneBank or Merger Sub as the
obligor on those securities as of the effective date of the merger.
TowneBank will assume, on its own or through Merger Sub,
Paragon’s obligations under the indentures as well as under
the other agreements related to the trust preferred capital
securities. Subject to the receipt of any required regulatory
approvals, TowneBank intends to redeem the trust preferred capital
securities as soon as practicable after consummation of the merger
and bank merger.
Employee Matters
TowneBank,
at its election, will provide to employees of Paragon and Paragon
Bank that become employees of TowneBank after the merger (i)
employee benefits under TowneBank’s benefit plans (with no
break in coverage), on terms and conditions that are the same for
similarly situated employees of TowneBank, or (ii) continued
benefits under the existing Paragon and Paragon Bank benefit plans,
provided that TowneBank may amend the Paragon and Paragon Bank
benefit plans as necessary to comply with any law or as necessary
and appropriate for other business reasons. For purposes of
participation, vesting and benefit accrual, service with Paragon
and Paragon Bank will be treated as service with
TowneBank.
Paragon
has agreed to terminate its 401(k) plan effective immediately prior
to the effective date of the merger. Employees of Paragon and
Paragon Bank that will be employed by TowneBank after the merger
will be eligible to participate in TowneBank’s 401(k) plan as
soon as practicable following the effective date of the merger.
Plan balances in the Paragon 401(k) plan at the time of the merger
will be eligible for distribution or rollover.
TowneBank has entered into employment agreements,
change in control agreements and other arrangements with certain
officers and employees of Paragon and Paragon Bank providing for
their continued service with TowneBank following the merger and
bank merger
(see “The Merger – Interests of
Certain Paragon Directors and Executive Officers in the
Merger”)
. In addition, TowneBank
has agreed, for any Paragon or Paragon Bank employee who does not
have an agreement that provides for severance payments in
connection with a termination of employment or a change in control,
and who, within six months after the effective date, is
involuntarily terminated other than for cause by TowneBank, to pay
such employee severance pay equal to two weeks of such
employee’s base salary or rate of pay for each year of
service to Paragon or Paragon Bank (with a minimum of four weeks
and a maximum of 26 weeks of severance pay). Such severance pay
will be in lieu of any payment provided for under any Paragon or
Paragon Bank severance plans.
Regulatory Matters
The parties
have received the required approvals from each of the FDIC,
Virginia SCC and NCCOB. The parties have also received the
requested waiver from the Reserve Bank. Accordingly, all regulatory
approvals and waivers required for the merger have been
obtained.
Required Stockholder Approval
Paragon
has agreed to call a meeting of stockholders as soon as reasonably
practicable for the purpose of obtaining the required stockholder
vote in favor of the merger agreement, provided that the merger
agreement has not been terminated in accordance with its terms.
Pursuant to the merger agreement, Paragon is permitted to adjourn
or postpone the meeting (i) with the consent of TowneBank, (ii) for
the absence of a quorum, (iii) to the extent necessary to ensure
that any required supplement or amendment to the proxy statement is
provided to the stockholders of Paragon within a reasonable period
of time in advance of the meeting, (iv) to allow reasonable
additional time to solicit additional proxies as necessary to
obtain the Paragon stockholder approval, or (v) if required by
applicable law.
In
addition, Paragon’s board of directors has agreed to support
and recommend approval of the merger agreement to its stockholders
and to use commercially reasonable efforts to obtain from its
stockholders the required stockholder votes in favor of the merger
agreement. However, Paragon’s board of directors may (i)
withhold, withdraw, modify or amend its recommendation to approve
the merger agreement, or (ii) authorize, adopt, approve, recommend
or otherwise declare advisable a “superior proposal” as
described and under the circumstances set forth in the next section
(“— No Solicitation”), in each case if the board
of directors of Paragon determines in good faith (after
consultation with its outside legal counsel) that failure to do so
would be more likely than not to result in a violation of its
fiduciary obligations under applicable law.
No Solicitation
Paragon
has agreed that, while the merger agreement is in effect, it will
not directly or indirectly:
●
initiate, solicit
or encourage any inquiries or proposals with respect to any
“acquisition proposal” (as defined below);
or
●
engage or
participate in any negotiations or discussions concerning, or
provide any confidential or nonpublic information relating to, an
acquisition proposal.
For
purposes of the merger agreement, an “acquisition
proposal” means, other than the transactions contemplated by
the merger agreement, any offer, proposal or inquiry relating to,
or any third party indication of interest in, any of the following
transactions involving Paragon or Paragon Bank:
●
a merger,
consolidation, share exchange, business combination,
reorganization, recapitalization, liquidation, dissolution or other
similar transaction
;
●
any acquisition or
purchase, direct or indirect, of 15% or more of the consolidated
assets of Paragon or 15% or more of any class of equity or voting
securities of Paragon or its subsidiaries whose assets,
individually or in the aggregate, constitute more than 15% of the
consolidated assets of Paragon; or
●
any tender offer
(including a self-tender offer) or exchange offer that, if
consummated, would result in a third party beneficially owning 10%
or more of any class of equity or voting securities of Paragon or
its subsidiaries whose assets, individually or in the aggregate,
constitute more than 10% of the consolidated assets of
Paragon.
Under
the merger agreement, however, if Paragon receives an unsolicited
bona fide written acquisition proposal, it may engage in
negotiations or discussions with or provide nonpublic information
to the person or entity making the acquisition proposal
if:
●
the Paragon board
of directors receives the proposal prior to receipt of stockholder
approval of the merger agreement;
●
the Paragon board
concludes in good faith, after consultation with and based upon the
advice of outside legal counsel, that the failure to take such
actions would more likely than not result in a violation of its
fiduciary duties to stockholders under North Carolina
law;
●
the Paragon board
also concludes in good faith, after consultation with outside legal
counsel and financial advisors, that the acquisition proposal
constitutes or is reasonably likely to result in a superior
proposal (as defined below); and
●
Paragon receives
from the person or entity making the proposal an executed
confidentiality agreement, which confidentiality agreement does not
provide such person or entity with any exclusive right to negotiate
with Paragon.
Paragon
has agreed to advise TowneBank, within 24 hours of reaching the
conclusions set forth in the second and third bullet points
immediately above, of the receipt of any such acquisition proposal,
including a description of the
material terms and conditions
of the
proposal (including the identity of the proposing party), and to
keep TowneBank apprised of any material related developments,
discussions and negotiations on a current basis.
For
purposes of the merger agreement, a “superior proposal”
means an unsolicited, bona fide written acquisition proposal made
by a person or entity that the board of directors of Paragon
concludes in good faith, after consultation with its financial and
outside legal advisors, taking into account all legal, financial,
regulatory and other aspects of the acquisition proposal and
including the terms and conditions of the merger
agreement:
●
is more favorable
to the stockholders of Paragon from a financial point of view, than
the transactions contemplated by the merger agreement;
and
●
is reasonably
capable of being completed on the terms proposed and in a timely
manner.
For the
purposes of the definition of “superior proposal,” the
term “acquisition proposal” has the same meaning as
described above, except the reference to “15% or more”
is changed to be a reference to “a majority” and an
“acquisition proposal” can only refer to a transaction
involving Paragon or Paragon Bank.
Conditions to Completion of the Merger
The
respective obligations of the parties to complete the merger are
subject to the satisfaction or waiver of certain conditions,
including the following:
●
approval of the
merger proposal by the Paragon stockholders;
●
approval of the
merger by the necessary federal and state regulatory authorities,
provided that no such approvals contain any conditions,
restrictions or requirements that would, after the merger, (i) have
or be reasonably likely to have a material adverse effect on
TowneBank, in the reasonable opinion of TowneBank, or (ii) be
unduly burdensome, in the reasonable opinion of
TowneBank;
●
clearance of the
proxy statement/prospectus by the SEC for use in definitive form,
provided it is not subject to any stop order or any threatened stop
order (or an order, demand, request or other action with similar
effect) of the SEC;
●
approval from the
NASDAQ Stock Market for the listing on the NASDAQ Global Select
Market of the shares of TowneBank common stock to be issued in the
merger;
●
the absence of any
statute, rule, regulation, judgment, decree, injunction or other
order of a court, regulatory agency or other governmental authority
that prohibits the completion of the merger;
●
the accuracy of the
other parties’ representations and warranties in the merger
agreement, subject to the material adverse effect standard in the
merger agreement;
●
each party’s
performance in all material respects of its obligations under the
merger agreement;
●
the receipt by
TowneBank from Williams Mullen, TowneBank’s outside legal
counsel, of a written legal opinion to the effect that the merger
will be treated as a “reorganization” within the
meaning of Section 368(a) of the Code and the receipt by Paragon
from Wyrick Robbins Yates & Ponton LLP, Paragon’s outside
legal counsel, of a written legal opinion to the effect that the
merger will be treated as a “reorganization” within the
meaning of Section 368(a) of the Code; and
●
the execution and
delivery of certain agreements by key employees of Paragon and
Paragon Bank concerning their employment with TowneBank and related
matters after the effective date of the merger, such agreements not
being breached or terminated, and such employees continuing to be
employed by Paragon or Paragon Bank.
Where
the merger agreement and law permits, TowneBank or Paragon and
Paragon Bank could choose to waive a condition to the obligation to
complete the merger even if that condition has not been satisfied.
We cannot be certain when, or if, the conditions to the merger will
be satisfied or waived or that the merger will be
completed.
Termination of the Merger Agreement
Termination by TowneBank,
Merger Sub, Paragon
and Paragon
Bank
.
The merger
agreement may be terminated and the merger abandoned by TowneBank,
Merger Sub, Paragon
and
Paragon Bank, at any time before the merger is completed, by mutual
consent of the parties.
Termination by TowneBank
and Merger Sub or Paragon
and Paragon
Bank
.
The merger
agreement may be terminated and the merger abandoned by
TowneBank and
Merger Sub or Paragon
and
Paragon Bank if:
●
the merger and bank
merger have not been completed by March 31, 2018, unless the
failure to complete the merger and bank merger by such time was
caused by a breach or failure to perform an obligation under the
merger agreement by the terminating party; or
●
the Paragon
stockholders do not approve the merger agreement.
Termination by TowneBank
and Merger Sub.
TowneBank and Merger Sub may terminate the
merger agreement at any time before the merger is completed
if:
●
there is a breach
or inaccuracy of any representation or warranty of Paragon or
Paragon Bank contained in the merger agreement that would cause the
failure of the closing conditions to be met by Paragon and Paragon
Bank described above, and the breach is not cured within 30 days
following written notice to Paragon or by its nature cannot be
cured within such time period, unless TowneBank is in breach of any
representation, warranty, covenant or agreement;
●
there is a material
breach by Paragon or Paragon Bank of any covenant or agreement
contained in the merger agreement, and the breach is not cured
within 30 days following written notice to Paragon or by its nature
cannot be cured within such time period, unless TowneBank is in
breach of any representation, warranty, covenant or
agreement;
●
any of the
conditions precedent to the obligations of TowneBank to consummate
the merger set forth in the merger agreement cannot be satisfied or
fulfilled by March 31, 2018, unless TowneBank is in breach of any
representation, warranty, covenant or agreement;
●
without
TowneBank’s prior consent, Paragon or Paragon Bank enters
into an agreement with respect to a business combination
transaction or an acquisition directly from Paragon of securities
representing 15% or more of Paragon common stock;
●
a tender offer or
exchange offer for 15% or more of the outstanding shares of Paragon
common stock is commenced, and the Paragon board recommends that
Paragon stockholders tender their shares in the offer or otherwise
fails to recommend that they reject the offer; or
●
at any time before
the special meeting, (i) Paragon materially breaches its agreement
regarding the non-solicitation of other business combination
offers, (ii) the board of directors of Paragon fails to recommend
approval of the merger agreement to its stockholders, withdraws,
modifies or changes such recommendation, or authorizes, adopts,
approves, recommends or otherwise declares advisable a superior
proposal, in each case in a manner that is adverse in any respect
to the interests of TowneBank, or (iii) Paragon materially breaches
its covenants in the merger agreement requiring the calling and
holding of a meeting of stockholders to consider the merger
agreement.
Termination by Paragon and
Paragon Bank.
Paragon and Paragon Bank may terminate the
merger agreement at any time before the merger is completed
if:
●
there is a breach
or inaccuracy of any representation or warranty of TowneBank
contained in the merger agreement that would cause the failure of
the closing conditions to be met by TowneBank described above, and
the breach is not cured within 30 days following written notice to
TowneBank or by its nature cannot be cured within such time period,
unless Paragon or Paragon Bank is in breach of any representation,
warranty, covenant or agreement;
●
there is a material
breach by TowneBank of any covenant or agreement contained in the
merger agreement, and the breach is not cured within 30 days
following written notice to TowneBank or by its nature cannot be
cured within such time period, unless Paragon or Paragon Bank is in
breach of any representation, warranty, covenant or
agreement;
●
any of the
conditions precedent to the obligations of Paragon and Paragon Bank
to consummate the merger set forth in the merger agreement cannot
be satisfied or fulfilled by March 31, 2018, unless Paragon or
Paragon Bank is in breach of any representation, warranty, covenant
or agreement;
●
at any time before
the special meeting, the board of directors of Paragon determines
to enter into an agreement with respect to an unsolicited
“superior proposal” (as defined in the merger agreement
and described above) which has been received and considered by
Paragon in material compliance with the merger agreement, provided
that (i) Paragon has notified TowneBank at least three business
days in advance of its intent to accept such superior proposal,
(ii) Paragon has, upon TowneBank’s request, discussed with
TowneBank the circumstances giving rise to the decision to accept
the superior proposal and negotiated in good faith with TowneBank
to facilitate TowneBank’s evaluation of whether to improve
the terms and conditions of the merger agreement, (iii) if
TowneBank has made an offer to improve the terms of the merger
agreement, Paragon’s board of directors has determined in
good faith, after consultation with its financial and outside legal
advisors, and taking into account TowneBank’s improved offer,
that the superior proposal would continue to constitute a superior
proposal under the merger agreement, and (iv) if the terms of the
superior proposal change materially, Paragon has continued to
provide the same notice and opportunity for TowneBank to improve
its offer at least two business days in advance of accepting the
superior proposal; or
●
the Paragon board
of directors so determines, at any time during the five-day period
beginning on the later of (i) the date on which the last approval,
consent or waiver of any governmental authority required to
complete the merger is received and all statutory waiting periods
have expired, or (ii) the date on which the Paragon stockholders
approve the merger agreement, if the price of TowneBank common
stock has declined by more than 20% over a designated measurement
period on an actual basis and declined by more than 20% relative to
the NASDAQ Bank Index during the same period, unless TowneBank
elects to increase the consideration to be paid to Paragon
stockholders (which it is not obligated to do).
In the
event of termination, the merger agreement will become null and
void, except that certain provisions thereof relating to fees and
expenses (including the obligation to pay the termination fee
described below in certain circumstances) and confidentiality of
information exchanged between the parties will survive any such
termination.
Termination Fee
The
merger agreement provides that Paragon must pay TowneBank a $12.0
million termination fee under the circumstances and in the manner
described below:
●
if the merger
agreement is terminated (i) by TowneBank and Merger Sub for any of
the reasons described in the fourth, fifth and sixth bullet points
under “– Termination of the Merger Agreement –
Termination by TowneBank and Merger Sub” beginning on page
75 or by Paragon for the reason described in the
fourth bullet point under “– Termination of the Merger
Agreement – Termination by Paragon and Paragon Bank”
beginning on page 76, Paragon must pay the termination
fee to TowneBank concurrently with the termination of the merger
agreement; or
●
if the merger
agreement is terminated (i) by TowneBank and Merger Sub for any of
the reasons described in the first, second or third bullet points
under “– Termination of the Merger Agreement –
Termination by TowneBank and Merger Sub” beginning on page
75, (ii) by either TowneBank and Merger Sub or Paragon
and Paragon Bank because the merger has not been completed by March
31, 2018, or (iii) by either TowneBank and Merger Sub or
Paragon and Paragon Bank because the merger was not approved by the
stockholders of Paragon,
and
in the case of termination
pursuant to clauses (i), (ii) and (iii) above an acquisition
proposal (as described under “– No Solicitation”
beginning on page 73) has been publicly announced or
otherwise communicated or made known to the stockholders, senior
management or the board of directors of Paragon (or any person has
publicly announced, communicated or made known an intention,
whether or not conditional, to make an acquisition proposal) prior
to the taking of the vote of the stockholders of Paragon
contemplated by the merger agreement, in the case of clause (iii)
above, or prior to the date of termination, in the case of clauses
(i) or (ii) above, then (a) if within 12 months after such
termination Paragon enters into an agreement or consummates a
transaction with respect to an acquisition proposal (whether or not
the same acquisition proposal as that referred to above), then
Paragon must pay to TowneBank the termination fee on the date of
execution of such agreement (regardless of whether such transaction
is consummated before or after the termination of this agreement)
or the consummation of such transaction, or (b) if a transaction
with respect to an acquisition proposal (whether or not the same
acquisition proposal as that referred to above) is consummated
otherwise than pursuant to an agreement with Paragon within 12
months after the termination of the merger agreement, then Paragon
must pay to TowneBank the termination fee on the date when such
transaction is consummated.
Any
termination fee that becomes payable to TowneBank pursuant to the
merger agreement will be paid by wire transfer of immediately
available funds to an account designated by TowneBank. If Paragon
fails to timely pay the termination fee to TowneBank, Paragon also
will be obligated to pay the costs and expenses incurred by
TowneBank to collect such payment, together with
interest.
Indemnification and Insurance
TowneBank has
agreed to indemnify the directors and officers of Paragon against
certain liabilities arising before the effective date of the
merger. TowneBank has also agreed to purchase a six year
“tail” prepaid policy, on the same terms as
Paragon’s existing directors’ and officers’
liability insurance, for the current directors and officers of
Paragon, subject to a cap on the cost of such policy equal to 250%
of the last annual premium paid by Paragon.
Expenses
In
general, whether or not the merger is completed, TowneBank and
Paragon will each pay its respective expenses incident to
preparing, entering into and carrying out the terms of the merger
agreement. The parties will share the costs of all filing fees paid
to the SEC and other governmental authorities.
Waiver and Amendment
At any
time on or before the effective date of the merger, any term or
provision of the merger agreement, other than the merger
consideration, may be waived by the party which is entitled to the
benefits thereof, without stockholder approval, to the extent
permitted under applicable law. The terms of the merger agreement
may be amended at any time before the merger by agreement of the
parties, whether before or after the date of the special meeting,
except with respect to statutory requirements and requisite
stockholder and regulatory authority approvals.
Affiliate Agreements
Each of
the directors and executive officers of Paragon, and each holder of
10% or more of Paragon’s common stock, has entered into an
agreement with TowneBank and Paragon pursuant to which such
individual or entity has agreed, subject to several conditions and
exceptions, to vote all of the Paragon shares over which such
individual or entity has voting authority in favor of the merger
agreement and against any competing acquisition proposal,
respectively, subject to certain exceptions, including that certain
shares held in a fiduciary capacity are not covered by the
agreement.
The
affiliate agreements prohibit, subject to limited exceptions,
selling, transferring, pledging, encumbering or otherwise disposing
of any shares of Paragon common stock subject to the agreement. The
affiliate agreements terminate upon the earlier to occur of the
completion of the merger or the termination of the merger agreement
in accordance with its terms.
Possible Alternative Merger Structure
The
merger agreement provides that TowneBank and Paragon may mutually
agree to change the method or structure of the merger. However, no
change may be made that:
●
alters or changes
the exchange ratio or the amount of cash to be received by Paragon
stockholders in exchange for each share of Paragon common
stock;
●
adversely affects
the tax treatment of the merger to TowneBank or Paragon pursuant to
the merger agreement; or
●
materially impedes
or delays completion of the merger in a timely manner.
Resales of TowneBank Common Stock
The
shares of TowneBank common stock to be issued to Paragon
stockholders under the merger agreement may be freely traded
without restriction by holders after the merger. TowneBank is a
“bank” as defined in the Securities Act of 1933, as
amended (the “Securities Act”), and as such is exempt
from registering its shares of common stock for sale or exchange
under Section 3(a)(2) of the Securities Act. TowneBank’s
common stock is listed on the NASDAQ Global Select
Market.
TowneBank is
subject to reporting requirements under the Exchange Act, and as
such files reports, proxy statements and other information with the
FDIC. Such filings can be obtained at the FDIC’s Internet
website at
http://www2.fdic.gov/efr
and at
TowneBank’s Internet website at
https://www.townebank.com
under
“Investor Relations.” The information contained on the
websites of the FDIC and TowneBank is expressly not incorporated by
reference into this proxy statement/prospectus.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The
material U.S. federal income tax consequences of the merger
of Paragon with and into Merger
Sub
to “U.S. holders” (as defined below) of
Paragon common stock that exchange their shares of Paragon common
stock for shares of TowneBank common stock in the merger are as
described below. The following discussion is based upon the Code,
Treasury regulations, judicial authorities, published positions of
the Internal Revenue Service (the “IRS”) and other
applicable authorities, all as currently in effect and all of which
are subject to change or differing interpretations (possibly with
retroactive effect).
This
discussion does not address the tax consequences of the merger
under state, local or foreign tax laws, nor does it address any tax
consequences arising under the unearned income Medicare
contribution tax pursuant to Section 1411 of the Code. No assurance
can be given that the IRS would not assert, or that a court would
not sustain, a position contrary to any of the tax consequences set
forth below.
This
discussion is limited to U.S. holders (as defined below) that hold
their shares of Paragon common stock as a capital asset within the
meaning of Section 1221 of the Code (generally, property held for
investment). Furthermore, this discussion does not address all of
the tax consequences that may be relevant to a particular Paragon
stockholder or to Paragon stockholders that are subject to special
rules under U.S. federal income tax laws, such as: stockholders
that are not U.S. holders; financial institutions; insurance
companies; mutual funds; tax-exempt organizations; S corporations
or other pass-through entities (or investors in such entities);
regulated investment companies; real estate investment trusts;
brokers or dealers in securities or currencies; persons subject to
the alternative minimum tax provisions of the Code; former citizens
or residents of the United States; persons whose functional
currency is not the U.S. dollar; traders in securities that elect
to use a mark-to-market method of accounting; persons who own more
than 5% of the outstanding common stock of Paragon; persons who
hold Paragon common stock as part of a straddle, hedge,
constructive sale or conversion transaction; and U.S. holders who
acquired their shares of Paragon common stock through the exercise
of an employee stock option or otherwise as
compensation.
For
purposes of this section, the term “U.S. holder” means
a beneficial owner of Paragon common stock that for United States
federal income tax purposes is: an individual citizen or resident
of the United States; a corporation, or other entity treated as a
corporation for U.S. federal income tax purposes, created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia; an estate that is subject to
U.S. federal income tax on its income regardless of its source; or
a trust, the substantial decisions of which are controlled by one
or more U.S. persons and that is subject to the primary supervision
of a U.S. court, or a trust that validly has elected under
applicable Treasury regulations to be treated as a U.S. person for
U.S. federal income tax purposes.
If a
partnership or other entity taxed as a partnership holds Paragon
common stock, the tax treatment of a partner in the partnership
generally will depend upon the status of the partner and the
activities of the partnership. Partnerships and partners in such a
partnership should consult their tax advisers about the tax
consequences of the merger to them.
Holders
of Paragon common stock are urged to consult with their own tax
advisors as to the tax consequences of the merger in their
particular circumstances, including the applicability and effect of
the alternative minimum tax and any state, local or foreign and
other tax laws and of any changes in those laws.
General Tax Consequences of the Merger
Subject
to the limitations, assumptions and qualifications described
herein, the merger
of Paragon with and
into Merger Sub
will be treated as a reorganization within
the meaning of Section 368(a) of the Code. Accordingly, and as
described in greater detail below, no gain or loss will be
recognized for U.S. federal income tax purposes in respect of the
receipt of shares of TowneBank common stock, except for any gain or
loss that may result from the receipt of cash in lieu of fractional
shares of TowneBank common stock. Consummation of the merger is
conditioned upon TowneBank and Paragon each receiving a written tax
opinion, dated the closing date of the merger, from Williams Mullen
and Wyrick Robbins Yates & Ponton LLP, respectively, to the
effect that, based upon facts, representations and assumptions set
forth in such opinions, the merger
of
Paragon with and into Merger Sub
will be treated as a
reorganization within the meaning of Section 368(a) of the Code.
The issuance of the opinions is conditioned on, among other things,
such tax counsel’s receipt of representation letters from
each of TowneBank and Paragon, in each case in form and substance
reasonably satisfactory to such counsel, and on customary factual
assumptions. The opinions of counsel are not binding on the IRS or
the courts and no ruling has been, or will be, sought from the IRS
as to the U.S. federal income tax consequences of the merger
of Paragon with and into Merger
Sub
. Consequently, no assurance can be given that the IRS
will not assert, or that a court would not sustain, a position
contrary to the consequences set forth below. In addition, if any
of the representations or assumptions upon which the opinions are
based are inconsistent with the actual facts, the U.S. federal
income tax consequences of the merger
of Paragon with and into Merger Sub
could
be adversely affected. Accordingly, each Paragon stockholder should
consult its tax advisor with respect to the particular tax
consequences of the merger to such holder.
Tax Consequences to TowneBank, Paragon and Paragon
Bank
Each of
TowneBank and Paragon will be a party to the merger within the
meaning of Section 368(b) of the Code, and neither TowneBank nor
Paragon will recognize any gain or loss as a result of the
merger.
Tax Consequences to Paragon Stockholders
Exchange of Paragon Common
Stock for TowneBank Common Stock.
U.S. holders of Paragon
common stock that exchange all of their Paragon common stock for
TowneBank common stock will not recognize income, gain or loss for
U.S. federal income tax purposes, except, as discussed below, with
respect to cash received in lieu of fractional shares of TowneBank
common stock.
Cash Received in Lieu of
Fractional Shares.
Generally, a U.S. holder that receives
cash in lieu of a fractional share of TowneBank common stock in the
merger will be treated as if the fractional share of TowneBank
common stock had been distributed to the U.S. holder as part of the
merger, and then redeemed by TowneBank in exchange for the cash
actually distributed in lieu of the fractional share, with the
redemption generally qualifying as an “exchange” under
Section 302 of the Code for holders that do not own, directly or by
attribution, a material amount of TowneBank stock before the
merger. Consequently, those holders generally will recognize
capital gain or loss with respect to the cash payments they receive
in lieu of fractional shares measured by the difference between the
amount of cash received and the portion of the holder’s
aggregate tax basis in the Paragon common stock surrendered
allocable to the fractional shares. Such gain or loss generally
will be long-term capital gain or loss if, as of the effective date
of the merger, the holding period of such shares is greater than
one year. For holders of Paragon common stock that are noncorporate
holders, long-term capital gain generally will be taxed at a U.S.
federal income tax rate that is lower than the rate for ordinary
income or for short-term capital gains. The deductibility of
capital losses is subject to limitations. Paragon stockholder that
own a material amount of TowneBank stock before the merger,
however, should consult their own tax advisors regarding the
possible taxation of cash paid in lieu of a fractional share as a
dividend.
TowneBank Common Stock Tax
Basis and Holding Period.
A U.S. holder’s aggregate
tax basis in the TowneBank common stock received in the merger of
Paragon with and into Merger Sub will be equal to such
stockholder’s aggregate tax basis in the Paragon common stock
surrendered in the merger, reduced by any amount allocable to a
fractional share of TowneBank common stock for which cash is
received and gain or loss is recognized as described above. The
holding period of TowneBank common stock received by a U.S. holder
in the merger will include the holding period of the Paragon common
stock exchanged in the merger if the Paragon common stock exchanged
is held as a capital asset at the time of the merger. If a U.S.
holder acquired different blocks of Paragon common stock at
different times or at different prices, the TowneBank common stock
such holder receives will be allocated pro rata to each block of
Paragon common stock, and the basis and holding period of each
block of TowneBank common stock such holder receives will be
determined on a block-for-block basis depending on the basis and
holding period of the blocks of Paragon common stock exchanged for
such block of TowneBank common stock.
Information Reporting and Backup Withholding
U.S.
holders of Paragon common stock, other than certain exempt
recipients, may be subject to backup withholding at a rate of 28%
with respect to any cash payment received in the merger in lieu of
fractional shares. However, backup withholding will not apply to
any U.S. holder that either (a) furnishes a correct taxpayer
identification number and certifies that it is not subject to
backup withholding or (b) otherwise proves to TowneBank and its
exchange agent that the U.S. holder is exempt from backup
withholding. Any amounts withheld under the backup withholding
rules generally will be allowed as a refund or credit against the
holder’s U.S. federal income tax liability, provided the
holder timely furnishes the required information to the
IRS.
In
addition, U.S. holders of Paragon common stock are required to
retain permanent records and make such records available to any
authorized IRS officers and employees. The records should include
the number of shares of Paragon stock exchanged, the number of
shares of TowneBank stock received, the fair market value and tax
basis of Paragon shares exchanged and the U.S. holder’s tax
basis in the TowneBank common stock received.
If a
U.S. holder of Paragon common stock that exchanges such stock for
TowneBank common stock is a “significant holder” with
respect to Paragon, the U.S. holder is required to include a
statement with respect to the exchange on or with the federal
income tax return of the U.S. holder for the year of the exchange.
A U.S. holder of Paragon common stock will be treated as a
significant holder in Paragon if the U.S. holder’s ownership
interest in Paragon is five percent (5%) or more of Paragon’s
issued and outstanding common stock or if the U.S. holder’s
basis in securities of Paragon immediately before the merger is one
million dollars ($1,000,000) or more. The statement must be
prepared in accordance with Treasury regulations Section 1.368-3
and must be entitled “STATEMENT PURSUANT TO §1.368-3(b)
BY [INSERT NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF
TAXPAYER], A SIGNIFICANT HOLDER”. The statement must include
the names and employer identification numbers of Paragon and
TowneBank, the date of the merger, and the fair market value and
tax basis of Paragon shares exchanged (determined immediately
before the merger).
This
discussion of the material U.S. federal income tax consequences
does not purport to be a complete analysis or listing of all
potential tax effects that may apply to a holder of Paragon common
stock. It does not address any non-income tax or any foreign, state
or local tax consequences of the merger, or any tax consequences to
Paragon stockholders that are not U.S. holders. Further, it is not
intended to be, and should not be construed as, tax advice. Holders
of Paragon common stock are urged to consult their independent tax
advisors with respect to the application of U.S. federal income tax
laws to their particular situations, as well as any tax
consequences arising under the U.S. federal estate, gift or other
tax rules, or under the laws of any state, local, foreign or other
taxing jurisdiction or under any applicable tax
treaty.
DESCRIPTION OF TOWNEBANK CAPITAL STOCK
The
following summary description of the material features of the
capital stock of TowneBank is qualified in its entirety by
reference to TowneBank’s articles of incorporation and
bylaws, each as amended.
As a
result of the merger, Paragon stockholders who receive shares of
TowneBank common stock in the merger will become stockholders of
TowneBank. The rights of stockholders of TowneBank are governed by
Virginia law and the articles of incorporation and the bylaws of
TowneBank, each as amended. We urge you to read the applicable
provisions of the Virginia SCA, TowneBank’s articles of
incorporation and bylaws and federal laws governing banks carefully
and in their entirety. Copies of TowneBank’s and
Paragon’s governing documents have been filed with the FDIC
and SEC, respectively. To find out where copies of these documents
can be obtained, see “Where You Can Find More
Information.”
Authorized and Outstanding Capital Stock
The authorized capital stock of TowneBank consists
of 90,000,000 shares of common stock, par value $1.667 per share,
and 2,000,000 shares of preferred stock, par value $5.00 per share.
As of
November 24
,
2017, there were
62,640,932
shares of common stock issued and outstanding held
by approximately
9,630
holders of record. As of
November
24
, 2017, there were options
outstanding to purchase
51,216
shares of TowneBank common stock and
403,782
shares were
subject to unvested restricted stock awards, all granted under
TowneBank’s equity compensation plans.
As
of November 24, 2017, no shares of TowneBank preferred
stock were issued and outstanding.
Common Stock
General.
Each
share of TowneBank common stock has the same relative rights as,
and is identical in all respects to, each other share of its common
stock. TowneBank’s common stock is traded on the NASDAQ
Global Select Market under the symbol “TOWN.” The
transfer agent for TowneBank’s common stock is Computershare,
Inc., 250 Royall Street, Canton, Massachusetts
02021.
Dividends.
TowneBank’s
stockholders
are entitled to receive dividends or distributions that its board
of directors may declare out of funds legally available for those
payments. The payment of distributions by TowneBank is subject to
the restrictions of Virginia law applicable to the declaration of
distributions by a Virginia banking corporation. Under Virginia
law, TowneBank’s board of directors may declare a dividend
out of the net undivided profits of the bank, after providing for
all expenses, losses, interest and taxes accrued or due. No
dividend may be declared or paid by TowneBank that would impair its
paid-in capital. To determine the net undivided profits, all debts
due to TowneBank on which interest is past due and unpaid for a
period of 12 months, unless well secured and in process of
collection by law, are deducted from the undivided profits in
addition to all expenses, losses, interest and taxes accrued. In
addition, the payment of distributions to stockholders is subject
to any prior rights of outstanding preferred stock. The ability of
TowneBank to pay dividends in the future is, and could be further,
influenced by bank regulatory requirements and capital
guidelines.
Liquidation
Rights.
In the event of any
liquidation, dissolution or winding up of TowneBank, the holders of
shares of its common stock will be entitled to receive, after
payment of all debts and liabilities of TowneBank and after
satisfaction of all liquidation preferences applicable to any
preferred stock, all remaining assets of TowneBank available for
distribution in cash or in kind.
Voting
Rights.
The holders of
TowneBank common stock are entitled to one vote per share and, in
general, a majority of votes cast with respect to a matter is
sufficient to authorize action upon routine matters. Directors are
elected by a plurality of the votes cast, and stockholders do not
have the right to accumulate their votes in the election of
directors.
Directors
and Classes of Directors.
TowneBank’s board of directors is divided
into three classes, apportioned as evenly as possible, with
directors serving staggered three-year terms. Currently, the
TowneBank board consists of 33 directors. Under TowneBank’s
articles of incorporation, directors may be removed only for cause
and
only if the number of votes cast to remove the director
constitutes a majority of the votes entitled to be cast at an
election of directors of the voting group or voting groups by which
the director was elected.
No
Preemptive
Rights; Redemption and Assessment.
Holders of shares of TowneBank common stock are
not entitled to preemptive rights with respect to any shares that
may be issued. TowneBank common stock is not subject to redemption
or any sinking fund and the outstanding shares are fully paid and
nonassessable.
For
more information regarding the rights of holders of TowneBank
common stock, see “Comparative Rights of
Stockholders.”
Preferred Stock
The
board of directors of TowneBank is empowered to authorize the
issuance, in one or more series, of shares of preferred stock at
such times, for such purposes and for such consideration as it may
deem advisable without stockholder approval. The TowneBank board is
also authorized to fix the designations, voting, conversion,
preference and other relative rights, qualifications and
limitations of any such series of preferred stock.
The
TowneBank board of directors, without stockholder approval, may
authorize the issuance of one or more series of preferred stock
with voting and conversion rights which could adversely affect the
voting power of the holders of TowneBank common stock and, under
certain circumstances, discourage an attempt by others to gain
control of TowneBank.
The
creation and issuance of any series of preferred stock, and the
relative rights, designations and preferences of such series, if
and when established, will depend upon, among other things, the
future capital needs of TowneBank, then existing market conditions
and other factors that, in the judgment of the TowneBank board,
might warrant the issuance of preferred stock.
Liability and Indemnification of Directors and
Officers
As
permitted by the Virginia SCA, TowneBank’s articles of
incorporation contain provisions that indemnify its directors and
officers to the full extent permitted by Virginia law and eliminate
the personal liability of directors and officers for monetary
damages to the company or its stockholders for breach of their
fiduciary duties, except to the extent such indemnification or
elimination of liability is prohibited by the act. These provisions
do not limit or eliminate the rights of TowneBank or any
stockholder to seek an injunction or any other non-monetary relief
in the event of a breach of a director’s or officer’s
fiduciary duty. In addition, these provisions apply only to claims
against a director or officer arising out of his role as a director
or officer and do not relieve a director or officer from liability
if he engaged in willful misconduct or a knowing violation of the
criminal law or any federal or state securities law.
In
addition, TowneBank’s articles of incorporation provide for
the indemnification of both directors and officers for expenses
incurred by them in connection with the defense or settlement of
claims asserted against them in their capacities as directors and
officers. This right of indemnification extends to judgments or
penalties assessed against them. TowneBank has limited its exposure
to liability for indemnification of directors and officers by
purchasing directors’ and officers’ liability insurance
coverage.
TowneBank Common Stock is Not Insured by the FDIC
TowneBank’s
common stock is not a deposit or a savings account and is not
insured or guaranteed by the FDIC or any other government
agency.
COMPARATIVE RIGHTS OF STOCKHOLDERS
TowneBank is a
Virginia corporation subject to the provisions of the Virginia SCA
and Paragon is a North Carolina corporation governed by the North
Carolina BCA. The rights of stockholders of TowneBank and Paragon
are governed by their respective articles of incorporation and
bylaws. Upon completion of the proposed merger, Paragon
stockholders will become stockholders of TowneBank and, as such,
their stockholder rights will be governed by the articles of
incorporation and bylaws of TowneBank and the Virginia SCA. Because
TowneBank is organized under the laws of the Commonwealth of
Virginia and Paragon is organized under the laws of the State of
North Carolina, differences in the rights of holders of TowneBank
common stock and those of holders of Paragon common stock arise
from differing provisions of the Virginia SCA and the North
Carolina BCA, in addition to differing provisions of their
respective articles of incorporation and bylaws.
The
following is a summary of the material differences in the rights of
stockholders of TowneBank and Paragon, but is not a complete
statement of all those differences. Stockholders should read
carefully the relevant provisions of the Virginia SCA and the North
Carolina BCA and the respective articles of incorporation and
bylaws of TowneBank and Paragon. This summary is qualified in its
entirety by reference to the articles of incorporation and bylaws
of TowneBank and Paragon, and to the provisions of the Virginia SCA
and the North Carolina BCA.
Authorized Capital Stock
TowneBank
. TowneBank
is authorized to issue 90,000,000 shares of common stock, par value
$1.667 per share, of which 62,640,932 shares were
issued and outstanding as of November 24, 2017, and
2,000,000 shares of preferred stock, par value $5.00 per share, of
which
no
shares were issued and
outstanding as of November 24, 2017.
TowneBank’s
articles of incorporation permit its board of directors, without
stockholder approval, to fix the preferences, limitations and
relative rights of its preferred stock and to establish classes or
series of such preferred stock and determine the variations between
each class or series. Holders of TowneBank stock of any class do
not have any preemptive or preferential right to subscribe for,
purchase or acquire (i) any shares of any class of capital stock of
TowneBank, (ii) any options, warrants or rights to subscribe for,
purchase or acquire any of such shares, or (iii) any securities or
obligations convertible into, or exchangeable for, any such shares
or warrants, rights or options to purchase any such
shares.
Paragon.
Paragon is
authorized to issue 20,000,000 shares of common stock, par value
$0.008 per share, of which 5,460,447 shares were
issued and outstanding as of the record date for the special
meeting, and 2,000,000 shares of preferred stock, with no par value
per share, of which
no
shares
were issued and outstanding as of the record date for the special
meeting.
Paragon’s
articles of incorporation permit its board of directors, without
stockholder approval, to fix the preferences, limitations and
relative rights of its preferred stock and to establish classes or
series of such preferred stock and determine the variations between
each class or series. Holders of Paragon stock of any class do not
have any preemptive or preferential right to subscribe for,
purchase or acquire (i) any shares of any class of capital stock of
Paragon, (ii) any options, warrants or rights to subscribe for,
purchase or acquire any of such shares, or (iii) any securities or
obligations convertible into, or exchangeable for, any such shares
or warrants, rights or options to purchase any such
shares.
Dividend Rights
The
holders of TowneBank common stock and Paragon common stock are
entitled to share ratably in dividends when and as declared by
their respective boards of directors out of funds legally available
therefor. TowneBank’s and Paragon’s articles of
incorporation permit their boards to issue preferred stock with
terms set by their boards, which terms may include the right to
receive dividends ahead of the holders of their common stock. As of
the date of this proxy statement/prospectus, TowneBank and Paragon
do not have any outstanding shares of preferred stock.
Voting Rights
TowneBank
.
The holders of TowneBank common stock have one vote for each share
held on any matter presented for consideration by the holders of
common stock at a stockholder meeting. Holders of TowneBank common
stock are not entitled to cumulative voting in the election of
directors.
Paragon
.
The holders of Paragon common stock
have one vote for each share held on any matter presented for
consideration by the holders of common stock at a stockholder
meeting. Holders of Paragon common stock are not entitled to
cumulative voting in the election of directors.
Directors and Classes of Directors
TowneBank.
The
TowneBank board of directors is divided into three classes,
apportioned as evenly as possible, with directors serving staggered
three-year terms. Subject to amendment as discussed below,
TowneBank’s bylaws provide that the TowneBank board of
directors will consist of 33 directors. As of the date of this
proxy statement/prospectus, the TowneBank board consists of
33 directors.
TowneBank
has
agreed to amend its bylaws prior to the effective date of the bank
merger to increase the number of directors that serve on
TowneBank’s board of directors to the extent necessary to
accommodate the two current directors of Paragon that will be
appointed as directors of TowneBank as of the effective date of the
bank merger.
Paragon.
The Paragon
board of directors is divided into three classes, apportioned as
evenly as possible, with directors serving staggered three-year
terms. The board of directors of Paragon may consist of up to seven
members, or such lesser number as may be determined by the board of
directors or the holders of Paragon’s common stock. As of the
date of this proxy statement/prospectus, the Paragon board consists
of seven directors.
Anti-takeover Provisions
Certain
provisions of the Virginia SCA or the North Carolina BCA, as
applicable, and the articles of incorporation and bylaws of
TowneBank and Paragon may discourage attempts to acquire control of
TowneBank or Paragon, respectively, that the majority of either
company’s stockholders may determine was in their best
interests. These provisions also may render the removal of one or
all directors more difficult or deter or delay corporate changes of
control that the TowneBank or Paragon boards did not
approve.
Classified Board of
Directors.
The provisions of TowneBank’s and
Paragon’s articles of incorporation providing for
classification of their respective boards of directors into three
separate classes may have certain anti-takeover effects. For
example, at least two annual meetings of stockholders may be
required for the stockholders to replace a majority of the
directors serving on each company’s board of
directors.
Authorized Preferred
Stock.
The articles of incorporation of both TowneBank and
Paragon authorize the issuance of preferred stock. The TowneBank
and Paragon boards may, subject to application of Virginia or North
Carolina law, as applicable, and federal banking regulations,
authorize the issuance of preferred stock at such times, for such
purposes and for such consideration as either board may deem
advisable without further stockholder approval. The issuance of
preferred stock under certain circumstances may have the effect of
discouraging an attempt by a third party to acquire control of
TowneBank or Paragon by, for example, authorizing the issuance of a
series of preferred stock with rights and preferences designed to
impede the proposed transaction.
Supermajority Voting Provisions.
TowneBank
.
The Virginia SCA provides that,
unless a corporation’s articles of incorporation provide for
a greater or lesser vote, certain significant corporate actions
must be approved by the affirmative vote of more than two-thirds of
all the votes entitled to be cast on the matter. Certain corporate
actions requiring a more than two-thirds vote include:
●
adoption of plans
of merger or share exchange;
●
sales of all or
substantially all of a corporation’s assets other than in the
ordinary course of business; and
●
adoption of plans
of dissolution.
The
Virginia SCA provides that a corporation’s articles may
either increase the vote required to approve those actions or may
decrease the vote required to not less than a majority of all the
votes cast by each voting group entitled to vote at a meeting at
which a quorum of the voting group exists.
The
articles of incorporation of TowneBank state that the actions set
out above must be approved by a majority of all the votes entitled
to be cast on the transaction by each voting group entitled to vote
at a meeting at which a quorum of the voting group is present,
provided that the transaction has been approved and recommended by
at least two-thirds of the directors in office at the time of such
approval and recommendation. If the transaction is not so approved
and recommended by two-thirds of the directors in office, then the
transaction must be approved by the affirmative vote of 80% or more
of all of the votes entitled to be cast on such transaction by each
voting group entitled to vote.
Paragon
. The North Carolina BCA
provides that, generally, any merger or share exchange may be
submitted to the stockholders of a corporation only if approved by
the board of directors. If submitted to the stockholders, such
action generally must be approved by each voting group entitled to
vote separately on the action by a majority of all the votes
entitled to be cast by the voting group. The North Carolina BCA
permits a corporation to modify the default approval requirements
in its articles of incorporation or bylaws.
The
articles of incorporation of Paragon provide that any agreement,
plan, or arrangement providing for the merger, consolidation, or
exchange of shares of Paragon with another corporation, or the
sale, lease, or exchange of all or substantially all of
Paragon’s assets that require stockholder approval under the
North Carolina BCA shall only be effected after the approval of the
holders of at least two-thirds of the outstanding shares of all
classes of capital stock of Paragon, voting together as a single
class, unless class voting rights are specifically permitted for
any class of capital stock. However, the articles of incorporation
also provide that only a simple majority vote shall be required if
any such transaction has been approved by a majority of the members
of the board of directors unaffiliated with any other party to the
proposed transaction.
Removal of
Directors
.
The
articles of incorporation of TowneBank provide that any director
may be removed by stockholders
only
for cause and
only if the number of votes cast to remove the
director constitutes a majority of the votes entitled to be cast at
an election of directors of the voting group or voting groups by
which the director was elected. Absent this provision, under
Virginia law, a director may be removed with or without cause by a
majority vote of the holders of the corporation’s outstanding
voting stock. The articles of incorporation of Paragon provide that
any director may be removed by stockholders only for cause by the
stockholders represented by a majority of all shares entitled to
vote at an annual or special meeting of Paragon. Absent this
provision, under North Carolina law, a director may be removed with
or without cause by a majority vote of the holders of the
corporation’s outstanding voting stock.
The
requirement that directors may only be removed for cause may
provide anti-takeover protection through perpetuating the terms of
incumbent directors by making it more difficult for stockholders to
remove directors and replace them with their own
nominees.
Cumulative
Voting
.
The articles
of incorporation of both TowneBank and Paragon do not provide for
cumulative voting for any purpose. The absence of cumulative voting
may afford anti-takeover protection by making it more difficult for
stockholders of TowneBank and Paragon to elect nominees opposed by
the board of directors of TowneBank and Paragon,
respectively.
Special Meetings of
Stockholders
.
The
bylaws of TowneBank contain a provision pursuant to which special
meetings of the stockholders of TowneBank may only be called by the
chairman of the board, the chief executive officer, the president
or by a majority of the board of directors. The bylaws of Paragon
contain a provision pursuant to which special meetings of the
stockholders of Paragon may only be called by the president or by
the board of directors. Both of these provisions are designed to
afford anti-takeover protection by ensuring that only the board of
directors and certain members of management of each company may
call a special meeting of stockholders to consider a proposed
merger or other business combination.
Evaluation of
Offer
.
The articles
of incorporation of Paragon provide that its board of directors,
when evaluating a business combination or a proposal to make a
business combination or a tender or exchange offer or any other
proposal relating to a potential change of control of Paragon,
shall consider, among any other factors the board deems relevant,
the following enumerated factors: the business and financial
condition and earnings prospects of the acquiring person or
persons, including, but not limited to, debt service and other
existing financial obligations, financial obligations to be
incurred in connection with the acquisition, and other likely
financial obligations of the acquiring person or persons, and the
possible effect of such conditions upon Paragon and its
subsidiaries and the communities in which they operate or are
located; the competence, experience, and integrity of the acquiring
person or persons and its or their management; and the prospects
for successful conclusion of the business combination, offer, or
proposal.
This
provision is designed to afford anti-takeover protection by
providing the board of directors of Paragon the latitude to
consider additional factors, aside from the price of a proposed
merger or other business combination, in determining whether the
transaction is in the best interests of Paragon and its
stockholders.
The
articles of incorporation of TowneBank do not include a similar
provision pertaining to the evaluation of business combination
offers.
Stockholder Nominations and
Proposals
.
The bylaws
of TowneBank require a stockholder who intends to nominate a
candidate for election to the board of directors, or to raise new
business at a stockholder meeting, to deliver written notice to the
Secretary of TowneBank not fewer than 60 days nor more than 90 days
prior to the first anniversary of the preceding year’s annual
meeting; provided, however, if the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder must be
delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day following
the day on which public announcement of the date of such meeting if
first made. The bylaws of Paragon only permit stockholders to
nominate candidates to serve on the board of directors and require
any stockholder who intends to nominate a candidate for election to
the board of directors to deliver written notice to the Secretary
of Paragon at least 120 days prior to the meeting at which
directors will be elected.
The
notice provision in the TowneBank bylaws requires TowneBank’s
stockholders who desire to raise new business to provide certain
information to the corporation concerning the nature of the new
business, the stockholder and the stockholder’s interest in
the business matter. Similarly, a TowneBank stockholder wishing to
nominate any person for election as a director must provide the
TowneBank with certain information concerning the nominee and the
proposing stockholder.
These
requirements may discourage TowneBank’s stockholders from
submitting director nominations and proposals and Paragon’s
stockholders from submitting director nominations.
Anti-takeover Statutes.
TowneBank
.
Virginia has two anti-takeover
statutes in force, the Affiliated Transactions Statute and the
Control Share Acquisitions Statute.
The
Virginia SCA’s Affiliated Transaction Statute contains
provisions governing “affiliated transactions.” These
include various transactions such as mergers, share exchanges,
sales, leases, or other dispositions of material assets, issuances
of securities, dissolutions, and similar transactions with an
“interested stockholder.” An interested stockholder is
generally the beneficial owner of more than 10% of any class of a
corporation’s outstanding voting shares. During the three
years following the date a stockholder becomes an interested
stockholder, any affiliated transaction with the interested
stockholder must be approved by both a majority (but not less than
two) of the “disinterested directors” (those directors
who were directors before the interested stockholder became an
interested stockholder or who were recommended for election by a
majority of the disinterested directors) and by the affirmative
vote of the holders of two-thirds of the corporation’s voting
shares other than shares beneficially owned by the interested
stockholder. These requirements do not apply to affiliated
transactions if, among other things, a majority of the
disinterested directors approve the interested stockholder’s
acquisition of voting shares making such a person an interested
stockholder before such acquisition. Beginning three years after
the stockholder becomes an interested stockholder, the corporation
may engage in an affiliated transaction with the interested
stockholder if:
●
the transaction is
approved by the holders of two-thirds of the corporation’s
voting shares, other than shares beneficially owned by the
interested stockholder;
●
the affiliated
transaction has been approved by a majority of the disinterested
directors; or
●
subject to certain
additional requirements, in the affiliated transaction the holders
of each class or series of voting shares will receive consideration
meeting specified fair price and other requirements designed to
ensure that all stockholders receive fair and equivalent
consideration, regardless of when they tendered their
shares.
Under
the Virginia SCA’s Control Share Acquisitions Statute, voting
rights of shares of stock of a Virginia corporation acquired by an
acquiring person or other entity at ownership levels of 20%,
33 1/3
%, and 50% of the
outstanding shares may, under certain circumstances, be denied. The
voting rights may be denied:
●
unless conferred by
a special stockholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the
acquiring person and officers and directors of the corporation;
or
●
among other
exceptions, such acquisition of shares is made pursuant to a merger
agreement with the corporation or the corporation’s articles
of incorporation or bylaws permit the acquisition of such shares
before the acquiring person’s acquisition
thereof.
If
authorized in the corporation’s articles of incorporation or
bylaws, the statute also permits the corporation to redeem the
acquired shares at the average per share price paid for such shares
if the voting rights are not approved or if the acquiring person
does not file a “control share acquisition statement”
with the corporation within 60 days of the last acquisition of such
shares. If voting rights are approved for control shares comprising
more than 50% of the corporation’s outstanding stock,
objecting stockholders may have the right to have their shares
repurchased by the corporation for “fair
value.”
The
provisions of the Virginia SCA’s Affiliated Transactions
Statute and the Control Share Acquisitions Statute are only
applicable to public corporations that have more than 300
stockholders of record. Corporations may opt out of the Affiliated
Transactions Statute and/or the Control Share Acquisitions Statute
in their articles of incorporation or bylaws. TowneBank has not
opted-out of the Affiliated Transactions Statute or Control Share
Acquisitions Statute.
Paragon
. North Carolina has two
anti-takeover statutes in force, the Shareholder Protection Act and
the Control Share Acquisition Act.
The
North Carolina BCA’s Shareholder Protection Act generally
requires that, unless certain “fair price” and
procedural requirements are satisfied, the affirmative vote of the
holders of 95% of the outstanding shares of a corporation’s
common stock (excluding shares owned by an “interested
stockholder”) is required to approve certain business
combination transactions with another entity that currently is the
beneficial owner of more than 20% of the corporation’s voting
shares or that is an affiliate of the corporation and previously
has been a 20% beneficial holder of such shares.
The
North Carolina BCA’s Control Share Acquisition Act is
substantially the same as the Virginia SCA’s Control Share
Acquisition Act.
Through
its bylaws, Paragon has opted out of the Shareholder Protection Act
and the Control Share Acquisition Act.
Amendments to Articles of Incorporation and Bylaws
TowneBank.
The
Virginia SCA generally requires that in order for an amendment to
the articles of incorporation to be adopted it must be approved by
each voting group entitled to vote on the proposed amendment by
more than two-thirds of all the votes entitled to be cast by that
voting group, unless the Virginia SCA otherwise requires a greater
vote, or the articles of incorporation provide for a greater or
lesser vote, or a vote by separate voting groups. However, under
the Virginia SCA, no amendment to the articles of incorporation may
be approved by a vote that is less than a majority of all the votes
cast on the amendment by each voting group entitled to vote at a
meeting at which a quorum of the voting group exists.
Under
the Virginia SCA, unless another process is set forth in the
articles of incorporation or bylaws, a majority of the directors
or, if a quorum exists, a majority of the stockholders present and
entitled to vote may adopt, amend or repeal the
bylaws.
TowneBank’s
articles of incorporation state that an amendment to the articles
of incorporation must be approved by a majority of all the votes
entitled to be cast on the amendment by each voting group entitled
to vote at a meeting at which a quorum of the voting group is
present, provided that the amendment has been approved and
recommended by at least two-thirds of the directors in office at
the time of such approval and recommendation. If the amendment is
not so approved and recommended by two-thirds of the directors in
office, then the amendment must be approved by the affirmative vote
of at least 80% of all of the votes entitled to be cast on such
amendment by each voting group entitled to vote.
TowneBank’s
bylaws may be amended, altered or repealed by the board of
directors at any time. TowneBank’s stockholders have the
power to rescind, alter, amend or repeal any bylaw and to enact
bylaws which, if so expressed by the stockholders, may not be
altered, amended, or repealed by TowneBank’s board of
directors.
Paragon
. The North
Carolina BCA generally requires that in order for an amendment to
the articles of incorporation to be adopted it must be approved by
a majority of each voting group entitled to vote on the proposed
amendment, unless the articles of incorporation, a bylaw adopted by
the stockholders, or, in certain circumstances, the board of
directors provide for a greater vote or a vote by separate voting
groups.
The
articles of incorporation and bylaws of Paragon are silent on the
voting requirements to amend its articles. Accordingly, any
amendment must be approved by the affirmative vote of a majority of
votes cast within each voting group entitled to vote.
Paragon’s
board of directors may amend or repeal the bylaws, except to the
extent otherwise provided by applicable law, and except that a
bylaw adopted, amended or repealed by the stockholders may not be
readopted, amended or repealed by the board of directors unless a
bylaw adopted by the stockholders authorizes the board of directors
to adopt, amend or repeal that particular bylaw or the bylaws
generally.
Appraisal Rights
TowneBank.
The
Virginia SCA provides that appraisal rights are not available to
holders of shares of any class or series of shares of a Virginia
corporation in a merger when the stock is either listed on a
national securities exchange, such as the NASDAQ Global Select
Market or the NASDAQ Capital Market, or is held by at
least 2,000 stockholders of record and has a public float of
at least $20 million. Despite this exception, appraisal rights will
be available to holders of common stock of a Virginia corporation
in a merger if:
●
the articles of
incorporation provide for appraisal rights regardless of an
available exception (although TowneBank’s articles of
incorporation do not authorize such special appraisal
rights);
●
in the case of a
merger or share exchange, stockholders are required by the terms of
the merger to accept anything for their shares other than cash,
shares of the surviving or acquiring corporation, or shares of
another corporation that are either listed on a national securities
exchange or held by more than 2,000 stockholders of record having a
public float of at least $20 million, or a combination of cash and
such shares; or
●
the merger is an
“affiliated transaction,” as described under
“– Anti-takeover Provisions” above, and it has
not been approved by a majority of the disinterested
directors.
TowneBank common
stock is listed on the NASDAQ Global Select Market. Therefore,
unless one of the exceptions outlined above applies to a given
transaction, stockholders of TowneBank will not be entitled to
appraisal rights. Stockholders of TowneBank are not entitled to
appraisal rights in connection with the merger.
Paragon.
The North
Carolina BCA provides that appraisal rights are not available to
holders of shares of any class or series of shares of a corporation
in a merger when the stock is either listed on a national
securities exchange, such as the NASDAQ Global Select Market or the
NASDAQ Capital Market, or is held by at least 2,000
stockholders of record. Despite this exception, appraisal rights
will be available to holders of common stock of a corporation in a
merger if:
●
the articles of
incorporation provide for appraisal rights regardless of an
available exception (although Paragon’s articles of
incorporation do not authorize such special appraisal rights);
or
●
in the case of a
merger or share exchange, stockholders are required by the terms of
the merger to accept anything for their shares other than cash,
shares of the surviving or acquiring corporation, or shares of
another corporation that are either listed on a national securities
exchange or held by more than 2,000 stockholders of record, or a
combination of cash and such shares.
Paragon
common stock is listed on the NASDAQ Capital Market. Therefore,
unless one of the exceptions outlined above applies to a given
transaction, stockholders of Paragon will not be entitled to
appraisal rights. Stockholders of Paragon are not entitled to
appraisal rights in connection with the merger.
Director and Officer Exculpation
TowneBank.
The
Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of stockholders
of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course
of conduct may not exceed the lesser of (i) the
monetary amount, including the elimination of liability, specified
in the articles of incorporation or, if approved by the
stockholders, in the bylaws as a limitation on or elimination of
the liability of the officer or director, or (ii) the
greater of (a) $100,000 or (b) the
amount of cash compensation received by the officer or director
from the corporation during the twelve months immediately preceding
the act or omission for which liability was imposed. The liability
of an officer or director is not limited under the Virginia SCA or
a corporation’s articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing
violation of the criminal law or of any federal or state securities
law.
The
articles of incorporation of TowneBank provide that, to the fullest
extent that the Virginia SCA permits the limitation or elimination
of liability of directors or officers, a director or officer
TowneBank is not liable to TowneBank or its stockholders for
monetary damages.
Paragon.
The North
Carolina BCA provides that the articles of incorporation may limit
or eliminate the personal liability of any director arising out of
an action, whether by or in the right of the corporation or
otherwise, for monetary damages for breach of any duty as a
director, except that no limitation of liability is permitted with
respect to (i) acts or omissions that the director at the time of
such breach knew or believed were clearly in conflict with the best
interests of the corporation, (ii) unlawful distributions, and
(iii) any transaction from which the director derived an improper
personal benefit.
The
articles of incorporation of Paragon provide that, to the fullest
extent permitted by the North Carolina BCA, no person who is
serving or who has served as a director of Paragon may be
personally liable to Paragon or any of its stockholders or
otherwise for monetary damages for breach of any duty as
director.
Indemnification
TowneBank.
The
articles of incorporation of TowneBank provide that, to the fullest
extent permitted by the Virginia SCA, TowneBank is required to
indemnify a director or officer against liability incurred by him
or her (i) in connection with his or her service as a director of
officer of TowneBank or (ii) in connection with his or her service
at the request of TowneBank as a director, trustee, partner or
officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, except in relation to
matters as to which he or she is liable by reason of his or her
willful misconduct or knowing violation of criminal
law.
Paragon.
Paragon’s articles of incorporation provide for
indemnification, to the fullest extent permitted by the North
Carolina BCA, of any person who at any time serves or has served as
a director, officer, agent or employee of Paragon, or in such
capacity at the request of Paragon for any other corporation,
partnership, joint venture, trust or other enterprise, or as a
trustee or administrator under an employee benefit plan, against
(i) reasonable expenses, including reasonable
attorneys’ fees, actually incurred by him or her in
connection with any threatened, pending or completed action, suit
or proceeding (and any appeal thereof), whether civil, criminal,
administrative, investigative or arbitrative, and whether or not
brought by or on behalf of the corporation, seeking to hold him or
her liable by reason of the fact that he or she is or was acting in
such capacity, and (ii) reasonable payments made by
him or her in satisfaction of any judgment, money decree, fine
(including, without limitation, an excise tax assessed with respect
to an employee benefit plan), penalty or settlement for which he or
she may have become liable in any such action, suit or proceeding.
The North Carolina BCA prohibits a corporation from indemnifying a
director, officer, employee, or agent from liability in
circumstances in which the indemnitee knew or believed his or her
actions to be clearly in conflict with the best interests of the
corporation.
MARKET FOR COMMON STOCK AND DIVIDENDS
TowneBank common
stock is traded on the NASDAQ Global Select Market under the symbol
“TOWN.” Paragon common stock is traded on the NASDAQ
Capital Market under the symbol “PBNC.”
As of
November 24, 2017, there were 62,640,932
shares of TowneBank common stock outstanding, which were held by
approximately 9,630 holders of record. As of the
record date for the special meeting, there were
5,460,447 shares of Paragon common stock outstanding,
which were held by approximately 266 holders of
record. Such numbers of stockholders do not reflect the number of
individuals or institutional investors holding stock in nominee
name through banks, brokerage firms and others.
The
following table sets forth during the periods indicated the high
and low sales prices of TowneBank common stock as reported on the
NASDAQ Global Select Market and Paragon common stock as reported on
the NASDAQ Capital Market, and the dividends declared per share of
TowneBank common stock and Paragon common stock. Paragon common
stock has been listed on NASDAQ since June 16, 2016. From April 16,
2015 through June 16, 2016, Paragon common stock was quoted on the
OTCQX marketplace. Prior to that, Paragon common stock was traded
in privately negotiated
transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
First
Quarter
|
$
33.85
|
$
30.35
|
$
0.13
|
$
54.20
|
$
43.50
|
$
—
|
Second
Quarter
|
34.40
|
28.55
|
0.14
|
57.05
|
49.01
|
—
|
Third
Quarter
|
33.90
|
29.43
|
0.14
|
56.99
|
50.49
|
—
|
Fourth Quarter
(through November 24, 2017)
|
35.30
|
31.40
|
0.14
|
59.95
|
56.19
|
—
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
First
Quarter
|
$
21.15
|
$
16.50
|
$
0.12
|
$
27.40
|
$
26.25
|
$
—
|
Second
Quarter
|
22.75
|
18.90
|
0.13
|
36.00
|
26.97
|
—
|
Third
Quarter
|
24.14
|
21.41
|
0.13
|
39.99
|
34.50
|
—
|
Fourth
Quarter
|
34.55
|
23.10
|
0.13
|
44.30
|
35.99
|
—
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
First
Quarter
|
$
16.47
|
$
14.25
|
$
0.11
|
$
22.50
|
$
16.00
|
$
—
|
Second
Quarter
|
17.03
|
15.47
|
0.12
|
25.00
|
20.00
|
—
|
Third
Quarter
|
19.55
|
16.00
|
0.12
|
25.00
|
21.00
|
—
|
Fourth
Quarter
|
22.64
|
18.34
|
0.12
|
28.50
|
24.20
|
—
|
The
following table sets forth the closing sale prices per share of
TowneBank common stock as reported on the NASDAQ Global Select
Market and Paragon common stock as reported on the NASDAQ Capital
Market on April 26, 2017, the last trading day before we announced
the signing of the merger agreement, and on November
24, 2017, the last practicable trading day before the date
of this proxy statement/prospectus. The following table also
includes the equivalent price per share of Paragon common stock on
those dates. The equivalent per share price reflects the value on
each date of the TowneBank common stock that would have been
received by Paragon stockholders if the merger had been completed
on those dates, based on an assumed exchange ratio of 1.7250 shares
of TowneBank common stock for each share of Paragon common stock
and the closing sales prices of TowneBank’s common
stock.
|
|
|
Equivalent Market
Value
Per
Share
of
Paragon
|
|
|
|
|
April 26,
2017
|
$
34.35
|
$
51.51
|
$
59.25
|
November
24, 2017
|
|
|
|
You are
advised to obtain current market quotations for TowneBank common
stock and Paragon common stock. The market price of TowneBank
common stock at the effective date of the merger or at the time
former stockholders of Paragon receive certificates evidencing
shares of TowneBank common stock after the merger is completed may
be higher or lower than the market price at the time the merger
agreement was executed, at the date of mailing of this proxy
statement/prospectus or at the time of the special
meeting.
Paragon
is a legal entity separate and distinct from its subsidiaries, and
its revenues depend primarily on the payment of dividends from
Paragon Bank. Therefore, one of Paragon’s principal sources
of funds with which to pay dividends on its stock and their other
separate expenses are dividends it receives from Paragon Bank.
Paragon Bank is subject to certain regulatory and other legal
restrictions on the amount of dividends it is permitted to pay to
Paragon.
TowneBank, as a
Virginia chartered bank, is also subject to certain regulatory and
other legal restrictions on the amount of dividends that it is
permitted to pay to stockholders. TowneBank currently pays
dividends on its common stock on a quarterly basis, and it
anticipates declaring and paying quarterly dividends after
completion of the merger. TowneBank does not intend to change its
dividend strategy, but has and will continue to evaluate that
decision on a quarterly basis. After the merger, the final
determination of the timing, amount and payment of dividends on
TowneBank common stock will be at the discretion of its board of
directors and will depend upon the earnings of TowneBank, the
financial condition of TowneBank and other factors, including
general economic conditions and applicable governmental regulations
and policies. See “Description of TowneBank Capital Stock
– Common Stock – Dividends” on page
82.
INFORMATION ABOUT TOWNEBANK
TowneBank is a
commercial bank organized under the laws of the Commonwealth of
Virginia and headquartered in Portsmouth, Virginia. TowneBank
provides a full range of diversified financial services through its
banking and its non-banking divisions and subsidiaries. TowneBank
currently operates 37 banking offices throughout Richmond,
Virginia, the Greater Hampton Roads area in southeastern Virginia
and in northeastern North Carolina. The common stock of TowneBank
is traded on the NASDAQ Global Select Market under the symbol
“TOWN.”
As of
September 30, 2017, TowneBank had total consolidated
assets of approximately $8.61 billion, total
consolidated loans, net of unearned income, of approximately
$5.91 billion, total consolidated deposits of
approximately $6.59 billion and consolidated
stockholders’ equity of approximately $1.13
billion.
The
principal executive offices of TowneBank are located at 5716 High
Street, Portsmouth, Virginia 23703, and its telephone number is
(757) 638-7500. TowneBank’s website can be accessed at
https://www.townebank.com
.
Information contained in TowneBank’s website does not
constitute part of, and is not incorporated into, this proxy
statement/prospectus.
For
more information about TowneBank, see “Where You Can Find
More Information” beginning on page
97.
INFORMATION ABOUT PARAGON COMMERCIAL CORPORATION
Paragon
is a bank holding company headquartered in Raleigh, North Carolina
that provides a wide range of financial services through its
wholly-owned North Carolina chartered bank subsidiary, Paragon
Bank. Paragon Bank currently operates three banking offices located
in Cary, Charlotte and Raleigh, North Carolina. The common stock of
Paragon is traded on the NASDAQ Capital Market under the symbol
“PBNC.”
As of
September 30, 2017, Paragon had total consolidated
assets of approximately $1.74 billion, total
consolidated loans, net of unearned income, of approximately
$1.39 billion, total consolidated deposits through
Paragon Bank of approximately $1.29 billion and
consolidated stockholders’ equity of approximately
$149.1 million.
The
principal executive offices of Paragon are located at 3535 Glenwood
Avenue, Raleigh, North Carolina 27612, and its telephone number is
(919) 788-7770. Paragon’s website can be accessed at
https://www.paragonbank.com
.
Information contained on Paragon’s website does not
constitute part of, and is not incorporated into, this proxy
statement/prospectus.
For
more information about Paragon, see “Where You Can Find More
Information” beginning on page 97.
CERTAIN BENEFICIAL OWNERSHIP OF PARAGON COMMON STOCK
The
following table sets forth, as of November 17, 2017,
the record date for the special meeting, certain
information with respect to the beneficial ownership of Paragon
common stock held by
each of
Paragon’s named executive officers; each of Paragon’s
directors; all of Paragon’s named executive officers and
directors as a group; and each person, or group of affiliated
persons, known by Paragon to be the beneficial owner of more than
5% of the outstanding shares of Paragon’s common
stock.
Beneficial ownership is determined in accordance
with the rules of the SEC and includes voting or investment power
with respect to the securities. Shares of Paragon common stock that
may be acquired by an individual or group within 60 days of
November 17
, 2017
pursuant to the exercise of options, warrants or other rights, are
deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. The
table below calculates the percentage of beneficial ownership of
Paragon’s common stock based on 5,460,447 shares of common
stock outstanding as of November 17,
2017.
Except as indicated in
footnotes
to this table, Paragon believes that
the stockholders named in this table have sole voting and
investment power with respect to all shares of common stock shown
to be beneficially owned by them, based on information provided to
us by such stockholders. The address for each director and
executive officer listed is: c/o Paragon Commercial Corporation,
3535 Glenwood Avenue, Raleigh, NC 27612.
|
Shares
Beneficially Owned
|
|
Directors and named executive officers:
|
|
|
Curtis C. Brewer
III
|
45,019
(1)
|
*
|
Steven E.
Crouse
|
14,100
(2)
|
*
|
Matthew C.
Davis
|
22,517
(3)
|
*
|
Roy L. Harmon,
Jr.
|
855,250
(4)
|
15.66
|
Robert C.
Hatley
|
113,717
(5)
|
2.08
|
K. Wesley M.
Jones
|
54,125
(6)
|
*
|
Howard
Jung
|
107,010
(7)
|
1.96
|
Thomas B.
Oxholm
|
30,825
(8)
|
*
|
F. Alton
Russell
|
31,400
(9)
|
*
|
All directors and
named executive officers as a group (9 persons)
|
1,273,963
|
23.29
|
|
|
|
Greater than 5% stockholders
|
|
|
BancTenn
Corp
(10)
|
800,125
|
14.65
|
Banc Fund VI
L.P.
(11)
|
363,911
|
6.66
|
_________________
*
Represents less
than 1% of the shares outstanding.
(1)
Mr.
Brewer
’
s ownership
includes (i) 43,644 shares held by Mr. Brewer personally and (ii)
1,375 shares owned by Mr. Brewer
’
s spouse, as to which Mr. Brewer
disclaims beneficial ownership. Excludes 500 shares of restricted
stock with respect to which Mr. Brewer has no voting or investment
power and is not expected to acquire voting or investment power
within 60 days of November 17, 2017.
(2)
Mr.
Crouse
’
s ownership
includes (i) 11,225 shares held by Mr. Crouse personally and (ii)
2,875 shares that may be acquired within 60 days of November
17, 2017 by exercising stock options. Excludes 1,955 shares
of restricted stock with respect to which Mr. Crouse has no voting
or investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(3)
Mr.
Davis
’
s ownership
includes (i) 19,517 shares held by Mr. Davis personally; (ii) 250
shares held jointly with Mr. Davis
’
s spouse; and (iii) 2,750 shares
that may be acquired within 60 days of November 17,
2017 by exercising stock options. Excludes 1,955 shares of
restricted stock with respect to which Mr. Davis has no voting or
investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(4)
Mr. Harmon’s
ownership includes (i) 42,875 shares held by Mr. Harmon personally;
(ii) 12,250 shares owned by Mr. Harmon’s spouse, as to which
Mr. Harmon disclaims beneficial ownership; and (iii) 800,125 shares
held by BancTenn Corp. Mr. Harmon is an officer and member of the
board of directors of BancTenn Corp and disclaims beneficial
ownership of the shares owned by BancTenn Corp except to the extent
of his pecuniary interest therein. Excludes 500 shares of
restricted stock with respect to which Mr. Harmon has no voting or
investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(5)
Mr. Hatley’s
ownership includes (i) 104,217 shares held by Mr. Hatley
personally; (ii) 250 shares held jointly with Mr. Hatley’s
spouse; (iii) 4,500 shares owned by Mr. Hatley’s spouse, as
to which Mr. Hatley disclaims beneficial ownership; (iv) 5,000
shares that may be acquired within 60 days of November
17, 2017 by exercising stock options; and (v) 38,375 shares
pledged as collateral. Excludes 5,063 shares of restricted stock
with respect to which Mr. Hatley has no voting or investment power
and is not expected to acquire voting or investment power within 60
days of November 17, 2017.
(6)
Mr. Jones’s
ownership includes (i) 54,125 shares held by Mr. Jones personally
and (ii) 47,875 shares pledged as collateral. Excludes 500 shares
of restricted stock with respect to which Mr. Jones has no voting
or investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(7)
Mr. Jung’s
ownership includes (i) 66,425 shares held by Mr. Jung personally
and (ii) 40,585 shares owned by Mr. Jung’s spouse, as to
which Mr. Jung disclaims beneficial ownership. Excludes 500 shares
of restricted stock with respect to which Mr. Jung has no voting or
investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(8)
Mr. Oxholm’s
ownership includes (i) 26,825 shares held by Mr. Oxholm personally
and (ii) 4,000 shares held jointly with Mr. Oxholm’s spouse.
Excludes 500 shares of restricted stock with respect to which Mr.
Oxholm has no voting or investment power and is not expected to
acquire voting or investment power within 60 days of November
17, 2017.
(9)
Mr. Russell’s
ownership includes (i) 5,675 shares held by Mr. Russell personally;
(ii) 14,500 shares held jointly with Mr. Russell’s spouse;
and (iii) 11,225 shares owned by Mr. Russell’s spouse, as to
which Mr. Russell disclaims beneficial ownership. Excludes 500
shares of restricted stock with respect to which Mr. Russell has no
voting or investment power and is not expected to acquire voting or
investment power within 60 days of November 17,
2017.
(10)
As reported on a
Schedule 13G filed on February 13, 2017. The mailing address for
BancTenn Corp is P.O. Box 4980, Johnson City, Tennessee
37602-4980.
(11)
As reported on a
Schedule 13G filed on February 15, 2017, includes 106,171 shares
held by Banc Fund VII L.P.; 116,250 shares held by Banc Fund VIII
L.P.; and 141,490 shares held by Banc Fund IX L.P. The mailing
address for all of these entities is 20 North Wacker Drive, Suite
3300, Chicago, IL 60606.
LEGAL MATTERS
Williams Mullen and
Wyrick Robbins Yates & Ponton LLP will each opine as to the
qualification of the merger as a reorganization under the
Code.
EXPERTS
The
consolidated financial statements and
the
effectiveness of internal control over
financial reporting of TowneBank incorporated in this proxy
statement/prospectus by reference to its Annual Report to
Stockholders for the year ended December 31, 2016, have been
audited by Dixon Hughes Goodman LLP, independent registered public
accountants as indicated in their reports thereto, and have been so
incorporated in reliance upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of Paragon
included in its Annual Report on Form 10-K for the year
ended
December 31, 2016
,
incorporated by reference in this proxy statement/prospectus, have
been so incorporated by reference in reliance upon the report of
Elliott Davis Decosimo, PLLC, independent registered public
accountants, upon the authority of said firm as experts in
accounting and auditing in giving said report.
HOUSEHOLDING MATTERS
The SEC
has adopted rules that permit companies to deliver a single copy of
proxy materials to multiple stockholders sharing an address unless
a company has received contrary instructions from one or more of
the stockholders at that address. This means that only one copy of
the proxy materials may have been sent to multiple stockholders in
your household. If you would prefer to receive separate copies of
the proxy materials either now or in the future, please contact
Paragon’s corporate secretary at 3535 Glenwood Avenue,
Raleigh, North Carolina 27612 or (919) 788-7770. Upon written or
oral request to the corporate secretary, Paragon will provide a
separate copy of the proxy materials. In addition, stockholders at
a shared address who receive multiple copies of proxy materials may
request to receive a single copy of proxy materials in the future
in the same manner as described above.
OTHER MATTERS
In
accordance with North Carolina law, no business may be brought
before the special meeting unless it is described in the applicable
notice of meeting that accompanies this proxy statement/prospectus.
As of the date of this proxy statement/prospectus, the Paragon
board knows of no matters that will be presented for consideration
at the special meeting other than those specifically set forth in
the notices for the meetings. If, however, any other matters
properly come before the special meeting, or any adjournments
thereof, and are voted upon, it is the intention of the proxy
holders to vote such proxies in accordance with the recommendation
of the management of Paragon.
WHERE YOU CAN FIND MORE INFORMATION
TowneBank files
reports, proxy statements and other information with the Federal
Deposit Insurance Corporation. Such reports, statements or other
information are available for inspection without charge at the
Federal Deposit Insurance Corporation, Accounting and Securities
Disclosure Section, Division of Risk Management Supervision, 550
17th Street, NW, Washington, D.C. In addition, copies of such
documents filed by TowneBank under the Exchange Act may be obtained
by sending a written request to the FDIC at the preceding address,
along with payment of the fees prescribed by the FDIC. The FDIC
filings made by TowneBank are also available to the public from
commercial document retrieval services and at the FDIC’s
Internet website at
http://www2.fdic.gov/efr
. The
information contained on the FDIC’s website is expressly not
incorporated by reference into this proxy
statement/prospectus.
Paragon
files reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any
reports, statements or other information that Paragon files with
the SEC at the SEC’s public reference room in Washington,
D.C., which is located at the following address: Public Reference
Room, 100 F Street, NE, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference
room. The SEC filings made by Paragon are also available to the
public from commercial document retrieval services and at the
SEC’s Internet website at
http://www.sec.gov
. The information
contained on the SEC’s website is expressly not incorporated
by reference into this proxy statement/prospectus.
This
document constitutes a prospectus of TowneBank and a proxy
statement of Paragon for its special meeting of
stockholders.
The
FDIC and SEC allow TowneBank and Paragon to “incorporate by
reference” information into this proxy statement/prospectus,
which means that the companies can disclose important information
to you by referring you to another document filed separately with
the FDIC and SEC. The information incorporated by reference is
deemed to be a part of this proxy statement/prospectus, except for
any information superseded by information contained directly in
this proxy statement/prospectus or incorporated by reference
subsequent to the date of this proxy statement/prospectus as
described below.
This
proxy statement/prospectus incorporates by reference the documents
set forth below that TowneBank and Paragon have previously filed
with the FDIC or SEC, as the case may be
(except Items 2.02 and 7.01 of any Current Report
on Form 8-K, unless otherwise indicated in the Form 8-K).
These documents contain important business information about the
companies and their financial condition.
TowneBank FDIC Filings
●
Annual Report on
Form 10-K for the year ended December 31, 2016, filed on March 1,
2017.
●
Quarterly Report on
Form 10-Q for the quarter ended March 31, 2017, filed on May 10,
2017.
●
Quarterly Report on
Form 10-Q for the quarter ended June 30, 2017, filed on August 8,
2017.
●
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2017, filed
on November 9, 2017.
●
Current Reports on
Form 8-K filed on February 22, 2017, February 27, 2017, April 27,
2017, May 2, 2017, May 24, 2017, May 25, 2017, July 11, 2017, July
14, 2017, July 17, 2017, August 28,
2017, November 20, 2017 and November 22,
2017.
●
The description of
TowneBank common stock contained in TowneBank’s registration
statement on Form 8-A, as filed with the FDIC on September 17, 2007
pursuant to Section 12 of the Exchange Act, including any
subsequently filed amendments and reports updating such
description.
Paragon SEC Filings (File No. 001-37802)
●
Annual Report on
Form 10-K for the year ended December 31, 2016, filed on March 21,
2017, as amended by Amendment No. 1, filed on April 28,
2017.
●
Quarterly Report on
Form 10-Q for the quarter ended March 31, 2017, filed on May 9,
2017.
●
Quarterly Report on
Form 10-Q for the quarter ended June 30, 2017, filed on August 8,
2017.
●
Quarterly
Report on Form 10-Q for the quarter ended September 30, 2017, filed
on November 9, 2017.
●
Current Reports on
Form 8-K filed on January 5, 2017; May 1, 2017 (only as it pertains
to Items 1.01 and 9.01) and May 2, 2017.
●
The description of
Paragon common stock contained in Paragon’s Registration
Statement on Form S-1, as amended (File No. 333-211627), which
description is incorporated by reference into the Form 8-A filed
with the SEC on June 14, 2016, pursuant to Section 12 of the
Exchange Act, including any subsequently filed amendments and
reports updating such description.
In
addition, TowneBank and Paragon incorporate by reference any future
filings each company makes with the FDIC or SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this proxy statement/prospectus and before the date of the Paragon
special meeting of stockholders, provided that TowneBank and
Paragon are not incorporating by reference any information
furnished to, but not filed with, the SEC or FDIC. Those documents
are considered to be a part of this proxy statement/prospectus,
effective as of the date they are filed. In the event of
conflicting information in these documents, the information in the
latest filed document should be considered correct.
Documents contained
in or incorporated by reference in this document by TowneBank and
Paragon are available through the FDIC or SEC as set forth above or
from TowneBank and Paragon. You may also obtain such documents by
requesting them in writing or by telephone from TowneBank and
Paragon as follows:
TowneBank
6001
Harbour View Boulevard
Suffolk,
Virginia 23435
Attention:
Karen R. Minkoff
Vice
President and Corporate Secretary
Telephone:
(757) 638-6780
|
Paragon Commercial Corporation
3535
Glenwood Avenue
Raleigh,
North Carolina 27612
Attention:
Carol A. Isaac
Senior
Vice President
Telephone:
(919) 788-7770
Regan
& Associates, Inc.
505
Eighth Avenue, Suite 800
New
York, New York 10018
Attention:
James M. Dougan
Executive Vice
President
Telephone:
1-800-737-3426
|
These
documents are available from TowneBank or Paragon, as the case may
be, without charge, excluding any exhibits to them. You can also
find information about TowneBank at its Internet website at
https://www.townebank.com
under “Investor Relations” and Paragon at its Internet
website at
https://www.paragonbank.com
under
“Investors.” Information contained on the websites of
TowneBank and Paragon does not constitute part of this proxy
statement/prospectus and shall not be incorporated into other
filings either company makes with the FDIC or SEC.
If you
would like to request documents from TowneBank or Paragon, please
do so by January 3, 2018 in order to receive timely
delivery of the documents before the special meeting.
TowneBank has
supplied all information contained or incorporated by reference in
this document relating to TowneBank, and Paragon has supplied all
such information relating to Paragon.
You
should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. TowneBank and Paragon
have not authorized anyone to provide you with information that is
different from what is contained in this proxy
statement/prospectus. TowneBank is not making an offer to sell or
soliciting an offer to buy any securities other than the TowneBank
common stock to be issued by TowneBank in the merger, and TowneBank
is not making an offer of such securities in any state where the
offer is not permitted. This proxy statement/prospectus is dated
November 27, 2017. You should not assume that the
information contained in this proxy statement/prospectus is
accurate as of any date other than that date. Neither the mailing
of this proxy statement/prospectus to you nor the issuance of
TowneBank common stock in the merger creates any implication to the
contrary.
Appendix
A
____________________________
Agreement and Plan of Reorganization
____________________________
AGREEMENT
AND PLAN OF REORGANIZATION
by
and among
TOWNEBANK,
TB
ACQUISITION, LLC,
PARAGON
COMMERCIAL CORPORATION
and
PARAGON
COMMERCIAL BANK
____________________________
April
26, 2017
____________________________
TABLE
OF CONTENTS
|
|
Page
|
ARTICLE
1
|
THE
TRANSACTION AND RELATED MATTERS
|
A-1
|
1.1
|
The
Merger
|
A-1
|
1.2
|
The
Bank Merger
|
A-2
|
1.3
|
Effective
Date; Closing
|
A-2
|
1.4
|
Articles
of Incorporation and Bylaws of Towne
|
A-2
|
1.5
|
Corporate
Governance
|
A-3
|
1.6
|
Tax
Treatment of the Transaction
|
A-3
|
ARTICLE
2
|
MERGER
CONSIDERATION; EXCHANGE PROCEDURES
|
A-4
|
2.1
|
Conversion
of Shares
|
A-4
|
2.2
|
Exchange
Procedures
|
A-4
|
2.3
|
Holding
Company Stock Options and Other Equity-Based Awards
|
A-6
|
2.4
|
No
Fractional Shares
|
A-7
|
2.5
|
Anti-Dilution
|
A-7
|
2.6
|
Dividends
|
A-7
|
2.7
|
Withholding
Rights
|
A-7
|
2.8
|
No
Appraisal Rights
|
A-8
|
ARTICLE
3
|
REPRESENTATIONS
AND WARRANTIES
|
A-8
|
3.1
|
Disclosure
Schedule
|
A-8
|
3.2
|
Standard
|
A-8
|
3.3
|
Representations
and Warranties of Holding Company and Bank Subsidiary
|
A-9
|
3.4
|
Representations
and Warranties of Towne
|
A-28
|
ARTICLE
4
|
COVENANTS
RELATING TO CONDUCT OF BUSINESS
|
A-37
|
4.1
|
Conduct
of Business of Holding Company and Bank Subsidiary Pending the
Transaction
|
A-37
|
4.2
|
Conduct
of Business of Towne Pending the Transaction
|
A-41
|
4.3
|
Transition
|
A-42
|
4.4
|
Control
of the Other Party’s Business
|
A-42
|
ARTICLE
5
|
ADDITIONAL
AGREEMENTS
|
A-42
|
5.1
|
Commercially
Reasonable Efforts
|
A-42
|
5.2
|
Access
to Information; Confidentiality
|
A-43
|
5.3
|
Holding
Company Stockholder Approvals
|
A-44
|
5.4
|
Proxy
Statement
|
A-45
|
5.5
|
No
Other Acquisition Proposals
|
A-46
|
5.6
|
Applications
and Consents
|
A-47
|
5.7
|
Public
Announcements
|
A-48
|
5.8
|
Affiliate
Agreements
|
A-48
|
5.9
|
Director
Noncompetition Agreements
|
A-48
|
5.1
|
Employee
Benefit Plans
|
A-49
|
5.11
|
Reservation
of Shares; NASDAQ Listing
|
A-50
|
5.12
|
Indemnification;
Insurance
|
A-50
|
5.13
|
Employment
and Other Arrangements
|
A-51
|
5.14
|
Notice
of Deadlines
|
A-51
|
5.15
|
Takeover
Laws
|
A-51
|
5.16
|
Change
of Method
|
A-51
|
5.17
|
Certain
Policies
|
A-52
|
5.18
|
Assumption
of Trust Preferred Capital Securities
|
A-52
|
ARTICLE
6
|
CONDITIONS
TO THE TRANSACTION
|
A-52
|
6.1
|
General
Conditions
|
A-52
|
6.2
|
Conditions
to Obligations of Towne and Towne Merger Sub
|
A-53
|
6.3
|
Conditions
to Obligations of Holding Company and Bank Subsidiary
|
A-54
|
ARTICLE
7
|
TERMINATION
|
A-55
|
7.1
|
Termination
|
A-55
|
7.2
|
Effect
of Termination
|
A-59
|
7.3
|
Non-Survival
of Representations, Warranties and Covenants
|
A-59
|
7.4
|
Fees
and Expenses
|
A-59
|
ARTICLE
8
|
GENERAL
PROVISIONS
|
A-61
|
8.1
|
Entire
Agreement
|
A-61
|
8.2
|
Binding
Effect; No Third Party Rights
|
A-61
|
8.3
|
Waiver
and Amendment
|
A-61
|
8.4
|
Governing
Law
|
A-61
|
8.5
|
Notices
|
A-61
|
8.6
|
Counterparts
|
A-63
|
8.7
|
Waiver
of Jury Trial
|
A-63
|
8.8
|
Severability
|
A-63
|
8.9
|
Interpretation;
Global Terms
|
A-63
|
LIST OF EXHIBITS
EXHIBIT
1.1
|
|
Plan of
Merger
|
EXHIBIT
1.2
|
|
Bank Plan of
Merger
|
EXHIBIT
5.8
|
|
Form of Affiliate
Agreement
|
EXHIBIT
5.9
|
|
Form of
Noncompetition Agreement
|
INDEX OF DEFINED TERMS
Acquisition
Proposal
|
Section
5.5(c)
|
Agreement
|
Recitals
|
Average Closing
Price
|
Section
7.1(j)
|
Bank
Merger
|
Recitals
|
Bank Merger
Effective Date
|
Section
1.2
|
Bank Plan of
Merger
|
Section
1.2
|
Bank
Reports
|
Section
3.3(f)
|
Bank
Subsidiary
|
Recitals
|
Change of
Recommendation
|
Section
5.5(e)
|
Closing
Date
|
Section
1.2(b)
|
Code
|
Recitals
|
CRA
|
Section
3.3(y)
|
Derivative
Contract
|
Section
3.3(t)
|
Determination
Date
|
Section
7.1(j)
|
Disclosure
Schedule
|
Section
3.1
|
ERISA
|
Section
3.3(m)(iii)
|
Effective
Date
|
Section
1.3(a)
|
Environmental
Claim
|
Section
3.3(q)(v)(A)
|
Environmental
Laws
|
Section
3.3(q)(v)(B)
|
Exchange
Act
|
Section
3.3(c)(iii)
|
Exchange
Agent
|
Section
2.2(a)
|
Exchange
Fund
|
Section
2.2(a)
|
Exchange
Ratio
|
Section
2.1(b)
|
FDIC
|
Section
3.3(a)(ii)
|
Final Index
Price
|
Section
7.1(j)
|
Financial
Statements
|
Section
3.3(e)(ii)
|
GAAP
|
Section
3.3(e)(ii)
|
Governmental
Authority
|
Section
3.3(c)(iii)
|
Holding
Company
|
Recitals
|
Holding Company
Benefit Plans
|
Section
3.3(m)(i)
|
Holding Company
Book-Entry Shares
|
Section
2.1(c)
|
Holding Company
Common Certificate
|
Section
2.1(c)
|
Holding Company
Common Stock
|
Section
2.1(b)
|
Holding Company
Contract(s)
|
Section
3.3(i)(i)
|
Holding Company
Continuing Employees
|
Section
5.10(a)
|
Holding Company
Recommendation
|
Section
5.3(a)
|
Holding Company
Stock Award
|
Section
2.3(b)
|
Holding Company
Stock Option
|
Section
2.3(a)
|
Holding Company
Stock Plan
|
Section
2.3(a)
|
Holding Company
Stockholder Approval
|
Section
3.3(c)(i)
|
Holding Company
Stockholders Meeting
|
Section
5.3(a)
|
Holding Company
Subsidiary(ies)
|
Section
3.3(b)
|
Holding Company
Technology Systems
|
Section
3.3(s)
|
Index
Group
|
Section
7.1(j)
|
Index
Price
|
Section
7.1(j)
|
Index
Ratio
|
Section
7.1(j)(ii)
|
Intellectual
Property
|
Section
3.3(s)
|
IRS
|
Section
3.3(m)(ii)
|
Knowledge
|
Section
3.2(c)
|
Loan
|
Section
3.3(p)
|
Loan Loss
Allowance
|
Section
3.3(o)(ii)
|
Material Adverse
Effect
|
Section
3.2(b)
|
Materials of
Environmental Concern
|
Section
3.3(q)(v)(C)
|
Merger
|
Recitals
|
Merger
Consideration
|
Section
2.1(b)
|
NCBCA
|
Section
1.1
|
OREO
|
Section
3.3(o)(iii)
|
Organizational
Documents
|
Section
3.3(a)(i)
|
Permitted
Liens
|
Section
3.3(l)(ii)
|
Plan of
Merger
|
Section
1.1
|
Proxy
Statement
|
Section
5.4(a)
|
Qualified
Group
|
Section
3.4(u)
|
Real
Property
|
Section
3.3(l)(i)
|
Regulatory
Approvals
|
Section
3.3(c)(iii)
|
Regulatory
Agencies
|
Section
3.3(f)
|
Replacement
Option
|
Section
2.3(a)
|
Replacement Stock
Award
|
Section
2.3(b)
|
Rights
|
Section
3.3(d)
|
Sarbanes-Oxley
Act
|
Section
3.3(e)(v)
|
SEC
|
Section
3.3(e)(i)
|
Securities
Act
|
Section
3.3(c)(iii)
|
Securities
Documents
|
Section
3.3(e)(i)
|
Starting
Date
|
Section
7.1(j)
|
Starting
Price
|
Section
7.1(j)
|
Superior
Proposal
|
Section
5.5(d)
|
Tax
Return
|
Section
3.3(k)(i)
|
Tax(es)
|
Section
3.3(k)(i)
|
Termination
Fee
|
Section
7.4(b)
|
Towne
|
Recitals
|
Towne Benefit
Plan
|
Section
3.4(l)(i)
|
Towne Common
Stock
|
Section
2.1(a)
|
Towne
Contract
|
Section
3.4(i)(i)
|
Towne Merger
Sub
|
Recitals
|
Towne
Ratio
|
Section
7.1(j)(i)
|
Towne
Subsidiary(ies)
|
Section
3.4(b)
|
TowneBank NC
Boards
|
Section
1.5(b)
|
Transaction
|
Recitals
|
Treasury
Regulations
|
Section
1.6
|
VSCA
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Section
1.2
|
VLLCA
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Section
1.1
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AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT AND
PLAN OF REORGANIZATION (the “Agreement”) is made and
entered into as of April 26, 2017, by and among TowneBank, a
Virginia banking corporation (“Towne”), TB Acquisition,
LLC, a Virginia limited liability company and wholly owned
subsidiary of Towne (“Towne Merger Sub”), Paragon
Commercial Corporation, a North Carolina business corporation
(“Holding Company”), and Paragon Commercial Bank, a
North Carolina banking corporation and wholly owned subsidiary of
Holding Company (“Bank Subsidiary”).
WHEREAS, the Boards
of Directors of Towne, Holding Company and Bank Subsidiary have
approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the business combination
transactions provided for herein, including the merger of Holding
Company with and into Towne Merger Sub (the “Merger”),
and the merger of Bank Subsidiary with and into Towne immediately
after the Merger (the “Bank Merger” and, together with
the Merger, the “Transaction”);
WHEREAS, the Boards
of Directors of Towne, Holding Company and Bank Subsidiary have
each determined that the Transaction is consistent with, and will
further, their respective business strategies and goals;
and
WHEREAS, it is the
intention of the parties to this Agreement that, for federal income
tax purposes, the Merger shall qualify as a
“reorganization” within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the
“Code”), and that this Agreement shall constitute, and
is adopted as, a “plan of reorganization” for purposes
of Sections 354 and 361 of the Code.
NOW, THEREFORE, in
consideration of the foregoing and the respective representations,
warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties agree as
follows:
ARTICLE
1
The
Transaction and Related Matters
Subject to the
terms and conditions of this Agreement, at the Effective Date (as
defined in Section 1.3(a), Holding Company will be merged with and
into Towne Merger Sub pursuant to the Plan of Merger in the form
attached hereto as Exhibit 1.1 and made a part hereof (the
“Plan of Merger”). The separate corporate existence of
Holding Company thereupon shall cease, and Towne Merger Sub will be
the surviving entity in the Merger and continue its existence after
the Merger as a Virginia limited liability company. The Merger will
have the effects set forth in Section 13.1-1070 of the Virginia
Limited Liability Company Act (the “VLLCA”) and
Sections 55-11-10(e) and 55-11-10(e1) of the North Carolina
Business Corporation Act (the “NCBCA”)
.
Subject to the
terms and conditions of this Agreement, immediately after the
Effective Date, Bank Subsidiary will be merged with and into Towne
pursuant to the Bank Plan of Merger in the form attached hereto as
Exhibit 1.2 and made a part hereof (the “Bank Plan of
Merger”). The separate corporate existence of Bank Subsidiary
thereupon shall cease, and Towne will be the surviving corporation
in the Bank Merger. The Bank Merger will have the effects set forth
in Section 13.1-721 of the Virginia Stock Corporation Act (the
“VSCA”) and Section 55-11-06 of the
NCBCA
.
The Bank Merger will
become effective on the date and at the time shown on the Articles
of Merger required to be filed with the office of the Virginia
State Corporation Commission, as provided in Section 13.1-720 of
the VSCA, and with the office of the North Carolina Secretary of
State, as provided in Section 55-11-05 of the NCBCA, effecting the
Bank Merger (the “Bank Merger Effective
Date”).
1.3
Effective
Date; Closing.
(a)
The Merger will become effective on the date and at the time shown
on the Articles of Merger required to be filed with the office of
the Virginia State Corporation Commission, as provided in Section
13.1-1072 of the VLLCA, and with the office of the North Carolina
Secretary of State, as provided in Section 55-11-10(d) of the
NCBCA, effecting the Merger (the “Effective Date”).
Subject to the satisfaction or waiver of the conditions set forth
in Article 6, the parties will use their commercially reasonable
efforts to cause the Effective Date to occur as soon as reasonably
practicable after all required regulatory and stockholder approvals
to consummate the Merger have been received, taking into
consideration the date that Bank Subsidiary’s data processing
systems are expected to be integrated with Towne’s data
processing systems. At or after the Closing Date (as defined
below), (i) to effect the Merger, Towne Merger Sub and Holding
Company will execute and deliver Articles of Merger containing the
Plan of Merger to the Virginia State Corporation Commission and the
North Carolina Secretary of State, and (ii) to effect the Bank
Merger, Towne and Bank Subsidiary will execute and deliver Articles
of Merger containing the Bank Plan of Merger to the Virginia State
Corporation Commission and the North Carolina Secretary of
State.
(b)
Subject to the terms and conditions of this Agreement, the closing
of the Transaction will take place at 10:00 a.m. Eastern Time at
the corporate office headquarters of Towne on a date mutually
agreed to by the parties and which shall be held at or before the
Effective Date (the “Closing Date”). All documents
required by this Agreement to be delivered at or before the
Effective Date will be exchanged by the parties on the Closing
Date.
1.4
Articles
of Incorporation and Bylaws of Towne.
(a)
The Articles of Incorporation of Towne as in effect immediately
prior to the Bank Merger Effective Date will be the Articles of
Incorporation of Towne at and after the Bank Merger Effective Date
until thereafter amended in accordance with applicable
law.
(b)
Prior to the Bank Merger Effective Date, Towne shall take all
appropriate actions to adopt an amendment to the Bylaws of Towne to
increase the number of directors that may serve on the Board of
Directors of Towne to the extent necessary to accommodate the
current directors of Holding Company that will be appointed as
directors of Towne as of the Bank Merger Effective Date as
contemplated by Section 1.5(a). The Bylaws of Towne as may be
amended pursuant to this Section 1.4(b) and in effect immediately
prior to the Bank Merger Effective Date will be the Bylaws of Towne
at and after the Bank Merger Effective Date until thereafter
amended in accordance with applicable law.
1.5
Corporate
Governance.
(a)
At the Bank Merger Effective Date, Towne shall cause each of Robert
C. Hatley and Howard Jung to be appointed to the Board of Directors
of Towne to serve in such capacity until the next annual meeting of
the stockholders of Towne following the Bank Merger Effective Date,
and, subject to the good faith consideration by the Nominating
Committee of Towne’s Board of Directors of the selection
criteria set forth in its charter, such persons shall be nominated
to sit for election by Towne’s stockholders at such annual
meeting of stockholders.
(b)
At the Bank Merger Effective Date, Towne shall establish a
TowneBank Cary Board of Directors, a TowneBank Charlotte Board of
Directors, and a TowneBank Raleigh Board of Directors
(collectively, the “TowneBank NC Boards”). The
TowneBank NC Boards shall initially be composed of the current
members of each of the advisory Boards of Directors established by
Holding Company for each of these regions, together with
representatives from the Boards of Directors of Holding Company and
Bank Subsidiary, as appropriate for each geographical region, and
other business and community leaders chosen by Towne after
consultation with Holding Company. Membership on the
TowneBank NC Boards shall be conditional upon execution of an
agreement providing that such person will not engage in activities
competitive with Towne until the later of the date that is two (2)
years following the Bank Merger Effective Date or the date on which
he or she ceases to be a member of any of the TowneBank NC
Boards.
1.6
Tax
Treatment of the Transaction.
The parties to this
Agreement intend that the Merger constitute a
“reorganization” within the meaning of Section 368(a)
of the Code. Such parties hereby adopt this Agreement as a
“plan of reorganization” within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the final regulations promulgated
under the Code by the United States Department of the Treasury (the
“Treasury Regulations”). All parties hereto agree to
cooperate and use their best efforts in order to qualify the
transactions contemplated herein as a reorganization under Section
368(a)(1) of the Code, to not take any action that could reasonably
be expected to cause the Merger to fail to so qualify, and to
report the Merger for federal, state, and any local income Tax (as
defined herein) purposes in a manner consistent with such
characterization.
ARTICLE
2
Merger
Consideration; Exchange Procedures
2.1 Conversion
of Shares.
At the Effective
Date, by virtue of the Merger and without any action on the part of
Towne or Holding Company or their respective
stockholders:
(a) Each
share of common stock, par value $1.667 per share, of Towne
(“Towne Common Stock”) that is issued and outstanding
immediately before the Effective Date shall remain issued and
outstanding and shall remain unchanged by the Merger.
(b)
Each share of common stock, par value $0.008 per share, of Holding
Company (“Holding Company Common Stock”) that is issued
and outstanding immediately before the Effective Date shall be
converted into and exchanged for the right to receive 1.7250 shares
(the “Exchange Ratio”) of Towne Common Stock, plus cash
in lieu of any fractional shares pursuant to Section 2.4
(collectively, the “Merger Consideration”).
All shares of Holding Company
Common Stock converted pursuant to this Section 2.1 shall no longer
be outstanding and shall automatically be cancelled and retired and
shall cease to exist as of the Effective Date.
(c)
Each certificate previously representing shares of Holding Company
Common Stock (a “Holding Company Common Certificate”)
and the non-certificated shares of Holding Company Common Stock
(the “Holding Company Book-Entry Shares”) shall cease
to represent any rights except the right to receive with respect to
each share of Holding Company Common Stock (i) the Merger
Consideration upon the surrender of such Holding Company Common
Certificate or Holding Company Book-Entry Shares in accordance with
Section 2.2, and (ii) any dividends or distributions which the
holder thereof has the right to receive pursuant to
Section 2.6.
(d)
Each share of Holding Company Common Stock held by any party hereto
and each share of Towne Common Stock held by Holding Company or any
of the Holding Company Subsidiaries (as defined herein) prior to
the Effective Date (in each case other than in a fiduciary or
agency capacity or on behalf of third parties as a result of debts
previously contracted) shall be cancelled and retired and shall
cease to exist at the Effective Date and no consideration shall be
issued in exchange therefor; provided, that such shares of Towne
Common Stock shall resume the status of authorized and unissued
shares of Towne Common Stock.
2.2 Exchange
Procedures.
(a)
On or before the Closing Date, Towne shall deposit, or shall cause
to be deposited, with its transfer agent or such other transfer
agent or depository or trust institution of recognized standing
approved by Towne (in such capacity, the “Exchange
Agent”), for the benefit of the holders of the Holding
Company Common Certificates and the holders of Holding Company
Book-Entry Shares, at the election of Towne, either certificates
representing the shares of Towne Common Stock or noncertificated
shares of Towne Common Stock (or a combination) issuable pursuant
to this Article 2, together with any dividends or distributions
with respect thereto and any cash to be paid in lieu of fractional
shares without any interest thereon (the “Exchange
Fund”), in exchange for the Holding Company Common
Certificates and Holding Company Book-Entry Shares.
(b)
As promptly as practicable after the Effective Date, Towne shall
cause the Exchange Agent to send to each former stockholder of
record of Holding Company immediately before the Effective Date
transmittal materials for use in exchanging such
stockholder’s Holding Company Common Certificates or Holding
Company Book-Entry Shares for the Merger Consideration, as provided
for herein.
(c)
Towne shall cause the Merger Consideration into which shares of
Holding Company Common Stock are converted at the Effective Date,
and dividends or distributions that a Holding Company stockholder
shall be entitled to receive, to be issued and paid to such Holding
Company stockholder upon proper surrender to the Exchange Agent of
Holding Company Common Certificates and Holding Company Book-Entry
Shares representing such shares of Holding Company Common Stock,
together with the transmittal materials duly executed and completed
in accordance with the instructions thereto. No interest will
accrue or be paid on any such cash to be paid pursuant to Sections
2.4 or 2.6.
(d)
Any Holding Company stockholder whose Holding Company Common
Certificates or Holding Company Book-Entry Shares have been lost,
destroyed, stolen or are otherwise missing shall be entitled to the
Merger Consideration and dividends or distributions to which such
stockholder shall be entitled upon compliance with reasonable
conditions imposed by Towne pursuant to applicable law and as
required in accordance with Towne’s standard policy
(including the requirement that the stockholder furnish customary
indemnity).
(e)
Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Holding Company for twelve (12) months after the
Effective Date shall be returned to Towne (together with any
earnings in respect thereof). Any stockholders of Holding Company
who have not complied with this Article 2 shall thereafter be
entitled to look only to Towne, and only as a general creditor
thereof, for payment of the consideration deliverable in respect of
each share of Holding Company Common Stock such stockholder held as
of the close of business on the Effective Date as determined
pursuant to this Agreement, without any interest
thereon.
(f)
None of the Exchange Agent, the parties hereto, the Towne
Subsidiaries (as defined herein) nor the Holding Company
Subsidiaries (as defined herein) shall be liable to any stockholder
of Holding Company for any amount of property delivered to a public
official pursuant to applicable abandoned property, escheat or
similar laws.
2.3
Holding
Company Stock Options and Other Equity-Based Awards.
(a)
At the Effective Date, each option (to the extent any are
outstanding), whether vested or unvested, to purchase shares of
Holding Company Common Stock (a “Holding Company Stock
Option”) granted under an equity or equity-based compensation
plan of Holding Company (a “Holding Company Stock
Plan”) or otherwise granted shall be converted into an option
(each, a “Replacement Option”) to acquire, on the same
terms and conditions as were applicable under such Holding Company
Stock Option (except as provided otherwise in this Section 2.3(a)),
the number of shares of Towne Common Stock equal to the product of
(i) the number of shares of Holding Company Common Stock subject to
the Holding Company Stock Option multiplied by (ii) the Exchange
Ratio. Such product shall be rounded down to the nearest whole
number. The exercise price per share (rounded up to the next whole
cent) of each Replacement Option shall equal (y) the exercise price
per share of shares of Holding Company Common Stock that were
purchasable pursuant to such Holding Company Stock Option divided
by (z) the Exchange Ratio. Notwithstanding the foregoing, each
Holding Company Stock Option that is intended to be an
“incentive stock option” (as defined in Section 422 of
the Code) shall be adjusted if necessary in accordance with the
requirements of Section 424 of the Code, and all other options
shall be adjusted if necessary in a manner that maintains the
option’s exemption from Section 409A of the
Code.
(b)
At the Effective Date, each restricted stock award granted under a
Holding Company Stock Plan (a “Holding Company Stock
Award”) that is unvested or contingent and outstanding
immediately prior to the Effective Date shall cease, at the
Effective Date, to represent any rights with respect to shares of
Holding Company Common Stock and shall be converted without any
action on the part of the holder thereof, into a restricted stock
award of Towne (a “Replacement Stock Award”), on the
same terms and conditions as were applicable under the Holding
Company Stock Awards (but taking into account any changes thereto,
including any acceleration of vesting thereof, provided for in the
Holding Company Stock Plan or in the related award document by
reason of the Merger). The number of shares of Towne Common Stock
subject to each such Replacement Stock Award shall be equal to the
number of shares of Holding Company Common Stock subject to the
Holding Company Stock Award multiplied by the Exchange Ratio,
rounded, if necessary, to the nearest whole share of Towne Common
Stock.
(c)
At the Effective Date, Towne shall assume the Holding Company Stock
Plans; provided that such assumption shall only be with respect to
the Replacement Options and Replacement Stock Awards, and Towne
shall have no obligation to make any additional grants or awards
under the Holding Company Stock Plans. The provisions of any such
Holding Company Stock Plan will be unchanged, except that (i) all
references to Holding Company (other than any references relating
to a “change in control” (or similar term) of Holding
Company) in the Holding Company Stock Plan and in each agreement
evidencing any award thereunder shall be deemed to refer to Towne,
unless Towne reasonably determines otherwise, and (ii) the number
of shares of Towne Common Stock available for issuance pursuant to
the Holding Company Stock Plan following the Effective Date shall
be equal to the number of shares of Holding Company Common Stock so
available immediately prior to the Effective Date multiplied by the
Exchange Ratio, rounded, if necessary, down to the nearest whole
share of Towne Common Stock.
(d)
As soon as practicable after the Effective Date, Towne will deliver
to the holders of Replacement Options and Replacement Stock Awards
any required notices setting forth such holders’ rights
pursuant to the respective Holding Company Stock Plan and award
documents and stating that such Replacement Options and Replacement
Stock Awards have been issued by Towne and shall continue in effect
on the same terms and conditions (subject to the adjustments
required by this Section 2.3 after giving effect to the Merger and
the terms of the Holding Company Stock Plan).
2.4 No
Fractional Shares.
Each holder of
shares of Holding Company Common Stock exchanged pursuant to the
Merger that would otherwise have been entitled to receive a
fraction of a share of Towne Common Stock shall receive, in lieu
thereof, cash (without interest and rounded to the nearest cent) in
an amount equal to such fractional part of a share of Towne Common
Stock multiplied by the average closing price per share of Towne
Common Stock, as reported on the NASDAQ Global Select Market, for
the ten (10) consecutive trading days ending on and including the
fifth trading day prior to the Effective Date.
In the event Towne
changes (or establishes a record date for changing) the number of
shares of Towne Common Stock issued and outstanding before the
Effective Date as a result of a stock split, stock dividend,
recapitalization, reclassification, reorganization or similar
transaction,
appropriate and proportional
adjustments will be made to the Exchange Ratio.
No dividend or
other distribution payable to the holders of record of Holding
Company Common Stock at, or as of, any time after the Effective
Date will be paid to the holder of any Holding Company Common
Certificate or Holding Company Book-Entry Share until such holder
properly surrenders such shares (or furnishes customary indemnity
that the Holding Company Common Certificate or Holding Company
Book-Entry Share is lost, destroyed, stolen or otherwise missing as
provided in Section 2.2(d)) for exchange as provided in Section 2.2
of this Agreement, promptly after which time all such dividends or
distributions will be paid (without interest).
The Exchange Agent
will be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Agreement to any
person such amounts, if any, it is required to deduct and withhold
with respect to the making of such payment under the Code or any
provision of state, local or foreign Tax (as defined herein) law.
To the extent that amounts are so withheld and remitted to the
appropriate Governmental Authority (as defined herein) by the
Exchange Agent, such amounts withheld will be treated for all
purposes of this Agreement as having been paid to such person in
respect of which such deduction and withholding was made by the
Exchange Agent.
In accordance with
Section 55-13-02 of the NCBCA, no appraisal rights shall be
available to the holders of Holding Company Common Stock in
connection with the Merger or the other transactions contemplated
by this Agreement.
ARTICLE
3
Representations
and Warranties
On or before the
date of this Agreement, Holding Company has delivered to Towne a
schedule and Towne has delivered to Holding Company a schedule
(each respectively, its “Disclosure Schedule”) setting
forth, among other things, the disclosure of items that are
necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in
Sections 3.3 or 3.4 or to one or more covenants or agreements
contained in Articles 4 or 5; provided that, (i) no such item
is required to be set forth in a Disclosure Schedule as an
exception to any representation or warranty if its absence would
not result in the related representation or warranty being deemed
untrue or incorrect under the standard established by Section 3.2,
and (ii) the mere inclusion of an item in a Disclosure
Schedule as an exception to a representation or warranty shall not
be deemed an admission by a party that such item represents a
material exception or fact, event or circumstance or that, absent
such inclusion in the Disclosure Schedule, such item is reasonably
likely to result in a Material Adverse Effect (as defined
herein).
(a)
No representation or warranty of Holding Company or Bank Subsidiary
on the one hand or Towne on the other hand contained in Article 3
(other than the representations and warranties contained in (i)
Section 3.3(c)(i) for Holding Company and Bank Subsidiary, and
Section 3.4(c)(i) for Towne, which shall be true in all material
respects to it, and (ii) Sections 3.3(c)(ii)(A), 3.3(d) (other than
inaccuracies that are de minimis in amount and effect) and
3.3(g)(ii) for Holding Company and Bank Subsidiary, and Sections
3.4(c)(ii)(A), 3.4(d) (other than inaccuracies that are de minimis
in amount and effect) and 3.4(g)(ii) for Towne, which shall be true
and correct in all respects) will be deemed untrue or incorrect,
and no party will be deemed to have breached a representation or
warranty, as a consequence of the existence or absence of any fact,
event or circumstance unless such fact, event or circumstance,
individually or taken together with all other facts, events or
circumstances inconsistent with any representation or warranty
contained in Section 3.3 or Section 3.4, has had or is reasonably
likely to have a Material Adverse Effect on such party,
disregarding for these purposes (i) any qualification or exception
for, or reference to, materiality in any such representation or
warranty and (ii) any use of the terms “material,”
“materially,” “in all material respects,”
“Material Adverse Effect” or similar terms or phrases
in any such representation or warranty.
(b)
The term “Material Adverse Effect,” as used with
respect to a party, means an event, change, effect or occurrence
which, individually or together with any other event, change,
effect or occurrence, (i) is materially adverse to the business,
properties, financial condition or results of operations of such
party and its subsidiaries (meaning the “Holding Company
Subsidiaries” as defined in Section 3.3(b) or the
“Towne Subsidiaries” as defined in Section 3.4(b), as
the case may be), taken as a whole, or (ii) materially impairs the
ability of such party to perform its obligations under this
Agreement or to consummate the Transaction and the other
transactions contemplated by this Agreement on a timely basis;
provided that a Material Adverse Effect shall not be deemed to
include the impact of (A) changes after the date of this Agreement
in laws or regulations generally affecting the banking and bank
holding company businesses and the interpretation of such laws and
regulations by courts or governmental authorities, (B) changes
after the date of this Agreement in generally accepted accounting
principles or regulatory accounting requirements generally
affecting the banking and bank holding company businesses, (C)
changes or events after the date of this Agreement generally
affecting the banking and bank holding company businesses,
including changes in prevailing interest rates, and not
specifically relating to Towne, the Towne Subsidiaries, Holding
Company or the Holding Company Subsidiaries, (D) the effects of the
actions expressly permitted or required by this Agreement or that
are taken with the prior informed consent of the other party in
contemplation of the transactions contemplated hereby, (E) the
public disclosure of this Agreement and the transactions
contemplated hereby, (F) a decline in the trading price of a
party’s common stock or the failure, in and of itself, to
meet earnings projections or internal financial forecasts, but not
including the underlying causes thereof, and (G) any outbreak
or escalation of major hostilities or acts of terrorism which
involves the United States; except, with respect to clauses (A),
(B), (C) or (G), to the extent that the effects of such change are
materially disproportionately adverse to the business, properties,
financial condition or results of operations such party hereto and
its subsidiaries, taken as a whole, as compared to other comparable
companies in the commercial banking industry.
(c)
The term “Knowledge” when used with respect to a party
means the actual knowledge and belief of such party’s
executive officers. For the purpose of the term Knowledge,
“executive officer” shall mean (y) with respect to
Towne, those individuals set forth on Section 3.2(c) of
Towne’s Disclosure Schedule, and (z) with respect to Holding
Company and Bank Subsidiary, those individuals set forth on Section
3.2(c) of Holding Company’s Disclosure Schedule.
3.3
Representations
and Warranties of Holding Company and Bank Subsidiary.
Subject to and
giving effect to Sections 3.1 and 3.2 and except as set forth in
Holding Company’s Disclosure Schedule, Holding Company and
Bank Subsidiary hereby jointly and severally represent and warrant
to Towne as follows:
(a)
Organization, Standing and Power.
(i)
Holding Company is a North Carolina corporation duly organized,
validly existing and in good standing under the laws of the State
of North Carolina. Holding Company has all requisite corporate
power and authority to carry on its business as now conducted and
to own and operate its assets, properties and business. Holding
Company is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. True and complete copies
of the articles of incorporation, articles of organization, bylaws
or other similar governing instruments (“Organizational
Documents”) of Holding Company, in each case as amended to
the date hereof and as in full force and effect as of the date
hereof, are set forth in Section 3.3(a)(i) of Holding
Company’s Disclosure Schedule.
(ii)
Bank Subsidiary
, a wholly owned
subsidiary of Holding Company, is a North Carolina state chartered
bank duly
organized
, validly
existing and in good standing under the laws of the State of North
Carolina, and has all requisite corporate power and authority to
carry on a commercial banking business as now being conducted and
to own and operate its assets, properties and business. Bank
Subsidiary’s
deposits are insured by the Deposit
Insurance Fund of the Federal Deposit Insurance Corporation
(“FDIC”) to the maximum extent permitted by law.
True and complete copies
of the Organizational Documents of Bank Subsidiary, in each case as
amended to the date hereof and as in full force and effect as of
the date hereof, are set forth in Section 3.3(a)(ii) of Holding
Company’s Disclosure Schedule.
(b)
Subsidiaries
.
Holding
Company does not own, directly or indirectly, five percent
(5%) or more of the outstanding
capital stock or other equity interests of any corporation, bank or
other organization actively engaged in business except as set forth
in Section 3.3(b) of Holding Company’s Disclosure Schedule
(each individually a “Holding Company Subsidiary” and
collectively the “Holding Company
Subsidiaries”).
Each Holding Company Subsidiary (i) is a duly
organized bank, corporation, limited liability company or statutory
trust, validly existing and in good standing under applicable laws,
(ii) has full corporate or other applicable power and authority to
carry on its business as now conducted and (iii) is duly qualified
to do business in the states where its ownership or leasing of
property or the conduct of its business requires such qualification
and where the failure to so qualify would have a Material Adverse
Effect on Holding Company on a consolidated basis. The outstanding
shares of capital stock or equity interests of each Holding Company
Subsidiary have been duly authorized and are validly issued and
outstanding, fully paid and nonassessable and all such shares are
directly or indirectly owned by Holding Company free and clear of
all liens, claims and encumbrances or preemptive rights of any
person. No rights are authorized, issued or outstanding with
respect to the capital stock or equity interests of any Holding
Company Subsidiary and there are no agreements, understandings or
commitments relating to the right of Holding Company to vote or to
dispose of the capital stock or equity interests of any Holding
Company Subsidiary.
A true and complete list of each direct
and indirect Holding Company Subsidiary as of the date hereof is
set forth in Section 3.3(b) of Holding Company’s Disclosure
Schedule that shows the jurisdiction of organization of each
Holding Company Subsidiary, its form of organization (corporate,
partnership, joint venture, etc.), and lists the owner(s) and
percentage ownership (direct or indirect) of each Holding Company
Subsidiary.
(c)
Authority; No Breach of the Agreement.
(i)
Each of Holding Company and Bank Subsidiary has the corporate power
and authority to execute, deliver and perform its obligations under
this Agreement, and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement
by Holding Company and Bank Subsidiary, and the consummation of the
transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action on the part of Holding
Company and Bank Subsidiary, respectively, subject only to the
receipt of (i) the approval of this Agreement and the Plan of
Merger by the holders of a majority of the outstanding shares of
Holding Company Common Stock (the “Holding Company
Stockholder Approval”) and (ii) the approval of this
Agreement and the Bank Plan of Merger by the sole stockholder of
Bank Subsidiary. This Agreement is a valid and legally binding
obligation of Holding Company and Bank Subsidiary, enforceable in
accordance with its terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws affecting the
enforcement of rights of creditors or by general principles of
equity).
(ii)
Neither the execution and delivery of this Agreement by Holding
Company and Bank Subsidiary, nor the consummation by Holding
Company and Bank Subsidiary of the transactions contemplated
hereby, nor compliance by Holding Company and Bank Subsidiary with
any of the provisions hereof will: (A) conflict with or result in a
breach of any provision of the Organizational Documents of Holding
Company or Bank Subsidiary; (B) constitute or result in the breach
of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon, any property or asset of Holding
Company or any Holding Company Subsidiary pursuant to any (1) note,
bond, mortgage, indenture, or (2) any material license, agreement
or other instrument or obligation, to which Holding Company or any
Holding Company Subsidiary is a party or by which Holding Company
or any Holding Company Subsidiary or any of their properties or
assets may be bound; or (C) subject to the receipt of all required
stockholder approvals and the receipt, or the making, of the
consents, approvals, waivers and filings referred to in subsection
3.3(c)(iii) and the expiration of related waiting periods, violate
any order, writ, injunction, decree, statute, rule or regulation
applicable to Holding Company or any Holding Company
Subsidiary.
(iii)
Except for (A) the filing of any required applications, filings or
notices with the Governmental Authorities (as defined herein) and
the receipt of any permits, consents, approvals and authorizations
of the Governmental Authorities and all third parties necessary to
consummate the transactions contemplated by this Agreement (the
“Regulatory Approvals”), (B) compliance with the
applicable requirements of the Securities Act of 1933, as amended
(the “Securities Act”), and the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), including the
filing with the SEC of the Proxy Statement in definitive form
relating to the Holding Company Stockholders Meeting (as such terms
are defined herein) and the transactions contemplated by this
Agreement, (C) the filing of separate Articles of Merger with the
Virginia State Corporation Commission and North Carolina Secretary
of State to effect the Transaction, (D) such filings and approvals
as are required to be made or obtained under the securities or
“Blue Sky” laws of the various states in connection
with the issuance of shares of Towne Common Stock pursuant to this
Agreement, (E) approval of listing the shares of Towne Common Stock
to be issued pursuant to this Agreement on the NASDAQ Global Select
Market, and (F) the consents and approvals of third parties that
are not Governmental Authorities required to consummate the
Transaction, no consents or approvals of or notices to or filings
with any Governmental Authority or other third party are necessary
in connection with the execution and delivery of this Agreement and
the consummation by Holding Company of the Merger and Bank
Subsidiary of the Bank Merger and the other transactions
contemplated by this Agreement. As of the date hereof, neither
Holding Company nor Bank Subsidiary is aware of any reason why the
necessary Regulatory Approvals and consents will not be received in
order to permit consummation of the Transaction. For the purposes
of this Agreement, a “Governmental Authority” means any
court, administrative agency or commission or other governmental
authority, agency or instrumentality, domestic or foreign, or any
industry self-regulatory authority.
(d)
Holding Company Capital
Stock.
The
authorized capital stock of Holding Company consists of 1,000,000
shares of preferred stock, no par value per share, of which no
shares are issued and outstanding, and 20,000,000 shares of Holding
Company Common Stock, of which 5,453,963 shares are issued and
outstanding as of the date of this Agreement. All outstanding
shares of Holding Company Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable and have not
been issued in violation of the preemptive rights of any person. As
of the date of this Agreement, 58,487 shares of Holding Company
Common Stock are subject to unvested Holding Company Stock Awards
granted under a Holding Company Stock Plan. As of the date of this
Agreement, 41,625 shares of Holding Company Common Stock are
subject to Holding Company Stock Options, all of which were granted
under a Holding Company Stock Plan. As of the date of this
Agreement, there are no shares of capital stock of Holding Company
reserved for issuance, or any outstanding or authorized options,
warrants, rights, agreements, convertible or exchangeable
securities, or other commitments, contingent or otherwise, relating
to its capital stock pursuant to which Holding Company is or may
become obligated to issue shares of capital stock or any securities
convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock (collectively,
“Rights”), except as contemplated by a Holding Company
Stock Plan and as set forth in Section 3.3(d) of Holding
Company’s Disclosure Schedule.
(e)
SEC Filings; Financial Statements;
Accounting Controls
.
(i)
Holding Company has filed all reports, registration statements,
proxy statements, offering circulars, schedules and other documents
required to be filed by it (collectively, the “Securities
Documents”) with the Securities and Exchange Commission (the
“SEC”) since June 15, 2016 under the Securities Act and
the Exchange Act, and, to the extent such Securities Documents are
not available on the SEC’s Electronic Data Gathering Analysis
and Retrieval system, made available to Towne copies of such
Securities Documents. Holding Company’s Securities Documents,
including the financial statements, exhibits and schedules
contained therein, (A) at the time filed, complied (and any
Securities Documents filed after the date of this Agreement will
comply) in all material respects with the applicable requirements
of the Securities Act and the Exchange Act, and (B) at the time
they were filed (or if amended or superseded by one or more
Securities Documents filed prior to the date of this Agreement,
then on the date of such filing), did not (and any Securities
Documents filed after the date of this Agreement will not) contain
any untrue statement of a material fact or omit to state a material
fact required to be stated in such Securities Documents or
necessary in order to make the statements made in such Securities
Documents, in light of the circumstances under which they were
made, not misleading.
(ii)
Each of Holding Company’s financial statements contained in
or incorporated by reference into any Securities Documents
(including any Securities Documents filed after the date of this
Agreement) (the “Financial Statements”) complied (or,
in the case of Securities Documents filed after the date of this
Agreement, will comply) in all material respects with the
applicable requirements of the Securities Act and the Exchange Act
with respect thereto, fairly presented (or, in the case of
Securities Documents filed after the date of this Agreement, will
fairly present) the consolidated financial position of Holding
Company and the Holding Company Subsidiaries as at the respective
dates and the consolidated results of its operations and cash flows
for the periods indicated, in each case in accordance with
generally accepted accounting principles in the United States of
America (“GAAP”) consistently applied during the
periods indicated, except in each case as may be noted therein, and
subject to normal year-end audit adjustments and as permitted by
Form 10-Q in the case of unaudited financial
statements.
(iii)
Holding Company and Bank Subsidiary have devised and maintain a
system of “internal controls over financial reporting”
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with general or
specific authorization of their respective Board of Directors and
duly authorized executive officers, (ii) transactions are
recorded as necessary to permit the preparation of financial
statements in conformity with GAAP consistently applied with
respect to institutions such as Holding Company and Bank Subsidiary
or other criteria applicable to such financial statements, and to
maintain proper accountability for items therein, (iii) access to
its properties and assets is permitted only in accordance with
general or specific authorization of their respective Board of
Directors and duly authorized executive officers, and (iv) the
recorded accountability for items is compared with the actual
levels at reasonable intervals and appropriate actions taken with
respect to any differences.
(iv)
Holding Company’s “disclosure controls and
procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act) are designed to ensure that all information
required to be disclosed by it in its Securities Documents is
recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms, and that all
such information is accumulated and communicated to its management
as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of its chief executive
officer and chief financial officer required under the Exchange Act
with respect to such reports. Holding Company has disclosed, to its
auditors and the audit committee of its Board of Directors and on
Section 3.3(e)(iv) of Holding Company’s Disclosure Schedule
(i) based on the evaluation of such controls in conjunction with
its Annual Report on Form 10-K filed with the SEC for the period
ended December 31, 2016, any significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting that could adversely affect in any material
respect its ability to record, process, summarize and report
financial information and (ii) any fraud, whether or not material,
that involves management or other employees who have a significant
role in its internal controls over financial reporting. For
purposes of this Agreement, the terms “significant
deficiency” and “material weakness” shall have
the meaning assigned to them in Public Company Accounting Oversight
Board Auditing Standard 2, as of the date hereof.
(v)
Each of Holding Company’s principal executive officer and
principal financial officer (or each former principal executive
officer and each former principal financial officer, as applicable)
has made all certifications required by Rule 13a-14 or 15d-14 under
the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act
of 2002 (including the rules and regulations promulgated
thereunder, the “Sarbanes-Oxley Act”) with respect to
its Securities Documents, and the statements contained in such
certifications are true and accurate in all material respects. For
purposes of this Agreement, “principal executive
officer” and “principal financial officer” shall
have the meanings given to such terms in the Sarbanes-Oxley Act.
Holding Company is in compliance with all applicable provisions of
the Sarbanes-Oxley Act, except for any non-compliance that would
not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Holding
Company.
(f)
Bank Reports
. Holding
Company and each of the Holding Company Subsidiaries has filed all
reports, forms, correspondence, registrations and statements,
together with any amendments required to be made with respect
thereto (the “Bank Reports”), that they were required
to file since December 31, 2013 with the Board of Governors of the
Federal Reserve System, the North Carolina Commissioner of Banks,
the FDIC, and any other federal, state or foreign governmental or
regulatory agency or authority having jurisdiction over Holding
Company and each of the Holding Company Subsidiaries (collectively,
the “Regulatory Agencies”), including any Bank Report
required to be filed pursuant to the laws of the United States, any
state or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith, except where
the failure to file such Bank Report or to pay such fees and
assessments, either individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on it. Any
such Bank Report regarding Holding Company or any of the Holding
Company Subsidiaries filed with or otherwise submitted to any
Regulatory Agency complied in all material respects with relevant
legal requirements, including as to content. Except for normal
examinations conducted by a Regulatory Agency in the ordinary
course of Holding Company’s and each of the Holding Company
Subsidiaries’ business, there is no pending proceeding
before, or, to its Knowledge, examination or investigation by, any
Regulatory Agency into the business or operations of Holding
Company or any of the Holding Company Subsidiaries. Except as
disclosed in the Bank Reports, there is no unresolved violation
cited by any Regulatory Agency with respect to any Bank Report or
relating to any examination or inspection of Holding Company or any
of the Holding Company Subsidiaries, and there has been no formal
or informal inquiries by, or disagreements or disputes with, any
Regulatory Agency with respect to the business, operations,
policies or procedures of Holding Company or any of the Holding
Company Subsidiaries since December 31, 2013, in each case, which
would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on Holding
Company.
(g)
Absence of Certain Changes or
Events
.
Since
December 31, 2016, except as disclosed in its Securities Documents,
Financial Statements or Bank Reports filed prior to the date of
this Agreement, (i) Holding Company and the Holding Company
Subsidiaries have conducted their respective businesses and
incurred liabilities only in the ordinary course consistent with
past practices, and (ii) there have been no events, changes,
developments or occurrences which, individually or in the
aggregate, have had or are reasonably likely to have a Material
Adverse Effect on Holding Company.
(h)
Absence of Undisclosed
Liabilities.
Except for (i) those liabilities that are fully
reflected or reserved for in its financial statements contained in
its Securities Documents, Financial Statements or Bank Reports
filed prior to the date of this Agreement, (ii) liabilities
incurred since December 31, 2016 in the ordinary course of business
consistent with past practice, (iii) liabilities that arise out of
executory obligations under contracts, (iv) liabilities which would
not individually or in the aggregate reasonably be expected to have
a Material Adverse Effect and (v) liabilities incurred in
connection with the transactions contemplated by this Agreement,
neither Holding Company nor any Holding Company Subsidiary has, and
since December 31, 2016 neither has incurred (except as permitted
by Section 4.1), any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise and whether or
not required to be reflected in its Securities Documents or Bank
Reports) and except as disclosed in Section 3.3(h) of Holding
Company’s Disclosure Schedule.
(i)
Material Contracts;
Defaults
.
(i)
Set forth in Section 3.3(i)(i) of Holding Company’s
Disclosure Schedule is a list that includes each of the following
agreements, contracts, arrangements, commitments or understandings
(whether written or oral) that Holding Company or any Holding
Company Subsidiary is a party to, bound by or subject to (each, a
“Holding Company Contract” and collectively,
“Holding Company Contracts”): (A) with respect to the
employment of any of its directors, officers, employees or
consultants, (B) which would entitle any present or former
director, officer, employee or agent of Holding Company or a
Holding Company Subsidiary to indemnification from Holding Company
or a Holding Company Subsidiary, (C) which is a material contract
(as defined in Item 601(b)(10) of Regulation S-K of the SEC), (D)
which is an agreement (including data processing, software
programming, consulting and licensing contracts) not terminable on
sixty (60) days or less notice and involving the payment or value
of more than $50,000 per year and/or has a termination fee, (E)
which relates to the incurrence of indebtedness by Holding Company
or Bank Subsidiary (other than deposit liabilities, advances and
loans from the Federal Home Loan Bank of Atlanta, and sales of
securities subject to repurchase, in each case, in the ordinary
course of business), (F) which grants any person a right of
first refusal, right of first offer or similar right with respect
to any material properties, rights, assets or businesses of Holding
Company or a Holding Company Subsidiary, (G) which involves the
purchase or sale of assets with a purchase price of $100,000 or
more in any single case or $250,000 in all such cases, other than
purchases and sales of investment securities and loans in the
ordinary course of business consistent with past practice, (H)
which provides for the payment by Holding Company or a Holding
Company Subsidiary of payments upon a change in control thereof,
(I) which is a lease for any real or material personal
property owned or presently used by Holding Company or a Holding
Company Subsidiary, (J) which materially restricts the conduct of
any business by Holding Company or a Holding Company Subsidiary or
limits the freedom of Holding Company or a Holding Company
Subsidiary to engage in any line of business in any geographic area
(or would so restrict Towne or any of its affiliates after
consummation of the Transaction) or which requires exclusive
referrals of business or requires Holding Company or a Holding
Company Subsidiary to offer specified products or services to their
customers or depositors on a priority or exclusive basis, or (K)
which is with respect to, or otherwise commits Holding Company or a
Holding Company Subsidiary to do, any of the
foregoing.
(ii)
Each Holding Company Contract is valid and binding on Holding
Company or the respective Holding Company Subsidiary and is in full
force and effect (other than due to the ordinary expiration
thereof) and, to the Knowledge of Holding Company, is valid and
binding on the other parties thereto. Holding Company and each
Holding Company Subsidiary is not, and to the Knowledge of Holding
Company and Bank Subsidiary, no other party thereto, is in default
under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by
which its assets, business or operations may be bound or affected,
or under which it or its respective assets, business or operations
receives benefits which is reasonably likely to have a Material
Adverse Effect, and there has not occurred any event that, with the
lapse of time or the giving of notice or both, would constitute
such a default. Except as provided in this Agreement, no power of
attorney or similar authorization given directly or indirectly by
Holding Company or a Holding Company Subsidiary is currently
outstanding.
(j)
Legal Proceedings; Compliance with
Laws
. Except as set forth in Section 3.3(j) of Holding
Company’s Disclosure Schedule, there are no actions, suits or
proceedings instituted or pending or, to the Knowledge of Holding
Company and Bank Subsidiary, threatened against Holding Company or
any of the Holding Company Subsidiaries or against any of Holding
Company’s or the Holding Company Subsidiaries’
properties, assets, interests or rights, or against any of Holding
Company’s or Holding Company Subsidiaries’ officers,
directors or employees in their capacities as such. Except as set
forth in Section 3.3(j) of Holding Company’s Disclosure
Schedule, neither Holding Company nor any of the Holding Company
Subsidiaries is a party to or subject to any agreement, order,
memorandum of understanding, enforcement action, or supervisory or
commitment letter by or with any Governmental Authority restricting
the operations of Holding Company or the operations of any of the
Holding Company Subsidiaries and neither Holding Company nor any of
the Holding Company Subsidiaries has been advised by any
Governmental Authority or otherwise become aware that any
Governmental Authority is investigating, inquiring or otherwise
contemplating issuing or requesting the issuance of any such
agreement, order, memorandum, action or letter in the future. Since
January 1, 2014, Holding Company and each of the Holding Company
Subsidiaries have complied in all material respects with all laws,
ordinances, requirements, regulations or orders applicable to its
business.
(i) Holding
Company and each of the Holding Company Subsidiaries have filed all
federal, state and local returns and reports relating to Taxes
required to be filed with a Governmental Authority (each, a
“Tax Return”), and all such Tax Returns were correct
and complete in all material respects. All Taxes (as defined
herein) owed by Holding Company or any of the Holding Company
Subsidiaries have been paid, are reflected as a liability in its
Securities Documents or Bank Reports, or are being contested in
good faith as set forth in Holding Company’s Disclosure
Schedule. Except as set forth in Section 3.3(k)(i) of Holding
Company’s Disclosure Schedule, no Tax Return filed by Holding
Company or any of the Holding Company Subsidiaries is the subject
of any administrative or judicial proceeding, no unpaid Tax
deficiency has been asserted against Holding Company or any of the
Holding Company Subsidiaries by any Governmental Authority, and to
the Knowledge of Holding Company and the Holding Company
Subsidiaries, no Tax Return filed by Holding Company or any of the
Holding Company Subsidiaries is under examination by any
Governmental Authority. For the purposes of this Agreement,
“Tax” or “Taxes” mean any and all taxes,
charges, fees, levies or other assessments in the nature of a tax
imposed by a Governmental Authority, including, without limitation,
all income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license,
withholding, payroll, employment, employer health, excise,
estimated, severance, stamp, occupation, property or other taxes,
custom duties, fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or
additional amounts imposed by any Governmental
Authority.
(ii) Holding
Company and each of the Holding Company Subsidiaries has withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
stockholder, independent contractor or other third party. Holding
Company and each of the Holding Company Subsidiaries have complied
in all material respects with all Tax information reporting and
backup withholding provisions of applicable law.
(iii) There
are no liens for Taxes (other than statutory liens for Taxes not
yet due and payable) upon any of the assets of Holding Company or
any of the Holding Company Subsidiaries. Neither Holding Company
nor any of the Holding Company Subsidiaries is a party to or is
bound by any Tax sharing, allocation or indemnification agreement
or arrangement (other than such an agreement or arrangement
exclusively between or among Holding Company and the Holding
Company Subsidiaries). Neither Holding Company nor any of the
Holding Company Subsidiaries has been, within the past two years or
otherwise as part of a “plan (or series of related
transactions)” within the meaning of Section 355(e) of the
Code of which the Transaction is also a part, a “distributing
corporation” or a “controlled corporation”
(within the meaning of Section 355(a)(1)(A) of the Code) in a
distribution of stock intended to qualify for tax-free treatment
under Section 355 of the Code.
(iv) Neither
Holding Company nor any of the Holding Company Subsidiaries is or
has been a party to any “listed transaction,” as
defined in Code Section 6707A(c)(2) and Section 1.6011-4(b)(2) of
the Treasury Regulations. Holding Company and each of the Holding
Company Subsidiaries have disclosed on their federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning
of Code Section 6662. Holding Company is not and has not been a
“United States real property holding company” within
the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the
Code.
(v) Neither
Holding Company nor Bank Subsidiary is aware of any reason why the
Merger will fail to qualify as a reorganization under Section
368(a) of the Code.
(i) Except
as set forth in
Section 3.3(l)(i)
of
Holding Company’s Disclosure Schedule or reserved
against as disclosed in its Securities Documents or Bank Reports,
Holding Company and each of the Holding Company Subsidiaries have
good and marketable title in fee simple absolute free and clear of
all material liens, encumbrances, charges, defaults or equitable
interests, other than Permitted Liens (as defined herein), to all
of the properties and assets, real and personal, reflected in the
balance sheet included in its Securities Documents or Bank Reports
as of December 31, 2016 or acquired after such date. All buildings,
and all fixtures, equipment, and other property and assets that are
material to Holding Company’s or any of the Holding Company
Subsidiaries’ business, held under leases, subleases or
licenses, are held under valid instruments, and to Holding
Company’s Knowledge, enforceable in accordance with their
respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws. Other than real estate
that was acquired by foreclosure or voluntary deed in lieu of
foreclosure, all buildings, structures, and appurtenances owned,
leased, or occupied by Holding Company and each of the Holding
Company Subsidiaries (the “Real Property”) are in good
operating condition and in a state of good maintenance and repair
and comply with applicable zoning and other municipal laws and
regulations, and there are no latent defects therein. With regard
to the Real Property, there are no eminent domain or similar
proceedings pending or, to the Knowledge of Holding Company or Bank
Subsidiary, threatened affecting all or any material portion of
such Real Property, and further, there is no writ, injunction,
decree, order or judgement outstanding, nor any action, claim suit
or proceeding pending or, to the Knowledge of Holding Company or
Bank Subsidiary, threatened, relating to the ownership, lease, use,
occupancy or operation of such Real Property.
(ii) Section
3.3(l)(ii) of Holding Company’s Disclosure Schedule
identifies and sets forth the address of each parcel of real estate
or interest therein, leased, licensed or subleased by Holding
Company and each of the Holding Company Subsidiaries or in which
Holding Company or any of the Holding Company Subsidiaries has any
leasehold interest. Holding Company has made available to Towne
true and complete copies of all lease, license and sublease
agreements, including without limitation every amendment thereto,
for each parcel of real estate or interest therein to which Holding
Company or any of the Holding Company Subsidiaries is a
party.
For purposes of
this Section 3.3(l), “Permitted Liens” shall mean: (a)
liens arising by operation of law for taxes or other governmental
charges not yet due and payable or due but not delinquent or being
contested in good faith by appropriate proceedings; (b) liens
arising by operation of law, including liens arising by virtue of
the rights of customers, suppliers and subcontractors in the
ordinary course of business under general principles of commercial
law, that do not, individually or in the aggregate, materially
impair the value of the assets to which they relate and that are
for current obligations; (c) imperfections of title that do
not, individually or in the aggregate, materially impair the
continued ownership, use and operation of the assets to which they
relate in the business of Holding Company or the Holding Company
Subsidiaries as currently conducted, including (i) the standard or
printed exclusions under a standard form of ALTA owner’s
policy of title insurance, (ii) the lien for taxes on Real Property
not due and payable on or before the Closing Date, (iii) zoning
ordinances affecting the Real Property, (iv) all easements,
covenants, restrictions, reservations, rights-of-way and other
similar matters of record as of the date of Holding Company’s
execution of this Agreement, and (v) such matters as would be
disclosed by a current and accurate survey and inspection of the
Real Property; and (d) security interests granted in connection
with either (i) the lease of equipment in the ordinary course of
business, or (ii) an existing mortgage agreement encumbering Real
Property as set forth on Schedule 3.3(l)(i).
(m)
Employee
Benefit Plans
.
(i) Section
3.3(m)(i) of Holding Company’s Disclosure Schedule sets forth
a complete and accurate list of all employee benefit plans and
programs of Holding Company and the Holding Company Subsidiaries,
including without limitation: (A) all retirement, savings and other
pension plans; (B) all health, severance, insurance, disability and
other employee welfare plans; (C) all employment, vacation and
other similar plans; and (D) all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental
retirement, severance and other employee and director benefit
plans, programs or arrangements, and all employment or compensation
arrangements, in each case for the benefit of or relating to its
current and former employees and directors (individually, a
“Holding Company Benefit Plan” and collectively, the
“Holding Company Benefit Plans”). Neither Holding
Company nor any Holding Company Subsidiary is subject to or
obligated under any oral or unwritten Holding Company Benefit
Plan.
(ii) Holding
Company has, with respect to each Holding Company Benefit Plan,
previously delivered or made available to Towne true and complete
copies of: (A) all current Holding Company Benefit Plan
agreements and documents and related trust agreements or annuity
contracts and any amendments thereto; (B) all current summary plan
descriptions and material communications to employees and Holding
Company Benefit Plan participants and beneficiaries; (C) the Form
5500 filed in each of the most recent three plan years (including
all schedules thereto and the opinions of independent accountants);
(D) the most recent actuarial valuation (if any); (E) the most
recent annual and periodic accounting of plan assets; (F) if the
Holding Company Benefit Plan is intended to qualify under Sections
401(a) or 403(a) of the Code, the most recent determination letter
or opinion letter, as applicable, received from the Internal
Revenue Service (the “IRS”); and (G) copies of the most
recent nondiscrimination tests for all Holding Company Benefit
Plans, as applicable.
(iii)
None of the Holding Company Benefit Plans is a
“multi-employer plan” as defined in Section 3(37) of
the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”).
(iv) All
of the Holding Company Benefit Plans are in compliance in all
material respects with applicable laws and regulations, and Holding
Company has administered the Holding Company Benefit Plans in
accordance with applicable laws and regulations in all material
respects.
(v)
Each Holding Company Benefit Plan that is intended to be qualified
under Section 401(a) of the Code has been determined by the IRS to
be so qualified, as reflected in a current favorable determination
letter (based on IRS permitted determination request procedures),
or opinion letter, as applicable, or a filing for the same has been
made with the IRS seeking such a determination letter and that
request is still awaiting decision by the IRS (based on IRS
permitted determination request procedures). Nothing has occurred
since the date of any such determination that is reasonably likely
to affect adversely such qualification or exemption, or result in
the imposition of excise Taxes or income Taxes on unrelated
business income under the Code or ERISA with respect to any
Tax-qualified plan. To the Knowledge of Holding Company and Bank
Subsidiary, there have been no “terminations,”
“partial terminations” or “discontinuances of
contributions,” as such terms are used in Section 411 of the
Code and the Treasury Regulations thereunder, to any Tax-qualified
plan during the preceding five years without required notice to and
approval by the IRS and payment of all obligations and liabilities
attributable to such Tax-qualified plans.
(vi)
All required contributions (including all employer contributions
and employee salary reduction contributions), premiums and other
payments due for the current plan year or any plan year ending on
or before the Closing Date, under all benefit arrangements have
been made or properly accrued. All contributions to any Holding
Company Benefit Plan have been contributed within the time
specified in ERISA and the Code and the respective regulations
thereunder. There are no “accumulated funding
deficiencies,” as defined in Section 412 of the Code or
Section 302 of ERISA, with respect to any “employee pension
benefit plan,” as defined in Section 3(2) of ERISA, of
Holding Company or any Holding Company Subsidiary, and no request
for a waiver from the IRS with respect to any minimum funding
requirement under Section 412 of the Code.
(vii)
To Holding Company’s and Bank Subsidiary’s Knowledge,
neither Holding Company nor Bank Subsidiary has engaged in any
prohibited transactions, as defined in Section 4975 of the Code or
Section 406 of ERISA, with respect to any Holding Company Benefit
Plan that is a pension plan as defined in Section 3(2) of ERISA. To
Holding Company’s and Bank Subsidiary’s Knowledge, no
“fiduciary,” as defined in Section 3(21) of ERISA, of
any Holding Company Benefit Plan has any liability for breach of
fiduciary duty under ERISA.
(viii)
There are no actions, suits, investigations or claims (other than
routine claims for benefits) pending, threatened or, to the
Knowledge of Holding Company and Bank Subsidiary, anticipated with
respect to any of the Holding Company Benefit Plans. None of the
Holding Company Benefit Plans is the subject of a pending or, to
the Knowledge of Holding Company and Bank Subsidiary, threatened
investigation or audit by the IRS, the U.S. Department of Labor, or
the Pension Benefit Guaranty Corporation.
(ix)
Except as set forth in
Section
3.3(m)(ix) of
Holding Company’s Disclosure Schedule
(A) no compensation or benefit that is or will be payable in
connection with the transactions contemplated by this Agreement
will be characterized as an “excess parachute payment”
within the meaning of Section 280G of the Code, (B) no Holding
Company Benefit Plan contains any provision that would give rise to
any severance, termination or other payments or liabilities as a
result of the transactions contemplated by this Agreement, and (C)
no Holding Company Benefit Plan contains any provision that would
materially increase any benefits otherwise payable under any
Holding Company Benefit Plan or result in any acceleration of the
time of payment or vesting of any such benefits to any material
extent as a result of the transactions contemplated by this
Agreement.
(x)
Holding Company has not established and does not maintain a welfare
plan, as defined in Section 3(1) of ERISA, that provides benefits
to an employee at its expense after a termination of employment,
except as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985.
(xi) Except
as set forth in Section 3.3(m)(xi) of Holding Company’s
Disclosure Schedule, Holding Company and the Holding Company
Subsidiaries have made all bonus and commission payments to which
they were required to make prior to the date hereof to any employee
under any Holding Company Benefit Plan for calendar years 2015 and
2016.
(xii)
All “group health plans,” as defined in Section
5000(b)(1) of the Code, covering the employees of Holding Company
or any Holding Company Subsidiary have been maintained in timely
compliance with the notice and healthcare continuation coverage
requirements of Section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA.
(xiii)
Except as set forth in Section 3.3(m)(xiii) of
Holding Company’s Disclosure Schedule, each Holding Company
Benefit Plan that is a “nonqualified deferred compensation
plan,” as defined in Section 409A(d)(1) of the Code, and any
award thereunder, in each case that is subject to Section 409A of
the Code, has (A) since January 1, 2005, been maintained
and operated in good faith compliance with Section 409A of the
Code, as determined under applicable guidance of the U.S.
Department of the Treasury and the IRS, and (B) since
January 1, 2009, been in documentary and operational
compliance with Section 409A of the Code.
(xiv)
Section 3.3(m)(xiv) of Holding Company’s Disclosure Schedule
accurately reflects the timing and the maximum amounts for the
payments that would be payable under the applicable Salary
Continuation Agreements for the respective individuals set forth
therein in the event the respective individuals were to have a
Separation from Service immediately following a Change in Control
(as such terms are defined in the applicable Salary Continuation
Agreements) occurring on the assumed date and under the
circumstances specified in such Section of the Holding
Company’s Disclosure Schedule. Upon a Separation from Service
following a Change in Control occurring on a date other than the
date assumed in such Section of the Holding Company’s
Disclosure Schedule, the timing and maximum amounts of the payments
under such Salary Continuation Agreements are determined in a
manner consistent with such Section of the Holding Company’s
Disclosure Schedule. The four percent (4%) per annum effective
interest rate and discount rate used to compute such payments in
Section 3.3(m)(xiv) of the Holding Company’s Disclosure
Schedule is equal to the discount rate and interest rate used by
the Holding Company and Holding Company Subsidiaries for the most
recent five (5) years for accounting purposes and for purposes of
determining any payment obligations with regard to all Salary
Continuation Agreements (and similar agreements) of the Holding
Company and Holding Company Subsidiaries. The amount of the monthly
payments of the “Accrued Benefit” (as defined in the
Salary Continuation Agreements) under the respective Salary
Continuation Agreements is equal to the “Accrual
Balance” (as defined in the Salary Continuation
Agreements) projected to a lump sum amount at Normal
Retirement at a rate of four percent (4%) per annum, and then
converted to the monthly payments commencing at Normal
Retirement also based on a rate of four percent (4%) per
annum.
(n)
Insurance
.
Set forth in Section 3.3(n) of
Holding Company’s Disclosure Schedule is a list of all
insurance policies or bonds currently maintained by Holding Company
or each Holding Company Subsidiary. Holding Company and the Holding
Company Subsidiaries are insured with reputable insurers against
such risks and in such amounts as management of Holding Company
reasonably has determined to be prudent in accordance with industry
practices. Since December 31, 2016, neither Holding Company nor any
of the Holding Company Subsidiaries has received any notice of
cancellation or a failure to renew with respect to any insurance
policy or bond or, within the last three (3) calendar years, and
since January 1, 2017, has been refused any insurance coverage
sought or applied for, and Holding Company has no reason to believe
that existing insurance coverage cannot be renewed as and when the
same shall expire upon terms and conditions as favorable as those
presently in effect, other than possible increases in premiums or
unavailability of coverage that do not result from any
extraordinary loss experience on the part of Holding Company or the
Holding Company Subsidiaries.
(o)
Loan Portfolio; Allowance for Loan
Losses; Mortgage Loan Buy-Backs.
Except as set forth in
Section 3.3(o) of Holding Company’s Disclosure
Schedule:
(i)
All evidences of indebtedness reflected as assets by each of
Holding Company or any of the Holding Company Subsidiaries in its
Securities Documents, Financial Statements or Bank Reports as of
December 31, 2016 were as of such date: (A) evidenced by
notes, agreements or evidences of indebtedness which are true,
genuine and what they purport to be; (B) to the extent secured,
secured by valid liens and security interests which to its
Knowledge have been perfected; (C) the legal, valid and binding
obligation of the obligor and any guarantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability
relating to or affecting creditors’ rights and to general
equity principles, and no defense, offset or counterclaim has been
asserted with respect to any such loan which if successful could
have a Material Adverse Effect on Holding Company; and (D) in all
material respects made in accordance with its standard loan
policies except for workout credits and approved policy
exceptions.
(ii)
The allowance for possible loan losses (the “Loan Loss
Allowance”) shown by each of Holding Company or any of the
Holding Company Subsidiaries in its Securities Documents, Financial
Statements or Bank Reports as of December 31, 2016 was, and the
Loan Loss Allowance to be shown in its Securities Documents,
Financial Statements or Bank Reports as of any date subsequent to
the date of this Agreement will be, as of such dates, adequate to
provide for possible losses, net of recoveries relating to loans
previously charged off, in respect of loans outstanding (not
including letter of credit or commitments to make loans or extend
credit which are included in “other
liabilities”).
(iii)
Any reserve for losses with respect to other real estate owned
(“OREO”) and any reserve for repossession with respect
to mortgage loans to be shown on its Securities Documents,
Financial Statements or Bank Reports as of any date subsequent to
the execution of this Agreement will be, as of such dates, adequate
to provide for losses relating to the OREO or mortgage loan
portfolio, as the case may be, of Holding Company and any of the
Holding Company Subsidiaries as of the dates thereof.
(iv)
The Loan Loss Allowance has been established in accordance with
GAAP and applicable regulatory requirements and
guidelines.
(v)
Section 3.3(o)(v) of Holding Company’s Disclosure Schedule
sets forth all residential or commercial mortgage loans originated
on or after January 1, 2013 by it or any of the Holding Company
Subsidiaries (i) that were sold in the secondary mortgage market
and have been re-purchased by it or any of the Holding Company
Subsidiaries or (ii) that the institutions to whom such loans were
sold (or their successors or assigns) have asked it or any of the
Holding Company Subsidiaries to purchase back (but have not been
purchased back).
(p)
Certain Loans and Related
Matters
. Except as set forth in Section 3.3(p) of Holding
Company’s Disclosure Schedule, as of March 1, 2017, neither
Holding Company nor any of the Holding Company Subsidiaries was a
party to any written or oral: (i) loan, loan agreement, loan
commitment, letter of credit, note, borrowing arrangement or other
extension of credit (a “Loan”), under the terms of
which the obligor was sixty (60) days delinquent in payment of
principal or interest or in default of any other provision as of
the date hereof; (ii) Loan which had been classified by any bank
examiner (whether regulatory, internal or by external consultant)
as “Other Loans Specially Mentioned,” “Special
Mention,” “Substandard,” “Doubtful,”
“Loss,” “Classified,”
“Criticized,” “Watch List,” or any
comparable classifications by such persons; (iii) Loan,
including any loan guaranty, with any of its directors or executive
officers or directors or executive officers of any of the Holding
Company Subsidiaries; or (iv) Loan in violation of any law,
regulation or rule applicable to Holding Company or any of the
Holding Company Subsidiaries including, but not limited to, those
promulgated, interpreted or enforced by any Governmental
Authority.
(q)
Environmental
Matters
.
(i) Except
as described in Section 3.3(q) of Holding Company’s
Disclosure Schedule, Holding Company and each of the Holding
Company Subsidiaries are in compliance with all Environmental Laws
(as defined herein). Neither Holding Company nor any of the Holding
Company Subsidiaries has received any communication alleging that
Holding Company or such Holding Company Subsidiary is not in such
compliance, and, to its Knowledge, there are no present
circumstances that would prevent or interfere with the continuation
of such compliance.
(ii) Neither
Holding Company nor any of the Holding Company Subsidiaries has
received notice of pending, and to their Knowledge there are no
threatened, legal, administrative, arbitral or other proceedings,
asserting Environmental Claims (as defined herein) or other claims,
causes of action or governmental investigations of any nature,
seeking to impose, or that could result in the imposition of, any
material liability arising under any Environmental Laws upon (A)
Holding Company or such Holding Company Subsidiary, (B) any person
or entity whose liability for any Environmental Claim Holding
Company or any Holding Company Subsidiary has or may have retained
either contractually or by operation of law, (C) any real or
personal property owned or leased by Holding Company or any Holding
Company Subsidiary, or any real or personal property which Holding
Company or any Holding Company Subsidiary has been, or is, judged
to have managed or to have supervised or to have participated in
the management of, or (D) any real or personal property in
which Holding Company or a Holding Company Subsidiary holds a
security interest securing a loan recorded on the books of Holding
Company or such Holding Company Subsidiary. Neither Holding Company
nor any of the Holding Company Subsidiaries is subject to any
agreement, order, judgment, decree or memorandum by or with any
court, governmental authority, regulatory agency or third party
imposing any such liability.
(iii) With
respect to all real and personal property owned or leased by
Holding Company or any of the Holding Company Subsidiaries, or all
real and personal property which Holding Company or any of the
Holding Company Subsidiaries has been, or is, judged to have
managed or to have supervised or to have participated in the
management of, Holding Company will promptly provide Towne with
access to copies of any environmental audits, analyses and surveys
that have been prepared relating to such properties (a list of
which is included in Holding Company’s Disclosure Schedule).
Holding Company and all of the Holding Company Subsidiaries are in
compliance in all material respects with all recommendations
contained in any such environmental audits, analyses and
surveys.
(iv) To
the Knowledge of Holding Company, there are no past or present
actions, activities, circumstances, conditions, events or incidents
that could reasonably form the basis of any Environmental Claim or
other claim or action or governmental investigation that could
result in the imposition of any liability arising under any
Environmental Laws against Holding Company or any of the Holding
Company Subsidiaries or against any person or entity whose
liability for any Environmental Claim Holding Company or any of the
Holding Company Subsidiaries has or may have retained or assumed
either contractually or by operation of law.
(v) For
purposes of this Agreement, the following terms shall have the
following meanings:
(A) “Environmental
Claim” means any written notice from any governmental
authority or third party alleging potential liability (including,
without limitation, potential liability for investigatory costs,
clean-up, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of,
based upon, or resulting from the presence, or release into the
environment, of any Materials of Environmental Concern (as defined
herein).
(B) “Environmental
Laws” means all applicable federal, state and local laws and
regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the
environment.
(C) “Materials
of Environmental Concern” means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products,
underground storage tanks and any other materials regulated under
Environmental Laws.
(vi) Notwithstanding
any other provision contained herein, the representations and
warranties contained in this Section 3.3(q) constitute the sole
representations and warranties of Holding Company and Bank
Subsidiary regarding the existence of Environmental Claims,
compliance with or liability under Environmental Laws, or the
presence of Materials of Environmental Concern.
(r)
Books and Records
. The
books and records of Holding Company and those of the Holding
Company Subsidiaries have been fully, properly and accurately
maintained in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected
therein.
(s)
Intellectual
Property
. Holding Company and the Holding Company
Subsidiaries own, or are licensed or otherwise possess sufficient
legally enforceable rights to use, all Intellectual Property and
the Holding Company Technology Systems (as such terms are defined
herein) that are used by Holding Company and the Holding Company
Subsidiaries in their respective businesses as currently conducted.
Holding Company and the Holding Company Subsidiaries, to their
Knowledge, have not infringed or otherwise violated the
Intellectual Property rights of any other person, and there is no
claim asserted, or to the Knowledge of Holding Company or Bank
Subsidiary threatened, against Holding Company or any of the
Holding Company Subsidiaries concerning the ownership, validity,
registerability, enforceability, infringement, use or licensed
right to use any Intellectual Property. “Intellectual
Property” means all trademarks, trade names, service marks,
patents, domain names, database rights, copyrights, and any
applications therefor, technology, know-how, trade secrets,
processes, computer software programs or applications, and tangible
or intangible proprietary information or material. The term
“Holding Company Technology Systems” means the
electronic data processing, information, record keeping,
communications, telecommunications, hardware, third party software,
networks, peripherals and computer systems, including any
outsourced systems and processes, and Intellectual Property used by
Holding Company and the Holding Company Subsidiaries or by a third
party.
(t)
Derivative Instruments
.
Except as set forth in Section 3.3(t) of Holding Company’s
Disclosure Schedule, all derivative instruments, including, swaps,
caps, floors and option agreements, whether entered into for
Holding Company’s own account, or for the account of one or
more of the Holding Company Subsidiaries or its or their customers
(each a “Derivative Contract”), were entered into (i)
only in the ordinary course of business, (ii) in accordance with
prudent practices and in all material respects with all applicable
laws, rules, regulations and regulatory policies and (iii) with
counterparties believed to be financially responsible at the time;
and each of such instruments constitutes the valid and legally
binding obligation of Holding Company or one of the Holding Company
Subsidiaries, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar
laws. Neither Holding Company nor any of the Holding Company
Subsidiaries, nor, to the Knowledge of Holding Company or any of
the Holding Company Subsidiaries, any other party thereto, is in
breach of any of its obligations under any such agreement or
arrangement, except as set forth in Section 3.3(t) of Holding
Company’s Disclosure Schedule.
(u)
Deposits
. Except as set
forth in Section 3.3(u) of Holding Company’s Disclosure
Schedule, as of December 31, 2016, none of Holding Company’s
deposits or the deposits of any of the Holding Company Subsidiaries
are “brokered” deposits or are subject to any legal
restraint or other legal process (other than garnishments, pledges,
liens, levies, subpoenas, set off rights, escrow limitations and
similar actions taken in the ordinary course of business), and no
portion of such deposits represents a deposit of Holding Company or
any of the Holding Company Subsidiaries.
(v)
Investment
Securities
.
(i)
Holding Company and each of the Holding Company Subsidiaries has
good and marketable title to all securities held by it (except
securities sold under repurchase agreements or held in any
fiduciary or agency capacity) free and clear of any lien,
encumbrance or security interest, except to the extent that such
securities are pledged in the ordinary course of business
consistent with prudent business practices to secure obligations of
Holding Company or the Holding Company Subsidiaries and except for
such defects in title or liens, encumbrances or security interests
that would not be material to it. Such securities are valued on the
books of Holding Company and each of the Holding Company
Subsidiaries in accordance with GAAP.
(ii)
Holding Company and each of the Holding Company Subsidiaries
employs investment, securities risk management and other policies,
practices and procedures that Holding Company and each of the
Holding Company Subsidiaries believes are prudent and reasonable in
the context of such businesses.
(w)
Takeover Laws and
Provisions
. The Board of Directors of Holding Company has
approved the Transaction, this Agreement, the Plan of Merger, the
Bank Plan of Merger and the transactions contemplated hereby and
thereby. Holding Company has taken all action required to be taken
by Holding Company in order to make this Agreement, the Plan of
Merger, the Bank Plan of Merger and the transactions contemplated
hereby and thereby comply with, and this Agreement, the Plan of
Merger, the Bank Plan of Merger and the transactions contemplated
hereby and thereby do comply with, the requirements of the
Organizational Documents of Holding Company and Bank
Subsidiary.
(x)
Transactions With
Affiliates
. All “covered transactions” between
Holding Company and an “affiliate,” within the meaning
of Sections 23A and 23B of the Federal Reserve Act and regulations
promulgated thereunder, have been in compliance with such
provisions.
(y)
CRA, Anti-Money Laundering, OFAC
and Customer Information Security
. Bank Subsidiary has
received a rating of “Satisfactory” or better in its
most recent examination or interim review with respect to the
Community Reinvestment Act of 1997 (the “CRA”). Neither
Holding Company nor Bank Subsidiary has Knowledge of any facts or
circumstances that would cause Bank Subsidiary: (i) to be deemed
not to be in satisfactory compliance in any material respect with
the CRA, and the regulations promulgated thereunder, or to be
assigned a rating for CRA purposes by federal bank regulators of
lower than “Satisfactory”; or (ii) to be deemed to be
operating in violation in any material respect of the Bank Secrecy
Act, the USA PATRIOT Act, any order issued with respect to
anti-money laundering by the U.S. Department of the
Treasury’s Office of Foreign Assets Control, or any other
applicable anti-money laundering statute, rule or regulation; or
(iii) to be deemed not to be in satisfactory compliance in any
material respect with the applicable privacy of customer
information requirements contained in any federal and state privacy
laws and regulations, including without limitation, in Title V of
the Gramm-Leach-Bliley Act of 1999 and the regulations promulgated
thereunder, as well as the provisions of the information security
program adopted by Bank Subsidiary. To the Knowledge of Holding
Company and Bank Subsidiary, no non-public customer information has
been disclosed to or accessed by an unauthorized third party in a
manner which would cause either Holding Company or any Holding
Company Subsidiaries to undertake any remedial action. The Board of
Directors of Bank Subsidiary (or where appropriate of any other
Holding Company Subsidiary) has adopted, and Bank Subsidiary (or
such other Holding Company Subsidiary) has implemented, an
anti-money laundering program that contains adequate and
appropriate customer identification verification procedures that
comply with Section 326 of the USA PATRIOT Act and such anti-money
laundering program meets the requirements in all material respects
of Section 352 of the USA PATRIOT Act and the regulations
thereunder, and Bank Subsidiary (or such other Holding Company
Subsidiary) has complied in all material respects with any
requirements to file reports and other necessary documents as
required by the USA PATRIOT Act and the regulations
thereunder.
(z)
Required Vote
. The
affirmative vote of the holders of a majority of the outstanding
shares of Holding Company Common Stock is necessary to approve this
Agreement and the Merger on behalf of Holding Company. The
affirmative vote of the holders of a majority of the outstanding
shares of common stock of Bank Subsidiary is necessary to approve
this Agreement and the Bank Merger on behalf of Bank Subsidiary. No
other vote of the stockholders of Holding Company or Bank
Subsidiary is required by the NCBCA, Holding Company’s
Organizational Documents, Bank Subsidiary’s Organizational
Documents or otherwise to approve this Agreement and the
Transaction.
(aa)
Financial
Advisors
.
None
of Holding Company, any of the Holding Company Subsidiaries or any
of their respective officers, directors or employees has employed
any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with transactions
contemplated herein, except that, in connection with this
Agreement, Holding Company has retained Raymond James &
Associates, Inc. as its financial advisor (pursuant to an
engagement letter, a true and complete copy of which is included in
Section 3.3(aa) of Holding Company’s Disclosure Schedule and
under which such firm will be entitled to certain fees in
connection with this Agreement).
(bb)
Fairness
Opinion
. Prior to the execution of this Agreement, the Board
of Directors of Holding Company has received the opinion (which, if
initially rendered verbally, has been or will be confirmed by a
written opinion, dated the same date) of Raymond James &
Associates, Inc. to the effect that, as of the date thereof and
based upon and subject to the matters set forth therein, the
Exchange Ratio is fair, from a financial point of view, to the
stockholders of Holding Company. Such opinion has not been amended
or rescinded as of the date of this Agreement.
3.4
Representations
and Warranties of Towne.
Subject to and
giving effect to Sections 3.1 and 3.2, Towne hereby represents and
warrants to Holding Company and Bank Subsidiary as
follows:
(a)
Organization, Standing and
Power.
Towne is
a Virginia state chartered bank duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Virginia. Towne has all requisite corporate power and authority to
carry on
a commercial banking business
as now being conducted and to own and operate its assets,
properties and business. Towne’s
deposits are insured
by the Deposit Insurance Fund of the FDIC to the maximum extent
permitted by law. True and complete copies of the Organizational
Documents of Towne, in each case as amended to the date hereof and
as in full force and effect as of the date hereof, are set forth in
Section 3.4(a) of Towne’s Disclosure Schedule.
(b)
Subsidiaries
.
Each
subsidiary of Towne is identified, collectively, in Exhibit 21 to
Towne’s Annual Report on Form 10-K for the year ended
December 31, 2016 filed with the FDIC, or in Section 3.4(b) of
Towne’s Disclosure Schedule (each individually a “Towne
Subsidiary” and collectively the “Towne
Subsidiaries”).
Each Towne Subsidiary (i) is a duly organized
corporation, limited liability company or statutory trust validly
existing and in good standing under applicable laws, (ii) has full
corporate or other applicable power and authority to carry on its
business as now conducted and (iii) is duly qualified to do
business in the states where its ownership or leasing of property
or the conduct of its business requires such qualification and
where the failure to so qualify would have a Material Adverse
Effect on Towne on a consolidated basis. The outstanding shares of
capital stock or equity interests of each Towne Subsidiary have
been duly authorized and are validly issued and outstanding, fully
paid and nonassessable and all such shares are directly or
indirectly owned by Towne free and clear of all liens, claims and
encumbrances or preemptive rights of any
person.
(c)
Authority; No Breach of the Agreement.
(i)
Towne has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Towne, and the consummation of the
transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action on the part of Towne.
This Agreement is a valid and legally binding obligation of Towne,
enforceable in accordance its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws affecting the
enforcement of rights of creditors or by general principles of
equity).
(ii)
Neither the execution and delivery of this Agreement by Towne, nor
the consummation by Towne of the transactions contemplated hereby,
nor compliance by Towne with any of the provisions hereof will: (A)
conflict with or result in a breach of any provision of the
Organizational Documents of Towne; (B) constitute or result in the
breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or
asset of Towne or any Towne Subsidiary pursuant to any (1) note,
bond, mortgage or indenture, or (2) material license, agreement or
other instrument or obligation, to which Towne or any Towne
Subsidiary is a party or by which Towne or any Towne Subsidiary or
any of their properties or assets may be bound; or (C) subject to
the receipt of all required regulatory and stockholder approvals,
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Towne or any Towne
Subsidiary.
(iii)
Except for (A) the necessary Regulatory Approvals, (B) compliance
with the applicable requirements of the Exchange Act and the
Securities Act, (C) the separate filing of Articles of Merger with
the Virginia State Corporation Commission and North Carolina
Secretary of State to effect the Transaction, (D) such filings and
approvals as are required to be made or obtained under the
securities or “Blue Sky” laws of the various states in
connection with the issuance of shares of Towne Common Stock
pursuant to this Agreement, (E) approval of listing the shares of
Towne Common Stock to be issued pursuant to this Agreement on the
NASDAQ Global Select Market, and (F) the consents and approvals of
third parties that are not Governmental Authorities required to
consummate the Transaction, no consents or approvals of or notices
to or filings with any Governmental Authority or other third party
are necessary in connection with the execution and delivery of this
Agreement and the consummation by Towne Merger Sub of the Merger
and Towne of the Bank Merger and the other transactions
contemplated by this Agreement. As of the date hereof, Towne is not
aware of any reason why the necessary Regulatory Approvals and
consents will not be received in order to permit consummation of
the Transaction.
(d)
Towne Capital
Stock.
The
authorized capital stock of Towne consists of 2,000,000 shares of
preferred stock, par value $5.00 per share, of which none are
issued and outstanding as of the date hereof, and 90,000,000 shares
of Towne Common Stock, of
which
62,572,033 shares were issued and outstanding as of the date of
this Agreement
. All outstanding shares of Towne Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable and have not been issued in violation of the
preemptive rights of any person.
As of the date of this Agreement,
there are no shares of capital stock reserved for issuance, or any
outstanding Rights with respect to any capital stock of Towne,
except as contemplated by a Towne stock option or other
equity-based compensation plan, by Towne’s Member Stock
Purchase and Dividend Reinvestment Plan or by Towne’s
Securities Documents.
(e)
Securities Filings; Financial
Statements; Accounting Controls
.
(i)
Towne has filed all Securities Documents with the FDIC since
December 31, 2013 under the Securities Act and the
Exchange Act and, to the extent such Securities Documents are not
available through the web site maintained by the FDIC, has made
copies of such Securities Documents available to Holding Company
and Bank Subsidiary. Towne’s Securities Documents, including
the financial statements, exhibits and schedules contained therein,
(A) at the time filed, complied (and any Securities Documents filed
after the date of this Agreement will comply) in all material
respects with the applicable requirements of the Securities Act and
the Exchange Act, and (B) at the time filed (or if amended or
superseded by one or more Securities Documents filed prior to the
date of this Agreement, then on the date of such filing), did not
(and any Securities Documents filed after the date of this
Agreement will not) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such
Securities Documents or necessary in order to make the statements
made in such Securities Documents, in light of the circumstances
under which they were made, not misleading.
(ii)
Each of the financial statements of Towne contained in or
incorporated by reference into any Securities Documents (including
any Securities Documents filed after the date of this Agreement)
complied (or, in the case of Securities Documents filed after the
date of this Agreement, will comply) in all material respects with
the applicable requirements of the Securities Act and the Exchange
Act with respect thereto, fairly presented (or, in the case of
Securities Documents filed after the date of this Agreement, will
fairly present) the consolidated financial position of Towne and
the Towne Subsidiaries as at the respective dates and the
consolidated results of Towne’s operations and cash flows for
the periods indicated, in each case in accordance with GAAP
consistently applied during the periods indicated, except in each
case as may be noted therein, and subject to normal year-end audit
adjustments and as permitted by Form 10-Q in the case of unaudited
financial statements.
(iii) Towne
has devised and maintains a system of “internal controls over
financial reporting” (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act) sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance
with general or specific authorization of its Board of Directors
and duly authorized executive officers, (ii) transactions are
recorded as necessary to permit the preparation of financial
statements in conformity with GAAP consistently applied with
respect to institutions such as Towne or other criteria applicable
to such financial statements, and to maintain proper accountability
for items therein, (iii) access to its properties and assets is
permitted only in accordance with general or specific authorization
of its Board of Directors and duly authorized executive officers,
and (iv) the recorded accountability for items is compared with the
actual levels at reasonable intervals and appropriate actions taken
with respect to any differences.
(iv)
Towne’s “disclosure controls and procedures” (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are
designed to ensure that all information required to be disclosed by
it in its Securities Documents is recorded, processed, summarized
and reported within the time periods specified in the SEC’s
rules and forms as adopted by the FDIC, and that all such
information is accumulated and communicated to its management as
appropriate to allow timely decisions regarding required disclosure
and to make the certifications of its chief executive officer and
chief financial officer required under the Exchange Act with
respect to such reports. Towne has disclosed, to its auditors and
the audit committee of its Board of Directors and on Section
3.4(e)(iv) of Towne’s Disclosure Schedule (i) based on the
evaluation of such controls in conjunction with its Annual Report
on Form 10-K filed with the FDIC for the period ended December 31,
2016, any significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting
that could adversely affect in any material respect its ability to
record, process, summarize and report financial information and
(ii) any fraud, whether or not material, that involves management
or other employees who have a significant role in its internal
controls over financial reporting.
(v)
Each of Towne’s principal executive officer and principal
financial officer (or each former principal executive officer and
each former principal financial officer, as applicable) has made
all certifications required by Rule 13a-14 or 15d-14 under the
Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act
with respect to its Securities Documents, and the statements
contained in such certifications are true and accurate in all
material respects. Towne is in compliance with all applicable
provisions of the Sarbanes-Oxley Act, except for any non-compliance
that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on Towne.
(f)
Bank Reports
. Towne and
each of the Towne Subsidiaries has filed all Bank Reports that they
were required to file since December 31, 2013 with the Regulatory
Agencies, including any Bank Report required to be filed pursuant
to the laws of the United States, any state or any Regulatory
Agency. Any such Bank Report regarding Towne and each of the Towne
Subsidiaries filed with or otherwise submitted to any Regulatory
Agency complied in all material respects with relevant legal
requirements, including as to content. Except for normal
examinations conducted by a Regulatory Agency in the ordinary
course of Towne’s and each of the Towne Subsidiaries’
business, there is no pending proceeding before, or, to its
Knowledge, examination or investigation by, any Regulatory Agency
into the business or operations of Towne or any of the Towne
Subsidiaries and no enforcement action, to its Knowledge,
threatened by any Regulatory Agency.
(g)
Absence of Certain Changes or
Events
.
Since
December 31, 2016, except as disclosed in its Securities Documents
or Bank Reports filed prior to the date of this Agreement,
(i) Towne and the Towne Subsidiaries have conducted their
respective businesses and incurred liabilities only in the ordinary
course consistent with past practices, and (ii) there have been no
events, changes, developments or occurrences which, individually or
in the aggregate, have had or are reasonably likely to have a
Material Adverse Effect on Towne.
(h)
Absence of Undisclosed
Liabilities.
Except for (i) those liabilities that are fully
reflected or reserved for in its financial statements contained in
its Securities Documents or Bank Reports filed prior to the date of
this Agreement, (ii) liabilities incurred since December 31, 2016
in the ordinary course of business consistent with past practice,
(iii) liabilities that arise out of executory obligations under
contracts, (iv) liabilities which would not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect,
and (v) liabilities incurred in connection with the
transactions contemplated by this Agreement, neither Towne nor any
Towne Subsidiary has, and since December 31, 2016 has not incurred
(except as permitted by Section 4.2), any liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise and whether or not required to be reflected in its
financial statements contained in its Securities Documents or Bank
Reports).
(i)
Material
Contracts
.
(i)
Neither Towne nor any of the Towne Subsidiaries is a party to or
bound by any contract, arrangement, commitment or understanding
(whether written or oral) that is a “material contract”
(as such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC) to be performed after the date of this Agreement that has
not been filed or incorporated by reference in the Towne Securities
Documents filed prior to the date hereof. Each contract,
arrangement, commitment or understanding of the type described in
this Section 3.4(i)(i) is referred to herein as a “Towne
Contract.”
(ii)
Each Towne Contract is valid and binding on Towne or the respective
Towne Subsidiary and is in full force and effect (other than due to
the ordinary expiration thereof) and, to the Knowledge of Towne, is
valid and binding on the other parties thereto. Towne and each
Towne Subsidiary is not, and to the Knowledge of Towne, no other
party thereto, is in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its assets, business or
operations may be bound or affected, or under which it or its
respective assets, business or operations receives benefits which
is reasonably likely to have a Material Adverse Effect, and there
has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default. Except
as provided in this Agreement, no power of attorney or similar
authorization given directly or indirectly by Towne or a Towne
Subsidiary is currently outstanding.
(j)
Legal Proceedings; Compliance with
Laws
.
There are
no actions, suits or proceedings instituted or pending or, to its
Knowledge, threatened against Towne or any of the Towne
Subsidiaries or against any of Towne’s or the Towne
Subsidiaries’ properties, assets, interests or rights, or
against any of Towne’s or Towne Subsidiaries’ officers,
directors or employees in their capacities as such. Neither Towne
nor any of the Towne Subsidiaries is a party to or subject to any
agreement, order, memorandum of understanding, enforcement action,
or supervisory or commitment letter by or with any Governmental
Authority restricting the operations of Towne or the operations of
any of the Towne Subsidiaries and neither Towne nor any of the
Towne Subsidiaries has been advised by any Governmental Authority
or otherwise become aware that any Governmental Authority is
investigating, inquiring or otherwise contemplating issuing or
requesting the issuance of any such agreement, order, memorandum,
action or letter in the future. Since January 1, 2014, Towne and
each of the Towne Subsidiaries have complied in all material
respects with all laws, ordinances, requirements, regulations or
orders applicable to its business.
(k)
Tax Matters
.
Towne and each of the Towne
Subsidiaries have filed all Tax Returns required to be filed, and
all such Tax Returns were correct and complete in all material
respects. All Taxes owed by Towne or any of the Towne Subsidiaries
have been paid, are reflected as a liability in Towne’s
Securities Documents or Bank Reports, or are being contested in
good faith as set forth in Towne’s Disclosure Schedule. No
Tax Return filed by Towne or any of the Towne Subsidiaries is the
subject of any administrative or judicial proceeding, no unpaid tax
deficiency has been asserted against Towne or any of the Towne
Subsidiaries by any Governmental Authority, and to the Knowledge of
Towne and any of the Towne Subsidiaries, no Tax Return filed by
Towne or any of the Towne Subsidiaries is under examination by any
Governmental Authority. There are no liens for Taxes (other than
statutory liens for Taxes not yet due and payable) upon any of the
assets of Towne or any of the Towne Subsidiaries. Towne is not and
has not been a “United States real property holding
company” within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. Towne is not aware of any reason why the Merger will
fail to qualify as a reorganization under Section 368(a) of the
Code. At all times since its formation and through the end of the
day of the Effective Date and of the Bank Merger Effective Date,
Towne Merger Sub has been and will be a “disregarded
entity” (within the meaning of Treasury Regulations Sections
1.368-2(b)(1) and 301.7701-3) with respect to Towne, and neither
Towne nor Towne Merger Sub has filed or will cause to be filed any
Tax-related election or Tax Return to the contrary that is
effective or applicable for any period before or including the
later of the day of the Effective Date and the day of the Bank
Merger Effective Date.
(l)
Employee
Benefit Plans
.
(i)
All of the Towne Benefit Plans (as defined herein) are in
compliance in all material respects with applicable laws and
regulations, and Towne has administered such benefit plans in
accordance with applicable laws and regulations in all material
respects. For the purposes of this Agreement, a “Towne
Benefit Plan” means an employee benefit plan and program of
Towne and the Towne Subsidiaries, including without limitation:
(A) all retirement, savings and other pension plans; (B) all
health, severance, insurance, disability and other employee welfare
plans; and (C) all employment, vacation and other similar plans,
all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other employee
and director benefit plans, programs or arrangements, and all
employment or compensation arrangements, in each case for the
benefit of or relating to its current and former employees and
directors (collectively, the “Towne Benefit
Plans”).
(ii)
Each Towne Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to
be so qualified, as reflected in a current favorable determination
letter (based on IRS permitted determination request procedures),
or a filing for the same has been made with the IRS seeking such a
determination letter and that request is still awaiting decision by
the IRS (based on IRS permitted determination request procedures).
Nothing has occurred since the date of any such determination that
is reasonably likely to affect adversely such qualification or
exemption, or result in the imposition of excise Taxes or income
Taxes on unrelated business income under the Code or ERISA with
respect to any Tax-qualified plan. There have been no
“terminations,” “partial terminations” or
“discontinuances of contributions,” as such terms are
used in Section 411 of the Code and the Treasury Regulations
thereunder, to any Tax-qualified plan during the preceding five
years without notice to and approval by the IRS and payment of all
obligations and liabilities attributable to such Tax-qualified
plans.
(m)
Insurance
.
Towne and the Towne Subsidiaries
are insured with reputable insurers against such risks and in such
amounts as management of Towne reasonably has determined to be
prudent in accordance with industry practices. Since December 31,
2016, neither Towne nor any of the Towne Subsidiaries has received
any notice of cancellation or a failure to renew with respect to
any insurance policy or bond or, within the last three (3) calendar
years, and since January 1, 2017, has been refused any insurance
coverage sought or applied for, and Towne has no reason to believe
that existing insurance coverage cannot be renewed as and when the
same shall expire upon terms and conditions as favorable as those
presently in effect, other than possible increases in premiums or
unavailability of coverage that do not result from any
extraordinary loss experience on the part of Towne or the Towne
Subsidiaries.
(n)
Allowance
for Loan Losses.
(i)
All evidences of indebtedness reflected as assets by each of Towne
or any of the Towne Subsidiaries in its Securities Documents,
Financial Statements or Bank Reports as of December 31, 2016 were
as of such date: (A) evidenced by notes, agreements or evidences of
indebtedness which are true, genuine and what they purport to be;
(B) to the extent secured, secured by valid liens and security
interests which have been perfected; and (C) the legal, valid and
binding obligation of the obligor and any guarantor, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability
relating to or affecting creditors’ rights and to general
equity principles, and no defense, offset or counterclaim has been
asserted with respect to any such loan which if successful could
have a Material Adverse Effect.
(ii)
The Loan Loss Allowance shown by Towne in its Securities Documents
or Bank Reports as of December 31, 2016 was, and the Loan Loss
Allowance to be shown in its Securities Documents or Bank Reports
as of any date subsequent to the date of this Agreement will be, as
of such dates, adequate to provide for possible losses, net of
recoveries relating to loans previously charged off, in respect of
loans outstanding (including letter of credit or commitments to
make loans or extend credit). The Loan Loss Allowance has been
established in accordance with GAAP, and applicable regulatory
requirements and guidelines.
(o)
Environmental Matters
.
Towne and each of the
Towne Subsidiaries are in compliance with all Environmental Laws.
Neither Towne nor any of the Towne Subsidiaries has received any
communication alleging that Towne or such Towne Subsidiary is not
in such compliance, and, to its Knowledge, there are no present
circumstances that would prevent or interfere with the continuation
of such compliance. To the Knowledge of Towne, there are no past or
present actions, activities, circumstances, events, or incidents
that could reasonably form the bases of any Environmental Claim or
other claim or action or governmental investigation that could
result in the imposition of any liability arising under any
Environmental Laws against Towne or any of the Towne Subsidiaries
or against any person or entity whose liability for any
Environmental Claim Towne or an Towne Subsidiary has or may have
retained contractually or by operation of law. Notwithstanding any
other provision contained herein, the representations and
warranties contained in this Section 3.3(o) constitute the sole
representations and warranties of Towne regarding the existence of
Environmental Claims, compliance with or liability under
Environmental Laws, or the presence of Materials of Environmental
Concern.
(p)
Books and Records
. The
books and records of Towne and those of the Towne Subsidiaries have
been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein.
(q)
CRA, Anti-Money Laundering, OFAC
and Customer Information Security
. Towne has received a
rating of “Satisfactory” or better in its most recent
examination or interim review with respect to the CRA. Towne does
not have Knowledge of any facts or circumstances that would cause
Towne: (i) to be deemed not to be in satisfactory compliance in any
material respect with the CRA, and the regulations promulgated
thereunder, or to be assigned a rating for CRA purposes by federal
bank regulators of lower than “Satisfactory”; or (ii)
to be deemed to be operating in violation in any material respect
of the Bank Secrecy Act, the USA PATRIOT Act, any order issued with
respect to anti-money laundering by the U.S. Department of the
Treasury’s Office of Foreign Assets Control, or any other
applicable anti-money laundering statute, rule or regulation; or
(iii) to be deemed not to be in satisfactory compliance in any
material respect with the applicable privacy of customer
information requirements contained in any federal and state privacy
laws and regulations, including without limitation, in Title V of
the Gramm-Leach-Bliley Act of 1999 and the regulations promulgated
thereunder, as well as the provisions of the information security
program adopted by Towne. To the Knowledge of Towne, no non-public
customer information has been disclosed to or accessed by an
unauthorized third party in a manner which would cause either Towne
or any of the Towne Subsidiaries to undertake any remedial action.
The Board of Directors of Towne (or where appropriate of any Towne
Subsidiary) has adopted, and Towne (or such Towne Subsidiary) has
implemented, an anti-money laundering program that contains
adequate and appropriate customer identification verification
procedures that comply with Section 326 of the USA PATRIOT Act and
such anti-money laundering program meets the requirements in all
material respects of Section 352 of the USA PATRIOT Act and the
regulations thereunder, and Towne (or such Towne Subsidiary) has
complied in all material respects with any requirements to file
reports and other necessary documents as required by the USA
PATRIOT Act and the regulations thereunder.
(r)
Required Vote
. No vote of
the stockholders of Towne is required by the VSCA, Towne’s
Articles of Incorporation, Towne’s Bylaws or otherwise to
approve this Agreement and the Transaction. The affirmative vote of
Towne, as the sole member of Towne Merger Sub, is necessary to
approve this Agreement and the Merger.
(s)
Financial
Advisors
.
None
of Towne, any of the Towne Subsidiaries or any of their respective
officers, directors or employees has employed any broker, finder or
financial advisor or incurred any liability for any fees or
commissions in connection with transactions contemplated herein,
except that, in connection with this Agreement, Towne has retained
Sandler O’Neill & Partners, L.P. as its financial advisor
(pursuant to an engagement letter, a true and complete copy of
which is included in Section 3.4(s) of Towne’s Disclosure
Schedule and under which such firm will be entitled to certain fees
in connection with this Agreement).
(t)
Fairness Opinion
. Prior to
the execution of this Agreement, the Board of Directors of Towne
has received the opinion (which, if initially rendered verbally,
has been or will be confirmed by a written opinion, dated the same
date) of Sandler O’Neill & Partners, L.P., to the effect
that, as of the date thereof and based upon and subject to the
matters set forth therein, the Exchange Ratio is fair to Towne,
from a financial point of view. Such opinion has not been amended
or rescinded as of the date of this Agreement.
(u)
Historic
Business; No Redemption or Disposition
. As of the date of
this Agreement it is the present intention, and as of the Effective
Date it will be the present intention, of Towne to continue, either
through Towne or through a member of Towne’s
“qualified group” within the meaning
of Treasury Regulations Section 1.368-1(d)(4)(ii) (the
“Qualified Group”),
at least one significant
historic business line of Holding Company and Bank Subsidiary, or
to use at least a significant portion of Holding Company’s
and Bank Subsidiary’s historic business assets in a business,
in each case within the meaning of Treasury Regulations Section
1.368-1(d). As of the date of this Agreement and as of the
Effective Date, neither Towne nor any “related person”
(as defined in Treasury Regulations Section 1.368-1(e)(4)) to Towne
has or will have any plan or intention to redeem or reacquire,
either directly or indirectly, any of the Towne Common Stock issued
to the stockholders of Holding Company in connection with the
Merger. As of the date of this Agreement and as of the Effective
Date, Towne does not have and will not have any plan or intention
to sell or otherwise dispose of any of the assets of Holding
Company or Bank Subsidiary acquired in the Transaction or pursuant
to this Agreement, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C)
of the Code or described and permitted in Treasury Regulation
Section 1.368-2(k).
(v)
Representations
and Warranties of Towne with Respect to Towne Merger
Sub
.
(i) Towne
Merger Sub, a wholly owned subsidiary of Towne, is a Virginia
limited liability company duly organized and validly existing under
the laws of the Commonwealth of Virginia. Towne Merger Sub was
formed by Towne for the sole purpose of consummating the Merger,
and has all requisite power and authority to carry on its business
as now being conducted. As of the date of this Agreement, Towne
Merger Sub has no assets, properties, liabilities or business
operations. True and complete copies of the Organizational
Documents of Towne Merger Sub, as in full force and effect as of
the date hereof, are set forth in Section 3.4(v)(i) of
Towne’s Disclosure Schedule.
(ii) Towne
Merger Sub has the power and authority to execute, deliver and
perform its obligations under this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Towne Merger Sub, and the
consummation of the transactions contemplated hereby, have been
duly and validly authorized by all necessary action on the part of
Towne Merger Sub and its sole member. This Agreement is a
valid and legally binding obligation of Towne Merger Sub,
enforceable in accordance its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws affecting the
enforcement of rights of creditors or by general principles of
equity).
ARTICLE
4
Covenants
Relating to Conduct of Business
4.1
Conduct of Business of Holding Company and Bank Subsidiary Pending
the Transaction.
From the date
hereof until the Effective Date, except as expressly contemplated
or permitted by this Agreement or as set forth in Holding
Company’s Disclosure Schedule, without the prior written
consent of Towne (not to be unreasonably withheld or delayed),
Holding Company agrees that it will not, and will cause each of the
Holding Company Subsidiaries not to:
(a)
Conduct its business and the business of the Holding Company
Subsidiaries other than in the ordinary and usual course consistent
with past practice or fail to use its commercially reasonable
efforts to maintain and preserve intact their (i) business
organizations, material assets and employees and (ii) relationships
with material customers, suppliers, employees and business
associates.
(b)
Take any action that would prevent or materially adversely affect
or delay the ability of Towne, Holding Company or Bank Subsidiary
(i) to obtain any necessary approvals, consents or waivers of any
Governmental Authority or third party required for the transactions
contemplated hereby, (ii) to perform its covenants and agreements
under this Agreement, or (iii) to consummate the transactions
contemplated hereby on a timely basis.
(c)
Amend, repeal or modify its Organizational Documents, other than as
contemplated by this Agreement.
(d)
Other than pursuant to stock options outstanding as of the date
hereof under the Holding Company Stock Plans as disclosed in
Section 3.3(d) of Holding Company’s Disclosure Schedule, (i)
issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional shares of capital stock, or any
Rights with respect thereto, (ii) enter into any agreement with
respect to the foregoing, or (iii) permit any additional shares of
capital stock to become subject to new grants of employee and
director stock options, restricted stock, stock appreciation rights
or similar or other stock-based rights.
(e)
Enter into or amend or renew any employment, consulting, severance,
change in control, bonus, salary continuation or similar agreements
or arrangements with any director, officer or employee of Holding
Company or a Holding Company Subsidiary, or grant any salary or
wage increase or increase any employee benefit (including by making
incentive or bonus payments), except for normal individual merit
increases in compensation to employees in the ordinary course of
business consistent with past practice that do not exceed five
percent (5%) on an individual basis and except for incentive or
bonus payments that do not exceed fifteen percent (15%) on an
individual basis, provided that such merit increases, incentive and
bonus payments shall not exceed $500,000 in the
aggregate.
(f)
Enter into, establish, adopt, amend, terminate or make any
contributions to (except (i) as may be required by applicable law,
(ii) to satisfy contractual obligations existing as of the date
hereof and set forth on Schedule 4.1(f) of Holding Company’s
Disclosure Schedule or (iii) to comply with the requirements
of this Agreement), any pension, retirement, stock option,
restricted stock, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee
benefit, incentive, welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any directors,
officers or employees, including without limitation taking any
action that accelerates, or the lapsing of restrictions with
respect to, the vesting or exercise of any benefits payable
thereunder.
(g)
Hire any person as an employee of Holding Company or a Holding
Company Subsidiary or promote any employee, except (i) to satisfy
contractual obligations existing as of the date hereof and set
forth on Schedule 4.1(g) of Holding Company’s Disclosure
Schedule and (ii) persons whose employment is terminable at the
will of Holding Company and who are not contractually entitled to
severance or similar benefits or payments that would become payable
as a result of the Transaction or the consummation thereof (other
than severance or similar benefits provided pursuant to Section
5.10(c) of this Agreement).
(h)
Make, declare, pay or set aside for payment any dividend on or in
respect of, or declare or make any distribution on any shares of
its stock, or directly or indirectly adjust, split, combine,
redeem, reclassify, purchase or otherwise acquire, any shares of
its capital stock, provided, however, that Bank Subsidiary may
declare and pay dividends and distributions to Holding Company in
the ordinary course of business consistent with past
practice.
(i)
Make any capital expenditures, other than capital expenditures in
the ordinary course of business consistent with past practice, in
amounts not exceeding $25,000 individually or $100,000 in the
aggregate.
(j)
Implement, or adopt, any change in its Tax or financial accounting
principles, practices or methods, including reserving
methodologies, other than as may be required by GAAP, regulatory
accounting guidelines or applicable law.
(k)
Notwithstanding anything herein to the contrary, (i) knowingly
take, or knowingly omit to take, any action that would reasonably
be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code or (ii) knowingly take, or knowingly omit to take, any action
that is reasonably likely to result in any of the conditions to the
Transaction set forth in Article 6 not being satisfied on a timely
basis, except as may be required by applicable law.
(l) Sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue
any portion of its assets, deposits, business or properties except
for (i) OREO properties sold in the ordinary course of business
consistent with past practice and (ii) transactions in the ordinary
course of business consistent with past practice in amounts that do
not exceed $25,000 individually or $50,000 in the
aggregate.
(m)
Acquire all or any portion of the assets, business, securities
(excluding investment securities in the ordinary course of business
consistent with past practice), deposits or properties of any other
person, including without limitation, by merger or consolidation or
by investment in a partnership or joint venture except for (i) such
acquisitions by way of foreclosures or acquisitions of control in a
bona fide fiduciary capacity or in satisfaction of debts previously
contracted in good faith and in amounts that do not exceed $500,000
individually or $1,000,000 in the aggregate; and (ii) such
acquisitions in the ordinary course of business consistent with
past practice in amounts that do not exceed $25,000 individually or
$50,000 in the aggregate.
(n)
Except as otherwise permitted under this Section 4.1, enter into,
amend, modify, cancel, fail to renew or terminate any Holding
Company Contract or any agreement, contract, lease, license,
arrangement, commitment or understanding (whether written or oral)
that would constitute a Holding Company Contract if entered into
prior to the date hereof.
(o)
Enter into any settlements or similar agreements with respect to
any actions, suits, proceedings, orders or investigations to which
Holding Company or a Holding Company Subsidiary is or becomes a
party after the date of this Agreement, which settlements,
agreements or actions involve payment by Holding Company and the
Holding Company Subsidiaries collectively of an aggregate amount
that exceeds $50,000 and/or would impose any material restriction
on the business of Holding Company.
(p)
Enter into any new material line of business; introduce any
material new products or services; make any material change to
deposit products or deposit gathering or retention policies or
strategies; change its material lending, investment, underwriting,
pricing, servicing, risk and asset liability management and other
material banking, operating or board policies or otherwise fail to
follow such policies, except as required by applicable law,
regulation or policies imposed by any Governmental Authority, or
the manner in which its investment securities or loan portfolio is
classified or reported; or invest in any mortgage-backed or
mortgage-related security that would be considered “high
risk” under applicable regulatory guidance; or file any
application or enter into any contract with respect to the opening,
relocation or closing of, or open, relocate or close, any branch,
office, service center or other facility.
(q)
Introduce any material marketing campaigns or any material new
sales compensation or incentive programs or arrangements (except
those the material terms of which have been fully disclosed in
writing to, and approved by, Towne prior to the date
hereof).
(r)
(i) Make, renew, restructure or
otherwise modify any Loan other than Loans made or acquired in the
ordinary course of business consistent with past practice and that
have (x) in the case of unsecured Loans made to any borrower that
are originated in compliance with Holding Company’s and Bank
Subsidiary’s internal loan policies
with any
exceptions approved per existing policy
, a principal balance not in excess of
$1,000,000
, (y) in the case of new secured Loans made to any
borrower that are originated in compliance with Holding
Company’s and Bank Subsidiary’s internal loan policies,
with any exceptions approved per existing policy, total corporate
exposure to such borrower not in excess of
$10,000,000
and (z) in the case of renewal of existing
Loans
made in compliance with Holding Company’s and
Bank Subsidiary’s internal loan policies with any exceptions
approved per existing policy, total corporate exposure to such
borrower not in excess of
$10,000,000
;
(ii) except in the ordinary course of business,
take any action that would result in any discretionary release of
collateral or guarantees or otherwise restructure the respective
amounts set forth in clause (i) above; or (iii) enter into any Loan
securitization or create any special purpose funding entity. Towne
shall be entitled to observation rights in connection with the
consideration by the Management Loan Committee of Bank Subsidiary
of any new Loan or renewal of any existing Loan with total
corporate exposure to such borrower in excess of $5,000,000.
Holding Company and Bank Subsidiary will promptly notify Towne of
any policy exceptions made in making, renewing, modifying or
restructuring any Loan. In the event that Towne’s prior
written consent is required pursuant to clause (i) above, Towne
shall use its commercially reasonable efforts to provide such
consent within one (1) business day of any request by Holding
Company.
(s)
Incur any indebtedness for borrowed money, or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other person, other than with respect to (i)
borrowings from the Federal Home Loan Bank of Atlanta or existing
federal funds accommodation lines of credit with correspondent
banks in the ordinary course of business consistent with past
practice; and (ii) the collection of checks and other negotiable
instruments in the ordinary course of business consistent with past
practice.
(t)
Acquire (other than by way of foreclosures or acquisitions in a
bona fide fiduciary capacity, in satisfaction of debts previously
contracted in good faith or otherwise in accordance with the
existing investment policy of Bank Subsidiary, in each case in the
ordinary course of business consistent with past practice) any debt
security or equity investment other than federal funds or U.S.
Government securities or U.S. Government agency securities, in each
case with a term of three (3) years or less, or dispose of any debt
security or equity investment.
(u)
Enter into or settle any Derivative Contract other than contracts
used to hedge mortgage rate risk in the ordinary course of business
as currently conducted.
(v)
Other than as a Loan or in connection with a debt previously
contracted and in order to protect Bank Subsidiary from loss, make
any investment or commitment to invest in real estate or in any
real estate development project (other than by way of foreclosure
or acquisitions in a bona fide fiduciary capacity or in
satisfaction of a debt previously contracted in good faith, in each
case in the ordinary course of business consistent with past
practice).
(w)
Make or change any material Tax election in a manner inconsistent
with past practice, settle or compromise any material Tax liability
of Holding Company, agree to an extension or waiver of the statute
of limitations with respect to the assessment or determination of a
material amount of Taxes of Holding Company, enter into any closing
agreement with respect to any material amount of Taxes or surrender
any right to claim a material Tax refund, adopt
or change any method of accounting with respect to
Taxes
in a manner inconsistent with past practice,
or file any amended Tax
Return.
(x)
Take any other action that would make any representation or
warranty in Section 3.3 hereof untrue, taking into account the
standard set forth in Section 3.2.
(y)
Agree to take any of the actions prohibited by this Section
4.1.
4.2
Conduct
of Business of Towne Pending the Transaction.
From the date
hereof until the Effective Date, except as expressly contemplated
or permitted by this Agreement, without the prior written consent
of Holding Company, Towne agrees that it will not, and will cause
each of the Towne Subsidiaries not to:
(a)
Conduct its business and the business of the Towne Subsidiaries
other than in the ordinary and usual course consistent with past
practice or fail to use its commercially reasonable efforts to
maintain and preserve intact their (i) business organizations,
assets and employees and (ii) relationships with customers,
suppliers, employees and business associates.
(b)
Take any action that would prevent or materially adversely affect
or delay the ability of Towne or Holding Company (i) to obtain any
necessary approvals, consents or waivers of any Governmental
Authority or third party required for the transactions contemplated
hereby, (ii) to perform its covenants and agreements under this
Agreement, or (iii) to consummate the transactions contemplated
hereby on a timely basis.
(c)
Notwithstanding anything herein to the contrary, (i) knowingly
take, or knowingly omit to take, any action that would reasonably
be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the
Code or (ii) knowingly take, or knowingly omit to take, any action
that is reasonably likely to result in any of the conditions to the
Transaction set forth in Article 6 not being satisfied on a timely
basis, except as may be required by applicable law.
(d) Amend,
repeal or modify any provision of its Organizational Documents in a
manner which would have a material adverse effect on Holding
Company, the stockholders of Holding Company or the transactions
contemplated by this Agreement.
(e)
Take any other action that would make any representation or
warranty in Section 3.4 hereof untrue, taking into account the
standard set forth in Section 3.2.
(f)
Agree to take any of the actions prohibited by this Section
4.2.
To facilitate the
integration of the operations of Towne and Holding Company and to
permit the coordination of their related operations on a timely
basis, and in an effort to accelerate to the earliest time possible
following the Effective Date the realization of synergies,
operating efficiencies and other benefits expected to be realized
by the parties as a result of the Transaction, each of Towne and
Holding Company shall, and shall cause its subsidiaries to, consult
with the other on all strategic and operational matters to the
extent such consultation is not in violation of applicable laws,
including laws regarding the exchange of information and other laws
regarding competition.
4.4 Control
of the Other Party’s Business.
Prior to the
Effective Date, nothing contained in this Agreement (including,
without limitation, Section 4.1 and Section 4.3) shall give Towne
directly or indirectly, the right to control or direct the
operations of Holding Company or Bank Subsidiary or to exercise,
directly or indirectly, a controlling influence over the management
or policies of Holding Company or Bank Subsidiary, and nothing
contained in this Agreement (including, without limitation, Section
4.2 and Section 4.3) shall give Holding Company or Bank Subsidiary,
directly or indirectly, the right to control or direct the
operations of Towne or to exercise, directly or indirectly, a
controlling influence over the management or policies of Towne.
Prior to the Effective Date, each party shall exercise, consistent
with the terms and conditions of this Agreement, complete control
and supervision over it and its subsidiaries’ respective
operations.
ARTICLE
5
Additional
Agreements
5.1
Commercially Reasonable Efforts.
Subject to the
terms and conditions of this Agreement, the parties hereto will use
their commercially reasonable efforts to take, or cause to be
taken, in good faith all actions, and to do, or cause to be done,
all things necessary or desirable, or advisable under applicable
laws, so as to permit consummation of the Transaction as promptly
as practicable and shall cooperate fully with the other parties
hereto to that end.
5.2
Access to Information; Confidentiality.
(a)
Upon reasonable notice and subject to applicable laws regarding the
disclosure or exchange of information, Holding Company and Bank
Subsidiary shall permit Towne to make or cause to be made such
investigation of Holding Company’s and Bank
Subsidiary’s operational, financial and legal condition as
Towne reasonably requests; provided, that such investigation shall
be reasonably related to the Transaction and shall not interfere
unreasonably with normal operations. No investigation, in and of
itself, by Towne shall affect the representations and warranties of
Holding Company or Bank Subsidiary. Holding Company shall provide
to Towne all written agendas and meeting or written consent
materials provided to the directors of Holding Company and Bank
Subsidiary in connection with board and committee meetings, subject
to applicable laws relating to the exchange of information.
Notwithstanding the above provisions in this Section 5.2(a), Towne
and its representatives shall not be entitled to receive
information directly relating to the negotiation and prosecution of
this Agreement or, except as otherwise provided herein, relating to
an Acquisition Proposal, a Superior Proposal (as such terms are
defined herein) or any matters relating thereto. Neither Holding
Company nor any of the Holding Company Subsidiaries shall be
required to provide access to or to disclose information where such
access or disclosure would jeopardize the attorney-client privilege
of Holding Company or any of the Holding Company
Subsidiaries.
(b)
During the period from the date of this Agreement to the Effective
Date, Holding Company shall, upon the request of Towne, cause one
or more of its designated executive officers to confer on a monthly
or more frequent basis with Towne regarding Holding Company’s
financial condition, operations and business and matters relating
to the completion of the Transaction.
As soon as reasonably available,
but in no event later than the earlier of (i) the thirtieth
(30
th
) day
after the end of each calendar quarter ending after the date of
this Agreement, and (ii) the date of public dissemination of
earnings information pertaining to such calendar quarter (or year
with respect to a quarter ending on December 31), Holding Company
will deliver to Towne its unaudited balance sheet and statements of
income, stockholders’ equity and cash flows, without related
notes, for such quarter (or year with respect to a quarter ending
on December 31) prepared in accordance with GAAP. Within fifteen
(15) days after the end of each month, Holding Company will deliver
to Towne (i) such loan reports as Towne may reasonably
request, and (ii) such other financial data as Towne may reasonably
request. The financial statements required to be delivered by this
Section 5.2(b) may be consolidated.
(c)
Each party hereto will give prompt notice to the other party (and
subsequently keep the other party informed on a current basis) upon
its becoming aware of the occurrence or existence of any fact,
event or circumstance known that (i) is reasonably likely to result
in any Material Adverse Effect with respect to it, or (ii) would
cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained
herein.
(d)
Each party hereto shall, and shall use
its commercially reasonable efforts to cause each of its directors,
officers, attorneys and advisors, to maintain the confidentiality
of, and not use to the detriment of the other party, all
information of the other party obtained prior to the date of this
Agreement or pursuant to this Section 5.2 that is not otherwise
publicly disclosed by the other party, unless such information is
required to be included in any filing required by law or in an
application for any Regulatory Approval required for the
consummation of the transactions contemplated hereby, such
undertaking with respect to confidentiality to survive any
termination of this Agreement. In the case of information that a
party believes is necessary in making any such filing or obtaining
any such Regulatory Approval, that party will provide the other
party a reasonable opportunity to review any such filing or any
application for such Regulatory Approval before it is filed
sufficient for it to comment on and object to the content of such
filing or application. If this Agreement is terminated, each party
shall promptly return to the furnishing party or, at the request of
the furnishing party,
promptly destroy in a manner that
renders the information impracticable to read or reconstruct
and certify the destruction of all
confidential information received from the other
party.
5.3
Holding Company Stockholder Approval.
(a)
Unless this Agreement has been terminated in accordance with its
terms and subject to Section 5.3(b), Holding Company shall call a
meeting of its stockholders for the purpose of obtaining the
Holding Company Stockholder Approval and shall use its commercially
reasonable efforts to cause such meeting to occur as soon as
reasonably practicable (such meeting and any adjournment or
postponement thereof, the “Holding Company Stockholders
Meeting”). In connection with that meeting, but subject to
Section 5.3(b) and a Change of Recommendation (as defined herein)
pursuant to Section 5.5(e), the Board of Directors of Holding
Company (i) shall support and recommend approval of this
Agreement and the Plan of Merger and any other matters required to
be approved by Holding Company’s stockholders for
consummation of the Merger (the “Holding Company
Recommendation”), and (ii) shall use its commercially
reasonable efforts to obtain the Holding Company Stockholder
Approval.
(b)
Provided that the Holding Company is acting in good faith and in
compliance with its obligations under Section 5.3(a), Holding
Company may postpone or adjourn the Holding Company Stockholders
Meeting: (i) with the consent of Towne; (ii) for the absence of a
quorum; (iii) to the extent necessary to ensure that any required
supplement or amendment to the Proxy Statement is provided to the
stockholders of Holding Company within a reasonable period of time
in advance of the Holding Company Stockholders Meeting; (iv) to
allow reasonable additional time to solicit additional proxies as
necessary to obtain the Holding Company Stockholder Approval; or
(v) if required by applicable Law.
5.4
Proxy Statement.
(a)
Each party will cooperate with the other party, and their
representatives, in the preparation of a proxy statement and
prospectus and other proxy solicitation materials constituting a
part thereof (the “Proxy Statement”), to be filed with
the SEC in connection with (i) the solicitation of proxies from the
stockholders of Holding Company for the Holding Company
Stockholders Meeting, and (ii) the offering and issuance of Towne
Common Stock in the Merger. Each party agrees to cooperate with the
other party, its legal, financial and accounting advisors, in the
preparation of the Proxy Statement. Each party shall prepare and
furnish to other parties such information relating to it and its
directors, officers and stockholders and such party’s
business and operations as may be reasonably required to comply
with SEC rules and regulations or SEC staff comments in connection
with the Proxy Statement, which information may be based on such
party’s knowledge of and access to the information required
for said document and advice of counsel with respect to SEC
disclosure obligations. Each party shall provide the other parties
and its legal, financial and accounting advisors the opportunity to
review and provide comments: (i) upon such Proxy Statement a
reasonable time prior to its filing in preliminary and definitive
forms and (ii) on all amendments and supplements to the Proxy
Statement and all responses to requests for additional information
and replies to comments relating to the Proxy Statement a
reasonable time prior to filing or submission to the SEC. Each
party shall consider in good faith all comments from the other
parties and their respective legal, financial and accounting
advisors to the Proxy Statement, all amendments and supplements
thereto and all responses to requests for additional information,
and shall not include any information in the foregoing about a
party or its officers, directors, business, arrangements,
operations or stock or the Transaction that has not been approved
by the other parties, which approval shall not be unreasonably
withheld, delayed or conditioned. Each party agrees to cooperate
with the other parties and each other party’s counsel and
accountants in requesting and obtaining appropriate opinions,
consents, analyses and letters from its financial advisor and
independent auditor in connection with the Proxy Statement. Each
party agrees to use its commercially reasonable efforts to cause
the Proxy Statement to be cleared by the SEC for use in definitive
form as promptly as reasonably practicable after the preliminary
filing thereof and to cause a definitive Proxy Statement to be
mailed to the Holding Company stockholders as promptly as
reasonably practicable thereafter. Towne also agrees to use its
commercially reasonable efforts to obtain all necessary state
securities law or “Blue Sky” permits and approvals
required to carry out the transactions contemplated by this
Agreement.
(b) Each
party agrees, as to itself and its subsidiaries, that none of the
information supplied or to be supplied by it for inclusion or
incorporation by reference in the Proxy Statement and any amendment
or supplement thereto shall, at the date(s) of mailing to
stockholders and the time of the Holding Company Stockholders
Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
to make the statements therein not misleading. Each party further
agrees that if it becomes aware that any information furnished by
it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to
omit to state any material fact necessary to make the statements
therein not false or misleading, to promptly inform the other party
thereof and to take appropriate steps to correct the Proxy
Statement.
(c) Holding
Company agrees to advise Towne, promptly after Holding Company
receives notice thereof, of the time when the Proxy Statement has
been cleared by the SEC for use in definitive form or when any
supplement or amendment has been filed, of the initiation or, to
the extent Holding Company is aware thereof, threat of any
proceeding for any such purpose, of any request by the SEC for the
amendment or supplement of the Proxy Statement or for additional
information or of any other correspondence from the SEC in
connection with the Proxy Statement that relates to Towne or the
Transaction. Holding Company agrees to promptly provide to Towne
copies of correspondence between Holding Company (or any of its
representatives and advisors on Holding Company’s behalf), on
the one hand, and the SEC, on the other hand as it relates to the
Proxy Statement or the Transaction.
5.5 No
Other Acquisition Proposals.
(a) Holding
Company agrees that it will not, and will cause the Holding Company
Subsidiaries and Holding Company’s and the Holding Company
Subsidiaries’ officers, directors, employees, agents and
representatives (including any financial advisor, attorney or
accountant retained by Holding Company or any of the Holding
Company Subsidiaries) not to, directly or indirectly, (i) initiate,
solicit or encourage inquiries or proposals with respect to, (ii)
furnish any confidential or nonpublic information relating to, or
(iii) engage or participate in any negotiations or discussions
concerning, an Acquisition Proposal (as defined herein).
Notwithstanding the foregoing, Holding Company, the Holding Company
Subsidiaries and their respective officers, directors, employees,
agents and representatives (including any financial advisor,
attorney or accountant retained by Holding Company or any of the
Holding Company Subsidiaries) may contact any person or persons to
clarify the terms and conditions of an unsolicited Acquisition
Proposal and to inform such person of the terms of this Section
5.5.
(b) Notwithstanding
the foregoing, nothing contained in this Section 5.5 shall
prohibit Holding Company, prior to the receipt of the Holding
Company Approvals and subject to material compliance with the other
terms of this Section 5.5, from furnishing nonpublic information
to, or entering into discussions or negotiations with, any person
or entity that makes an unsolicited, bona fide written Acquisition
Proposal with respect to Holding Company (that did not result from
a breach of this Section 5.5) if, and only to the extent that (i)
the Holding Company Board of Directors concludes in good faith,
after consultation with and based upon the advice of outside legal
counsel, that the failure to take such actions would be more likely
than not to result in a violation of
its fiduciary duties to
stockholders under applicable law, (ii) before taking such
actions, Holding Company receives from such person or entity an
executed confidentiality agreement providing for reasonable
protection of confidential information, which confidentiality
agreement shall not provide such person or entity with any
exclusive right to negotiate with Holding Company, and
(iii) the Holding Company Board of
Directors concludes in good faith, after consultation with its
outside legal counsel and financial advisors, that the Acquisition
Proposal constitutes or is reasonably likely to result in a
Superior Proposal (as defined below). Holding Company shall
promptly (within twenty-four (24) hours) notify Towne orally and in
writing of Holding Company’s receipt of any such proposal or
inquiry, the material terms and conditions thereof, the identity of
the person making such proposal or inquiry, and will keep Towne
apprised of any material related developments, discussions and
negotiations on a current basis, including by providing a copy of
all material documentation or correspondence relating
thereto.
(c)
For purposes of this Agreement, an “Acquisition
Proposal” means, other than the transactions contemplated by
this Agreement, any offer, proposal or inquiry relating to, or any
third party indication of interest in, any of the following
transactions involving Holding Company or Bank Subsidiary:
(i) a merger, consolidation, share
exchange, business combination, reorganization, recapitalization,
liquidation, dissolution or other similar transaction; (ii) any
acquisition or purchase, direct or indirect, of fifteen percent
(15%) or more of the consolidated assets of
Holding Company
or
fifteen percent (15%) or more of
any class of equity or voting securities of
Holding Company
or the Holding Company Subsidiaries
whose assets, individually or in the aggregate,
constitute more than fifteen percent (15%) of the consolidated
assets of Holding Company; or (iii) any tender offer (including a
self-tender offer) or exchange offer that, if consummated, would
result in such third party beneficially owning fifteen percent
(15%) or more of any class of equity or voting securities of
Holding Company or the Holding Company Subsidiaries
whose assets, individually or in the aggregate,
constitute more than fifteen percent (15%) of the consolidated
assets of Holding Company.
(d) For
purposes of this Agreement, a “Superior Proposal” means
an unsolicited, bona fide written Acquisition Proposal made by a
person or entity (or group of persons or entities acting in concert
within the meaning of Rule 13d-5 under the Exchange Act) that the
Board of Directors of Holding Company concludes in good faith,
after consultation with its financial and outside legal advisors,
taking into account all legal, financial, regulatory and other
aspects of the Acquisition Proposal (including the financing
thereof and any conditions thereto and taking into account the
terms and conditions of this Agreement) (i) is more favorable to
the stockholders of Holding Company from a financial point of view,
than the transactions contemplated by this Agreement and (ii) is
reasonably capable of being completed on the terms proposed and in
a timely manner; provided that, for purposes of this definition of
“Superior Proposal,” the Acquisition Proposal shall
have the meaning assigned to such term in Section 5.5(c), except
the reference to “
fifteen
percent (15%)
or more” in such definition shall be
deemed to be a reference to “a majority” and
“Acquisition Proposal” shall only be deemed to refer to
a transaction involving Holding Company or Bank
Subsidiary.
(e)
Notwithstanding anything to the contrary contained in this
Agreement, prior to the receipt of the Holding Company Stockholder
Approval, the Board of Directors of Holding Company may (i)
withhold, withdraw, modify or amend the Holding Company
Recommendation or (ii) authorize, adopt, approve, recommend or
otherwise declare advisable a Superior Proposal if the Holding
Company first takes the actions set forth in Section 7.1(i)(A)
through (D) (any action in clause (i) or (ii), a “Change of
Recommendation”), in each case if the Board of Directors of
Holding Company determines in good faith (after consultation with
its outside legal counsel) that failure to do so would be more
likely than not to result in a violation of its fiduciary
obligations under applicable law, and may also take any action
contemplated by Section 7.1.
(f)
Except as otherwise provided in this Agreement (including Sections
5.3 and 7.1), nothing in this Section 5.5 shall permit Holding
Company to terminate this Agreement or affect any other obligation
of Holding Company under this Agreement.
(g)
Holding Company
agrees that any
material violation of the restrictions set forth in this Section
5.5 by any authorized representative of Holding Company shall be
deemed a breach of this Section 5.5 by Holding
Company.
5.6
Applications and Consents.
(a)
The parties hereto shall cooperate and use their commercially
reasonable efforts to prepare as promptly as possible all
documentation, to effect all filings and to obtain all Regulatory
Approvals and will make all necessary filings in respect of the
Regulatory Approvals as soon as practicable.
(b)
Each party hereto will furnish to the other parties copies of
proposed applications in draft form and provide a reasonable
opportunity for comment prior to the filing of any such application
with any Governmental Authority. Each party hereto will promptly
furnish to the other party copies of applications filed with all
Governmental Authorities and copies of written communications
received by such party from any Governmental Authority with respect
to the transactions contemplated hereby. Each party will consult
with the other party with respect to the obtaining of all
Regulatory Approvals and other material consents from third parties
advisable to consummate the transactions contemplated by this
Agreement, and each party will keep the other party apprised of the
status of material matters relating to completion of the
transactions contemplated hereby. All documents that the parties or
their respective subsidiaries are responsible for filing with any
Governmental Authority in connection with the transactions
contemplated hereby (including to obtain Regulatory Approvals) will
comply as to form in all material respects with the provisions of
applicable law.
5.7
Public Announcements.
Prior to the
Effective Date, Towne and Holding Company will consult with each
other as to the form and substance of any press release or other
public statement materially related to this Agreement prior to
issuing such press release or public statement or making any other
public disclosure related thereto (including any broad based
employee communication that is reasonably likely to become the
subject of public disclosure).
5.8
Affiliate Agreements.
Holding Company has
identified to Towne all persons who are, as of the date hereof,
directors or executive officers of Holding Company. Holding Company
shall have delivered to Towne on or prior to the date hereof
executed copies of a written affiliate agreement in the form of
Exhibit 5.8 hereto from each such Holding Company director or
executive officer and from BancTenn Corp.
5.9
Director Noncompetition Agreements.
Holding Company and
Bank Subsidiary shall have delivered to Towne on or prior to the
date hereof an executed copy of a written noncompetition agreement
in the form of Exhibit 5.9 hereto from each director of Holding
Company and Bank Subsidiary.
5.10
Employee Benefit Plans.
(a)
Towne at its election shall either:
(i) provide generally to officers and employees of Holding Company
and the Holding Company Subsidiaries, who at or after the Effective
Date become employees of Towne or the Towne Subsidiaries
(“Holding Company Continuing Employees”), employee
benefits under
the Towne Benefit Plans (with no break in
coverage),
on terms and conditions
which are the same as for similarly situated officers and employees
of Towne and the Towne Subsidiaries; or (ii) maintain for the
benefit of the Holding Company Continuing Employees, the Holding
Company Benefit Plans maintained by Holding Company immediately
prior to the Effective Date; provided that Towne may take action to
amend any Holding Company Benefit Plan immediately prior to the
Effective Date to comply with any law or, so long as the benefits
provided under those Holding Company Benefit Plans following such
amendment are no less favorable to the Holding Company Continuing
Employees than benefits provided by Towne to its officers and
employees under any comparable Towne Benefit Plans, as necessary
and appropriate for other business reasons.
(b)
For
purposes of participation, vesting and benefit accrual (except not
for purposes of benefit accrual with respect to any plan in which
such credit would result in a duplication of
benefits)
under the Towne Benefit Plans, service with or
credited by Holding Company or any of the Holding Company
Subsidiaries shall be treated as service with Towne. To the extent
permitted under applicable law, Towne shall cause welfare Towne
Benefit Plans maintained by Towne that cover the Holding Company
Continuing Employees after the Effective Date to (i) waive any
waiting period and restrictions and limitations for preexisting
conditions or insurability, and (ii) cause any deductible,
co-insurance, or maximum out-of-pocket
payments made by the
Holding Company Continuing Employees under welfare Holding Company
Benefit Plans to be credited to such Holding Company Continuing
Employees under welfare Towne Benefit Plans, so as to reduce the
amount of any deductible, co-insurance or maximum
out-of-pocket
payments payable by such
Holding Company Continuing Employees under welfare Towne Benefit
Plans.
(c)
Each employee of Holding Company or any Holding Company Subsidiary
at the Effective Date whose employment is involuntarily terminated
other than for cause by Towne after the Effective Date, but on or
before the date that is six (6) months from the Effective Date,
excluding any employee who has a contract providing for severance
pay, shall be entitled to receive severance pay equal to two (2)
weeks of pay, at his or her rate of pay in effect at the time of
termination, for each full year of continuous service with Holding
Company and Towne, subject to a minimum of four (4) weeks and a
maximum of twenty-six (26) weeks of pay. Such severance payments
will be in lieu of any payment under any severance pay plans that
may be in effect at Holding Company or any Holding Company
Subsidiary prior to the Effective Date.
(d)
With respect to Holding Company’s 401(k) plan, Holding
Company shall cause such plan to be terminated effective
immediately prior to the Effective Date, in accordance with
applicable law and subject to the receipt of all applicable
regulatory or governmental approvals. Each Holding Company
Continuing Employee who was a participant in the Holding Company
401(k) plan and who continues in the employment of Towne or any
Towne Subsidiary shall be eligible to participate in Towne’s
401(k) plan on or as soon as administratively practicable after the
Effective Date, and account balances under the terminated Holding
Company 401(k) plan will be eligible for distribution or rollover,
including direct rollover, to Towne’s 401(k) for Holding
Company Continuing Employees. Any other former employee of Holding
Company or the Holding Company Subsidiaries who is employed by
Towne or the Towne Subsidiaries after the Effective Date shall be
eligible to be a participant in the Towne 401(k) plan upon
complying with eligibility requirements. All rights to participate
in Towne’s 401(k) plan are subject to Towne’s right to
amend or terminate the plan. For purposes of administering
Towne’s 401(k) plan, service with Holding Company and the
Holding Company Subsidiaries shall be deemed to be service with
Towne for participation and vesting purposes, but not for purposes
of benefit accrual.
(e)
Nothing in this Section 5.10 shall be interpreted as preventing
Towne, from and after the Effective Date, from amending, modifying
or terminating any Towne Benefit Plans or Holding Company Benefit
Plans or any other contracts, arrangements, commitments or plans of
either party in accordance with their terms and applicable
law.
5.11
Reservation of Shares; NASDAQ Listing.
(a)
Towne shall take all corporate action as may be necessary to
authorize and reserve for issuance such number of shares of Towne
Common Stock to be issued pursuant to this Agreement, and to cause
all such shares, when issued pursuant to this Agreement, to be duly
authorized, validly issued, fully paid and
nonassessable.
(b)
Towne shall use commercially reasonable efforts to cause the shares
of Towne Common Stock to be issued in the Merger to be approved for
listing on the NASDAQ Global Select Market, subject to official
notice of issuance, as promptly as practicable, and in any event
before the Effective Date.
5.12
Indemnification; Insurance.
(a)
Following the Effective Date, Towne shall indemnify, defend and
hold harmless any person who has rights to indemnification from
Holding Company, to the same extent and on the same conditions as
such person was entitled to indemnification pursuant to applicable
law and Holding Company’s Organizational Documents, as in
effect on the date of this Agreement. Without limiting the
foregoing, in any case in which corporate approval may be required
to effectuate any indemnification, Towne shall direct, if the party
to be indemnified elects, that the determination of permissibility
of indemnification shall be made by independent counsel mutually
agreed upon between Towne and the indemnified party.
(b)
Towne shall, at or prior to the Effective Date, purchase a six (6)
year “tail” prepaid policy on the same terms and
conditions as the existing directors’ and officers’
liability (and fiduciary) insurance maintained by Holding Company
from insurance carriers with comparable credit ratings, covering,
without limitation, the Merger and the Bank Merger; provided,
however, that the cost of such “tail” policy shall in
no event exceed two hundred fifty percent (250%) of the amount of
the last annual premium paid by Holding Company for such existing
directors’ and officers’ liability (and fiduciary)
insurance. If, but for the proviso to the immediately preceding
sentence, Towne would be required to expend more than two hundred
fifty percent (250%) of the amount of the last annual premium paid
by Holding Company, Towne will obtain the maximum amount of that
insurance obtainable by payment of such amount.
(c)
The provisions of this Section 5.12 are intended to be for the
benefit of and shall be enforceable by each indemnified party and
his or her heirs and representatives.
5.13
Employment and Other Arrangements.
(a)
Towne will, as of and after the Effective Date, assume and honor
all employment, severance, change in control, supplemental
executive retirement and deferred compensation agreements or
arrangements that Holding Company and the Holding Company
Subsidiaries have with their current and former officers and
directors and which are set forth in Section 5.13(a) of Holding
Company’s Disclosure Schedule, except to the extent any such
agreements or arrangements shall be superseded on or after the
Effective Date.
(b)
As of the date hereof, Towne has entered into employment
arrangements with the individuals named in Section 5.13(b) of
Towne’s Disclosure Schedule as described in such
schedule.
5.14
Notice of Deadlines.
Holding Company has
set forth in Section 5.14 of Holding Company’s Disclosure
Schedule a complete and accurate list of the deadlines for
extensions or terminations of all material leases, agreements or
licenses (including specifically real property leases and data
processing agreements) to which Holding Company or any of the
Holding Company Subsidiaries is a party. For purposes of this
Section 5.14, a material agreement shall mean an agreement not
terminable on sixty (60) days or less notice and involving the
payment or value of more than $50,000 per year and/or has a
termination fee.
If any federal or
state anti-takeover laws or regulations may become, or may purport
to be, applicable to the transactions contemplated hereby, each
party hereto and the members of their respective Boards of
Directors will grant such approvals and take such actions as are
necessary and legally permissible so that the transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of any such laws or regulations
on any of the transactions contemplated by this
Agreement.
5.16
Change
of Method.
Towne
and Holding Company shall be empowered, upon their mutual agreement
and at any time prior to the Effective Date (and whether before or
after the Holding Company Stockholders Meeting), to change the
method or structure of effecting the combination of Towne and
Holding Company (including the provisions of Article 1), if and to
the extent they both deem such change to be necessary, appropriate
or desirable; provided that no such change shall (i) alter or
change the Exchange Ratio or amount of cash to be received by
Holding Company stockholders in exchange for each share of Holding
Company Common Stock, (ii) adversely affect the tax treatment of
Towne or Holding Company pursuant to this Agreement or (iii)
materially impede or delay the consummation of the transactions
contemplated by this Agreement in a timely manner. The parties
hereto agree to reflect any such change in an appropriate amendment
to this Agreement executed by both parties in accordance with
Section 8.3.
Prior to the
Effective Date, each of Holding Company and Bank Subsidiary shall,
consistent with GAAP and applicable banking laws and regulations,
modify or change its respective Loan, OREO, accrual, reserve, Tax,
litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be
applied on a basis that is consistent with that of Towne; provided,
however, that no such modifications or changes need be made prior
to the satisfaction of the conditions set forth in Section
6.1(b).
5.18
Assumption
of Trust Preferred Capital Securities.
Prior to the
Effective Date, Towne, Towne Merger Sub and Holding Company shall
take all actions necessary for Holding Company and either or both
of Towne or Towne Merger Sub to enter into supplemental indentures
with the trustees of the Holding Company’s trust preferred
capital securities to evidence the succession of either or both of
Towne or Towne Merger Sub as the obligor on those securities as of
the Effective Date. The form of the supplemental indentures shall
be reasonably acceptable to Towne and Holding Company. Towne agrees
to assume, on its own or through Towne Merger Sub, Holding
Company’s obligations under the indentures as well as under
the other agreements related to the trust preferred capital
securities.
ARTICLE
6
Conditions
to the Transaction
The respective
obligations of each party to perform this Agreement and consummate
the Transaction are subject to the satisfaction of the following
conditions, unless waived by each party pursuant to Section
8.3.
(a)
Corporate Action
. All
corporate action necessary to authorize the execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby shall have been duly and validly taken,
including without limitation the Holding Company Stockholder
Approval.
(b)
Regulatory Approvals
.
Towne, Towne Merger Sub, Holding Company and Bank Subsidiary shall
have received all Regulatory Approvals required in connection with
the transactions contemplated by this Agreement, all notice periods
and waiting periods required after the granting of any such
approvals shall have passed, and all such approvals shall be in
effect; provided, that no such approvals shall contain (i) any
conditions, restrictions or requirements that would, after the
Effective Date, have or be reasonably likely to have a Material
Adverse Effect on Towne (after giving effect to the Transaction) in
the reasonable opinion of Towne, or (ii) any conditions,
restrictions or requirements that would, after the Effective Date,
be unduly burdensome in the reasonable opinion of
Towne.
(c)
Proxy Statement
. The Proxy
Statement shall have been cleared by the SEC for use in definitive
form and it shall not be subject any stop order or any threatened
stop order (or any order, demand, request or other action with
similar effect) of the SEC.
(d)
NASDAQ Listing
. The shares
of the Towne Common Stock to be issued to the holders of Holding
Company Common Stock upon consummation of the Merger shall have
been authorized for listing on the NASDAQ Global Select Market,
subject to official notice of issuance.
(e)
Legal Proceedings
. Neither
party shall be subject to any order, decree or injunction of (i) a
court or agency of competent jurisdiction or (ii) a Governmental
Authority that enjoins or prohibits the consummation of the
Transaction.
6.2
Conditions
to Obligations of Towne and Towne Merger Sub.
The obligations of
Towne and Towne Merger Sub to perform this Agreement and consummate
the Transaction are subject to the satisfaction of the following
conditions, unless waived by Towne pursuant to the provisions of
this Section 6.2 and Section 8.3.
(a)
Representations and
Warranties
. The representations and warranties of Holding
Company and Bank Subsidiary set forth in Section 3.3, after giving
effect to Sections 3.1 and 3.2, shall be true and correct as of the
date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier or specific
date) as of all times up to and including the Closing Date as
though made on and as of the Closing Date, and Towne shall have
received certificates, dated as of the Closing Date, signed on
behalf of Holding Company and Bank Subsidiary by the Chief
Executive Officer and Chief Financial Officer of Holding Company
and Bank Subsidiary, respectively, to such effect.
(b)
Performance of Obligations
.
Holding Company and each of the Holding Company Subsidiaries shall
have performed in all material respects all obligations required to
be performed by it under this Agreement before the Closing Date,
and Towne shall have received certificates, dated as of the Closing
Date, signed on behalf of Holding Company and Bank Subsidiary by
the Chief Executive Officer and Chief Financial Officer of Holding
Company and Bank Subsidiary, respectively, to such
effect.
(c)
Federal
Tax Opinion
. Towne shall have received
a written opinion, dated the Closing Date, from its counsel,
Williams Mullen, in form and substance reasonably satisfactory to
Towne, to the effect that, on the basis of facts, representations
and assumptions set forth or referred to in such opinion, the
Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, such counsel
may require and shall be entitled to rely upon representations of
officers of Towne, Holding Company and Bank Subsidiary reasonably
satisfactory in form and substance to such counsel.
(d)
Agreements with Certain Key
Employees of Holding Company and Bank Subsidiary
. The
agreements with certain key employees of Holding Company and Bank
Subsidiary concerning their employment with Towne and related
matters after the Effective Date as set forth in Section 5.13(b) of
Towne’s Disclosure Schedule have been memorialized in
binding, written agreements entered into by the key employees and
none of the key employees has taken any action on or before the
Effective Date to materially breach or to cancel or terminate any
such agreements, or to terminate his or her employment with Holding
Company or Bank Subsidiary.
6.3
Conditions
to Obligations of Holding Company and Bank Subsidiary.
The obligations of
Holding Company and Bank Subsidiary to perform this Agreement and
consummate the Transaction are subject to the satisfaction of the
following conditions, unless waived by Holding Company and Bank
Subsidiary pursuant to Section 8.3.
(a)
Representations and
Warranties
. The representations and warranties of Towne set
forth in Section 3.4, after giving effect to Sections 3.1 and 3.2,
shall be true and correct as of the date of this Agreement and
(except to the extent such representations and warranties speak as
of an earlier or specific date) as of all times up to and including
the Closing Date, as though made on and as of the Closing Date and
Holding Company shall have received a certificate, dated as of the
Closing Date, signed on behalf of Towne by the Chief Executive
Officer and Chief Financial Officer of Towne to such
effect.
(b)
Performance of Obligations
.
Towne and each of the Towne Subsidiaries shall have performed in
all material respects all obligations required to be performed by
it under this Agreement before the Closing Date, and Holding
Company shall have received a certificate, dated as of the Closing
Date, signed on behalf of Towne by the Chief Executive Officer and
Chief Financial Officer of Towne to such effect.
(c)
Federal Tax Opinion
.
Holding Company shall have received a written opinion, dated the
Closing Date, from its counsel, Wyrick Robbins Yates & Ponton
LLP, in form and substance reasonably satisfactory to Holding
Company, to the effect that, on the basis of facts, representations
and assumptions set forth or referred to in such opinion, the
Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, such counsel
may require and shall be entitled to rely upon representations of
officers of Towne, Holding Company and Bank Subsidiary reasonably
satisfactory in form and substance to such counsel.
ARTICLE
7
Termination
This Agreement may
be terminated and the Transaction abandoned at any time before the
Effective Date, whether before or after receipt of the Holding
Company Stockholder Approval, as provided below:
(a)
Mutual Consent
. By the
mutual consent in writing of Towne, Towne Merger Sub, Holding
Company and Bank Subsidiary;
(b)
Closing Delay
. By Towne and Towne
Merger Sub or Holding Company and Bank Subsidiary, evidenced by
written notice, if the Transaction has not been consummated by
March 31, 2018 or such later date as shall have been agreed to in
writing by the parties, provided that the right to terminate under
this Section 7.1(b) shall not be available to any party whose
breach or failure to perform an obligation hereunder has caused the
failure of the Transaction to occur on or before such
date;
(c)
Breach of Representation or Warranty.
(i) By
Towne and Towne Merger Sub (provided that Towne is not then in
breach of any representation or warranty contained in this
Agreement under the applicable standard set forth in
Section 3.2 or in breach of any covenant or agreement
contained in this Agreement) in the event of a breach or inaccuracy
of any representation or warranty of Holding Company or Bank
Subsidiary contained in this Agreement which cannot be or has not
been cured within thirty (30) days after the giving of written
notice to Holding Company of such breach or inaccuracy and which
breach or inaccuracy (subject to the applicable standard set forth
in Section 3.2) would provide Towne and Towne Merger Sub the
ability to refuse to consummate the Transaction under Section
6.2(a); or
(ii) By
Holding Company and Bank Subsidiary (provided that Holding Company
or Bank Subsidiary is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard
set forth in Section 3.2 or in breach of any covenant or
agreement contained in this Agreement) in the event of a breach or
inaccuracy of any representation or warranty of Towne contained in
this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to Towne of such
breach or inaccuracy and which breach or inaccuracy (subject to the
applicable standard set forth in Section 3.2) would provide
Holding Company the ability to refuse to consummate the Transaction
under Section 6.3(a);
(d)
Breach of Covenant or Agreement.
(i) By
Towne and Towne Merger Sub (provided that Towne is not then in
breach of any representation or warranty contained in this
Agreement under the applicable standard set forth in
Section 3.2 or in breach of any covenant or agreement
contained in this Agreement) in the event of a material breach by
Holding Company or Bank Subsidiary of any covenant or agreement
contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to
Holding Company of such breach;
(ii) By
Holding Company and Bank Subsidiary (provided that Holding Company
or Bank Subsidiary is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard
set forth in Section 3.2 or in breach of any covenant or
agreement contained in this Agreement) in the event of a material
breach by Towne of any covenant or agreement contained in this
Agreement which cannot be or has not been cured within thirty (30)
days after the giving of written notice to Towne of such
breach;
(e)
Conditions
to Performance Not Met.
By either Towne on the one hand or
Holding Company and Bank Subsidiary on the other hand (provided
that the terminating party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 3.2 or in breach of
any covenant or agreement contained in this Agreement) in the event
that any of the conditions precedent to the obligations of such
party to consummate the Transaction set forth in Section 6.2 or
Section 6.3, as applicable, cannot be satisfied or fulfilled by the
date specified in Section 7.1(b), as the date after which such
party may terminate this Agreement;
(f)
Holding Company Solicitation and
Recommendation Matters; Holding Company Stockholders Meeting
Failure
. At any time prior to the Holding Company
Stockholders Meeting, by Towne and Towne Merger Sub if (i) Holding
Company shall have materially breached Section 5.5, (ii) the
Holding Company Board of Directors shall have failed to make the
Holding Company Recommendation, (iii) the Holding Company Board of
Directors shall have effected a Change of Recommendation in a
manner adverse in any respect to the interests of Towne or (iv)
Holding Company shall have materially breached its obligations
under Section 5.3 by failing to call, give notice of, convene and
hold the Holding Company Stockholders Meeting in accordance with
(and subject to the exceptions set forth in) Section
5.3;
(g)
No
Holding Company Stockholder Approval.
By either Towne and
Towne Merger Sub or Holding Company and Bank Subsidiary, if the
Holding Company Stockholder Approval shall not have been attained
by reason of the failure to obtain the required vote at the Holding
Company Stockholders Meeting or any adjournment
thereof;
(h)
Termination Event
. By Towne
and Towne Merger Sub upon the occurrence of any of the following
events after the date hereof:
(i)
(A) Holding Company or Bank Subsidiary, without having received
Towne’s prior written consent, shall have entered into an
agreement with any person to (1) acquire, merge or
consolidate, or enter into any similar transaction, with Holding
Company or Bank Subsidiary, or (2) purchase, lease or otherwise
acquire all or substantially all of the assets of Holding Company
or Bank Subsidiary; or (B) Holding Company or Bank Subsidiary,
without having received Towne’s prior written consent, shall
have entered into an agreement with any person to purchase or
otherwise acquire directly from Holding Company securities
representing fifteen percent (15%) or more of the voting power of
Holding Company; or
(ii)
a tender offer or exchange offer for fifteen percent (15%) or more
of the outstanding shares of Holding Company Common Stock is
commenced (other than by Towne or a Towne Subsidiary), and the
Holding Company Board recommends that the stockholders of Holding
Company tender their shares in such tender or exchange offer or
otherwise fails to recommend that such stockholders reject such
tender offer or exchange offer within the ten (10)-business day
period specified in Rule 14e-2(a) under the Exchange
Act;
(i)
Other Agreement.
At any
time prior to the receipt of the Holding Company Stockholder
Approval, by Holding Company and Bank Subsidiary in order to enter
into an acquisition agreement or similar agreement with respect to
a Superior Proposal which has been received and considered by
Holding Company and the Holding Company Board of Directors in
material compliance with Section 5.5 hereof; provided that this
Agreement may be terminated by Holding Company and Bank Subsidiary
pursuant to this Section 7.1(i) only after taking the following
actions: (A) Holding Company shall notify Towne in writing, at
least three (3) business days in advance, that it intends to accept
a Superior Proposal; (B) upon Towne’s request, Holding
Company shall discuss with Towne the facts and circumstances giving
rise to such decision and negotiate in good faith with Towne to
facilitate Towne’s evaluation of whether to improve the terms
and conditions of this Agreement as would permit the Board of
Directors of Holding Company not to accept the Superior Proposal;
(C) if Towne shall have delivered to Holding Company a written
offer capable of being accepted by Holding Company to alter the
terms of this Agreement during such three (3) business day notice
period, the Board of Directors of Holding Company shall have
determined in good faith (after consultation with its outside legal
counsel and financial advisor), after considering the terms of such
offer by Towne, that such Superior Proposal would continue to
constitute a Superior Proposal; and (D)
in the event of any material
change to the material terms of such Superior Proposal, Holding
Company shall, in each case, provide Towne with an additional
notice and, unless Holding Company provides such additional notice
to Towne within three (3) business days of providing Towne with the
original notice contemplated by clause (A), the notice period shall
recommence, except that the notice period shall be two (2) business
days rather than the three (3) business day notice period otherwise
contemplated by clause (A); or
(j)
Decline in Towne Common Stock
Price
. By Holding Company and Bank Subsidiary if the Holding
Company Board of Directors so determines by a vote of the majority
of the members of the entire Holding Company Board of Directors, at
any time during the five (5)-day period commencing with the
Determination Date (as defined below), if both of the following
conditions are satisfied:
(i) the
number obtained by dividing the Average Closing Price by the
Starting Price (each as defined below) (the “Towne
Ratio”) shall be less than eighty one-hundredths (0.80);
and
(ii) (x)
the Towne Ratio shall be less than (y) the number obtained by
dividing the Final Index Price by the Index Price on the Starting
Date (each as defined below) and subtracting twenty one-hundredths
(0.20) from the quotient in this clause (ii)(y) (such number in
this clause (ii)(y) being referred to herein as the “Index
Ratio”);
subject, however,
to the following three (3) sentences. If Holding Company and Bank
Subsidiary elect to exercise the termination right pursuant to this
Section 7.1(j), Holding Company and Bank Subsidiary shall give
written notice to Towne (provided that such notice of election to
terminate may be withdrawn at any time within the aforementioned
five (5)-day period). During the five (5)-day period commencing
with its receipt of such notice, Towne shall have the option to
increase the consideration to be received by the holders of Holding
Company Common Stock hereunder, by adjusting the applicable
Exchange Ratio (calculated to the nearest one one-thousandth
(1/1000)) to equal the lesser of (x) a number (rounded to the
nearest one one-thousandth (1/1000)) obtained by dividing (A) the
product of the Starting Price, eighty one-hundredths (0.80) and the
applicable Exchange Ratio (as then in effect) by (B) the Average
Closing Price and (y) a number (rounded to the nearest one
one-thousandth (1/1000)) obtained by dividing (A) the product of
the Index Ratio and the applicable Exchange Ratio (as then in
effect) by (B) the Towne Ratio. If Towne so elects within such five
(5)-day period, it shall give prompt written notice to Holding
Company of such election and the revised applicable Exchange Ratio,
whereupon no termination shall have occurred pursuant to this
Section 7.1(j) and this Agreement shall remain in effect in
accordance with its terms (except as the applicable Exchange Ratio
shall have been so modified).
For purposes of
this Section 7.1(j), the following terms shall have the meanings
indicated:
“Average
Closing Price” means the average of the per share closing
prices of a share of Towne Common Stock on the NASDAQ Global Select
Market (as reported in
The Wall
Street Journal
, or if not reported therein, in another
authoritative source) during the twenty (20) consecutive full
trading days ending on the trading day prior to the Determination
Date.
“Determination
Date” means the later of (i) the date on which the last
approval, consent or waiver of any Governmental Authority required
to permit consummation of the transactions contemplated by this
Agreement is received and all statutory waiting periods in respect
thereof shall have expired or (ii) the date on which the
stockholders of Holding Company approve the Agreement.
“Final Index
Price” means the average of the Index Prices for the twenty
(20) consecutive trading days ending on the trading day prior to
the Determination Date.
“Index
Group” means the NASDAQ Bank Index.
“Index
Price” means the closing price on such date of the Index
Group.
“Starting
Date” means the last trading day immediately preceding the
date of the first public announcement of entry into this
Agreement.
“Starting
Price” means $34.35.
If Towne declares
or effects a stock dividend, reclassification, recapitalization,
split-up, combination, exchange of shares or similar transaction
between the date of this Agreement and the Determination Date, the
prices for the Towne Common Stock shall be appropriately adjusted
for the purposes of applying this Section 7.1(j).
7.2
Effect
of Termination.
In the event of termination of this Agreement as provided in
Section 7.1, none of Towne, Holding Company, any of their
respective subsidiaries or any of the officers or directors of any
of them shall have any liability hereunder or in connection with
the transactions contemplated hereby, except that (i) Section
5.2(c) (Confidentiality), Section 5.7 (Public Announcements), this
Article 7 (Termination) and Article 8 (General Provisions) shall
survive any termination of this Agreement and (ii) notwithstanding
anything to the contrary in this Agreement, termination will not
relieve a breaching party from any liabilities or damages arising
out of its willful and material breach of any provision of this
Agreement.
7.3
Non-Survival
of Representations, Warranties and Covenants.
None of the representations and warranties set forth in this
Agreement or in any instrument delivered pursuant to this Agreement
(other than the Confidentiality Agreement, dated February 13, 2017,
between Towne and Holding Company, which shall survive in
accordance with its terms) shall survive the Effective Date, except
for Section 5.12 and for any other covenant and agreement contained
in this Agreement that by its terms applies or is to be performed
in whole or in part after the Effective Date
.
(a)
Except
as otherwise provided in this Agreement, each of the parties shall
bear and pay all costs and expenses incurred by it in connection
with the transactions contemplated herein, including fees and
expenses of its own financial consultants, accountants and legal
advisors,
except that
the costs and expenses of all filing and other fees paid to the SEC
and other Governmental Authorities and Regulatory Agencies in
connection with the Transaction shall be borne equally by Towne and
Holding Company.
(b)
In
recognition of the effort made, the expenses incurred and the other
opportunities for acquisition forgone by Towne while structuring
the Transaction, Holding Company shall pay Towne the sum of
$12,000,000 (the “Termination Fee”) if this Agreement
is terminated as follows:
(i) if
this Agreement is terminated by Towne and Towne Merger Sub pursuant
to Section 7.1(f) or Section 7.1(h), or by Holding Company and Bank
Subsidiary pursuant to Section 7.1(i), payment shall be made to
Towne concurrently with the termination of this Agreement;
or
(ii) if
this Agreement is terminated (A) by Towne and Towne Merger Sub
pursuant to Section 7.1(c)(i), Section 7.1(d)(i) or Section 7.1(e),
(B) by either Towne and Towne Merger Sub or Holding Company and
Bank Subsidiary pursuant to Section 7.1(b), or (C) by either Towne
or Holding Company and Bank Subsidiary pursuant to Section 7.1(g),
and in the case of any termination pursuant to clause (A), (B) or
(C) an Acquisition Proposal shall have been publicly announced or
otherwise communicated or made known to the stockholders, senior
management or the Board of Directors of Holding Company (or any
person or entity shall have publicly announced, communicated or
made known an intention, whether or not conditional, to make an
Acquisition Proposal) at any time after the date of this Agreement
and prior to the taking of the vote of the stockholders of Holding
Company contemplated by this Agreement at the Holding Company
Stockholders Meeting, in the case of clause (C), or prior to the
date of termination, in the case of clause (A) or (B), then (1) if
within twelve (12) months after such termination Holding
Company enters into an agreement or consummates a transaction with
respect to an Acquisition Proposal (whether or not the same
Acquisition Proposal as that referred to above), then Holding
Company shall pay to Towne the Termination Fee on the date of
execution of such agreement (regardless of whether such transaction
is consummated before or after the termination of this Agreement)
or the consummation of such transaction, or (2) if a transaction
with respect to an Acquisition Proposal (whether or not the same
Acquisition Proposal as that referred to above) is consummated
otherwise than pursuant to an agreement with Holding Company within
twelve (12) months after the termination of this Agreement, then
Holding Company shall pay to Towne the Termination Fee on the date
when such transaction is consummated.
(c)
The
agreements contained in paragraph (b) of this Section 7.4 shall be
deemed an integral part of the transactions contemplated by this
Agreement, that without such agreements the parties would not have
entered into this Agreement and that no such amount constitutes a
penalty or liquidated damages in the event of a breach of this
Agreement by Holding Company or Bank Subsidiary. The amount(s)
payable by Holding Company pursuant to paragraph (b) of Section 7.4
shall be the sole and exclusive remedy of Towne in the event such
amount(s) are payable as specified in such paragraph. If Holding
Company fails to pay or cause payment to Towne the amount(s) due
under paragraph (b) above at the time specified therein, Holding
Company shall pay the costs and expenses (including reasonable
legal fees and expenses) incurred by Towne in connection with any
action in which Towne prevails, including the filing of any
lawsuit, taken to collect payment of such amount(s), together with
interest on the amount of any such unpaid amount(s) at the prime
lending rate prevailing during such period as published in
The Wall Street Journal
,
calculated on a daily basis from the date such amount(s) were
required to be paid until the date of actual payment.
(d)
Any payment required to be made pursuant to Section 7.4 shall be
made by wire transfer of immediately available funds to an account
designated by the party entitled to receive payment in the notice
of demand for payment delivered pursuant to this Section 7.4. For
the avoidance of doubt, in no event shall the Holding Company be
required to pay the Termination Fee on more than one occasion,
whether or not the Termination Fee may be payable under multiple
provisions of this Agreement at the same time or at different times
or upon the occurrence of different events.
ARTICLE
8
General
Provisions
This Agreement,
including the Disclosure Schedules and the exhibits hereto,
contains the entire agreement among Towne, Towne Merger Sub,
Holding Company and Bank Subsidiary with respect to the Transaction
and the related transactions and supersedes all prior arrangements
or understandings with respect thereto.
8.2
Binding
Effect; No Third Party Rights.
This Agreement
shall bind Towne, Towne Merger Sub, Holding Company and Bank
Subsidiary and their respective successors and assigns. Other than
Sections 5.10, 5.12 and 5.13, nothing in this Agreement is intended
to confer upon any person, other than the parties hereto or their
respective successors, any rights or remedies under or by reason of
this Agreement.
8.3
Waiver
and Amendment.
Any term or
provision of this Agreement may be waived in writing at any time by
the party that is, or whose stockholders are, entitled to the
benefits thereof, and this Agreement may be amended or supplemented
by a written instrument duly executed by the parties hereto at any
time, whether before or after the date of the Holding Company
Stockholders Meeting, except statutory requirements and requisite
approvals of stockholders and Governmental
Authorities.
This Agreement
shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Virginia without regard to the conflict of law
principles thereof.
All notices,
requests and other communications given or made under this
Agreement must be in writing and will be deemed given (i) on the
date given if delivered prior to 5:00 p.m. Eastern Time on a
business day, personally or by confirmed telecopier, in each case
with a hard copy sent by registered or certified first class mail,
personally or by commercial overnight delivery service; (ii) on the
date received if sent by commercial overnight delivery service; or
(iii) on the third business day after being mailed by registered or
certified mail (return receipt requested) to the persons and
addresses set forth below or such other place as such party may
specify by notice.
If to Towne, to
each of:
Chairman
and Chief Executive Officer
TowneBank
6001
Harbour View Boulevard
Suffolk,
Virginia 23425
Fax:
(757)
484-4591
George
P. Whitley, Esq.
Senior
Executive Vice President and Chief Legal Officer
TowneBank
800
East Canal Street, Suite 700
Richmond,
Virginia 23219
Fax:
(804) 477-6002
Email:
george.whitley@townebank.net
200 South 10
th
Street, Suite 1600
Email:
srichter@williamsmullen.com
If to Holding
Company and Bank Subsidiary:
Robert C.
Hatley
President and Chief
Executive Officer
Paragon Commercial
Corporation
3535 Glenwood
Avenue
Raleigh, North
Carolina 27612
Fax:
(866) 480-1012
Email:
bhatley@paragonbank.com
with a copy
to:
Todd H. Eveson,
Esq.
Wyrick Robbins
Yates & Ponton LLP
4101 Lake Boone
Trail, Suite 300
Raleigh, North
Carolina 27607
Fax:
(919) 781-4865
Email:
teveson@wyrick.com
This Agreement may
be executed in any number of counterparts, each of which shall be
an original, but such counterparts together shall constitute one
and the same agreement.
8.7
Waiver of Jury Trial.
Each
party hereto acknowledges and agrees that any controversy which may
arise under this Agreement is likely to involve complicated and
difficult issues, and therefore each party hereby irrevocably and
unconditionally waives any right such party may have to a trial by
jury in respect of any litigation, directly or indirectly, arising
out of or relating to this Agreement or the transactions
contemplated by this Agreement. Each party certifies and
acknowledges that (i) it understands and has considered the
implications of this waiver and (ii) it makes this waiver
voluntarily.
In the event that
any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or
unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable. Further,
the parties agree that a court of competent jurisdiction may reform
any provision of this Agreement held invalid or unenforceable so as
to reflect the intended agreement of the parties
hereto.
8.9
Interpretation
; Global
Terms
.
Any reference contained in this Agreement to
specific statutory or regulatory provisions or to specific
governmental agencies or entities includes any successor statute or
regulation, or agency or entity, as the case may be. Unless
otherwise specified, the references to “Section” and
“Article” in this Agreement are to the Sections and
Articles of this Agreement. When used in this Agreement, words such
as “herein”, “hereinafter”,
“hereof”, “hereto”, and
“hereunder” refer to this Agreement as a whole, unless
the context clearly requires otherwise. The use of the words
“include” or “including” in this Agreement
is by way of example rather than by limitation.
Unless the
context clearly indicates otherwise, the masculine, feminine, and
neuter genders will be deemed to be interchangeable.
[Signatures on
following page]
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed in
counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the date first written
above.
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TOWNEBANK
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By:
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/s/
G. Robert Aston,
Jr.
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G. Robert Aston,
Jr.
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Chairman and Chief
Executive Officer
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TB
ACQUISITION, LLC
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By:
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/s/
G. Robert Aston,
Jr.
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G. Robert Aston,
Jr.
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President
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PARAGON COMMERCIAL
CORPORATION
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By:
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/s/
Robert C.
Hatley
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Robert C.
Hatley
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President and Chief
Executive Officer
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PARAGON COMMERCIAL
BANK
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By:
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/s/
Robert C.
Hatley
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Robert C.
Hatley
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President and Chief
Executive Officer
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EXHIBIT
1.1
To the Agreement
and
Plan of
Reorganization
PLAN
OF MERGER
TB
ACQUISITION, LLC
AND
PARAGON
COMMERCIAL CORPORATION
Pursuant to this Plan of Merger (“Plan of Merger”),
Paragon Commercial Corporation, a North Carolina business
corporation (“Holding Company”), shall merge with and
into TB Acquisition, LLC (“Towne Merger Sub”), a
Virginia limited liability company and wholly owned subsidiary of
TowneBank, Virginia banking corporation
(“Towne”).
ARTICLE
1
Terms
of the Merger
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of April 26, 2017, by and among Towne,
Towne Merger Sub, Holding Company and Paragon Commercial Bank, a
North Carolina banking corporation and wholly owned subsidiary of
Holding Company (the “Agreement”), at the Effective
Date (as defined herein),
Holding
Company shall be merged with and into
Towne Merger Sub
(the “Merger”) in
accordance with the provisions of Virginia and North Carolina law,
and with
the effects set forth in Section 13.1-1070 of the
Virginia Limited Liability Company Act
and Sections 55-11-10(e) and 55-11-10(e1) of the
North Carolina Business Corporation Act
(“NCBCA”).
The separate corporate existence of
Holding Company thereupon shall cease, and Towne Merger Sub will be
the surviving entity in the merger and continue its existence after
the Merger as a Virginia limited liability company.
The Merger shall become effective on such date and
time as may be determined in accordance with Section 1.3(a) of
the Agreement (the “Effective Date”).
The name
of the surviving corporation shall be TB Acquisition,
LLC.
ARTICLE 2
Merger
Consideration; Exchange Procedures
2.1 Conversion
of Shares.
At the Effective
Date, by virtue of the Merger and without any action on the part of
Towne or Holding Company or their respective stockholders, or Towne
Merger Sub or its sole member:
(a) Each
share of common stock, par value $1.667 per share, of Towne
(“Towne Common Stock”), and each equity interest of
Towne Merger Sub, that is issued and outstanding immediately before
the Effective Date shall remain issued and outstanding and shall
remain unchanged by the Merger.
(b)
Each share of common stock, par value $0.008 per share, of Holding
Company (“Holding Company Common Stock”) that is issued
and outstanding immediately before the Effective Date shall be
converted into and exchanged for the right to receive 1.7250 shares
(the “Exchange Ratio”) of Towne Common Stock, plus cash
in lieu of any fractional shares pursuant to Section 2.4
(collectively, the “Merger Consideration”).
All shares of Holding Company
Common Stock converted pursuant to this Section 2.1 shall no longer
be outstanding and shall automatically be cancelled and retired and
shall cease to exist as of the Effective Date.
(c)
Each certificate previously representing shares of Holding Company
Common Stock (a “Holding Company Common Certificate”)
and the non-certificated shares of Holding Company Common Stock
(the “Holding Company Book-Entry Shares”) shall cease
to represent any rights except the right to receive with respect to
each share of Holding Company Common Stock (i) the Merger
Consideration upon the surrender of such Holding Company Common
Certificate or Holding Company Book-Entry Shares in accordance with
Section 2.2, and (ii) any dividends or distributions which the
holder thereof has the right to receive pursuant to
Section 2.6.
(d)
Each share of Holding Company Common Stock held by Towne or Town
Merger Sub and each share of Towne Common Stock held by Holding
Company or any of the Holding Company Subsidiaries (as defined in
the Agreement) prior to the Effective Date (in each case other than
in a fiduciary or agency capacity or on behalf of third parties as
a result of debts previously contracted) shall be cancelled and
retired and shall cease to exist at the Effective Date and no
consideration shall be issued in exchange therefor; provided, that
such shares of Towne Common Stock shall resume the status of
authorized and unissued shares of Towne Common Stock.
2.2 Exchange
Procedures.
(a)
On or before the Closing Date, Towne shall deposit, or shall cause
to be deposited, with its transfer agent or such other transfer
agent or depository or trust institution of recognized standing
approved by Towne (in such capacity, the “Exchange
Agent”), for the benefit of the holders of the Holding
Company Common Certificates and the holders of Holding Company
Book-Entry Shares, at the election of Towne, either certificates
representing the shares of Towne Common Stock or noncertificated
shares of Towne Common Stock (or a combination) issuable pursuant
to this Article 2, together with any dividends or distributions
with respect thereto and any cash to be paid in lieu of fractional
shares without any interest thereon (the “Exchange
Fund”), in exchange for the Holding Company Common
Certificates and Holding Company Book-Entry Shares.
(b)
As promptly as practicable after the Effective Date, Towne shall
cause the Exchange Agent to send to each former stockholder of
record of Holding Company immediately before the Effective Date
transmittal materials for use in exchanging such
stockholder’s Holding Company Common Certificates or Holding
Company Book-Entry Shares for the Merger Consideration, as provided
for herein.
(c)
Towne shall cause the Merger Consideration into which shares of
Holding Company Common Stock are converted at the Effective Date,
and dividends or distributions that a Holding Company stockholder
shall be entitled to receive, to be issued and paid to such Holding
Company stockholder upon proper surrender to the Exchange Agent of
Holding Company Common Certificates and Holding Company Book-Entry
Shares representing such shares of Holding Company Common Stock,
together with the transmittal materials duly executed and completed
in accordance with the instructions thereto. No interest will
accrue or be paid on any such cash to be paid pursuant to Sections
2.4 or 2.6.
(d)
Any Holding Company stockholder whose Holding Company Common
Certificates or Holding Company Book-Entry Shares have been lost,
destroyed, stolen or are otherwise missing shall be entitled to the
Merger Consideration and dividends or distributions to which such
stockholder shall be entitled upon compliance with reasonable
conditions imposed by Towne pursuant to applicable law and as
required in accordance with Towne’s standard policy
(including the requirement that the stockholder furnish customary
indemnity).
(e)
Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Holding Company for twelve (12) months after the
Effective Date shall be returned to Towne (together with any
earnings in respect thereof). Any stockholders of Holding Company
who have not complied with this Article 2 shall thereafter be
entitled to look only to Towne, and only as a general creditor
thereof, for payment of the consideration deliverable in respect of
each share of Holding Company Common Stock such stockholder held as
of the close of business on the Effective Date as determined
pursuant to this Plan of Merger, without any interest
thereon.
(f)
None of the Exchange Agent, the parties hereto, the Towne
Subsidiaries (as defined in the Agreement) nor the Holding Company
Subsidiaries (as defined in the Agreement) shall be liable to any
stockholder of Holding Company for any amount of property delivered
to a public official pursuant to applicable abandoned property,
escheat or similar laws.
2.3
Holding
Company Stock Options and Other Equity-Based Awards.
(a)
At the Effective Date, each option (to the extent any are
outstanding), whether vested or unvested, to purchase shares of
Holding Company Common Stock (a “Holding Company Stock
Option”) granted under an equity or equity-based compensation
plan of Holding Company (a “Holding Company Stock
Plan”) or otherwise granted shall be converted into an option
(each, a “Replacement Option”) to acquire, on the same
terms and conditions as were applicable under such Holding Company
Stock Option (except as provided otherwise in this Section 2.3(a)),
the number of shares of Towne Common Stock equal to the product of
(i) the number of shares of Holding Company Common Stock subject to
the Holding Company Stock Option multiplied by (ii) the Exchange
Ratio. Such product shall be rounded down to the nearest whole
number. The exercise price per share (rounded up to the next whole
cent) of each Replacement Option shall equal (y) the exercise price
per share of shares of Holding Company Common Stock that were
purchasable pursuant to such Holding Company Stock Option divided
by (z) the Exchange Ratio. Notwithstanding the foregoing, each
Holding Company Stock Option that is intended to be an
“incentive stock option” (as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the
“Code”)) shall be adjusted if necessary in accordance
with the requirements of Section 424 of the Code, and all other
options shall be adjusted if necessary in a manner that maintains
the option’s exemption from Section 409A of the
Code.
(b)
At the Effective Date, each restricted stock award granted under a
Holding Company Stock Plan (a “Holding Company Stock
Award”) that is unvested or contingent and outstanding
immediately prior to the Effective Date shall cease, at the
Effective Date, to represent any rights with respect to shares of
Holding Company Common Stock and shall be converted without any
action on the part of the holder thereof, into a restricted stock
award of Towne (a “Replacement Stock Award”), on the
same terms and conditions as were applicable under the Holding
Company Stock Awards (but taking into account any changes thereto,
including any acceleration of vesting thereof, provided for in the
Holding Company Stock Plan or in the related award document by
reason of the Merger). The number of shares of Towne Common Stock
subject to each such Replacement Stock Award shall be equal to the
number of shares of Holding Company Common Stock subject to the
Holding Company Stock Award multiplied by the Exchange Ratio,
rounded, if necessary, to the nearest whole share of Towne Common
Stock.
(c)
At the Effective Date, Towne shall assume the Holding Company Stock
Plans; provided that such assumption shall only be with respect to
the Replacement Options and Replacement Stock Awards, and Towne
shall have no obligation to make any additional grants or awards
under the Holding Company Stock Plans. The provisions of any such
Holding Company Stock Plan will be unchanged, except that (i) all
references to Holding Company (other than any references relating
to a “change in control” (or similar term) of Holding
Company) in the Holding Company Stock Plan and in each agreement
evidencing any award thereunder shall be deemed to refer to Towne,
unless Towne reasonably determines otherwise, and (ii) the number
of shares of Towne Common Stock available for issuance pursuant to
the Holding Company Stock Plan following the Effective Date shall
be equal to the number of shares of Holding Company Common Stock so
available immediately prior to the Effective Date multiplied by the
Exchange Ratio, rounded, if necessary, down to the nearest whole
share of Towne Common Stock.
(d)
As soon as practicable after the Effective Date, Towne will deliver
to the holders of Replacement Options and Replacement Stock Awards
any required notices setting forth such holders’ rights
pursuant to the respective Holding Company Stock Plan and award
documents and stating that such Replacement Options and Replacement
Stock Awards have been issued by Towne and shall continue in effect
on the same terms and conditions (subject to the adjustments
required by this Section 2.3 after giving effect to the Merger and
the terms of the Holding Company Stock Plan).
2.4 No
Fractional Shares.
Each holder of
shares of Holding Company Common Stock exchanged pursuant to the
Merger that would otherwise have been entitled to receive a
fraction of a share of Towne Common Stock shall receive, in lieu
thereof, cash (without interest and rounded to the nearest cent) in
an amount equal to such fractional part of a share of Towne Common
Stock multiplied by the average closing price per share of Towne
Common Stock, as reported on the NASDAQ Global Select Market, for
the ten (10) consecutive trading days ending on and including the
fifth trading day prior to the Effective Date.
In the event Towne
changes (or establishes a record date for changing) the number of
shares of Towne Common Stock issued and outstanding before the
Effective Date as a result of a stock split, stock dividend,
recapitalization, reclassification, reorganization or similar
transaction,
appropriate and proportional
adjustments will be made to the Exchange Ratio.
No dividend or
other distribution payable to the holders of record of Holding
Company Common Stock at, or as of, any time after the Effective
Date will be paid to the holder of any Holding Company Common
Certificate or Holding Company Book-Entry Share until such holder
properly surrenders such shares (or furnishes customary indemnity
that the Holding Company Common Certificate or Holding Company
Book-Entry Share is lost, destroyed, stolen or otherwise missing as
provided in Section 2.2(d)) for exchange as provided in Section 2.2
of this Plan of Merger, promptly after which time all such
dividends or distributions will be paid (without
interest).
The Exchange Agent
will be entitled to deduct and withhold from the Merger
Consideration otherwise payable pursuant to this Plan of Merger to
any person such amounts, if any, it is required to deduct and
withhold with respect to the making of such payment under the Code
or any provision of state, local or foreign Tax (as defined in the
Agreement) law. To the extent that amounts are so withheld and
remitted to the appropriate Governmental Authority (as defined in
the Agreement) by the Exchange Agent, such amounts withheld will be
treated for all purposes of this Plan of Merger as having been paid
to such person in respect of which such deduction and withholding
was made by the Exchange Agent.
In accordance with
Section 55-13-02 of the NCBCA, no appraisal rights shall be
available to the holders of Holding Company Common Stock in
connection with the Merger or the other transactions contemplated
by this Plan of Merger.
ARTICLE 3
Articles of Organization and Operating Agreement of Towne Merger
Sub
3.1
Articles
of Organization.
The Articles of
Organization of Towne Merger Sub as in effect immediately prior to
the Effective Date will be the Articles of Organization of Towne
Merger Sub at and after the Effective Date until thereafter amended
in accordance with applicable law.
3.2
Operating Agreement
.
The Operating
Agreement of Towne Merger Sub as in effect immediately prior to the
Effective Date will be the Operating Agreement of Towne Merger Sub
at and after the Effective Date until thereafter amended in
accordance with applicable law.
ARTICLE 4
Conditions Precedent
The
obligations of Towne Merger Sub and Holding Company to effect the
Merger as herein provided shall be subject to satisfaction, unless
duly waived, of the conditions set forth in the
Agreement.
ARTICLE 5
Amendment
Subject to the
terms and conditions of the Agreement, this Plan of Merger may be
amended by the Sole Manager of Towne Merger Sub and the Board of
Directors of Holding Company at any time prior to the Effective
Date; provided, however, that any amendment made subsequent to the
approval of this Plan of Merger by the sole member of Towne Merger
Sub, and the stockholders of Towne and Holding Company shall
not:
(a)
Alter or change the amount or kind of shares or other securities,
eligible interests, obligations, rights to acquire shares, other
securities or eligible interests, cash or other property or rights
to be received under this Plan of Merger by the Holding Company
stockholders;
(b)
Alter or change any of the other terms or conditions of this Plan
of Merger if the change would adversely Holding Company
stockholders in any material respect; or
(c)
Alter or change any term of the Articles of Incorporation of
Holding Company, as amended, or the Articles of Organization of
Towne Merger Sub.
EXHIBIT 1.2
To the
Agreement and
Plan of
Reorganization
BANK
PLAN OF MERGER
BY
AND BETWEEN
TOWNEBANK
AND
PARAGON
COMMERCIAL BANK
Pursuant to this
Bank Plan of Merger (“Bank Plan of Merger”), Paragon
Commercial Bank, a North Carolina banking corporation (“Bank
Subsidiary”), shall merge with and into TowneBank, a Virginia
banking corporation (“Towne”).
ARTICLE
1
Terms
of the Bank Merger; Effective Date
(a)
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of April 26, 2017, by and among Towne, TB
Acquisition, LLC, Paragon Commercial Corporation, a North Carolina
business corporation and the holding company of Bank Subsidiary
(“Holding Company”), and Bank Subsidiary (the
“Agreement”), at the Effective Date (as defined
herein),
Bank Subsidiary
shall be merged with and into
Towne
(the “Bank Merger”)
in accordance with the provisions of Virginia and North Carolina
law, and with
the effects set forth in Section 13.1-721 of
the Virginia Stock Corporation Act
(the “VSCA”) and Section 55-11-06 of
the North Carolina Business Corporation Act
(“NCBCA”).
The separate corporate existence of
Bank Subsidiary thereupon shall cease, and Towne shall be the
surviving corporation in the Bank Merger. The name of the surviving
corporation shall be TowneBank.
(b)
The Bank Merger will become effective on the date and at the time
shown on the Articles of Merger required to be filed with the
office of the Virginia State Corporation Commission, as provided in
Section 13.1-720 of the VSCA, and with the office of the North
Carolina Secretary of State, as provided in Section 55-11-05 of the
NCBCA, effecting the Bank Merger (the “Effective
Date”); provided, however, that in no event shall the
Effective Date be earlier than, or at the same time as, the
effective date and time of the merger of Holding Company with and
into TB Acquisition, LLC as provided for in the Agreement (the
“Merger”).
ARTICLE 2
Conversion
of Shares
At the Effective
Date, by virtue of the Bank Merger and without any action on the
part of Towne or Bank Subsidiary or their respective
stockholders:
(a) Each
share of common stock, par value $1.667 per share, of Towne
(“Towne Common Stock”), that is issued and outstanding
immediately before the Effective Date shall remain issued and
outstanding and shall remain unchanged by the Bank
Merger.
(b)
Each share of common stock, par value $25,000 per share, of Bank
Subsidiary that is issued and outstanding immediately before the
Effective Date shall automatically be cancelled and retired and
shall cease to exist as of the Effective Date.
ARTICLE 3
Articles of Incorporation and Bylaws of Towne
3.1
Articles
of Incorporation.
The Articles of
Incorporation of Towne as in effect immediately prior to the
Effective Date will be the Articles of Incorporation of Towne at
and after the Effective Date until thereafter amended in accordance
with applicable law.
Prior to the
Effective Date, Towne shall take all appropriate actions to adopt
an amendment to the Bylaws of Towne to increase the number of
directors that may serve on the Board of Directors of Towne to the
extent necessary to accommodate the current directors of Holding
Company that will be appointed as directors of Towne as of the
Effective Date as contemplated by Section 1.5(a) of the Agreement.
The Bylaws of Towne as may be amended pursuant to this paragraph
(b) and in effect immediately prior to the Effective Date will be
the Bylaws of Towne at and after the Effective Date until
thereafter amended in accordance with applicable law.
ARTICLE 4
Conditions Precedent
The obligations of Towne and Bank Subsidiary to
effect the Bank Merger as herein provided shall be subject to
satisfaction, unless duly waived, of the conditions set forth in
the Agreement. Notwithstanding any provision of this Bank Plan of
Merger to the contrary, it shall be a condition to the consummation
of the Bank Merger and the parties’ obligations to consummate
the Bank Merger that, (i) immediately prior to the Effective Date,
the Merger shall have been consummated and
TB Acquisition,
LLC
shall be the sole holder of all of
the issued and outstanding shares of the capital stock of Bank
Subsidiary, and (ii) all required regulatory approvals shall have
been obtained and any waiting periods shall have
expired.
EXHIBIT
5.8
To the Agreement
and
Plan of
Reorganization
FORM
OF AFFILIATE AGREEMENT
THIS AFFILIATE
AGREEMENT (the “Agreement”), dated as of April 26,
2017, is by and among TowneBank, a Virginia banking corporation
(“Towne”), Paragon Commercial Corporation, a North
Carolina corporation (“Holding Company”), and the
undersigned shareholder of Holding Company
(“Shareholder”).
All
capitalized terms used herein and not defined herein shall have the
meanings assigned thereto in the Merger Agreement (defined
below).
WHEREAS, the Boards
of Directors of Towne and Holding Company have approved a business
combination of their companies through the merger (the
“Merger”) of Holding Company with and into TB
Acquisition, LLC, a newly-formed Virginia limited liability company
and wholly owned subsidiary of Towne (“Towne Merger
Sub”), and the merger of Paragon Commercial Bank (“Bank
Subsidiary”), a North Carolina banking corporation and wholly
owned subsidiary of Holding Company, with and into Towne
immediately after the Merger, pursuant to the terms and conditions
of an Agreement and Plan of Reorganization, dated as of April 26,
2017, by and among Towne, Towne Merger Sub, Holding Company and
Bank Subsidiary, and related plans of merger (together, the
“Merger Agreement”);
WHEREAS,
Shareholder is the beneficial and/or registered owner of, and has
the right and power to vote or direct the disposition of the number
of shares of common stock, par value $0.008 per share, of Holding
Company (“Holding Company Common Stock”) set forth
below Shareholder’s name on the signature page hereto (such
shares, together with all shares of Holding Company Common Stock
subsequently acquired by Shareholder during the term of this
Agreement, but excluding the shares of common stock described in
the last sentence of Section 5(a) hereof, are referred to
herein as the “Shares”); and
WHEREAS, as a
condition and inducement to Towne, Towne Merger Sub, Holding
Company and Bank Subsidiary entering into the Merger Agreement,
Shareholder has agreed to enter into and perform this
Agreement.
NOW, THEREFORE, in
consideration of the covenants, representations, warranties and
agreements set forth herein and in the Merger Agreement, and other
good and valuable consideration (including the merger consideration
set forth in Article 2 of the Merger Agreement), the receipt and
sufficiency of which are acknowledged, the parties hereto,
intending to be legally bound hereby, agree as
follows:
During the term of
this Agreement and at such time as Holding Company conducts the
Holding Company Stockholders Meeting, Shareholder agrees to vote or
cause to be voted all of the Shares, and to cause any holder of
record of the Shares to vote all such Shares, in person or by
proxy: (i) in favor of the Merger Agreement at the Holding Company
Stockholders Meeting; and (ii) against (A) any Acquisition
Proposal, (B) any action, proposal, transaction or agreement which
could reasonably be expected to result in a breach of any covenant,
representation or warranty or any other obligation or agreement of
Holding Company or Bank Subsidiary under the Merger Agreement or of
Shareholder under this Agreement and (C) any action, proposal,
transaction or agreement that could reasonably be expected to
impede, interfere with, delay, discourage, adversely affect or
inhibit the timely consummation of the Merger or the fulfillment of
conditions of Towne, Towne Merger Sub, Holding Company or Bank
Subsidiary under the Merger Agreement.
Covenants
of Shareholder.
The Shareholder
covenants and agrees as follows:
(a)
Ownership.
The Shareholder
is the beneficial and/or registered owner of the Shares as set
forth below Shareholder’s name on the signature page hereto.
Except for Shareholder’s Shares, Shareholder is not the
beneficial or registered owner of any other shares of Holding
Company Common Stock or rights to acquire shares of Holding Company
Common Stock and for which Shareholder has the right and power to
vote and/or dispose.
For purposes of
this Agreement, the term “beneficial ownership” shall
be interpreted in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
(b)
Restrictions on Transfer.
During the term of this Agreement, Shareholder will not sell,
pledge, hypothecate, grant a security interest in, transfer or
otherwise dispose of or encumber any of the Shares and will not
enter into any agreement, arrangement or understanding (other than
a proxy for the purpose of voting Shareholder’s Shares in
accordance with Section 1 hereof) which would during that term
(i) restrict, (ii) establish a right of first refusal to,
or (iii) otherwise relate to, the transfer or voting of the
Shares.
(c)
Authority.
The Shareholder
has full power, authority and legal capacity to enter into, execute
and deliver this Agreement, and to perform fully
Shareholder’s obligations hereunder. This Agreement has been
duly and validly executed and delivered by Shareholder and
constitutes the legal, valid and binding obligation of Shareholder,
enforceable against Shareholder in accordance with its
terms.
(d)
No Breach.
None of the
execution and delivery of this Agreement nor the consummation by
Shareholder of the transactions contemplated hereby will result in
a violation of, or a default under, or conflict with, any contract,
loan and credit arrangements, Liens (as defined in
Section 2(e) below), trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which
Shareholder is a party or bound or to which the Shares are
subject.
(e)
No Liens.
The Shares and
the certificates representing the Shares are now, and at all times
during the term of this Agreement, will be, held by Shareholder, or
by a nominee or custodian for the benefit of Shareholder, free and
clear of all pledges, liens, security interests, claims, proxies,
voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever (each, a “Lien”), except
for (i) any Liens arising hereunder and (ii) Liens, if
any, which have been disclosed to Towne in writing on the signature
page hereto.
(f)
Consents and
Approvals
. The execution and
delivery of this Agreement by Shareholder does not, and the
performance by Shareholder of his or her obligations under this
Agreement and the consummation by him or her of the transactions
contemplated hereby will not, require Shareholder to obtain any
consent, approval, authorization or permit of, or to make any
filing with or notification to, any Governmental
Authority.
(g)
Absence of
Litigation
. There is no suit,
action, investigation or proceeding pending or, to the knowledge of
Shareholder, threatened against or affecting Shareholder or any of
Shareholder’s affiliates before or by any Governmental
Authority that could reasonably be expected to materially impair
the ability of Shareholder to perform Shareholder’s
obligations hereunder or to consummate the transactions
contemplated hereby.
(h)
No
Solicitation
. During the term
of this Agreement, Shareholder shall not, nor shall Shareholder
permit any investment banker, attorney or other adviser or
representative of Shareholder to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any
Acquisition Proposal, or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition
Proposal.
(i)
Statements
. Shareholder shall not make any statement,
written or oral, to the effect that Shareholder does not support
the Merger or that other stockholders of Holding Company should not
support the Merger.
Shareholder
represents, warrants and covenants that any proxies or voting
rights previously given in respect of the Shares are revocable, and
that any such proxies or voting rights are hereby irrevocably
revoked.
Shareholder agrees
that this Agreement and the obligations hereunder shall attach to
the Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of the Shares shall pass, whether by
operation of law or otherwise, including Shareholder’s
successors or assigns. In the event of any stock split, stock
dividend, merger, exchange, reorganization, recapitalization or
other change in the capital structure of Holding Company affecting
the Shares, the number of Shares subject to the terms of this
Agreement shall be appropriately adjusted, and this Agreement and
the obligations hereunder shall attach to any additional securities
of Holding Company issued to or acquired by
Shareholder.
5. Capacity;
Obligation to Vote.
(a) Notwithstanding
anything in this Agreement to the contrary, in the event that the
Board of Directors of Holding Company is permitted to engage in
negotiations or discussions with any person who made an unsolicited
bona fide
written
Acquisition Proposal in accordance with Section 5.5 of the Merger
Agreement, Shareholder shall be permitted, at the request of the
Board of Directors of Holding Company, to respond to inquiries
from, and discuss such Acquisition Proposal with, the Board of
Directors of Holding Company. With respect to the terms of this
Agreement relating to the Shares, this Agreement relates solely to
the capacity of Shareholder as a stockholder or other beneficial
owner of the Shares and is not in any way intended to affect or
prevent the exercise by Shareholder, if applicable, of his or her
responsibilities as a director or officer of Holding Company,
including actions permitted to be taken in compliance with Section
5.5 of the Merger Agreement. The term “Shares” shall
not include any securities beneficially owned by Shareholder as a
trustee or fiduciary, and this Agreement is not in any way intended
to affect the exercise by Shareholder of Shareholder’s
fiduciary responsibility in respect of any such
securities.
(b)
The parties hereto agree that,
notwithstanding the provisions contained in
Section 1 hereof, Shareholder shall not be obligated to vote
as required in Section 1 of this
Agreement in the event that
(i) Towne is in material default with respect to any covenant,
representation, warranty or agreement with respect to it contained
in the Merger Agreement, or (ii) Holding Company and Bank
Subsidiary are otherwise entitled to terminate the Merger
Agreement.
6. Term;
Termination.
The term of this
Agreement shall commence on the date hereof. This Agreement shall
terminate upon the earlier of (i) the Effective Date of the Merger,
or (ii) termination of the Merger Agreement in accordance with
Article 7 of the Merger Agreement. Other than as provided for
herein, following the termination of this Agreement, there shall be
no further liabilities or obligations hereunder on the part of
Shareholder, Holding Company or Towne, or their respective officers
or directors, except that nothing in this Section 6 shall relieve
any party hereto from any liability for breach of this Agreement
before such termination.
In
furtherance of this Agreement, as soon as practicable after the
date hereof, Shareholder shall hereby authorize and instruct
Holding Company to instruct its transfer agent to enter a stop
transfer order with respect to all of Shares for the period from
the date hereof through the date this Agreement is terminated in
accordance with Section 6 hereof.
The parties hereto
agree that irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed by the
applicable party hereto in accordance with their specific terms or
were otherwise breached. Each of the parties hereto shall be
entitled to an injunction or injunctions to prevent breaches of
this Agreement by the other and to enforce specifically the terms
and provisions hereof in any court of the United States or any
state having jurisdiction, this being in addition to any other
remedy to which it is entitled at law or in equity. Each party
hereto waives the posting of any bond or security in connection
with any proceeding related thereto.
This Agreement may
not be modified, amended, altered or supplemented except by
execution and delivery of a written agreement by the parties
hereto.
This Agreement
shall in all respects be governed by and construed in accordance
with the laws of the Commonwealth of Virginia without regard to the
conflict of law principles thereof.
All notices,
requests, claims, demands or other communications hereunder shall
be in writing and shall be deemed given when delivered personally,
upon receipt of a transmission confirmation if sent by telecopy or
like transmission and on the next business day when sent by a
reputable overnight courier service as follows: (i) with respect to
Holding Company or Towne, the applicable address set forth in
Section 8.5 of the Merger Agreement, and (ii) with respect to
Shareholder, at the address for Shareholder shown on the records of
Holding Company.
12.
Benefit
of Agreement; Assignment.
(a)
This Agreement shall be binding upon and inure to the benefit of,
and shall be enforceable by, the parties hereto and their
respective personal representatives, successors and assigns, except
that the parties hereto may not transfer or assign any of their
respective rights or obligations hereunder without the prior
written consent of the other parties.
(b)
The parties hereto agree and designate Bank Subsidiary as a
third-party beneficiary of this Agreement, with Bank Subsidiary
having the right to enforce the terms hereof.
This Agreement may
be executed in one or more counterparts, and by the different
parties in separate counterparts, each of which shall be deemed to
be an original, but all of which shall constitute one and the same
agreement. A facsimile copy or electronic transmission of the
signature page hereto shall be deemed to be an original signature
page.
In the event that
any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions
hereof. Any provision of this Agreement held invalid or
unenforceable only in part or degree shall remain in full force and
effect to the extent not held invalid or unenforceable. Further,
the parties agree that a court of competent jurisdiction may reform
any provision of this Agreement held invalid or unenforceable so as
to reflect the intended agreement of the parties
hereto.
[Signatures on
following page]
IN WITNESS WHEREOF,
Towne, Holding Company and Shareholder have caused this Agreement
to be duly executed as of the date and year first above
written.
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TOWNEBANK
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By:
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G. Robert Aston,
Jr.
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Chairman and Chief
Executive Officer
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PARAGON COMMERCIAL
CORPORATION
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By:
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Robert C.
Hatley
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President and Chief
Executive Officer
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Number of
Shares
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(including
restricted stock): _________________
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Number of Shares
Pledged: __________________
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EXHIBIT 5.9
To the
Agreement and
Plan of
Reorganization
FORM OF DIRECTORS NONCOMPETITION AGREEMENT
April
26, 2017
TowneBank
6001 Harbour View Boulevard
Suffolk, Virginia 23435
Ladies
and Gentlemen:
[The
undersigned is a director of Paragon Commercial Bank (“Bank
Subsidiary”), a North Carolina banking corporation and
wholly-owned subsidiary of Paragon Commercial Corporation, a North
Carolina corporation (“Holding Company”).] [The
undersigned is a director of Paragon Commercial Corporation
(“Holding Company”), a North Carolina corporation and
parent bank holding company of Paragon Commercial Bank, a North
Carolina banking corporation (“Bank Subsidiary”).]
TowneBank, a Virginia banking corporation (“Towne”),
has agreed to acquire Holding Company and Bank Subsidiary (the
“Transaction”), pursuant to an Agreement and Plan of
Reorganization, dated as of April 26, 2017, by and among Towne, TB
Acquisition, LLC, Holding Company and Bank Subsidiary, and related
plans of merger (collectively, the “Agreement”). The
undersigned has been offered the opportunity to become a member of
either or both of Towne’s Board of Directors or one of
Towne’s regional boards of directors following the Bank
Merger Effective Date (as defined in the Agreement) of the Bank
Merger (as defined in the Agreement).
As a
condition of acceptance of such offer, and subject to the
exceptions below, the undersigned hereby agrees that, for the
longer of (i) 12 months following the Bank Merger Effective Date,
or (ii) the period that the undersigned shall be a member of any
Towne board of directors identified in the preceding paragraph, the
undersigned will not, directly or indirectly: (A) become a
member of the board of directors or an advisory board of, or be an
organizer of, or be a 1% or more shareholder of, any entity engaged
in or formed for the purpose of engaging in a Competitive Business
anywhere in the Market Area (as such terms are defined below); or
(B) in any individual or representative capacity whatsoever,
induce any individual to terminate his or her employment with Towne
or its Affiliates (as such term is defined below).
As used
in this Agreement, the term “Competitive Business”
means the financial services business, which includes one or more
of the following businesses: consumer and commercial banking,
insurance brokerage, asset management, residential and commercial
mortgage lending, and any other business in which Towne or any of
its Affiliates are engaged; the term “Market Area”
means (i) the cities of Cary, Charlotte and Raleigh in North
Carolina, and any cities, towns and counties adjacent to such
localities, and (ii) any other city, town, county, or municipality
in North Carolina in which Towne has established and is continuing
to operate a banking office or a loan production office (excluding,
for purposes of this letter agreement, an office providing solely
residential mortgage loans, unless such office is in the areas
identified in clause (i) above); the term “Affiliate”
means a Person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, Towne; and the term “Person” means any
person, partnership, corporation, company, group or other
entity.
Notwithstanding the
foregoing, in no event shall the undersigned be prevented from
continuing to engage in, or being or continuing to engage in any
activities as an officer, employee, owner, shareholder, partner or
member in or of, or a member of the board of directors or a member
of an advisory board of, any entity engaged in, a Competitive
Business if the undersigned holds such position (or a corresponding
position with the predecessor to such entity) or otherwise engages
in that Competitive Business on the date hereof.
This
letter agreement is the complete agreement between Towne and the
undersigned concerning the subject matter hereof and shall be
governed by and construed and enforced in accordance with the laws
of the State of North Carolina, without regard to its conflicts of
laws provisions.
This
letter agreement is executed as of the 26
th
day of April
2017.
Very
truly yours
___________________________________
[Insert
Name]
Appendix B
Opinion of Raymond James & Associates
April
26, 2017
Board
of Directors
Paragon
Commercial Corporation
3535
Glenwood Avenue
Raleigh,
NC 27612
Members
of the Board of Directors:
We
understand that TowneBank (“Towne”), Paragon Commercial
Corporation (the “Company”) and Paragon Commercial
Bank, a wholly owned subsidiary of the Company (the “Bank
Subsidiary”), propose to enter into the Agreement (defined
below) pursuant to which, among other things, the Company and the
Bank Subsidiary shall be merged with and into TB Acquisition, LLC,
a specially formed merger subsidiary of Towne (the
“Transaction”) and that, in connection with the
Transaction, (i) each outstanding share of common stock, par value
$0.008 per share, of the Company (the “Common Shares”)
will be converted into the right to receive 1.7250 shares (the
“Exchange Ratio”) of Towne common stock, and (ii) each
outstanding share of common stock of the Bank Subsidiary will be
cancelled. The Board of Directors of the Company has requested that
Raymond James & Associates, Inc. (“Raymond James”)
provide an opinion (the “Opinion”) to the Board as to
whether, as of the date hereof, the Exchange Ratio to be received
by the holders of the Common Shares in the Transaction pursuant to
the Agreement is fair from a financial point of view to such
holders.
In
connection with our review of the proposed Transaction and the
preparation of this Opinion, we have, among other
things:
1.
reviewed the
financial terms and conditions as stated in the draft of the
Agreement and Plan of Reorganization by and among TowneBank, TB
Acquisition, LLC, Paragon Commercial Corporation and Paragon
Commercial Bank dated as of April 26, 2017 (the
“Agreement”);
2.
reviewed certain
information related to the historical, current and future
operations, financial condition and prospects of the Company and
the Bank Subsidiary made available to us by the Company, including,
but not limited to, financial projections prepared by the
management of the Company and the Bank Subsidiary relating to the
Company for the period ending December 31, 2022, as approved for
our use by the Company (the
“Projections”);
3.
reviewed the
Company’s, the Bank Subsidiary’s and Towne’s
recent public filings and certain other publicly available
information regarding the Company, the Bank Subsidiary and
Towne;
Boards
of Directors
Paragon
Commercial Corporation
April
26, 2017
Page
2
4.
reviewed financial,
operating and other information regarding the Company, the Bank
Subsidiary and Towne and the industry in which they
operate;
5.
reviewed the
financial and operating performance of the Company, the Bank
Subsidiary and those of other selected public companies that we
deemed to be relevant;
6.
considered the
publicly available financial terms of certain transactions we
deemed to be relevant;
7.
reviewed the
current and historical market prices and trading volume for the
Common Shares, and the current market prices of the publicly traded
securities of certain other companies that we deemed to be
relevant;
8.
conducted such
other financial studies, analyses and inquiries and considered such
other information and factors as we deemed appropriate;
and
9.
discussed with
members of the senior management of the Company and the Bank
Subsidiary certain information relating to the aforementioned and
any other matters which we have deemed relevant to our
inquiry.
With
your consent, we have assumed and relied upon the accuracy and
completeness of all information supplied by or on behalf of the
Company or the Bank Subsidiary or otherwise reviewed by or
discussed with us, and we have undertaken no duty or responsibility
to, nor did we, independently verify any of such information. We
have not made or obtained an independent appraisal of the assets or
liabilities (contingent or otherwise) of the Company or the Bank
Subsidiary. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances
for loan losses; accordingly, we have assumed that such allowances
for losses are in the aggregate adequate to cover such losses. With
respect to the Projections and any other information and data
provided to or otherwise reviewed by or discussed with us, we have,
with your consent, assumed that the Projections and such other
information and data have been reasonably prepared in good faith on
bases reflecting the best currently available estimates and
judgments of management of the Company and the Bank Subsidiary, and
we have relied upon the Company and the Bank Subsidiary to advise
us promptly if any information previously provided became
inaccurate or was required to be updated during the period of our
review. We express no opinion with respect to the Projections or
the assumptions on which they are based. We have assumed that the
final form of the Agreement will be substantially similar to the
draft reviewed by us, and that the Transaction will be consummated
in accordance with the terms of the Agreement without waiver or
amendment of any conditions thereto. Furthermore, we have assumed,
in all respects material to our analysis, that the representations
and warranties of each party contained in the Agreement are true
and correct and that each such party will perform all of the
covenants and agreements required to be performed by it under the
Agreement without being waived. We have relied upon and assumed,
without independent verification, that (i) the Transaction will be
consummated in a manner that complies in all respects with all
applicable international, federal and state statutes, rules and
regulations, and (ii) all governmental, regulatory, and other
consents and approvals necessary for the consummation of the
Transaction will be obtained and that no delay, limitations,
restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have an effect on the
Transaction, the Company or the Bank Subsidiary that would be
material to our analyses or this Opinion.
Boards
of Directors
Paragon
Commercial Corporation
April
26, 2017
Page
3
We have
relied upon, without independent verification, the assessment of
the Company’s and the Bank Subsidiary’s management and
its legal, tax, accounting and regulatory advisors with respect to
all legal, tax, accounting and regulatory matters, including
without limitation that the Transaction will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
Our
opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us as of
April 25, 2017 and any material change in such circumstances and
conditions would require a reevaluation of this Opinion, which we
are under no obligation to undertake. We have relied upon and
assumed, without independent verification, that there has been no
change in the business, assets, liabilities, financial condition,
results of operations, cash flows or prospects of the Company or
the Bank Subsidiary since the respective dates of the most recent
financial statements and other information, financial or otherwise,
provided to us that would be material to our analyses or this
Opinion, and that there is no information or any facts that would
make any of the information reviewed by us incomplete or misleading
in any material respect.
We
express no opinion as to the underlying business decision to effect
the Transaction, the structure or tax consequences of the
Transaction or the availability or advisability of any alternatives
to the Transaction. We provided advice to the Board with respect to
the proposed Transaction. We did not, however, recommend any
specific amount of consideration or that any specific consideration
constituted the only appropriate consideration for the Transaction.
This letter does not express any opinion as to the likely trading
range of Towne common stock following the Transaction, which may
vary depending on numerous factors that generally impact the price
of securities or on the financial condition of Towne at that time.
Our opinion is limited to the fairness, from a financial point of
view, of the Exchange Ratio to be received by the holders of the
Common Shares.
We
express no opinion with respect to any other reasons, legal,
business, or otherwise, that may support the decision of the Board
to approve or consummate the Transaction. Furthermore, no opinion,
counsel or interpretation is intended by Raymond James on matters
that require legal, accounting or tax advice. It is assumed that
such opinions, counsel or interpretations have been or will be
obtained from the appropriate professional sources. Furthermore, we
have relied, with the consent of the Board, on the fact that the
Company has been assisted by legal, accounting, tax and regulatory
advisors and we have, with the consent of the Board, relied upon
and assumed the accuracy and completeness of the assessments by the
Company, the Bank Subsidiary and their advisors as to all legal,
accounting, tax and regulatory matters with respect to the Company
and the Transaction.
Boards
of Directors
Paragon
Commercial Corporation
April
26, 2017
Page
4
In
formulating our opinion, we have considered only what we understand
to be the consideration to be received by the holders of Common
Shares
as is described
above and we did not consider and we express no opinion on the
fairness of the amount or nature of any compensation to be paid or
payable to any of the Company’s or the Bank
Subsidiary’s officers, directors or employees, or class of
such persons, whether relative to the compensation received by the
holders of the Common Shares or otherwise. We have not been
requested to opine as to, and this Opinion does not express an
opinion as to or otherwise address, among other things: (1) the
fairness of the Transaction to the holders of any class of
securities, creditors, or other constituencies of the Company or
the Bank Subsidiary, or to any other party, except and only to the
extent expressly set forth in the last sentence of this Opinion or
(2) the fairness of the Transaction to any one class or group of
the Company’s, the Bank Subsidiary’s or any other
party’s security holders or other constituencies
vis-à-vis any other class or group of the Company’s, the
Bank Subsidiary’s or such other party’s security
holders or other constituents (including, without limitation, the
allocation of any consideration to be received in the Transaction
amongst or within such classes or groups of security holders or
other constituents). We are not expressing any opinion as to the
impact of the Transaction on the solvency or viability of the
Company, the Bank Subsidiary or Towne or the ability of the
Company, the Bank Subsidiary or Towne to pay their respective
obligations when they come due.
The
delivery of this opinion was approved by an opinion committee of
Raymond James.
Raymond
James has been engaged to render financial advisory services to the
Company and the Bank Subsidiary in connection with the proposed
Transaction and will receive a fee for such services, a substantial
portion of which is contingent upon consummation of the
Transaction. Raymond James will also receive a fee upon the
delivery of this Opinion, which is not contingent upon the
successful completion of the Transaction or on the conclusion
reached herein. In addition, the Company has agreed to reimburse
certain of our expenses and to indemnify us against certain
liabilities arising out of our engagement.
In the
ordinary course of our business, Raymond James may trade in the
securities of the Company and the Towne for our own account or for
the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities. Furthermore,
Raymond James may provide investment banking, financial advisory
and other financial services to the Company, the Bank Subsidiary
and/or Towne or other participants in the Transaction in the
future, for which Raymond James may receive
compensation.
It is
understood that this letter is for the information of the Board of
Directors of the Company (solely in each director’s capacity
as such) in evaluating the proposed Transaction and does not
constitute a recommendation to any shareholder of the Company
regarding how said shareholder should vote on the proposed
Transaction. Furthermore, this letter should not be construed as
creating any fiduciary duty on the part of Raymond James to any
such party. This Opinion may not be reproduced or used for any
other purpose without our prior written consent, except that this
Opinion may be disclosed in and filed with a proxy statement used
in connection with the Transaction
that is required to be filed with
the Securities and Exchange Commission, provided that this Opinion
is quoted in full in such proxy statement.
Based
upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio to be received by the holders
of the Common Shares in the Transaction pursuant to the Agreement
is fair, from a financial point of view, to such
holders.
Very
truly yours,
/s/
Raymond James & Associates, Inc.
RAYMOND
JAMES & ASSOCIATES, INC.
PARAGON COMMERCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS – JANUARY 10, 2018 AT 3:00 PM
LOCAL TIME
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CONTROL ID:
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REQUEST ID:
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The undersigned hereby appoints Curtis C. Brewer III, K. Wesley M.
Jones, and Thomas B. Oxholm (the “Proxies”), or any of
them, as attorneys and proxies, with full power of substitution, to
vote all outstanding shares of the common stock of Paragon
Commercial Corporation (the “Company”) held of record
by the undersigned on November 17
, 2017, at the special meeting of stockholders of
the Company to be held at Paragon Bank, 3535 Glenwood Avenue,
Raleigh, North Carolina 27612, at 3:00 p.m., on January 10, 2018,
and at any adjournments thereof:
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(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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VOTING
INSTRUCTIONS
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If you vote by phone, fax or internet, please DO NOT mail your
proxy card.
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MAIL:
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Please mark, sign, date, and return this Proxy Card promptly using
the enclosed envelope.
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FAX:
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Complete the reverse portion of this Proxy Card and Fax to
202-521-3464.
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INTERNET:
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https://www.iproxydirect.com/PBNC
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PHONE:
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1-866-752-VOTE(8683)
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SPECIAL MEETING OF THE STOCKHOLDERS OFPARAGON COMMERCIAL
CORPORATION
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PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE:
☒
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PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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Proposal 1
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The
Board of Directors recommends a vote FOR Proposal 1.
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FOR
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AGAINST
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ABSTAIN
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To approve the Agreement and Plan of Reorganization, dated as of
April 26, 2017, by and among TowneBank, TB Acquisition, LLC
(“Merger Sub”), Paragon Commercial Corporation
(“Paragon”) and Paragon Commercial Bank (“Paragon
Bank”), including the related Plan of Merger, pursuant to
which Paragon will merge with and into Merger Sub and, immediately
thereafter, Paragon Bank will merge with and into TowneBank (the
“merger proposal”).
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☐
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☐
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☐
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CONTROL ID:
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REQUEST ID:
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Proposal 2
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The
Board of Directors recommends a vote FOR Proposal 2.
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FOR
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AGAINST
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ABSTAIN
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To adjourn the meeting, if necessary or appropriate, to permit
further solicitation of proxies in the event there are not
sufficient votes at the time of the meeting to approve the merger
proposal.
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☐
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☐
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☐
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MARK “X” HERE IF YOU PLAN
TO ATTEND THE MEETING:
☐
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THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED
BY THE PROXIES IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ABOVE.
IN THE ABSENCE OF INSTRUCTIONS, THE PROXIES WILL VOTE SUCH SHARES
“FOR” PROPOSAL 1 AND “FOR” PROPOSAL 2. THIS
APPOINTMENT OF PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS
EXERCISED BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT
REVOKING IT OR A DULY EXECUTED APPOINTMENT OF PROXY BEARING A LATER
DATE, OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN
PERSON.
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MARK HERE FOR ADDRESS CHANGE
☐
New Address (if applicable):
____________________________________________________________________________________
IMPORTANT:
Please sign exactly
as your name or names appear on this Proxy. When shares are held
jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give your full
title as such. If the signer is a corporation, please sign the full
corporate name by duly authorized officer, giving your full title
as such. If the signer is a partnership, please sign in the
partnership name by authorized person.
Dated: ________________________, 201_
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(Print Name of Stockholder and/or Joint Tenant)
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(Signature of Stockholder)
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(Second Signature if held jointly)
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Paragon Commercial Corp. (NASDAQ:PBNC)
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