Exhibit 10.A

 

AGREEMENT AND PLAN

 

OF REORGANIZATION AND MERGER

 

BY AND AMONG

 

BNC BANCORP,

 

BANK OF NORTH CAROLINA

 

AND

 

STERLINGSOUTH BANK & TRUST COMPANY

 

February 6, 2006

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TABLE OF CONTENTS

 

          PAGE

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ARTICLE I – THE MERGER    2

1.01.

   Names of Merging Corporations    2

1.02.

   Nature of Transaction; Plan of Merger    2

1.03.

   Effect of Merger; Surviving Corporation    2

1.04.

   Assets and Liabilities of SSB    2

1.05.

   Conversion and Exchange of Stock    2

1.06.

   Articles of Incorporation, Bylaws and Management    5

1.07.

   Closing; Effective Time    5

1.08

   Outstanding BNC Stock    6 ARTICLE II – REPRESENTATIONS AND WARRANTIES OF SSB
   6

2.01.

   Organization; Standing; Power    6

2.02

   Capital Stock    6

2.03.

   Principal Shareholders    7

2.04.

   Subsidiaries    7

2.05.

   Convertible Securities, Options, Etc.    7

2.06.

   Authorization and Validity of Agreement    7

2.07.

   Validity of Transactions; Absence of Required Consents or Waivers    8

2.08.

   Books and Records of SSB    8

2.09.

   Reports of SSB    8

2.10.

   SSB Financial Statements    9

2.11.

   Tax Returns and Other Tax Matters    9

2.12.

   Absence of Material Adverse Changes or Certain Other Events    10

2.13.

   Absence of Undisclosed Liabilities    10

2.14.

   Compliance with Existing Obligations    10

2.15.

   Litigation and Compliance with Law    10

2.16.

   Real Properties    11

2.17.

   Loans, Accounts, Notes and Other Receivables    12

2.18.

   Securities Portfolio and Investments    13

2.19.

   Personal Property and Other Assets    13

2.20.

   Patents and Trademarks    13

2.21.

   Environmental Matters    14

2.22.

   Absence of Brokerage or Finder’s Commissions    15

2.23.

   Material Contracts    15

2.24.

   Employment Matters; Employee Relations    16

2.25.

   Employment Agreements; Employee Benefit Plans    17

2.26.

   Insurance    19

2.27.

   Insurance of Deposits    19

2.28.

   Obstacles to Regulatory Approval    19

2.29.

   Disclosure    20 ARTICLE III – REPRESENTATIONS AND WARRANTIES OF BNC AND THE
BANK    20

3.01.

   Organization; Standing; Power    20

3.02.

   Capital Stock    20

3.03.

   Principal Shareholders    21

3.04.

   Subsidiaries    21

3.05.

   Convertible Securities, Options, Etc.    21

3.06.

   Authorization and Validity of Agreement    21

3.07.

   Validity of Transactions; Absence of Required Consents or Waivers    22

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3.08.

   Books and Records of BNC and the Bank    22

3.09.

   Reports of BNC and the Bank    23

3.10.

   BNC Financial Statements    23

3.11.

   Tax Returns and Other Tax Matters    23

3.12.

   Absence of Material Adverse Changes or Certain Other Events    24

3.13.

   Absence of Undisclosed Liabilities    24

3.14.

   Compliance with Existing Obligations    24

3.15.

   Litigation and Compliance with Law    25

3.16.

   Real Properties    26

3.17.

   Loans, Accounts, Notes and Other Receivables    26

3.18.

   Securities Portfolio and Investments    27

3.19.

   Personal Property and Other Assets    28

3.20.

   Patents and Trademarks    28

3.21.

   Environmental Matters    28

3.22.

   Absence of Brokerage or Finder’s Commissions    30

3.23.

   Material Contracts    30

3.24.

   Employment Matters; Employee Relations    31

3.25.

   Employment Agreements; Employee Benefit Plans    32

3.26.

   Insurance    34

3.27.

   Insurance of Deposits    34

3.28.

   Obstacles to Regulatory Approval    34

3.29.

   Disclosure    35

ARTICLE IV – COVENANTS OF SSB

   35

4.01.

   Affirmative Covenants of SSB    35

4.02.

   Negative Covenants of SSB    38

ARTICLE V – COVENANTS OF BNC

   42

5.01.

   Affirmative Covenants of BNC    42

5.02.

   Negative Covenants of BNC    45

ARTICLE VI – ADDITIONAL AGREEMENTS

   46

6.01.

   Preparation and Distribution of Proxy Statement/Prospectus    46

6.02.

   Regulatory Approvals    47

6.03.

   Information for Proxy Statement/Prospectus and Applications for Regulatory
Approvals    47

6.04.

   Expenses    47

6.05.

   Announcements    48

6.06.

   Real Property Matters    48

6.07.

   Treatment of SSB Options and Warrants    49

6.08.

   Treatment of 401(k)/Thrift Plan    50

6.09.

   Directors’ and Officers’ Liability Insurance    50

6.10

   Tax Opinion    50

ARTICLE VII – CONDITIONS PRECEDENT TO MERGER

   51

7.01.

   Conditions to all Parties’ Obligations    51

7.02.

   Additional Conditions to BNC’s Obligations    52

7.03.

   Additional Conditions to SSB’s Obligations    53

ARTICLE VIII – TERMINATION; BREACH; REMEDIES

   55

8.01.

   Mutual Termination    55

8.02.

   Unilateral Termination    55

8.03.

   Breach; Remedies    57

ARTICLE IX – INDEMNIFICATION

   59

9.01.

   Indemnification Following Termination of Agreement    59

9.02.

   Procedure for Claiming Indemnification    60

ARTICLE X – MISCELLANEOUS PROVISIONS

   61

10.01.

   Survival of Representations, Warranties, Indemnification and Other Agreements
   61

 

ii

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10.02.

   Waiver    61

10.03.

   Amendment    62

10.04.

   Notices    62

10.05.

   Further Assurance    62

10.06.

   Headings and Captions    62

10.07.

   Gender and Number    63

10.08.

   Entire Agreement    63

10.09.

   Severability of Provisions    63

10.10.

   Assignment    63

10.11.

   Counterparts    63

10.12.

   Governing Law    63

10.13.

   Previously Disclosed Information    63

10.14.

   Knowledge    63

10.15.

   Inspection    64

 

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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER

BY AND AMONG

 

BNC BANCORP,

BANK OF NORTH CAROLINA

AND

STERLINGSOUTH BANK & TRUST COMPANY

 

THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (the “Agreement”) is
entered into as of the 6th day of February, 2006, by and among BNC BANCORP
(“BNC”), BANK OF NORTH CAROLINA (the “Bank”), and STERLING SOUTH BANK & TRUST
COMPANY (“SSB”).

 

WHEREAS, BNC is a North Carolina business corporation with its principal office
and place of business located in Thomasville, North Carolina, and a bank holding
company registered with the Board of Governors of the Federal Reserve System and
the owner of all of the issued and outstanding shares of common stock of the
Bank; and

 

WHEREAS, the Bank is a North Carolina banking corporation with its principal
office and place of business located in Thomasville, North Carolina; and,

 

WHEREAS, SSB is a North Carolina banking corporation with its principal office
and place of business located in Greensboro, North Carolina; and,

 

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

 

WHEREAS, to effectuate the foregoing, BNC and SSB desire to adopt this Agreement
as a plan of reorganization in accordance with the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the “Code”); and,

 

WHEREAS, BNC’s and the Bank’s respective Boards of Directors have each adopted
this Agreement and BNC’s Board of Directors, as the sole shareholder of the
Bank, desires to approve this Agreement by authorizing the execution hereof, and
BNC’s Board of Directors will recommend to BNC’s shareholders that they approve
this Agreement and the transactions described herein; and,

 

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

 

NOW, THEREFORE, in consideration of the premises, the mutual benefits to be
derived from this Agreement, and the representations, warranties, conditions,
covenants and

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promises herein contained, and subject to the terms and conditions hereof, BNC
and SSB hereby adopt and make this Agreement and mutually agree as follows:

 

ARTICLE I

THE MERGER

 

1.01. Names of Merging Corporations. The names of the corporations proposed to
be merged are Bank of North Carolina and SterlingSouth Bank & Trust Company.

 

1.02. Nature of Transaction; Plan of Merger. Subject to the provisions of this
Agreement, at the “Effective Time” (as defined in Paragraph 1.07 below), SSB
will be merged with and into the Bank (the “Merger”) as provided in the plan of
merger (the “Plan of Merger”) attached as Exhibit A to this Agreement.

 

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

 

1.04. Assets and Liabilities of SSB. At the Effective Time, and by reason of the
Merger, and in accordance with applicable law, all of the property, assets and
rights of every kind and character of SSB (including without limitation all
real, personal or mixed property, all debts due on whatever account, all other
choses in action and every other interest of or belonging to or due to SSB,
whether tangible or intangible) shall be transferred to and vest in the Bank,
and the Bank shall succeed to all the rights, privileges, immunities, powers,
purposes and franchises of a public or private nature of SSB (including all
trust and other fiduciary properties, powers and rights), all without any
transfer, conveyance, assignment or further act or deed; and, BNC shall become
responsible for all of the liabilities, duties and obligations of every kind,
nature and description of SSB (including duties as trustee or fiduciary) as of
the Effective Time.

 

1.05. Conversion and Exchange of Stock.

 

(a) Merger Consideration. Except as otherwise provided in this Agreement, at the
Effective Time all rights of SSB’s shareholders with respect to all outstanding
shares of SSB’s $5.00 par value common stock (the “SSB Common Stock”) shall
cease to exist and, as consideration for and to effect the Merger, each such
outstanding share shall be converted, without any action by BNC, SSB or any SSB
shareholder, into the right to receive 1.21056 shares (the “Exchange Ratio”) of
no par value common stock issued by BNC (“BNC Common Stock”), all in the manner
and subject to the limitations described in this Agreement. The foregoing
consideration, collectively and in the aggregate, shall be referred to herein as
“Merger Consideration.”

 

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(b) Adjustment to Merger Consideration. Under certain circumstances described
below, the Merger Consideration may be adjusted in the following manner:

 

(i) if the Average BNC Common Stock Price is between $21.28 and $23.18, the
Exchange Ratio shall be adjusted to equal the result obtained by dividing $25.76
by the Average BNC Stock Price;

 

(ii) if the Average BNC Common Stock Price is greater than $23.18, the Exchange
Ratio shall be adjusted to equal 1.1113;

 

(iii) if the Average BNC Common Stock Price is between $14.82 and $16.72, each
outstanding share of SSB Common Stock will be entitled to receive Cash
Consideration per share equal to $20.24 less the product of Average BNC Common
Stock Price multiplied by 1.21056, in addition to the Merger Consideration; and

 

(iv) if the Average BNC Common Stock Price is less than $14.82, each outstanding
share of SSB Common Stock will be entitled to receive Cash Consideration per
share equal to $2.30 per share of SSB Common Stock, in addition to the Merger
Consideration.

 

As used in this paragraph 1.05(b), Cash Consideration shall mean that amount of
cash paid by BNC to SSB shareholders, in addition to the Merger Consideration
based on changes in the Average BNC Common Stock Price.

 

As used in this paragraph 1.05(b), Average BNC Common Stock Price shall mean the
average closing price for BNC Common Stock, as reported on the NASDAQ Small Cap
Market for the 20 trading days ending on the fifth business day prior to
closing. BNC agrees to stay in a blackout period for the 20 day pricing period
plus an additional 20 trading days prior to the beginning of the pricing period
(the “Additional Blackout”); provided, however, BNC shall be allowed to execute,
if possible, one block trade (as defined in Rule 10b-18 of the Securities Act of
1934, as amended) for each of five-day trading period of the Additional
Blackout.

 

(c) Fractional Shares. No fractional shares of BNC Common Stock shall be issued
or delivered in connection with the Merger. In lieu of any such fractional
share, subject to the terms and conditions of this paragraph 1.05, each holder
of shares of SSB Common Stock who would otherwise have been entitled to a
fraction of a share of BNC Common Stock shall be entitled to receive cash
(without interest) in an amount equal to such fraction multiplied by an amount
equal to the cash value of the Merger Consideration, adjusted, if necessary as
described above plus the Cash Consideration, if any.

 

(d) Exchange Procedures. After the Effective Time, BNC shall cause BNC’s
transfer agent (the “Exchange Agent”), subject to the reasonable satisfaction of
SSB, to mail to the shareholders of SSB Common Stock of record at the Effective
Time transmittal materials (which shall specify that delivery shall be effected,
and risk of loss and title to the certificates representing shares of SSB Common
Stock prior to such Effective Time shall pass, only upon proper delivery of such
delivery of such certificates to the Exchange Agent). After such Effective Time,
each holder of SSB Common Stock issued and outstanding at such

 

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Effective Time shall surrender the certificate or certificates representing such
shares to the Exchange Agent and shall promptly upon surrender thereof receive
in exchange therefor the number of shares of BNC’s Stock and any cash to which
such holder is entitled hereunder in respect of rights to receive Cash
Consideration or fractional shares. BNC shall not be obligated to deliver any of
such payments in stock or cash for Cash Consideration or fractional shares until
such holder surrenders the certificate(s) representing such holder’s SSB Common
Stock. The certificate(s) so surrendered shall be duly endorsed as the Exchange
Agent may require. Any other provision of this Agreement notwithstanding,
neither BNC nor the Exchange Agent shall be liable to any holder of SSB Common
Stock for any amounts paid or properly delivered in good faith to a public
official pursuant to any applicable abandoned property law.

 

To the extent permitted by applicable law, former shareholders of record of SSB
shall be entitled to vote after the Merger Consideration has been paid pursuant
to the provisions of this Paragraph 1.05 at any meeting of BNC shareholders the
number of whole shares into which their respective SSB Common Stock are
converted pursuant to the Merger, regardless of whether such holders have
exchanged their certificates representing such SSB Common Stock for certificates
representing BNC Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by BNC on BNC
Common Stock, the record date of which is at or after the Effective Time of the
Merger, the declaration shall include dividends or other distributions on all
shares of BNC Common Stock issuable pursuant to this Agreement, but beginning at
such Effective Time no dividend or other distribution payable to the holders of
record of BNC Common Stock as of any time subsequent to such Effective Time
shall be delivered to the holder of any certificate representing any of the SSB
Common Stock issued and outstanding at such Effective Time until such holder
surrenders such certificate for exchange as provided in this Paragraph 1.05.
However, upon surrender of such certificate(s), both the certificate(s)
representing the shares of BNC Common Stock to which such holder is entitled and
any such undelivered dividends (without any interest) shall be delivered and
paid with respect to each share represented by such certificates.

 

(e) Closing Payment. At the Effective Time or as soon thereafter as is
reasonably practicable, the holders of SSB Common Stock shall surrender the
certificates representing such shares to BNC and in exchange therefor, BNC shall
issue and deliver to each such holder certificates representing the number of
shares of BNC Common Stock to which each such holder is entitled hereunder and
cash payments with respect to any Cash Consideration and fractional shares. BNC
shall not be obligated to deliver any of such shares of BNC Common Stock or cash
payments until such holder surrenders the certificates representing each such
holder’s SSB Common Stock.

 

(f) Antidilutive Adjustments. If, prior to the Effective Time, SSB or BNC shall
declare any dividend payable in shares of SSB Common Stock or BNC Common Stock
or shall subdivide, split, reclassify or combine the presently outstanding
shares of SSB Common Stock or BNC Common Stock, then an appropriate and
proportionate adjustment shall be made in the number of shares of BNC Common
Stock to be issued in exchange for each of the shares of SSB Common Stock.

 

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(g) Dissenters. Any shareholder of SSB who properly exercises the right of
dissent and appraisal with respect to the Merger as provided in Section 55-13-02
of the North Carolina General Statutes (“Dissenter’s Rights”) shall be entitled
to receive payment of the fair value of his or her shares of SSB Common Stock in
the manner and pursuant to the procedures provided therein. Shares of SSB Common
Stock held by persons who exercise Dissenter’s Rights shall not be converted as
described in Paragraph 1.05(a). However, if any shareholder of SSB who exercises
Dissenter’s Rights shall fail to perfect those rights, or effectively shall
waive or lose such rights, then each of his or her shares of SSB Common Stock
shall be deemed to have been converted into the right to receive the Merger
Consideration or Merger Consideration and Cash Consideration to the extent that
Cash Consideration is paid to SSB shareholders.

 

(h) Lost Certificates. Shareholders of SSB whose SSB Certificates have been
lost, destroyed, stolen or otherwise are missing shall be entitled to receive
the cash and/or BNC Common Stock to which they are entitled in accordance with
and upon compliance with reasonable conditions imposed by BNC, including without
limitation a requirement that those shareholders provide lost instruments
indemnities or surety bonds in form, substance and amounts satisfactory to BNC.

 

(i) SSB Stock Options and Warrants. At the Effective Time of the Merger, each
unexercised option for SSB Common Stock (“Stock Option”), other than Stock
Options owned by employees of SSB who remain employed at BNC and/or the Bank and
SSB directors who are elected to the BNC Board of Directors, and all unexercised
warrants to purchase shares of SSB Common Stock (“Warrant”), shall be deemed
canceled, and as consideration therefor shall be converted into the right to
receive solely a cash payment amount equal to (A) the cash value of the Merger
Consideration, adjusted, if necessary, as determined in paragraph 1.05(b) plus
the Cash Consideration, if any, as determined in Paragraph 1.05(b) less the
exercise price per share of SSB Common Stock or Warrant covered by the Stock
Option or Warrant, multiplied by (B) the total number of shares of SSB Common
Stock covered by the Stock Option or Warrant. Treatment of Stock Options held by
employees continuing employment with BNC and/or the Bank and SSB directors who
are elected to the BNC Board of directors is described in Paragraph 6.07(a).

 

1.06. Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and the Bylaws of BNC in effect at the Effective Time will remain
in effect until otherwise amended in accordance with law and the BNC Bylaws. The
Articles of Incorporation and Bylaws of the Bank in effect at the Effective Time
shall be the Articles of Incorporation and Bylaws of the Bank as the surviving
corporation of the Merger. The directors and officers of BNC and the Bank in
office at the Effective Time shall continue to hold such offices until removed
as provided by law or until the election or appointment of their respective
successors.

 

1.07. Closing; Effective Time. The closing of the Merger and other transactions
contemplated by this Agreement (the “Closing”) shall take place at the offices
of BNC, in Thomasville, North Carolina, or at such other place as BNC and SSB
may agree, on a date mutually agreeable to BNC and SSB (the “Closing Date”)
after receipt of all required approvals of the Merger by governmental or
regulatory authorities and the expiration of any and all required waiting
periods following the effective date of such required approvals of the Merger

 

5

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(but in no event more than sixty (60) days following the expiration of all such
required waiting periods). At the Closing, BNC and SSB shall each take such
actions (including without limitation the delivery of certain closing documents
and the execution of Articles of Merger under North Carolina law) as are
required in this Agreement and as otherwise shall be required by law to
consummate the Merger and cause it to become effective.

 

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

 

1.08 Outstanding BNC Common Stock. The status of shares of BNC Common Stock
outstanding immediately prior to the Effective Time shall not be affected by the
Merger.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF SSB

 

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

 

2.01. Organization; Standing; Power. SSB (i) is duly organized and incorporated,
validly existing and in good standing as a banking corporation under the laws of
the State of North Carolina; (ii) has all requisite power and authority
(corporate and other) to own, lease and operate its properties and to carry on
its business as it now is being conducted; (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned, leased or operated by it therein, or in which the
transaction of its business, makes such qualification necessary, except where
failure so to qualify would not have a material adverse effect on SSB; and
(iv) is not transacting business or operating any properties owned or leased by
it in violation of any provision of federal, state or local law or any rule or
regulation promulgated thereunder, except where such violation would not have a
material adverse effect on SSB. SSB is an “insured depository institution” as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder. SSB is a member of the Federal Home Loan Bank (“FHLB”) of Atlanta.

 

2.02 Capital Stock.

 

SSB’s authorized capital stock consists of 5,000,000 shares of common stock,
$5.00 par value per share (“SSB Common Stock”), of which 1,273,276 shares are
issued and outstanding as of the date of this Agreement.

 

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As of the date of this Agreement, SSB has 184,164 shares of SSB Common Stock
reserved for issuance under employee and director stock option plans, pursuant
to which options covering 175,782 shares of SSB Common Stock are outstanding.

 

As of the date of this Agreement, SSB has 352,217 shares of SSB Common Stock
reserved for issuance pursuant to 352,217 outstanding warrants.

 

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

 

2.03. Principal Shareholders. Except as Previously Disclosed, no person or
entity is known to management of SSB to beneficially own, directly or
indirectly, more than 5% of the outstanding shares of SSB Common Stock.

 

2.04. Subsidiaries. Except as Previously Disclosed, SSB has no subsidiaries,
direct or indirect, and, except for equity securities included in its investment
portfolio at December 31, 2005, does not own any stock or other equity interest
in any other corporation, service corporation, joint venture, partnership or
other entity.

 

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

 

2.06. Authorization and Validity of Agreement. This Agreement has been duly and
validly approved by the Board of Directors of SSB. Subject only to approval of
the shareholders of SSB in the manner required by law and receipt of all
required approvals of governmental or regulatory authorities having jurisdiction
over BNC or SSB (collectively, the “Regulatory Authorities”) of the transactions
described herein, (i) SSB has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations and agreements and carry
out the transactions described in this Agreement, (ii) all corporate proceedings
and approvals required to authorize SSB to enter into this Agreement and to
perform its obligations and agreements and carry out the transactions described
herein have been duly and properly completed or obtained, and (iii) this
Agreement constitutes the valid and binding agreement of SSB enforceable in
accordance with its terms (except to the extent enforceability may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors’ rights generally,
(B) legal and equitable limitations on

 

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the availability of injunctive relief, specific performance and other equitable
remedies, (C) general principles of equity and applicable laws or court
decisions limiting the enforceability of indemnification provisions, and (D) the
rights of the United States under the Federal Tax Lien Act of 1966, as amended).

 

2.07. Validity of Transactions; Absence of Required Consents or Waivers. Except
where the same would not have a material adverse effect on SSB and subject to
the receipt of required approvals of Regulatory Authorities, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions described herein, nor compliance by SSB with any of the obligations
or agreements contained herein, nor any action or inaction by SSB required
herein, will: (i) conflict with or result in a breach of the terms and
conditions of, or constitute a default or violation under any provision of, the
Articles of Incorporation or Bylaws of SSB, or any material contract, agreement,
lease, mortgage, note, bond, indenture, license, or obligation or understanding
(oral or written) to which SSB is bound or by which it or its business, capital
stock or any of its properties or assets may be affected; (ii) result in the
creation or imposition of any material lien, claim, interest, charge,
restriction or encumbrance upon any of the properties or assets of SSB;
(iii) violate any applicable federal or state statute, law, rule or regulation,
or any judgment, order, writ, injunction or decree of any court, administrative
or regulatory agency or governmental body, which violation will or may have a
material adverse effect on SSB, its financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties or
operations, or on SSB’s ability to consummate the transactions described herein
or to carry on the business of SSB as presently conducted; (iv) result in the
acceleration of any material obligation or indebtedness of SSB; or
(v) materially interfere with or otherwise materially, adversely affect SSB’s
abilities to carry on its business as presently conducted.

 

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

 

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

 

2.09. Reports of SSB. Since December 31, 2002, SSB has filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the North Carolina
Commissioner of Banks (the “Commissioner”), (ii) the FDIC, or (iii) any other
Regulatory Authorities, except where the failure to file has not had and would
not have a material adverse effect on SSB. All such reports, registrations and
statements filed by SSB with the Commissioner, the FDIC, or any other

 

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Regulatory Authorities are collectively referred to in this Agreement as the
“SSB Reports.” To the Best Knowledge (as such term is defined in Paragraph 10.14
hereof) of the management of SSB, the SSB Reports complied in all material
respects with all the statutes, rules and regulations enforced or promulgated by
the Regulatory Authorities with which they were filed and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. SSB has not been
notified that any such SSB Reports were deficient in any material respect as to
form or content.

 

2.10. SSB Financial Statements. SSB has Previously Disclosed to BNC a copy of
its audited statements of financial condition as of December 31, 2004, 2003 and
2002 and its audited statements of income, stockholders’ equity and cash flows
for the years ended December 31, 2004, 2003 and 2002, together with notes
thereto (collectively, the “SSB Audited Financial Statements”), together with
copies of SSB’s, unaudited statements of financial condition as of September 30,
2005, and unaudited statements of income and cash flows for the three-months
ended September 30, 2005 (collectively, the “SSB Interim Financial Statements”).
Following the date of this Agreement, SSB promptly will deliver to BNC all other
annual or interim financial statements prepared by or for SSB. The SSB Audited
Financial Statements and the SSB Interim Financial Statements (i) were prepared
in accordance with accounting principles generally accepted in the United States
(“US GAAP”) applied on a consistent basis throughout the periods indicated,
(ii) are in accordance with SSB’s books and records and (iii) subject to normal
audited year end financial adjustments applicable to the SSB Interim Financial
Statements, present fairly in all material respects SSB’s financial condition,
assets and liabilities, results of operations, changes in stockholders’ equity
and changes in cash flows as of the dates indicated and for the periods
specified therein. The SSB Audited Financial Statements have been audited by
Dixon Hughes PLLC, which currently serves as SSB’s independent certified public
accountants.

 

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

 

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2.12. Absence of Material Adverse Changes or Certain Other Events.

 

(a) Since December 31, 2004, SSB has conducted its business only in the ordinary
course, and there has been no material adverse change, and there has occurred no
event or development, and, to the Best Knowledge (as defined in Paragraph 10.14
hereof) of the Management of SSB there currently exists no condition or
circumstance particular to SSB, which, with the lapse of time or otherwise, is
likely to cause, create or result in a material adverse change in or affecting
the financial condition of SSB or its results of operations, prospects,
business, assets, loan portfolio, investments, properties or operations.

 

(b) Since December 31, 2004, and other than in the ordinary course of its
business, SSB has not incurred any material liability, engaged in any material
transaction, entered into any material agreement, increased the salaries,
compensation or general benefits payable or provided to its employees, suffered
any material loss, destruction or damage to any of its properties or assets, or
made a material acquisition or disposition of any assets or entered into any
material contract or lease.

 

2.13. Absence of Undisclosed Liabilities. Except as Previously Disclosed, SSB
does not have any material liabilities or obligations, whether known or unknown,
matured or unmatured, accrued, absolute, contingent or otherwise, whether due or
to become due (including without limitation tax liabilities or unfunded
liabilities under employee benefit plans or arrangements), other than (i) those
reflected in the SSB Audited Financial Statements or SSB Interim Financial
Statements, (ii) increases in deposit accounts in the ordinary course of
business since September 30, 2005, or (iii) unclosed loan commitments permitted
under this Agreement since September 30, 2005, and which do not exceed $500,000
in the case of any individual loan.

 

2.14. Compliance with Existing Obligations. SSB has performed in all material
respects all obligations required to be performed under, and is not in default
in any material respect under, or in violation in any material respect of, the
terms and conditions of its Articles of Incorporation, Bylaws, material
contracts, agreements, leases, mortgages, notes, bonds, indentures, licenses,
obligations, understandings or other undertakings (whether oral or written) to
which it is bound or by which its business, operations, capital stock or any
property or assets may be affected.

 

2.15. Litigation and Compliance with Law.

 

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

 

(b) SSB has all licenses, permits, orders, authorizations or approvals
(“Permits”) of all federal, state, local or foreign governmental or regulatory
agencies that are material to or necessary for the conduct of its business or to
own, lease and operate its properties; all such Permits are in full force and
effect; no violations have occurred with respect to any such

 

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Permits, which violation would have a material adverse effect on SSB; no
proceeding is pending or, to the Best Knowledge of the management of SSB,
threatened or probable of assertion to suspend, cancel, revoke or limit any
Permit.

 

(c) SSB is not subject to any supervisory agreement, enforcement order, writ,
injunction, capital directive, supervisory directive, memorandum of
understanding or other similar agreement, order, directive, memorandum or
consent of, with or issued by any Regulatory Authority (including without
limitation the Commissioner or the FDIC) relating to financial condition,
directors or officers, employees, operations, capital, regulatory compliance or
any other matter; there are no judgments, orders, stipulations, injunctions,
decrees or awards against SSB which limit, restrict, regulate, enjoin or
prohibit in any material respect any present or past business or practice of
SSB; and, SSB has not been advised and has no reason to believe that any
Regulatory Authority or any court is contemplating, threatening or requesting
the issuance of any such agreement, order, writ, injunction, directive,
memorandum, judgment, stipulation, decree or award.

 

(d) SSB is not in violation or default in any material respect under, and has
complied in all material respects with, all laws, statutes, ordinances, rules,
regulations, orders, writs, injunctions or decrees of any court or federal,
state, municipal or other Regulatory Authority having jurisdiction or authority
over it or its business operations, properties or assets (including without
limitation all provisions of North Carolina law relating to usury, the Consumer
Credit Protection Act, and all other federal and state laws and regulations
applicable to extensions of credit by SSB). To the Best Knowledge of the
management of SSB, there is no basis for any material claim by any person or
authority for compensation, reimbursement, damages or other penalties or relief
for any violations described in this subparagraph (d).

 

2.16. Real Properties.

 

(a) SSB has Previously Disclosed to BNC a listing of all real property owned by
SSB (including SSB’s banking facilities and all other real estate or foreclosed
properties, including improvements thereon, owned by SSB) (collectively, the
“SSB Real Property”) and all leases pertaining to any real property leased to
SSB or leased by SSB to a third party (the “Real Property Leases”). With respect
to each parcel of the SSB Real Property, SSB has good and marketable fee simple
title to the SSB Real Property and owns the same free and clear of all
mortgages, liens, leases, encumbrances, title defects and exceptions to title
other than (i) the lien of current taxes not yet due and payable, and (ii) such
imperfections of title and restrictions, covenants and easements (including
utility easements) which do not materially affect the value of the SSB Real
Property or which do not and will not materially detract from, interfere with or
restrict the present use of the SSB Real Property or any future use consistent
therewith. With respect to each Real Property Lease (A) such lease is valid and
enforceable in accordance with its terms, (B) there currently exists no
circumstance or condition which constitutes an event of default by SSB (as
lessor or lessee) or its lessor or which, with the passage of time or the giving
of required notices will or could constitute such an event of default, and
(C) subject to any required consent of lessor, each such Real Property Lease may
be assigned to BNC and/or the Bank and the execution and delivery of this
Agreement does not constitute an event of default thereunder.

 

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(b) The SSB Real Property and Real Property Leases comply in all material
respects with all applicable federal, state and local laws, regulations,
ordinances or orders of any governmental or regulatory authority (excluding
Environmental Laws which are addressed by Paragraph 2.21 below), including those
relating to zoning, building and use permits, and the parcels of the SSB Real
Property and the Real Property Leases upon which SSB’s offices or other offices
are situated, or which are used by SSB in conjunction with its banking or other
offices or for other purposes, may, under applicable zoning ordinances, be used
for the purposes for which they currently are used as a matter of right rather
than as a conditional or nonconforming use.

 

(c) All improvements and fixtures included in or on the SSB Real Property are in
good condition and repair, ordinary wear and tear excepted, and there does not
exist any condition which in any material respect interferes with SSB’s use (or
will interfere with BNC’s use after the Merger) or affects the economic value
thereof.

 

2.17. Loans, Accounts, Notes and Other Receivables.

 

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

 

(b) All records of SSB regarding all outstanding loans, accounts, notes and
other receivables, and all other real estate owned, are accurate in all material
respects, and, each loan which SSB’s loan documentation indicates is secured by
any real or personal property or property rights (“Loan Collateral”) is secured
by valid, perfected and enforceable liens on all such Loan Collateral having the
priority described in SSB’s records of such loan.

 

(c) Each loan reflected as an asset on SSB’s books, and each guaranty therefor,
is the legal, valid and binding obligation of the obligor or guarantor thereon,
and no defense, offset or counterclaim has been asserted with respect to any
such loan or guaranty.

 

(d) SSB has Previously Disclosed to BNC (i) a written listing of each loan,
extension of credit or other asset of SSB which, as of September 30, 2005, was
classified by the Commissioner, the FDIC or by SSB as “Loss,” “Doubtful,”
“Substandard” or “Special Mention” (or otherwise by words of similar import), or
which SSB otherwise has designated as a special asset or for special handling or
placed on any “watch list” because of concerns regarding the ultimate
collectibility or deteriorating condition of such asset or any obligor or Loan
Collateral therefor, and (ii) a written listing of each loan or extension of
credit of SSB which, as of September 30, 2005, was past due more than 30 days as
to the payment of principal or interest, or as to which any obligor thereon
(including the borrower or any guarantor) otherwise was in default, was the
subject of a proceeding in bankruptcy or has indicated any inability or
intention not to repay such loan or extension of credit.

 

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(e) To the Best Knowledge of the management of SSB, each of the loans and other
extensions of credit of SSB (with the exception of those loans and extensions of
credit specified in the written listings described in Paragraph 2.17(d) above)
is collectible in the ordinary course of business in an amount which is not less
than the amount at which it is carried on its books and records.

 

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

 

2.18. Securities Portfolio and Investments. SSB has Previously Disclosed to BNC
a listing of all securities owned, of record or beneficially, by SSB as of
September 30, 2005. All securities owned, of record or beneficially, by SSB are
held free and clear of all mortgages, liens, pledges, encumbrances or any other
restriction or rights of any other person or entity, whether contractual or
statutory (other than customary pledges in the ordinary course of its business
to secure public funds deposits), which would materially impair the ability of
SSB to dispose freely of any such security or otherwise to realize the benefits
of ownership thereof at any time. There are no voting trusts or other agreements
or undertakings to which SSB is a party with respect to the voting of any such
securities. With respect to all “repurchase agreements” under which SSB has
“purchased” securities under agreement to resell, SSB has a valid, perfected
first lien or security interest in the government securities or other collateral
securing the repurchase agreement, and the value of the collateral securing each
such repurchase agreement equals or exceeds the amount of the debt owed to SSB
which is secured by such collateral.

 

Since September 30, 2005, there has been no material deterioration or adverse
change in the quality, or any material decrease in the value, of the securities
portfolio of SSB as a whole.

 

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

 

2.20. Patents and Trademarks. SSB owns, possesses or has the right to use any
and all patents, licenses, trademarks, trade names, copyrights, trade secrets
and proprietary and other confidential information necessary to conduct its
business as now conducted. SSB has not violated, and currently is not in
conflict with, any patent, license, trademark, trade name, copyright or
proprietary right of any other person or entity.

 

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2.21. Environmental Matters.

 

(a) As used in this Agreement, “Environmental Laws” shall mean, without
limitation:

 

(i) all federal, state and local statutes, regulations, ordinances, orders,
decrees, and similar provisions having the force or effect of law for the
protection of human health, natural resources, or the environment (including
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act; the Superfund Amendment and Reauthorization Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Hazardous Materials
Transportation Act; the Resource Conservation and Recovery Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Oil Pollution Act;
the Coastal Zone Management Act; Subtitle I of the Hazardous and Solid Waste
Amendments of 1984; any “Superfund” or “Superlien” law; the North Carolina Oil
Pollution and Hazardous Substances Control Act; the North Carolina Water and Air
Resources Act; and the North Carolina Occupational Safety and Health Act,
including any amendments thereto from time to time), and

 

(ii) all common law concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including without
limitation all standards of conduct and bases of obligations relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, reporting, testing, processing,
discharge, release, threatened release, control, or clean-up of any “Hazardous
Substances” (as defined below).

 

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

 

(b) SSB has Previously Disclosed to BNC copies of all written reports,
correspondence, notices or other information or materials, if any, in its
possession pertaining to environmental surveys or assessments of the SSB Real
Property, and any improvements thereon, or pertaining to any violation or
alleged violation of Environmental Laws on, affecting or otherwise involving the
SSB Real Property or involving SSB.

 

Each of the following representations and warranties are based upon the
Knowledge of SSB’s management after reasonable inquiry:

 

(c) There has been no presence, use, production, generation, handling,
transportation, treatment, storage, disposal, emission, discharge, release, or
threatened release of any Hazardous Substances by any person on, from or
relating to the SSB Real Property which

 

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constitutes a violation of any Environmental Laws, or would require any removal,
clean-up or remediation of any Hazardous Substances from, on or relating to the
SSB Real Property under any Environmental Laws.

 

(d) SSB is in compliance with all Environmental Laws, the noncompliance with
which will not have a material adverse effect on SSB.

 

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

 

(f) No facts, events or conditions relating to the SSB Real Property or the
operations of SSB at any of its office locations, will prevent, hinder or limit
continued substantial compliance with Environmental Laws, or give rise to any
investigatory, emergency removal, remedial or corrective actions, or obligations
pursuant to Environmental Laws.

 

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

 

2.22. Absence of Brokerage or Finder’s Commissions. Except for the engagement of
Smith Capital (“Smith Capital”) by SSB (i) no person or firm has been retained
by or has acted on behalf of, pursuant to any agreement, arrangement or
understanding with, or under the authority of, SSB or its Board of Directors, as
a broker, finder or agent or has performed similar functions or otherwise is or
may be entitled to receive or claim a brokerage fee or other commission in
connection with or as a result of the transactions described herein; and,
(ii) SSB has not agreed, or has any obligation, to pay any brokerage fee or
other commission to any person or entity in connection with or as a result of
the transactions described herein.

 

2.23. Material Contracts. Other than a benefit plan or employment agreement
Previously Disclosed to BNC pursuant to Paragraph 2.25, SSB is not a party to or
bound by any agreement (i) involving money or other property in an amount or
with a value in excess of

 

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$25,000, (ii) which is not to be performed in full within the six month period
following the date of this Agreement, (iii) which calls for the provision of
goods or services to SSB and cannot be terminated without material penalty upon
written notice to the other party thereto, (iv) which is material to SSB and was
not entered into in the ordinary course of business, (v) which involves hedging,
options or any similar trading activity, or interest rate exchanges or swaps,
(vi) which commits SSB to extend any loan or credit (with the exception of
letters of credit, lines of credit and loan commitments extended in the ordinary
course of SSB’s business), (vii) which involves the sale of any assets of SSB
which are used in and material to the operation of its business, (viii) which
involves any purchase of real property, or which involves the purchase of any
other assets in the amount of $25,000 in the case of any single transaction or
$100,000 in the case of all such transactions, (ix) which involves the purchase,
sale, issuance, redemption or transfer of any capital stock or other securities
of SSB, or (x) with any director, officer or principal shareholder of SSB
(including without limitation any consulting agreement, but not including any
agreements relating to loans or other banking services which were made in the
ordinary course of SSB’s business and on substantially the same terms and
conditions as were prevailing at that time for similar agreements with unrelated
persons).

 

SSB is not in default in any material respect, and there has not occurred any
event which with the lapse of time or giving of notice or both would constitute
such a default, under any contract, lease, insurance policy, commitment or
arrangement to which SSB is a party or by which either SSB or property of SSB is
or may be bound or affected or under which either SSB or property of SSB
receives benefits, where the consequences of such default would have a material
adverse effect on the financial condition, results of operations, prospects,
business, assets, loan portfolio, investments, properties or operations of SSB.

 

2.24. Employment Matters; Employee Relations.

 

(a) SSB has Previously Disclosed to BNC a listing of the names, years of
credited service and current base salary or wage rates of all of its employees
as of January 1, 2006. SSB (i) has paid in full to or accrued on behalf of all
its directors, officers and employees all wages, salaries, commissions, bonuses,
fees and other direct compensation for all labor or services performed by them
to the date of this Agreement, and all vacation pay, sick pay, severance pay,
overtime pay and other amounts for which it is obligated under applicable law or
SSB’s existing agreements, benefit plans, policies or practices, and (ii) is in
material compliance with all applicable federal, state and local laws, statutes,
rules and regulations with regard to employment and employment practices, terms
and conditions, and wages and hours and other compensation matters; and, no
person has asserted that SSB is liable in any amount for any arrearage in wages
or employment taxes or for any penalties for failure to comply with any of the
foregoing.

 

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

 

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(c) SSB is not a party to or bound by any collective bargaining agreement with
any of its employees, any labor union or any other collective bargaining unit or
organization. There is no pending or, to the Best Knowledge of the management of
SSB, threatened labor dispute, work stoppage or strike involving SSB and any of
its employees, or any pending or threatened proceeding in which it is asserted
that SSB has committed an unfair labor practice; and, to the Best Knowledge of
the management of SSB, there is no activity involving SSB or any of its
employees seeking to certify a collective bargaining unit or engaging in any
other labor organization activity.

 

2.25. Employment Agreements; Employee Benefit Plans.

 

(a) SSB has Previously Disclosed to BNC a true and complete list of all bonus,
deferred compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans; all employment and severance contracts; all medical, dental,
health, and life insurance plans; all vacation, sickness and other leave plans,
disability and death benefit plans; and all other employee benefit plans,
contracts, or arrangements maintained or contributed to by SSB for the benefit
of any employees, former employees, directors, former directors or any of their
beneficiaries (collectively, the “SSB Plans”). True and complete copies of all
SSB Plans, including, but not limited to, any trust instruments or insurance
contracts, if any, forming a part thereof or applicable to the administration of
any such SSB Plans or the assets thereof, and all amendments thereto, previously
have been supplied to BNC. Except as Previously Disclosed, SSB does not
maintain, sponsor, contribute to or otherwise participate in any “Employee
Benefit Plan” within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), any “Multiemployer Plan”
within the meaning of Section 3(37) of ERISA, or any “Multiple Employer Welfare
Arrangement” within the meaning of Section 3(40) of ERISA. Each SSB Plan which
is an “employee pension benefit plan” within the meaning of Section 3(2) of
ERISA and which is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the “Code”) has received or applied for a
favorable determination letter from the IRS to the effect that they are so
qualified, and SSB is not aware of any circumstances reasonably likely to result
in the revocation or denial of any such favorable determination letter. All
reports and returns with respect to the SSB Plans (and any SSB Plans previously
maintained by SSB) required to be filed with any governmental department,
agency, service or other authority, including without limitation Internal
Revenue Service Form 5500 (Annual Report), have been properly and timely filed.

 

(b) All “Employee Benefit Plans” maintained by or otherwise covering employees
or former employees of SSB, to the extent each is subject to ERISA, currently
are, and at all times have been, in substantial compliance with all material
provisions and requirements of ERISA, the noncompliance with which will not have
a material adverse effect on SSB. There is no pending or, to the Best Knowledge
of the management of SSB, threatened litigation relating to any SSB Plan or any
employee benefit plan, contract or arrangement previously maintained by SSB. SSB
has not engaged in a transaction with respect to any SSB Plan that could subject
SSB to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA.

 

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(c) SSB has delivered to BNC a true, correct and complete copy (including copies
of all amendments thereto) of each retirement plan maintained by it which is
intended to be a plan qualified under Section 401(a) of the Code (collectively,
the “SSB Retirement Plans”), together with true, correct and complete copies of
the summary plan descriptions relating to the SSB Retirement Plans, the most
recent determination letters received from the IRS regarding the SSB Retirement
Plans, and the most recent Annual Reports (Form 5500 series) and related
schedules, if any, for the SSB Retirement Plans. The SSB Retirement Plans are
qualified under the provisions of Section 401(a) of the Code, the trusts under
the SSB Retirement Plans are exempt trusts under Section 501(a) of the Code, and
determination letters have been issued or applied for with respect to the SSB
Retirement Plans to said effect, including determination letters covering the
current terms and provisions of the SSB Retirement Plans. There are no issues
relating to said qualification or exemption of the SSB Retirement Plans
currently pending before the IRS, the United States Department of Labor, the
Pension Benefit Guaranty Corporation or any court. The SSB Retirement Plans and
the administration thereof are (and have been since the establishment of the SSB
Retirement Plans) in compliance with all of the applicable requirements of
ERISA, the Code and all other laws, rules and regulations applicable to the SSB
Retirement Plans, the noncompliance with which will not have a material adverse
effect on SSB. Without limiting the generality of the foregoing, all reports and
returns with respect to the SSB Retirement Plans required to be filed with any
governmental department, agency, service or other authority have been properly
and timely filed. There are no issues or disputes with respect to the SSB
Retirement Plans or the administration thereof currently existing between SSB or
any trustee or other fiduciary thereunder, and any governmental agency, any
current or former employee of SSB or beneficiary of any such employee, or any
other person or entity. No “reportable event” within the meaning of Section 4043
of ERISA has occurred at any time with respect to the SSB Retirement Plans.

 

(d) No liability under subtitle C or D of Title IV of ERISA has been or, to the
Best Knowledge of the management of SSB, is expected to be incurred by SSB with
respect to the SSB Retirement Plans or with respect to any other ongoing, frozen
or terminated defined benefit pension plan currently or formerly maintained by
SSB. SSB does not presently contribute to a “Multiemployer Plan” and has not
contributed to such plan since December 31, 1995. All contributions required to
be made pursuant to the terms of each of the SSB Plans (including without
limitation the SSB Retirement Plans and any other “pension plan” (as defined in
Section 3(2) of ERISA, provided such plan is intended to qualify under the
provisions of Section 401(a) of the Code) maintained by SSB have been timely
made. Neither the SSB Retirement Plans nor any other “pension plan” maintained
by SSB have an “accumulated funding deficiency” (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA. SSB has not
provided, and is not required to provide, security to any “pension plan” or to
any “Single Employer Plan” pursuant to Section 401(a)(29) of the Code. Under the
SSB Retirement Plans and any other “pension plan” maintained by SSB as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all “benefit liabilities,” within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan’s most recent actuarial valuation)
did not exceed then current value of the assets of such plan, and there has been
no material change in the financial condition of any such plan since the last
day of the most recent plan year.

 

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

 

2.26. Insurance. SSB has Previously Disclosed to BNC a listing of each blanket
bond, liability insurance, life insurance or other insurance policy in effect on
September 30, 2005, and in which it was an insured party or beneficiary (each a
“SSB Policy” and collectively the “SSB Policies”). The SSB Policies provide
coverage in such amounts and against such liabilities, casualties, losses or
risks as is customary or reasonable for entities engaged in the businesses of
SSB or as is required by applicable law or regulation; and, in the reasonable
opinion of the management of SSB, the insurance coverage provided under the SSB
Policies is reasonable and adequate in all material respects for SSB. Each of
the SSB Policies is in full force and effect and is valid and enforceable in
accordance with its terms, and is underwritten by an insurer of recognized
financial responsibility and which is qualified to issue those policies in North
Carolina; and, SSB has complied in all material respects with requirements
(including the giving of required notices) under each such SSB Policy in order
to preserve all rights thereunder with respect to all material matters. SSB is
not in default under the provisions of, has not received notice of cancellation
or nonrenewal of or any premium increase on, and has not failed to pay any
premium on, any SSB Policy, and there has not been any inaccuracy in any
application for any SSB Policy. There are no pending claims with respect to any
SSB Policy, and, to the Best Knowledge of the management of SSB, there currently
are no conditions, and there has occurred no event, that is reasonably likely to
form the basis for any such claim.

 

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

 

2.28. Obstacles to Regulatory Approval. To the Best Knowledge of the management
of SSB, there exists no fact or condition (including SSB’s record of compliance
with the Community Reinvestment Act) relating to SSB that may reasonably be
expected to prevent or materially impede or delay BNC or SSB from obtaining the
regulatory approvals required in order to consummate the transactions described
in this Agreement; and, if any such fact or condition becomes known to SSB, SSB
shall promptly (and in any event within three days after obtaining such
knowledge) give notice of such fact or condition to BNC in the manner provided
herein.

 

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

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF BNC AND THE BANK

 

Except as otherwise specifically described in this Agreement or as “Previously
Disclosed” (as such term is defined in Paragraph 10.13 hereof) by BNC and the
Bank to SSB, BNC and the Bank hereby make the following representations and
warranties to SSB:

 

3.01. Organization; Standing; Power. BNC is duly organized and incorporated,
validly existing and in good standing as a corporation under the laws of the
State of North Carolina and the Bank is duly organized and incorporated, validly
existing and in good standing as a banking corporation under the laws of the
State of North Carolina. BNC and the Bank each (i) has all requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as it now is being conducted; (ii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned, leased or operated by it therein, or in which the
transaction of its business, makes such qualification necessary, except where
failure so to qualify would not have a material adverse effect on BNC and the
Bank considered as one enterprise; and (iii) is not transacting business or
operating any properties owned or leased by it in violation of any provision of
federal, state or local law or any rule or regulation promulgated thereunder,
except where such violation would not have a material adverse effect on BNC and
the Bank considered as one enterprise. The Bank is an “insured depository
institution” as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder. The Bank is a member of the FHLB of Atlanta.

 

3.02. Capital Stock.

 

(a) BNC’s authorized capital stock consists of 5,000,000 shares of preferred
stock, no par value (“BNC Preferred Stock”) and 16,000,000 shares of common
stock, no par value, one vote per share (the “BNC Common Stock”) of which no
more than 4,367,953 shares are issued and outstanding as of the date of this
Agreement.

 

Each outstanding share of BNC Common Stock: (i) has been duly authorized and is
validly issued and outstanding, and is fully paid and nonassessable; and
(ii) has not been issued in violation of the preemptive rights of any
shareholder. The BNC Common Stock has been registered with the Securities and
Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as
amended (the “1934 Act”), and BNC is subject to the registration and reporting
requirements of the 1934 Act.

 

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(b) the Bank’s authorized capital stock consists of 16,000,000 shares of common
stock, $2.50 par value, one vote per share (the “the Bank Common Stock”), of
which 3,231,698 shares are issued and outstanding to BNC as the sole shareholder
of the Bank as of the date of this Agreement.

 

Each outstanding share of the Bank Common Stock: (i) has been duly authorized
and is validly issued and outstanding, and is fully paid and nonassessable
(except to the extent provided in Section 53-42 of the North Carolina General
Statutes); and (ii) has not been issued in violation of the preemptive rights of
any shareholder.

 

3.03. Principal Shareholders. BNC owns 100% of the outstanding the Bank Common
Stock. There are no outstanding shares of BNC Preferred Stock. Except as
Previously Disclosed, no person or entity is known to management of BNC to
beneficially own, directly or indirectly, more than 5% of the outstanding shares
of BNC Common Stock.

 

3.04. Subsidiaries. The Bank has no subsidiaries, direct or indirect, and,
except for equity securities included in its investment portfolio at
September 30, 2005, does not own any stock or other equity interest in any other
corporation, service corporation, joint venture, partnership or other entity.
The Bank is the only banking subsidiary of BNC. BNC also is the sole shareholder
of BNC Capital Trust I and BNC Capital Trust II. These two subsidiaries were
formed to facilitate the issuance of trust preferred securities.

 

3.05. Convertible Securities, Options, Etc. Except as Previously Disclosed, BNC
does not have any outstanding (i) securities or other obligations (including
debentures or other debt instruments) which are convertible into shares of BNC
Common Stock or any other securities of BNC; (ii) options, warrants, rights,
calls or other commitments of any nature which entitle any person or entity to
receive or acquire any shares of BNC Common Stock or any other securities of
BNC; or (iii) plans, agreements or other arrangements pursuant to which shares
of BNC Common Stock or any other securities of BNC or options, warrants, rights,
calls or other commitments of any nature pertaining to any securities of BNC
have been or may be issued.

 

3.06. Authorization and Validity of Agreement. This Agreement has been duly and
validly adopted by the respective Boards of Directors of BNC and the Bank.
Subject only to approval of the shareholders of BNC in the manner required by
law and receipt of all required approvals of governmental or regulatory
authorities having statutory jurisdiction over SSB, BNC or the Bank
(collectively, the “Regulatory Authorities” or individually, a “Regulatory
Authority”) of the transactions described herein, (i) BNC and the Bank each has
the corporate power and authority to execute and deliver this Agreement and to
perform its obligations and agreements and carry out the transactions described
in this Agreement; (ii) all corporate proceedings and approvals required to
authorize BNC and the Bank to enter into this Agreement and to perform their
obligations and agreements and carry out the transactions described herein have
been duly and properly completed or obtained; and (iii) this Agreement
constitutes the valid and binding agreement of BNC and the Bank enforceable in
accordance with its terms, except to the extent enforceability may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors’ rights generally;
(B) legal and equitable limitations on the availability of injunctive relief,

 

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specific performance and other equitable remedies; (C) general principles of
equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions; and (D) the rights of the United States under the
Federal Tax Lien Act of 1966, as amended.

 

3.07. Validity of Transactions; Absence of Required Consents or Waivers. Except
where the same would not have a material adverse effect on BNC or the Bank,
considered as one enterprise, and subject to approval of this Agreement by the
shareholders of BNC in the manner required by law and receipt of required
approvals of Regulatory Authorities, neither the execution and delivery of this
Agreement, nor the consummation of the transactions described herein, nor
compliance by BNC or the Bank with any of the obligations or agreements
contained herein, nor any action or inaction by BNC or the Bank required herein,
will: (i) conflict with or result in a breach of the terms and conditions of, or
constitute a default or violation under any provision of, the Articles of
Incorporation or Bylaws of either BNC or the Bank, or any material contract,
agreement, lease, mortgage, note, bond, indenture, license, or obligation or
understanding (oral or written) to which BNC or the Bank is bound or by which
they or their business, capital stock or any of their properties or assets may
be affected; (ii) result in the creation or imposition of any material lien,
claim, interest, charge, restriction or encumbrance upon any of the properties
or assets of BNC or the Bank; (iii) violate any applicable federal or state
statute, law, rule or regulation, or any judgment, order, writ, injunction or
decree of any court, administrative or regulatory agency or governmental body,
which violation will or may have a material adverse effect on BNC or the Bank,
their financial condition, results of operations, prospects, businesses, assets,
loan portfolio, investments, properties or operations, or on BNC’s or the Bank’s
ability to consummate the transactions described herein or to carry on the
business of BNC or the Bank as presently conducted; (iv) result in the
acceleration of any material obligation or indebtedness of BNC or the Bank; or
(v) materially interfere with or otherwise materially adversely affect BNC’s or
the Bank’s respective abilities to carry on their respective businesses as
presently conducted.

 

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

 

3.08. Books and Records of BNC and the Bank. Except for meeting minutes of BNC’s
and the Bank’s Board of Directors, Executive Committee, Loan Committee and Audit
Committee for meetings held in January and February, BNC’s and the Bank’s books
of account and business records have been maintained in all material respects in
compliance with all applicable legal and accounting requirements, and such books
and records are complete and reflect accurately in all material respects BNC’s
and the Bank’s items of income and expense and all of their assets, liabilities
and stockholders’ equity. The minute books of BNC and the Bank are complete and
accurately reflect in all material respects all corporate actions which their
shareholders and boards of directors, and all committees thereof, have taken
during the time periods covered by such minute books, and, all such minute books
have been or will be made available to SSB and its representatives.

 

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3.09. Reports of BNC and the Bank. BNC and the Bank have filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the North Carolina
Commissioner of Banks (the “Commissioner”), (ii) the Federal Deposit Insurance
Corporation (the “FDIC”), (iii) the Securities and Exchange Commission (the
“SEC”), (iv) the Board of Governors of the Federal Reserve System (the “FRB”)
and (v) any other Regulatory Authorities, except where the failure to file has
not had and would not have a material adverse effect on BNC and the Bank, taken
as a whole. All such reports, registrations and statements filed by BNC and the
Bank with the Commissioner, the FDIC, the SEC or any other Regulatory
Authorities are collectively referred to in this Agreement as the “the Bank
Reports.” To the Best Knowledge (as such term is defined in Paragraph 10.14
hereof) of management of BNC and the Bank, the Bank Reports complied in all
material respects with all the statutes, rules and regulations enforced or
promulgated by the Regulatory Authorities with which they were filed and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. BNC and
the Bank have not been notified that any such the Bank Reports were deficient in
any material respect as to form or content.

 

3.10. BNC Financial Statements. BNC and the Bank have Previously Disclosed to
SSB a copy of BNC’s audited consolidated statements of financial condition as of
December 31, 2004 and 2003, and its audited statements of income, stockholders’
equity and cash flows for the years ended December 31, 2004 and 2003, together
with notes thereto (collectively, the “the BNC Audited Financial Statements”),
together with copies of BNC’s unaudited consolidated statements of financial
condition as of September 30, 2005, and unaudited statements of income and cash
flows for the nine-month periods ended September 30, 2005 and 2004
(collectively, the “BNC Interim Financial Statements”). Following the date of
this Agreement, BNC promptly will deliver to SSB all other annual or interim
financial statements prepared by or for BNC. The BNC Audited Financial
Statements and the BNC Interim Financial Statements (i) were prepared in
accordance with US GAAP applied on a consistent basis throughout the periods
indicated; (ii) are in accordance with BNC’s and the Bank’s books and records;
and (iii) present fairly in all material respects BNC’s consolidated financial
condition, assets and liabilities, results of operations, changes in
stockholders’ equity and changes in cash flows as of the dates indicated and for
the periods specified therein. The BNC Audited Financial Statements for fiscal
years ended 2003 and 2004 have been audited by Dixon Hughes PLLC. In September
of 2005, BNC engaged Cherry, Bekaert Holland LLP to serve as BNC’s independent
certified public accountants and Dixon Hughes PLLC currently serves as BNC and
the Bank’s internal auditors.

 

3.11. Tax Returns and Other Tax Matters. (i) BNC has timely filed or caused to
be filed all federal, state and local income tax returns and reports which are
required by law to have been filed, and all such returns and reports were true,
correct and complete and contained all material information required to be
contained therein; (ii) all federal, state and local income, profits, franchise,
sales, use, occupation, property, excise, withholding, employment and other
taxes (including interest and penalties), charges and assessments which have
become due from or been assessed or levied against BNC or its properties have
been fully paid or, if not yet due, a reserve or accrual, which is adequate in
all material respects for the payment of all such taxes to be paid and the
obligation for such unpaid taxes, is reflected on the BNC Interim Financial

 

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Statements; (iii) the income, profits, franchise, sales, use, occupation,
property, excise, withholding, employment and other tax returns and reports of
BNC has not been subjected to audit by the Internal Revenue Service (the “IRS”)
or the North Carolina Department Revenue, and BNC have not received any
indication of the pendency of any audit or examination in connection with any
such tax return or report and, to the Best Knowledge of management of BNC, no
such return or report is subject to adjustment; and (iv) BNC has not executed
any waiver or extended the statute of limitations (or been asked to execute a
waiver or extend a statute of limitations) with respect to any tax year, the
audit of any such tax return or report, or the assessment or collection of any
tax.

 

3.12. Absence of Material Adverse Changes or Certain Other Events.

 

(a) Since September 30, 2005, BNC and the Bank each has conducted its business
only in the ordinary course, and there has been no material adverse change, and
there has occurred no event or development, and, to the Best Knowledge of the
management of BNC and the Bank, there currently exists no condition or
circumstance particular to BNC and the Bank, which, with the lapse of time or
otherwise, is likely to cause, create or result in a material adverse change in
or affecting the financial condition of BNC and the Bank considered as one
enterprise or on their respective results of operations, prospects, business,
assets, loan portfolio, investments, properties or operations considered as one
enterprise.

 

(b) Other than in connection with this Agreement, since September 30, 2005, and
other than in the ordinary course of its business, neither BNC nor the Bank have
incurred any material liability, engaged in any material transaction, entered
into any material agreement, increased the salaries, compensation or general
benefits payable or provided to its employees, suffered any material loss,
destruction or damage to any of its properties or assets, or made a material
acquisition or disposition of any assets or entered into any material contract
or lease.

 

3.13. Absence of Undisclosed Liabilities. BNC and the Bank do not have any
material liabilities or obligations, whether known or unknown, matured or
unmatured, accrued, absolute, contingent or otherwise, whether due or to become
due (including without limitation tax liabilities or unfunded liabilities under
employee benefit plans or arrangements), other than (i) those reflected in the
BNCAudited Financial Statements or the BNC Interim Financial Statements,
(ii) increases in deposit accounts in the ordinary course of business since
September 30, 2005, or (iii) loan commitments in the ordinary course of business
since September 30, 2005.

 

3.14. Compliance with Existing Obligations. BNC and the Bank each has performed
in all material respects all obligations required to be performed under, and are
not in default in any material respect under, or in violation in any material
respect of, the terms and conditions of its respective Articles of
Incorporation, Bylaws, material contracts, agreements, leases, mortgages, notes,
bonds, indentures, licenses, obligations, understandings or other undertakings
(whether oral or written) to which each is bound or by which its business,
operations, capital stock or any property or assets may be affected.

 

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3.15. Litigation and Compliance with Law.

 

(a) There are no material actions, suits, arbitrations, controversies or other
proceedings or investigations (or, to the Best Knowledge of management of BNC
and the Bank, any facts or circumstances which reasonably could result in such),
including without limitation any such action by any Regulatory Authority, which
currently exist or are ongoing, pending or, to the Best Knowledge of management
of BNC and the Bank, are threatened, contemplated or probable of assertion,
against, relating to or otherwise affecting BNC or the Bank or any of their
properties, assets or employees.

 

(b) BNC and the Bank have all licenses, permits, orders, authorizations or
approvals (“Permits”) of all federal, state, local or foreign governmental or
regulatory agencies that are material to or necessary for the conduct of their
business or to own, lease and operate their properties; all such Permits are in
full force and effect; no violations have occurred with respect to any such
Permits, which violation would have a material adverse effect on BNC and the
Bank, taken as a whole; and no proceeding is pending or, to the Best Knowledge
of management of BNC and the Bank, threatened or probable of assertion to
suspend, cancel, revoke or limit any Permit.

 

(c) Neither BNC nor the Bank is subject to any supervisory agreement,
enforcement order, writ, injunction, capital directive, supervisory directive,
memorandum of understanding, cease and desist order, or other similar agreement,
order, directive, memorandum or consent of, with or issued by any Regulatory
Authority relating to financial condition, directors or officers, employees,
operations, capital, regulatory compliance or any other matter; there are no
judgments, orders, stipulations, injunctions, decrees or awards against BNC or
the Bank which limit, restrict, regulate, enjoin or prohibit in any material
respect any present or past business or practice of BNC or the Bank; and, BNC
and the Bank have not been advised and have no reason to believe that any
Regulatory Authority or any court is contemplating, threatening or requesting
the issuance of any such agreement, order, writ, injunction, directive,
memorandum, judgment, stipulation, decree or award.

 

(d) BNC and the Bank are not in violation or default in any material respect
under, and have complied in all material respects with, all laws, statutes,
ordinances, rules, regulations, orders, writs, injunctions or decrees of any
court or federal, state, municipal or other Regulatory Authority having
jurisdiction or authority over it or its business operations, properties or
assets (including without limitation all provisions of North Carolina law
relating to usury, the Consumer Credit Protection Act, and all other federal and
state laws and regulations applicable to extensions of credit by BNC or the
Bank). To the Best Knowledge of management of BNC and the Bank, there is no
basis for any material claim by any person or authority for compensation,
reimbursement, damages or other penalties or relief for any violations described
in this subparagraph (d).

 

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3.16. Real Properties.

 

(a) BNC and the Bank have made available to SSB documents with respect to all
real property owned by BNC or the Bank (including the Bank’s banking facilities
and all other real estate or foreclosed properties, including improvements
thereon, owned by BNC and/or the Bank) (collectively, the “the Bank Real
Property”) and all leases pertaining to any such Real Property to which BNC or
the Bank is a party (the “Real Property Leases”). With respect to each parcel of
the Bank Real Property, BNC and the Bank have good and marketable fee simple
title to the Bank Real Property and own the same free and clear of all
mortgages, liens, leases, encumbrances, title defects and exceptions to title
other than (i) the lien of current taxes not yet due and payable, and (ii) such
imperfections of title and restrictions, covenants and easements (including
utility easements) which do not materially affect the value of the Bank Real
Property or which do not and will not materially detract from, interfere with or
restrict the present use of the Bank Real Property or any future use consistent
therewith. With respect to each Real Property Lease (A) such lease is valid and
enforceable in accordance with its terms, and (B) there currently exists no
circumstance or condition which constitutes an event of default by BNC or the
Bank (as lessor or lessee) or its respective lessor or which, with the passage
of time or the giving of required notices will or could constitute such an event
of default.

 

(b) The Bank Real Property complies in all material respects with all applicable
federal, state and local laws, regulations, ordinances or orders of any
governmental agency or regulatory authority (excluding Environmental Laws which
are addressed by Paragraph 3.21 below), including those relating to zoning,
building and use permits, and the parcels of the Bank Real Property upon which
BNC’s offices or the Bank’s banking or other offices are situated, or which are
used by BNC or the Bank in conjunction with their banking or other offices or
for other purposes, may, under applicable zoning ordinances, be used for the
purposes for which they currently are used as a matter of right rather than as a
conditional or nonconforming use.

 

(c) All improvements and fixtures included in or on the Bank Real Property are
in good condition and repair, ordinary wear and tear excepted, and there does
not exist any condition which in any material respect interferes with BNC’s or
the Bank’s respective use or affects the economic value thereof.

 

3.17. Loans, Accounts, Notes and Other Receivables.

 

(a) BNC has no loans, accounts, notes and other receivables reflected as assets
on its books and records. All loans, accounts, notes and other receivables
reflected as assets on the Bank’s books and records (i) have resulted from bona
fide business transactions in the ordinary course of operations; (ii) in all
material respects were made in accordance with the Bank’s standard practices and
procedures; and (iii) are owned by the Bank free and clear of all liens,
encumbrances, assignments, participation or repurchase agreements or other
exceptions to title or to the ownership or collection rights of any other person
or entity.

 

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(b) All records of the Bank regarding all outstanding loans, accounts, notes and
other receivables, and all other real estate owned, are accurate in all material
respects, and, each loan which the Bank’s loan documentation indicates is
secured by any real or personal property or property rights (“Loan Collateral”)
is secured by valid, perfected and enforceable liens on all such Loan Collateral
having the priority described in the Bank’s records of such loan.

 

(c) Each loan reflected as an asset on the Bank’s books, and each guarantee
therefor, is the legal, valid and binding obligation of the obligor or guarantor
thereon, and no defense, offset or counterclaim has been asserted with respect
to any such loan or guarantee.

 

(d) BNC and the Bank have Previously Disclosed to SSB (i) a written listing of
each loan, extension of credit or other asset of the Bank which, as of
September 30, 2005, was classified by the Commissioner or the FDIC or by the
Bank as “Loss,” “Doubtful,” “Substandard” or “Special Mention” (or otherwise by
words of similar import), or which the Bank otherwise has designated as a
special asset or for special handling or placed on any “watch list” because of
concerns regarding the ultimate collectibility or deteriorating condition of
such asset or any obligor or Loan Collateral therefor; and (ii) a written
listing of each loan or extension of credit of the Bank which, as of
September 30, 2005, was past due more than 30 days as to the payment of
principal or interest, or as to which any obligor thereon (including the
borrower or any guarantor) otherwise was in default, was the subject of a
proceeding in bankruptcy or has indicated any inability or intention not to
repay such loan or extension of credit.

 

(e) To the Best Knowledge of management of BNC and the Bank, each of the loans
and other extensions of credit of the Bank (with the exception of those loans
and extensions of credit specified in the written listings described in
Paragraph 3.17(d) above) is collectible in the ordinary course of business in an
amount which is not less than the amount at which it is carried on the Bank’s
books and records.

 

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

 

3.18. Securities Portfolio and Investments. BNC and the Bank have Previously
Disclosed to SSB a listing of all securities owned, of record or beneficially,
by BNC and the Bank as of September 30, 2005. All securities owned, of record or
beneficially, by BNC and the Bank are held free and clear of all mortgages,
liens, pledges, encumbrances or any other restriction or rights of any other
person or entity, whether contractual or statutory (other than customary pledges
in the ordinary course of their business to secure public funds deposits), which
would materially impair the ability of BNC or the Bank to dispose freely of any
such security or otherwise to realize the benefits of ownership thereof at any
time. There are no voting trusts or other agreements or undertakings to which
BNC or the Bank is a party with

 

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respect to the voting of any such securities. With respect to all “repurchase
agreements” under which BNC or the Bank has “purchased” securities under
agreement to resell, BNC or the Bank has a valid, perfected first lien or
security interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral securing each such
repurchase agreement equals or exceeds the amount of the debt owed to BNC or the
Bank, as the case may be, which is secured by such collateral.

 

Since September 30, 2005, there has been no material deterioration or adverse
change in the quality, or any material decrease in the value, of the securities
portfolio of BNC or that of the Bank considered as one enterprise.

 

3.19. Personal Property and Other Assets. All banking equipment, data processing
equipment, vehicles, and other personal property used by BNC or the Bank and
material to the operation of the business of either are owned by BNC or the Bank
free and clear of all liens, encumbrances, leases, title defects or exceptions
to title. All personal property of BNC and the Bank material to their business
is in good operating condition and repair, ordinary wear and tear excepted.

 

3.20. Patents and Trademarks. BNC and the Bank each owns, possesses or has the
right to use any and all patents, licenses, trademarks, trade names, copyrights,
trade secrets and proprietary and other confidential information necessary to
conduct its business as now conducted. BNC and the Bank have not violated, and
currently are not in conflict with, any patent, license, trademark, trade name,
copyright or proprietary right of any other person or entity.

 

3.21. Environmental Matters.

 

(a) As used in this Agreement, “Environmental Laws” shall mean, without
limitation:

 

(i) all federal, state and local statutes, regulations, ordinances, orders,
decrees, and similar provisions having the force or effect of law for the
protection of human health, natural resources, or the environment (including
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act; the Superfund Amendment and Reauthorization Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Hazardous Materials
Transportation Act; the Resource Conservation and Recovery Act; the Clean Water
Act; the Clean Air Act; the Toxic Substances Control Act; the Oil Pollution Act;
the Coastal Zone Management Act; any “Superfund” or “Superlien” law; the North
Carolina Oil Pollution and Hazardous Substances Control Act; the North Carolina
Water and Air Resources Act; and the North Carolina Occupational Safety and
Health Act, including any amendments thereto from time to time); and,

 

(ii) all common law concerning public health and safety, worker health and
safety, and pollution or protection of the environment, including without
limitation all standards of conduct and bases of obligations relating to the
presence, use, production,

 

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generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, or clean-up of any “Hazardous Substances” (as
defined below).

 

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

 

(b) BNC and the Bank have Previously Disclosed to SSB copies of all written
reports, correspondence, notices or other information or materials, if any, in
their possession pertaining to environmental surveys or assessments of the Bank
Real Property, and any improvements thereon, or pertaining to any violation or
alleged violation of Environmental Laws on, affecting or otherwise involving the
Bank Real Property or involving BNC or the Bank.

 

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

 

(d) Neither BNC nor the Bank has violated any Environmental Laws which violation
would have a material adverse effect on BNC or the Bank considered as one
enterprise, and, to the Best Knowledge of management of BNC and the Bank after
reasonable inquiry, there has been no violation of any Environmental Laws by any
other person or entity for whose liability or obligation with respect to any
particular matter or violation BNC or the Bank is or may be responsible or
liable which would have a material adverse effect on BNC or the Bank considered
as one enterprise.

 

(e) Neither BNC nor the Bank is subject to any claims, demands, causes of
action, suits, proceedings, losses, damages, penalties, liabilities,
obligations, costs or expenses of any kind and nature which arise out of, under
or in connection with, or which result from or are based upon the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to the Bank Real Property or by any
person or entity.

 

(f) To the Best Knowledge of management of BNC and the Bank after reasonable
inquiry, no facts, events or conditions relating to the Bank Real Property or
the operations of BNC or the Bank at any of its office locations, will prevent,
hinder or limit

 

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continued substantial compliance with Environmental Laws, or give rise to any
investigatory, emergency removal, remedial or corrective actions, obligations or
liabilities pursuant to Environmental Laws.

 

(g) To the Best Knowledge of management of BNC and the Bank (it being understood
by SSB that, for purposes of this representation, management of BNC and the Bank
has not undertaken a review of each of BNC’s or the Bank’s loan files with
respect to all Loan Collateral), (i) there has been no violation of any
Environmental Laws by any person or entity (including any violation with respect
to any Loan Collateral) for whose liability or obligation with respect to any
particular matter or violation BNC or the Bank is or may be responsible or
liable; (ii) BNC and the Bank are not subject to any claims, demands, causes of
action, suits, proceedings, losses, damages, penalties, liabilities,
obligations, costs or expenses of any kind and nature which arise out of, under
or in connection with, or which result from or are based upon, the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, reporting, testing, processing, emission,
discharge, release, threatened release, control, removal, clean-up or
remediation of any Hazardous Substances on, from or relating to any Loan
Collateral, by any person or entity; and (iii) there are no facts, events or
conditions relating to any Loan Collateral that will give rise to any
investigatory, emergency removal, remedial or corrective actions, obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental Laws.

 

3.22. Absence of Brokerage or Finder’s Commissions. Except for the engagement of
Burke Capital (“Burke Capital”) by BNC: (i) no person or firm has been retained
by or has acted on behalf of, pursuant to any agreement, arrangement or
understanding with, or under the authority of, BNC or the Bank or their
respective Boards of Directors, as a broker, finder or agent or has performed
similar functions or otherwise is or may be entitled to receive or claim a
brokerage fee or other commission in connection with or as a result of the
transactions described herein; and, (ii) neither BNC nor the Bank has agreed, or
has any obligation, to pay any brokerage fee or other commission to any person
or entity in connection with or as a result of the transactions described
herein.

 

3.23. Material Contracts. Except as Previously disclosed, other than a benefit
plan or employment agreement made available SSB pursuant to Paragraph 3.25
hereof, neither BNC nor the Bank is party to or bound by any agreement
(i) involving money or other property in an amount or with a value in excess of
$100,000; (ii) which is not to be performed in full within the twelve month
period following the date of this Agreement; (iii) which calls for the provision
of goods or services to BNC or the Bank and cannot be terminated without
material penalty upon written notice to the other party thereto; (iv) which is
material to BNC or the Bank and was not entered into in the ordinary course of
business; (v) which involves hedging, options or any similar trading activity,
or interest rate exchanges or swaps; (vi) which commits BNC or the Bank to
extend any loan or credit (with the exception of letters of credit, lines of
credit and loan commitments extended in the ordinary course of the Bank’s
business); (vii) which involves the sale of any assets of BNC or the Bank which
are used in and material to the operation of their business; (viii) which
involves any purchase of real property, or which involves the purchase of any
other assets in the amount of $100,000 or more in the case of any single
transaction or $300,000 or more in the case of all such transactions; (ix) which
involves the purchase, sale,

 

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issuance, redemption or transfer of any capital stock or other securities of BNC
or the Bank; or (x) with any director, officer or principal shareholder of BNC
or the Bank (including without limitation any consulting agreement, but not
including any agreements relating to loans or other banking services which were
made in the ordinary course of the Bank’s business and on substantially the same
terms and conditions as were prevailing at that time for similar agreements with
unrelated persons).

 

Neither BNC nor the Bank is in default in any material respect, and there has
not occurred any event which with the lapse of time or giving of notice or both
would constitute such a default, under any contract, lease, insurance policy,
commitment or arrangement to which either BNC or the Bank is a party or by which
either BNC or the Bank or property of BNC or the Bank is or may be bound or
affected or under which either BNC or the Bank or property of BNC or the Bank
receives benefits, where the consequences of such default would have a material
adverse effect on the financial condition, results of operations, prospects,
business, assets, loan portfolio, investments, properties or operations of BNC
or the Bank considered as one enterprise.

 

3.24. Employment Matters; Employee Relations.

 

(a) BNC or the Bank, as applicable, (i) has paid in full to or accrued on behalf
of all its directors, officers and employees all wages, salaries, commissions,
bonuses, fees and other direct compensation for all labor or services performed
by them to the date of this Agreement, and all vacation pay, sick pay, severance
pay, overtime pay and other amounts for which it is obligated under applicable
law or SSB’s existing agreements, benefit plans, policies or practices, and
(ii) is in material compliance with all applicable federal, state and local
laws, statutes, rules and regulations with regard to employment and employment
practices, terms and conditions, and wages and hours and other compensation
matters; and, no person has asserted that BNC or the Bank is liable in any
amount for any arrearage in wages or employment taxes or for any penalties for
failure to comply with any of the foregoing.

 

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

 

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

 

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3.25. Employment Agreements; Employee Benefit Plans.

 

(a) BNC and the Bank have made available to SSB a true and complete list of all
bonus, deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans; all employment and severance contracts; all medical,
dental, health, and life insurance plans; all vacation, sickness and other leave
plans, disability and death benefit plans; and all other employee benefit plans,
contracts, or arrangements maintained or contributed to by BNC or the Bank for
the benefit of any employees, former employees, directors, former directors or
any of their beneficiaries (collectively, the “the Bank Plans”). True and
complete copies of all the Bank Plans, including, but not limited to, any trust
instruments or insurance contracts, if any, forming a part thereof or applicable
to the administration of any such the Bank Plans or the assets thereof, and all
amendments thereto, previously have been supplied to SSB. Except as Previously
Disclosed, BNC and the Bank do not maintain, sponsor, contribute to or otherwise
participate in any “Employee Benefit Plan” within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), any
“Multi-employer Plan” within the meaning of Section 3(37) of ERISA, or any
“Multiple Employer Welfare Arrangement” within the meaning of Section 3(40) of
ERISA. Each Bank Plan which is an “employee pension benefit plan” within the
meaning of Section 3(2) of ERISA and which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”) has
received or applied for a favorable determination letter from the IRS to the
effect that they are so qualified (or is entitled to rely upon the favorable
determination letter issued to the prototype or volume submitter plan sponsor,
if the plan utilizes a prototype or volume submitter document), and neither BNC
nor the Bank is aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter. All reports and
returns with respect to the Bank Plans (and any the Bank Plans previously
maintained by BNC or the Bank) required to be filed with any governmental
department, agency, service or other authority, including without limitation IRS
Form 5500 (Annual Report), have been properly and timely filed.

 

(b) All “Employee Benefit Plans” maintained by or otherwise covering employees
or former employees of BNC or the Bank, to the extent each is subject to ERISA,
currently are, and at all times have been, in substantial compliance with all
material provisions and requirements of ERISA, the noncompliance with which will
not have a material adverse effect on BNC and the Bank, considered as one
enterprise. There is no pending or, to the Best Knowledge of management of BNC
and the Bank, threatened litigation relating to any the Bank Plan or any
employee benefit plan, contract or arrangement previously maintained by BNC or
the Bank. Neither BNC nor the Bank has engaged in a transaction with respect to
any the Bank Plan that could subject BNC or the Bank to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA.

 

(c) BNC and the Bank have delivered to SSB a true, correct and complete copy
(including copies of all amendments thereto) of each retirement plan maintained
by either which is intended to be a plan qualified under Section 401(a) of the
Code (collectively, the “the Bank Retirement Plans”), together with true,
correct and complete copies of the summary plan descriptions relating to the
Bank Retirement Plans, the most recent determination letters received

 

32

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from the IRS regarding the Bank Retirement Plans, and the most recent Annual
Reports (Form 5500 series) and related schedules, if any, for the Bank
Retirement Plans. The Bank Retirement Plans are qualified under the provisions
of Section 401(a) of the Code, the trusts under the Bank Retirement Plans are
exempt trusts under Section 501(a) of the Code, and determination letters have
been issued or applied for with respect to the Bank Retirement Plans to said
effect, including determination letters covering the current terms and
provisions of the Bank Retirement Plans unless the plan utilizes a prototype or
volume submitter document, in which case the plan is entitled to rely upon the
favorable determination letter issued to the prototype or volume submitter plan
sponsor. There are no issues relating to said qualification or exemption of the
Bank Retirement Plans currently pending before the IRS, the United States
Department of Labor, the Pension Benefit Guarantee Corporation or any court. The
Bank Retirement Plans and the administration thereof are (and have been since
the establishment of the Bank Retirement Plans) in compliance in all material
respects with all of the applicable requirements of ERISA, the Code and all
other laws, rules and regulations applicable to the Bank Retirement Plans, the
noncompliance with which will not have a material adverse effect on BNC and the
Bank considered as one enterprise. Without limiting the generality of the
foregoing, all reports and returns with respect to the Bank Retirement Plans
required to be filed with any governmental department, agency, service or other
authority have been properly and timely filed. There are no issues or disputes
with respect to the Bank Retirement Plans or the administration thereof
currently existing between BNC, the Bank, or any trustee or other fiduciary
thereunder, and any governmental agency, any current or former employee of the
Bank or beneficiary of any such employee, or any other person or entity. No
“reportable event” within the meaning of Section 4043 of ERISA has occurred at
any time with respect to the Bank Retirement Plans.

 

(d) No liability under subtitle C or D of Title IV of ERISA has been or, to the
Best Knowledge of management of BNC and the Bank, is expected to be incurred by
BNC or the Bank with respect to the Bank Retirement Plans or with respect to any
other ongoing, frozen or terminated defined benefit pension plan currently or
formerly maintained by BNC or the Bank. BNC and the Bank do not presently
contribute, and have not contributed, to a “Multi-employer Plan.” All
contributions required to be made pursuant to the terms of each of the Bank
Plans (including without limitation the Bank Retirement Plans and any other
“pension plan” (as defined in Section 3(2) of ERISA, provided such plan is
intended to qualify under the provisions of Section 401(a) of the Code)
maintained by BNC or the Bank have been timely made. Neither the Bank Retirement
Plans nor any other “pension plan” maintained by BNC or the Bank have an
“accumulated funding deficiency” (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. BNC and the Bank have not
provided, and are not required to provide, security to any “pension plan” or to
any “Single Employer Plan” pursuant to Section 401(a)(29) of the Code. Under the
Bank Retirement Plans and any other “pension plan” maintained by BNC or the Bank
as of the last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all “benefit liabilities,” within
the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan’s most recent actuarial valuation)
did not exceed then current value of the assets of such plan, and there has been
no material change in the financial condition of any such plan since the last
day of the most recent plan year.

 

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

 

3.26. Insurance. BNC and the Bank have made available SSB a listing of each
blanket bond, liability insurance, life insurance or other insurance policy in
effect on September 30, 2005, and in which it was an insured party or
beneficiary (each a “the Bank Policy” and collectively the “the Bank Policies”).
The Bank Policies provide coverage in such amounts and against such liabilities,
casualties, losses or risks as is customary or reasonable for entities engaged
in the businesses of BNC and the Bank or as is required by applicable law or
regulation; and, in the reasonable opinion of management of BNC and the Bank,
the insurance coverage provided under the Bank Policies is reasonable and
adequate in all material respects for BNC and the Bank. Each of the Bank
Policies is in full force and effect and is valid and enforceable in accordance
with its terms, and is underwritten by an insurer of recognized financial
responsibility and which is qualified to issue those policies in North Carolina;
and, BNC and the Bank have complied in all material respects with requirements
(including the giving of required notices) under each such the Bank Policy in
order to preserve all rights thereunder with respect to all material matters.
BNC and the Bank are not in default under the provisions of, have not received
notice of cancellation or nonrenewal of or any premium increase on, and have not
failed to pay any premium on, any the Bank Policy, and, to the Best Knowledge of
management of BNC and the Bank, there has not been any inaccuracy in any
application for any the Bank Policy. There are no pending claims with respect to
any the Bank Policy, and, to the Best Knowledge of management of BNC and the
Bank, there currently is no condition, and no event has occurred, that is
reasonably likely to form the basis for any such claim.

 

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

 

3.28. Obstacles to Regulatory Approval. To the Best Knowledge of management of
BNC and the Bank, there exists no fact or condition (including the Bank’s record
of compliance with the Community Reinvestment Act) relating to BNC or the Bank
that may reasonably be expected to prevent or materially impede or delay SSB,
BNC or the Bank from obtaining the regulatory approvals required in order to
consummate the transactions described in this Agreement; and, if any such fact
or condition becomes known to BNC or the Bank, BNC or the Bank shall promptly
(and in any event within three (3) days after obtaining such knowledge) give
notice of such fact or condition to SSB in the manner provided herein.

 

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

 

ARTICLE IV

COVENANTS OF SSB

 

4.01. Affirmative Covenants of SSB. SSB hereby covenants and agrees as follows
with BNC except as Previously Disclosed:

 

(a) SSB Shareholders’ Meeting. SSB agrees to cause a meeting of its shareholders
(the “SSB Shareholders’ Meeting”) to be duly called and held as soon as
practicable after the date of this Agreement for the purpose of voting by SSB’s
shareholders on the approval of this Agreement and the Merger. In connection
with the call and conduct of, and all other matters relating to the SSB
Shareholders’ Meeting (including the solicitation of proxies), SSB will comply
in all material respects with all provisions of applicable law and regulations
and with its Articles of Incorporation and Bylaws.

 

Unless, due to a material change in circumstances after the date hereof, SSB’s
Board of Directors reasonably believes in good faith, based on the written
opinion of its legal counsel, that such a recommendation would violate the
directors’ duties or obligations as such to SSB or to its shareholders, SSB
covenants that its Board of Directors will recommend to and actively encourage
SSB’s shareholders to vote their shares of SSB Common Stock at the SSB
Shareholders Meeting in favor of approval of this Agreement and the Merger, and
the Proxy Statement will so indicate and state that SSB’s Board of Directors
considers the Merger to be advisable and in the best interests of SSB and its
shareholders. In furtherance of such covenant, each director of SSB will execute
this Agreement as an inducement to BNC to enter into this Agreement and by the
execution hereof, each SSB director agrees, absent the aforesaid opinion of
counsel, to vote his or her shares to approve this Agreement and the Merger.

 

(b) Conduct of Business Prior to Effective Time. While the parties recognize
that the operation of SSB until the Effective Time is the responsibility of
SSB’s Board of Directors and officers, SSB agrees that, between the date of this
Agreement and the Effective Time, and except as otherwise provided herein,
expressly agreed to in writing by BNC’s President and Chief Executive Officer,
or as may otherwise be required by governmental or regulatory authority or by
law, SSB will carry on its business in and only in the regular and usual course
in substantially the same manner as such business heretofore was conducted, and,
to the extent consistent with such business and within its ability to do so, SSB
agrees that it will:

 

(i) preserve intact its present business organization, keep available its
present officers and employees, and preserve its relationships with customers,
depositors, creditors, correspondents, suppliers, and others having business
relationships with it;

 

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(ii) maintain all of its properties and equipment in customary repair, order and
condition, ordinary wear and tear excepted;

 

(iii) maintain its books of account and records in the usual, regular and
ordinary manner in accordance with sound business practices applied on a
consistent basis;

 

(iv) comply in all material respects with all laws, rules and regulations
applicable to it, its properties, assets or employees and to the conduct of its
business;

 

(v) not change its policies or procedures, including existing loan underwriting
guidelines, in any material respect except as may be required by law;

 

(vi) continue to maintain in force insurance such as is described in
Paragraph 2.26; not modify any bonds or policies of insurance in effect as of
the date hereof unless the same, as modified, provides substantially equivalent
coverage; and, not cancel, allow to be terminated or, to the extent available,
fail to renew, any such bond or policy of insurance unless the same is replaced
with a bond or policy providing substantially equivalent coverage; and,

 

(vii) promptly provide to BNC such information about its financial condition,
results of operations, prospects, businesses, assets, loan portfolio,
investments, properties, employees or operations, as BNC reasonably shall
request.

 

(c) Periodic Financial and Other Information. Following the date of this
Agreement and until the Effective Time, SSB will promptly deliver to BNC:

 

(i) an income statement and a statement of condition within ten business days
after each month end;

 

(ii) a copy of the audited financial statements within 45 business days after
the fiscal year end and a copy of all interim financial statements within 30
business days after each quarter end;

 

(iii) a copy of each report, registration, statement, or other communication or
regulatory filing made with or to any Regulatory Authority simultaneous with the
filing or making thereof;

 

(iv) information regarding each new request for an extension of credit in excess
of $500,000 (other than a loan secured by a first lien on a one-to-four family
principal residence which is being made for the purchase or refinancing of that
residence) using its best efforts to provide prior to, but in any event
notification within two (2) days after, the issuance of a commitment on such
loan;

 

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(v) an analysis of the Loan Loss Reserve and management’s assessment of the
adequacy of the Loan Loss Reserve, which analysis and assessment shall include a
list of all classified or “watch list” loans, along with the outstanding balance
and amount specifically allocated to the Loan Loss Reserve for each such
classified or “watch list” Loan, all within ten business days after each
calendar month end;

 

(vi) the following information with respect to loans and other extensions of
credit (such assets being referred to in this Agreement as “Loans”) as of, and
within ten business days following each calendar month end;

 

(A) a list of Loans past due for 30 days or more as to principal or interest;

 

(B) a list of Loans in nonaccrual status;

 

(C) a list of all Loans without principal reduction for a period of longer than
one year;

 

(D) a list of all foreclosed real property or other real estate owned and all
repossessed personal property;

 

(E) a list of each reworked or restructured Loan still outstanding, including
original terms, restructured terms and status; and

 

(F) a list of any actual or threatened litigation by or against SSB pertaining
to any Loan or credit, which list shall contain a description of circumstances
surrounding such litigation, its present status and management’s evaluation of
such litigation.

 

(d) Notice of Certain Changes or Events. Following the execution of this
Agreement and up to the Effective Time, SSB promptly will notify BNC in writing
of and provide to it such information as it shall request regarding (i) any
material adverse change in SSB’s financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties or
operations, or of the actual or prospective occurrence of any condition or event
which, with the lapse of time or otherwise, is likely to cause, create or result
in any such material adverse change, or of (ii) the actual or prospective
existence or occurrence of any condition or event which, with the lapse of time
or otherwise, has caused or is likely to cause any statement, representation or
warranty of SSB herein to be or become inaccurate, misleading or incomplete in
any material respect, or which has resulted or is likely to cause, create or
result in the breach or violation in any material respect of any of SSB’s
covenants or agreements contained herein or in the failure of any of the
conditions described in Paragraphs 7.01 or 7.02.

 

(e) Accruals for Loan Loss Reserve and Expenses. SSB will cooperate with BNC and
will make such appropriate accounting entries in its books and records and take
such other actions as BNC and SSB shall mutually deem to be necessary or
desirable in anticipation of the Merger, including without limitation additional
provisions to SSB’s Loan Loss Reserve or accruals or the creation of reserves
for employee benefit and Merger-related

 

37

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expenses; provided, however, that notwithstanding any provision of this
Agreement to the contrary, and except as otherwise agreed to by SSB and BNC, SSB
shall not be required to make any such accounting entries until immediately
prior to the Closing.

 

(f) Consents to Assignment of Leases. SSB will use its best efforts to obtain
all required consents of its lessors to the assignment to BNC of SSB’s rights
and obligations under any personal property leases, each of which consents shall
be in such form as shall be specified by BNC.

 

(g) Access. SSB agrees that, following the date of this Agreement and to and
including the Effective Time, it will provide BNC and its employees,
accountants, legal counsel, environmental consultants or other representatives
access to all its books, records, files and other information (whether
maintained electronically or otherwise), to all its properties and facilities,
and to all its employees, accountants, legal counsel and consultants, as BNC
shall, in its sole discretion, consider to be necessary or appropriate;
provided, however, that any investigation or reviews conducted by or on behalf
of BNC shall be performed in such a manner as will not interfere unreasonably
with SSB’s normal operations or with its relationships with its customers or
employees, and shall be conducted in accordance with procedures established by
the parties.

 

(h) Deposit Liabilities. Following the date of this Agreement and up to the
Effective Time, SSB will make pricing decisions with respect to its deposit
accounts in a manner consistent with its past practices based on competition and
prevailing market rates in its banking market. SSB will notify BNC in connection
with changes in its published or brokers rates on deposit accounts prior to
implementation.

 

(i) Further Action; Instruments of Transfer. SSB covenants and agrees with BNC
that it (i) will use its best efforts in good faith to take or cause to be taken
all action required of it under this Agreement as promptly as practicable so as
to permit the consummation of the transactions described herein at the earliest
possible date, (ii) shall perform all acts and execute and deliver to BNC all
documents or instruments required herein, or as otherwise shall be reasonably
necessary or useful to or requested by BNC, in consummating such transactions,
and, (iii) will cooperate with BNC in every way in carrying out, and will pursue
diligently the expeditious completion of, such transactions.

 

4.02. Negative Covenants of SSB. Except as may otherwise be required by
governmental or regulatory authority or law, SSB hereby covenants and agrees
that, between the date hereof and the Effective Time, except as Previously
Disclosed, it will not do any of the following things or take any of the
following actions without the prior written consent and authorization of BNC’s
President.

 

(a) Amendments to Articles of Incorporation or Bylaws. SSB will not amend its
Articles of Incorporation or Bylaws.

 

(b) Change in Capital Stock. SSB will not (i) make any change in its authorized
capital stock, or create any other or additional authorized capital stock or
other securities, or (ii) issue (including any issuance of shares pursuant to a
stock dividend or any

 

38

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issuance of any securities convertible into capital stock), sell, purchase,
redeem, retire, reclassify, combine or split any shares of its capital stock or
other securities, or enter into any agreement or understanding with respect to
any such action.

 

(c) Options, Warrants and Rights. SSB will not grant or issue any options,
warrants, calls, puts or other rights of any kind relating to the purchase,
redemption or conversion of shares of its capital stock or any other securities
(including securities convertible into capital stock) or enter into any
agreement or understanding with respect to any such action.

 

(d) Dividends. SSB will not declare or pay any dividends on its outstanding
shares of SSB Common Stock or make any other distributions on or in respect of
any shares of SSB Common Stock or otherwise to its shareholders.

 

(e) Employment, Benefit or Retirement Agreements or Plans. Except as required by
law, SSB will not (i) enter into or become bound by any oral or written
contract, agreement or commitment for the employment or compensation of any
director, officer, employee or consultant which is not immediately terminable by
SSB without cost or other liability on no more than 30 days’ notice; (ii) adopt,
enter into or become bound by any new or additional profit-sharing, bonus,
incentive, change in control or “golden parachute,” stock option, stock
purchase, pension, retirement, insurance (hospitalization, life or other), paid
leave (sick leave, vacation leave or other) or similar contract, agreement,
commitment, understanding, plan or arrangement (whether formal or informal) with
respect to or which provides for benefits for any of its current or former
directors, officers, employees or consultants; or (iii) enter into or become
bound by any contract with or commitment to any labor or trade union or
association or any collective bargaining group.

 

(f) Increase in Compensation; Bonuses. SSB will not increase the compensation or
benefits of, or pay any bonus or other special or additional compensation to,
any of its directors, officers, employees or consultants. However,
notwithstanding anything contained herein to the contrary, prior to the
Effective Time SSB may make routine increases in the salaries of its officers
and other employees at such times and in such amounts as shall be consistent
with its customary salary administration and review policies and procedures.

 

(g) Accounting Practices. SSB will not make any changes in its accounting
methods, practices or procedures or in depreciation or amortization policies,
schedules or rates heretofore applied (except as required by US GAAP or
governmental regulations).

 

(h) Acquisitions; Additional Branch Offices. SSB will not directly or indirectly
(i) acquire or merge with, or acquire any branch or all or any significant part
of the assets of, any other person or entity, (ii) open any new branch office,
or (iii) enter into or become bound by any contract, agreement, commitment or
letter of intent relating to, or otherwise take or agree to take any action in
furtherance of, any such transaction or the opening of a new branch office.

 

39

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(i) Changes in Business Practices. Except as may be required by the
Commissioner, the FDIC, or any other Regulatory Authority or as shall be
required by applicable law, regulation or this Agreement, SSB will not
(i) change in any material respect the nature of its business or the manner in
which it conducts its business, (ii) discontinue any material portion or line of
its business, or (iii) change in any material respect its lending, investment,
asset-liability management or other material banking or business policies.

 

(j) Exclusive Merger Agreement. Unless, due to a material change in
circumstances after the date hereof, SSB’s Board of Directors reasonably
believes in good faith, based on the written opinion of its legal counsel, that
any such action or inaction would violate the directors’ duties or obligations
as such to SSB or to its shareholders, SSB will not, directly, or indirectly
through any person, (i) encourage, solicit or attempt to initiate or procure
discussions, negotiations or offers with or from any person or entity (other
than BNC) relating to a merger or other acquisition of SSB or the purchase or
acquisition of any stock of SSB, or all or any significant part of SSB’s assets,
or provide assistance to any person in connection with any such offer;
(ii) except to the extent required by law, disclose to any person or entity
(other than BNC) any information not customarily disclosed to the public
concerning SSB or its business, or afford to any other person or entity (other
than BNC) access to its properties, facilities, books or records; (iii) sell or
transfer all or any significant part of SSB’s assets to any other person or
entity (other than BNC); or (iv) consummate any type of merger, acquisition or
combination relating to the acquisition of more than 20% of the SSB Common Stock
or all or a significant part of SSB’s assets.

 

(k) Acquisition or Disposition of Assets. Other than activities in the normal
course of its leasing operations, SSB will not:

 

(i) Sell or lease (as lessor), or enter into or become bound by any contract,
agreement, option or commitment relating to the sale, lease (as lessor) or other
disposition of, any real estate in any amount;

 

(ii) Sell or lease (as lessor), or enter into or become bound by any contract,
agreement, option or commitment relating to the sale, lease (as lessor) or other
disposition of, any equipment or any other fixed or capital asset (other than
real estate) having a book value or a fair market value, whichever is greater,
of more than $10,000 for any individual item or asset, or more than $25,000 in
the aggregate for all such items or assets;

 

(iii) Purchase or lease (as lessee), or enter into or become bound by any
contract, agreement, option or commitment relating to the purchase, lease (as
lessee) or other acquisition of, any real property in any amount;

 

(iv) Purchase or lease (as lessee), or enter into or become bound by any
contract, agreement, option or commitment relating to the purchase, lease (as
lessee) or other acquisition of, any equipment or any other fixed asset (other
than real estate) having a purchase price, or involving aggregate lease
payments, in excess of $10,000 for any individual item or asset, or more than
$25,000 in the aggregate for all such items or assets;

 

40

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(v) Enter into any purchase or other commitment or contract for supplies or
services which obligates SSB for a period longer than 30 days;

 

(vi) Except in the ordinary course of its business consistent with its past
practices, sell, purchase or repurchase, or enter into or become bound by any
contract, agreement, option or commitment to sell, purchase or repurchase, any
loan or other receivable or any participation in any loan or other receivable;
or

 

(vii) Except in the ordinary course of its business consistent with its past
practices, sell or dispose of, or enter into or become bound by any contract,
agreement, option or commitment relating to the sale or other disposition of,
any other asset (whether tangible or intangible, and including without
limitation any trade name, trademark, copyright, service mark or intellectual
property right or license); or assign its right to or otherwise give any other
person its permission or consent to use or do business under the corporate name
of SSB or any name similar thereto; or release, transfer or waive any license or
right granted to it by any other person to use any trademark, trade name,
copyright, service mark or intellectual property right.

 

(l) Debt; Liabilities. Except in the ordinary course of its business consistent
with its past practices, SSB will not (i) enter into or become bound by any
promissory note, loan agreement or other agreement or arrangement pertaining to
the borrowing of money, (ii) assume, guarantee, endorse or otherwise become
responsible or liable for any obligation of any other person or entity, or
(iii) incur any other liability or obligation (absolute or contingent).

 

(m) Liens; Encumbrances. SSB will not mortgage, pledge or subject any of its
assets to, or permit any of its assets to become or, except for those liens or
encumbrances Previously Disclosed to BNC, remain subject to, any lien or any
other encumbrance (other than in the ordinary course of business consistent with
its past practices in connection with securing public funds deposits or
repurchase agreements).

 

(n) Waiver of Rights. SSB will not waive, release or compromise any rights in
its favor against or with respect to any of its officers, directors or
shareholders or members of families of officers, directors or shareholders, nor
will SSB waive, release or compromise any material rights against or with
respect to any other person or entity except in the ordinary course of business
and in good faith for fair value in money or money’s worth.

 

(o) Other Contracts. SSB will not enter into or become bound by any contracts,
agreements, commitments or understandings (other than those permitted elsewhere
in this Paragraph 4.02) (i) for or with respect to any charitable contributions
except for contributions not exceeding $2,000 individually or $10,000 in the
aggregate; (ii) with any governmental or regulatory agency or authority;
(iii) pursuant to which SSB would assume, guarantee, endorse or otherwise become
liable for the debt, liability or obligation of any other person or entity;
(iv) which is entered into other than in the ordinary course of its business; or
(v) which, in the case of any one contract, agreement, commitment or
understanding, and

 

41

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whether or not in the ordinary course of its business, would obligate or commit
SSB to make expenditures over any period of time of more than $25,000 (other
than contracts, agreements, commitments or understandings entered into in the
ordinary course of SSB’s lending operations).

 

(p) Deposit Liabilities. SSB will not make any material change in its current
deposit policies and procedures or take any actions designed to materially
increase or decrease the aggregate level of its deposits as of the date of this
Agreement.

 

(q) Foreclosures. Except in the ordinary course of business in connection with
any foreclosure of a mortgage or deed of trust securing a loan, SSB will not bid
for or purchase any real property which is covered by that mortgage or deed of
trust or which is the subject of that foreclosure.

 

ARTICLE V

COVENANTS OF BNC

 

5.01. Affirmative Covenants of BNC. BNC hereby covenants and agrees as follows
with SSB:

 

(a) BNC Shareholders’ Meeting. BNC agrees to cause a meeting of its shareholders
(the “BNC Shareholders’ Meeting”) to be duly called and held as soon as
practicable after the date of this Agreement for the purpose of voting by BNC’s
shareholders on the approval of this Agreement and the Merger. In connection
with the call and conduct of, and all other matters relating to the BNC
Shareholders’ Meeting (including the solicitation of proxies), BNC will comply
in all material respects with all provisions of applicable law and regulations
and with its Articles of Incorporation and Bylaws.

 

BNC agrees to nominate and recommend for election Ralph N. Strayhorn III, Thomas
R. Sloan and two other directors, mutually agreed upon by SSB and BNC, currently
serving on the board of directors of SSB at the BNC Shareholders’ Meeting to be
elected to the BNC board of directors. These directors will be appointed to the
BNC board of directors at the Effective Time in accordance with subparagraph
(c) hereof.

 

Unless due to a material change in circumstances after the date hereof, BNC’s
Board of Directors reasonably believes in good faith, based on the written
opinion of its legal counsel, that such a recommendation would violate the
directors’ duties or obligations as such to BNC or to its shareholders, BNC
covenants that its Board of Directors will recommend to and actively encourage
BNC’s shareholders that they vote their shares of BNC Common Stock at the BNC
Shareholders Meeting in favor of ratification and approval of this Agreement and
the Merger, and the Proxy Statement will so indicate and state that BNC’s Board
of Directors considers the Merger to be advisable and in the best interests of
BNC and its shareholders.

 

(b) Further Action; Instruments of Transfer. BNC covenants and agrees with SSB
that it (i) will use its best efforts in good faith to take or cause to be taken
all action required of it under this Agreement as promptly as practicable so as
to permit the consummation

 

42

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of the transactions described herein at the earliest possible date, (ii) shall
perform all acts and execute and deliver to SSB all documents or instruments
required herein, or as otherwise shall be reasonably necessary or useful to or
requested by SSB, in consummating such transactions, and, (iii) will cooperate
with SSB in every way in carrying out, and will pursue diligently the
expeditious completion of, such transactions, and, (iv) shall take such
corporate action as is necessary to authorize the issuance of additional shares
of BNC Common Stock as necessary to complete the Merger.

 

(c) Employment of SSB Employees. Provided that the current employees of SSB
remain employed by SSB at the Effective Time, BNC will attempt in good faith to
locate positions with BNC for which employment may be offered, and BNC will
offer employment to as many of those employees as BNC, in its discretion,
considers to be feasible. However, notwithstanding anything contained in this
Agreement to the contrary, BNC shall not have any obligation to employ or
provide employment to any employee of SSB or to any particular number of such
employees. Any employment so offered to an employee of SSB shall be in such a
position, at such location within BNC’s branch system, and for such rate of
compensation, as BNC shall determine in its sole discretion. Each such person’s
employment shall be on an “at-will” basis, and nothing in this Agreement shall
be deemed to constitute an employment agreement with any such person or to
obligate BNC to employ any such person for any specific period of time or in any
specific position or to restrict BNC’s right to terminate the employment of any
such person at any time and for any reason satisfactory to it. In the event BNC
terminates an employee of SSB without making an offer of employment and without
cause, BNC will pay such terminated SSB employee (a “Non-Continuing Employee”) a
severance payment as the parties shall mutually determine on a case-by-case
basis but in no event shall such severance payment be less than three (3) weeks’
salary of the Non-Continuing Employee for each year of credited service with
SSB.

 

(d) Employee Benefits. Except as otherwise provided in this Agreement, any
employee of SSB who becomes an employee of BNC at the Effective Time (a “New
Employee”) shall be entitled to receive all employee benefits and to participate
in all benefit plans provided by BNC on the same basis (including cost) and
subject to the same eligibility and vesting requirements, and to the same
conditions, restrictions and limitations, as generally are in effect and
applicable to other newly hired employees of BNC, except that SSB employees
retained by BNC shall be immediately eligible to participate in all benefit
plans as of the Effective Date. Each New Employee shall be given credit for his
or her full years of service with SSB for purposes of (i) eligibility for
participation and vesting in BNC’s Section 401(k) savings plan, and (ii) for all
purposes under BNC’s other benefit plans (including entitlement to vacation and
sick leave). For purposes of BNC’s health insurance coverage, a New Employee’s
participation will be without regard to pre-existing condition requirements
under BNC’s health insurance plan, provided that any such pre-existing condition
at the Effective Time was covered under SSB’s health insurance plan(s) at the
Effective Time and the New Employee provides evidence of such previous coverage
in a form satisfactory to BNC’s health insurance carrier.

 

Any Non-Continuing Employee will be permitted to obtain continued coverage
through the exercise of his or her COBRA rights under BNC’s health insurance
coverage and BNC will give any required COBRA notices.

 

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For the calendar year during which the Effective Time occurs, BNC will grant to
each New Employee a number of days of sick leave and vacation leave,
respectively, equal, in each case, to (i) the full number of such days to which
the New Employee would be entitled for that year, based on his or her credited
years of service and in accordance with BNC’s standard leave policies, less
(ii) the number of days of sick leave and vacation leave used by the New
Employee as an employee of SSB during that calendar year.

 

Prior to the Effective Time, SSB shall terminate The SterlingSouth Bank & Trust
Co. 2005 Supplemental Executive Retirement Plan (“SERP”) in accordance with its
terms and each of the Participation Agreement Addendums thereto executed by
Ralph N. Strayhorn, III, Thomas N. Nelson, James J. Harris, Patricia Strickland
and Jim Bowman. Upon termination, each participant will receive benefits that
accrued prior to December 31, 2005.

 

(e) Directors. In accordance with the provisions of Paragraph 1.06 hereof, at
the Effective Time, BNC will cause Ralph N. Strayhorn III, Thomas R. Sloan and
two additional directors, mutually agreed upon by SSB and BNC, elected at the
BNC Shareholders’ Meeting, in accordance with subparagraph (a) hereof, to take
office as directors of BNC at the Effective Time. After the Effective Time, the
board of BNC will number fifteen (15) directors. Each director’s continued
service as a director of BNC will be subject to the normal nomination and
election processes.

 

(f) Employment Agreement and SERP. As of the Effective Time, Ralph N. Strayhorn
III shall execute a new employment agreement and a new SERP substantially in the
forms attached hereto as Exhibits B and C, respectively.

 

(g) Employment of Other Officers. As of the Effective Time, certain of the other
officers of SSB, as are included in Exhibit D, shall have entered into
employment agreements substantially in accordance with the terms set forth in
Exhibit D, which is attached hereto.

 

(h) “Blue Sky” Approvals. BNC shall use its best efforts to take all actions, if
any, required by applicable state and federal securities laws (i) to cause the
BNC Common Stock issued at the Effective Time, at the time of the issuance
thereof, to be duly qualified or registered (unless exempt) under such laws, or
to cause all conditions to any exemptions from qualification or registration
thereof under such laws to have been satisfied, and (ii) to obtain any and all
other approvals or consents to the issuance of the BNC Common Stock that are
required under state or federal law.

 

(i) Available Funds. By Closing, BNC will have transferred to the Exchange Agent
the funds necessary to satisfy its obligations under ARTICLE I of this Agreement

 

(j) Access. BNC and the Bank agree that, following the date of this Agreement
and to and including the Effective Time, each will provide SSB and its
employees, accountants, legal counsel, environmental consultants or other
representatives access to all its

 

44

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books, records, files and other information (whether maintained electronically
or otherwise), to all its properties and facilities, and to all its employees,
accountants, legal counsel and consultants, as SSB shall, in its sole
discretion, consider to be necessary or appropriate; provided, however, that any
investigation or reviews conducted by or on behalf of SSB shall be performed in
such a manner as will not interfere unreasonably with BNC and the Bank’s normal
operations or with its relationship with its customers or employees, and shall
be conducted in accordance with procedures established by the parties; and,
provided further, that SSB shall not have any right of access to BNC’s or the
Bank’s personnel files and records.

 

(k) NASDAQ Notification. By Closing, BNC shall file with the National
Association of Securities Dealers such notification and other materials (and
shall pay such fees) as shall be required for the listing on Nasdaq Small Cap
Market of the shares of BNC Common Stock to be issued to SSB’s shareholders
pursuant to the Merger.

 

5.02. Negative Covenants of BNC. BNC hereby covenants and agrees that, between
the date hereof and the Effective Time, it will not do any of the following
things or take any of the following actions without the prior written consent
and authorization of SSB’s President.

 

(a) Amendments to Articles of Incorporation or Bylaws. BNC will not amend its
Articles of Incorporation or Bylaws.

 

(b) Change in Capital Stock. BNC will not (i) make any change in its authorized
capital stock, or create any other or additional authorized capital stock or
other securities, or (ii) issue (including any issuance of shares pursuant to a
stock dividend (except as set forth in (d) below) or any issuance of any
securities convertible into capital stock), sell, purchase, redeem, retire,
reclassify, combine or split any shares of its capital stock or other
securities, or enter into any agreement or understanding with respect to any
such action. However, notwithstanding anything contained herein to the contrary,
following the date of this Agreement, BNC may issue additional shares of BNC
Common Stock upon the exercise of options granted pursuant to its employee
and/or director stock option plans. In addition, BNC may, if necessary, issue
additional shares of BNC Common Stock to fulfill its obligations under the BNC
Employees’ Savings and Profit Sharing Plan and Trust (the “401(k) Plan”).

 

(c) Options, Warrants and Rights. BNC will not grant or issue any options,
warrants, calls, puts or other rights of any kind relating to the purchase,
redemption or conversion of shares of its capital stock or any other securities
(including securities convertible into capital stock) or enter into any
agreement or understanding with respect to any such action. However,
notwithstanding anything contained herein to the contrary, following the date of
this Agreement BNC may grant additional options to purchase shares of BNC Common
Stock pursuant to its Nonqualified Stock Option Plan for
Non-Employees/Directors, as amended, its Incentive Stock Option Plan and its
Omnibus Stock Option and Long Term Incentive Plan.

 

(d) Dividends. Other than the cash dividend of $0.16 per shared declared on
January 17, 2006 and payable in the first quarter of 2006, BNC will not declare
or pay any dividends on its outstanding shares of capital stock or make any
other distributions on or in respect of any shares of its capital stock or
otherwise to its shareholders.

 

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(e) Accounting Practices. BNC will not make any changes in its accounting
methods, practices or procedures or in depreciation or amortization policies,
schedules or rates heretofore applied (except as required by US GAAP or
governmental regulations).

 

(f) Changes in Business Practices. Except as may be required by the
Commissioner, the FDIC or any other Regulatory Authority, or as shall be
required by applicable law, regulation or this Agreement, BNC will not
(i) change in any material respect the nature of its business, (ii) discontinue
any material portion or line of its business, or (iii) change in any material
respect its lending, investment, asset-liability management or other material
banking or business policies.

 

(g) Exclusive Merger Agreement. Unless, due to a material change in
circumstances after the date hereof, BNC’s Board of Directors reasonably
believes in good faith, based on the written opinion of its legal counsel, that
any such action or inaction would violate the directors’ duties or obligations
as such to BNC or to its shareholders, BNC will not, directly, or indirectly
through any person, (i) encourage, solicit or attempt to initiate or procure
discussions, negotiations or offers with or from any person or entity relating
to a merger or other acquisition of BNC or the purchase or acquisition of any
stock of BNC, or all or any significant part of BNC’s assets, or provide
assistance to any person in connection with any such offer; (ii) except to the
extent required by law, disclose to any person or entity (other than SSB) any
information not customarily disclosed to the public concerning BNC or its
business, or afford to any other person or entity (other than SSB) access to its
properties, facilities, books or records; (iii) sell or transfer all or any
significant part of BNC’s assets to any other person or entity (other than SSB);
or (iv) consummate any type of merger, acquisition or combination relating to
the acquisition of more than 20% of the BNC Common Stock or all or a significant
part of BNC’s assets.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

6.01. Preparation and Distribution of Proxy Statement/Prospectus. BNC and SSB
jointly will prepare a joint proxy statement/prospectus (the “Proxy
Statement/Prospectus”) for distribution to BNC’s and SSB’s shareholders as BNC’s
proxy statement relating to BNC’s solicitation of proxies for use at the BNC
Shareholders’ Meeting, SSB’s proxy statement relating to SSB’s solicitation of
proxies for use at the SSB Shareholders’ Meeting, and as BNC’s prospectus
relating to its offer and distribution of BNC Common Stock to SSB’s shareholders
as described in this Agreement. The Proxy Statement/Prospectus shall, in all
material respects, be prepared in such form and contain or be accompanied by
such information regarding the BNC Shareholders Meeting, the SSB Shareholders’
Meeting, this Agreement, the parties hereto, and the Merger and other
transactions described herein as is required by regulations of the FDIC
applicable to BNC or otherwise as shall be agreed upon by BNC and SSB. An
Election of Consideration, in a form satisfactory to BNC as described in
Paragraph 1.05(c), shall accompany the Proxy Statement/Prospectus mailed to each
SSB shareholder.

 

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BNC and SSB will mail the Proxy Statement/Prospectus to their shareholders on a
date mutually agreed upon by BNC and SSB not less than 20 days prior to the
scheduled date of the BNC Shareholders’ Meeting and the date of the SSB
Shareholders’ Meeting, whichever is earlier; provided, however, that no such
materials shall be mailed to BNC’s shareholders or SSB’s shareholders unless and
until BNC shall have received the authorization of the FDIC, and SSB and BNC
shall have agreed on the form and content of such materials.

 

6.02. Regulatory Approvals. BNC and SSB each agrees with the other that, as soon
as practicable following the date of this Agreement, it will prepare and file,
or cause to be prepared and filed, all applications required to be filed by it
under applicable law and regulations for approvals by Regulatory Authorities of
the Merger or other transactions described in this Agreement, including without
limitation any required applications for the approval of the Commissioner, the
FDIC, and the North Carolina Banking Commission (the “Commission”). BNC and SSB
each agrees (i) to use its best efforts in good faith to obtain all necessary
approvals of Regulatory Authorities required for consummation of the Merger and
other transactions described herein and (ii) before the filing of any such
application required to be filed, to give each other party an opportunity to
review and comment on the form and content of such application. Should the
appearance of any of the officers, directors, employees, financial advisors or
counsel of BNC or SSB be requested by each other or by any Regulatory Authority
at any hearing in connection with any such application, it will use its best
efforts to arrange for such appearance.

 

6.03. Information for Proxy Statement/Prospectus and Applications for Regulatory
Approvals. BNC and SSB each covenants with the other that (i) it will cooperate
with the other parties in the preparation of the Proxy Statement/Prospectus, and
applications for required approvals of Regulatory Authorities, and it will
promptly respond to requests by the other parties and their legal counsel for
information, and will provide all information, documents, financial statements
or other material, that is required for, or that may be reasonably requested by
any other party for inclusion in, any such document; (ii) none of the
information provided by it for inclusion in any of such documents, at the time
of the mailing of those materials to SSB’s and BNC’s shareholders, or at the
time of receipt of any such required approval of a Regulatory Authority, as the
case may be, will contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.

 

6.04. Expenses. Subject to the provisions of Paragraph 8.03, and whether or not
this Agreement shall be terminated or the Merger shall be consummated, BNC and
SSB each agrees to pay its own legal, accounting and financial advisory fees and
all its other costs and expenses incurred or to be incurred in connection with
the execution and performance of its obligations under this Agreement, or
otherwise in connection with this Agreement and the transactions described
herein (including without limitation all accounting fees, legal fees, consulting
or advisory fees, filing fees, printing and mailing costs, and travel expenses).
For purposes of this Agreement, expenses associated with the printing and
mailing of the Proxy Statement/Prospectus described in Paragraph 6.01, and with
the Tax Opinion described in Paragraph 6.09, shall be deemed to have been
incurred by BNC and SSB equally. Expenses owed to Smith Capital including its
fees for rendering the “SSB Fairness Opinion” described in
Paragraph 7.01(d)(ii),

 

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shall be deemed to have been incurred solely by SSB. Expenses owed to Burke
Capital including its fees for rendering the “BNC Fairness Opinion” described in
Paragraph 7.01(d)(i) shall be deemed to have been incurred solely by BNC.

 

6.05. Announcements. BNC and SSB each agrees that no persons other than the
parties to this Agreement are authorized to make any public announcements or
statements about this Agreement or any of the transactions described herein, and
that, without the prior review and consent of the other parties (which consent
shall not unreasonably be denied or delayed), it will not make any public
announcement, statement or disclosure as to the terms and conditions of this
Agreement or the transactions described herein, except for such disclosures as
may be required incidental to obtaining the required approval of any Regulatory
Authority to the consummation of the transactions described herein. However,
notwithstanding anything contained herein to the contrary, neither BNC nor SSB
shall be required to obtain the prior consent of the other parties for any such
disclosure which it, in good faith and upon the advice of its legal counsel,
believes is required by law.

 

6.06. Real Property Matters.

 

(a) BNC, at its own option or expense, may cause to be conducted (i) a title
examination, physical survey, zoning compliance review, and structural
inspection of the SSB Real Property and improvements thereon (the “Property
Examination”) and (ii) site inspections, historic reviews, regulatory analyses,
and Phase 1 environmental assessments of the SSB Real Property, together with
such other studies, testing and intrusive sampling and analyses as BNC shall
deem necessary or desirable (the “Environmental Survey”).

 

(b) If, in the course of the Property Examination or Environmental Survey, BNC
discovers a “Material Defect” (as defined below) with respect to the SSB Real
Property except with regard to any Material Defects which were Previously
Disclosed by SSB to BNC, BNC will give prompt written notice thereof to SSB
describing the facts or conditions constituting the Material Defect, and BNC
shall have the option exercisable upon written notice to SSB to (i) waive the
Material Defect, or (ii) terminate this Agreement.

 

(c) For purposes of this Agreement, a “Material Defect” shall include:

 

(i) the existence of any lien (other than the lien of real property taxes not
yet due and payable), encumbrance, zoning restriction, easement, covenant, or
other restriction, title imperfection or title irregularity, or the existence of
any facts or conditions that constitute a breach of SSB’s representations and
warranties contained in Paragraph 2.16 or 2.21, in either such case that BNC
reasonably believes will affect its use of any parcel of the SSB Real Property
for the purpose for which it currently is used or the value or marketability of
any parcel of the SSB Real Property, or as to which BNC otherwise objects; or

 

(ii) the existence of any structural defects or conditions of disrepair in the
improvements on the SSB Real Property (including any equipment, fixtures or
other components related thereto) that BNC reasonably believes would cost an
aggregate of $50,000 or more to repair, remove or correct as to all such SSB
Real Property.

 

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(iii) the existence of facts or circumstances relating to any of the SSB Real
Property reflecting that (A) there likely has been a discharge, disposal,
release, threatened release, or emission by any person of any Hazardous
Substance on, from, under, at, or relating to the SSB Real Property, or (B) any
action has been taken or not taken, or a condition or event likely has occurred
or exists, with respect to the SSB Real Property which constitutes or would
constitute a violation of any Environmental Laws or any contract or other
agreement between SSB and any other person or entity, as to which, in either
such case, BNC reasonably believes, based on the advice of legal counsel or
other consultants, that SSB could become responsible or liable, or that SSB
could become responsible or liable following the Effective Time, for assessment,
removal, remediation, monetary damages, or civil, criminal or administrative
penalties or other corrective action and in connection with which the amount of
expense or liability which SSB could incur, or for which SSB could become
responsible or liable, following consummation of the Merger at any time or over
any period of time could equal or exceed an aggregate of $50,000 or more as to
all such SSB Real Property.

 

6.07. Treatment of Stock Options and Warrants.

 

(a) BNC and SSB agree that, as of the Effective Time, all holders of SSB’s
175,782 outstanding Stock Options to purchase shares of SSB Common Stock held by
SSB employees who remain employed by BNC and SSB directors who are elected to
the BNC Board of Directors shall be converted into and become rights with
respect to BNC Common Stock and BNC shall assume each Stock Option in accordance
with the SSB Stock Option Plans. From and after the Effective Time, (i) each
Stock Option assumed by BNC may be exercised solely for shares of BNC Common
Stock, (ii) the number of shares of BNC Common Stock subject to such Stock
Option shall be equal to the product of the number of shares of SSB Common Stock
subject to such Stock Option immediately prior to the Effective Time multiplied
by the Exchange Ratio and rounding up to the nearest whole share, and (iii) the
per share exercise price under each Stock Option shall be adjusted by dividing
the per share exercise price of the Stock Option by the Exchange Ratio and
rounding up to the nearest cent. In addition, each Stock Option which is an
“incentive stock option” shall be adjusted as required by Section 424 of the
Code and the regulations promulgated thereunder so as to continue as an
incentive stock option under Section 424(a) of the Code, and so as not to
constitute a modification, extension, or renewal of the option, within the
meaning of Section 424(h) of the Code. BNC and SSB shall take all necessary
steps to effectuate the foregoing provisions of this Paragraph 6.07(b),
including appropriate amendments to the Stock Option Plans if necessary.

 

(b) BNC and SSB agree that, as of the Effective Time, all Stock Options held by
those employees who are not employed by BNC and the holders of options under
SSB’s Non-Statutory Stock Option Plan who are not elected to the BNC Board of
Directors, and 352,217 unexercised Warrants to purchase shares of SSB Common
Stock shall surrender their Stock Options or Warrants and receive solely a cash
payment amount equal to (A) the cash value of the Merger Consideration,
adjusted, if necessary, as determined in paragraph 1.05(b) plus the Cash
Consideration, if any, as determined in Paragraph 1.05(b) less the exercise
price per share of SSB Common Stock covered by the Stock Option or Warrant,
(B) multiplied by the total number of shares of SSB Common Stock covered by the
Stock Option or Warrant. For each person subject

 

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to this Section 6.07(b), SSB will obtain from such person who holds a Stock
Option, and will deliver to BNC at the Closing, a written agreement in a form
specified by BNC confirming and agreeing to the surrender of such person’s Stock
Option upon payment of the amounts described above.

 

(c) The SSB Board of Directors agrees, if requested by BNC, to accelerate, in
accordance with the SSB Warrant agreement, the exercise date of the SSB Warrants
to the Effective Time.

 

6.08. Treatment of 401(k)/Thrift Plan. SSB will terminate its 401(k) Plan (the
“Plan”) and in accordance with the Plan and applicable law, and each participant
in SSB’s plan on such termination date may elect, upon completion of the
termination and the final liquidation of the plan, to receive a distribution of
the assets credited to his or her plan account at that time or, if the
participant has become a participant in BNC’s Section 401(k) plan, to have those
assets credited as a “roll-over” to the participant’s plan account under BNC’s
plan.

 

SSB agrees that, prior to the Effective Time, it will take or cause to be taken
such actions as BNC shall reasonably consider to be necessary or desirable in
connection with or to effect or facilitate any such plan participation
termination.

 

6.09. Directors’ and Officers’ Liability Insurance. At its option, SSB may
obtain or require BNC to obtain and maintain, in effect for three years from the
Closing Date, the current directors’ and officers’ liability insurance policies
maintained by SSB or substitute policies or “tail” coverage of at least the same
coverage containing terms and conditions that are not taken as a whole
materially less favorable to the insured with respect to matters occurring prior
to the Effective Time. Such insurance shall cover all persons and entities who
are currently covered by SSB’s existing directors’ and officers’ liability
policy (including all existing directors and officers of SSB and its subsidiary)
and shall include coverage for matters occurring prior to the Effective Time.

 

6.10. Tax Opinion. BNC and SSB agree to use their best efforts to cause the
Merger, and the conversion of outstanding shares of SSB Common Stock into shares
of BNC Common Stock, on the terms contained in this Agreement, to be treated as
a tax-free reorganization within the meaning of Section 368(a) of the Internal
Revenue Code and to obtain from Brooks Pierce McLendon Humphrey & Leonard,
L.L.P. a written opinion (the “Tax Opinion”), addressed jointly to the Boards of
Directors of BNC and SSB, to the foregoing effect.

 

6.11. Affiliate Agreements. Not less than 45 days prior to the Effective Time,
SSB shall deliver to BNC a letter identifying all individuals who, in the
judgment of SSB, may be deemed an “affiliate” of SSB for purposes of Rule 145 of
the Securities Act of 1933, as amended and applicable SEC rules and regulations,
and such list shall be updated as necessary to reflect changes form the date of
delivery thereof. SSB shall use reasonable best efforts to cause each person
identified on the list to deliver to BNC not less than ten (10) days prior to
the Effective Time, a written agreement substantially in the form attached
hereto as Exhibit E.

 

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ARTICLE VII

CONDITIONS PRECEDENT TO MERGER

 

7.01. Conditions to all Parties’ Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:

 

(a) Approval by Regulatory Authorities; Disadvantageous Conditions. (i) The
Merger and other transactions described in this Agreement shall have been
approved, to the extent required by law, by the FDIC, the Commissioner, the
Commission, and by all other Regulatory Authorities having jurisdiction over
such transactions; (ii) no Regulatory Authority shall have objected to or
withdrawn its approval of such transactions or imposed any condition on such
transactions or its approval thereof, which condition is reasonably deemed by
SSB or BNC to so adversely impact the economic or business benefits of this
Agreement to SSB or BNC as to render it inadvisable for SSB or BNC to consummate
the Merger; (iii) the 15-day or 30-day waiting period, as applicable, required
following the approval by the FDIC for review of the transactions described
herein by the United States Department of Justice shall have expired, and, in
connection with any such review, no objection to the Merger shall have been
raised; and (iv) all other consents, approvals and permissions, and the
satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.

 

(b) Adverse Proceedings, Injunction, Etc. There shall not be (i) any order,
decree or injunction of any court or agency of competent jurisdiction which
enjoins or prohibits the Merger or any of the other transactions described in
this Agreement or any of the parties hereto from consummating any such
transaction, (ii) any pending or threatened investigation of the Merger or any
of such other transactions by the United States Department of Justice, or any
actual or threatened litigation under federal antitrust laws relating to the
Merger or any other such transaction, (iii) any suit, action or proceeding by
any person (including any governmental, administrative or regulatory agency or
any shareholder), pending or threatened before any court or governmental agency
in which it is sought to restrain or prohibit BNC or SSB from consummating the
Merger or carrying out any of the terms or provisions of this Agreement, or
(iv) any other suit, claim, action or proceeding pending or threatened against
BNC or SSB or any of their respective officers or directors which shall
reasonably be considered by BNC or SSB to be materially burdensome in relation
to the proposed Merger or materially adverse in relation to the financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of any party hereto, and which has not
been dismissed, terminated or resolved to the satisfaction of all parties hereto
within 90 days of the institution or threat thereof.

 

(c) Approval by Boards of Directors and Shareholders. The respective Boards of
Directors of BNC and SSB shall have duly approved, adopted and ratified this
Agreement by appropriate resolutions, the shareholders of BNC shall have duly
approved this Agreement and the Merger at the BNC Shareholders’ Meeting, and the
shareholders of SSB shall

 

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have duly approved this Agreement and the Merger at the SSB Shareholders’
Meeting, all to the extent required by and in accordance with the provisions of
this Agreement, applicable law, and applicable provisions of their respective
Articles of Incorporation and Bylaws.

 

(d) Fairness Opinions.

 

(i) BNC shall have received as of the date hereof from Burke Capital a written
opinion (the “BNC Fairness Opinion”) to the effect that the Merger is fair, from
a financial point of view, to BNC and its shareholders; and, Burke Capital shall
have delivered a letter to BNC, dated as of a date within five business days
preceding the Closing Date, to the effect that it remains its opinion that the
terms of the Merger are fair, from a financial point of view, to BNC and its
shareholders.

 

(ii) SSB shall have received as of the date hereof from Smith Capital a written
opinion (the “SSB Fairness Opinion”) to the effect that the consideration
received by SSB’s shareholders is fair, from a financial point of view, to SSB
and its shareholders; and, Smith Capital shall have delivered a letter to SSB,
dated as of a date within five business days preceding the Closing Date, to the
effect that it remains its opinion that the terms of the Merger are fair, from a
financial point of view, to SSB and its shareholders.

 

(e) Tax Opinion. BNC and SSB shall have received the Tax Opinion from Brooks
Pierce McLendon Humphrey & Leonard, L.L.P. in substance and form reasonably
satisfactory to each of them.

 

(f) Employment Agreements. Ralph N. Strayhorn III shall have entered into an
employment agreement and a SERP substantially in the forms attached hereto as
Exhibits B and C, respectively.

 

(g) Employment of Other Officers. As of the Effective Time, certain of the other
officers of SSB, as are included in Exhibit D, shall have entered into
employment agreements substantially in accordance with the terms set forth in
Exhibit D, which is attached hereto.

 

(h) No Termination or Abandonment. This Agreement shall not have been terminated
or abandoned by any party hereto.

 

7.02. Additional Conditions to BNC’s Obligations. Notwithstanding any other
provision of this Agreement to the contrary, BNC’s separate obligation to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or before the
Closing Date:

 

(a) Material Adverse Change. There shall not have occurred any material adverse
change in the financial condition or results of operations of SSB, and there
shall not have occurred any event or development, and there shall not exist any
condition or circumstance which, with the lapse of time or otherwise, is likely
to cause, create or result in any such material adverse change.

 

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(b) Compliance with Laws. SSB shall have complied in all material respects with
all federal and state laws and regulations applicable to it in connection with
the transactions described in this Agreement where the violation of or failure
to comply with any such law or regulation is likely to have a material adverse
effect on the financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of SSB, or of BNC
after the Effective Time, or on SSB’s ability to consummate the Merger.

 

(c) SSB’s Representations and Warranties and Performance of Agreements;
Officers’ Certificate. Unless waived in writing by BNC as provided in
Paragraph 10.02, each of the representations and warranties of SSB contained in
this Agreement shall have been true and correct in all material respects as of
the date hereof, and they shall remain true and correct on and as of the Closing
Date with the same force and effect as though made on and as of such date,
except (i) for changes which are not, in the aggregate, material and adverse to
the financial condition, results of operations, prospects, businesses, assets,
loan portfolio, investments, properties or operations of SSB or to SSB’s ability
to consummate the Merger and other transactions described herein, and (ii) as
otherwise contemplated by this Agreement; and SSB shall have performed in all
material respects all of its obligations, covenants and agreements hereunder to
be performed by it on or before the Closing Date.

 

BNC shall have received a certificate dated as of the Closing Date and executed
by the President and CEO of SSB to the effect that the conditions of this
subparagraph have been met and as to such other matters as may be reasonably
requested by BNC.

 

(d) Legal Opinion of SSB’s Counsel. BNC shall have received the written legal
opinion of counsel for SSB, dated as of the Closing Date and in form and
substance reasonably satisfactory to BNC.

 

(e) Other Documents and Information. SSB shall have provided to BNC correct and
complete copies (certified by its Secretary) of resolutions of its Board of
Directors and shareholders pertaining to approval of this Agreement and the
Merger and other transactions contemplated herein, together with a certificate
of the incumbency of its officers who executed this Agreement or any other
documents delivered to BNC in connection with the Closing.

 

(f) Acceptance by BNC’s Counsel. The form and substance of all legal matters
described in this Agreement or related to the transactions contemplated herein
shall be reasonably acceptable to BNC’s legal counsel.

 

7.03. Additional Conditions to SSB’s Obligations. Notwithstanding any other
provision of this Agreement to the contrary, SSB’s separate obligations to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or before the
Closing Date:

 

(a) Material Adverse Change. There shall not have occurred any material adverse
change in the financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of BNC, and there
shall not have occurred

 

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any event or development, and there shall not exist any condition or
circumstance which, with the lapse of time or otherwise, is likely to cause,
create or result in any such material adverse change. In the event BNC
consolidates, merges with, or is acquired by or enters into or becomes bound by
any contract, agreement, commitment or letter of intent relating to any merger
or consolidation with or acquisition by another institution prior to the
Closing, SSB shall have the unilateral right to terminate this Agreement.

 

(b) Compliance with Laws. BNC shall have complied in all material respects with
all federal and state laws and regulations applicable to it in connection with
the transactions described in this Agreement and where the violation of or
failure to comply with any such law or regulation likely to have a material
adverse effect on the financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or operations of BNC
after the Effective Time, or on BNC’s ability to consummate the Merger.

 

(c) BNC’s Representations and Warranties and Performance of Agreements;
Officers’ Certificate. Unless waived in writing by SSB as provided in
Paragraph 10.02, each of the representations and warranties of BNC contained in
this Agreement shall have been true and correct in all material respects as of
the date hereof, and they shall remain true and correct at and as of the Closing
Date with the same force and effect as though made on and as of such date,
except (i) for changes which are not, in the aggregate, material and adverse to
the financial condition, results of operations, prospects, businesses, assets,
loan portfolio, investments, properties or operations of BNC or to BNC’s ability
to consummate the Merger and other transactions described herein, and (ii) as
otherwise contemplated by this Agreement; and, BNC shall have performed in all
material respects all its obligations, covenants and agreements hereunder to be
performed by it on or before the Closing Date.

 

SSB shall have received a certificate dated as of the Closing Date and executed
by BNC’s President and CEO to the effect that the conditions of this
subparagraph have been met and as to such other matters as may be reasonably
requested by SSB.

 

(d) Legal Opinion of BNC’s Counsel. SSB shall have received the written legal
opinion of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., counsel to BNC,
dated as of the Closing Date and in form and substance reasonably satisfactory
to SSB.

 

(e) Other Documents and Information. BNC shall have provided to SSB correct and
complete copies (all certified by BNC’s Secretary) of resolutions of its Board
of Directors and shareholders pertaining to approval of this Agreement and the
Merger and other transactions contemplated herein, together with a certificate
as to the incumbency of BNC’s officers who executed this Agreement or any other
documents delivered to SSB in connection with the Closing.

 

(f) Acceptance by SSB’s Counsel. The form and substance of all legal matters
described in this Agreement or related to the transactions contemplated herein
shall be reasonably acceptable to SSB’s legal counsel.

 

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(g) Merger Expenses. Expenses incurred by SSB in connection with this Agreement
and the Merger (including without limitation the entire amount of fees payable
to Smith Capital for the Fairness Opinion and its financial consulting services
and fees payable to SSB’s accountants and attorneys) shall not exceed an
aggregate of $250,000. If SSB determines in good faith that its expenses could
exceed $250,000, BNC will negotiate in good faith with SSB on increasing the
amount allocated for SSB’s merger expenses.

 

ARTICLE VIII

TERMINATION; BREACH; REMEDIES

 

8.01. Mutual Termination. At any time prior to the Effective Time (and whether
before or after approval hereof by the shareholders of BNC or SSB), this
Agreement may be terminated by the mutual agreement of SSB and BNC. Upon any
such mutual termination, all obligations of BNC and SSB hereunder shall
terminate and each party shall pay its own costs and expenses as provided in
Paragraph 6.04.

 

8.02. Unilateral Termination. Prior to the Effective Time, this Agreement may be
terminated by either SSB or BNC (whether before or after approval hereof by
BNC’s shareholders or SSB’s shareholders) upon written notice to the other
parties in the manner provided herein and under the circumstances described
below.

 

(a) Termination by SSB. This Agreement may be terminated by SSB by action of its
Board of Directors:

 

(i) if any of the conditions to the obligations of SSB set forth in
Paragraph 7.01 and 7.03 shall not have been satisfied in all material respects
or effectively waived in writing by SSB within 15 days of receipt of all
shareholder and regulatory approvals (except to the extent that the failure of
such condition to be satisfied has been caused by the failure of SSB to satisfy
any of its obligations, covenants or agreements contained herein);

 

(ii) if BNC shall have violated or failed to fully perform any of its
obligations, covenants or agreements contained in Article V or VI herein in any
material respect;

 

(iii) if any of BNC’s representations or warranties contained in Article III
hereof or in any other certificate or writing delivered pursuant to this
Agreement shall have been false or misleading in any material respect when made
or would have been false or misleading in any material respect except for the
fact that the representation or warranty was limited to or qualified based on
the Knowledge of any person, or that there has occurred any event or development
or that there exists any condition or circumstance which has caused or, with the
lapse of time or otherwise, is likely to cause any such representations or
warranties to become false or misleading in any material respect or that would
cause any such representation or warranty to become false or misleading in any
material respect except for the fact that the representation or warranty was
limited to or qualified based on the Knowledge of any person;

 

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(iv) if, notwithstanding SSB’s satisfaction of its obligations under
Paragraphs 6.01 and 6.03, SSB’s shareholders do not approve this Agreement and
the Merger at the SSB Shareholders’ Meeting, or if the BNC Shareholders’ Meeting
is not held by June 30, 2006;

 

(v) if the Merger shall not have become effective on or before July 31, 2006, or
such later date as shall be mutually agreed upon in writing by SSB and BNC;

 

(vi) if the BNC Average Price is less than $14.82; or,

 

(vii) if one or more persons or entities other than BNC makes a bona fide
proposal for a transaction of the type described in Paragraph 4.02(j) (the “SSB
Transaction”) and the SSB Board of Directors determines, in good faith judgment
and in the reasonable exercise of its fiduciary duties, with respect to legal
matters on the written opinion of its legal counsel and as to financial matters
on the written opinion of Smith Capital or other investment banking firm of
national reputation: (A) that the SSB Transaction is more favorable to SSB’s
shareholders than the transaction contemplated by this Agreement; and (B) that
the failure to terminate this Agreement and accept such alternative SSB
Transaction would be inconsistent with the proper exercise of its fiduciary
duties.

 

However, before SSB may terminate this Agreement for any of the reasons
specified above in (i), (ii) or (iii) of this Paragraph 8.02(a), it shall give
written notice to BNC in the manner provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by SSB
shall not become effective if, within 30 days following the giving of such
notice, BNC shall cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of SSB. In the event BNC cannot or does
not cure such breach, default or violation or satisfy such condition to the
reasonable satisfaction of SSB within such notice period, termination of this
Agreement by SSB thereafter shall be effective upon its giving of written notice
thereof to BNC in the manner provided herein.

 

(b) Termination by BNC. Prior to the Effective Time, this Agreement may be
terminated by BNC:

 

(i) if any of the conditions to the obligations of BNC set forth in
Paragraph 7.01 and 7.02 shall not have been satisfied in all material respects
or effectively waived in writing by BNC within 15 days of receipt of all
shareholder and regulatory approvals (except to the extent that the failure of
such condition to be satisfied has been caused by the failure of BNC to satisfy
any of its obligations, covenants or agreements contained herein);

 

(ii) if SSB shall have violated or failed to fully perform any of its
obligations, covenants or agreements contained in Article IV or VI herein in any
material respect;

 

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(iii) if any of SSB’s representations and warranties contained in Article II
hereof or in any other certificate or writing delivered pursuant to this
Agreement shall have been false or misleading in any material respect when made
or would have been false or misleading in any material respect except for the
fact that the representation or warranty was limited to or qualified based on
the Knowledge of any person, or that there has occurred any event or development
or that there exists any condition or circumstance which has caused or, with the
lapse of time or otherwise, likely to cause any such representations or
warranties to become false or misleading in any material respect or that would
cause any such representation or warranty to become false or misleading in any
material respect except for the fact that the representation or warranty was
limited to or qualified based on the Knowledge of any person;

 

(iv) if, notwithstanding BNC’s satisfaction of its obligations contained in
Paragraphs 7.01 and 7.02, its shareholders do not approve this Agreement and
approve the Merger at the BNC Shareholders’ Meeting, or the SSB shareholders’
Meeting is not held by June 30, 2006;

 

(v) if the Merger shall not have become effective on or before July 31, 2006, or
such later date as shall be mutually agreed upon in writing by SSB and BNC;

 

(vi) if shareholders of SSB and/or BNC exercise their right of dissent and
appraisal under Article 13 of the North Carolina Business Corporation Act with
respect to an aggregate number of shares of SSB Common Stock and/or BNC Common
Stock such as would result in a reduction of 5% or more in the aggregate number
of shares of BNC Common Stock that otherwise would be outstanding following the
Effective Time;

 

(vii) if the BNC Average Price is greater than $23.18; or,

 

(viii) if the BNC Board of Directors determines, in its good faith judgment and
in the reasonable exercise of its fiduciary duties, based on the written opinion
of its legal counsel, that the failure to terminate this Agreement would be
inconsistent with the proper exercise of its fiduciary duties.

 

However, before BNC may terminate this Agreement for any of the reasons
specified above in clause (i), (ii) or (iii) of this Paragraph 8.02(b), it shall
give written notice to SSB in the manner provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by BNC
shall not become effective if, within 30 days following the giving of such
notice, SSB shall cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of BNC. In the event SSB cannot or does
not cure such breach, default or violation or satisfy such condition to the
reasonable satisfaction of BNC within such notice period, termination of this
Agreement by BNC thereafter shall be effective upon its giving of written notice
thereof to SSB in the manner provided herein.

 

8.03. Breach; Remedies. (a) Except as otherwise provided below, (i) in the event
of a breach by BNC of any of its representations or warranties contained in
Article III of this Agreement or in any other certificate or writing delivered
pursuant to this Agreement, or in the

 

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event of its failure to perform or violation of any of its obligations,
agreements, representations, warranties or covenants contained in Articles V or
VI of this Agreement, then SSB’s sole right and remedy shall be to terminate
this Agreement prior to the Effective Time as provided in Paragraph 8.02(a) or,
in the case of a failure to perform or violation of any obligations, agreements
or covenants, to seek specific performance thereof; and (ii) in the event of any
such termination of this Agreement by SSB due to a failure by BNC to perform any
of its obligations, agreements or covenants contained in Articles V or VI of
this Agreement, then BNC shall be obligated to reimburse SSB for up to (but not
more than) $150,000 in expenses described in Paragraph 6.04 which actually have
been incurred by SSB.

 

Likewise, and except as otherwise provided below, (i) in the event of a breach
by SSB of any of its representations or warranties contained in Article II of
this Agreement, or in the event of its failure to perform or violation of any of
its obligations, agreements, representations, warranties or covenants contained
in Articles IV or VI of this Agreement, then BNC’s sole rights and remedies
shall be to terminate this Agreement prior to the Effective Time as provided in
Paragraph 8.02(b), or, in the alternative in the case of a failure to perform or
violation of any obligations, agreements or covenants, to seek specific
performance thereof; and (ii) in the event of any such termination of this
Agreement by BNC due to a failure by SSB to perform any of its obligations,
agreements or covenants contained in Articles IV or VI of this Agreement, then
SSB shall be obligated to reimburse BNC for up to (but not more than) $150,000
in expenses described in Paragraph 6.04 which actually have been incurred by BNC
and the Fee (as defined below).

 

(b) (i) As a condition of BNC’s willingness, and in order to induce BNC to enter
into this Agreement and to reimburse BNC for incurring the costs and expenses
related to entering into this Agreement and consummating the transactions
contemplated by this Agreement, SSB hereby agrees to pay BNC and BNC shall be
entitled to payment of a fee of $1,250,000 (the “BNC Fee”), if this Agreement is
terminated by either SSB or BNC because of a breach by SSB of Paragraph
4.02(j)(iii) or (iv). The BNC Fee shall be due and payable to BNC at the time
SSB completes any of the transactions contemplated in Paragraphs 4.02(j)(iii) or
(iv) within twelve (12) months after termination of this Agreement and such BNC
Fee shall be in addition to any amounts payable by SSB pursuant to subparagraph
(a) above.

 

If demand for payment of the BNC Fee is made pursuant to this Paragraph 8.03 and
payment is timely made, then BNC will not have any other rights or claims
against SSB and its officers, directors, attorneys and financial advisors under
this Agreement, it being agreed that the acceptance of the BNC Fee under this
Paragraph 8.03(b)(i) and any payment due under Paragraph 8.03(a) will constitute
the sole and exclusive remedy of BNC against SSB for breach of Paragraph
4.02(j).

 

(ii) As a condition of SSB’s willingness, and in order to induce SSB to enter
into this Agreement and to reimburse SSB for incurring the costs and expenses
related to this Agreement and consummating the transactions contemplated by this
Agreement, BNC agrees to pay SSB and SSB shall be entitled to payment of a fee
of $1,250,000 (the “SSB Fee”), if this Agreement is terminated by either SSB or
BNC because of a breach by BNC of Paragraphs 5.02 (g)(iii) or (iv). The SSB Fee
at the time BNC completes any of the transactions

 

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contemplated in Paragraph 5.02(g)(iii) or (iv) within twelve (12) months after
termination of this Agreement and such SSB Fee shall be in addition to any
amounts payable by BNC pursuant to subparagraph (a) above.

 

If demand for payment of the SSB Fee is made pursuant to this Paragraph 8.03 and
payment is timely made, then SSB will not have any other rights or claims
against BNC and its officers, directors, attorneys and financial advisors under
this Agreement, it being agreed that the acceptance of the SSB Fee under this
Paragraph 8.03(b)(ii) and any payment due under Paragraph 8.03(a) will
constitute the sole and exclusive remedy of SSB against BNC for breach of
Paragraph 4.02(g).

 

Except for subparagraphs (b)(i) and (b)(ii) above, notwithstanding any other
provision of this Agreement to the contrary, if any party to this Agreement
breaches this Agreement by willfully or intentionally failing to perform or
violating any of its obligations, agreements, representations, warranties or
covenants contained in Articles IV, V or VI of this Agreement, such party shall
be obligated to pay all expenses of the other party described in Paragraph 6.04,
together with other damages recoverable at law or in equity.

 

ARTICLE IX

INDEMNIFICATION

 

9.01. Indemnification Following Termination of Agreement.

 

(a) By BNC. BNC agrees that, in the event this Agreement is terminated for any
reason and the Merger is not consummated, it will indemnify, hold harmless and
defend SSB and its officers, directors, employees, attorneys and financial
advisors from and against any and all claims, disputes, demands, causes of
action, suits or proceedings of any third party (including any Regulatory
Authority), together with all losses, damages, liabilities, obligations, costs
and expenses of every kind and nature in connection therewith (including without
limitation reasonable attorneys’ fees and legal costs and expenses in connection
therewith), whether known or unknown, and whether now existing or hereafter
arising, which may be threatened against, incurred, undertaken, received or paid
by SSB:

 

(i) in connection with or which arise out of, result from, or are based upon
(A) BNC’s operations or business transactions or its relationship with any of
its employees, or (B) BNC’s failure to comply with any statute or regulation of
any federal, state or local government or agency (or any political subdivision
thereof) in connection with the transactions described in this Agreement;

 

(ii) in connection with or which arise out of, result from, or are based upon
any fact, condition or circumstance that constitutes a breach by BNC of any of
its representations or warranties under or in connection with this Agreement, or
any failure of BNC to perform any of its covenants, agreements or obligations
under or in connection with this Agreement; or,

 

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(iii) in connection with or which arise out of, result from, or are based upon
any information provided by BNC which is included in the Proxy
Statement/Prospectus and which information causes the Proxy
Statement/Prospectus, at the time of its mailing to BNC’s shareholders and SSB’s
shareholders, to contain any untrue statement of a material fact or to omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not false or misleading.

 

(b) By SSB. SSB agrees that, in the event this Agreement is terminated for any
reason and the Merger is not consummated, it will indemnify, hold harmless and
defend BNC and its officers, directors, employees, attorneys and financial
advisors from and against any and all claims, disputes, demands, causes of
action, suits, proceedings of any third party (including any Regulatory
Authority), together with all losses, damages, liabilities, obligations, costs
and expenses of every kind and nature in connection therewith (including without
limitation reasonable attorneys’ fees and legal costs and expenses in connection
therewith), whether known or unknown, and whether now existing or hereafter
arising, which may be threatened against, incurred, undertaken, received or paid
by BNC:

 

(i) in connection with or which arise out of, result from, or are based upon
(A) SSB’s operations or business transactions or its relationship with any of
its employees, (B) SSB’s failure to comply with any statute or regulation of any
federal, state or local government or agency (or any political subdivision
thereof) in connection with the transactions described in this Agreement or
(C) actions, suits, proceedings, injunctions or any other type of legal action
brought by shareholders of SSB in connection with the Merger;

 

(ii) in connection with or which arise out of, result from, or are based upon
any fact, condition or circumstance that constitutes a breach by SSB of any of
its representations or warranties under or in connection with this Agreement, or
any failure of SSB to perform any of its covenants, agreements or obligations
under or in connection with this Agreement; or,

 

(iii) in connection with or which arise out of, result from, or are based upon
any information provided by SSB which is included in the Proxy
Statement/Prospectus and which information causes the Proxy
Statement/Prospectus, at the time of its mailing to BNC’s shareholders and SSB’s
shareholders, to contain any untrue statement of a material fact or to omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not false or misleading.

 

9.02. Procedure for Claiming Indemnification. If any matter subject to
indemnification under this Article IX arises in the form of a claim (herein
referred to as a “Third Party Claim”) against SSB or BNC, or their respective
successors and assigns, or any of their respective subsidiary corporations,
officers, directors, employees, attorneys or financial advisors (collectively,
“Indemnitees”), the Indemnitee promptly shall give notice and details thereof,
including copies of all pleadings and pertinent documents, to the party
obligated for indemnification hereunder (the “Indemnitor”). Within 15 days of
such notice, the Indemnitor

 

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either (i) shall pay the Third Party Claim either in full or upon agreed
compromise, or (ii) shall notify the applicable Indemnitee that the Indemnitor
disputes the Third Party Claim and intends to defend against it, and thereafter
shall so defend and pay any adverse final judgment or award in regard thereto.
Such defense shall be controlled by the Indemnitor and the cost of such defense
shall be borne by it, except that the Indemnitee shall have the right to
participate in such defense at its own expense and provided that the Indemnitor
shall have no right in connection with any such defense or the resolution of any
such Third Party Claim to impose or agree to any liability, cost, restriction,
limitation or condition of any kind that compromises the Indemnitee hereunder.
In the case of an Indemnitee that is an officer, director, financial advisor or
attorney of a party to this Agreement, then that party agrees that it shall
cooperate in all reasonable respects in the defense of any such Third Party
Claim, including making personnel, books and records relevant to the Third Party
Claim available to the Indemnitor without charge therefor except for
out-of-pocket expenses. Any settlement to a Third Party Claim agreed to by the
Indemnitor shall provide for an unconditional release of an indemnitee unless
such Indemnitee agrees in writing otherwise. If the Indemnitor fails to take
action within 15 days as hereinabove provided or, having taken such action,
thereafter fails diligently to defend and resolve the Third Party Claim, the
Indemnitee shall have the right to pay, compromise or defend the Third Party
Claim and to assert the indemnification provisions hereof. The Indemnitee also
shall have the right, exercisable in good faith, to take such action as may be
necessary to avoid a default prior to the assumption of the defense of the Third
Party Claim by the Indemnitor.

 

ARTICLE X

MISCELLANEOUS PROVISIONS

 

10.01. Survival of Representations, Warranties, Indemnification and Other
Agreements.

 

(a) Representations, Warranties and Other Agreements. None of the
representations, warranties or agreements contained in this Agreement shall
survive the Effective Time, and no party shall have any right after the
Effective Time to recover damages or any other relief from any other party to
this Agreement by reason of any breach of representation or warranty, any
nonfulfillment or nonperformance of any agreement contained herein, or
otherwise.

 

(b) Indemnification. The parties’ indemnification agreements and obligations
pursuant to Paragraph 9.01 shall become effective only in the event this
Agreement is terminated and shall survive any such termination, and neither of
the parties shall have any obligations under Paragraph 9.01 in the event of or
following consummation of the Merger.

 

10.02. Waiver. Any term or condition of this Agreement may be waived (except as
to matters of approvals from Regulatory Authorities and other approvals required
by law), either in whole or in part, at any time by the party which is, and
whose shareholders are, entitled to the benefits thereof; provided, however,
that any such waiver shall be effective only upon a determination by the waiving
party (through action of its Board of Directors) that such waiver would not
materially adversely affect the interests of the waiving party or its
shareholders; and,

 

61

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provided further, that no waiver of any term or condition of this Agreement by
any party shall be effective unless such waiver is in writing and signed by the
waiving party, nor shall any such waiver be construed to be a waiver of any
succeeding breach of the same term or condition or a waiver of any other or
different term of condition. No failure or delay of any party to exercise any
power, or to insist upon a strict compliance by any other party of any
obligation, and no custom or practice at variance with any terms hereof, shall
constitute a waiver of the right of any party to demand full and complete
compliance with such terms.

 

10.03. Amendment. This Agreement may be amended, modified or supplemented at any
time or from time to time prior to the Effective Time, and either before or
after its approval by the shareholders of BNC or the shareholders of SSB, by an
agreement in writing approved by the Boards of Directors of SSB and BNC executed
in the same manner as this Agreement; provided however, that, except with the
further approval of BNC’s shareholders and SSB’s shareholders of that change or
as otherwise provided herein, following approval of this Agreement by BNC’s
shareholders and SSB’s shareholders no change may be made in the amount of
consideration into which each share of SSB Common Stock will be converted.

 

10.04. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by courier, or by U.S. mail, first class postage prepaid, and addressed as
follows:

 

If to BNC:

   With copy to:

BNC Bancorp

831 Julian Avenue

Thomasville, NC 27360

Attention: W. Swope Montgomery, Jr.

  

Jean C. Brooks, Esq.

Brooks, Pierce, McLendon,

    Humphrey & Leonard, L.L.P.

2000 Renaissance Plaza

230 North Elm Street

Greensboro, NC 27401

If to SSB:

   With copy to:

SterlingSouth Bank & Trust Company

3202 Northline Avenue

Greensboro, NC 27408

Attention: Ralph N. Strayhorn III

  

Ronald D. Raxter, Esq.

Maupin Taylor P.A.

3200 Beechleaf Court

Raleigh, NC 27604-1062

 

10.05. Further Assurance. BNC and SSB each agrees to furnish to each other party
such further assurances with respect to the matters contemplated in this
Agreement and their respective agreements, covenants, representations and
warranties contained herein, including the opinion of legal counsel, as such
other party may reasonably request.

 

10.06. Headings and Captions. Headings and captions of the Paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part hereof.

 

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10.07. Gender and Number. As used herein, the masculine gender shall include the
feminine and neuter, the singular number, the plural, and vice versa, whenever
such meanings are appropriate.

 

10.08. Entire Agreement. This Agreement (including all schedules and exhibits
attached hereto and all documents incorporated herein by reference) contains the
entire agreement of the parties with respect to the transactions described
herein and supersedes any and all other oral or written agreement(s) heretofore
made, and there are no representations or inducements by or to, or any
agreements between, any of the parties hereto other than those contained herein
in writing.

 

10.09. Severability of Provisions. The invalidity or unenforceability of any
term, phrase, clause, paragraph, restriction, covenant, agreement or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.

 

10.10. Assignment. This Agreement may not be assigned by any party hereto except
with the prior written consent of the other parties hereto. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
parties and their respective successors and assigns.

 

10.11. Counterparts. Any number of counterparts of this Agreement may be signed
and delivered, each of which shall be considered an original and which together
shall constitute one agreement.

 

10.12. Governing Law. This Agreement is made in and shall be construed and
enforced in accordance with the laws of the State of North Carolina.

 

10.13. Previously Disclosed Information. As used in this Agreement, “Previously
Disclosed” shall mean the disclosure of information by BNC to SSB, or by SSB to
BNC, in a letter delivered by the disclosing party or parties to the other
parties prior to the date hereof, specifically referring to this Agreement, and
arranged in paragraphs corresponding to the Paragraphs, Subparagraphs and items
of this Agreement applicable thereto. Information shall be deemed Previously
Disclosed for the purpose of a given Paragraph, Subparagraph or item of this
Agreement only to the extent that a specific reference thereto is made in
connection with disclosure of such information at the time of such delivery.

 

10.14. Knowledge. The term “Best Knowledge” as used in this Agreement with
reference to certain facts or information shall be deemed to refer to facts or
information of which management of BNC, or management of SSB, as the case may
be, are consciously aware or of which they should have become consciously aware
in the ordinary course of business and the performance of their management
duties.

 

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10.15. Inspection.

 

(a) Any right of SSB under this Agreement to investigate or inspect the assets,
books, records, files and other information of BNC in no way shall establish any
presumption that SSB should have conducted any investigation or that such right
has been exercised by SSB, its agents, representatives or others. Any
investigations or inspections actually made by SSB or its agents,
representatives or others prior to the date of this Agreement or otherwise prior
to the Effective Time shall not be deemed in any way in derogation or limitation
of the covenants, representations and warranties made by or on behalf of BNC in
this Agreement.

 

(b) Any right of BNC under this Agreement to investigate or inspect the assets,
books, records, files and other information of SSB in no way shall establish any
presumption that BNC should have conducted any investigation or that such right
has been exercised by BNC, its agents, representatives or others. Any
investigations or inspections actually made by BNC or its agents,
representatives or others prior to the date of this Agreement or otherwise prior
to the Effective Time shall not be deemed in any way in derogation or limitation
of the covenants, representations and warranties made by or on behalf of SSB in
this Agreement.

 

[Reminder of page intentionally left blank – signature page follows.]

 

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IN WITNESS WHEREOF, BNC and SSB each has caused this Agreement to be executed in
its name by its duly authorized officers and its corporate seal to be affixed
hereto as of the date first above written.

 

        BNC BANCORP

[CORPORATE SEAL]

     

By:

                    W. Swope Montgomery, Jr.                 President and Chief
Executive Officer

 

ATTEST:                       Secretary            

 

        BANK OF NORTH CAROLINA

[CORPORATE SEAL]

     

By:

                    W. Swope Montgomery, Jr.                 President and Chief
Executive Officer

 

ATTEST:                       Secretary            

 

        STERLINGSOUTH BANK & TRUST COMPANY

[CORPORATE SEAL]

     

By:

                    Ralph N. Strayhorn III                 President and Chief
Executive Officer

 

ATTEST:                       Secretary            

 

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As an inducement to Bank of North Carolina to enter into this Agreement, each of
the undersigned directors of SterlingSouth Bank & Trust Company (“SSB”) executes
this Agreement and in so doing agrees to vote all share of common stock of SSB
in favor of this Agreement and the Merger contemplated hereby, unless advised in
writing by SSB’s counsel that such a vote is a breach of the directors’
fiduciary duties as contemplated by Paragraph 4.01 of this Agreement.

 

By:

         

By:

        Thomas R. Sloan           Jeffrey L. Beach     Director          
Director

 

By:

         

By:

        Ralph N. Strayhorn III           Frank Brenner     Director          
Director

 

By:

         

By:

        Cindy L. Thompson           Dwight M. Davidson III     Director        
  Director

 

By:

         

By:

        Ann E. Kroupa           Charles T. Hagan III     Director          
Director

 

By:

         

By:

        Prentis H. O’Tuel, Jr.           Robert N. Johnston     Director        
  Director

 

           

By:

                    Randall R. Kaplan                 Director

 

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INDEX OF EXHIBITS

 

Document

--------------------------------------------------------------------------------

   Exhibit

--------------------------------------------------------------------------------

Plan of Merger

   A

Strayhorn Employment Agreement

   B

Strayhorn SERP

   C

Employment Terms

   D

Affiliate’s Letter

   E

 

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Exhibit A

 

PLAN OF MERGER

BY AND AMONG

BANK OF NORTH CAROLINA

AND

STERLINGSOUTH BANK & TRUST COMPANY

 

1.01. Names of Merging Corporations. The names of the corporations proposed to
be merged are Bank of North Carolina and SterlingSouth Bank & Trust Company.

 

1.02. Nature of Transaction; Plan of Merger. Subject to the provisions of this
Agreement, at the “Effective Time” (as defined in Paragraph 1.07 below), SSB
will be merged with and into the Bank (the “Merger”) as provided in the plan of
merger (the “Plan of Merger”) attached as Exhibit A to this Agreement.

 

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

 

1.04. Assets and Liabilities of SSB. At the Effective Time, and by reason of the
Merger, and in accordance with applicable law, all of the property, assets and
rights of every kind and character of SSB (including without limitation all
real, personal or mixed property, all debts due on whatever account, all other
choses in action and every other interest of or belonging to or due to SSB,
whether tangible or intangible) shall be transferred to and vest in the Bank,
and the Bank shall succeed to all the rights, privileges, immunities, powers,
purposes and franchises of a public or private nature of SSB (including all
trust and other fiduciary properties, powers and rights), all without any
transfer, conveyance, assignment or further act or deed; and, BNC shall become
responsible for all of the liabilities, duties and obligations of every kind,
nature and description of SSB (including duties as trustee or fiduciary) as of
the Effective Time.

 

1.05. Conversion and Exchange of Stock.

 

(a) Merger Consideration. Except as otherwise provided in this Agreement, at the
Effective Time all rights of SSB’s shareholders with respect to all outstanding
shares of SSB’s $5.00 par value common stock (the “SSB Common Stock”) shall
cease to exist and, as consideration for and to effect the Merger, each such
outstanding share shall be converted, without any action by BNC, SSB or any SSB
shareholder, into the right to receive 1.21056 shares (the “Exchange Ratio”) of
no par value common stock issued by BNC (“BNC Common Stock”), all in the manner
and subject to the limitations described in this Agreement. The foregoing
consideration, collectively and in the aggregate, shall be referred to herein as
“Merger Consideration.”

 

(b) Adjustment to Merger Consideration. Under certain circumstances described
below, the Merger Consideration may be adjusted in the following manner:

 

(i) if the Average BNC Common Stock Price is between $21.28 and $23.18, the
Exchange Ratio shall be adjusted to equal the result obtained by dividing $25.76
by the Average BNC Stock Price;

 

(ii) if the Average BNC Common Stock Price is greater than $23.18, the Exchange
Ratio shall be adjusted to equal 1.1113;

 

(iii) if the Average BNC Common Stock Price is between $14.82 and $16.72, each
outstanding share of SSB Common Stock will be entitled to receive Cash
Consideration per share equal to $20.24

 

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less the product of Average BNC Common Stock Price multiplied by 1.21056, in
addition to the Merger Consideration; and

 

(iv) if the Average BNC Common Stock Price is less than $14.82, each outstanding
share of SSB Common Stock will be entitled to receive Cash Consideration per
share equal to $2.30 per share of SSB Common Stock, in addition to the Merger
Consideration.

 

As used in this paragraph 1.05(b), Cash Consideration shall mean that amount of
cash paid by BNC to SSB shareholders, in addition to the Merger Consideration
based on changes in the Average BNC Common Stock Price.

 

As used in this paragraph 1.05(b), Average BNC Common Stock Price shall mean the
average closing price for BNC Common Stock, as reported on the NASDAQ Small Cap
Market for the 20 trading days ending on the fifth business day prior to
closing. BNC agrees to stay in a blackout period for the 20 day pricing period
plus an additional 20 trading days prior to the beginning of the pricing period
(the “Additional Blackout”); provided, however, BNC shall be allowed to execute,
if possible, one block trade (as defined in Rule 10b-18 of the Securities Act of
1934, as amended) for each of five-day trading period of the Additional
Blackout.

 

(c) Fractional Shares. No fractional shares of BNC Common Stock shall be issued
or delivered in connection with the Merger. In lieu of any such fractional
share, subject to the terms and conditions of this paragraph 1.05, each holder
of shares of SSB Common Stock who would otherwise have been entitled to a
fraction of a share of BNC Common Stock shall be entitled to receive cash
(without interest) in an amount equal to such fraction multiplied by an amount
equal to the cash value of the Merger Consideration, adjusted, if necessary as
described above plus the Cash Consideration, if any.

 

(d) Exchange Procedures. After the Effective Time, BNC shall cause BNC’s
transfer agent (the “Exchange Agent”), subject to the reasonable satisfaction of
SSB, to mail to the shareholders of SSB Common Stock of record at the Effective
Time transmittal materials (which shall specify that delivery shall be effected,
and risk of loss and title to the certificates representing shares of SSB Common
Stock prior to such Effective Time shall pass, only upon proper delivery of such
delivery of such certificates to the Exchange Agent). After such Effective Time,
each holder of SSB Common Stock issued and outstanding at such Effective Time
shall surrender the certificate or certificates representing such shares to the
Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the number of shares of BNC’s Stock and any cash to which such holder
is entitled hereunder in respect of rights to receive Cash Consideration or
fractional shares. BNC shall not be obligated to deliver any of such payments in
stock or cash for Cash Consideration or fractional shares until such holder
surrenders the certificate(s) representing such holder’s SSB Common Stock. The
certificate(s) so surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding, neither BNC nor
the Exchange Agent shall be liable to any holder of SSB Common Stock for any
amounts paid or properly delivered in good faith to a public official pursuant
to any applicable abandoned property law.

 

To the extent permitted by applicable law, former shareholders of record of SSB
shall be entitled to vote after the Merger Consideration has been paid pursuant
to the provisions of this Paragraph 1.05 at any meeting of BNC shareholders the
number of whole shares into which their respective SSB Common Stock are
converted pursuant to the Merger, regardless of whether such holders have
exchanged their certificates representing such SSB Common Stock for certificates
representing BNC Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by BNC on BNC
Common Stock, the record date of which is at or after the Effective Time of the
Merger, the declaration shall include dividends or other distributions on all
shares of BNC Common Stock issuable pursuant to this Agreement, but beginning at
such Effective Time no dividend or other distribution payable to the holders of
record of BNC Common Stock as of any time subsequent to such Effective Time
shall be delivered to the holder of any certificate representing any of the SSB
Common Stock issued and outstanding at such Effective Time until such holder
surrenders such certificate for exchange as provided in this Paragraph 1.05.
However, upon surrender of such certificate(s), both the certificate(s)
representing the shares of BNC Common Stock to which such holder is entitled and
any such undelivered dividends (without any interest) shall be delivered and
paid with respect to each share represented by such certificates.

 

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(e) Closing Payment. At the Effective Time or as soon thereafter as is
reasonably practicable, the holders of SSB Common Stock shall surrender the
certificates representing such shares to BNC and in exchange therefor, BNC shall
issue and deliver to each such holder certificates representing the number of
shares of BNC Common Stock to which each such holder is entitled hereunder and
cash payments with respect to any Cash Consideration and fractional shares. BNC
shall not be obligated to deliver any of such shares of BNC Common Stock or cash
payments until such holder surrenders the certificates representing each such
holder’s SSB Common Stock.

 

(f) Antidilutive Adjustments. If, prior to the Effective Time, SSB or BNC shall
declare any dividend payable in shares of SSB Common Stock or BNC Common Stock
or shall subdivide, split, reclassify or combine the presently outstanding
shares of SSB Common Stock or BNC Common Stock, then an appropriate and
proportionate adjustment shall be made in the number of shares of BNC Common
Stock to be issued in exchange for each of the shares of SSB Common Stock.

 

(g) Dissenters. Any shareholder of SSB who properly exercises the right of
dissent and appraisal with respect to the Merger as provided in Section 55-13-02
of the North Carolina General Statutes (“Dissenter’s Rights”) shall be entitled
to receive payment of the fair value of his or her shares of SSB Common Stock in
the manner and pursuant to the procedures provided therein. Shares of SSB Common
Stock held by persons who exercise Dissenter’s Rights shall not be converted as
described in Paragraph 1.05(a). However, if any shareholder of SSB who exercises
Dissenter’s Rights shall fail to perfect those rights, or effectively shall
waive or lose such rights, then each of his or her shares of SSB Common Stock
shall be deemed to have been converted into the right to receive the Merger
Consideration or Merger Consideration and Cash Consideration to the extent that
Cash Consideration is paid to SSB shareholders.

 

(h) Lost Certificates. Shareholders of SSB whose SSB Certificates have been
lost, destroyed, stolen or otherwise are missing shall be entitled to receive
the cash and/or BNC Common Stock to which they are entitled in accordance with
and upon compliance with reasonable conditions imposed by BNC, including without
limitation a requirement that those shareholders provide lost instruments
indemnities or surety bonds in form, substance and amounts satisfactory to BNC.

 

(i) SSB Stock Options and Warrants. At the Effective Time of the Merger, each
unexercised option for SSB Common Stock (“Stock Option”), other than Stock
Options owned by employees of SSB who remain employed at BNC and/or the Bank and
SSB directors who are elected to the BNC Board of Directors, and all unexercised
warrants to purchase shares of SSB Common Stock (“Warrant”), shall be deemed
canceled, and as consideration therefor shall be converted into the right to
receive solely a cash payment amount equal to (A) the cash value of the Merger
Consideration, adjusted, if necessary, as determined in paragraph 1.05(b) plus
the Cash Consideration, if any, as determined in Paragraph 1.05(b) less the
exercise price per share of SSB Common Stock or Warrant covered by the Stock
Option or Warrant, multiplied by (B) the total number of shares of SSB Common
Stock covered by the Stock Option or Warrant. Treatment of Stock Options held by
employees continuing employment with BNC and/or the Bank and SSB directors who
are elected to the BNC Board of directors is described in Paragraph 6.07(a).

 

1.06 Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and the Bylaws of BNC in effect at the Effective Time will remain
in effect until otherwise amended in accordance with law and the BNC Bylaws. The
Articles of Incorporation and Bylaws of the Bank in effect at the Effective Time
shall be the Articles of Incorporation and Bylaws of the Bank as the surviving
corporation of the Merger. The directors and officers of BNC and the Bank in
office at the Effective Time shall continue to hold such offices until removed
as provided by law or until the election or appointment of their respective
successors.

 

1.07. Closing; Effective Time. The closing of the Merger and other transactions
contemplated by this Agreement (the “Closing”) shall take place at the offices
of BNC, in Thomasville, North Carolina, or at such other place as BNC and SSB
may agree, on a date mutually agreeable to BNC and SSB (the “Closing Date”)
after receipt of all required approvals of the Merger by governmental or
regulatory authorities and the expiration of any and all required waiting
periods following the effective date of such required approvals of the Merger
(but in no event more than sixty (60) days following the expiration of all such
required waiting periods). At the Closing, BNC and SSB shall each take such
actions (including without limitation the delivery of certain closing documents
and the

 

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execution of Articles of Merger under North Carolina law) as are required in
this Agreement and as otherwise shall be required by law to consummate the
Merger and cause it to become effective.

 

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

 

1.08. Outstanding BNC Common Stock. The status of shares of BNC Common Stock
outstanding immediately prior to the Effective Time shall not be affected by the
Merger.

 

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