On behalf of the boards of directors of Carolina
Financial Corporation (“Carolina Financial”) and Carolina Trust BancShares, Inc. (“Carolina Trust”),
we are pleased to deliver our proxy statement/prospectus for a merger involving Carolina Financial and Carolina Trust, with Carolina
Financial as the surviving corporation.
If the merger is completed, each outstanding
share of Carolina Trust common stock will be exchanged for either $10.57 in cash or 0.3000 shares of Carolina Financial
common stock. Each shareholder of Carolina Trust will have the opportunity to elect to receive cash, Carolina Financial common
stock, or a combination of cash and Carolina Financial common stock in exchange for the shareholder’s Carolina Trust shares.
Elections by Carolina Trust shareholders will be prorated such that in the aggregate 90% of Carolina Trust’s common stock
will be converted into the right to receive shares of Carolina Financial common stock and 10% will be converted into the right
to receive the cash consideration.
The value of the Carolina Financial shares
to be issued in the merger will fluctuate between now and the closing date of the merger. Carolina Financial common stock is listed
on the NASDAQ Capital Market under the symbol “CARO.” Based on the $35.19 closing price per share of Carolina
Financial common stock on the NASDAQ Capital Market on October 16, 2019, the latest practicable trading day before
the date of this proxy statement/prospectus, the equivalent value of the merger consideration per share of Carolina Trust
common stock was approximately $10.56, and the aggregate merger consideration was approximately $98.3 million. We
urge you to obtain current market quotations for Carolina Financial common stock because the value of the Carolina Financial shares
to be issued in the merger will fluctuate.
The common stock of Carolina Trust is quoted
on the NASDAQ Capital Market under the symbol “CART.” The closing price per share of Carolina Trust common stock on
the NASDAQ Capital Market on October 16, 2019, the latest practicable trading day before the date of this
proxy statement/prospectus, was $10.29. We urge you to obtain current market quotations for shares of Carolina Trust
common stock.
Shareholders of Carolina Trust are being
asked to approve the merger agreement. We cannot complete the merger unless we obtain this shareholder approval and the necessary
regulatory agency approvals. Carolina Trust will hold a special meeting of its shareholders to vote on the merger agreement. Your
vote is important.
Golden Parachute Compensation
for Carolina Trust Named Executive Officers
Potential Payments and Benefits to Carolina
Trust Named Executive Officers. The following table sets forth the information required by Item 402(t) of Regulation S-K promulgated
by the SEC regarding certain compensation that Carolina Trust’s named executive officers are entitled to receive that is
based on or that otherwise relates to the merger. This compensation is referred to as “golden parachute” compensation
by the applicable SEC disclosure rules. This merger-related compensation is the subject of a non-binding advisory vote of Carolina
Trust shareholders, as described under “The Carolina Trust Proposals – Carolina Trust Proposal 2 – Carolina
Trust Merger-Related Compensation Proposal” beginning on page 30.
The amounts set forth below have been calculated
assuming the merger was consummated on December 31, 2019 and, where applicable, assuming each named executive officer experienced
a qualifying termination of employment as of December 31, 2019. The amounts indicated below are estimates of amounts that would
be payable to the named executive officers and the estimates are based on multiple assumptions that may or may not actually occur,
including assumptions described in this proxy statement/prospectus.
Golden Parachute Compensation
|
Name
|
|
Cash(1)
|
|
Equity
|
|
Pension/
NQDC(2)
|
|
Perquisites/
Benefits
|
|
Tax Reimbursement
|
|
Other
|
|
Total
|
|
Jerry L. Ocheltree
|
|
$
|
1,108,992
|
|
|
|
—
|
|
|
$
|
393,972
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
1,502,964
|
|
|
Edwin E. Laws
|
|
|
468,943
|
|
|
|
—
|
|
|
|
75,027
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
543,970
|
|
|
Richard M. Rager
|
|
|
491,071
|
|
|
|
—
|
|
|
|
275,989
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
767,060
|
|
|
|
(1)
|
See
“Narrative to Golden Parachute Compensation Table - Employment Agreements”
below.
|
|
|
(2)
|
See
“Narrative to Golden Parachute Compensation Table - 2018 Supplemental Executive
Retirement Plan Agreements,” “- 2014 Ocheltree Retirement Plan,” and
“- 2007 Rager Retirement Plan” below.
|
Narrative to Golden Parachute Compensation
Table. Each of Messrs. Ocheltree, Laws, and Rager are party to agreements with Carolina Trust that entitle them to compensation
in connection with a change in control of Carolina Trust. The proposed merger with Carolina Financial would be considered a change
in control of Carolina Trust. The following is a description of the various elements of compensation payable, or potentially payable,
to each of the officers in connection with the proposed change in control.
Employment Agreements. Messrs. Ocheltree,
Laws, and Rager are each party to an employment agreement with Carolina Trust Bank.
Mr. Ocheltree’s employment agreement
has what is commonly referred to as a “double trigger” change in control provision. Under this agreement, Mr. Ocheltree
would be entitled to be paid an amount equal to 2.99 times his “base amount” as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986, as amended (the “Code”) if he experiences a qualifying termination of employment in
connection with, or within 24 months following, a change in control. This compensation would be payable in a lump sum. Under the
terms of the agreement, Mr. Ocheltree has the right to terminate his employment and receive payment thereunder if he determines
that, in connection with or within 24 months after a “change in control,” he has not been assigned duties, responsibilities,
and status commensurate with his duties prior to such change in control, his salary has been reduced below the amount he would
have received under his employment agreement or was otherwise receiving at the time of the transaction, his benefits have been
reduced or eliminated, or he has been transferred to a location which is an unreasonable distance from his then current principal
work location. Mr. Ocheltree would also receive payment under the employment agreement if he was terminated without cause in connection
with, or within 24 months following, a change in control.
Under Mr. Laws’s and Mr. Rager’s
employment agreements, if Carolina Trust Bank were to terminate the officer’s employment without cause at the time of or
within 24 months following a change in control, then the officer would be entitled to receive a lump-sum payment of 2.50 times
his “base amount” as defined in Section 280G(b)(3) of the Code. The officer would also be entitled to receive the
same lump-sum payment if at the time of or within 24 months following a change in control, he terminates his own employment following
a “termination event” (as defined in the agreement). A termination event generally will occur if, without his consent
and following a change in control, the officer experiences a material reduction in his duties, responsibilities, or title, his
annual base salary, or his benefits, or if he is transferred an unreasonable distance from his current work location. In order
to be entitled to the lump sum payment, the officer would be required to notify Carolina Trust Bank within 90 days of the occurrence
of a termination event, and Carolina Trust Bank would have 30 days to cure such event. If Carolina Trust Bank fails to cure such
event, then the officer could terminate employment and would be entitled to the change in control payment benefit.
Prior to the closing of the merger, Carolina
Trust Bank intends to cancel these employment agreements (as described above, Mr. Ocheltree has entered into a new employment
agreement with CresCom Bank that will become effective upon closing of the merger). In exchange for the cancellation of their
employment agreements, each officer is expected to receive a cash payment equal to the change in control benefit he would have
been entitled to under the provisions described above, i.e., 2.99 times Mr. Ocheltree’s “base amount” and 2.50
times Mr. Laws’s and Mr. Rager’s “base amounts.” The amounts listed in the “Cash” column of
the table represent these payments.
2018 Supplemental Executive Retirement
Plan Agreements. Each of Messrs. Ocheltree, Laws, and Rager are party to supplemental executive retirement plan agreements
with Carolina Trust Bank, dated August 31, 2018 (the “2018 SERPs”). These agreements are intended to provide the officers
with supplemental retirement benefits upon a separation from service due to a termination of employment.
In the event of a change in control, such
as the proposed merger with Carolina Financial, the officer will become fully vested in his 2018 SERP account balance, to the
extent not already vested. If the change in control occurs prior to the officer both attaining his normal retirement age of 65
and prior to a separation from service, the officer would be paid his vested account balance calculated on the date of the change
in control.
The amounts listed in the “Pension/NQDC”
column of the table include the following, which represent the officers’ estimated vested account balances under the 2018
SERPs at December 31, 2019 and assuming accelerated vesting of any unvested portion of the account balance: Mr. Ocheltree - $128,376;
Mr. Laws - $75,027; and Mr. Rager - $75,797. These amounts are payable in a lump sum within ten days following the change in control.
2014 Ocheltree Retirement Plan. Mr.
Ocheltree entered into a supplemental executive retirement plan agreement with Carolina Trust Bank during 2014, which was amended
in 2018 and 2019 (the “2014 Ocheltree SERP”). Mr. Ocheltree is fully vested in the accrued liability associated with
this account. In the event of a change of control of Carolina Trust Bank (such as the proposed merger with Carolina Financial),
and should Mr. Ocheltree’s employment be terminated without cause either thirty days prior to, or within one year after,
the change of control, Mr. Ocheltree would be paid the accrued balance under the 2014 Ocheltree SERP in a lump sum thirty days
following the latter of the change of control or his termination of employment.
The amount listed for Mr. Ocheltree in the
“Pension/NQDC” column of the table includes $265,596, which represents the estimated accrued balance under the 2014
Ocheltree SERP at December 31, 2019. This amount would be payable to Mr. Ocheltree only if his employment is terminated without
cause within thirty days prior to, or within one year after, the proposed merger with Carolina Financial.
2007 Rager Retirement Plan. Mr. Rager
is a participant in a supplemental executive retirement plan that Carolina Trust Bank established in 2007 (the “2007 Rager
Retirement Plan”). Upon a termination of Mr. Rager’s employment following a change in control (such as the proposed
merger with Carolina Financial), the full retirement benefit under the plan is payable in a lump sum to Mr. Rager.
Prior to the closing of the merger, Carolina
Trust Bank intends to terminate the 2007 Rager Retirement Plan. In exchange for the termination of this plan, Mr. Rager is expected
to receive a cash payment in the amount of $200,192, which represents the estimated accrued liability under the 2007 Rager Retirement
Plan at December 31, 2019. The amount listed for Mr. Rager in the “Penson/NQDC” column of the table includes this
amount.
Board
of Directors and Management Following the Merger
Immediately following
the effective time of the merger, the board of directors of Carolina Financial will consist of 14 members, which will include
the 13 directors of Carolina Financial serving immediately prior to the merger and one incumbent director of Carolina
Trust, Johnathan L. Rhyne, Jr.
Jerold L. Rexroad
will continue to serve as President and Chief Executive Officer, David L. Morrow will continue to serve as Executive Vice President,
William A. Gehman, III will continue to serve as Executive Vice President and Chief Financial Officer, and M. J. Huggins,
III will continue to serve as Executive Vice President and Secretary of Carolina Financial following the merger.
Following the
merger, Mr. Rhyne will also be appointed to the board of directors of CresCom Bank. Jerry L. Ocheltree, Carolina Trust’s
President and Chief Executive Officer, will be appointed President of North Carolina Commercial Banking for CresCom Bank.
Regulatory Clearances Required
for the Merger
Completion of the merger between Carolina Financial
and Carolina Trust is subject to the prior receipt of all consents or approvals of, or the provision of notices to, federal and
state authorities required to complete the merger. Carolina Financial believes the merger qualifies as a “waiver transaction”
under applicable Federal Reserve rules and regulations. The Federal Reserve has advised Carolina Financial of its non-objection
to characterization of the merger as a “waiver transaction.”
Under the merger
agreement, it is contemplated that Carolina Trust Bank will be merged with and into CresCom Bank immediately following the consummation
of the merger of Carolina Trust and Carolina Financial. The bank merger is subject to the prior approvals of the FDIC, SCBFI,
and NCCOB. CresCom Bank filed applications for authority to effect the bank merger with the FDIC, SCBFI and NCCOB on August 19,
2019. The FDIC, the SCBFI, and the NCCOB have each approved the bank merger. FDIC approval of the combination:
(i) reflects only the view that the transaction does not contravene applicable competitive standards imposed by law and is consistent
with regulatory policies relating to safety and soundness; (ii) is not an opinion that the proposed combination is financially
favorable to the shareholders of Carolina Trust or that the FDIC has considered the adequacy of the terms of the transaction;
and (iii) is not an endorsement of, or recommendation for, the combination.
Exchange of Shares in the Merger
Carolina Financial intends to appoint Computershare
to serve as exchange agent to handle the exchange of shares of Carolina Trust common stock for shares of Carolina Financial common
stock and the payment of the cash consideration. At the effective time of the merger, each share of Carolina Trust common
stock will be converted into the right to receive the merger consideration, consisting of either 0.3000 shares of Carolina Financial
common stock or $10.57 in cash, and cash in lieu of any fractional share of Carolina Financial common stock, without the need
for any action by the holders of Carolina Trust common stock. Each shareholder of Carolina Trust will have the opportunity to
elect to receive cash, Carolina Financial common stock, or a combination of cash and Carolina Financial common stock in exchange
for the shareholder’s Carolina Trust shares. Elections by Carolina Trust shareholders will be prorated such that in the
aggregate 90% of Carolina Trust’s common stock will be converted into the right to receive shares of Carolina Financial
common stock and 10% will be converted into the right to receive the cash consideration.
Promptly after
the effective time of the merger, but in no event later than 10 days after the effective time of the merger, Carolina Financial
will cause the exchange agent to mail to each holder of record of one or more Carolina Trust stock certificates an election form
and instructions for making an election as to the form of merger consideration preferred to be received in the merger, subject
to the allocation procedures and exchange procedures described under the heading “The Merger Agreement—Election of
the Form of Payment or Merger Consideration on page 70.” The election form and instructions will also explain the
procedure for surrendering Carolina Trust stock certificates in exchange for the merger consideration. Carolina Trust shareholders
should not return Carolina Trust stock certificates with the enclosed proxy card.
After the effective
time of the merger, shares of Carolina Trust common stock will no longer be outstanding, will be automatically canceled and will
cease to exist and each certificate, if any, that previously represented shares of Carolina Trust common stock will represent
only the right to receive the merger consideration as described above. With respect to merger consideration deliverable upon the
surrender of Carolina Trust stock certificates, until holders of such Carolina Trust stock certificates have surrendered such
stock certificates to the exchange agent for exchange, those holders will not receive dividends or distributions with respect
to such shares of Carolina Financial common stock issuable as merger consideration with a record date after the effective time
of the merger, and will not receive interest on any cash consideration or cash in lieu of fractional shares.
In
addition, holders of certificates that represented outstanding Carolina Trust common stock immediately prior to the effective time
of the merger will be entitled to vote after the effective time of the merger at any meeting of Carolina Financial stockholders
the number of whole shares of Carolina Financial common stock into which such shares have been converted, even if such holder
has not surrendered such certificates for exchange as set forth above.
Carolina
Financial or its exchange agent will maintain a book entry list of Carolina Financial common stock to which each former Carolina
Trust shareholder is entitled. Certificates evidencing Carolina Financial common stock into which the shareholder’s Carolina
Trust common stock has been converted will not be issued. Carolina Financial’s exchange agent will deliver a statement of
such book entry and other information as required by law within a reasonable time following the surrender of a Carolina Trust
certificate.
Carolina Trust
shareholders will not receive any fractional shares of Carolina Financial common stock pursuant to the merger. In lieu of fractional
shares, Carolina Financial will pay to each former Carolina Trust shareholder who otherwise would be entitled to receive a fractional
share of Carolina Financial common stock an amount in cash (rounded up to the nearest cent), without interest thereon, equal to
the product of (i) the average of the closing prices (rounded to the nearest full cent) of Carolina Financial common stock
on the NASDAQ for the 10 full trading days ending on the day preceding the date on which the merger becomes effective, multiplied
by (ii) the fraction of a share (rounded to the nearest thousandth) of Carolina Financial common stock which such holder otherwise
would be entitled to receive.
Carolina
Financial Dividend Policy
Carolina Financial
currently pays quarterly cash dividends of $0.09 per share on shares of its common stock and currently intends to consider
the declaration of a dividend on a quarterly basis. Any future determination regarding dividend or distribution payments will
be at the discretion of the Carolina Financial board of directors, subject to applicable limitations under Delaware law, and will
depend upon many factors, including results of operations, financial condition, liquidity, capital requirements and legal requirements.
Listing of Carolina Financial
Common Stock
It is a condition
to the completion of the merger that the shares of Carolina Financial common stock to be issued to Carolina Trust shareholders
pursuant to the merger (including those shares of Carolina Financial common stock to be issued upon conversion of the Carolina
Trust equity-based awards) be authorized for listing on NASDAQ, subject to official notice of issuance.
De-Listing and Deregistration
of Carolina Trust Stock
Upon completion
of the merger, the Carolina Trust common stock currently listed on NASDAQ will cease to be listed on NASDAQ and will subsequently
be deregistered under the Exchange Act.
Support Agreements
Each of Carolina
Trust’s directors and certain of its executive officers, in their capacities as shareholders of Carolina Trust, entered
into a support agreement with Carolina Financial pursuant to which they each have agreed, subject to certain exceptions, to vote
their shares, and to use reasonable efforts to cause all shares owned by such director or executive officer jointly with any other
person over which such director or executive officer has shared voting control to be voted, in favor of the merger agreement.
At the close of business on the record date for the Carolina Trust special meeting, Carolina Trust directors and executive officers
who have executed support agreements were entitled to vote 365,628 shares of, or approximately 3.90%, of Carolina
Trust common stock outstanding on that date.
No Appraisal or Dissenters’
Rights
Under North Carolina
law, the holders of Carolina Trust common stock are not entitled to appraisal rights or dissenters’ rights in connection
with the merger.
THE MERGER
AGREEMENT
The following
describes the material provisions of the merger agreement, which is included as Annex A to this proxy statement/prospectus and
incorporated by reference herein. The summary of the material provisions of the merger agreement below and elsewhere in this proxy
statement/prospectus does not purport to be complete and may not contain all of the information about the merger agreement
that is important to you. Carolina Financial and Carolina Trust encourage you to read the merger agreement carefully in its entirety
before making any decisions regarding the merger as it is the legal document governing the merger and related transactions.
The merger
agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement
and are not intended to provide any factual information about Carolina Financial or Carolina Trust. Carolina Financial and Carolina
Trust are responsible for considering whether additional disclosure of material information is required to make the statements
in this proxy statement/prospectus not misleading. Factual disclosures about Carolina Financial or Carolina Trust contained in
this proxy statement/prospectus or Carolina Financial’s or Carolina Trust’s public reports filed with the SEC may
supplement, update or modify the factual disclosures about Carolina Financial or Carolina Trust contained in the merger agreement
and described in this summary. The representations, warranties and covenants made in the merger agreement by Carolina Financial
and Carolina Trust are qualified and subject to important limitations agreed to by Carolina Financial and Carolina Trust in connection
with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained
in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties
were made solely for the benefit of the parties to the merger agreement, and were negotiated with the principal purpose of allocating
risk between the parties to the merger agreement rather than establishing matters as facts. The representations and warranties
may also be subject to a contractual standard of materiality that may be different from that generally relevant to stockholders
or applicable to reports and documents filed with the SEC, and in some cases are qualified by confidential disclosures that were
made by each party to the other, which disclosures are not reflected in the merger agreement or otherwise publicly disclosed.
The representations and warranties in the merger agreement will not survive the completion of the merger. Moreover, information
concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement, and
subsequent developments or new information qualifying a representation or warranty may have been included or incorporated by reference
into this proxy statement/prospectus. For the foregoing reasons, the representations, warranties and covenants or any descriptions
of those provisions should not be read alone, but instead should be read together with the information provided elsewhere in this
proxy statement/prospectus and in the documents incorporated by reference into this proxy statement/prospectus. See “Where
You Can Find More Information” beginning on page ii.
General
At the
effective time of the merger, upon the terms and subject to the satisfaction or waiver of the conditions of the merger agreement
and in accordance with the Delaware General Corporation Law, Carolina Trust will be merged with and into Carolina Financial, the
separate corporate existence of Carolina Trust will cease, and Carolina Financial will be the surviving corporation of the merger.
As of the effective time of the merger, the certificate of incorporation of the surviving corporation will be the certificate
of incorporation of Carolina Financial as in effect immediately prior to the effective time, and the bylaws of Carolina Financial
as in effect immediately prior to the effective time will be the bylaws of the surviving corporation. Effective as of the effective
time of the merger, Carolina Financial will cause the size of the board of directors of the surviving corporation to be 14 directors.
Effective Time of the Merger
If the merger
agreement is approved by the requisite vote of the shareholders of Carolina Trust and all other required governmental and
other consents and approvals are received, and if the other conditions to the obligations of the parties to consummate the merger
are satisfied or waived (as permitted), the merger will be consummated and effected on the date and at the time that a certificate
of merger reflecting the merger is filed with the Delaware Secretary of State and articles of merger reflecting the merger are
filed with the Office of the Secretary of State of North Carolina or at such later time mutually agreed upon by Carolina Financial
and Carolina Trust and specified in the certificate of merger and articles of merger. Both parties shall use their reasonable
efforts to cause the effective time of the merger to occur within 10 business days after the last of the following dates to occur:
(i) the effective date (including expiration of any applicable waiting period) of the last required consent of any regulatory
authority having authority over and approving or exempting the merger and (ii) the date on which the shareholders of Carolina
Trust approve the merger agreement.
Assuming satisfaction
of all of the conditions to consummation of the merger, the merger is expected to be made effective during the first quarter
of 2020.
Merger Consideration
The merger agreement
provides that, at the effective time of the merger, each share of Carolina Trust common stock issued and outstanding immediately
prior to the effective time of the merger (except for shares of Carolina Trust common stock owned, directly or indirectly, by
Carolina Trust or Carolina Financial immediately before the effective time of the merger (excluding any of such shares that are
held (i) as a result of debts previously contracted, or (ii) in trust accounts or otherwise held in a fiduciary or agency capacity
and beneficially owned by third parties), which will be cancelled and cease to exist with no consideration paid) will be converted
into the right to receive either 0.3000 (referred to as the “exchange ratio”) fully paid and nonassessable shares
of Carolina Financial common stock or $10.57 in cash (“merger consideration”). Each shareholder of Carolina Trust
will have the opportunity to elect to receive cash, Carolina Financial common stock, or a combination of cash and Carolina Financial
common stock in exchange for the shareholder’s Carolina Trust shares. Elections by Carolina Trust shareholders will be prorated
such that in the aggregate 90% of Carolina Trust’s common stock will be converted into the right to receive shares of Carolina
Financial common stock and 10% will be converted into the right to receive the cash consideration. For a description of the allocation
method, see “The Merger Agreement—Allocation of the Merger Consideration” beginning on page 70.”
Accordingly, you may receive less cash and more shares, or more shares and less cash than you elect. Either of these events is
likely to result in different tax consequences from those that would have resulted had you received the exact form of merger consideration
you elected. Upon this conversion, such shares of Carolina Trust common stock will no longer be outstanding and all rights
with respect to such shares will cease to exist, except for the right to receive the merger consideration (and cash in lieu of
fractional shares).
No fractional
shares of Carolina Financial common stock will be issued in connection with the merger. Instead, cash will be paid for any fraction
of a share of Carolina Financial common stock to which any Carolina Trust shareholder would otherwise be entitled upon completion
of the merger. The cash paid will be an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable
upon conversion multiplied by (i) the average of the closing prices (rounded to the nearest full cent) of Carolina Financial
common stock on NASDAQ for the 10 trading days immediately preceding the date on which the merger becomes effective, multiplied
by (ii) the fraction of a share (rounded to the nearest thousandth) of Carolina Financial common stock which such holder otherwise
would be entitled to receive.
After the effective
time of the merger, there will be no further transfers on the stock transfer books of Carolina Trust of shares of Carolina Trust common
stock that were outstanding immediately prior to the effective time of the merger.
Election of the Form of Payment of the Merger Consideration
No later than 10 days after the effective
time of the merger, Carolina Financial’s exchange agent will deliver or mail to Carolina Trust shareholders an election
form and instructions for making an election as to the form of merger consideration preferred to be received in the merger, subject
to the allocation procedures described below. Upon receipt of the election form, each Carolina Trust shareholder should complete,
date, and sign the election form and return it promptly in the prepaid, pre-addressed envelope provided with the election form.
If any Carolina Trust shareholders do not make an election by 4:00 pm local time
on the date set forth in the instructions on the election form, such shareholders will be deemed not to have made an election
and the exchange agent will choose the type of merger consideration constituting the per share purchase price to distribute to
such non-electing shareholders according to the allocation procedures.
Elections will be properly made if the election
form is accompanied by one or more certificates (including book-entry shares) representing the shares of Carolina Trust
common stock covered by the election form, or the guaranteed delivery of such certificates. Elections may be revoked or changed
upon written notice to the exchange agent before the election deadline. If a Carolina Trust shareholder revokes the election form
and does not properly make a new election by the election deadline, the Carolina Trust shareholder will be deemed to have not
made an election with respect to the shares covered by the revoked election form, and the exchange agent will determine the type
of consideration to be received.
The exchange agent will have reasonable discretion
to determine whether any election, revocation, or change has been properly or timely made and to disregard immaterial defects
in the election form, and any good faith decision of the exchange agent regarding such matters will be conclusive and binding.
Neither Carolina Financial nor the exchange agent is obligated to notify any person of any defect in an election form.
Allocation of the Merger Consideration
The merger agreement limits the aggregate number
of shares of Carolina Trust common stock that Carolina Financial will exchange for cash to 10% of the total outstanding
shares of Carolina Trust common stock. The merger agreement also limits the aggregate number of shares of Carolina Trust common
stock that Carolina Financial will exchange for shares of Carolina Financial common stock to 90% of the total outstanding
shares of Carolina Trust common stock.
If the stock consideration elected by Carolina
Trust shareholders in the aggregate exceeds 90% of the total outstanding shares of Carolina Trust common stock, then shareholders
electing cash consideration and shareholders who did not make an election will receive cash consideration, and each shareholder
who chose the stock consideration will receive (i) a number of shares of Carolina Financial common stock equal to the exchange
ratio times the product obtained by multiplying the number of shares of Carolina Trust common stock as to which the shareholder
chose the stock election by a fraction, the numerator of which is 90% of the total outstanding shares of Carolina Trust common
stock and the denominator of which is the aggregate number of shares of Carolina Trust common stock elected by all Carolina Trust
shareholders to be converted into shares of Carolina Financial common stock, and (ii) cash for the remaining amount of shares
of Carolina Trust common stock held by the shareholder.
If the cash consideration elected by Carolina
Trust shareholders in the aggregate exceeds 10% of the total outstanding shares of Carolina Trust common stock, then shareholders
electing stock consideration and shareholders who did not make an election will receive the stock consideration, and each
shareholder who chose the cash consideration will receive (i) $10.57 times the product obtained by multiplying the number of shares
of Carolina Trust common stock as to which the shareholder chose the cash election by a fraction, the numerator of which is 10%
of the total outstanding shares of Carolina Trust common stock and the denominator of which is the aggregate number of shares
of Carolina Trust common stock elected by all Carolina Trust shareholders to be converted into cash, and (ii) shares of Carolina
Financial common stock for the remaining amount of shares of Carolina Trust common stock held by the shareholder.
If the stock consideration elected by the Carolina
Trust shareholders in the aggregate does not exceed 90% of the total outstanding shares of Carolina Trust common stock and the
cash consideration elected by the Carolina Trust shareholders in the aggregate does not exceed 10% of the total outstanding shares
of Carolina Trust common stock, then shareholders electing the cash consideration will receive all cash in exchange for their
shares of Carolina Trust common stock, shareholders electing the stock consideration will receive all stock in exchange for their
shares of Carolina Trust common stock, shareholders electing the mixed consideration will receive a combination of cash consideration
and stock consideration in the proportions elected by such holder in exchange for their shares of Carolina Trust common
stock, and the shareholders making no election will receive either the cash consideration, stock consideration, or mixed consideration
such that the aggregate number of shares of Carolina Trust common stock to be exchanged for cash is 10% of the total outstanding
shares of Carolina Trust common stock and the aggregate number of shares of Carolina Trust common stock to be exchanged for stock
is 90% of the total outstanding shares of Carolina Trust common stock.
Dividends and Distributions
No dividends
or other distributions with respect to Carolina Financial common stock with a record date on or after the effective time of the
merger will be paid to the holder of any unsurrendered certificate or book-entry shares that represented Carolina Trust common
stock immediately prior to the effective time of the merger until the holder of such certificate or book-entry shares surrenders
such certificate or book-entry shares in accordance with the instructions received from the exchange agent. Following such surrender,
there will be paid, without interest, with respect to whole shares of Carolina Financial common stock that shares of Carolina
Trust common stock represented by the certificate or book-entry shares have been converted into: (i) at the time of such surrender,
the amount of dividends or other distributions with a record date and a payment date on or after the effective time of the merger
and on or prior to the date of such surrender and (ii) at the appropriate payment date, the amount of any dividends or other distributions
with a record date on or after the effective time of the merger and prior to the date of such surrender and a payment date subsequent
to the date of such surrender.
Conversion
of Stock; Treatment of Stock Options
Conversion
of Carolina Trust Common Stock. At the effective time of the merger, each share of Carolina Trust common stock outstanding
generally will be converted into and exchanged for the right to receive either 0.3000 shares of Carolina Financial common stock
or $10.57 in cash, as described above under “Merger Consideration.”
Cash will also
be exchanged for any fractional shares. Any Carolina Trust shareholder who would otherwise have been entitled to receive
a fraction of a share of Carolina Financial common
stock in the merger will receive, in lieu thereof, cash (without interest)
in an amount equal to the fraction of a share of Carolina Financial common stock otherwise issuable upon conversion multiplied
by the average of the daily closing prices of Carolina Financial common stock on NASDAQ for the 10 consecutive trading
days ending on the trading day immediately prior to the date on which the effective time of the
merger is to occur.
Some shares of
Carolina Trust common stock may not be converted in the merger. Each outstanding share of Carolina Trust common stock owned by Carolina
Financial, Carolina Trust, or their respective subsidiaries (in each case other than shares of Carolina Trust common stock held on behalf
of third parties or as a result of debts previously contracted) will be canceled at the effective time of the merger and will
cease to be outstanding.
Stock Options.
Carolina Trust has granted certain employees, officers and directors options to purchase Carolina Trust common stock under
its equity compensation plans. Pursuant to these plans, all stock options outstanding at the time of a corporate transaction such
as the merger will vest and become fully exercisable upon the effective date of such corporate transaction. As of the effective
time of the merger, Carolina Financial will either (1) assume any stock options substantially in accordance with the terms of
Carolina Trust’s equity plans and the option grants or other award agreements by which they are evidenced or (2) replace
the Carolina Trust stock options with substantially identical awards under any plans sponsored by Carolina Financial. In either
case, existing Carolina Trust stock options will be converted into and become rights with respect to Carolina Financial common
stock, as adjusted to reflect the exchange ratio.
Procedure for Receiving Merger
Consideration
Promptly after
the effective time of the merger, Carolina Financial will deposit with the exchange agent (i) the merger consideration, and (ii)
cash in an amount sufficient to make payments in lieu of any fractional shares and payments of any dividends or other distributions
payable pursuant to the merger agreement. The cash and shares deposited pursuant to the foregoing are referred to as the “exchange
fund.”
As soon as reasonably
practicable after the effective time of the merger (but in any event, no later than 10 days after the effective time of
the merger), Carolina Financial will cause the exchange agent to mail to each holder of record of shares of Carolina Trust common
stock immediately prior to the merger that were converted at the effective time of the merger into the right to receive the merger
consideration, (i) a letter of transmittal, (ii) an election form, and (iii) instructions for use in effecting the
surrender of certificates or book-entry shares of Carolina Trust common stock in exchange for the merger consideration, cash in
lieu of fractional shares and any dividends or other distributions payable pursuant to the merger agreement. Each holder of Carolina
Trust common stock will be entitled to receive the appropriate merger consideration, cash in lieu of any fractional shares and
any dividends or distributions payable pursuant to the merger agreement upon surrendering to the exchange agent such shareholder’s
certificates or book-entry shares, together with a properly executed election form and letter of transmittal and any
other documents required by the exchange agent. The merger consideration and any other consideration paid under the merger agreement
may be reduced by any amounts required to be deducted and withheld pursuant to any applicable tax law. You should not return your
certificates representing shares of Carolina Trust common stock to the exchange agent without a letter of transmittal, and you
should not return your certificates representing Carolina Trust common stock to Carolina Trust.
If any
shares of Carolina Financial common stock are to be issued as merger consideration to a person other than the person in whose
name the certificates or book-entry shares representing shares
of Carolina Trust common stock
are registered, it will be a condition to such issuance that such surrendered Carolina Trust certificate or book-entry share is
properly endorsed with a medallion signature guaranty or otherwise in proper form for transfer, and that the person requesting
payment will have paid to the exchange agent in advance any transfer or other similar taxes required by reason of the issuance
of Carolina Financial shares in any name other than that of the registered holder of the surrendered Carolina Trust shares, or
required for any other reason, or establish, to the satisfaction of the exchange agent, that such taxes have been paid or are
not payable.
No interest will
be paid or will accrue on the merger consideration payable in respect of any shares of Carolina Trust common stock.
Lost, Stolen or Destroyed Certificates
If any certificate
representing shares of Carolina Trust common stock has been lost, stolen or destroyed, the exchange agent will deliver the applicable
merger consideration, any cash in lieu of any fractional shares payable and any dividends or other distributions payable pursuant
to the merger agreement with respect to the shares formerly represented by such certificate if the shareholder asserting
the claim of a lost, stolen or destroyed certificate has delivered an affidavit of that fact to the exchange agent and has posted
a bond through the exchange agent in such amount as the exchange agent would charge other similarly situated holders of Carolina
Financial common stock as indemnity against any claim that may be made against the exchange agent with respect to such lost, stolen
or destroyed Carolina Trust certificate.
Representations and Warranties
Made by Carolina Financial and Carolina Trust in the Merger Agreement
Carolina Financial
and Carolina Trust have made certain customary representations and warranties to each other in the merger agreement. For information
on these representations and warranties, please refer to the merger agreement attached as Annex A. If either party materially
violates any of its representations or warranties and fails to cure such violation, the other party may terminate the merger agreement.
Resale of
Carolina Financial Common Stock
The
shares of Carolina Financial common stock to be issued to shareholders of Carolina Trust under the merger agreement will
be freely tradable by such shareholders without restriction, except that if any Carolina Trust shareholders are
deemed to be affiliates of Carolina Financial, they must abide by certain transfer restrictions under the Securities Act.
Conduct of Business Pending the
Merger
Under the merger
agreement, both parties have agreed, except as otherwise contemplated by the merger agreement or with the prior written consent
of the other party, to:
|
|
·
|
operate
its business only in the usual, regular, and ordinary course;
|
|
|
·
|
use
commercially reasonable efforts to preserve intact its business organizations and assets
and maintain its rights and franchises;
|
|
|
·
|
use
commercially reasonable efforts to cause its representations and warranties to be correct
at all times; and
|
|
|
·
|
take
no action which would (1) adversely affect the ability of any party to obtain any consents
required for the transactions contemplated by the merger agreement without imposition
of a condition or restriction which, in the reasonable judgment of the board of directors
of Carolina Financial, would so materially adversely impact the economic or business
benefits of the transactions contemplated by the merger agreement such that, had Carolina
Financial known of such condition or requirement, it would not have entered into the
merger agreement, or (2) adversely affect in any material respect the ability of either
party to perform its covenants and agreements under the merger agreement.
|
In addition,
Carolina Trust has agreed, except as otherwise contemplated by the merger agreement or with the prior written consent of Carolina
Financial, to:
|
|
·
|
use
its best efforts to provide all information requested by Carolina Financial related to
loans or other transactions made by Carolina Trust with a value equal to or exceeding $1,000,000;
|
|
|
·
|
consult
with Carolina Financial prior to entering into or making any loans or other transactions
constituting a separate extension of credit with a value equal to or exceeding $2,500,000,
other than residential mortgage loans for which Carolina Trust has a commitment to
buy from a reputable investor; and
|
|
|
·
|
consult
with Carolina Financial prior to entering into or making any loans that exceed regulatory
loan to value guidelines.
|
In addition,
Carolina Trust has agreed in the merger agreement not to take certain actions relating to the operation of its business pending consummation
of the merger without the prior consent of Carolina Financial. Such actions include, among others:
|
|
·
|
amending
the articles of incorporation, bylaws, or other governing corporate instruments;
|
|
|
·
|
incurring
any additional debt obligation or other obligation for borrowed money in excess of an
aggregate of $500,000, or allowing the imposition
of a lien on any asset;
|
|
|
·
|
repurchasing,
redeeming, or otherwise acquiring or exchanging (other than exchanges in the ordinary
course under employee benefit plans or as required by the merger agreement) any shares
(or securities convertible into any shares) of capital stock or declaring or paying
any dividend on common stock;
|
|
|
·
|
except
for the merger agreement or upon the exercise of Carolina Trust stock options,
issuing, selling, pledging, encumbering, authorizing the issuance of, entering into any
contract to issue, sell, pledge, encumber or authorize the issuance of, or otherwise
permit to become outstanding, any additional shares of Carolina Trust common stock, any
other capital stock of any Carolina Trust entity, or any right;
|
|
|
·
|
adjusting,
splitting, combining, or reclassifying any capital stock or issuing or authorizing the
issuance of any other securities in respect of, or in substitution for, shares of common
stock, or selling, leasing, mortgaging, or otherwise disposing of any shares or assets
other than in the ordinary course for reasonable and adequate consideration;
|
|
|
·
|
purchasing
any securities or making any material investments, except in the ordinary course of business
consistent with past practice, either by purchasing stock or securities,
|
|
|
|
contributing
to capital, transferring assets, or purchasing any assets, in any person or otherwise
acquiring direct or indirect control over any person other than in connection with foreclosures
of loans in the ordinary course of business;
|
|
|
·
|
except
as previously disclosed to Carolina Financial or contemplated by the merger agreement,
granting any bonus or increase in compensation or benefits to any individual employee,
officer, or director in excess of $5,000 (except in accordance with past practice),
committing or agreeing to pay any severance or termination pay, or any stay or other
bonus to any director, officer, or employee (except for payments according to Mr. Ocheltree’s
employment agreement attached to the merger agreement), entering into or amending
any severance agreements, changing any fees or other compensation or other benefits to
directors waiving any stock repurchase rights, accelerating, amending, or changing
the exercisability period of any right or restricted stock, repricing options or warrants,
or authorizing cash payments in exchange for any rights, or accelerating, vesting, or
committing or agreeing to accelerate or vest any amounts, benefits, or rights;
|
|
|
·
|
entering
into or amending (unless required by law or the merger agreement) any employment contract
that does not have the unconditional right to terminate without certain liability;
|
|
|
·
|
subject
to certain exceptions, adopting any new employee benefit plan or terminating or withdrawing
from or materially changing any existing plan or program;
|
|
|
·
|
making
any change in tax or accounting methods or systems of internal accounting controls, except
for any change required by law, regulatory accounting requirements, or generally accepted
accounting principles, or at the specific request of Carolina Financial;
|
|
|
·
|
commencing
any litigation other than in accordance with past practice or settling any litigation
for money damages or restrictions on operations;
|
|
|
·
|
entering
into, modifying, amending, or terminating any material contracts other than with respect
to those involving aggregate payments of less than, or the provision of goods or services
with a market value of less than, $50,000 per annum, subject to certain exceptions;
|
|
|
·
|
making
any consumer loan with a value equal to or exceeding $250,000;
|
|
|
·
|
except
in the ordinary course of business, modifying any existing loan or credit to any
borrower, except, with respect to any extension of credit with an unpaid balance of less
than $250,000, in conformity with existing lending policies and policies, or waiving,
releasing, compromising, or assigning any material rights or claims or making any adverse
changes in the mix, rates, terms, or maturities of its deposits or other liabilities;
|
|
|
·
|
making
or increasing any loans or other extensions of credit or the commitment to do so to any
director or executive officer of Carolina Trust or Carolina Trust Bank or any entity controlled
by a director or executive officer, except for loans or extensions of credit made on
terms generally available to the public and other than renewals of existing loans or
commitments;
|
|
|
·
|
except
in the ordinary course of business, restructuring or materially changing its investment
securities portfolio or its interest rate risk position through purchases, sales or otherwise,
or the manner in which the portfolio is classified or reported;
|
|
|
·
|
making
any capital expenditures other than pursuant to binding commitments as of July 15,
2019, and other than expenditures of less than $50,000 and expenditures necessary
to maintain existing assets in good repair or to make payment of necessary taxes;
|
|
|
·
|
establishing
or committing to establish any new branch or office facility or filing any application
to relocate or terminate the operation of any banking office;
|
|
|
·
|
taking
any action that is intended or expected to result in any of its representations and warranties
set forth in the merger agreement being or becoming untrue in any material respect at
any time prior to the effective time, or in any of the conditions to the merger not being
satisfied or in a violation of the merger agreement;
|
|
|
·
|
knowingly
taking any action that would prevent or impede the merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code;
|
|
|
·
|
agreeing
to take, making any commitment to take, or adopting any resolutions in support of any
actions prohibited by any of these covenants;
|
|
|
·
|
maintaining
Carolina Trust Bank’s allowance for loan losses in a manner inconsistent with GAAP
and applicable regulatory guidelines and accounting principles, practices, and methods
consistent with past practices; or
|
|
|
·
|
taking
any action or failing to take any action that at the time of such action or inaction
is reasonably likely to prevent, or would be reasonably likely to materially interfere
with, the consummation of the merger.
|
In addition,
Carolina Trust has agreed that neither it, nor its affiliates or representatives, will solicit an acquisition proposal (generally,
a tender offer or proposal for a merger, asset acquisition, or other business combination), other than the transactions contemplated
by the merger agreement. Pursuant to the merger agreement, except to the extent necessary to comply with the fiduciary duties
of their board of directors, neither Carolina Trust, nor any affiliate or representative of such party, will, prior to the shareholder
vote on the merger agreement and subject to certain exceptions, furnish any non-public information that it is not legally
obligated to furnish, or negotiate with respect to, or enter into any contract with respect to, any acquisition proposal. In the
merger agreement, Carolina Trust also agreed to terminate any existing negotiations with any other parties with respect to any
of the foregoing and agreed to use its reasonable efforts to cause its representatives to comply with any of the foregoing.
Restrictions on Solicitation
Except as described
below, Carolina Trust has agreed that, from the time of the execution of the merger agreement until the earlier of the effective
time of the merger or the termination of the merger agreement, it will not, and will cause its affiliates and representatives
not to, directly or indirectly: (i) solicit or initiate, or knowingly facilitate, induce or knowingly encourage the making,
submission, or announcement of any proposal or offer that constitutes, or would reasonably be expected to lead to a proposal that
constitutes, an acquisition proposal; (ii) engage or enter into, continue or otherwise participate in any discussions
or negotiations regarding, or furnish to any other person any non-public information in connection with, any acquisition
proposal, or otherwise cooperate with or assist or participate in, or encourage or knowingly facilitate any such inquiries, proposals,
discussions or negotiations or any effort or attempt to make an acquisition proposal; (iii) enter into any agreement contemplating
or otherwise relating
to an acquisition proposal; or (iv) propose to do any of the foregoing. Carolina Trust has, and
has caused each of its respective subsidiaries and each of its and its respective subsidiaries’ representatives to, cease
any solicitation, encouragement, discussions or negotiations with any person that may be ongoing with respect to any acquisition
proposal, and terminated all physical and electronic data room access previously granted to any such person or its representatives.
An “acquisition proposal” means
any proposal that is communicated to Carolina Trust’s chief executive officer, chief financial officer or board of directors
or publicly announced to Carolina Trust’s shareholders by a third party (other than Carolina Financial or any of
its affiliates) for an acquisition transaction involving Carolina Trust or any of its present or future consolidated subsidiaries,
or any combination of such subsidiaries, the assets of which constitute 5% or more of the consolidated assets of Carolina Trust
as reflected on Carolina Trust’s consolidated statement of condition. An “acquisition transaction” means any
transaction or series of related transactions (other than the proposed merger with Carolina Financial) involving: (i) any
acquisition or purchase from Carolina Trust by a third party of 25% or more in interest of the total outstanding voting securities
of Carolina Trust or any of its subsidiaries, or any tender offer or exchange offer that if consummated would result in any third
party beneficially owning 25% or more in interest of the total outstanding voting securities of Carolina Trust or any of its subsidiaries,
or any merger, consolidation, business combination or similar transaction involving Carolina Trust pursuant to which the shareholders
of Carolina Trust immediately preceding such transaction hold less than 75% of the equity interests in the surviving or resulting
entity of such transaction; (ii) any sale or lease (other than in the ordinary course of business), or exchange, transfer,
license (other than in the ordinary course of business), acquisition or disposition of 5% or more of the assets of Carolina Trust;
or (iii) any liquidation or dissolution of Carolina Trust.
Notwithstanding
the restrictions described above, at any time prior to obtaining the relevant shareholder approval, if Carolina Trust receives
an acquisition proposal and Carolina Trust’s board of directors determines in good faith, after consultation with its financial
advisors and outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to constitute a superior
proposal, Carolina Trust and its representatives may furnish (pursuant to a confidentiality agreement meeting certain requirements
set forth in the merger agreement) non-public information with respect to Carolina Trust and its subsidiaries to and engage in
discussions or negotiations with the person who made the proposal and its representatives (provided that, (i) at least two business
days prior to furnishing any such information to, or entering into discussions or negotiations with, such person or group, Carolina
Trust gives Carolina Financial written notice of the identity of such person or group and of Carolina Trust’s intention
to furnish nonpublic information to, or enter into discussions or negotiations with, such person or group and (ii) Carolina Trust
contemporaneously furnishes such non-public information to Carolina Financial, if such information was not previously provided
to Carolina Financial or its representatives).
A “superior
proposal” means any bona fide written acquisition proposal made by a third party that if consummated would result in such
third party owning more than 50% of the shares of Carolina Trust common stock or all or substantially all of Carolina Trust’s
assets and which Carolina Trust’s board of directors has determined in its good faith judgment, after consultation with
its financial advisors and outside legal counsel, is reasonably likely to be consummated in accordance with its terms and that
is reasonably likely to result in the consummation of a transaction more favorable to the shareholders of Carolina Trust
than the merger, taking into account such factors as the board of directors in good faith deems relevant, including legal, financial,
regulatory and other aspects of the proposal, and any changes to the terms of the merger agreement proposed by Carolina Financial
in response to such proposal or otherwise.
Changes
in Board Recommendation
The board of
directors of Carolina Trust has agreed, subject to certain exceptions discussed below, not to (i) fail to recommend the approval
of the merger agreement, (ii) change, qualify, withhold, withdraw or modify, or publicly propose to take such an action, in a
manner adverse to Carolina Financial, its recommendation with respect to the merger, (iii) take any formal action or make
any recommendation or public statement in connection with a tender offer or exchange offer other than a recommendation of rejection
of such offer or a temporary “stop, look and listen” communication pursuant to Rule 14d-9(f) of the Exchange Act,
or (iv) adopt, approve or recommend an acquisition proposal. In addition, subject to certain exceptions described below and in
the merger agreement, the board of directors of Carolina Trust has agreed not to cause or permit Carolina Trust, or any
subsidiary thereof, to enter into any letter of intent, agreement or agreement in principle with respect to any acquisition
proposal (other than a confidentiality agreement meeting certain requirements set forth in the merger agreement).
Notwithstanding
the restrictions described above, prior to obtaining shareholder approval, the board of directors of Carolina Trust
is permitted to change, qualify, withhold, withdraw or modify in a manner adverse to Carolina Financial its recommendation
with respect to the merger if, subject to certain conditions, the board of directors of Carolina Trust, among other things,
determines in good faith after consultation with its financial advisors and outside legal counsel that an acquisition proposal
received after the date of the merger agreement constitutes a superior proposal. Outside of the acquisition proposal context,
and prior to the special meeting of shareholders, the Carolina Trust board may withdraw, qualify, or modify its recommendation
for approval of the merger agreement if an intervening event occurs that, after consultation with outside counsel, the Carolina
Trust board in good faith determines necessitates a change in its prior recommendation to shareholders in order to comply with
its fiduciary obligations under applicable law.
Prior to making
a change in recommendation due to a superior proposal as described above, Carolina Trust must (i) inform Carolina Financial
in writing of its board of directors’ intention to change its recommendation at least five business days in advance, (ii)
provide to Carolina Financial the material terms and conditions of and identity of the person making the acquisition proposal,
as well as a copy of all written materials with or from the party making such acquisition proposal, and (iii) negotiate (and cause
its representatives to negotiate) in good faith with Carolina Financial during such notice period, to the extent that Carolina
Financial wishes to negotiate, to enable Carolina Financial to revise the terms of the merger agreement such that it would cause
the superior proposal to no longer constitute a superior proposal. Following the end of such notice period, the Carolina Trust
board of directors must consider in good faith any changes to the merger agreement proposed in writing by Carolina Financial,
and must have determined that the superior proposal would continue to constitute a superior proposal if such revisions were to
be given effect. If material revisions to an acquisition proposal would have an impact, influence or other effect on Carolina
Trust’s board of directors’ decision or discussion with respect to whether such proposal constitutes a superior proposal,
Carolina Trust’s board of directors must deliver to Carolina Financial a new written notice and again comply with the procedures
set forth in this paragraph, except that the five business day period described above becomes a three business day period.
Efforts
to Obtain Required Shareholder Approval
Carolina Trust
has agreed to hold its special meeting, as soon as reasonably practicable, for the purposes
of seeking the required approval of its shareholders related to the merger agreement and the merger and, unless
the board of directors of Carolina Trust has changed its recommendation
as permitted by the merger agreement,
to use its commercially reasonable efforts to solicit the requisite shareholder approval for such proposals.
Efforts to Complete the Transactions
Carolina Financial
and Carolina Trust have each agreed to, among other things, take, or cause to be taken, all appropriate actions, and do, or cause
to be done, all things necessary, proper or advisable under the merger agreement and any applicable law to consummate and make
effective the merger and the other transactions contemplated by the merger agreement as soon as reasonably practicable, including
preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings,
and to obtain as promptly as reasonably practicable all consents, registrations, approvals, permits and authorizations necessary
or advisable to be obtained from any governmental entity or other third party in order to consummate the merger or any of the
other transactions contemplated by the merger agreement.
Other Covenants and Agreements
The merger agreement
contains certain other covenants and agreements, including, among others, the following covenants:
|
|
·
|
each
party will hold and treat in confidence all information received from the other party
in connection with the merger agreement or the merger;
|
|
|
·
|
except
as specifically provided in the merger agreement, all employees
of Carolina Trust or any Carolina Trust subsidiary immediately before the effective time
of the merger will automatically become employees of Carolina Financial and its subsidiaries
as of the effective time, shall be employed at the will of Carolina Financial, and will
be eligible to participate in each of Carolina Financial’s employee benefit plans
with full credit for prior service with Carolina Trust solely for the purposes of eligibility
and vesting, except that such service will also be credited for purposes of calculating
benefits under Carolina Financial’s standard severance policy; provided, that no
contractual right to employment shall inure to such employees because of the merger
agreement, except as otherwise expressly set forth therein;
|
|
|
·
|
Carolina
Trust will cooperate with Carolina Financial in its efforts to cause certain Carolina
Trust employees identified by Carolina Financial to enter into retention or stay
bonus agreements prior to the effective time of the merger;
|
|
|
·
|
each
party will give prompt written notice to the other party of any change or event (i) having
or reasonably likely to have a material adverse effect on such party, or (ii) that such
party believes would or would be reasonably likely to cause or constitute a material
breach of any of its representations, warranties or covenants contained in the merger
agreement;
|
|
|
·
|
each
party will keep the other party reasonably informed with respect to the defense or settlement
of any securityholder action against it or its directors or officers relating to the
merger or other transactions contemplated by the merger agreement, will give the other
party opportunity to consult with it regarding the defense or settlement of any such
securityholder action, and will not settle any such action without the other party’s
prior written consent (such consent not to be unreasonably withheld, conditioned or delayed);
|
|
|
·
|
whether
or not the merger is consummated, except as otherwise expressly provided in the merger
agreement, all costs and expenses incurred in connection with the merger agreement and
the transactions contemplated thereby will be borne by the party incurring such expenses;
and
|
|
|
·
|
neither
party will issue or cause the publication of, or permit any of its subsidiaries or agents
to issue or cause the publication of, any press release or other public announcement
with respect to the transactions contemplated by the merger agreement without the prior
consent of the other party (which consent will not be unreasonably withheld), provided
that either party may, without the prior written consent of the other party (but after
prior consultation with the other party to the extent practicable under the circumstances)
issue or cause the publication of any press release or other announcement, after consultation
with outside legal counsel, to the extent required by law or NASDAQ rules or regulations.
|
Conditions to Completion of the
Transaction
The obligations
of Carolina Financial and Carolina Trust to consummate the transactions are subject to the satisfaction of the following conditions:
|
|
·
|
the
approval of the merger agreement by holders of a majority of the outstanding shares of
Carolina Trust common stock;
|
|
|
·
|
the
authorization for listing on NASDAQ of the Carolina Financial common stock to be issued
pursuant to the merger, subject to official notice of issuance;
|
|
|
·
|
the
declaration by the SEC of the effectiveness of the registration statement of which this proxy statement/prospectus forms a part, which registration statement must not
be subject to any stop order or proceedings initiated or threatened by the SEC for such
purpose;
|
|
|
·
|
the
absence of any order, injunction or decree issued by any court or agency of competent
jurisdiction, or any other legal restraint or prohibition, preventing consummation of
the merger or any other transaction contemplated by the merger agreement, and the absence
of any law, regulation, order or decree prohibiting or making illegal the consummation
of the merger;
|
|
|
·
|
the
receipt and effectiveness of all required regulatory approvals, the expiration of all
statutory notice and waiting periods in respect of such regulatory approval, and the
absence of any condition or restriction in connection with any such regulatory approval
that would have a material adverse effect on the surviving corporation; and
|
|
|
·
|
the
receipt of an opinion from Carolina Financial’s legal counsel to the effect that
on the basis of the facts, representations, and assumptions set forth in such opinion,
(i) the merger will be treated for federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code, and (ii) Carolina Financial and Carolina
Trust will each be a party to that reorganization within the meaning of Section 368(b)
of the Code.
|
In addition,
the obligations of Carolina Trust to effect the merger are subject to satisfaction or waiver of the following additional conditions:
|
|
·
|
(i)
the representations and warranties of Carolina Financial (other than certain representations
related to Carolina Financial’s authorization and adoption of the merger
|
|
|
|
agreement,
enforceability of the merger agreement against Carolina Financial, Carolina Financial’s
organization and good standing, Carolina Financial’s capital stock, and the absence
of certain changes or events), without giving effect to any limitation as to “materiality”
or “material adverse effect” contained therein, being true and correct as
of the date of the merger agreement and as of the effective time of the merger as though
made on and as of the effective time (except that representations and warranties that
by their terms speak specifically as of the date of the merger agreement or another date
must be true and correct as of such date), except where the failure of such representations
and warranties to be so true and correct does not have, and would not reasonably be expected
to have, individually or in the aggregate, a material adverse effect on Carolina Financial,
and (ii) certain representations and warranties related to Carolina Financial’s
authorization and adoption of the merger agreement, enforceability of the merger agreement
against Carolina Financial, Carolina Financial’s organization and good standing,
Carolina Financial’s capital stock, and the absence of certain changes or events
being true and correct as of the date of the merger agreement and as of the effective
time of the merger as though made on and as of the effective time (except that representations
and warranties that by their terms speak specifically as of the date of the merger agreement
or another date must be true and correct as of such date) in all material respects;
|
|
|
·
|
Carolina
Financial having performed in all material respects all of the obligations required to
be performed by it under the merger agreement at or prior to the effective time of the
merger;
|
|
|
·
|
Carolina
Financial having delivered to Carolina Trust a certificate, dated as of the closing date,
executed on behalf of Carolina Financial by its chief executive officer or chief financial
officer certifying as to the satisfaction of the conditions described in the preceding
two paragraphs;
|
|
|
·
|
Carolina
Financial having delivered a certificate, dated as of the closing date, of the Secretary
of Carolina Financial and CresCom Bank certifying all organizational documents of Carolina
Financial and CresCom Bank, including, among other things, the incumbency of its directors,
its certificate of incorporation, and its bylaws along with all required certificates
of existence and good standing;
|
|
|
·
|
Carolina
Financial having executed and delivered an agreement with the exchange agent obligating
Carolina Financial to deliver the merger consideration and cash in an aggregate amount
sufficient for payment in lieu of fractional shares of Carolina Financial common stock
to the exchange agent within five business days of the effective time; and
|
|
|
·
|
the
absence of any change, state of facts, event, development or effect since March 31, 2019
that has had or would reasonably be expected to have, individually or in the aggregate,
a material adverse effect on Carolina Financial.
|
In addition,
the obligations of Carolina Financial to effect the merger are subject to satisfaction or waiver of the following additional conditions:
|
|
·
|
(i)
the representations and warranties of Carolina Trust (other than certain representations
related to Carolina Trust’s authorization and adoption of the merger agreement,
enforceability of the merger agreement against Carolina Trust, Carolina Trust’s
organization and good standing, Carolina Trust’s capital stock, and the
absence of
|
|
|
|
certain changes or events), without giving effect to any limitation as to
“materiality” or “material adverse effect” contained therein,
being true and correct as of the date of the merger agreement and as of the effective
time of the merger as though made on and as of the effective time (except that representations
and warranties that by their terms speak specifically as of the date of the merger agreement
or another date must be true and correct as of such date), except where the failure of
such representations and warranties to be so true and correct does not have, and would
not reasonably be expected to have, individually or in the aggregate, a material adverse
effect on Carolina Trust, and (ii) certain representations and warranties related
to Carolina Trust’s authorization and adoption of the merger agreement,
enforceability of the merger agreement against Carolina Trust, Carolina Trust’s
organization and good standing, Carolina Trust’s capital stock, and the
absence of certain changes or events being true and correct as of the date of the merger
agreement and as of the effective time of the merger as though made on and as of the
effective time (except that representations and warranties that by their terms speak
specifically as of the date of the merger agreement or another date must be true and
correct as of such date) in all material respects;
|
|
|
·
|
Carolina
Trust having performed in all material respects all of the obligations required to
be performed by it under the merger agreement at or prior to the closing;
|
|
|
·
|
Carolina
Trust having delivered to Carolina Financial a certificate, dated as of the closing
date, executed on behalf of Carolina Trust by its chief executive officer or chief
financial officer certifying as to the satisfaction of the conditions described in the
preceding two paragraphs;
|
|
|
·
|
Carolina
Trust having delivered a certificate, dated as of the closing date, of the secretary
of Carolina Trust and Carolina Trust Bank certifying all organizational documents of
Carolina Trust and Carolina Trust Bank, including, among other things, the incumbency
of its directors, its articles of incorporation, and its bylaws along with all required
certificates of existence and good standing;
|
|
|
·
|
Carolina
Trust’s delivery of fully executed claims letters, and the employment agreement
executed by Jerry L. Ocheltree with CresCom Bank remaining in full force and effect;
and
|
|
|
·
|
the
absence of any change, state of facts, event, development or effect since March 31, 2019
that has had or would reasonably be expected to have, individually or in the aggregate,
a material adverse effect on Carolina Trust.
|
Governance of the Combined Company
Following the Completion of the Transaction
Carolina Financial
has agreed to take all requisite action, effective as of the effective time of the merger, to cause the Carolina Financial board
of directors to consist of 14 directors, which will include: (i) the then-current 13 members of the Carolina Financial board
of directors, and (ii) Johnathan L. Rhyne, Jr., the current chairman
of the Carolina Trust board of directors. The parties have agreed that the board of directors of Carolina Financial (or the appropriate
committee thereof) will also cause Mr. Rhyne to be nominated for election at the next annual meeting of stockholders
of Carolina Financial at which his class is nominated for re-election.
As
of the effective time of the merger of the parties’ respective subsidiary banks, Carolina Financial has agreed that
CresCom Bank will take all requisite action, effective as of the effective time of such merger, to cause the CresCom Bank
board of directors to consist of 20 directors, which
will include: (i) the then-current 19 members of the CresCom Bank board of
directors, and (ii) Mr. Rhyne. The CresCom Bank board of directors
(or the appropriate committee thereof) will cause Mr. Rhyne to be nominated for re-election at the next annual meeting of the
shareholder of CresCom Bank.
As
of the effective time of the merger (and, with respect to positions with CresCom Bank, effective as of the effective time of the
bank merger), (i) Jerold L. Rexroad will continue as a director and as Chief Executive Officer and President of Carolina
Financial and as Executive Chairman of CresCom Bank, (ii) David L. Morrow will continue as a director and as Executive Vice President
of Carolina Financial and Chief Executive Officer of CresCom Bank, (iii) M.J. Huggins, III will continue as President of CresCom
Bank and Executive Vice President and Secretary of Carolina Financial, (iv) William A. Gehman, III will continue as Executive
Vice President and Chief Financial Officer of Carolina Financial and CresCom Bank, (v) Jerry L. Ocheltree will become and serve
as CresCom Bank’s President of North Carolina Commercial Banking, (vi) the non-employee directors of Carolina
Trust who are not appointed to the board of Carolina Financial will be named to an advisory board of CresCom Bank. The biographies
of Messrs. Rexroad, Morrow, Gehman, Huggins and Carolina Financial’s current directors are included in Carolina Financial’s
definitive Proxy Statement on Schedule
14A for its 2019 annual meeting of stockholders, filed March 22, 2019 with the SEC, and are incorporated herein by
reference. The biographies of Mr. Ocheltree and Carolina Trust’s current directors are included in Carolina Trust’s
definitive Proxy Statement on Schedule
14A for its 2019 annual meeting of shareholders, filed April 11, 2019 with the SEC, and are incorporated herein by
reference.
Indemnification and Insurance
Carolina Financial
will indemnify, defend, and hold harmless, and provide advancement of reasonable expenses to each of the current or former directors
or officers of Carolina Trust or its subsidiaries against all liabilities arising out of actions or omissions arising out of their
service or services as directors, officers, employees, or agents of Carolina Trust or its subsidiaries, occurring at or prior to
the effective time of the merger to the fullest extent permitted by law and by Carolina Trust’s governing documents.
For a period
of six years following the effective time of the merger, Carolina Financial will purchase (or will direct Carolina Trust
to purchase) policies of directors’ and officers’ liability insurance and fiduciary liability insurance for acts or
omissions occurring prior to the effective time of the merger by such directors and officers currently covered by Carolina Trust’s
similar policies. However, after the effective time of the merger, Carolina Financial will not be required to pay annual premiums
for insurance coverages in excess of 300% of the annual premium paid by Carolina Trust prior to the date of the merger agreement
(referred to as the “maximum amount”) in respect of the coverages required to be obtained, but in such case will purchase
the greatest coverage available for a cost not exceeding the maximum amount.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Carolina Financial
pursuant to the provisions discussed above, Carolina Financial has been informed that in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Amendment, Waiver, and Termination
The merger agreement
may be amended by the parties at any time before or after the receipt of the Carolina Trust shareholder approval by action
taken or authorized by the parties’ respective
boards of directors. After receipt of any such approval, no amendment will
be made which by law or in accordance with the rules of any relevant stock exchange requires further approval by the Carolina
Trust shareholders without such further shareholder approval. The merger agreement may not be amended except by
an instrument in writing signed on behalf of Carolina Financial and Carolina Trust.
Prior to or at
the effective time of the merger, either Carolina Trust or Carolina Financial may waive any default in the performance of any term
of the merger agreement by the other party, may waive or extend the time for the fulfillment by the other party of any of its
obligations under the merger agreement, and may waive any of the conditions precedent to the obligations of such party under the
merger agreement, except any condition that, if not satisfied, would result in the violation of an applicable law.
The merger agreement
may be terminated, and the merger abandoned, at any time prior to its effective time, by mutual consent of the boards of directors
of Carolina Trust and Carolina Financial. In addition, the merger agreement may be terminated, and the merger abandoned, prior to
the effective time of the merger by either Carolina Trust or Carolina Financial if:
|
|
·
|
the
other party breaches any representation or warranty in the merger agreement which
cannot be or is not cured within 30 days of notice of such breach; provided, that such
breach is reasonably likely, in the opinion of the non-breaching party, to permit
such party to refuse to consummate the transactions contemplated by the merger agreement;
|
|
|
·
|
any
regulatory authority whose approval is required for consummation of the merger makes
a final non-appealable decision not to approve the merger; any final law or order permanently
restrains, enjoins, or otherwise prohibits consummation of the merger; or Carolina
Trust shareholders fail to approve the merger agreement at the Carolina Trust
special meeting; or
|
|
|
·
|
the
merger has not been consummated by February 28, 2020.
|
Carolina Financial
may terminate the merger prior to the approval by the requisite vote of the Carolina Trust shareholders if:
|
|
·
|
the
board of directors of Carolina Trust, following receipt of a superior proposal,
withdraws, qualifies, or modifies, or proposes publicly to withdraw, qualify or modify,
in a manner adverse to Carolina Financial, its recommendation that the Carolina Trust
shareholders approve the merger agreement, or approves or recommends, or proposes publicly
to approve or recommend an acquisition proposal by any other person;
|
|
|
·
|
the
board of directors of Carolina Trust fails to reaffirm its recommendation that the Carolina
Trust shareholders approve the merger agreement within 10 business days after
Carolina Financial requests such reaffirmation at any time following the public announcement
of an acquisition proposal by any other person; or
|
|
|
·
|
Carolina
Trust fails to comply in all material aspects with Section 7.1 (Shareholder Approval)
or 7.3 (Other Offers, etc.) of the merger agreement regarding obtaining shareholder
approval for the merger agreement and solicitation of other offers for an acquisition
of Carolina Trust.
|
In
this event, Carolina Trust must pay Carolina Financial a termination fee of $4,712,000.
Carolina
Trust can also terminate the merger agreement if Carolina Trust’s shareholders do not approve the merger agreement
at the Carolina Trust special meeting, and prior to the Carolina Trust special meeting, Carolina Trust received a superior proposal
which did not result from a breach of its non-solicitation obligations under the merger agreement, and Carolina Trust’s
board of directors determines to enter into a definitive agreement for such proposal upon termination of the merger agreement
and enters into such agreement concurrently with its termination of the merger agreement. In this event, Carolina Trust must pay
a $4,712,000 termination fee to Carolina Financial.
In
addition, if (i) an acquisition proposal with respect to Carolina Trust is communicated to the shareholders, senior management,
or board of directors of Carolina Trust or any person publicly announces an intention to make an acquisition proposal with respect
to Carolina Trust after the date of the merger agreement, (ii) the merger agreement is then terminated due to a failure to obtain
the Carolina Trust shareholder vote, a material breach of the merger agreement by Carolina Trust, or failure to close the
merger by February 28, 2020, and (iii) within one year after the termination of the merger agreement, Carolina Trust
consummates an acquisition transaction or enters into an acquisition agreement, then it must pay the $4,712,000 termination
fee to Carolina Financial.
Governing Law
The merger agreement
is governed by the laws of South Carolina.
No Third Party Beneficiaries
While the merger
agreement is not intended to confer upon you or any other person other than Carolina Financial and Carolina Trust any rights or remedies,
it provides limited exceptions for (i) Carolina Trust’s and its subsidiaries’ directors and officers to continue to have
indemnification and liability insurance coverage after the completion of the merger, and (ii) holders of Carolina Trust common stock
after the effective time of the merger and any holder of an award granted under a Carolina Trust stock plan to properly convert their
shares of common stock and awards pursuant to the merger agreement.
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES AND OPINION OF TAX COUNSEL
Subject to the limitations, assumptions,
and qualifications described herein, in the opinion of Nelson Mullins Riley & Scarborough, LLP, the following discussion summarizes
the anticipated material U.S. federal income tax consequences of the merger generally applicable to “U.S. holders”
(as defined below) of Carolina Trust common stock that exchange their shares in the merger. This summary is based upon the Internal
Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, judicial authorities,
published positions of the Internal Revenue Service (“IRS”), and other applicable authorities, all as in effect on
the date of this discussion and all of which are subject to change (possibly with retroactive effect) and differing interpretations.
This discussion does not address any state, local, or foreign tax consequences or any U.S. federal tax consequences other than
those pertaining to the U.S. federal income tax. The tax opinion of Nelson Mullins is filed as Exhibit 8.1 to the registration
statement on Form S-4, of which this document is a part.
This summary is limited to U.S. holders
(as defined below) that hold their shares of Carolina Trust common stock as a capital asset within the meaning of Section 1221
of the Code (generally, property held for investment). Furthermore, this discussion does not address all of the tax consequences
that may be relevant to a particular Carolina Trust shareholder or to Carolina Trust shareholders that are subject to special
rules under U.S. federal income tax laws, such as shareholders that are not U.S. holders; financial institutions; insurance companies;
mutual funds; tax-exempt organizations; S corporations or other pass-through entities (or investors in such entities); regulated
investment companies; real estate investment trusts; dealers in securities or currencies; persons subject to the alternative minimum
tax provisions of the Code; former citizens or residents of the United States; persons whose functional currency is not the U.S.
dollar; traders in securities that elect to use a mark-to-market method of accounting; persons that own more than 5% of the outstanding
common stock of Carolina Trust; persons that hold Carolina Trust common stock as part of a straddle, hedge, constructive sale,
or conversion transaction; and U.S. holders that acquired their shares of Carolina Trust common stock through the exercise of
an employee stock option or otherwise as compensation.
For purposes of this section, the term “U.S.
holder” means a beneficial owner of Carolina Trust common stock that for United States federal income tax purposes is a
citizen or resident of the United States; a corporation, or other entity treated as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; an estate
that is subject to U.S. federal income tax on its income regardless of its source; a trust, the substantial decisions of which
are controlled by one or more U.S. persons and which is subject to the primary supervision of a U.S. court; or a trust that validly
has elected under applicable Treasury regulations to be treated as a U.S. person for U.S. federal income tax purposes.
If any entity or arrangement that is treated
as a partnership for U.S. federal income tax purposes holds Carolina Trust common stock, the tax treatment of an owner of the
entity generally will depend on the status of the owners and the activities of the entity. Entities taxable as partnerships and
their owners should consult their tax advisers about the tax consequences of the merger to them.
Holders of Carolina Trust common stock
are urged to consult with their own tax advisors as to the tax consequences of the merger in their particular circumstances, including
the applicability and effect of the alternative minimum tax, any state, local, foreign, and other tax laws, and any changes in
those laws.
The Merger
The merger is intended to constitute a “reorganization”
within the meaning of Section 368(a) of the Code. Carolina Financial and Carolina Trust have received an opinion from Nelson Mullins,
which served as outside legal counsel to Carolina Financial on the merger, stating that, subject to the qualifications, assumptions
and limitations stated in such opinion, the merger will qualify as a reorganization within the meaning of Section 368(a) of the
Code. The foregoing opinion is filed as Exhibit 8.1 to the registration statement on Form S-4 of which this proxy statement/prospectus
forms a part. Additionally, consummation of the merger is conditioned upon Carolina Financial and Carolina Trust receiving a written
tax opinion, dated the closing date of the merger, from Carolina Financial’s outside legal counsel to the effect that, based
upon facts, representations, and assumptions set forth in such opinion, (i) the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code, and (ii) Carolina Financial and Carolina Trust
will each be a party to that reorganization within the meaning of Section 368(b) of the Code. An opinion of counsel represents
the counsel’s best legal judgment and is not binding on the IRS or any court, and as a result, there can be no assurance
that the IRS will not assert, or that a court would not sustain, a position contrary to any such opinion. In addition, if any
of the representations or assumptions upon which the opinion is based are inconsistent with the actual facts, the U.S. federal
income tax consequences of the merger could be adversely affected. Accordingly, each Carolina Trust shareholder should consult
its tax advisor with respect to the particular tax consequences of the merger to such holder.
Consequences to Carolina Financial and Carolina Trust
Each of Carolina Financial and Carolina
Trust will be a party to the reorganization within the meaning of Section 368(b) of the Code, and neither Carolina Financial nor
Carolina Trust will recognize any gain or loss as a result of the merger. Carolina Financial will have the same adjusted tax basis
in the assets of Carolina Trust acquired in the merger as Carolina Trust had in such assets immediately prior to the merger, and
the holding period of Carolina Financial in such assets will include the period during which the assets were held by Carolina
Trust.
Consequences to Shareholders
The
tax consequences to U.S. holders of Carolina Trust common stock depend on the consideration received in exchange for their Carolina
Trust common stock. Thus, the U.S. federal income tax consequences to a U.S. holder will not be ascertainable with certainty
until the U.S. holder knows the precise number of shares of Carolina Financial common stock and the amount of any cash (including
cash received in lieu of fractional shares of Carolina Financial common stock) that the holder will receive in exchange for Carolina
Trust common stock in the merger.
Exchange Solely
for Carolina Financial Common Stock – No gain or loss will be recognized by U.S. holders who exchange all of their Carolina
Trust common stock solely for Carolina Financial common stock pursuant to the merger, except in respect of cash received in lieu
of any fractional share of Carolina Financial common stock (as discussed below).
Exchange Solely
for Cash – Subject to the discussion below regarding dividend recharacterization, U.S. holders who exchange all of their
shares of Carolina Trust common stock solely for cash will generally recognize gain or loss equal to the difference between the
amount of cash received and the adjusted tax basis in the shares of Carolina Trust common stock surrendered. Such gain or loss
must be calculated separately for each identifiable block of shares surrendered in the exchange, and a loss realized on the exchange
of one block of shares may not
be used to offset
a gain realized on the exchange of another block of shares. Any recognized gain or loss generally will be long-term capital gain
or loss for any Carolina Trust shares the U.S. holder has held for more than one year as of the date of the merger.
Exchange for
Carolina Financial Common Stock and Cash – For a U.S. holder who exchanges shares of Carolina Trust common stock for
a combination of Carolina Financial common stock and cash, the U.S. holder generally will recognize gain (but not loss) in an
amount equal to the lesser of: (i) the amount of cash received in exchange for the Carolina Trust common stock in the merger (excluding
any cash received in lieu of fractional shares of Carolina Financial common stock), and (ii) the excess, if any, of (a) the sum
of the amount of cash received in exchange for Carolina Trust common stock in the merger (excluding any cash received in lieu
of fractional shares of Carolina Financial common stock) plus the fair market value (determined when the merger occurs) of Carolina
Financial common stock (including the fair market value of any fractional share) received in the merger, over (b) the U.S. holder’s
adjusted income tax basis in the Carolina Trust common stock exchanged. For this purpose, gain or loss must be calculated separately
for each identifiable block of shares surrendered in the exchange, and the shares of Carolina Financial common stock received
generally will be allocated pro rata to each such block of stock. A loss realized on one block of shares may not be used to offset
a gain realized on another block of shares. Any recognized gain generally will be long-term capital gain for shares of Carolina
Trust common stock the U.S. holder has held for more than one year as of the date of the merger. If, however, the cash received
has the effect of the distribution of a dividend, the gain would be treated as a dividend to the extent of the Carolina Trust
shareholder’s ratable share of Carolina Financial’s accumulated earnings and profits as calculated for federal income
tax purposes. See “—Potential Recharacterization of Gain as a Dividend” below.
Fractional Shares
– A U.S. holder who receives cash in lieu of a fractional share of Carolina Financial common stock generally will be
treated as having received such fractional share pursuant to the merger and then as having received cash in redemption of the
fractional share. Except as described under “—Potential Recharacterization of Gain as a Dividend” below, taxable
gain or, in certain cases, loss generally will be recognized based on the difference between the amount of cash received in lieu
of the fractional share and the portion of the U.S. holder’s aggregate adjusted tax basis of the shares of Carolina Trust
common stock surrendered allocable to the fractional share.
Basis and Holding
Period in Carolina Financial Shares – The aggregate tax basis of the shares of Carolina Financial common stock received
by a U.S. holder of Carolina Trust common stock in the merger (including any fractional share of Carolina Financial common stock
deemed to be received in the merger) will be the same as the basis of the shares of Carolina Trust common stock for which they
are exchanged, minus the amount of cash received in exchange for such Carolina Trust common stock (excluding any cash received
in lieu of a fractional share of Carolina Financial common stock), plus the amount of gain, if any, recognized in the merger (excluding
any gain or loss recognized upon the deemed receipt and exchange of a fractional share of Carolina Financial common stock).
The holding period
of Carolina Financial common stock received in exchange for shares of Carolina Trust common stock will include the holding period
of the shares of Carolina Trust common stock for which it is exchanged. U.S. holders should consult their own tax advisors with
regard to identifying the bases or holding periods of the particular shares of Carolina Financial common stock received in the
merger.
Taxation
of Capital Gains and Losses - Except as described under “—Potential Recharacterization
of Gain as a Dividend” below, any gain or loss that U.S. holders of Carolina Trust common stock recognize in connection
with the merger generally will constitute capital gain or loss and will be long-term capital gain or loss if such U.S. holders
have held (or are treated as having held) their Carolina Trust common stock for more than one year as of the date of the merger.
For noncorporate U.S. holders, long-term capital gains generally will be taxed at a maximum U.S. federal income tax rate of 20%
under current law, subject to the discussion below regarding the Medicare contribution tax on unearned income. The deductibility
of capital losses is subject to limitations.
Potential Recharacterization
of Gain as a Dividend - All or part of the gain that a particular U.S. holder of Carolina Trust
common stock recognizes could be treated as dividend income rather than capital gain if such U.S. holder is a significant shareholder
of Carolina Financial. This could happen, for example, because of ownership of additional shares of Carolina Financial common
stock by such holder, ownership of shares of Carolina Financial common stock by a person related to such holder, or a share repurchase
by Carolina Financial from other holders of Carolina Financial common stock. The IRS has indicated in rulings that any reduction
in the interest of a minority shareholder who owns a small number of shares in a publicly and widely held corporation and who
exercises no control over corporate affairs would result in capital gain as opposed to dividend treatment. If a U.S. holder’s
proceeds from the merger are treated in whole or part as being a dividend, the U.S. holder might be limited in how much, if any,
of the basis in the relinquished Carolina Trust stock can be used to reduce the amount of taxable income recognized from such
proceeds. Because the possibility of dividend treatment depends primarily upon the particular circumstances of a holder of Carolina
Trust common stock, including the application of certain constructive ownership rules under Section 318 of the Code (as described
below), holders of Carolina Trust common stock should consult their own tax advisors regarding the potential tax consequences
of the merger and any possible dividend treatment to them.
Constructive
Ownership - In applying the constructive ownership provisions of Section 318 of the Code,
a holder of Carolina Trust stock may be deemed to own stock that is owned directly or indirectly by other persons, such as certain
family members and trusts, corporations, partnerships, or other entities in which the holder holds an interest. Because the constructive
ownership provisions are complex, holders of Carolina Trust common stock should consult their own tax advisors as to the applicability
of these provisions.
Medicare
Contribution Tax – An unearned income Medicare contribution tax of 3.8% could apply to
some to all of the gain and any of the proceeds taxable as a dividend that a noncorporate U.S. holder recognizes in the merger,
depending on the U.S. holder’s level of modified adjusted gross income (or adjusted gross income in the case of a trust
or estate) and the other provisions of Section 1411 of the Code. The unearned income Medicare contribution tax applies to “net
investment income” of a U.S. holder, which may include capital gains or dividends recognized by U.S. holders of Carolina
Trust common stock as a result of the merger. Holders of Carolina Trust common stock should consult their individual tax advisors
regarding the potential applicability of the unearned income Medicare contribution tax.
Information
Reporting - A U.S. holder of Carolina Trust common stock who receives Carolina Financial common
stock as a result of the merger will be required to retain records pertaining to the merger. If a U.S. holder of Carolina Trust
common stock (i) is required to file a U.S. federal income tax return, (ii) is a “significant holder” and (iii) receives
Carolina Financial common stock in the merger, the U.S. holder will be required to file a statement with such U.S. holder’s
U.S. federal income tax return for the year of the merger in accordance with U.S. Treasury regulations
Section 1.368-3. Such statement
must set forth (i) the name and employer identification number of each of Carolina Trust and Carolina Financial, (ii) the date
of the merger, and (iii) the fair market value and such holder’s basis in all of the Carolina Trust common stock surrendered
in the merger. A “significant holder” is a holder of Carolina Trust common stock owning, immediately before the merger,
(i) at least 5% of the outstanding stock of Carolina Trust or (ii) securities of Carolina Trust with a basis for federal income
tax purposes of at least $1 million.
Backup
Withholding - A noncorporate U.S. holder may be subject to backup withholding at a rate of 24% on proceeds, if any, received
in connection with the merger (other than Carolina Financial common stock). Backup withholding will not apply, however, to a U.S.
holder who provides the holder’s taxpayer identification number (“TIN”), certifies that such number is correct
(or properly certifies that it is awaiting a TIN) and that the U.S. holder is not subject to backup withholding for failure to
report interest and dividends, and otherwise complies with the applicable requirements of the backup withholding rules. A U.S.
holder who does not furnish a required TIN or who does not otherwise establish a basis for an exemption from backup withholding
also may be subject to a penalty imposed by the IRS. Each U.S. holder should complete and sign the IRS Form W-9 (or Substitute
Form W-9) included as part of the transmittal materials to be provided by the exchange agent, so as to provide the information
and certification necessary to avoid backup withholding.
If backup withholding applies to a
U.S. holder, 24% of any cash payments to the U.S. holder will be required to be withheld. Backup withholding is not an additional
tax. Rather, the amount of the backup withholding can be credited against the U.S. federal income tax liability of the U.S. holder,
provided that the required information is provided to the IRS in a timely manner. If backup withholding results in an overpayment
of tax, a U.S. holder may obtain a refund by filing a U.S. federal income tax return with the IRS in a timely manner.
THE PRECEDING DISCUSSION IS INTENDED ONLY
AS A SUMMARY OF THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO A U.S. HOLDER AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO OR A DISCUSSION OF ANY OTHER TYPE OF TAXES.
CAROLINA TRUST SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF NON-U.S., FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE
TAX LAWS, AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
Accounting
Treatment
The merger will
be accounted for under the acquisition method of accounting within generally accepted accounting principles. Under the acquisition
method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and
other commitments) of Carolina Trust as of the effective date of the merger will be recorded at their respective fair values and
added to those of Carolina Financial. Any excess of purchase price over the fair values of assets acquired and liabilities assumed
will be recorded as goodwill. Financial statements of Carolina Financial issued after the merger will reflect these fair values
and will not be restated retroactively to reflect the historical financial position or results of operations of Carolina Trust
before the effective date of the merger.
COMPARATIVE
RIGHTS OF CAROLINA FINANCIAL STOCKHOLDERS AND CAROLINA TRUST SHAREHOLDERS
At the effective
time of the merger, holders of Carolina Trust common stock who receive Carolina Financial common stock as merger consideration
will become holders of Carolina Financial common stock. The following is a summary of the material differences between the rights
of holders of Carolina Financial common stock and the rights of holders of Carolina Trust common stock. Since Carolina Financial
is organized under the laws of the State of Delaware and Carolina Trust is organized under the laws of the State of North Carolina,
differences in the rights of holders of Carolina Financial common stock and those of holders of Carolina Trust common stock arise
from differing provisions of the Delaware General Corporation Law (“DGCL”) and the North Carolina Business
Corporation Act (“NCBCA”), in addition to differing provisions of their respective certificate or articles
of incorporation and bylaws.
This summary
does not purport to be a complete description of the provisions affecting and differences between the rights of Carolina Financial
stockholders and Carolina Trust shareholders. The identification of specific provisions or differences is not meant to indicate
that other equally or more significant differences do not exist. Shareholders of Carolina Trust are referred to the DGCL
and the NCBCA and to the governing corporate documents of Carolina Financial and Carolina Trust.
Authorized
Capital Stock
Carolina
Financial
Carolina Financial
is authorized to issue 51,000,000 shares of capital stock, consisting of 1,000,000 shares of preferred stock, par value $0.01
per share, of which no shares were issued and outstanding as of July 31, 2019, and 50,000,000 shares of common stock, par
value $0.01 per share, of which 22,284,981 shares were issued and outstanding as of July 31, 2019. Carolina
Financial’s stockholders do not have preemptive rights. All of the issued and outstanding shares of common stock of Carolina
Financial are duly and validly issued and outstanding and are fully paid and non-assessable.
Carolina Trust
Carolina Trust
is authorized to issue (a) 20,000,000 shares of common stock, par value $2.50 per share, of which 9,301,575 shares were
issued and outstanding as of July 15, 2019 and of which 119,545 shares were reserved for issuance pursuant to outstanding
Carolina Trust options as of July 15, 2019, and (b) 1,000,000 shares of preferred stock, of which no shares were issued and
outstanding as of July 15, 2019. Carolina Trust’s shareholders do not have preemptive rights. All of the issued and
outstanding shares of common stock of Carolina Trust are duly and validly issued and outstanding and are fully paid and non-assessable.
Limitation on Voting Power
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation states that any record owner of Carolina Financial common stock who owns, directly or indirectly,
more than 10% of the then-outstanding shares of Carolina Financial common stock (the “Limit”) shall not be entitled
or permitted to vote in respect of the shares held in excess of the Limit.
Carolina Trust
Carolina Trust’s
articles of incorporation do not place any limitation on the voting power of holders of Carolina Trust’s common stock.
Size of Board
of Directors
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that the number of directors shall be fixed from time to time exclusively by the
board of directors pursuant to a resolution adopted by a majority of the total number of authorized directorships (whether or
not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the board
for adoption). Carolina Financial’s board of directors is currently comprised of 13 persons, and following the merger, the
board of directors will be comprised of 14 persons.
Carolina Trust
Carolina
Trust’s bylaws provide that the number of directors of Carolina Trust is that number fixed from time to time by resolution
adopted by a majority of the board of directors, but in no event shall the number be less than 5 nor more than 30.
Carolina Trust’s board of is currently comprised of eight directors.
Classification of Directors
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation divides the board of directors into three classes with staggered terms so that the terms
of only approximately one-third of the board members expire at each annual meeting. Each director serves for a three-year
term ending on the date of the third annual meeting following the meeting at which such director was elected with each director
to hold office until his or her successor shall have been duly elected and qualified.
Carolina Trust
Carolina
Trust’s bylaws provide that directors will be elected annually at the annual meeting of shareholders.
Election of Directors
Carolina
Financial
Carolina Financial’s
bylaws provide that all elections of directors shall be determined by a plurality of the votes cast at each annual meeting, with
the nominees receiving the highest number of votes being elected as directors.
Carolina Trust
Carolina
Trust’s directors are elected by a plurality of vote of the shareholders. The nominees receiving the highest number
of votes are elected as directors.
Removal of
Directors
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock then
outstanding, any director or the entire board of directors may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80% of the voting power of all the then-outstanding shares of capital stock
entitled to vote generally in the election of directors (after giving effect to the voting limit described above), voting together
as a single class.
Carolina Trust
Carolina Trust’s bylaws provide that
a director may be removed from office at any time with or without cause by either (i) a two-thirds vote of all the directors or
(ii) a vote of shareholders whenever the number of votes cast in favor of removal of the director exceeds the number of votes
cast against such removal. A director may not be removed by the shareholders at a meeting unless the notice of the meeting states
that the purpose, or one of the purposes, of the meeting is removal of the director.
Filling Vacancies on the Board
of Directors
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that, subject to the rights of the holders of any series of preferred stock then
outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in
the board of directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause may
be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been
chosen expires.
Carolina Trust
Carolina Trust’s bylaws provide that
a vacancy in the board created by an increase in the authorized number of directors may be filled only by election at an annual
meeting of shareholders or at a special meeting of shareholders called for that purpose. Other vacancies may be filled
by a vote
of the majority of the remaining directors, even though less than a quorum, or by the sole remaining director. Carolina Trust’s
shareholders may elect a director at any time to fill any vacancy not filled by the directors. In the event of the resignation
of a director to take effect at a future date, either the board or the shareholders, at any time after such resignation is tendered,
may elect a successor to take office as of the effective date of such resignation. The term of any director elected to fill a
vacancy expires at the next shareholders’ meeting at which directors are elected. At any meeting of shareholders, the shareholders
may authorize up to two additional directorships, which may be left unfilled by shareholders at such meeting to be filled in the
discretion of the directors during the interval between shareholders’ meetings.
Nomination of Director Candidates
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that advance notice of stockholder nominations for the election of directors shall
be given in the manner as provided in the bylaws.
Carolina Financial’s
bylaws provide that nominations of persons for election to the board of directors may be made at a meeting of stockholders at
which directors are to be elected only: (i) by or at the direction of the board of directors or; (ii) by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in
the bylaws. Such nominations, other than those made by or at the direction of the board of directors, shall be made by timely
notice in writing to the secretary of the corporation. To be timely, a stockholder’s notice shall be delivered or mailed
to and received at the principal executive offices of the corporation not less than 90 days prior to the date of the meeting;
provided, however, that in the event that less than 100 days’ notice or prior disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business
on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder’s notice must set forth: (i) as to each person whom such stockholder proposes to nominate for election
or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies
for the election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including
such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);
and (ii) as to the stockholder giving notice of (x) the name and address, as they appear on the corporation’s books, of
such stockholder and (y) the number of shares of the corporation’s capital stock that are beneficially owned by such stockholder.
At the request of the board of directors any person nominated by the board of directors for election as a director shall furnish
to the secretary of the corporation that information required to be set forth in a stockholder’s notice of nomination which
pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance
with advance notice provisions. The officer of the corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such provisions and, if he or she should so determine, he
or she shall declare to the meeting and the defective nomination shall be disregarded.
Carolina Trust
Carolina Trust’s bylaws provide that
shareholders may make nominations of directors if such nominations are made in writing and delivered to Carolina Trust at its
main office no later than
45 calendar days prior to the date that notice of the previous year’s annual meeting was mailed
to shareholders. Each such notice of nomination must set forth: (a) the name and address of the shareholder who intends to make
the nomination; (b) a representation that such shareholder is a holder of record of Carolina Trust shares entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;
(c) as to each person to be nominated (i) such person’s name and address, employment history for the past five years, affiliations,
if any, with Carolina Trust and other corporations, the number of shares of Carolina Trust that are owned of record or
beneficially by such person and information concerning any transactions in such shares within the prior 60 days, whether such
person has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) within the past five
years and the details thereof, whether such person has been a party to any proceeding or subject to any judgment, decree, or final
order with respect to violations of federal or state securities laws within the past five years and the details thereof, and the
details of any contract, arrangement, understanding or relationships with any person with respect to any Carolina Trust securities;
(ii) such person’s written consent to being named as a nominee and to serving as a director if elected; and (iii) a description
of all arrangements or understanding between the shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by the shareholder.
Shareholder Action Without
Meeting
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that stockholder action by written consent in lieu of a meeting is permitted only
if such consent is unanimous.
Carolina Trust
Under the NCBCA, shareholders of public
corporations are permitted to take action by unanimous written consent in lieu of a meeting. Such consents must ordinarily be
in written form, but may be in electronic form and delivered by electronic means to the extent the corporation has agreed to such
form and procedure. The written consents must describe the action taken and must be delivered to the corporation for inclusion
in the minutes or filing with the corporate records.
Calling Meetings of Shareholders
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation and bylaws provide that, subject to the rights of the holders of any class or series of
preferred stock of the corporation, special meetings of stockholders of the corporation may be called only by the board of directors
pursuant to a resolution adopted by a majority of the full board.
Carolina Trust
Carolina Trust’s bylaws permit a special
meeting of the shareholders to be called at any time by Carolina Trust’s president, its chairman, its secretary, or its
board of directors.
Indemnification of Directors,
Executive Officers, and Employees
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that Carolina Financial shall indemnify and hold harmless, to the fullest extent
provided by the DGCL, all directors and officers of the corporation and any person who, at the corporation’s request, is
or was serving as director, officer, employee, or agent of another corporation or entity, against all expense, liability, and
loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection with such indemnitee’s service in the foregoing capacity, provided
that the corporation shall indemnify any such indemnitee in connection with a proceeding initiated by such indemnitee only if
such proceeding was authorized by the board of directors of the corporation. The foregoing right to indemnification includes the
right to an “advancement of expenses;” provided, however, that if the indemnitee is a director or officer of
the corporation, he or she shall deliver an undertaking to the corporation to repay all amounts so advanced if it is ultimately
determined by final adjudication that such indemnitee is not entitled to indemnification. The corporation may, as authorized by
the board of directors, grant the rights to indemnification and to the advancement of expenses to any employee or agent of the
corporation.
Carolina Trust
Carolina Trust’s
articles of incorporation provide that Carolina Trust will indemnify and hold harmless to the fullest extent permitted by law
any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding and any appeal thereof (and any inquiry or investigation
that could lead to such action, suit, or proceeding) by reason of the fact that such person is or was a director, officer, employee,
or agent of Carolina Trust, or is or was serving at the request of Carolina Trust as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise, or as trustee of administrator under an employee
benefit plan. This indemnification applies against all liability and expense incurred by such person in connection with the action,
suit, or proceeding, including legal fees, judgments, fines, excise taxes, and settlement payments. To the extent permitted by
law, Carolina Trust will pay an indemnified person’s expenses in advance of the final disposition of the action, suit, or
proceeding.
Limitation of Liability for Directors
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that a director of Carolina Financial shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of
the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL for unlawful distributions,
or (iv) for any transaction from which the director derived an improper personal benefit.
Carolina Trust
Carolina Trust’s articles of incorporation
provide that no individual serving as a director of Carolina Trust will be personally liable in an action for money damages for
breach of such person’s duty as a director. This limitation of liability does not apply to (1) acts or omissions not
made
in good faith that the director at the time of breach knew or believed were in conflict with Carolina Trust’s best interests,
(2) any liability for unlawful distributions, (3) any transaction from which the director derived an improper personal benefit,
or (4) acts or omissions as to which the elimination of personal liability for directors would be inconsistent with North Carolina
banking law or the business of banking.
Amendment to Certificate or
Articles of Incorporation
Carolina
Financial
The DGCL provides
that a Delaware corporation’s certificate of incorporation generally may be amended only upon approval by (i) a majority
of the outstanding stock entitled to vote on the amendment, and (ii) a majority of the outstanding stock of each class entitled
to vote on the amendment as a class. Carolina Financial’s restated certificate of incorporation also provides that the affirmative
vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the corporation
entitled to vote generally in the election of directors (after giving effect to the provisions of voting limit described above),
voting together as a single class, shall be required to amend or repeal Article Twelfth (amendment of the certificate of incorporation),
Section C of Article Fourth (voting limit), Sections C or D of Article Fifth (stockholder meetings), Article Sixth (directors),
Article Seventh (amendment of the bylaws), Article Eighth (business combinations with interested stockholders), or Article Tenth
(indemnification).
Carolina Trust
Carolina Trust’s articles of incorporation
may be amended in accordance with the provisions of the NCBCA. With limited exceptions, Carolina Trust’s articles of incorporation
may only be amended upon (1) adoption of the proposed amendment by the board of directors and (2) approval of the proposed amendment
by shareholders entitled to vote thereon at a duly convened meeting of shareholders. Generally, for such amendment to be approved,
the votes cast by shareholders approving the amendment must exceed the votes cast against the amendment. However, if an amendment
to Carolina Trust’s articles would create appraisal rights under Chapter 13 of the NCBCA, then, for such amendment to be
approved, a majority of the votes entitled to be cast on the amendment must approve the amendment. An example of an amendment
that would create appraisal rights is an amendment that reduces the number of shares of a class or series owned by a shareholder
to a fraction of a share if the corporation has an obligation or right to repurchase the fractional share so created.
Amendment to Bylaws
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation provides that the board of directors shall have the concurrent power with the stockholders
to adopt, amend, or repeal the bylaws of Carolina Financial. The board of directors may amend the bylaws upon the affirmative
vote of a majority of the directors of the full board. The stockholders may amend the bylaws only upon the affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding shares of the capital stock of the corporation
entitled to vote generally in the election of directors (after giving effect to the provisions of voting limit described above),
voting together as a single class, in addition to any vote of the holders of any class or series of stock of the corporation required
by law or otherwise under the restated certificate of incorporation.
Carolina Trust
Carolina Trust’s bylaws provide that
the bylaws may be amended or repealed and new bylaws may be adopted by the affirmative vote of a majority of the directors then
holding office at any regular or special board meeting. The Carolina Trust board does not have power to adopt a bylaw: (a) requiring
more than a majority of the voting shares for a quorum at a shareholders’ meeting or more than a majority of the votes cast
to constitute action by the shareholders, except where higher percentages are required by law; or (b) providing for the management
of the company other than by Carolina Trust’s board or executive committee. The shareholders may make, alter, amend or repeal
Carolina Trust’s bylaws at any annual meeting or at a special meeting called for such purpose, and bylaws adopted by the
board of directors may be altered or repealed by the shareholders. No bylaw adopted or amended by the shareholders may be altered
or repealed by the Carolina Trust board, unless specific authority to do so is provided to the board by the shareholders.
Control Share Acquisition Provisions
Carolina
Financial
The DGCL does
not contain a control share acquisition statute.
Carolina Trust
The North Carolina Control Share Acquisition
Act, in general, provides that shares of voting stock of a corporation (to which the Act applies) acquired in a “control
share acquisition,” or Control Shares, will have no voting rights unless those rights are granted by resolution adopted
by the holders of at least a majority of the outstanding shares of the corporation entitled to vote in the election of directors,
excluding shares held by the person who has acquired or proposes to acquire the Control Shares and excluding shares held by any
officer or director who is also an employee of the corporation. “Control Shares” are defined as shares of a corporation
that are acquired by any person and which, when added to any other shares already owned by that person, would entitle that person
(except for the application of the Act) to voting power in the election of directors equal to or greater than (1) one-fifth of
all voting power, (2) one-third of all voting power, or (3) a majority of all voting power. “Control share acquisition”
means the acquisition by any person of beneficial ownership of Control Shares with certain exceptions, including an acquisition
pursuant to certain agreements of merger or consolidation to which the corporation is a party, and purchases of shares directly
from the corporation. The Control Share Acquisition Act applies to Carolina Trust.
Business Combinations
Carolina
Financial
Carolina Financial’s
restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of the voting power of all
the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a separate
class, to approve certain business combinations involving an interested stockholder, except in the case of any business combination
that does not involve any cash or other consideration being received by the stockholders of Carolina Financial solely in their
capacity as stockholders of Carolina Financial, where the business combination has been approved by a majority of the disinterested
directors, or in the case of any other business combination, where the business combination has been approved
by a majority of
the disinterested directors or certain conditions with respect to the consideration to be received by some or all of Carolina
Financial’s stockholders are satisfied.
Carolina Trust
Under the NCBCA, unless a North Carolina
corporation’s articles of incorporation, a bylaw adopted by its shareholders, or its board of directors requires a greater
vote, for a merger or statutory share exchange to be approved, the plan of merger or share exchange must be approved by each voting
group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group.
Carolina Trust’s articles of incorporation and bylaws do not contain heightened vote requirements for mergers and statutory
share exchanges, and, therefore, the default rules under the NCBCA apply to Carolina Trust.
NO APPRAISAL
OR DISSENTERS’ RIGHTS
Appraisal or
dissenters’ rights are rights that, if available under law, enable shareholders to dissent from an extraordinary transaction,
such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial
proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. Under
North Carolina law, the holders of Carolina Trust common stock are not entitled to appraisal rights or dissenters’
rights in connection with the merger.
LEGAL MATTERS
The validity
of the shares of Carolina Financial common stock to be issued pursuant to the merger will be passed upon by Nelson Mullins Riley
& Scarborough LLP, 104 S. Main Street, Suite 900, Greenville, South Carolina 29601. The material U.S. federal income
tax consequences relating to the merger will be passed upon for Carolina Financial and Carolina Trust by Nelson Mullins.
EXPERTS
Carolina
Financial
The consolidated
financial statements of Carolina Financial as of December 31, 2018 and 2017 and for each of the years in the three-year period
ended December 31, 2018 appearing in Carolina Financial’s Annual Report on Form
10-K for the year ended December 31, 2018, and the effectiveness of Carolina Financial’s internal control over financial
reporting as of December 31, 2018, have been incorporated by reference herein and in the registration statement in reliance upon
the reports of Elliott Davis, LLC, an independent registered public accounting firm, which reports have been incorporated by reference
herein. Such consolidated financial statements have been so incorporated in reliance on the reports of such firm given upon their
authority as experts in auditing and accounting.
Carolina Trust
The consolidated
financial statements of Carolina Trust as of December 31, 2018 and 2017 and for each of the two years in the period ended
December 31, 2018, have been audited Dixon Hughes Goodman LLP, an independent registered public accounting firm, as set forth
in their report appearing in the Carolina Trust Annual Report on Form
10-K, and incorporated in this proxy statement/prospectus by reference. Such consolidated financial statements have
been so incorporated in reliance on the report of such firm given upon their authority as experts in auditing and accounting.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
OF CAROLINA TRUST
The following
table shows how many shares of common stock in Carolina Trust are owned by the directors, the named executive officers, owners
of more than 5% of the outstanding common stock, and all directors and executive officers as a group as of October 9, 2019.
Unless otherwise indicated, the mailing address for each beneficial owner is care of Carolina Trust BancShares, Inc., 901 East
Main Street, Lincolnton, NC 28092.
|
Name (position) and Address
|
|
Shares
currently
owned(1)
|
|
|
Percent
of
shares
owned(2)
|
|
Bryan Elliott Beal (director)
Lincolnton, NC
|
|
|
15,528
|
|
|
|
|
*
|
Rose B. Cummings (director)
Clover, SC
|
|
|
5,774
|
|
|
|
|
*
|
Scott C. Davis (director)
Lincolnton, NC
|
|
|
38,884
|
|
|
|
|
*
|
Edwin E. Laws (EVP and Chief Financial Officer)
Statesville, NC
|
|
|
5,575
|
|
|
|
|
*
|
Jerry L. Ocheltree (President, CEO and director)
Hickory, NC
|
|
|
77,078
|
|
|
|
|
*
|
Richard M. Rager (EVP and Chief Credit Officer)
Cramerton, NC
|
|
|
20,871
|
|
|
|
|
*
|
Johnathan L. Rhyne, Jr. (director and Chairman)
Gastonia, NC
|
|
|
162,415
|
(3)
|
|
|
1.74
|
%
|
Frederick P. Spach, Jr. (director)
Gastonia,
NC
|
|
|
11,742
|
|
|
|
|
*
|
Jim R. Watson (director)
Lincolnton, NC
|
|
|
27,761
|
|
|
|
|
*
|
|
Directors, nominees, and executive officers as a
group (9 persons)
|
|
|
365,628
|
|
|
|
3.90
|
%
|
|
|
|
|
|
|
|
|
|
|
AllianceBernstein L.P.
1345 Avenue of the
Americas
New York, New York 10105
|
|
|
910,846
|
(4)
|
|
|
9.79
|
%
|
|
|
|
|
|
|
|
|
|
|
Brian Pratt
2100 McKinney Ave, #1550
Dallas,
Texas 75201
|
|
|
698,307
|
(5)
|
|
|
7.50
|
%
|
|
|
|
|
|
|
|
|
|
|
The Banc Funds Company, L.L.C.
20 North Wacker
Drive, Suite 3300
Chicago, Illinois 60606
|
|
|
551,294
|
(6)
|
|
|
5.92
|
%
|
|
*
|
Owns less than one percent of the outstanding
shares of common stock.
|
|
|
|
|
(1)
|
For each director and executive officer
listed above, this column includes the following number of shares of common stock capable of being issued within 60 days of
October 9, 2019, upon the exercise of stock options held by the named individual: Beal – 1,187 shares; Davis
– 1,810 shares; Ocheltree – 44,166 shares; Rager – 13,166 shares; Rhyne – 4,161 shares; Spach –
1,066 shares; and all directors and executive officers as a group – 65,556 shares. To the Company’s knowledge,
each person has sole voting and investment power over the securities shown as beneficially owned by such person, except for
the following shares of common stock for which the individual indicates that the holder shares voting and/or investment power:
Davis – 732 shares; Spach – 2,187 shares; Watson – 20,284 shares; and all directors, nominees and executive
officers as a group – 23,203 shares.
|
|
(2)
|
The ownership percentage of each individual
is calculated based on the total of 9,305,214 shares of common stock issued and outstanding at October 9, 2019 plus
the number of shares that can be issued to that individual within 60 days of October 9, 2019, upon the exercise of
stock options held by the individual. The ownership percentage of the group is based on the total shares outstanding plus
the number of shares that can be issued to the entire group within 60 days of October 9, 2019, upon the exercise of
all stock options held by the group.
|
|
|
|
|
(3)
|
Reported
ownership for Mr. Rhyne includes 41,928 shares that are pledged under a margin loan.
|
|
|
|
|
(4)
|
Share ownership is based on a Form 13F
holdings report and associated Information Table filed by AllianceBernstein L.P. with the SEC on August 14, 2019.
|
|
|
|
|
(5)
|
Share ownership is based on a Schedule
13G/A filed by Mr. Pratt with the Securities and Exchange Commission, or SEC, on June 4, 2019. The shares are owned
jointly with Mr. Pratt’s spouse, Barbara Pratt.
|
|
|
|
|
(6)
|
Share ownership is based on a Form 13F
holdings report and associated Information Table filed by Banc Funds Co LLC with the SEC on August 12, 2019.
|
Annex
A
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
By And Between
CAROLINA
FINANCIAL CORPORATION
and
CAROLINA
TRUST BANCSHARES, INC.
Dated as
of
July 15,
2019
TABLE OF
CONTENTS
Page
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
THIS
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this “Agreement”) dated as of July 15, 2019, is by and
between Carolina Financial Corporation, a Delaware corporation (“Carolina Financial”), and Carolina Trust BancShares,
Inc., a North Carolina corporation (“Carolina Trust”). Except as otherwise set forth herein, capitalized and
certain other terms used herein shall have the meanings set forth in Section 10.1 of this Agreement.
RECITALS
WHEREAS,
the respective Boards of Directors of Carolina Financial and Carolina Trust have determined that it is in the best interests of
their respective companies and shareholders for Carolina Financial to acquire Carolina Trust pursuant to the terms of this Agreement
and have unanimously approved the merger of Carolina Trust with and into Carolina Financial, with Carolina Financial being the
surviving entity (the “Merger”), upon the terms and subject to the conditions set forth in this Agreement,
whereby the issued and outstanding shares of Carolina Trust Common Stock will be converted into the right to receive the Merger
Consideration from Carolina Financial;
WHEREAS,
the Board of Directors of Carolina Financial has adopted this Agreement, duly authorized the Merger and the other transactions
contemplated hereby;
WHEREAS,
the Board of Directors of Carolina Trust has adopted this Agreement, duly authorized the Merger and the other transactions contemplated
hereby, and resolved to recommend that Carolina Trust’s shareholders approve this Agreement and the transactions contemplated
hereby, including the Merger;
WHEREAS,
it is intended that, immediately following the Merger, or as soon as is practicable thereafter, Carolina Trust Bank, a North Carolina
bank and wholly-owned subsidiary of Carolina Trust, will be merged with and into CresCom Bank, a South Carolina banking corporation
and wholly-owned subsidiary of Carolina Financial, so that CresCom Bank is the surviving bank;
WHEREAS,
for federal income Tax purposes, it is intended that the Merger qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the “Code”); and
WHEREAS,
Carolina Financial and Carolina Trust desire to make certain representations, warranties, covenants, and agreements in connection
with the Merger and also to prescribe various conditions to the Merger;
NOW,
THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein,
and other good and valuable consideration and the receipt and sufficiency of which are acknowledged, the Parties, intending to
be legally bound, agree as follows:
Article
1
TRANSACTIONS AND TERMS OF MERGER
Subject
to the terms and conditions of this Agreement, at the Effective Time, Carolina Trust shall be merged with and into Carolina Financial
pursuant to and with the effect provided in Section 252 of the DGCL and Sections 55-11-01, 55-11-06, and 55-11-07 of the NCBCA,
and Carolina Financial shall be the Surviving Corporation resulting from the Merger and shall continue to be governed by the Laws
of the State of Delaware. As of the Effective Time, the separate corporate existence of Carolina Trust shall cease. The Merger
shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of
Directors of Carolina Financial and Carolina Trust.
|
|
1.2
|
Time
and Place of Closing.
|
The
closing of the transactions contemplated hereby (the “Closing”) will take place at 12:01 A.M. Eastern Time
on the date that the Effective Time occurs (the “Effective Date”), or at such other time as the Parties, acting
through their authorized officers, may mutually agree. The Closing shall be held at such location as may be mutually agreed upon
by the Parties and may be effected by electronic or other transmission of signature pages, as mutually agreed upon.
The
Merger shall be consummated by filing a Certificate of Merger reflecting the Merger with the Delaware Secretary of State (the
“Certificate of Merger”) and Articles of Merger reflecting the Merger with the Office of the Secretary of State
of the State of North Carolina (the “Articles of Merger”). The Merger shall become effective (the “Effective
Time”) when the Certificate of Merger and Articles of Merger have been filed or at such later time as may be mutually
agreed upon by Carolina Financial and Carolina Trust and specified in the Certificate of Merger and Articles of Merger. Subject
to the terms and conditions hereof, unless otherwise mutually agreed upon in writing by the authorized officers of each Party,
the Parties shall use their reasonable efforts to cause the Effective Time to occur within 10 business days after the last of
the following dates to occur: (i) the effective date (including expiration of any applicable waiting period) of the last
required Consent of any Regulatory Authority having authority over and approving or exempting the Merger and (ii) the date
on which the shareholders of Carolina Trust approve this Agreement.
|
|
1.4
|
Tax
Treatment of the Merger.
|
It
is intended by the Parties that the Merger constitute a “reorganization” within the meaning of Section 368(a) of the
Code. The Parties hereby adopt this Agreement as a “plan of reorganization” within the meaning of Treasury Regulations
Sections 1.368-2(g) and 1.368-3(a). All of the Parties agree to cooperate and use their best efforts in order to qualify the transactions
contemplated herein as a reorganization under Section 368(a)(1)(A) of the Code, to not take any action that could reasonably be
expected to cause the Merger to fail to so qualify, and to report the Merger for federal, state and any local income Tax purposes
in a manner consistent with such characterization.
|
|
1.5
|
Restructure
of Transaction.
|
Carolina
Financial shall have the right to revise the structure of the Merger contemplated by this Agreement by merging Carolina Trust
with and into a wholly-owned subsidiary of Carolina
Financial, provided, that no such revision to the structure of the
Merger (i) shall result in any changes in the amount or type of the consideration which the holders of shares of Carolina Trust
Common Stock are entitled to receive under this Agreement, (ii) would unreasonably impede or delay consummation of the Merger,
or (iii) imposes any less favorable terms or conditions on Carolina Trust or Carolina Trust Bank. In such event, Carolina Financial
will give written notice to Carolina Trust in the manner provided in Section 10.8, which notice shall be in the form of
an amendment to this Agreement, in the form of a proposed amendment to this Agreement, or in the form of an Amended and Restated
Agreement and Plan of Merger and Reorganization, and the addition of such other exhibits hereto as are reasonably necessary or
appropriate to effect such change.
|
|
1.6
|
Bank
Merger; Directors and Officers of the Surviving Bank.
|
(a) Concurrently with or as soon as practicable after the execution and delivery of this Agreement, CresCom Bank and Carolina
Trust Bank shall enter into the Bank Agreement and Plan of Merger, in the form attached hereto as Exhibit A (the “Bank
Agreement and Plan of Merger”), with such changes thereto as Carolina Financial and Carolina Trust mutually agree to,
pursuant to which Carolina Trust Bank will merge with and into CresCom Bank (the “Bank Merger”), with CresCom
Bank as the surviving institution (the “Surviving Bank”). The Parties intend that the Bank Merger will become
effective immediately following the Effective Time.
(b) The Bank Agreement and Plan of Merger shall provide that the Articles of Incorporation and Bylaws of the Surviving Bank
shall be the Articles of Incorporation and Bylaws of CresCom Bank as in effect immediately prior to the Bank Merger until otherwise
duly amended or repealed.
(c) The Bank Agreement and Plan of Merger shall provide that the directors of the Surviving Bank shall be the directors of
CresCom Bank serving immediately prior to the Bank Merger from and after the effective time of the Bank Merger, in accordance
with the Surviving Bank’s Bylaws, until the earlier of their resignation or removal or otherwise ceasing to be a director.
Prior to the Effective Time, Carolina Financial and CresCom Bank shall take all action necessary to appoint Johnathan L. Rhyne,
Jr. as a director on the Board of Directors of the Surviving Bank, to be effective immediately following the effective time of
the Bank Merger; provided, however, that, if prior to the Effective Time, Mr. Rhyne should die or should be unable or unwilling
to serve as a director of the Surviving Bank, then Carolina Financial shall select, following consultation with Carolina Trust,
a substitute member of Carolina Trust’s Board of Directors to be appointed to the Board of Directors of the Surviving Bank
pursuant to this Section 1.6(c). It is anticipated that the directors of Carolina Trust Bank in office immediately prior to the
effective time of the Bank Merger, other than Mr. Rhyne and Jerry L. Ocheltree, shall serve as the Surviving Bank’s
Charlotte Area Advisory Board and shall be entitled to receive a fee of $500.00 for each advisory board meeting attended. The
Surviving Bank’s Charlotte Area Advisory Board shall meet no less than six times per year in each of the first two years
subsequent to the Effective Time.
(d) The Bank Agreement and Plan of Merger shall provide that the officers of the Surviving Bank shall be the officers of CresCom
Bank serving immediately prior to the Bank Merger, together with such additional persons as may hereafter be appointed, from and
after the effective time of the Bank Merger in accordance with the Surviving Bank’s Bylaws, until the earlier of their resignation
or removal or otherwise ceasing to be an officer. Concurrently with or as soon as practicable after the execution and delivery
of this Agreement, Mr. Ocheltree shall enter into an employment agreement in the form attached hereto as Exhibit G, which
shall become effective only upon the Effective Time.
Article
2
TERMS OF MERGER
|
|
2.1
|
Articles
of Incorporation.
|
The
Certificate of Incorporation of Carolina Financial in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation until otherwise duly amended or repealed.
The
Bylaws of Carolina Financial in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until otherwise duly amended or repealed.
|
|
2.3
|
Directors
and Officers.
|
The
directors of Carolina Financial in office immediately prior to the Effective Time, together with such additional persons as may
thereafter be elected, shall serve as the directors of the Surviving Corporation from and after the Effective Time in accordance
with the Surviving Corporation’s Bylaws, until the earlier of their resignation or removal or otherwise ceasing to be a
director. Prior to the Effective Time, Carolina Financial shall take all action necessary to appoint Johnathan L. Rhyne, Jr. as
a Class III director on the Board of Directors of the Surviving Corporation, to be effective as of 12:01 a.m. on the next business
day following the Effective Time, and to cause Mr. Rhyne to be nominated as a board nominee for election by the stockholders to
the Board of Directors of the Surviving Corporation at the next annual meeting of stockholders of the Surviving Corporation at
which Class III directors are nominated for re-election; provided, however, that, if prior to the Effective Time, Mr. Rhyne
should die or should be unable or unwilling to serve as a director of the Surviving Corporation, then Carolina Financial shall
select, following consultation with Carolina Trust, a substitute member of Carolina Trust’s Board of Directors to be appointed
to the Board of Directors of the Surviving Corporation pursuant to this Section 2.3. The officers of Carolina Financial in office
immediately prior to the Effective Time, together with such additional persons as may hereafter be appointed, shall serve as the
officers of the Surviving Corporation from and after the Effective Time in accordance with the Surviving Corporation’s Bylaws,
until the earlier of their resignation or removal or otherwise ceasing to be an officer.
Article
3
MANNER OF CONVERTING SHARES
|
|
3.1
|
Effect
on Carolina Trust Common Stock.
|
(a) At the Effective Time, in each case subject to Sections 3.1(b), 3.1(c) and 3.1(d), by virtue of the Merger and without
any action on the part of the Parties, each share of Carolina Trust Common Stock that is issued and outstanding immediately prior
to the Effective Time (other than the Extinguished Shares) shall be converted into the right to receive one of the following:
|
|
(i)
|
cash in the amount of
$10.57 (the “Cash Consideration”), less any applicable withholding Taxes;
|
|
|
(ii)
|
a number of duly authorized,
validly issued, fully paid and nonassessable shares of Carolina Financial Common Stock equal to the Exchange Ratio (the “Stock
Consideration”); or
|
|
|
(iii)
|
a combination of the
Cash Consideration and Stock Consideration in such proportions as requested by a Carolina Trust shareholder, to the extent available
after the proration of the total Merger Consideration to 10% Cash Consideration and 90% Stock Consideration (the “Mixed
Consideration”) (items (i), (ii), or (iii) referred to herein individually as the “Per Share Purchase Price”
and collectively as the “Merger Consideration”).
|
The “Exchange Ratio”
shall be 0.3000 share of Carolina Financial Common Stock per one share of Carolina Trust Common Stock.
(b) At the Effective Time, all shares of Carolina Trust Common Stock shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist as of the Effective Time, and each certificate previously representing any such
shares of Carolina Trust Common Stock (the “Certificates”) and each non-certificated share of Carolina Trust
Common Stock (the “Carolina Trust Book-Entry Shares”) shall thereafter represent only the right to receive
the Merger Consideration and applicable payments as set forth in Section 3.1(a) and Section 3.7.
(c) If, prior to the Effective Time, the outstanding shares of Carolina Trust Common Stock, Carolina Trust Options, or the
outstanding shares of Carolina Financial Common Stock or any rights with respect to Carolina Financial Common Stock pursuant to
stock options or other equity-based awards granted by Carolina Financial under the Carolina Financial Corporation 2013 Equity
Incentive Plan (the “Carolina Financial Awards”) shall have been increased, decreased, changed into or exchanged
for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in capitalization, then an appropriate and proportionate adjustment
shall be made to the Stock Consideration. For the avoidance of doubt, Carolina Financial shall have the right to grant additional
Carolina Financial Awards prior to the Effective Date under the Carolina Financial Corporation 2013 Equity Incentive Plan without
triggering an adjustment to the Stock Consideration under this Section 3.1(c).
(d) Each share of Carolina Trust Common Stock issued and outstanding immediately prior to the Effective Time and owned by either
of the Parties or their respective Subsidiaries (in each case other than shares of Carolina Trust Common Stock held on behalf
of third parties or as a result of debts previously contracted) shall, by virtue of the Merger and without any action on the part
of the holder thereof, cease to be outstanding, shall be cancelled and retired without payment of any consideration therefor,
and shall cease to exist (the “Extinguished Shares”).
|
|
3.2
|
Election
and Proration Procedures.
|
(a) Unless
different timing is agreed to by Carolina Financial and Carolina Trust, as soon as reasonably practicable after the Effective
Time, but in any event no more than ten days after the Effective Time, an election form (an “Election Form”),
together with the transmittal materials described in Section 3.3 below, shall be mailed to each holder of Carolina Trust Common
Stock of record at the Effective Time by the exchange agent selected by Carolina Financial and reasonably acceptable to Carolina
Trust (the “Exchange Agent”). Carolina Trust shall provide (or use reasonable efforts to cause its registrar
and transfer agent to provide) all information reasonably necessary for the Exchange Agent to perform its obligations as specified
herein.
(b) Subject
to the provisions of this Article 3 (including, without limitation, Sections 3.2(d) and (e)), each Election Form shall entitle
the holder of Carolina Trust Common
Stock (or the beneficial owner through appropriate and customary documentation and instructions)
to elect to receive (i) the Cash Consideration for all of such holder’s shares (a “Cash Election”), (ii)
the Stock Consideration for all of such holder’s shares (a “Stock Election”), (iii) the Mixed Consideration
for all of such holder’s shares (a “Mixed Election”), or (iv) make no election (a “Non-Election”).
Holders of record of Carolina Trust Common Stock who hold such shares as nominees, trustees or in other representative capacity
(a “Holder Representative”) may submit multiple Election Forms, provided that such Holder Representative certifies
that each such Election Form covers all of the shares of Carolina Trust Common Stock held by that Holder Representative for a
particular beneficial owner. The shares of Carolina Trust Common Stock as to which a Cash Election has been made (including
pursuant to a Mixed Election) are referred to herein as “Cash Election Shares” and the aggregate number thereof
is referred to as the “Cash Election Number.” The shares of Carolina Trust Common Stock as to which a
Stock Election has been made (including pursuant to a Mixed Election) are referred to herein as “Stock Election Shares”
and the aggregate number thereof is referred to herein as the “Stock Election Number.” Shares of Carolina
Trust Common Stock as to which no election has been made (or as to which an Election Form is not properly completed or returned
in a timely fashion) are referred to as “Non-Election Shares.”
(c) To
be effective, a properly completed Election Form must be received by the Exchange Agent on or before 4:00 p.m., local time on
such date as the Parties may mutually agree (the “Election Deadline”), which, in no event, shall be later than
45 calendar days following the Effective Time. An election shall have been properly made only if the Exchange Agent shall
have actually received a properly completed Election Form by the Election Deadline. With respect to any holder that owns
one or more shares of Carolina Trust Common Stock in certificate form, an Election Form shall be deemed properly completed only
if accompanied by all Certificates representing all shares of Carolina Trust Common Stock covered by such Election Form, or the
guaranteed delivery of such Certificates (or customary affidavits and, if required by the Carolina Financial, indemnification
regarding the loss or destruction of such Certificates), together with duly completed transmittal materials. For the holders
of Carolina Trust Common Stock who make a Non-Election, subject to Section 3.2(e), the Exchange Agent shall have the authority
to determine the type of consideration constituting the Per Share Purchase Price to be exchanged for the Non-Election Shares.
Any Carolina Trust shareholder may at any time prior to, but not after, the Election Deadline change such shareholder’s
election by written notice received by the Exchange Agent prior to the Election Deadline accompanied by a properly completed and
signed revised Election Form. Any Carolina Trust shareholder may, at any time prior to the Election Deadline, revoke such
shareholder’s election by written notice received by the Exchange Agent prior to the Election Deadline or by withdrawal
prior to the Election Deadline of such shareholder’s Certificates, or of the guarantee of delivery of such Certificates.
All elections shall be revoked automatically if the Exchange Agent is notified in writing by either party that this Agreement
has been terminated pursuant to the applicable Section of Article 9 of this Agreement. If a Carolina Trust shareholder either
(i) does not submit a properly completed Election Form by the Election Deadline, or (ii) revokes such shareholder’s Election
Form prior to the Election Deadline but does not submit a new properly executed Election Form prior to the Election Deadline,
the shares of Carolina Trust Common Stock held by such Carolina Trust shareholder shall be designated as Non-Election Shares.
Subject to the terms of this Agreement and the Election Form, the Exchange Agent shall have reasonable discretion to determine
whether any election, revocation or change has been properly made and to disregard immaterial defects in any Election Form, and
any good faith decisions of the Exchange Agent regarding such matters shall be binding and conclusive.
(d) The
number of shares of Carolina Trust Common Stock to be converted into the right to receive the Cash Consideration shall be equal
as nearly as possible to 10% of the number of shares of Carolina Trust Common Stock outstanding immediately prior to the Effective
Time (the “Aggregate Cash Limit”) and the number of shares of Carolina Trust Common Stock to be converted into
the right to receive the Stock Consideration shall be equal as nearly as possible to 90% of the number of shares of Carolina Trust
Common Stock outstanding immediately prior to the Effective Time (the “Aggregate Stock Limit”).
(e) Within
seven business days after the Election Deadline, Carolina Financial shall cause the Exchange Agent to effect the allocation among
holders of Carolina Trust Common Stock of rights to receive the Per Share Purchase Price and to distribute such as follows:
(i) if
the Cash Election Number exceeds the Aggregate Cash Limit, then all Stock Election Shares and all Non-Election Shares shall be
converted into the right to receive the Stock Consideration, and each Cash Election Share shall be converted into the right to
receive (A) the Cash Consideration in respect of that number of Cash Election Shares equal to the product obtained by multiplying
(1) the number of Cash Election Shares held by such holder by (2) a fraction, the numerator of which is the Aggregate Cash Limit
and the denominator of which is the Cash Election Number, and (B) the Stock Consideration for those Cash Election Shares which
were not converted into the right to receive Cash Consideration as a result of the Cash Election Number exceeding the Aggregate
Cash Limit;
(ii) if
the Stock Election Number exceeds the Aggregate Stock Limit, then all Cash Election Shares and all Non-Election Shares shall be
converted into the right to receive the Cash Consideration, and each Stock Election Share shall be converted into the right to
receive (A) the Stock Consideration in respect of that number of Stock Election Shares equal to the product obtained by multiplying
(1) the number of Stock Election Shares held by such holder by (2) a fraction, the numerator of which is the Aggregate Stock Limit
and the denominator of which is the Stock Election Number, and (B) the Cash Consideration for those Stock Election Shares which
were not converted into the right to receive Stock Election Shares as a result of the Stock Election Number exceeding the Aggregate
Stock Limit; and
(iii) if
the Cash Election Number and the Stock Election Number do not exceed the Aggregate Cash Limit and the Aggregate Stock Limit, respectively,
then (i) all Cash Election Shares shall be converted into the right to receive the Cash Consideration, (ii) all Stock Election
Shares shall be converted into the right to receive the Stock Consideration, and (iii) all Non-Election Shares shall be converted
into the right to receive the Cash Consideration and/or the Stock Consideration such that the aggregate number of shares of Carolina
Trust Common Stock entitled to receive the Cash Consideration is equal to the Aggregate Cash Limit and the aggregate number of
shares of Carolina Trust Common Stock entitled to receive the Stock Consideration is equal to the Aggregate Stock Limit.
(a) Promptly after the Effective Time, Carolina Financial shall deposit with the Exchange Agent, for exchange in accordance
with this Section 3.3, the Merger Consideration and cash in an aggregate amount sufficient for payment in lieu of fractional shares
of Carolina Financial Common Stock to which holders of Carolina Trust Common Stock may be entitled pursuant to Section 3.7 (collectively,
the “Exchange Fund”). In the event the cash in the
Exchange Fund shall be insufficient to fully satisfy all
of the payment obligations to be made by the Exchange Agent hereunder (including pursuant to Section 3.7), Carolina Financial
shall promptly make available to the Exchange Agent the amounts so required to satisfy such payment obligations in full. The Exchange
Agent shall deliver the Merger Consideration and cash in lieu of any fractional shares of Carolina Financial Common Stock out
of the Exchange Fund. Except as contemplated by this Section 3.3 and Section 3.7, the Exchange Fund will not be used for any other
purpose.
(b) Unless different timing is agreed to by Carolina Financial and Carolina Trust, as soon as reasonably practicable after
the Effective Time, but in any event no more than ten days after the Effective Time, Carolina Financial shall cause the Exchange
Agent to mail to the former shareholders of Carolina Trust appropriate transmittal materials (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates or other instruments theretofore representing shares of Carolina
Trust Common Stock (it being understood that any reference hereinafter to “Certificate” shall be deemed to include
reference to “Carolina Trust Book Entry Shares”) shall pass, only upon proper delivery of such Certificates or other
instruments to the Exchange Agent). In the event of a transfer of ownership of shares of Carolina Trust Common Stock represented
by one or more Certificates that are not registered in the transfer records of Carolina Trust, the Per Share Purchase Price payable
for such shares as provided in Section 3.1(a) and Section 3.2 may be issued to a transferee if the Certificate or Certificates
representing such shares are delivered to the Exchange Agent, accompanied by all documents required to evidence such transfer
and by evidence reasonably satisfactory to the Exchange Agent that such transfer is proper and that any applicable stock transfer
Taxes have been paid. In the event any Certificate representing Carolina Trust Common Stock shall have been lost, mutilated, stolen,
or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen, mutilated,
or destroyed and, if requested by Carolina Financial, the posting by such person of a bond in such amount as Carolina Financial
may reasonably direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, mutilated, stolen, or destroyed Certificate the Per Share Purchase Price as provided
for in Section 3.1(a) and Section 3.2. The Exchange Agent may establish such other reasonable and customary rules and procedures
in connection with its duties as it may deem appropriate. Carolina Financial shall pay all charges and expenses, including those
of the Exchange Agent, in connection with the distribution of the Per Share Purchase Price. Carolina Financial or the Exchange
Agent will maintain a book entry list of the Merger Consideration to which each former holder of Carolina Trust Common Stock is
entitled. The Stock Consideration into which Carolina Trust Common Stock has been converted shall be issued in uncertificated
form.
(c) Unless different timing is agreed to by Carolina Financial and Carolina Trust, after the Effective Time, each holder of
shares of Carolina Trust Common Stock (other than Extinguished Shares) issued and outstanding at the 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 consideration provided in Sections 3.1(a), 3.2, and 3.7, without interest, pursuant to this Section 3.3.
The Certificate or Certificates of Carolina Trust Common Stock so surrendered shall be duly endorsed as the Exchange Agent may
reasonably require. Carolina Financial shall not be obligated to deliver the Per Share Purchase Price to which any former holder
of Carolina Trust Common Stock is entitled as a result of the Merger until such holder surrenders such holder’s Certificate
or Certificates (or affidavit of loss in lieu thereof as provided in Section 3.3(b)) for exchange as provided in this Section
3.3. Similarly, no dividends or other distributions in respect of the Carolina Financial Common Stock shall be paid to any holder
of any unsurrendered Certificate or Certificates until such Certificate or Certificates (or affidavit of
loss in lieu thereof
as provided in Section 3.3(b)) are surrendered for exchange as provided in this Section 3.3. Any other provision of this Agreement
notwithstanding, neither any Carolina Financial Entity, nor any Carolina Trust Entity, nor the Exchange Agent shall be liable
to any holder of Carolina Trust Common Stock for any amounts paid or properly delivered in good faith to a public official pursuant
to any applicable abandoned property, escheat, or similar Law.
(d) Each of Carolina Financial and the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Carolina Trust Common Stock such amounts, if any, as it is required
to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local, or foreign
Tax Law or by any Taxing Authority or Governmental Authority. To the extent that any amounts are so withheld by Carolina Financial
or the Exchange Agent, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Carolina Trust Common Stock, as applicable in respect of which such deduction and withholding
was made by Carolina Financial or the Exchange Agent, as the case may be.
(e) Any
portion of the Merger Consideration and cash delivered to the Exchange Agent by Carolina Financial pursuant to Section 3.3(a)
that remains unclaimed by the holder of shares of Carolina Trust Common Stock for six months after the Effective Time (as well
as any proceeds from any investment thereof) shall be delivered by the Exchange Agent to Carolina Financial. Any holder of shares
of Carolina Trust Common Stock who has not theretofore complied with Section 3.3(c) shall thereafter look only to Carolina Financial
for the consideration deliverable in respect of each share of Carolina Trust Common Stock such holder holds as determined pursuant
to this Agreement without any interest thereon. If outstanding Certificates for shares of Carolina Trust Common Stock are not
surrendered or the payment for them is not claimed prior to the date on which such shares of Carolina Financial Common Stock and
cash would otherwise escheat to or become the property of any Governmental Authority, the unclaimed items shall, to the extent
permitted by abandoned property and any other applicable law, become the property of Carolina Financial (and to the extent not
in its possession shall be delivered to it), free and clear of all claims or interest of any person previously entitled to such
property. Neither the Exchange Agent nor any party to this Agreement shall be liable to any holder of stock represented by any
Certificate for any consideration paid to a Governmental Authority pursuant to applicable abandoned property, escheat or similar
laws. Carolina Financial and the Exchange Agent shall be entitled to rely upon the stock transfer books of Carolina Trust to establish
the identity of those persons entitled to receive the consideration specified in this Agreement, which books shall be conclusive
with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate or Certificates,
Carolina Financial and the Exchange Agent shall be entitled to deposit any consideration represented thereby in escrow with an
independent third party and thereafter be relieved with respect to any claims thereto.
(f) Approval of this Agreement by the shareholders of Carolina Trust shall constitute ratification of the appointment of the
Exchange Agent.
|
|
3.4
|
Effect
on Carolina Financial Common Stock.
|
At
and after the Effective Time, each share of Carolina Financial Common Stock issued and outstanding immediately prior to the Effective
Time shall remain an issued and outstanding share of common stock of Carolina Financial and shall not be affected by the Merger.
|
|
3.5
|
Carolina
Trust Options.
|
(a) As of the Effective Time, Carolina Financial shall either (i) assume any options or other stock-based awards (“Carolina
Trust Options”) substantially in accordance with the terms of the Carolina Trust Equity Plans and the option grants
or other award agreements by which they are evidenced in accordance with the terms of the Carolina Trust Equity Plans or (ii)
replace the Carolina Trust Options with substantially identical awards under any plans sponsored by Carolina Financial under which
options and other stock-based awards are granted, and the award agreements thereunder (each, a “Carolina Financial Stock
Plan”), such that after the Merger and without any action on the part of the holders of any Carolina Trust Options,
the Carolina Trust Options shall be converted into and become rights with respect to Carolina Financial Common Stock. From and
after the Effective Time, (A) each Carolina Trust Option assumed or replaced by Carolina Financial may be exercised solely for
shares of Carolina Financial Common Stock, (B) the number of shares of Carolina Financial Common Stock subject to such Carolina
Trust Option shall be equal to the number of shares of Carolina Trust Common Stock subject to such Carolina Trust Option immediately
prior to the Effective Time multiplied by the Exchange Ratio (rounded down to the nearest whole share), and (C) the per share
exercise price under each such Carolina Trust Option shall be divided by the Exchange Ratio (rounded up to the nearest whole cent).
It is intended that the foregoing assumption shall be undertaken in a manner that will not constitute a “modification”
as defined in Section 424 of the Code, as to any stock option which is an “incentive stock option.” Carolina Financial
and Carolina Trust agree to take all steps necessary to effect the provisions of this Section 3.5(a).
(b) Carolina Trust’s Board of Directors and its compensation committee shall not make any grants of Carolina Trust Options
following the execution of this Agreement.
(c) To the extent permitted under applicable Law and the terms of any equity-based compensation plan administered by Carolina
Trust (collectively, the “Carolina Trust Equity Plans”), Carolina Trust’s Board of Directors or its compensation
committee shall, upon reasonable request of Carolina Financial, make any adjustments and amendments to or make such determinations
with respect to the Carolina Trust Options necessary to effect the foregoing provisions of this Section 3.5.
(d) Carolina Financial shall take all corporate actions that are necessary, including the reservation, issuance and listing
of Carolina Financial Common Stock, to effect the transactions contemplated by Section 3.5(a). As soon as practicable following
the Effective Time, Carolina Financial shall file with the SEC one or more registration statements on Form S-8 (or any successor
or other appropriate form) with respect to the shares of Carolina Financial Common Stock underlying such Carolina Trust Options,
and shall use reasonable best efforts to maintain the effectiveness of such registration statement(s) for so long as such assumed
Carolina Trust Options remain outstanding.
|
|
3.6
|
Rights
of Former Carolina Trust Shareholders.
|
At
the Effective Time, the stock transfer books of Carolina Trust shall be closed as to holders of Carolina Trust Common Stock and
no transfer of Carolina Trust Common Stock by any holder of such shares shall thereafter be made or recognized. Until surrendered
for exchange in accordance with the provisions of Section 3.3, each Certificate theretofore representing shares of Carolina Trust
Common Stock (other than Certificates representing Extinguished Shares), shall from and after the Effective Time represent for
all purposes only the right to receive the Merger Consideration, without interest, as provided in Article 3.
Notwithstanding
any other provision of this Agreement, each holder of shares of Carolina Trust Common Stock exchanged pursuant to the Merger,
who would otherwise have been entitled to receive a fraction of a share of Carolina Financial Common Stock (after taking into
account all Certificates delivered by such holder), shall receive, in lieu thereof, cash (without interest) in an amount equal
to such fractional part of a share of Carolina Financial Common Stock multiplied by the Average Closing Price. No such holder
will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares.
Article
4
REPRESENTATIONS AND WARRANTIES OF CAROLINA TRUST
Carolina
Trust represents and warrants to Carolina Financial, except as set forth on the Carolina Trust Disclosure Memorandum with respect
to each such Section below, as follows:
|
|
4.1
|
Organization,
Standing, and Power.
|
Carolina
Trust is a corporation duly organized, validly existing, and in good standing under the Laws of the State of North Carolina and
is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHCA”). Carolina
Trust Bank is a North Carolina state bank, duly organized, validly existing and in good standing under the laws of the State of
North Carolina. Each of Carolina Trust and Carolina Trust Bank has the corporate power and authority to carry on its business
as now conducted and to own, lease, and operate its Assets. Each of Carolina Trust and Carolina Trust Bank is duly qualified or
licensed to transact business as a foreign corporation in good standing in the states of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except
for such jurisdictions where the failure to be so qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Carolina Trust Material Adverse Effect. The minute book and other organizational documents for each of Carolina Trust
and Carolina Trust Bank have been made available to Carolina Financial for its review and are true and complete in all material
respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto
and all proceedings of the respective Board of Directors (including any committees of the Board of Directors) and shareholders
thereof, except to the extent that minutes for the most recent meetings have not been transcribed and finalized and minutes of
deliberations regarding negotiations with Carolina Financial may be redacted. Carolina Trust Bank is an “insured institution”
as defined in the Federal Deposit Insurance Act and applicable regulations thereunder, and the deposits held by Carolina Trust
Bank are insured up to applicable limits by the FDIC’s Deposit Insurance Fund.
|
|
4.2
|
Authority
of Carolina Trust; No Breach by Agreement.
|
(a) Carolina Trust has the corporate power and authority necessary to execute, deliver, and, other than with respect to the
Merger, perform this Agreement, and with respect to the Merger, upon the approval of the Merger, including any necessary approvals
referred to in Sections 8.1(b) and 8.1(c) and by Carolina Trust’s shareholders in accordance with Section 8.1(a) of this
Agreement and the NCBCA, to perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including
the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Carolina
Trust, subject to the approval of this Agreement by the holders of a majority
of the outstanding shares of Carolina Trust Common
Stock, which is the only Carolina Trust shareholder vote required for approval of this Agreement and consummation of the Merger
(the “Requisite Carolina Trust Shareholder Vote”). Subject to any necessary approvals referred to in Sections
8.1(b) and 8.1(c) and by such Requisite Carolina Trust Shareholder Vote, this Agreement represents a legal, valid, and binding
obligation of Carolina Trust, enforceable against Carolina Trust in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of
creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may be brought).
(b) Except as disclosed in Section 4.2 of the Carolina Trust Disclosure Memorandum, neither the execution and delivery of this
Agreement by Carolina Trust, nor the consummation by Carolina Trust and Carolina Trust Bank of the transactions contemplated hereby,
nor compliance by Carolina Trust and Carolina Trust Bank with any of the provisions hereof, will (i) assuming the Requisite
Carolina Trust Shareholder Vote, conflict with or result in a breach of any provision of Carolina Trust’s Articles of Incorporation
or Bylaws or the Articles of Incorporation or Bylaws of any Carolina Trust Subsidiary or any resolution adopted by the Board of
Directors or the shareholders of any Carolina Trust Entity, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any material Asset of any Carolina Trust Entity under, any material Contract
or any material Permit of any Carolina Trust Entity or, (iii) subject to receipt of the requisite Consents referred to in
Section 8.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any
Carolina Trust Entity or any of their respective material Assets (including any Carolina Trust Entity becoming subject to or liable
for the payment of any Tax on any of the Assets owned by any Carolina Trust Entity being reassessed or revalued by any Regulatory
Authority).
(c) Except for (a) the filing of applications and notices with, and approval of such applications and notices from, the Federal
Reserve, the FDIC, the South Carolina Board of Financial Institutions and North Carolina Commissioner of Banks, (b) the filing
of any other required applications, filings, or notices with any other federal or state banking, insurance or other regulatory
or self-regulatory authorities or any courts, administrative agencies or commissions or other Governmental Authorities and approval
of or non-objection to such applications, filings and notices, (c) the filing with the SEC of a registration statement on Form
S-4 (the “Registration Statement”) in which a proxy statement relating to Carolina Trust’s Shareholders’
Meeting to be held in connection with this Agreement and the transactions contemplated by this Agreement (the “Proxy
Statement/Prospectus”) will be included, and the declaration of effectiveness of the Registration Statement, (d) the
filing of the Certificate of Merger and the Articles of Merger, (e) any consents, authorizations, approvals, filings or exemptions
in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of
broker-dealers, investment advisers or transfer agents, and federal commodities laws relating to the regulation of futures commission
merchants and the rules and regulations thereunder and of any applicable industry self-regulatory organization, and the rules
and regulations of the NASDAQ Stock Market, or that are required under consumer finance, mortgage banking and other similar laws,
and (f) notices or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, no consents or
approvals of or filings or registrations with any Governmental Authority are necessary in connection with the consummation by
Carolina Trust of the Merger and the other transactions contemplated by this Agreement. No consents or approvals of or filings
or registrations with any Governmental Authority are necessary in connection with the execution and delivery by Carolina Trust
of this Agreement.
(a) The authorized capital stock of Carolina Trust consists of 20,000,000 shares of Carolina Trust Common Stock, $2.50 par
value per share, of which 9,301,575 shares are issued and outstanding as of the date of this Agreement, and 1,000,000 shares of
serial preferred stock, of which no shares are issued and outstanding as of the date of this Agreement. Section 4.3(a) of the
Carolina Trust Disclosure Memorandum lists all issued and outstanding Carolina Trust Options, which schedule includes the names
of the recipients, the date of grant, the exercise prices, the vesting schedules and the expiration dates, to the extent applicable.
All of the issued and outstanding shares of capital stock of Carolina Trust are duly and validly issued and outstanding and are
fully paid and nonassessable. None of the outstanding shares of capital stock of Carolina Trust has been issued in violation of
any preemptive rights of the current or past shareholders of Carolina Trust.
(b) Except for the 119,545 shares of Carolina Trust Common Stock reserved for issuance pursuant to outstanding Carolina Trust
Options, as disclosed in Section 4.3(a) of the Carolina Trust Disclosure Memorandum, there are no shares of capital stock or other
equity securities of Carolina Trust reserved for issuance and no outstanding Rights relating to the capital stock of Carolina
Trust.
(c) Except as specifically set forth in this Section 4.3 and disclosed in Section 4.3(a) of the Carolina Trust Disclosure Memorandum,
there are no shares of Carolina Trust capital stock or other equity securities of Carolina Trust outstanding and there are no
outstanding Rights with respect to any Carolina Trust securities or any right or privilege (whether pre-emptive or contractual)
capable of becoming a Contract or Right for the purchase from Carolina Trust of, exchange with Carolina Trust for, subscription
for or issuance of any securities of Carolina Trust.
|
|
4.4
|
Carolina
Trust Subsidiaries.
|
Carolina
Trust and Carolina Trust Bank have no Subsidiaries other than the Carolina Trust Subsidiaries, and Carolina Trust or Carolina
Trust Bank, as applicable, own all of the equity interests in each of the Carolina Trust Subsidiaries. No capital stock (or other
equity interest) of any Carolina Trust Subsidiary is or may become required to be issued (other than to another Carolina Trust
Entity) by reason of any Rights, and there are no Contracts by which any Carolina Trust Subsidiary is bound to issue (other than
to another Carolina Trust Entity) additional shares of its capital stock (or other equity interests) or Rights or by which any
Carolina Trust Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any Carolina
Trust Subsidiary (other than to another Carolina Trust Entity). There are no Contracts relating to the rights of any Carolina
Trust Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any Carolina Trust Subsidiary.
All of the shares of capital stock (or other equity interests) of each Carolina Trust Subsidiary are fully paid and nonassessable
and are owned directly or indirectly by Carolina Trust free and clear of any Lien.
|
|
4.5
|
Exchange
Act Filings; Securities Offerings; Financial Statements.
|
(a) Carolina Trust has timely filed all Exchange Act Documents required to be filed since December 31, 2016 (the “Carolina
Trust Exchange Act Reports”). The Carolina Trust Exchange Act Reports (i) at the time filed, (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such filing) complied in all material respects with the applicable
requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact
required to be stated in such Carolina Trust Exchange Act Reports or necessary
in order to make the statements in such Carolina Trust Exchange Act Reports, in light of the circumstances under which they were
made, not misleading. Each offering or sale of securities by Carolina Trust (x) was either registered under the Securities Act
or made pursuant to a valid exemption from registration under the Securities Act, (y) complied in all material respects with the
applicable requirements of the Securities Laws and other applicable Laws, except for immaterial “blue sky” filings,
including disclosure and broker/dealer registration requirements, and (z) was made pursuant to offering documents which did not,
at the time of the offering (or, in the case of registration statements, at the effective date thereof) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in the offering documents or necessary in order to make
the statements in such documents, in light of the circumstances under which they were made, not misleading. Carolina Trust’s
principal executive officer and principal financial officer have made the certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act and the rules and regulations of the Exchange Act thereunder with respect to Carolina Trust Exchange Act Reports
to the extent such rules or regulations applied at the time of the filing. For purposes of the preceding sentence, “principal
executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes–Oxley
Act. Such certifications contain no qualifications or exceptions to the matters certified therein and have not been modified or
withdrawn; and neither Carolina Trust nor any of its officers has received notice from any Regulatory Authority questioning or
challenging the accuracy, completeness, content, form, or manner of filing or submission of such certifications. No Carolina Trust
Subsidiary is required to file any Exchange Act Documents.
(b) Each of the Carolina Trust Financial Statements (including, in each case, any related notes) that are contained in Carolina
Trust Exchange Act Reports, including any Carolina Trust Exchange Act Reports filed after the date of this Agreement until the
Effective Time, complied, or will comply, as to form in all material respects with the Exchange Act, was, or will be, prepared
in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the Exchange Act),
fairly presented in accordance with GAAP the consolidated financial position of Carolina Trust and its Subsidiaries as of the
respective dates and the consolidated results of operations and cash flows for the periods indicated, including the fair values
of the assets and liabilities shown therein, except that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be material in amount or effect, and were certified to
the extent required by the Sarbanes-Oxley Act.
(c) Carolina Trust’s independent registered public accountants, which have expressed their opinion with respect to the
Carolina Trust Financial Statements and its Subsidiaries whether or not included in Carolina Trust’s Exchange Act Reports
(including the related notes), are and have been throughout the periods covered by such Financial Statements (i) a registered
public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act) (to the extent applicable during such period),
(ii) “independent” with respect to Carolina Trust within the meaning of Regulation S-X, and (iii) with respect to
Carolina Trust, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and related Securities Laws.
Carolina Trust’s independent public accountants have audited Carolina Trust’s year-end financial statements, and have
reviewed Carolina Trust’s interim financial statements, that are included in the Carolina Trust Financial Statements in
accordance with Public Accounting Oversight Board Auditing Standard No. 4015. Section 4.5(c) of the Carolina Trust Disclosure
Memorandum lists all non-audit services performed by Carolina Trust’s independent public accountants for Carolina Trust
or Carolina Trust Bank during the periods covered by the Carolina Trust Financial Statements.
(d) Carolina Trust maintains disclosure controls and procedures as required by Rule 13a-15 or 15d-15 under the Exchange Act,
and such controls and procedures are effective to ensure that all material information relating to Carolina Trust and its Subsidiaries
is made known on a timely basis to Carolina Trust’s principal executive officer and Carolina Trust’s principal financial
officer.
|
|
4.6
|
Absence
of Undisclosed Liabilities.
|
No
Carolina Trust Entity has any Liabilities required under GAAP to be set forth on a consolidated balance sheet or in the notes
thereto that are reasonably likely to have, individually or in the aggregate, a Carolina Trust Material Adverse Effect, except
Liabilities which are (i) accrued or reserved against in the consolidated balance sheet of Carolina Trust as of March 31, 2019
as filed with the SEC or reflected in the notes thereto, (ii) incurred in the ordinary course of business consistent with past
practices, or (iii) incurred in connection with the transactions contemplated by this Agreement. Section 4.6 of the Carolina Trust
Disclosure Memorandum lists, and Carolina Trust has delivered to Carolina Financial copies of the documentation creating or governing,
all securitization transactions and “off-balance sheet arrangements” (as defined in Item 303(c)(2) of Regulation
S-K of the Exchange Act) effected by Carolina Trust or its Subsidiaries since December 31, 2018 (or with respect to off-balance
sheet arrangements, that remain in effect), other than letters of credit and unfunded loan commitments or credit lines. Except
as reflected on Carolina Trust’s balance sheet at March 31, 2019 as filed with the SEC, no Carolina Trust Entity is directly
or indirectly liable, by guarantee, indemnity, or otherwise, upon or with respect to, or obligated, by discount or repurchase
agreement or in any other way, to provide funds in respect to, or obligated to guarantee or assume any Liability of any Person
for any amount in excess of $25,000 and any amounts, whether or not in excess of $25,000 that, in the aggregate, exceed $50,000.
Except (x) as reflected in Carolina Trust’s balance sheet at March 31, 2019 as filed with the SEC or Liabilities described
in any notes thereto (or Liabilities for which neither accrual nor footnote disclosure is required pursuant to GAAP or any applicable
Regulatory Authority) or (y) for Liabilities incurred in the ordinary course of business since March 31, 2019 as filed with the
SEC consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, neither Carolina
Trust nor any Carolina Trust Subsidiary has any Material Liabilities or obligations of any nature.
|
|
4.7
|
Absence
of Certain Changes or Events.
|
Except
as disclosed in the Carolina Trust Financial Statements as filed with the SEC, (i) since December 31, 2018, there have been
no events, changes, or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Carolina
Trust Material Adverse Effect and (ii) since December 31, 2018, the Carolina Trust Entities have conducted their respective
businesses in the ordinary course of business consistent with past practice. Section 4.7 of the Carolina Trust Disclosure Memorandum
sets forth attorneys’ fees, investment banking fees, accounting fees and other costs or fees of Carolina Trust and the Carolina
Trust Subsidiaries that, based upon reasonable inquiry, are expected to be paid or accrued through the Effective Time in connection
with the merger transaction contemplated by this Agreement.
(a) Each of the Carolina Trust Entities has filed with the appropriate Taxing Authorities, all material Tax Returns in all
jurisdictions in which Tax Returns are required to be filed, and such Tax Returns are correct and complete in all material respects.
All material Taxes of the Carolina Trust Entities to the extent due and payable (whether or not shown on any Tax Return) have
been fully and timely paid. There are no Liens for any material Taxes (other than a Lien for current real
property or ad valorem
Taxes not yet due and payable, or for Taxes being contested in good faith for which adequate reserves are established in the
Carolina Trust Financial Statements) filed of record on any of the Assets of any of the Carolina Trust Entities. No written claim
has ever been made by any Taxing Authority in a jurisdiction where any Carolina Trust Entity does not file a Tax Return that such
Carolina Trust Entity may be subject to Taxes by that jurisdiction.
(b) None of the Carolina Trust Entities has received any written notice of assessment or proposed assessment in connection
with any Taxes, other than any that has been fully resolved with the applicable Taxing Authority. There are no ongoing or pending
written claims, audits, or examinations regarding any Taxes of any Carolina Trust Entity or the assets of any Carolina Trust Entity.
No officer or employee responsible for Tax matters of any Carolina Trust Entity expects any Taxing Authority to assess any additional
material Taxes for any period for which Tax Returns have been filed. No issue has been raised by a Taxing Authority in any prior
examination of the Carolina Trust that, by application of the same or similar principles, could be expected to result in a proposed
material deficiency for any subsequent taxable period. None of the Carolina Trust Entities has waived any statute of limitations
in respect of any Taxes that remain in effect or agreed to a Tax assessment or deficiency.
(c) Each Carolina Trust Entity has complied in all material respects with all applicable Laws relating to the withholding of
Taxes and the payment thereof to Governmental Authorities, including Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee or independent contractor, and Taxes required to be withheld and paid pursuant to Sections
1441 and 1442 of the Code or similar provisions under foreign Law.
(d) The unpaid Taxes of each Carolina Trust Entity (i) did not, as of the most recent fiscal month end, materially exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the most recent balance sheet (rather than in any notes thereto) for such Carolina Trust
Entity and (ii) do not materially exceed that reserve as adjusted for the passage of time through the Closing Date in accordance
with past custom and practice of the Carolina Trust Entities in filing their Tax Returns; provided, however, that notwithstanding
anything to the contrary in this Agreement, Carolina Trust makes no representation in this Agreement regarding any Tax liability
that might arise or accrue to any of the Carolina Trust Entities or any other Person by reason of, or in connection with, any
election by or on behalf of Carolina Trust or any of the Carolina Trust Subsidiaries pursuant to Sections 336(e) or 338 of the
Code with respect to the Merger or any other transactions contemplated by this Agreement.
(e) Except as disclosed in Section 4.8(e) of the Carolina Trust Disclosure Memorandum, none of the Carolina Trust Entities
is a party to any Tax allocation or sharing agreement and none of the Carolina Trust Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the common parent of which was Carolina Trust) or has
any Liability for Taxes of any Person (other than Carolina Trust or any of its Subsidiaries) under Treasury Regulations Section
1.1502-6 or any similar provision of state, local or foreign Law, or as a transferee or successor, by contract or otherwise.
(f) During the five-year period ending on the date hereof, none of the Carolina Trust Entities was a “distributing corporation”
or a “controlled corporation” as defined in, and in a transaction intended to be governed by Section 355 of the Code.
(g) None of the Carolina Trust Entities has made any payments, is obligated to make any payments, or is a party to any contract
that could obligate it to make any payments, for which a
deduction will be disallowed under Section 280G or 162(m) of the Code,
or that would be subject to withholding under Section 4999 of the Code. None of the Carolina Trust Entities has been or will be
required to include any adjustment in taxable income for any Tax period (or portion thereof) pursuant to Section 481 of the Code
or any comparable provision under state or foreign Tax Laws as a result of transactions or events occurring prior to the Closing.
There is no material taxable income of Carolina Trust that will be required under applicable Tax law to be reported by Carolina
Financial for a taxable period beginning after the date of the Effective Time which taxable income was realized prior to the Closing
Date.
(h) Each of the Carolina Trust Entities is in compliance in all material respects with, and its records contain all information
and documents (including properly completed IRS Forms W-9) necessary to comply in all material respects with, all applicable information
reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity
all accounts subject to backup withholding under Section 3406 of the Code.
(i) No Carolina Trust Entity is subject to any private letter ruling of the IRS or comparable rulings of any Taxing Authority
that is currently applicable.
(j) No property owned by any Carolina Trust Entity is (i) property required to be treated as being owned by another Person
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior
to the enactment of the Tax Reform Act of 1986, (ii) “tax-exempt use property” within the meaning of Section 168(h)(1)
of the Code, (iii) “tax-exempt bond financed property” within the meaning of Section 168(g) of the Code, (iv) “limited
use property” within the meaning of IRS Revenue Procedure 76-30, (v) tangible property used predominantly outside the United
States, or (vi) subject to any provision of state, local or foreign Law comparable to any of the provisions listed above in this
paragraph.
(k) No Carolina Trust Entity has any “corporate acquisition indebtedness” within the meaning of Section 279 of
the Code.
(l) Carolina Trust has disclosed on its federal income Tax Returns all positions taken therein that are reasonably believed
to give rise to substantial understatement of federal income tax within the meaning of Section 6662 of the Code.
(m) No
Carolina Trust Entity has participated in any reportable transaction, as defined in Code Section 6707A(c)(1) or Treasury Regulations
Section 1.6011-4(b)(1).
(n) Carolina Trust has made available to Carolina Financial complete copies of (i) all federal, state, local and foreign income
or franchise Tax Returns of the Carolina Trust Entities relating to the taxable periods since December 31, 2014, and (ii) any
audit report issued by any Taxing Authority since December 31, 2014 relating to any Taxes due from or with respect to the Carolina
Trust Entities.
(o) No Carolina Trust Entity nor any other Person on its behalf has (i) filed a consent pursuant to Section 341(f) of the Code
(as in effect prior to the repeal under the Jobs and Growth Tax Reconciliation Act of 2003) or agreed to have Section 341(f)(2)
of the Code (as in effect prior to the repeal under the Jobs and Growth Tax Reconciliation Act of 2003) apply to any disposition
of a subsection (f) asset (as such term is defined in former Section 341(f)(4) of the Code) owned by any Carolina Trust Entities,
(ii) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision of Law with respect
to the Carolina Trust
Entities, or (iii) granted to any Person any power of attorney that is currently in force with respect to
any Tax matter.
(p) No Carolina Trust Entity has, or ever had, a permanent establishment in any country other than the United States, or has
engaged in a trade or business in any country other than the United States that subjected it to Tax in such country.
(q) No Carolina Trust Entity has been a United States real property holding corporation within the meaning of Section 897(c)(2)
of the Code since January 1, 2014.
For
purposes of this Section 4.8, any reference to Carolina Trust or any Carolina Trust Entity shall be deemed to include any Person
that merged with or was liquidated into or otherwise combined with Carolina Trust or a Carolina Trust Entity prior to the Effective
Time.
|
|
4.9
|
Allowance
for Possible Loan Losses; Loan and Investment Portfolios, etc.
|
(a) Carolina Trust’s allowance for possible loan or lease losses (the “Allowance”) is, and has been
since January 1, 2018, in material compliance with Carolina Trust’s methodology for determining the adequacy of its allowance
for loan losses as well as the standards established by applicable Governmental Authorities and the Financial Accounting Standards
Board in all material respects.
(b) As of the date hereof, all loans, discounts and leases (in which any Carolina Trust Entity is lessor) reflected on Carolina
Trust’s Financial Statements were, and with respect to the consolidated balance sheets delivered as of the dates subsequent
to the execution of this Agreement will be as of the dates thereof, (a) at the time and under the circumstances in which made,
made for good, valuable and adequate consideration in the ordinary course of business and, to the Knowledge of Carolina Trust,
are the legal and binding obligations of the obligors thereof, (b) evidenced by genuine notes, agreements, or other evidences
of indebtedness and (c) to the extent secured, to the Knowledge of Carolina Trust, have been secured by valid liens and security
interests which have been perfected. Accurate lists of all loans, discounts, other real estate owned and financing leases as of
June 30, 2019 and on a monthly basis thereafter, and of the investment portfolios of each Carolina Trust Entity as of such date,
have been and will be made available to Carolina Financial concurrently with the Carolina Trust Disclosure Memorandum. Neither
Carolina Trust nor Carolina Trust Bank is a party to any written or oral loan agreement, note, or borrowing arrangement, including
any loan guaranty, that was, as of the most recent month-end (i) delinquent by more than 30 days in the payment of principal or
interest, (ii) otherwise in material default for more than 30 days, (iii) classified as “substandard,” “doubtful,”
“loss,” “other assets especially mentioned” or any comparable classification by Carolina Trust or under
the standards of any applicable Regulatory Authority, (iv) an obligation of any director, executive officer or 10% shareholder
of any Carolina Trust Entity who is subject to Regulation O of the Federal Reserve (12 C.F.R. Part 215), or any person, corporation
or enterprise controlling, controlled by or under common control with any of the foregoing, or (v) in material violation of any
Law.
(c) All securities held by Carolina Trust or Carolina Trust Bank, as reflected in the consolidated balance sheets of Carolina
Trust included in the Carolina Trust Financial Statements, are carried in accordance with GAAP, specifically including Accounting
Standards Codification Topic 320, Investments – Debt and Equity Securities. Except for pledges to secure public and trust
deposits and Federal Home Loan Bank advances, none of the securities reflected in the Carolina Trust Financial Statements as of
March 31, 2019, and none of the securities since acquired by
Carolina Trust or Carolina Trust Bank is subject to any restriction,
whether contractual or statutory, which impairs the ability of Carolina Trust or Carolina Trust Bank to freely dispose of such
security at any time, other than those restrictions imposed on securities held to maturity under GAAP, pursuant to a clearing
agreement or in accordance with laws.
(d) Section 4.9(d) of the Carolina Trust Disclosure Memorandum lists all interest rate swaps, caps, floors, option agreements,
futures and forward contracts and other similar risk management arrangements, whether entered into for Carolina Trust’s
own account, or for the account of Carolina Trust Bank or its customers, and all such risk management agreements or arrangements
were entered into (a) in the ordinary and usual course of business consistent with past practice and in compliance with all applicable
laws, rules, regulations and regulatory policies, and (b) with counterparties believed to be financially responsible at the time;
and each of them constitutes the valid and legally binding obligation of Carolina Trust or Carolina Trust Bank, enforceable in
accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity
principles), and is in full force and effect. Neither Carolina Trust nor Carolina Trust Bank, nor to Carolina Trust’s Knowledge,
any other party thereto, is in breach of any material obligation under any such agreement or arrangement.
(a) Except as disclosed or reserved against in the Carolina Trust Financial Statements, the Carolina Trust Entities have good
and marketable title, free and clear of all Liens except those permitted in Section 4.10(e), to all of their respective Assets
that they own. In addition, to Carolina Trust’s Knowledge, all tangible properties used in the businesses of the Carolina
Trust Entities are in good condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent
with Carolina Trust’s past practices.
(b) All Assets which are material to Carolina Trust’s business, held under leases or subleases by any of the Carolina
Trust Entities, are held under valid Contracts enforceable in accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court before which any proceeding may be brought), and to the Knowledge
of Carolina Trust each such Contract is in full force and effect.
(c) The Carolina Trust Entities currently maintain insurance, including bankers’ blanket bonds, with insurers of recognized
financial responsibility in such amounts as management of Carolina Trust has reasonably determined to be prudent. None of the
Carolina Trust Entities has received notice from any insurance carrier that (i) any policy of insurance will be canceled
or that coverage thereunder will be reduced or eliminated, (ii) premium costs with respect to such policies of insurance
will be substantially increased, or (iii) similar coverage will be denied or limited or not extended or renewed with respect to
any Carolina Trust Entity, any act or occurrence, or that any Asset, officer, director, employee or agent of any Carolina Trust
Entity will not be covered by such insurance or bond. There are presently no claims for amounts exceeding $50,000 individually
or in the aggregate pending under such policies of insurance or bonds, and no written notices of claims in excess of such amounts
have been given by any Carolina Trust Entity under such policies. Carolina Trust has made no claims, and no claims are contemplated
to be made, under its directors’ and officers’ errors and omissions or other insurance or bankers’ blanket bond.
(d) The Assets of the Carolina Trust Entities include all material Assets required by Carolina Trust Entities to operate the
business of the Carolina Trust Entities as presently conducted. All real and personal property which is material to the business
of Carolina Trust or Carolina Trust Bank that is leased or licensed by it is held pursuant to leases or licenses which are valid
and enforceable in accordance with their respective terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally
and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought) and such leases and licenses will not terminate or lapse prior to the
Effective Time or thereafter by reason of completion of the Merger. To the Knowledge of Carolina Trust, all improved real property
owned or leased by Carolina Trust or Carolina Trust Bank is in material compliance with all applicable laws, including zoning
laws and the Americans with Disabilities Act of 1990.
(e) Each Carolina Trust Entity has fee simple title to all the real property assets reflected in the Carolina Trust Financial
Statements as being owned by a Carolina Trust Entity or acquired after the date thereof (except properties sold or otherwise disposed
of since the date thereof in the ordinary course of business) (the “Carolina Trust Realty”) or has a valid leasehold
interest in the Carolina Trust Leased Real Properties, free and clear of all Liens of any nature whatsoever, except (i) statutory
Liens securing payments not yet due (or which are being contested in good faith, including Liens of warehousemen, mechanics, suppliers,
materialmen, and repairmen), (ii) Liens for real property or ad valorem Taxes not yet delinquent (or being contested in good faith
and for which adequate reserves have been established), (iii) in the case of the Carolina Trust Realty, (A) easements, rights
of way, servitudes, permits, licenses, surface leases, ground leases to utilities, municipal agreements, and other similar encumbrances
and matters of record, (B) conditions, covenants or other similar restrictions, (C) easements for streets, alleys, highways, telephone
lines, gas pipelines, powerlines, railways, and other similar easements and rights of way of record, (D) encroachments and other
matters that would be shown by an accurate survey of the Carolina Trust Realty, (E) any exceptions listed in the title insurance
policies of the Carolina Trust Entity that owns each parcel of the Carolina Trust Realty, which for purposes of clauses (A) through
(E) do not, individually or in the aggregate, materially adversely affect the use of the properties or assets subject thereto
or affected thereby as used by a Carolina Trust Entity on the date hereof or otherwise materially impair business operations at
such properties, as conducted by a Carolina Trust Entity on the date hereof, (iv) Liens granted in the ordinary course of business
in any personal property located on the Carolina Trust Leased Real Properties or any personal property leased under Contracts,
and (v) such imperfections or irregularities of title or Liens as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business operations at such properties as used on the date
hereof.
(f) To the Knowledge of Carolina Trust, the Carolina Trust Realty and the real property with respect to which a Carolina Trust
Entity is the lessee (the “Carolina Trust Leased Real Properties”) are not in violation of any applicable building,
fire, zoning (or are legal nonconforming uses allowed under applicable zoning ordinances) or other applicable laws, ordinances
and regulations or of any deed restrictions of record, no written notice of any material violation or material alleged violation
thereof has been received in the past three years that has not been resolved, and there are no proposed changes therein that would
materially and adversely affect the Carolina Trust Realty, the Carolina Trust Leased Real Properties or their current uses. Carolina
Trust has no Knowledge of any proposed or pending change in the zoning of, or of any proposed or pending condemnation proceeding
with respect to, any of the Carolina Trust Realty or the Carolina Trust Leased Real Properties which may materially and adversely
affect the Carolina Trust Realty or the Carolina Trust Leased Real Properties or the current use by a Carolina Trust Entity thereof.
|
|
4.11
|
Intellectual
Property.
|
Each
Carolina Trust Entity owns or has a license to use all of the Intellectual Property used by such Carolina Trust Entity in the
course of its business, including sufficient rights in each copy possessed by each Carolina Trust Entity. Each Carolina Trust
Entity is the owner of or has a license, with the right to sublicense, to any Intellectual Property sold or licensed to a third
party by such Carolina Trust Entity in connection with such Carolina Trust Entity’s business operations, and such Carolina
Trust Entity has the right to convey by sale or license any Intellectual Property so conveyed. No Carolina Trust Entity is in
material Default under any of its Intellectual Property licenses. To Carolina Trust’s Knowledge, no proceedings have been
instituted, are pending, or are threatened, that challenge the rights of any Carolina Trust Entity with respect to Intellectual
Property used, sold, or licensed by such Carolina Trust Entity in the course of its business, nor to Carolina Trust’s Knowledge,
has any person claimed or alleged that any Carolina Trust Entity has misappropriated any rights to such Intellectual Property.
To the Knowledge of Carolina Trust, the conduct of the business of the Carolina Trust Entities does not infringe any Intellectual
Property of any other person. No Carolina Trust Entity is obligated to pay any recurring royalties to any Person with respect
to any Intellectual Property used by such Carolina Trust Entity in the course of its business, other than any license, maintenance,
or other fees specified in a license or other agreement with such party by which such Carolina Trust Entity obtained its rights
to such Intellectual Property. To Carolina Trust’s Knowledge, no officer, director, or employee of any Carolina Trust Entity
is party to any Contract with any Person other than a Carolina Trust Entity that requires such officer, director or employee to
assign any interest in any Intellectual Property to any Person other than a Carolina Trust Entity, or to keep confidential any
trade secrets, proprietary data, customer information, or other business information of any Person other than a Carolina Trust
Entity in a manner that would conflict with their contractual obligations to any Carolina Trust Entity to assign Intellectual
Property to, or keep confidential any trade secrets, proprietary data, customer information, or other business information of,
such Carolina Trust Entity. To Carolina Trust’s Knowledge, no officer, director, or employee of any Carolina Trust Entity
is in material breach of any confidentiality, nonsolicitation, noncompetition, or other Contract that restricts or prohibits such
officer, director, or employee from engaging in activities competitive with any Person, including any Carolina Trust Entity.
|
|
4.12
|
Environmental
Matters.
|
(a) Carolina Trust has delivered, or caused to be delivered or made available to Carolina Financial, copies of, all environmental
site assessments, test results, analytical data, boring logs, permits for storm water, wetlands fill, or other environmental permits
for construction of any building, parking lot or other improvement, and other environmental reports, studies, or non-privileged
correspondence in the possession of any Carolina Trust Entity relating to any property owned, leased or operated by any of the
Carolina Trust Entities. To the Knowledge of Carolina Trust, there are no material violations of Environmental Laws on properties
that secure loans made by Carolina Trust or Carolina Trust Bank.
(b) There are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, orders, assessments
(including penalty assessments) or written notices of any kind with respect to any environmental, health or safety matters or
any private or governmental environmental, health or safety investigations or remediation activities of any nature seeking to
impose, or that are reasonably likely to result in, any material liability or obligation of the Carolina Trust Entities arising
under any Environmental Law pending or, to Carolina Trust’s Knowledge, threatened against the Carolina Trust Entities. To
Carolina Trust’s Knowledge, there is no reasonable basis for, or circumstances that are reasonably likely to give rise to,
any such proceeding, claim, action, investigation or remediation by any Governmental Authority or any
third party that would give
rise to any material liability or obligation on the part of the Carolina Trust Entities. None of the Carolina Trust Entities is
subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Authority or third party imposing
any liability or obligation with respect to any of the foregoing. To the Knowledge of Carolina Trust, each property owned or operated
by Carolina Trust, and any property in which any of the Carolina Trust Entities holds a security interest, is in material compliance
with all Environmental Laws.
(c) Except as disclosed on Schedule 4.12, to the Knowledge of Carolina Trust, there have been no releases of Hazardous Material
at any property owned, leased, or operated by any of the Carolina Trust Entities.
(d) Notwithstanding any other provision herein, the representations and warranties in Subsections 4.12(a) and (b) above constitute
Carolina Trust’s sole representations and warranties with respect to compliance with Environmental Laws or the presence
of Hazardous Material.
|
|
4.13
|
Compliance
with Laws.
|
(a) Carolina Trust is a bank holding company duly registered and in good standing as such with the Federal Reserve. Carolina
Trust Bank is a state chartered bank in good standing with the North Carolina Commissioner of Banks.
(b) Compliance with Permits, Laws and Orders.
(i)
Each of the Carolina Trust Entities has in effect all Permits and has made all filings, applications, and registrations
with Governmental Authorities that are required for it to own, lease, or operate its assets and to carry on its business as now
conducted, and to the Knowledge of Carolina Trust, there has occurred no Default under any such Permit applicable to their respective
businesses or employees conducting their respective businesses.
(ii)
To the Knowledge of Carolina Trust, none of the Carolina Trust Entities is in material Default under any Laws or Orders
applicable to its business or employees conducting its business.
(iii)
None of the Carolina Trust Entities has received any notification or communication from any Governmental Authority (A) asserting
that Carolina Trust or any of its Subsidiaries is in Default under any of the Permits, Laws, or Orders which such Governmental
Authority enforces, (B) threatening to revoke any Permits, or (C) requiring Carolina Trust or any of its Subsidiaries
(x) to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum
of understanding, or (y) to adopt any resolution of its Board of Directors or similar undertaking.
(iv)
There (A) is no material unresolved legal violation cited by any Governmental Authority with respect to any report
or statement relating to any examinations or inspections of Carolina Trust or any of its Subsidiaries, (B) are no written notices
or correspondence received by Carolina Trust with respect to pending formal inquiries of a material nature by, or disputes with,
any Governmental Authority with respect to Carolina Trust’s or any of Carolina Trust’s Subsidiaries’ business,
operations, policies, or procedures since its inception, and (C) to the Knowledge of Carolina Trust, is no investigation or review
by any Governmental Authority pending or threatened, nor has any Governmental Authority indicated an intention to conduct, any
investigation or review (other than regular or routine examinations or inspections) of it or any of its Subsidiaries.
(v)
None of the Carolina Trust Entities nor, to the Knowledge of Carolina Trust, any of its directors, officers, employees,
or Representatives acting on its behalf has offered, paid, or agreed to pay any Person, including any Government Authority, directly
or indirectly, any thing of value for the purpose of, or with the intent of obtaining or retaining any business in violation of
applicable Laws, including (1) using any corporate funds for any unlawful contribution, gift, entertainment, or other unlawful
expense relating to political activity, (2) making any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds, (3) violating any provision of the Foreign Corrupt Practices Act of 1977, as amended,
or (4) making any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment.
(vi)
Each Carolina Trust Entity has complied in all material respects with all requirements of Law under the Bank Secrecy Act
and the USA Patriot Act, and each Carolina Trust Entity has timely filed all reports of suspicious activity, including those required
under 12 C.F.R. § 353.3.
(vii)
Each Carolina Trust Entity’s collection and use of individually identifiable personal information (“IIPI”)
to an identifiable or identified natural person complies in all material respects with the Fair Credit Reporting Act and the Gramm-Leach-Bliley
Act.
(a) No Carolina Trust Entity is the subject of any Litigation asserting that it or any other Carolina Trust Entity has committed
an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state Law) or other violation of
state or federal labor Law or seeking to compel it or any other Carolina Trust Entity to bargain with any labor organization or
other employee representative as to wages or conditions of employment, nor is any Carolina Trust Entity party to any collective
bargaining agreement or subject to any bargaining order, injunction, or other Order governing any Carolina Trust Entity’s
relationship or dealings with its employees, any labor organization or any other employee representative. There is no strike,
slowdown, lockout, or other similar job action or labor dispute involving any Carolina Trust Entity pending or, to the Knowledge
of Carolina Trust, threatened, and there have been no such actions or disputes in the past five years. To Carolina Trust’s
Knowledge, there has not been any attempt by any Carolina Trust Entity employees or any labor organization or other employee representative
to organize or certify a collective bargaining unit or to engage in any other union organization activity with respect to the
workforce of any Carolina Trust Entity.
(b) Except as disclosed in Section 4.14(b) of the Carolina Trust Disclosure Memorandum, the employment of each employee and
the engagement of each independent contractor of each Carolina Trust Entity is terminable at will by the relevant Carolina Trust
Entity (i) without any penalty, liability, or severance obligation incurred by any Carolina Trust Entity, and in all cases (ii)
without prior consent by any Governmental Authority. No Carolina Trust Entity will owe any amounts to any of its employees or
independent contractors as of the Closing Date, including any amounts incurred for wages, bonuses, vacation pay, sick leave, contract
notice periods, change of control payments, or severance obligations other than as incurred in the ordinary course of business
and properly accounted for or otherwise recorded in the books and records of Carolina Trust.
(c) To Carolina Trust’s Knowledge, all of the employees employed by Carolina Trust and Carolina Trust Bank in the United
States are either United States citizens or are legally eligible to work in the United States under the Immigration Reform and
Control Act of 1986, as amended,
other United States immigration Laws and the Laws related to the employment of non-United States
citizens applicable in the state in which the employees are employed.
(d) No Carolina Trust Entity has effectuated (i) a “plant closing” (as defined in the Worker Adjustment and Retraining
Notification Act (the “WARN Act”)) affecting a single site of employment or one or more facilities or operating
units within a single site of employment of any Carolina Trust Entity; or (ii) a “mass layoff” (as defined in
the WARN Act) affecting a single site of employment of any Carolina Trust Entity; and no Carolina Trust Entity has been affected
by any layoffs or employment losses sufficient in number to trigger application of any similar state or local Law.
(e) Section 4.14(e) of the Carolina Trust Disclosure Memorandum contains a list of all individuals who are independent contractors
of each Carolina Trust Entity (separately listed by Carolina Trust Entity) and each such individual is correctly classified as
an independent contractor under all Laws (including Treasury Regulations under the Code and federal and state labor and employment
Laws).
|
|
4.15
|
Employee
Benefit Plans.
|
(a) Carolina Trust has disclosed in Section 4.15(a) of the Carolina Trust Disclosure Memorandum, and has delivered or made
available to Carolina Financial prior to the execution of this Agreement, (i) copies of each Employee Benefit Plan currently adopted,
maintained by, sponsored in whole or in part by, or contributed or required to be contributed to by any Carolina Trust Entity
or any ERISA Affiliate thereof for the benefit of employees, former employees, retirees, directors, independent contractors, or
their respective dependents, spouses, or other beneficiaries or under which employees, retirees, former employees, directors,
independent contractors, or their respective dependents, spouses, or other beneficiaries are eligible to participate (each, a
“Carolina Trust Benefit Plan,” and collectively, the “Carolina Trust Benefit Plans”) and
(ii) a list of each Employee Benefit Plan that is not identified in (i) above and in connection with which any Carolina Trust
Entity or any ERISA Affiliate thereof has or reasonably could have any obligation or Liability. Any of the Carolina Trust Benefit
Plans which is an “employee pension benefit plan,” as that term is defined in ERISA Section 3(2), is referred to herein
as a “Carolina Trust ERISA Plan.”
(b) Carolina Trust has delivered or made available to Carolina Financial prior to the execution of this Agreement (i) all trust
agreements or other funding arrangements for all Employee Benefit Plans, (ii) all determination letters, rulings, opinion letters,
information letters, or advisory opinions issued by the United States Internal Revenue Service (“IRS”), the
United States Department of Labor (“DOL”) or the Pension Benefit Guaranty Corporation (“PBGC”)
during this calendar year or any of the preceding three calendar years, (iii) any filing or documentation (whether or not filed
with the IRS) where corrective action was taken in connection with the IRS EPCRS program set forth in Revenue Procedure 2013-12,
as modified (or its predecessor or successor rulings), (iv) annual reports or returns, audited or unaudited financial statements,
actuarial reports, and valuations prepared for any Employee Benefit Plan for the current plan year and the three preceding plan
years, (v) the most recent summary plan descriptions for each Carolina Trust Benefit Plan and any material modifications thereto,
and (vi) all material correspondence from or to the IRS, DOL, or PBGC regarding any Carolina Trust Benefit Plan received or sent
during this calendar year or any of the preceding three calendar years.
(c) Each Carolina Trust Benefit Plan is in material compliance with (i) its terms, (ii) the applicable requirements of the
Code and ERISA, and (iii) any and all other applicable Laws. Each Carolina Trust ERISA Plan which is intended to be qualified
under Section 401(a) of the Code so qualifies, and its related trust is tax exempt under Section 501(a) of the Code, has received
a favorable determination letter from the IRS or, in the alternative, appropriately relies upon a favorable opinion letter issued
to a prototype plan or volume submitter under which the Carolina Trust ERISA Plan has been adopted and Carolina Trust is not aware
of any circumstances likely to result in revocation of any such favorable determination or opinion letter. To Carolina Trust’s
Knowledge, no event has occurred and no condition exists that would reasonably be expected to cause the loss of such qualified
or tax exempt status, and Carolina Trust has not received any written or unwritten communication from any Governmental Authority
questioning or challenging the compliance of any Carolina Trust Benefit Plan with applicable Laws. No Carolina Trust Benefit Plan
is currently being audited by any Governmental Authority for compliance with applicable Laws or has been audited with a determination
by any Governmental Authority that the Carolina Trust Benefit Plan failed to comply with applicable Laws.
(d) There has been no material written or, to Carolina Trust’s Knowledge, oral representation or communication with respect
to any aspect of the Carolina Trust Benefit Plans made to employees of Carolina Trust which is not in all material respects in
accordance with the written or otherwise preexisting terms and provisions of such plans. Neither Carolina Trust nor, to Carolina
Trust’s Knowledge, any administrator or fiduciary of any Carolina Trust Benefit Plan (or any agent of any of the foregoing)
has engaged in any transaction, or acted or failed to act in any manner, which could subject Carolina Trust or Carolina Financial
to any direct or indirect Liability (by indemnity or otherwise) for breach of any fiduciary, co-fiduciary, or other duty under
ERISA. There are no unresolved claims or disputes under the terms of, or in connection with, the Carolina Trust Benefit Plans
other than claims for benefits which are payable in the ordinary course of business and no action, proceeding, prosecution, inquiry,
hearing, or investigation has been commenced with respect to any Carolina Trust Benefit Plan other than routine claims for benefits.
(e) All Carolina Trust Benefit Plan documents and, as applicable, any annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports, and summary plan descriptions issued with respect to the Carolina Trust
Benefit Plans are correct and complete in all material respects, and to the extent applicable, have been timely filed with the
IRS or the DOL, and distributed to participants of the Carolina Trust Benefit Plans (to the extent required by Law), and there
have been no material misstatements or omissions in the information set forth therein.
(f) To Carolina Trust’s Knowledge, no “Party in Interest” (as defined in ERISA Section 3(14)) or “Disqualified
Person” (as defined in Code Section 4975(e)(2)) of any Carolina Trust Benefit Plan has engaged in any nonexempt “Prohibited
Transaction” (described in Code Section 4975(c) or ERISA Section 406).
(g) No Carolina Trust Entity nor any of its ERISA Affiliates has, or ever has had, any obligation or Liability in connection
with, any plan that is or was subject to Code Section 412 or ERISA Section 302 or Title IV of ERISA.
(h) No material Liability under Title IV of ERISA has been or is expected to be incurred by any Carolina Trust Entity or any
ERISA Affiliate thereof, and no event has occurred that could reasonably result in Liability under Title IV of ERISA being incurred
by any Carolina Trust Entity or any ERISA Affiliate thereof with respect to any ongoing, frozen, terminated, or other single-employer
plan of any Carolina Trust Entity or the single-employer plan of any ERISA Affiliate. Except as may arise in connection with the
transactions contemplated by this Agreement, there has been no “reportable event,” within the meaning of ERISA Section
4043, for which the 30-day reporting requirement has not been waived by any ongoing, frozen, terminated, or other single-employer
plan of Carolina Trust or of an ERISA Affiliate.
(i) Except as required under Part 6 of ERISA or Code Section 4980B, no Carolina Trust Entity has any material Liability or
obligation for retiree or post-termination of employment or services health or life benefits under any of the Carolina Trust Benefit
Plans, or other plan or arrangement, and there are no restrictions on the rights of such Carolina Trust Entity to amend or terminate
any and all such retiree or post-termination of employment or services health or benefit plans or arrangements without incurring
any Liability. No Tax under Code Sections 4980B or 5000 has been incurred with respect to any Carolina Trust Benefit Plan, or
other plan or arrangement, and no circumstance exists that could give rise to such Taxes.
(j) Except as disclosed in Section 4.15(j) of the Carolina Trust Disclosure Memorandum, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment for or related
to individual services (including severance, unemployment compensation, “excess parachute payment” as defined under
Code Section 280G, or otherwise) becoming due from any Carolina Trust Entity to any employee, officer, director or independent
contractor under any Carolina Trust Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Carolina
Trust Benefit Plan, or (iii) result in any acceleration of the time of payment or vesting of any such benefit, or any benefit
under any life insurance owned by any Carolina Trust Entity or the rights of any Carolina Trust Entity in, to or under any insurance
on the life of any current or former officer, director, or employee of any Carolina Trust Entity, or change any rights or obligations
of any Carolina Trust Entity with respect to such insurance.
(k) Section 4.15(k) of the Carolina Trust Disclosure Memorandum sets forth preliminary calculations, based on assumptions set
forth therein, of the following: (i) the amount of all payments and benefits to which each individual set forth on such Carolina
Trust Disclosure Memorandum is entitled to receive, pursuant to all employment, salary continuation, bonus, change in control,
and all other agreements, plans and arrangements, in connection with a termination of employment before or following, or otherwise
in connection with or contingent upon, the transactions contemplated under this Agreement (for the avoidance of doubt, excluding
payments or benefits in respect of vested equity awards) (each such total amount in respect of each such individual, the “Change
in Control Benefit”), other than the payment any such individual shall otherwise be entitled to receive as a gross-up
payment in respect of any excise tax imposed on the individual pursuant to Section 4999 of the Code as calculated pursuant to
the applicable agreement (any each such payment, a “Gross-Up Payment”); (ii) the amount of any Gross-Up Payment
payable to each such individual; and (iii) the aggregate amount of all Change in Control Benefits and Gross-Up Payments.
(l) No Carolina Trust Benefit Plan is or has been funded by, associated with, or related to a “voluntary employee’s
beneficiary association” within the meaning of Section 501(c)(9) of the Code, a “welfare benefit fund” within
the meaning of Section 419 of the Code, a “qualified asset account” within the meaning of Section 419A of the Code
or a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA. The actuarial present values
of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement,
or employment agreement) of employees and former employees of any Carolina Trust Entity and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans, whether or not subject to the provisions of Code Section 412 or
ERISA Section 302, have been fully reflected on the Carolina Trust Financial Statements in all material respects to the extent
required by and in accordance with GAAP.
(m) Each Carolina Trust Benefit Plan that is a “nonqualified deferred compensation plan” (within the meaning of
Section 409A of the Code) has been operated in material compliance with
Section 409A of the Code and the guidance issued by the
IRS with respect to such plans or is not required to comply therewith due to its grandfathered status under Section 409A of the
Code.
(n) All individuals who render services to any Carolina Trust Entity and who are authorized to participate in a Carolina Trust
Benefit Plan pursuant to the terms of such Carolina Trust Benefit Plan are in fact eligible to and authorized to participate in
such Carolina Trust Benefit Plan. All Carolina Trust Entities have, for purposes of the Carolina Trust Benefit Plans and all other
purposes, correctly classified all individuals performing services for such Carolina Trust Entity as common law employees, independent
contractors or agents, as applicable.
(o) Neither the Carolina Trust nor any of its ERISA Affiliates has had an “obligation to contribute” (as defined
in ERISA Section 4212) to, or other obligations or Liability in connection with, a “multiemployer plan” (as defined
in ERISA Sections 4001(a)(3) or 3(37)(A)) or any employee pension benefit plan within the meaning of ERISA Section 3(2) that is
subject to Section 412 of the Code or Section 302 of ERISA or a multiple employer plan within the meaning of Section 413(c) of
the Code or ERISA Sections 4063, 4064 or 4066.
(p) There are no payments or changes in terms due to any insured person as a result of this Agreement, the Merger or the transactions
contemplated herein, under any bank-owned, corporate-owned split dollar life insurance, other life insurance, or similar arrangement
or Contract, and the Successor Corporation shall, upon and after the Effective Time, succeed to and have all the rights in, to
and under such life insurance Contracts as Carolina Trust presently holds. Each Carolina Trust Entity will, upon the execution
and delivery of this Agreement, and will continue to have, notwithstanding this Agreement or the consummation of the transaction
contemplated hereby, all ownership rights and interest in all corporate or bank-owned life insurance.
(q) Each Carolina Trust Benefit Plan may be amended or terminated by Carolina Trust without the consent of any Person.
(r) No Carolina Trust Benefit Plan that is described in ERISA Section 3(2) is involved or connected with any fund or other
investment that has or involves any early termination, market value adjustment or other similar fee, payment requirement, or other
charge.
(s) Other than agreements identified in Section 4.15(a) of the Carolina Trust Disclosure Memorandum, no Carolina Trust Benefit
Plan, or other plan or arrangement, is subject to any requirement of Section 409A(a)(2), (3), or (4) of the Code.
(t) Other than the Carolina Trust Benefit Plans identified in Section 4.15(a) of the Carolina Trust Disclosure Memorandum,
no Carolina Trust Benefit Plan provides for the potential issuance of equity compensation.
(u) No event has occurred or condition exists that could subject the Carolina Trust or any of its ERISA Affiliates to Liability
(whether direct or indirect, contingent or otherwise) on account of a violation of the health care requirements of Part 6 or 7
of Title I of ERISA or Section 4980B or 4980D of the Code.
(v) Each group health plan sponsored, maintained or contributed to by the Carolina Trust or any of its ERISA Affiliates (or
to which the Carolina Trust or any of its ERISA Affiliates is obligated to contribute or otherwise has any liability or contingent
liability) satisfies the requirements of the Patient Protection and Affordable Care Act and the regulations and guidance issued
thereunder (“PPACA”), such that there is no Tax or penalty that could be imposed pursuant
to the PPACA that
relates to such group health plan. To Carolina Trust’s Knowledge, no condition exists that could cause the Carolina Trust
or any of its ERISA Affiliates to incur Liability for any assessable payment under Section 4980H of the Code.
(a) Except as reflected in the Carolina Trust Financial Statements, disclosed in Carolina Trust Exchange Act Reports or otherwise
disclosed in Section 4.16(a) of the Carolina Trust Disclosure Memorandum, as of the date of this Agreement, none of the Carolina
Trust Entities, nor any of their respective Assets, businesses, or operations, is a party to, or is bound or affected by, or receives
benefits under, (i) any employment, bonus, severance, termination, consulting, or retirement Contract providing for aggregate
payments to any Person in any calendar year in excess of $25,000, (ii) any Contract relating to the borrowing of money by
any Carolina Trust Entity or the guarantee by any Carolina Trust Entity of any such obligation (other than Contracts evidencing
the creation of deposit liabilities, endorsements or guarantees in connection with presentation of items for collection, purchases
of federal funds, advances from the Federal Reserve or Federal Home Loan Bank, entry into repurchase agreements fully secured
by U.S. government securities or U.S. government agency securities, advances of depository institution Subsidiaries incurred in
the ordinary course of Carolina Trust’s business, and trade payables and Contracts relating to borrowings or guarantees
made in the ordinary course of Carolina Trust’s business), (iii) any Contract which prohibits or restricts any Carolina
Trust Entity or any personnel of a Carolina Trust Entity from engaging in any business activities in any geographic area, line
of business or otherwise in competition with any other Person, (iv) any Contract involving Intellectual Property (other than Contracts
entered into in the ordinary course with employees, vendors or customers, reasonable and customary confidentiality or nondisclosure
agreements entered into with third parties, or “shrink-wrap” or “click-through” software licenses), (v) any
Contract relating to the provision of data processing, network communication, or other technical services to or by any Carolina
Trust Entity, (vi) any Contract relating to the purchase or sale of any goods or services (other than Contracts entered into
in the ordinary course of business and involving payments under any individual Contract or series of contracts not in excess of
$25,000), (vii) any exchange-traded or over-the-counter swap, forward, future, option, cap, floor, or collar financial Contract,
or any other interest rate or foreign currency protection Contract or any Contract that is a combination thereof not included
on its balance sheet, and (viii) any other Contract that would be required to be filed as an exhibit to a Form 10-K filed by Carolina
Trust as of the date of this Agreement pursuant to the reporting requirements of the Exchange Act (together with all Contracts
referred to in Sections 4.11 and 4.15(a), the “Carolina Trust Contracts”).
(b) With respect to each Carolina Trust Contract, (i) the Contract is in full force and effect; (ii) no Carolina
Trust Entity is in material Default thereunder; (iii) no Carolina Trust Entity has repudiated or waived any material provision
of any such Contract; (iv) no other party to any such Contract is, to Carolina Trust’s Knowledge, in Default in any
respect or has repudiated or waived any material provision thereunder; and (v) except as disclosed in Section 4.16(b) of the Carolina
Trust Disclosure Memorandum, no consent which has not been or will not be obtained is required by a Contract for the execution,
delivery, or performance of this Agreement, the consummation of the Merger or the other transactions contemplated hereby. Section
4.16(b) of the Carolina Trust Disclosure Memorandum lists every consent required by any Contract involving an amount in excess
of $50,000. All of the indebtedness of any Carolina Trust Entity for money borrowed (other than deposit liabilities, purchases
of federal funds, advances from the Federal Reserve or Federal Home Loan Bank, repurchase agreements fully secured by U.S. government
securities or U.S. government agency securities, advances of depository institution Subsidiaries incurred in the ordinary course
of Carolina Trust’s business, and trade payables and Contracts relating to
borrowings or guarantees made in the ordinary
course of Carolina Trust’s business) is prepayable at any time by such Carolina Trust Entity without penalty, premium or
charge.
|
|
4.17
|
Privacy
of Customer Information.
|
(a) For the purposes contemplated by this Agreement, each Carolina Trust Entity has valid rights to use and transfer to Carolina
Financial and to CresCom Bank all IIPI relating to customers, former customers, and prospective customers that will be transferred
pursuant to this Agreement.
(b) Each Carolina Trust Entity’s collection and use of such IIPI and the transfer of such IIPI to Carolina Financial
or CresCom Bank complies in all material respects with Carolina Trust’s Gramm-Leach-Bliley Act privacy notice, the Gramm-Leach-Bliley
Act, and the Fair Credit Reporting Act.
Except
as disclosed in Section 4.18 of the Carolina Trust Disclosure Memorandum, there is no Litigation instituted or pending, or, to
the Knowledge of Carolina Trust, threatened (or unasserted but considered probable of assertion) against any Carolina Trust Entity,
or to Carolina Trust’s Knowledge, against any director, officer, employee, or agent of any Carolina Trust Entity in their
capacities as such or with respect to any service to or on behalf of any Carolina Trust Benefit Plan or any other Person at the
request of the Carolina Trust Entity or Carolina Trust Benefit Plan, or against any Asset, interest, or right of any of them,
nor are there any Orders or judgments outstanding against any Carolina Trust Entity. No claim for indemnity has been made or,
to Carolina Trust’s Knowledge, threatened by any director, officer, employee, independent contractor, or agent to any Carolina
Trust Entity and to the Knowledge of Carolina Trust, no basis for any such claim exists.
Except
for immaterial late filings, since December 31, 2015, each Carolina Trust Entity has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it was required to file with Governmental Authorities.
As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of their respective dates, such reports and documents
did not, in all material respects, 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 made therein, in light of the circumstances under which they were made,
not misleading.
Carolina
Trust’s internal control over financial reporting is effective to provide reasonable assurance regarding the reliability
of Carolina Trust’s financial reporting and the preparation of Carolina Trust financial statements for external purposes
in accordance with GAAP. Carolina Trust’s internal control over financial reporting is effective to provide reasonable assurance
(i) regarding the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and disposition
of Carolina Trust’s consolidated Assets; (ii) that transactions are recorded as necessary to permit the preparation of Carolina
Trust’s financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance
with the authorizations of Carolina Trust’s management and directors; and (iii) regarding
prevention or
timely detection
of unauthorized acquisition, use or disposition of Carolina Trust’s consolidated Assets that could have a material
impact on Carolina Trust’s financial statements.
|
|
4.21
|
Loans
to, and Transactions with, Executive Officers and Directors.
|
No
Carolina Trust Entity has, since December 31, 2015, extended or maintained credit, arranged for the extension of credit, or renewed
an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of
any Carolina Trust Entity, except as permitted by Section 13(k) of the Exchange Act and Federal Reserve Regulation O. Section
4.21 of the Carolina Trust Disclosure Memorandum sets forth a list of all Loans as of the date hereof by the Carolina Trust Entities
to any directors, executive officers and principal shareholders (as such terms are defined in Regulation O of the Federal Reserve
(12 C.F.R. Part 215)) of Carolina Trust or any Carolina Trust Entity. There are no employee, officer, director or other affiliate
Loans on which the borrower is paying a rate other than that reflected in the note or other relevant credit or security agreement
or on which the borrower is paying a rate which was below market rate for similar loans to similarly situated borrowers at the
time the Loan was originated. All such Loans are and were originated in compliance in all material respects with all applicable
laws. No director or executive officer of Carolina Trust or any Carolina Trust Entity, or any “associate” (as such
term is defined in Rule 14a-1 under the Exchange Act) or related interest of any such Person, has any interest in any contract
or property (real or personal, tangible or intangible), used in, or pertaining to, the business of Carolina Trust or any Carolina
Trust Entity.
No
Carolina Trust Entity nor, to the Knowledge of Carolina Trust, any Affiliate thereof, has taken or agreed to take any action or
has any Knowledge of any fact or circumstance that is reasonably likely to materially impede or delay receipt of any required
Consents or result in the imposition of a condition or restriction of the type referred to in the last sentence of Section 8.1(b).
No Carolina Trust Entity is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or has been ordered to pay any civil penalty by, or is a recipient of any supervisory
letter from, or has adopted any board resolutions at the request or suggestion of any Regulatory Authority or other Governmental
Authority that restricts the conduct of its business or that relates to its capital adequacy, its ability to pay dividends, its
credit or risk management policies, its management or its business (any such agreement, memorandum of understanding, letter, undertaking,
order, directive or resolutions, whether or not set forth in the Carolina Trust Disclosure Memorandum, a “Carolina Trust
Regulatory Agreement”), nor are there any pending or, to the Knowledge of Carolina Trust, threatened regulatory investigations
or other actions by any Regulatory Authority or other Governmental Authority that could reasonably be expected to lead to the
issuance of any such Carolina Trust Regulatory Agreement.
|
|
4.23
|
Brokers
and Finders; Opinion of Financial Advisor.
|
Except
for the Carolina Trust Financial Advisor, neither Carolina Trust nor any Carolina Trust Entity, or any of their respective officers,
directors, employees, or Representatives, has employed any broker, finder, or investment banker or incurred any Liability for
any financial advisory fees, investment banker’s fees, brokerage fees, commissions, or finder’s or other such fees
in connection with this Agreement or the transactions contemplated hereby. Section 4.23 of the Carolina Trust Disclosure Memorandum
lists the fees and expenses that are currently owed to the Carolina Trust Financial Advisor and that will be owed to the Carolina
Trust Financial Advisor as a result of
transactions contemplated by this Agreement. Carolina Trust has received the written opinion
of the Carolina Trust Financial Advisor, dated as of the date of this Agreement, to the effect that the Merger Consideration is
fair, from a financial point of view, to the holders of Carolina Trust Common Stock, a signed copy of which has been or will be
delivered to Carolina Financial.
|
|
4.24
|
Board
Recommendation.
|
Carolina
Trust’s Board, at a meeting duly called and held, has by unanimous vote of the directors present (i) adopted this Agreement
and approved the transactions contemplated hereby, including the Merger and the transactions contemplated hereby and thereby,
and has determined that, taken together, they are fair to and in the best interests of Carolina Trust’s shareholders, and
(ii) resolved, subject to the terms of this Agreement, to recommend that the holders of the shares of Carolina Trust Common
Stock approve this Agreement, the Merger, and the related transactions and to call and hold a meeting of Carolina Trust’s
shareholders at which this Agreement, the Merger, and the related transactions shall be submitted to the holders of the shares
of Carolina Trust Common Stock for approval.
|
|
4.25
|
Statements
True and Correct.
|
(a) No statement, certificate, instrument, or other writing furnished or to be furnished by any Carolina Trust Entity or any
Affiliate thereof to Carolina Financial pursuant to this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
(b) None of the information supplied or to be supplied by any Carolina Trust Entity or any Affiliate thereof for inclusion
in the Registration Statement to be filed by Carolina Financial with the SEC in connection with the Merger will (after taking
into account any supplemental or amended information provided prior to approval), when the Registration Statement is declared
effective by the SEC, be false or misleading with respect to any material fact, or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information
supplied or to be supplied by the Carolina Trust Entity or any Affiliate thereof for inclusion in any final Proxy Statement/Prospectus
to be mailed to the shareholders of Carolina Trust in connection with Carolina Trust’s Shareholders’ Meeting, and
any other documents to be filed by any Carolina Trust Entity or any Affiliate thereof with any Regulatory Authority in connection
with the transactions contemplated hereby, will, (after taking into account any supplemental or amended information provided prior
to filing, mailing, or the date of Carolina Trust’s Shareholders’ Meeting) at the respective time such documents are
filed, and with respect to any Proxy Statement/Prospectus, when first mailed to the shareholders of Carolina Trust be false or
misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in the case of the Proxy Statement/Prospectus or any
amendment thereof or supplement thereto, at the time of Carolina Trust’s Shareholders’ Meeting be false or misleading
with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxies for the meeting.
(c) All documents that any Carolina Trust Entity or any Affiliate thereof is responsible for filing with any Governmental Authority
in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions of
applicable Law.
|
|
4.26
|
Delivery
of Carolina Trust Disclosure Memorandum.
|
Carolina
Trust has delivered to Carolina Financial a complete Carolina Trust Disclosure Memorandum.
|
|
4.27
|
No
Additional Representations.
|
Except
for the representations and warranties specifically set forth in Article 4 of this Agreement, neither Carolina Trust nor any of
its Affiliates or Representatives, nor any other Person, makes or shall be deemed to make any representation or warranty to Carolina
Financial, express or implied, at law or in equity, with respect to the transactions contemplated hereby, and Carolina Trust hereby
disclaims any such representation or warranty by Carolina Trust or any of its officers, directors, employees, agents, or representatives,
or any other person. Carolina Trust acknowledges and agrees that neither Carolina Financial nor any other Person has made or is
making any express or implied representation or warranty other than those contained in Article 5.
Article
5
REPRESENTATIONS AND WARRANTIES OF CAROLINA FINANCIAL
Carolina
Financial hereby represents and warrants to Carolina Trust as follows:
|
|
5.1
|
Organization,
Standing, and Power.
|
Carolina
Financial is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Delaware and
is a financial holding company within the meaning of the BHCA. CresCom Bank is a South Carolina state bank, duly organized, validly
existing and in good standing under the laws of the State of South Carolina. Each of Carolina Financial and CresCom Bank has the
corporate power and authority to carry on its business as now conducted and to own, lease, and operate its Assets. Each of Carolina
Financial and CresCom Bank is duly qualified or licensed to transact business as a foreign corporation in good standing in the
states of the United States and foreign jurisdictions where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed
is not reasonably likely to have, individually or in the aggregate, a Carolina Financial Material Adverse Effect. The minute book
and other organizational documents for each of Carolina Financial and CresCom Bank (including any and all amendments thereto)
have been made available to Carolina Trust for its review and are complete and accurate as in effect as of the date of this Agreement
and accurately reflect in all material respects all amendments thereto and all proceedings of the respective Board of Directors
(including any committees of the Board of Directors) and stockholders thereof; provided, however, that to the extent that
minutes for the most recent meetings have not been transcribed and finalized and minutes of deliberations regarding discussions
with Carolina Trust may be redacted. CresCom Bank is an “insured institution” as defined in the Federal Deposit Insurance
Act and applicable regulations thereunder, and the deposits held by CresCom Bank are insured up to applicable limits by the FDIC’s
Deposit Insurance Fund.
|
|
5.2
|
Authority;
No Breach by Agreement.
|
(a) Carolina Financial has the corporate power and authority necessary to execute, deliver, and perform this Agreement and
with respect to the Merger, upon the approval of the Merger, including any necessary approvals referred to in Sections 8.1(b)
and 8.1(c), to perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger,
have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Carolina Financial.
Subject to any necessary approvals referred to in Sections 8.1(b) and 8.1(c), this Agreement represents a legal, valid, and binding
obligation of Carolina Financial, enforceable against Carolina Financial in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Carolina Financial, nor the consummation by Carolina Financial
and CresCom Bank of the transactions contemplated hereby, nor compliance by Carolina Financial and CresCom Bank with any of the
provisions hereof, will (i) conflict with or result in a breach of any provision of Carolina Financial’s Certificate of
Incorporation or Bylaws or the Articles of Incorporation or Bylaws of any Carolina Financial Subsidiary or any resolution adopted
by the Board of Directors or the shareholders of any Carolina Financial Entity, or (ii) constitute or result in a Default under,
or require any Consent pursuant to, or result in the creation of any Lien on any material Asset of any Carolina Financial Entity
under, any material Contract or material Permit of any Carolina Financial Entity or, (iii) subject to receipt of the requisite
Consents referred to in Section 8.1(b), constitute or result in a Default under, or require any Consent pursuant to, any Law or
Order applicable to any Carolina Financial Entity or any of their respective material Assets (including any Carolina Financial
Entity becoming subject to or liable for the payment of any Tax on any of the Assets owned by any Carolina Financial Entity being
reassessed or revalued by any Regulatory Authority).
(c) Except for (a) the filing of applications and notices with, and approval of such applications and notices from, the Federal
Reserve, the FDIC, the South Carolina Board of Financial Institutions and North Carolina Commissioner of Banks, (b) the filing
of any other required applications, filings, or notices with any other federal or state banking, insurance or other regulatory
or self-regulatory authorities or any courts, administrative agencies or commissions or other Governmental Authorities and approval
of or non-objection to such applications, filings and notices, (c) the filing with the SEC of the Registration Statement in which
the Proxy Statement/Prospectus will be included, and the declaration of effectiveness of the Registration Statement, (d) the filing
of the Certificate of Merger and the Articles of Merger, (e) any consents, authorizations, approvals, filings or exemptions in
connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers,
investment advisers or transfer agents, and federal commodities laws relating to the regulation of futures commission merchants
and the rules and regulations thereunder and of any applicable industry self-regulatory organization, and the rules and regulations
of the NASDAQ Stock Market, or that are required under consumer finance, mortgage banking and other similar laws, and (f) notices
or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if any, no consents or approvals of or
filings or registrations with any Governmental Authority are necessary in connection with the consummation by Carolina Financial
of the Merger and the other transactions contemplated by this Agreement. No consents or approvals of or filings or registrations
with any Governmental Authority are necessary in connection with the execution and delivery by Carolina Financial of this Agreement.
The
authorized capital stock of Carolina Financial consists of 50,000,000 shares of Carolina Financial Common Stock, of which 22,282,862
shares are issued and outstanding as of the date of
this Agreement, and 1,000,000 shares of Carolina Financial preferred stock,
of which no shares are issued and outstanding as of the date of this Agreement. All of the issued and outstanding shares of capital
stock of Carolina Financial are duly and validly issued and outstanding and are fully paid and nonassessable. Carolina Financial
Common Stock is listed for trading and quotation on the Nasdaq Capital Market. None of the outstanding shares of capital stock
of Carolina Financial has been issued in violation of any preemptive rights of the current or past stockholders of Carolina Financial.
The shares of Carolina Financial Common Stock to be issued in the Merger will be (i) duly authorized, validly issued, fully paid
and nonassessable; (ii) registered under the Securities Act; and (iii) listed for trading and quotation on the Nasdaq Capital
Market.
|
|
5.4
|
Carolina
Financial Subsidiaries
|
Carolina
Financial has no Subsidiaries except as set forth in the Carolina Financial Exchange Act Reports, and Carolina Financial owns
all of the equity interests in each of its Subsidiaries. No capital stock (or other equity interest) of any such Subsidiary is
or may become required to be issued (other than to another Carolina Financial Entity) by reason of any Rights, and there are no
Contracts by which any such Subsidiary is bound to issue (other than to another Carolina Financial Entity) additional shares of
its capital stock (or other equity interests) or Rights or by which any Carolina Financial Entity is or may be bound to transfer
any shares of the capital stock (or other equity interests) of any such Subsidiary (other than to another Carolina Financial Entity).
There are no Contracts relating to the rights of any Carolina Financial Entity to vote or to dispose of any shares of the capital
stock (or other equity interests) of any such Subsidiary. All of the shares of capital stock (or other equity interests) of each
Subsidiary are fully paid and nonassessable and are owned directly or indirectly by Carolina Financial free and clear of any Lien.
|
|
5.5
|
Exchange
Act Filings; Offer and Sale of Securities; Financial Statements.
|
(a) Carolina Financial has timely filed and made available to Carolina Trust all Exchange Act Documents required to be filed
by Carolina Financial since December 31, 2016 (together with all such Exchange Act Documents filed, whether or not required to
be filed, the “Carolina Financial Exchange Act Reports”). The Carolina Financial Exchange Act Reports (i) at
the time filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing),
complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did
not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date
of such amended or subsequent filing or, in the case of registration statements, at the effective date thereof) contain any untrue
statement of a material fact or omit to state a material fact required to be stated in such Carolina Financial Exchange Act Reports
or necessary in order to make the statements in such Carolina Financial Exchange Act Reports, in light of the circumstances under
which they were made, not misleading. No Carolina Financial Subsidiary is required to file any Exchange Act Documents. Each offering
or sale of securities by Carolina Financial (i) was either registered under the Securities Act or made pursuant to a valid exemption
from registration, (ii) complied in all material respects with the applicable requirements of the Securities Laws and other applicable
Laws, except for immaterial late “blue sky” filings, including disclosure and broker/dealer registration requirements,
and (iii) was made pursuant to offering documents which did not, at the time of the offering (or, in the case of registration
statements, at the effective date thereof) contain any untrue statement of a material fact or omit to state a material fact required
to be stated in the offering documents or necessary in order to make the statements in such documents, in light of the circumstances
under which they were made, not misleading. Carolina Financial’s principal executive officer and principal financial officer
have made the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act and the rules and regulations of the Exchange
Act
thereunder with respect to the Carolina Financial Exchange Act Reports to the extent such rules or regulations applied at
the time of the filing. For purposes of the preceding sentence, “principal executive officer” and “principal
financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act. Such certifications contain no
qualifications or exceptions to the matters certified therein and have not been modified or withdrawn; and neither Carolina Financial
nor any of its officers has received notice from any Regulatory Authority questioning or challenging the accuracy, completeness,
content, form, or manner of filing or submission of such certifications.
(b) Each of the Carolina Financial Financial Statements (including, in each case, any related notes) contained in the Carolina
Financial Exchange Act Reports, including any Carolina Financial Exchange Act Reports filed after the date of this Agreement until
the Effective Time, complied, or will comply, as to form in all material respects with the applicable published rules and regulations
of the Exchange Act with respect thereto, was, or will be, prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim
statements, as permitted by Form 10-Q of the Exchange Act), fairly presented in accordance with GAAP the consolidated financial
position of Carolina Financial and its Subsidiaries as of the respective dates and the consolidated results of operations and
cash flows for the periods indicated, including the fair values of the assets and liabilities shown therein, except that the unaudited
interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected
to be material in amount or effect. The Carolina Financial Financial Statements are certified to the extent required by the Sarbanes-Oxley
Act.
(c) Carolina Financial’s independent registered public accountants, which have expressed their opinion with respect to
the Financial Statements of Carolina Financial and its Subsidiaries whether or not included in Carolina Financial’s Exchange
Act Reports (including the related notes), are and have been throughout the periods covered by such Financial Statements (x) a
registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act) (to the extent applicable during
such period), (y) “independent” with respect to Carolina Financial within the meaning of Regulation S-X and, (z) with
respect to Carolina Financial, in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and related Securities
Laws. Carolina Financial’s independent public accountants have audited Carolina Financial’s year-end financial statements,
and have reviewed Carolina Financial’s interim financial statements that are included in the Financial Statements of Carolina
Financial in accordance with Public Company Accounting Oversight Board Auditing Standard No. 4105.
(d) Carolina Financial maintains disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act;
such controls and procedures are effective to ensure that all material information concerning Carolina Financial is made known
on a timely basis to the individuals responsible for the preparation of Carolina Financial’s Exchange Act Documents.
|
|
5.6
|
Absence
of Undisclosed Liabilities.
|
Neither
Carolina Financial nor any of its Subsidiaries has incurred any liability or obligation of any nature whatsoever (whether absolute,
accrued, contingent, determined, determinable, or otherwise and whether due or to become due), except for (i) those liabilities
that are reflected or reserved against on the consolidated balance sheet of Carolina Financial included in its Quarterly Report
on Form 10-Q for the quarter ended March 31, 2019 (including any notes thereto), (ii) liabilities incurred in the ordinary course
of business consistent in nature and amount with past practice since March 31, 2019, or (iii) liabilities incurred in connection
with this Agreement and the transactions contemplated hereby. Neither Carolina Financial nor any of its Subsidiaries
is a party
to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract or arrangement
(including any Contract or arrangement relating to any transaction or relationship between or among Carolina Financial and any
of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited
purpose entity or Person, on the other hand, or any “off-balance sheet arrangement”), where the result, purpose or
intended effect of such Contract or arrangement is to avoid disclosure of any material transaction involving, or material liabilities
of, Carolina Financial or any of its Subsidiaries in Carolina Financial’s or such Subsidiary’s financial statements.
|
|
5.7
|
Absence
of Certain Changes or Events.
|
Since
December 31, 2018, (i) there have been no events, changes, or occurrences which have had, or are reasonably likely to have, individually
or in the aggregate, a Carolina Financial Material Adverse Effect, (ii) none of the Carolina Financial Entities has taken any
action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of
this Agreement, would represent or result in a material breach or violation of any covenants and agreements of Carolina Financial
provided in this Agreement, and (iii) since December 31, 2018, the Carolina Financial Entities have conducted their respective
businesses in the ordinary course of business consistent with past practice.
As
of the date of this Agreement, it is the present intention, and as of the day of the Effective Time, it will be the present intention,
of Carolina Financial to continue, either through Carolina Financial or through a member of Carolina Financial’s “qualified
group” within the meaning of Treasury Regulations Section 1.368-1(d)(4)(ii) (the “Qualified Group”),
at least one significant historic business line of Carolina Trust, or to use at least a significant portion of Carolina Trust’s
historic business assets in a business, in each case within the meaning of Treasury Regulations Section 1.368-1(d). As of the
date of this Agreement and as of the Effective Time, neither Carolina Financial nor any “related person” (as defined
in Treasury Regulations Section 1.368-1(e)(4)) to Carolina Financial has or will have any plan or intention to redeem or reacquire,
either directly or indirectly, any of the Carolina Financial Common Stock issued to the holders of Carolina Trust Common Stock
in connection with the Merger. As of the date of this Agreement and as of the Effective Time, Carolina Financial does not have
and will not have any plan or intention to sell or otherwise dispose of any of the assets of Carolina Trust acquired in the Merger,
except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code or
described and permitted in Treasury Regulations Section 1.368-2(k).
|
|
5.9
|
Compliance
with Laws.
|
(a) Carolina Financial is a financial holding company duly registered and in good standing as such with the Federal Reserve.
CresCom Bank is a state chartered bank in good standing with the South Carolina Board of Financial Institutions.
(b) Compliance with Permits, Laws and Orders.
(i)
Each of the Carolina Financial Entities has in effect all Permits and has made all filings, applications, and registrations
with Governmental Authorities that are required for it to own, lease, or operate its assets and to carry on its business as now
conducted, and to the Knowledge of Carolina Financial, there has occurred no Default under any such Permit applicable to their
respective businesses or employees conducting their respective businesses.
(ii)
To the Knowledge of Carolina Financial, none of the Carolina Financial Entities is in material Default under any Laws or
Orders applicable to its business or employees conducting its business.
(iii)
None of the Carolina Financial Entities has received any notification or communication from any Governmental Authority
(A) asserting that Carolina Financial or any of its Subsidiaries is in Default under any of the Permits, Laws, or Orders
which such Governmental Authority enforces, (B) threatening to revoke any Permits, or (C) requiring Carolina Financial
or any of its Subsidiaries (x) to enter into or consent to the issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) to adopt any resolution of its Board of Directors or similar undertaking.
(iv)
There (A) is no material unresolved legal violation cited by any Governmental Authority with respect to any report
or statement relating to any examinations or inspections of Carolina Financial or any of its Subsidiaries, (B) are no written
notices or correspondence received by Carolina Financial with respect to pending formal inquiries of a material nature by, or
disputes with, any Governmental Authority with respect to Carolina Financial’s or any of Carolina Financial’s Subsidiaries’
business, operations, policies, or procedures since its inception, and (C) to the Knowledge of Carolina Financial, is no investigation
or review by any Governmental Authority is pending or threatened, nor has any Governmental Authority indicated an intention to
conduct, any investigation or review (other than regular or routine examinations or inspections) of it or any of its Subsidiaries.
(v)
None of the Carolina Financial Entities nor, to the Knowledge of Carolina Financial, any of its directors, officers, employees,
or Representatives acting on its behalf has offered, paid, or agreed to pay any Person, including any Government Authority, directly
or indirectly, any thing of value for the purpose of, or with the intent of obtaining or retaining any business in violation of
applicable Laws, including (1) using any corporate funds for any unlawful contribution, gift, entertainment, or other unlawful
expense relating to political activity, (2) making any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds, (3) violating any provision of the Foreign Corrupt Practices Act of 1977, as amended,
or (4) making any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment.
(vi)
Each Carolina Financial Entity has complied in all material respects with all requirements of Law under the Bank Secrecy
Act and the USA Patriot Act, and each Carolina Financial Entity has timely filed all reports of suspicious activity, including
those required under 12 C.F.R. § 353.3.
(vii)
Each Carolina Financial Entity’s collection and use of IIPI complies in all material respects with Carolina Financial’s
Gramm-Leach-Bliley Act privacy notice, the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act.
There
is no Litigation instituted or pending, or, to the Knowledge of Carolina Financial, threatened (or unasserted but considered probable
of assertion) against Carolina Financial, or to Carolina Financial’s Knowledge, against any director, officer, employee,
or agent of Carolina Financial in their capacities as such or with respect to any service to or on behalf of any Employee Benefit
Plan or any other Person at the request of the Carolina Financial or Employee Benefit Plan of Carolina Financial, or against any
Asset, interest, or right of any of them, nor are there
any Orders or judgments outstanding against Carolina Financial; and no
claim for indemnity has been made or, to Carolina Financial’s Knowledge, threatened by any director, officer, employee,
independent contractor, or agent to Carolina Financial and, to the Knowledge of Carolina Financial, no basis for any such claim
exists.
Except
for immaterial late filings, since December 31, 2016, each Carolina Financial Entity has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it was required to file with Governmental Authorities.
As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of their respective date, such reports and documents did
not, in all material respects, 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 made therein, in light of the circumstances under which they were made, not
misleading.
Carolina
Financial ’s internal control over financial reporting is effective to provide reasonable assurance regarding the reliability
of Carolina Financial’s financial reporting and the preparation of Carolina Financial’s financial statements for external
purposes in accordance with GAAP. Carolina Financial’s internal control over financial reporting is effective to provide
reasonable assurance (i) regarding the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions
and disposition of Carolina Financial’s consolidated Assets; (ii) that transactions are recorded as necessary to permit
the preparation of Carolina Financial’s financial statements in accordance with GAAP and that receipts and expenditures
are being made only in accordance with the authorizations of Carolina Financial’s management and directors; and (iii) regarding
prevention or timely detection of unauthorized acquisition, use or disposition of Carolina Financial’s consolidated Assets
that could have a material impact on Carolina Financial’s consolidated financial statements.
No
Carolina Financial Entity is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil penalty by, or is a recipient
of any supervisory letter from, or has adopted any board resolutions at the request or suggestion of any Regulatory Authority
or other Governmental Authority that restricts the conduct of its business or that relates to its capital adequacy, its ability
to pay dividends, its credit or risk management policies, its management or its business (any such agreement, memorandum of understanding,
letter, undertaking, order, directive or resolutions, a “Carolina Financial Regulatory Agreement”), nor are
there any pending or, to the Knowledge of Carolina Financial, threatened regulatory investigations or other actions by any Regulatory
Authority or other Governmental Authority that could reasonably be expected to lead to the issuance of any such Carolina Financial
Regulatory Agreement.
|
|
5.14
|
Brokers
and Finders; Opinion of Financial Advisor.
|
Except
for the Carolina Financial Financial Advisor, neither Carolina Financial nor any Carolina Financial Entity, or any of their respective
officers, directors, employees, or Representatives, has employed any broker, finder or investment banker or incurred any Liability
for any financial
advisory fees, investment bankers’ fees, brokerage fees, commissions, or finder’s or other such
fees in connection with this Agreement or the transactions contemplated hereby. The board of directors of Carolina Financial has
received the opinion of the Carolina Financial Financial Advisor (which, if initially rendered orally, has been or will be confirmed
by a written opinion, dated the same date) to the effect that, as of the date of such opinion, and based upon and subject to the
factors, assumptions and qualifications contained therein, the Merger Consideration is fair, from a financial point of view, to
Carolina Financial.
No
Carolina Financial Entity or any Affiliate thereof has taken or agreed to take any action or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or delay receipt of any required Consents or result in the imposition
of a condition or restriction of the type referred to in the last sentence of Section 8.1(b).
|
|
5.16
|
Available
Consideration.
|
Carolina
Financial has available to it, or as of the Effective Time will have available to it, sufficient shares of authorized and unissued
Carolina Financial Common Stock and all funds necessary for the issuance and payment of the Merger Consideration and has funds
available to it to satisfy its payment obligations under this Agreement.
|
|
5.17
|
Statements
True and Correct.
|
(a) No statement, certificate, instrument, or other writing furnished or to be furnished by any Carolina Financial Entity or
any Affiliate thereof to Carolina Trust pursuant to this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were made, not misleading.
(b) None of the information supplied or to be supplied by any Carolina Financial Entity or any Affiliate thereof for inclusion
in the Registration Statement to be filed by Carolina Financial with the SEC in connection with the Merger will (after taking
into account any supplemental or amended information provided prior to approval), when the Registration Statement is declared
effective by the SEC, be false or misleading with respect to any material fact, or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were made, not misleading. None of the information
supplied or to be supplied by any Carolina Financial Entity or any Affiliate thereof for inclusion in any final Proxy Statement/Prospectus
to be mailed to the shareholders of Carolina Trust in connection with Carolina Trust’s Shareholders’ Meeting, and
any other documents to be filed by any Carolina Financial Entity or any Affiliate thereof with any Regulatory Authority in connection
with the transactions contemplated hereby, will, (after taking into account any supplemental or amended information provided prior
to filing, mailing, or the date of Carolina Trust’s Shareholders’ Meeting) at the respective time such documents are
filed, and with respect to any Proxy Statement/Prospectus, when first mailed to the shareholders of Carolina Trust be false or
misleading with respect to any material fact, or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in the case of the Proxy Statement/Prospectus or any
amendment thereof or supplement thereto, at the time of Carolina Trust’s Shareholders’ Meeting, be false or misleading
with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of any proxies for each meeting.
(c) All documents that any Carolina Financial Entity or any Affiliate thereof is responsible for filing with any Governmental
Authority in connection with the transactions contemplated hereby will comply as to form in all material respects with the provisions
of applicable Law.
|
|
5.18
|
No
Additional Representations.
|
Except
for the representations and warranties specifically set forth in Article 5 of this Agreement, neither Carolina Financial nor any
of its Affiliates or Representatives, nor any other Person, makes or shall be deemed to make any representation or warranty to
Carolina Trust, express or implied, at law or in equity, with respect to the transactions contemplated hereby, and Carolina Financial
hereby disclaims any such representation or warranty by Carolina Financial or any of its officers, directors, employees, agents,
or representatives, or any other person. Carolina Financial acknowledges and agrees that neither Carolina Trust nor any other
Person has made or is making any express or implied representation or warranty other than those contained in Article 4.
Article
6
CONDUCT OF BUSINESS PENDING CONSUMMATION
|
|
6.1
|
Affirmative
Covenants of Carolina Trust and Carolina Financial.
|
(a) From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Carolina Financial shall have been obtained, and except as otherwise expressly contemplated herein, Carolina
Trust shall, and shall cause each of its Subsidiaries to, (i) operate its business only in the usual, regular, and ordinary course,
(ii) use commercially reasonable efforts to preserve intact its business organization and Assets and maintain its rights and franchises,
(iii) use commercially reasonable efforts to cause its representations and warranties to be correct at all times, (iv) use best
efforts to provide all information requested by Carolina Financial related to loans or other transactions made by Carolina Trust
with a value equal to or exceeding $1,000,000, and (v) take no action which would reasonably be expected to (A) adversely affect
the ability of any Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition
or restriction of the type referred to in the last sentences of Sections 8.1(b) or 8.1(c), or (B) materially adversely affect
the ability of any Party to perform its covenants and agreements under this Agreement.
(b) From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Carolina Trust shall have been obtained, and except as otherwise expressly contemplated herein, Carolina
Financial shall, and shall cause each of its Subsidiaries to, (i) operate its business only in the usual, regular, and ordinary
course, (ii) use commercially reasonable efforts to preserve intact its business organization and Assets and maintain its rights
and franchises, (iii) use commercially reasonable efforts to cause its representations and warranties to be correct at all times,
and (iv) take no action which would (A) adversely affect the ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Sections
8.1(b) or 8.1(c), or (B) materially adversely affect the ability of any Party to perform its covenants and agreements under this
Agreement.
(c) Carolina Trust and Carolina Financial each shall, and shall cause each of its Subsidiaries to, cooperate with the other
Party and provide all necessary corporate approvals, and cooperate in seeking all approvals of any business combinations of such
Carolina Trust and its Subsidiaries requested by Carolina Financial, provided, the effective time of such business combinations
is on or after the Effective Time of the Merger.
|
|
6.2
|
Negative
Covenants of Carolina Trust.
|
From
the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written
consent of Carolina Financial shall have been obtained (not to be unreasonably withheld or delayed), and except as otherwise expressly
contemplated herein, Carolina Trust covenants and agrees that it will not do or agree or commit to do, or permit any of its Subsidiaries
to do or agree or commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws, or other governing instruments of any Carolina Trust Entity;
(b) incur any additional debt obligation or other obligation for borrowed money in excess of an aggregate of $500,000 except
in the ordinary course of the business of any Carolina Trust Entity consistent with past practices (which exception shall
include, for Carolina Trust Entities that are depository institutions, creation of deposit liabilities, purchases of federal funds,
advances from the Federal Home Loan Bank and the Federal Reserve Bank, and entry into repurchase agreements fully secured by U.S.
government securities or U.S. government agency securities), or impose, or suffer the imposition, on any Asset of any Carolina
Trust Entity of any Lien or permit any such Lien to exist (other than in connection with public deposits, repurchase agreements,
bankers’ acceptances, “treasury tax and loan” accounts established in the ordinary course of business of Subsidiaries
that are depository institutions, the satisfaction of legal requirements in the exercise of trust powers, and Liens in effect
as of the date hereof that are disclosed in the Carolina Trust Disclosure Memorandum);
(c) repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary course under employee benefit
plans or as required by this Agreement), directly or indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Carolina Trust Entity, or declare or pay any dividend or make any other distribution in respect of Carolina
Trust’s capital stock;
(d) except for this Agreement or upon the exercise of Carolina Trust Options, issue, sell, pledge, encumber, authorize the
issuance of, enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Carolina Trust Common Stock, any other capital stock of any Carolina Trust Entity, or any
Right;
(e) adjust, split, combine, or reclassify any capital stock of any Carolina Trust Entity or issue or authorize the issuance
of any other securities in respect of or in substitution for shares of Carolina Trust Common Stock, or sell, lease, mortgage,
or otherwise dispose of (i) any shares of capital stock of any Carolina Trust Subsidiary or (ii) any Asset other than in the ordinary
course of business for reasonable and adequate consideration;
(f) purchase any securities or make any material investment except in the ordinary course of business consistent with past
practice, either by purchase of stock or securities, contributions to capital, Asset transfers, or purchase of any Assets, in
any Person other than a wholly owned Carolina Trust Subsidiary, or otherwise acquire direct or indirect control over any Person,
other than in connection with foreclosures of loans in the ordinary course of business;
(g) except as disclosed on Section 6.2 of the Carolina Trust Disclosure Memorandum or as contemplated by this Agreement, (i)
grant any bonus or increase in compensation or benefits in excess of $5,000 to any individual employee, officer or director of
any Carolina Trust Entity (except in accordance with past practice), (ii) enter into any new commitment or agreement to pay any
severance
or termination pay, or any stay or other bonus to any Carolina Trust director, officer or employee (except for any agreements
entered into pursuant to Section 7.9(g) of this Agreement), (iii) enter into or amend any severance agreements with officers,
employees, directors, independent contractors, or agents of any Carolina Trust Entity, (iv) change any fees or other compensation
or other benefits to directors of any Carolina Trust Entity, (v) waive any stock repurchase rights, accelerate, amend, or change
the period of exercisability of any Rights or restricted stock, or reprice Rights granted under the outstanding Carolina Trust
Options or authorize cash payments in exchange for any Rights; or (vi) except to the extent required under applicable Law or existing
Contracts, accelerate, vest or commit or agree to accelerate or vest any amounts, benefits or rights payable by any Carolina Trust
Entity;
(h) enter into or amend any employment Contract between any Carolina Trust Entity and any Person (unless such amendment is
required by Law or this Agreement) that the Carolina Trust Entity does not have the unconditional right to terminate without Liability
(other than Liability for services already rendered), at any time on or after the Effective Time;
(i) adopt any new employee benefit plan of any Carolina Trust Entity or, except as disclosed in Section 6.2 of the Carolina
Trust Disclosure Memorandum, terminate or withdraw from, or make any material change in or to, any existing employee benefit plans,
welfare plans, insurance, stock or other plans of any Carolina Trust Entity other than any such change that is required by Law
or to maintain continuous benefits at current levels or that, in the reasonable judgment of counsel, is necessary or advisable
to maintain the tax qualified status of any such plan, or make any distributions from such employee benefit or welfare plans,
except as required by Law, the terms of such plans or consistent with past practice;
(j) make any change in any Tax or accounting methods, systems of internal accounting controls or schedule of internal audits,
except as may be appropriate and necessary to conform to changes in Tax Laws, regulatory accounting requirements, or GAAP or at
the specific request of Carolina Financial;
(k) commence any Litigation other than in accordance with past practice or settle any Litigation involving any Liability of
any Carolina Trust Entity for money damages or restrictions upon the operations of any Carolina Trust Entity;
(l) enter into, modify, amend, or terminate any material Contract other than with respect to those involving aggregate payments
of less than, or the provision of goods or services with a market value of less than, $50,000 per annum and other than Contracts
covered by Sections 6.2(m), (n), (o) or (p);
(m) enter into or make any Consumer Loan with a value equal to or exceeding $250,000;
(n) enter into or make any loans or extensions of credit with a value equal to or exceeding $2,500,000, other than residential
mortgage loans for which Carolina Trust has a commitment to buy from a reputable investor (for the avoidance of doubt, such limit
shall apply to separate extensions of credit and not to the total credit exposure to any Person);
(o) enter into or make any loans that exceed internal policy or regulatory loan-to-value guidelines;
(p) except in the ordinary course of business, (i) modify any existing loan, lease (credit equivalent), advance, credit enhancement
or other extension of credit except, with respect to any
existing extension of credit with an unpaid balance of less than $250,000
(for the avoidance of doubt, such limit shall apply to separate extensions of credit and not to the total credit exposure to any
Person), in conformity with existing lending policies and practices, (ii) waive, release, compromise, or assign any material rights
or claims, or (iii) make any adverse changes in the mix, rates, terms, or maturities of Carolina Trust’s deposits and other
Liabilities.
(q) except for loans or extensions of credit made on terms generally available to the public, make or increase any loan or
other extension of credit, or commit to make or increase any such loan or extension of credit, to any director or executive officer
of Carolina Trust or Carolina Trust Bank, or any entity controlled, directly or indirectly, by any of the foregoing, other than
renewals of existing loans or commitments to loan;
(r) except in the ordinary course of business, restructure or materially change its investment securities portfolio or its
interest rate risk position, through purchases, sales or otherwise, or the manner in which the portfolio is classified or reported;
(s) make any capital expenditures other than pursuant to binding commitments existing on the date hereof and other than expenditures
of less than $50,000 and expenditures otherwise necessary to maintain existing assets in good repair or to make payment of necessary
Taxes;
(t) establish or commit to the establishment of any new branch or other office facilities or file any application to relocate
or terminate the operation of any banking office;
(u) take any action that is intended or expected to result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger
set forth in Article 8 not being satisfied or in a violation of any provision of this Agreement;
(v) knowingly take any action that would prevent or impede the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code;
(w) agree to take, make any commitment to take, or adopt any resolutions of its Board of Directors in support of, any of the
actions prohibited by this Section 6.2;
(x) maintain Carolina Trust Bank’s allowance for loan losses in a manner inconsistent with GAAP and applicable regulatory
guidelines and accounting principles, practices and methods consistent with past practices of Carolina Trust Bank; or
(y) take any action or fail to take any action that at the time of such action or inaction is reasonably likely to prevent,
or would be reasonably likely to materially interfere with, the consummation of the Merger.
|
|
6.3
|
Adverse
Changes in Condition.
|
Each
Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence
of any event or circumstance relating to it or any of its Subsidiaries which (i) has had or is reasonably likely to have, individually
or in the aggregate, a Carolina Trust Material Adverse Effect or a Carolina Financial Material Adverse Effect, as applicable,
(ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, or
(iii) would be reasonably likely to prevent or materially interfere with the consummation of the Merger, and to use its reasonable
efforts to prevent or promptly to remedy the same.
Each
of Carolina Financial and its Subsidiaries and Carolina Trust and the Carolina Trust Entities shall file all reports required
to be filed by it with Regulatory Authorities between the date of this Agreement and the Effective Time and shall make available
to the other Party copies of all such reports promptly after the same are filed. Carolina Trust and the Carolina Trust Entities
shall also make available to Carolina Financial monthly financial statements, copies of all written materials provided to members
of Carolina Trust’s board of Directors in connection with its regular monthly meetings (other than reports or presentations
prepared by the Carolina Trust Financial Advisor or legal counsel in connection with the Merger or materials containing confidential
supervisory information) and quarterly call reports following distribution to Carolina Trust’s Board of Directors or filing,
as applicable. The financial statements of Carolina Financial and Carolina Trust, whether or not contained in any such reports
filed under the Exchange Act or with any other Regulatory Authority, will fairly present the consolidated financial position of
the entity filing such statements as of the dates indicated and the consolidated results of operations, changes in shareholders’
or stockholders’ equity, as applicable, and cash flows for the periods then ended in accordance with GAAP (subject in the
case of interim financial statements to normal recurring year-end adjustments that are not material). As of their respective dates,
such reports of Carolina Financial and Carolina Trust filed under the Exchange Act or with any other Regulatory Authority will
comply in all material respects with the Securities Laws and will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained in any other reports to another Regulatory Authority
shall be prepared in accordance with the Laws applicable to such reports.
|
|
6.5
|
Carolina
Financial Use and Disclosure of IIPI.
|
Carolina
Financial acknowledges that IIPI disclosed to Carolina Financial Entities in connection with the Agreement has been and will be
disclosed pursuant to 15 U.S.C. 6802(e)(7). Carolina Financial Entities may not use or disclose IIPI, nor permit the use or disclosure
of IIPI, other than for the purposes described in 15 U.S.C. § 6802(e)(7).
Article
7
ADDITIONAL
AGREEMENTS
|
|
7.1
|
Shareholder
Approval.
|
(a) Unless this Agreement has been terminated in accordance with its terms, Carolina Trust shall submit to its shareholders
this Agreement and any other matters required to be approved by shareholders in order to carry out the intentions of this Agreement.
In furtherance of that obligation, Carolina Trust shall take, in accordance with applicable Law and its Articles of Incorporation
and Bylaws, all action necessary to call, give notice of, convene, and hold Carolina Trust’s Shareholders’ Meeting
as soon as reasonably practicable. Carolina Trust’s Board shall recommend that its shareholders approve this Agreement in
accordance with the NCBCA (the “Carolina Trust Recommendation”) and shall include such recommendation in the
Proxy Statement/Prospectus, except to the extent Carolina Trust’s Board has made an Adverse Recommendation Change (as defined
below) in accordance with the terms of this Agreement. Subject to Section 7.1(b) and 7.3, Carolina Trust shall solicit and use
its commercially reasonable efforts to obtain the Requisite Carolina Trust Shareholder Vote.
(b) Neither Carolina Trust’s Board nor any committee thereof shall, except as expressly permitted by this Section 7.1(b),
(i) withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Carolina Financial,
the Carolina Trust Recommendation or (ii) approve or recommend, or propose publicly to approve or recommend, any Acquisition Proposal
(each, an “Adverse Recommendation Change”). Notwithstanding the foregoing, prior to the Requisite Carolina
Trust Shareholder Vote, Carolina Trust’s Board may make an Adverse Recommendation Change if and only if (A) a material development
or material change in circumstance occurs, arises or becomes known to Carolina Trust’s Board after the date of this Agreement
unrelated to any potential or actual Acquisition Proposal (such material development or change in circumstances being referred
to as an “Intervening Event”) and Carolina Trust’s Board determines in good faith, after consultation
with Carolina Trust’s outside counsel, that in light of such Intervening Event an Adverse Recommendation Change is required
in order for Carolina Trust’s Board to comply with its fiduciary obligations to Carolina Trust’s shareholders under
applicable Law, or (B):
(i)
Carolina Trust’s Board determines in good faith, after consultation with the Carolina Trust Financial Advisor and
outside counsel, that it has received an Acquisition Proposal (that did not result from a breach of Section 7.3) that is a Superior
Proposal;
(ii)
Carolina Trust’s Board determines in good faith, after consultation with Carolina Trust’s outside counsel,
that a failure to accept such Superior Proposal would result in Carolina Trust’s Board breaching its fiduciary duties to
Carolina Trust and its shareholders under applicable Law;
(iii)
Carolina Trust’s Board provides written notice (a “Notice of Recommendation Change”) to Carolina
Financial of its receipt of the Superior Proposal and its intent to announce an Adverse Recommendation Change on the fifth business
day following delivery of such notice, which notice shall specify the material terms and conditions of the Superior Proposal (and
include a copy thereof with all accompanying documentation, if in writing) and identify the Person or Group making such Superior
Proposal (it being understood that any amendment to any material term of such Superior Proposal shall require a new Notice of
Recommendation Change, except that, in such case, the five business day period referred to in this clause (iii) and in clauses
(iv) and (v) shall be reduced to three business days following the giving of such new Notice of Recommendation Change);
(iv)
after providing such Notice of Recommendation Change, Carolina Trust shall negotiate in good faith with Carolina Financial
(if requested by Carolina Financial) and provide Carolina Financial reasonable opportunity during the subsequent five business
day period to make such adjustments in the terms and conditions of this Agreement as would enable Carolina Trust’s Board
to proceed without an Adverse Recommendation Change (provided, however, that Carolina Financial shall not be required to
propose any such adjustments); and
(v)
Carolina Trust’s Board, following such five business day period, again determines in good faith, after consultation with
the Carolina Trust Financial Advisor and outside counsel, that such Acquisition Proposal nonetheless continues to constitute a
Superior Proposal and that failure to take such action would violate their fiduciary duties to Carolina Trust and its shareholders
under applicable Law.
(c)
Notwithstanding any other provision of this Agreement, except to the extent prohibited by the NCBCA as determined
by Carolina Trust after consultation with Carolina Trust’s outside counsel, Carolina Trust shall submit this Agreement to
its shareholders at Carolina Trust’s
Shareholders’ Meeting even if Carolina Trust’s Board has made an Adverse
Recommendation Change, in which case Carolina Trust’s Board may communicate the Adverse Recommendation Change and the basis
for it to the shareholders of Carolina Trust in the Proxy Statement/Prospectus or any appropriate amendment or supplement thereto;
provided, however, that Carolina Trust may postpone or adjourn Carolina Trust’s Shareholders’ Meeting: (i)
with the consent of Carolina Financial; (ii) for the absence of a quorum; (iii) to the extent necessary to ensure that any required
supplement or amendment to the Proxy Statement/Prospectus is provided to the shareholders of Carolina Trust within a reasonable
period of time in advance of Carolina Trust’s Shareholders’ Meeting; (iv) to allow reasonable additional time to solicit
additional proxies; (v) if required by applicable Law; or (vi) if Carolina Trust has provided a Notice of Recommendation Change
to Carolina Financial pursuant to Section 7.1(b)(iii) and the notice period contemplated by Section 7.1(b)(iii) has not yet expired.
|
|
7.2
|
Securities
Act Compliance.
|
(a) As promptly as reasonably practicable following the date hereof, Carolina Financial shall prepare and file with the SEC
the Registration Statement, which shall include the Proxy Statement/Prospectus and constitute the prospectus relating to the shares
of Carolina Financial Common Stock to be issued in the Merger. Carolina Trust will furnish to Carolina Financial the information
required to be included in the Registration Statement with respect to its business and affairs and shall have the right to review
and consult with Carolina Financial on the form of, and any characterizations of such information included in, the Registration
Statement prior to its being filed with the SEC. Carolina Financial shall use reasonable best efforts to have the Registration
Statement declared effective by the SEC and to keep the Registration Statement effective as long as is necessary to consummate
the Merger and the transactions contemplated hereby. Carolina Financial and Carolina Trust will use their reasonable best efforts
to cause the Proxy Statement/Prospectus to be mailed to the Carolina Trust shareholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Carolina Financial will advise Carolina Trust, promptly after it receives
notice thereof, of the time when the Registration Statement has become effective, the issuance of any stop order, the suspension
of the qualification of the Carolina Financial Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Registration Statement. If at any
time prior to the Effective Time any information relating to Carolina Financial or Carolina Trust, or any of their respective
affiliates, officers or directors, should be discovered by Carolina Financial or Carolina Trust which should be set forth in an
amendment or supplement to any of the Registration Statement or the Proxy Statement/Prospectus so that any of such documents would
not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly
notify the other party hereto and, to the extent required by law, rules or regulations, an appropriate amendment or supplement
describing such information shall be promptly filed by Carolina Financial with the SEC and disseminated by Carolina Trust to its
shareholders.
(b) Carolina Financial shall also take any action required to be taken under any applicable state securities laws in connection
with the Merger and each of Carolina Financial and Carolina Trust shall furnish all information concerning it and the holders
of Carolina Trust Common Stock as may be reasonably requested in connection with any such action.
(c) Prior to the Effective Time, Carolina Financial shall notify the NASDAQ Stock Market of the additional shares of Carolina
Financial Common Stock to be issued by Carolina Financial in exchange for the shares of Carolina Trust Common Stock.
(a) From the date of this Agreement through the first to occur of the Effective Time or termination of this Agreement, each
Carolina Trust Entity shall not, and shall cause its Affiliates and Representatives not to, directly or indirectly (i) solicit
or initiate, or knowingly encourage, induce or knowingly facilitate the making, submission, or announcement of any proposal that
constitutes an Acquisition Proposal, (ii) participate in any discussions (except to notify a third party of the existence of restrictions
provided in this Section 7.3 or to clarify the terms and conditions of an unsolicited Acquisition Proposal) or negotiations regarding,
or disclose or provide any nonpublic information with respect to, or knowingly take any other action to facilitate any inquiries
or the making of any proposal that constitutes an Acquisition Proposal, (iii) enter into any agreement (including any agreement
in principle, letter of intent or understanding, merger agreement, stock purchase agreement, asset purchase agreement, or share
exchange agreement, but excluding a confidentiality agreement of the type described below) (an “Acquisition Agreement”)
contemplating or otherwise relating to any Acquisition Transaction, or (iv) propose or agree to do any of the foregoing; provided,
however, that prior to the Requisite Carolina Trust Shareholder Vote, this Section 7.3 shall not prohibit a Carolina Trust
Entity from furnishing nonpublic information regarding any Carolina Trust Entity to, or entering into a confidentiality agreement
or discussions or negotiations with, any Person or Group in response to a bona fide, unsolicited written Acquisition
Proposal submitted by such Person or Group (and not withdrawn) if and only if: (A) no Carolina Trust Entity or Representative
or Affiliate thereof shall have violated any of the restrictions set forth in this Section 7.3 (other than any breach of such
obligation that is unintentional and immaterial and did not result in the submission of such Acquisition Proposal), (B) Carolina
Trust’s Board shall have determined in good faith, after consultation with the Carolina Trust Financial Advisor and Carolina
Trust’s outside counsel, that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior
Proposal, (C) Carolina Trust’s Board concludes in good faith, after consultation with its outside counsel, that the failure
to take such action would be inconsistent with its fiduciary duties under applicable Law to Carolina Trust and its shareholders,
(D) (1) at least two business days prior to furnishing any such nonpublic information to, or entering into discussions or negotiations
with, such Person or Group, Carolina Trust gives Carolina Financial written notice (which may be by electronic mail) of the identity
of such Person or Group and of Carolina Trust’s intention to furnish nonpublic information to, or enter into discussions
or negotiations with, such Person or Group, and (2) Carolina Trust receives from such Person or Group an executed confidentiality
agreement containing terms no less favorable to the disclosing Party than the confidentiality terms of this Agreement, and (E)
contemporaneously with furnishing any such nonpublic information to such Person or Group, Carolina Trust furnishes such nonpublic
information to Carolina Financial (to the extent such nonpublic information has not been previously furnished by Carolina Trust
to Carolina Financial). In addition to the foregoing, Carolina Trust shall provide Carolina Financial with at least two business
days’ prior written notice of a meeting of Carolina Trust’s Board at which meeting Carolina Trust’s Board is
reasonably expected to resolve to recommend the Acquisition Agreement as a Superior Proposal to its shareholders, and Carolina
Trust shall keep Carolina Financial reasonably informed on a prompt basis, of the status and material terms of such Acquisition
Proposal, including any material amendments or proposed amendments as to price and other material terms thereof.
(b) In addition to the obligations of Carolina Trust set forth in this Section 7.3, as promptly as practicable, after any of
the directors or executive officers of Carolina Trust become aware thereof, Carolina Trust shall advise Carolina Financial of
any request received by Carolina Trust for nonpublic information which Carolina Trust reasonably believes could lead to an Acquisition
Proposal or of any Acquisition Proposal, the material terms and conditions of such request
or Acquisition Proposal, and the identity
of the Person or Group making any such request or Acquisition Proposal. Carolina Trust shall keep Carolina Financial informed
promptly of material amendments or modifications to any such request or Acquisition Proposal.
(c) Carolina Trust shall, and shall cause its and each Carolina Trust Entity’s directors, officers, employees, and Representatives
to immediately cease any and all existing activities, discussions, or negotiations with any Persons conducted heretofore with
respect to any Acquisition Proposal and will use and cause to be used all commercially reasonable best efforts to enforce any
confidentiality or similar or related agreement relating to any Acquisition Proposal.
(d) Nothing contained in this Agreement shall prevent a Party or its Board of Directors from (i) complying with Rule 14e-2
under the Exchange Act with respect to an Acquisition Proposal, provided, however, that such Rule will in no way
eliminate or modify the effect that any action pursuant to such Rule would otherwise have under this Agreement; (ii) making any
disclosure to Carolina Trust’s shareholders if Carolina Trust’s Board determines in good faith, after consultation
with its outside legal counsel, that the failure to make such disclosure would be reasonably likely to be inconsistent with applicable
Law, (iii) informing any Person of the existence of the provisions contained in this Section 7.3 or (iv) making any “stop,
look and listen” communication to Carolina Trust’s shareholders pursuant to Rule 14d-9(f) under the Exchange Act (or
any similar communication to Carolina Trust’s shareholders).
|
|
7.4
|
Consents
of Regulatory Authorities.
|
The
Parties hereto shall cooperate with each other and use their commercially reasonable efforts to promptly prepare and file all
necessary documentation and applications, to effect all applications, notices, petitions and filings, and to obtain as promptly
as practicable all Consents of all Regulatory Authorities and other Persons which are necessary or advisable to consummate the
transactions contemplated by this Agreement (including the Merger). The Parties agree that they will consult with each other with
respect to the obtaining of all Consents of all Regulatory Authorities and other Persons necessary or advisable to consummate
the transactions contemplated by this Agreement and each Party will keep the other apprised of the status of matters relating
to consummation of the transactions contemplated herein. Each Party also shall promptly advise the other upon receiving any communication
from any Regulatory Authority or other Person whose Consent is required for consummation of the transactions contemplated by this
Agreement which causes such Party to believe that there is a reasonable likelihood that any requisite Consent will not be obtained
or that the receipt of any such Consent will be materially delayed.
|
|
7.5
|
Agreement
as to Efforts to Consummate.
|
Subject
to the terms and conditions of this Agreement, each Party agrees to use, and to cause its Subsidiaries to use, its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable after the date of this Agreement,
the transactions contemplated by this Agreement, including using its commercially reasonable efforts to lift or rescind any Order
adversely affecting its ability to consummate the transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 8; provided, however, that nothing herein shall preclude either Party from exercising its
rights under this Agreement.
|
|
7.6
|
Investigation
and Confidentiality.
|
(a) Prior to the Effective Time, each Party shall keep the other Party advised of all material developments relevant to its
business and the consummation of the Merger and shall permit the other Party to make or cause to be made such investigation of
its business and properties (including that of its Subsidiaries) and of their respective financial and legal conditions as the
other Party reasonably requests, provided, that such investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily or materially with normal operations and that no such investigation shall include
sampling of the indoor or outdoor air, soil or soil vapor, surface water, or groundwater without Carolina Trust’s written
consent. Between the date hereof and the Effective Time, Carolina Trust shall permit Carolina Financial’s senior officers
and independent accountants to meet with the senior officers of Carolina Trust, including officers responsible for the Carolina
Trust Financial Statements, the internal controls of Carolina Trust, and the disclosure controls and procedures of Carolina Trust
and Carolina Trust’s independent public accountants, to discuss such matters as Carolina Financial may deem reasonably necessary
or appropriate for Carolina Financial to satisfy its obligations under Sections 302, 404 and 906 of the Sarbanes-Oxley Act.
(b) In addition to each Party’s obligations pursuant to Section 7.6(a), each Party shall, and shall cause its advisors
and agents to, maintain the confidentiality of all confidential information furnished to it by the other Party concerning its
and its Subsidiaries’ businesses, operations, and financial positions and shall not use such information for any purpose
except in furtherance of the transactions contemplated by this Agreement. If this Agreement is terminated prior to the Effective
Time, each Party shall promptly return or certify the destruction of all documents and copies thereof, and all work papers containing
confidential information received from the other Party.
(c) Carolina Trust shall use its commercially reasonable efforts to exercise, and shall not waive any of, its rights under
confidentiality agreements entered into with Persons which were considering an Acquisition Proposal with respect to Carolina Trust
to preserve the confidentiality of the information relating to the Carolina Trust Entities provided to such Persons and their
Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably
likely to represent, either a material breach of any representation, warranty, covenant, or agreement of the other Party or which
has had or is reasonably likely to have a Carolina Trust Material Adverse Effect or a Carolina Financial Material Adverse Effect,
as applicable.
(e) Each Carolina Financial Entity shall, in accordance with Carolina Financial’s comprehensive written data security
program established and maintained pursuant to 15 U.S.C. § 6801 and regulations promulgated thereunder (“Carolina
Financial Security Program”), safeguard IIPI disclosed to that Carolina Financial Entity pursuant to this Agreement
or in connection with the transactions contemplated hereby. In the event that any Carolina Financial Entity allows a third party
to access such IIPI, Carolina Financial shall ensure that the third party safeguards that IIPI in accordance with a data security
program substantially equivalent to the Carolina Financial Security Program.
(f) Carolina Financial shall notify Carolina Trust promptly (but in no event more than 24 hours) of any Data Incident. All
Carolina Financial Entities shall promptly take all actions that are necessary and advisable to correct, mitigate, and prevent
recurrence of the Data Incident.
All Carolina Financial Entities shall cooperate fully with Carolina Trust and its designees in
all reasonable efforts to investigate the Data Incident.
(g) If this Agreement is terminated prior to the Effective Time, each Carolina Financial Entity shall promptly return or dispose
of, and certify the return or disposal, of all IIPI received by the Carolina Financial Entity in connection with this Agreement.
Any disposal of such IIPI must be performed in a manner that ensures that the IIPI is rendered permanently unreadable and unrecoverable.
Prior
to the Effective Time, Carolina Trust and Carolina Financial shall consult with each other as to the form and substance of any
press release, communication with Carolina Trust’s shareholders, or other public disclosure materially related to this Agreement,
or any other transaction contemplated hereby; provided, however, that nothing in this Section 7.7 shall be deemed
to prohibit any Party from making any disclosure which its counsel deems necessary or advisable in order to satisfy such Party’s
disclosure obligations imposed by Law.
Each
Carolina Trust Entity shall take all necessary action to ensure that the entering into of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws, or other governing instruments of any Carolina Trust Entity or restrict or impair
the ability of Carolina Financial or any of its Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of any Carolina Trust Entity that may be directly or indirectly acquired or controlled by them.
|
|
7.9
|
Employee
Benefits and Contracts.
|
(a) Except as specifically provided in this Agreement, all persons who are employees of the Carolina Trust Entities immediately
prior to the Effective Time and whose employment is not terminated, if any, at or prior to the Effective Time (a “Continuing
Employee”) shall, at the Effective Time, become at-will employees of the Surviving Bank or one of its subsidiaries;
provided, however, that in no event shall any of the employees of the Carolina Trust Entities be officers of the Surviving
Corporation or the Surviving Bank, or have or exercise any power or duty conferred upon such an officer, unless and until duly
elected or appointed to such position by the Board of Directors of the Surviving Corporation or the Surviving Bank and in accordance
with the Bylaws of the Surviving Corporation or the Surviving Bank. All of the Continuing Employees shall be employed at the will
of the Surviving Bank, and no contractual right to employment shall inure to such employees because of this Agreement except as
may be otherwise expressly set forth in this Agreement.
(b) As of the Effective Time, each Continuing Employee shall be eligible to participate in each of Carolina Financial’s
Employee Benefit Plans with full credit for prior service with Carolina Trust and any other Carolina Trust Entity solely for purposes
of eligibility and vesting, except that such service shall also be credited for purposes of calculating benefits under Carolina
Financial’s standard severance policy. For the avoidance of doubt, each Continuing Employee who is terminated involuntarily
other than for cause (as determined by Carolina Financial) will be eligible to receive severance benefits under Carolina Financial’s
standard severance policy for its employees, an accurate and complete description of which has been provided to Carolina Trust,
in
addition to outplacement assistance; provided, however, that any Continuing Employees who are eligible to receive severance
benefits, change of control benefits or any payments that are enhanced on account of the Merger pursuant to an individual employment
arrangement, change of control arrangement or deferred compensation plan other than any Cash Retention Bonus Agreement or Cash
and Stock Retention Bonus Agreement in the form of Exhibit E or Exhibit F, respectively, shall not be eligible to
receive severance benefits under Carolina Financial’s standard severance policy.
(c) As of the Effective Time, Carolina Financial shall make available employer-provided benefits under Carolina Financial Employee
Benefit Plans to each Continuing Employee on the same basis as it provides such coverage to Carolina Financial or CresCom Bank
employees. With respect to Carolina Financial Employee Benefit Plans providing health coverage, Carolina Financial shall use commercially
reasonable efforts to cause any pre-existing condition, eligibility waiting period, or other limitations or exclusions otherwise
applicable under such plans to new employees not to apply to a Continuing Employee or their covered dependents who were covered
under a similar Carolina Trust plan at the Effective Time of the Merger. In addition, if any such transition occurs during the
middle of a plan year, Carolina Financial shall use commercially reasonable efforts to cause any such successor Carolina Financial
Employee Benefit Plan providing health coverage to give credit towards satisfaction of any annual deductible limitation and out-of-pocket
maximum applied under such successor plan for any deductible, co-payment and other cost-sharing amounts previously paid by a Continuing
Employee respecting his or her participation in the corresponding Carolina Trust Employee Benefit Plan during that plan year prior
to the transition effective date.
(d) Except as disclosed in Section 7.9 of the Carolina Trust Disclosure Memorandum, Carolina Trust shall use commercially reasonable
efforts to cause each director of Carolina Trust or Carolina Trust Bank who will not be an employee or director of Carolina Financial
or CresCom Bank immediately following the Effective Time, to execute and deliver a Non-Employee Director Non-Competition Agreement
dated as of the date hereof in the form attached hereto as Exhibit B.
(e) Carolina Trust shall cause each director of Carolina Trust or Carolina Trust Bank and each Executive Officer to execute
and deliver a Shareholder Support Agreement dated as of the date hereof in the form attached hereto as Exhibit C pursuant
to which he or she will vote his or her shares of Carolina Trust Common Stock in favor of this Agreement and the transactions
contemplated hereby.
(f)
No officer, employee, or other Person (other than the corporate Parties to this Agreement) shall be deemed a third party
or other beneficiary of this Agreement, and no such Person shall have any right or other entitlement to enforce any provision
of this Agreement or seek any remedy in connection with this Agreement, except as may be expressly set forth in Section 7.11.
No provision of this Agreement constitutes or shall be deemed to constitute, an employee benefit plan or other arrangement, an
amendment of any employee benefit plan or other arrangement, or any provision of any employee benefit plan or other arrangement.
(g) Carolina Trust shall use its reasonable best efforts to cause the employees designated by Carolina Financial to execute
a CresCom Merger / Cash Retention Bonus Agreement in the form attached hereto as Exhibit E or a CresCom Merger / Cash and
Stock Retention Bonus Agreement in the form attached hereto as Exhibit F.
(h) Concurrently with or as soon as practicable after the execution and delivery of this Agreement, Jerry L. Ocheltree shall
enter into an employment agreement in the form attached hereto as Exhibit G, which shall become effective only upon the
effective time of the Merger.
(i) Upon not less than 10 days’ notice prior to the Closing Date from Carolina Financial to Carolina Trust, Carolina
Trust shall cause the adoption of resolutions (which are acceptable to Carolina Financial) by each applicable Carolina Trust Entity’s
Board of Directors terminating, amending or causing other appropriate modification of each Carolina Trust Benefit Plan as specified
by Carolina Financial in such notice, effective as of the date which immediately precedes the Closing Date or as of the Closing
Date (as shall be specified in such notice), provided that (a) Carolina Trust shall be required to take such action only with
respect to Carolina Trust Benefit Plans that may unilaterally be terminated, amended or modified, as applicable, as requested
by Carolina Financial, by a Carolina Trust Entity in accordance with the terms of the plan and applicable Law, (b) Carolina Trust
shall not be required to take such action if and to the extent it would cause a plan participant to be denied a benefit, or vesting
of a benefit, that the participant would have been entitled to under the plan if the plan had not been so terminated, amended
or modified at or prior to the Effective Time; and (c) for the avoidance of doubt, any reasonable costs or expenses that are incurred
by a Carolina Trust Entity in connection with such termination, amendment or modification (including without limitation the payment
of any benefits or compensation) shall be considered reasonable expenses incurred by a Carolina Trust Entity in connection with
the Merger. Upon such action, participants in such applicable Carolina Trust Benefit Plans that are Carolina Trust ERISA Plans
shall be 100% vested in their account balances or other applicable plan benefits.
Prior
to the Effective Time, Carolina Trust and Carolina Financial shall take all such steps as may be required to cause (in the case
of Carolina Trust) any dispositions of Carolina Trust Common Stock (including derivative securities with respect to Carolina Trust
Common Stock) by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect
to Carolina Trust (“Carolina Trust Insiders”) or (in the case of Carolina Financial) any acquisitions of Carolina
Financial Common Stock (including derivative securities with respect to Carolina Financial Common Stock) by any Carolina Trust
Insiders who, immediately following the Merger, will be subject to the reporting requirements of Section 16(a) of the Exchange
Act with respect to Carolina Financial, in each case resulting from the transactions contemplated by this Agreement, to be exempt
from liability pursuant to Rule 16b-3 promulgated under the Exchange Act to the fullest extent permitted by applicable law. Carolina
Trust agrees to promptly furnish Carolina Financial with all requisite information necessary for Carolina Financial to take the
actions contemplated by this Section 7.10.
(a) Carolina Financial shall indemnify, defend, and hold harmless the present and former directors and executive officers of
the Carolina Trust Entities (each, an “Indemnified Party”) against all Liabilities arising out of actions or
omissions arising out of the Indemnified Party’s service or services as directors, officers, employees, or agents of a Carolina
Trust Entity or, at Carolina Trust’s request, of another corporation, partnership, joint venture, trust, or other enterprise
occurring at or prior to the Effective Time (including service in connection with the transactions contemplated by this Agreement)
to the fullest extent permitted under the DGCL, the NCBCA, Section 402 of the Sarbanes-Oxley Act, the Securities Laws and FDIC
Regulations Part 359, and by the Articles of Incorporation and Bylaws of Carolina Trust and any other Carolina Trust Entity as
in effect on the date hereof, including provisions relating to advances of expenses incurred in the defense of any Litigation
and whether or not any Carolina Trust Entity is insured against any such matter.
(b) Prior to the Effective Time, Carolina Financial shall purchase, or shall direct Carolina Trust to purchase, an extended
reporting period endorsement under Carolina Trust’s existing directors’ and officers’ liability insurance coverage
(“Carolina Trust Entities’ D&O Policies”) for acts or omissions occurring prior to the Effective
Time by such directors and officers currently covered by Carolina Trust Entities’ D&O Policies. The directors and officers
of Carolina Trust shall take all reasonable actions required by the insurance carrier necessary to procure such endorsement. Such
endorsement shall provide such directors and officers with coverage (including bankers’ professional liability, cyber and
employment practices coverage) following the Effective Time for six years or such lesser period of time as can be purchased for
an aggregate amount equal to 300% of the current annual premiums for the Carolina Trust Entities’ D&O Policies (the
“Premium Multiple”). If Carolina Financial is unable to obtain or maintain the insurance coverage called for
in this Section 7.11(b), then Carolina Financial shall obtain the most advantageous coverage that can be purchased for the Premium
Multiple.
(c) Any Indemnified Party wishing to claim indemnification under paragraph (a) of this Section 7.11, upon learning of any such
Liability or Litigation, shall promptly notify Carolina Financial and the Surviving Corporation thereof in writing. In the event
of any such Litigation (whether arising before or after the Effective Time), (i) Carolina Financial or the Surviving Corporation
shall have the right to assume the defense thereof and neither Carolina Financial nor the Surviving Corporation shall be liable
to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Carolina Financial or the Surviving Corporation elects not to assume
such defense or counsel for the Indemnified Parties advises that there are substantive issues which raise conflicts of interest
between Carolina Financial or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and Carolina Financial or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are received; provided, however, that Carolina Financial and
the Surviving Corporation shall be obligated pursuant to this paragraph (c) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction; (ii) the Indemnified Parties will cooperate in good faith in the defense of any such Litigation;
and (iii) neither Carolina Financial nor the Surviving Corporation shall be liable for any settlement effected without its prior
written consent and which does not provide for a complete and irrevocable release of all Carolina Financial’s Entities and
their respective directors, officers, and controlling persons, employees, agents, and Representatives; and provided, further,
that neither Carolina Financial nor the Surviving Corporation shall have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall determine, and such determination shall have become final, that the indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by applicable Law.
(d) If Carolina Financial or any successors or assigns shall consolidate with or merge into any other Person and shall not
be the continuing or surviving Person of such consolidation or merger or shall transfer all or substantially all of its assets
to any Person, then and in each case, proper provision shall be made so that the successors and assigns of Carolina Financial
or the Surviving Corporation shall assume the obligations set forth in this Section 7.11.
(e) The provisions of this Section 7.11 are intended to be for the benefit of, shall be enforceable by, and may not be modified
without the prior written consent of each Indemnified Party and their respective heirs and legal and personal representatives.
|
|
7.12
|
Tax
Covenants of Carolina Financial.
|
At
and after the Effective Time, Carolina Financial covenants and agrees that it:
(a) will not take any action that could reasonably be expected to cause the Merger to fail to qualify as a reorganization under
Section 368(a)(1)(A) of the Code;
(b) will maintain all books and records and prepare and file all federal, state and local income Tax Returns and schedules
thereto of Carolina Financial, Carolina Trust and all Affiliates thereof in a manner consistent with the Merger’s being
qualified as a reorganization and nontaxable exchange under Section 368(a)(1)(A) of the Code (and comparable provisions of any
applicable state or local Tax Laws);
(c) will, either directly or through a member of Carolina Financial’s Qualified Group, continue at least one significant
historic business line of Carolina Trust, or use at least a significant portion of the historic business assets of Carolina Trust
in a business, in each case within the meaning of Treasury Regulations Section 1.368-1(d);
(d) in connection with the Merger, will not reacquire, and will not permit any Person that is a “related person”
(as defined in Treasury Regulations Section 1.368-1(e)(4)) to Carolina Financial to acquire, any of the Carolina Financial Common
Stock issued in connection with the Merger; and
(e) will
not sell or otherwise dispose of any of Carolina Trust’s assets acquired in the Merger, and will not cause or permit CresCom
Bank to sell or otherwise dispose of any of the Bank’s assets acquired in the Bank Merger, except for dispositions made
in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code or described and permitted in Treasury
Regulations Section 1.368-2(k).
Article
8
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
|
|
8.1
|
Conditions
to Obligations of Each Party.
|
The
respective obligations of each Party to perform this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless waived by both Parties pursuant to Section 10.6:
(a) Shareholder Approvals. The shareholders of Carolina Trust shall have approved this Agreement and the consummation
of the transactions contemplated hereby, including the Merger, by the Requisite Carolina Trust Shareholder Vote, as and to the
extent required by Law and by the provisions of Carolina Trust’s Articles of Incorporation and Bylaws.
(b) Regulatory Approvals. All Consents of, filings and registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or made and shall be in full force and effect and all waiting
periods required by Law shall have expired. No Consent obtained from any Regulatory Authority which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a manner (including requirements relating to the raising
of additional capital or the disposition of Assets) which in the reasonable judgment of the Board of Directors of Carolina Financial
would so materially adversely
affect the economic or business benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, Carolina Financial would not, in its reasonable judgment, have entered into this
Agreement.
(c) Consents and Approvals. Each Party shall have obtained any and all Consents required for consummation of the Merger
(other than those referred to in Section 8.1(b)) or for the preventing of any Default under any Contract or Permit of such Party
which, if not obtained or made, would be reasonably likely to have, individually or in the aggregate, a Carolina Trust Material
Adverse Effect or a Carolina Financial Material Adverse Effect, as applicable. Carolina Trust shall have obtained the Consents
listed in Section 8.1(c) of the Carolina Trust Disclosure Memorandum, including Consents from the lessors of each office leased
by Carolina Trust, if any. No Consent so obtained which is necessary to consummate the transactions contemplated hereby shall
be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of Carolina Financial would
so materially adversely affect the economic or business benefits of the transactions contemplated by this Agreement that, had
such condition or requirement been known, Carolina Financial would not, in its reasonable judgment, have entered into this Agreement.
(d) Registration Statement. The Registration Statement shall have been declared effective by the SEC, and no proceedings
shall be pending or threatened by the SEC to suspend the effectiveness of the Registration Statement.
(e) Legal Proceedings. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced, or entered any Law or Order (whether temporary, preliminary or permanent) or taken any other action which prohibits,
restricts, or makes illegal consummation of the transactions contemplated by this Agreement.
(f) Exchange Listing. Carolina Financial shall have filed with the NASDAQ Stock Market a notification form for the listing
of all shares of Carolina Financial Common Stock to be delivered as Merger Consideration, and the NASDAQ Stock Market shall not
have objected to the listing of such shares of Carolina Financial Common Stock.
(g) Tax Opinion. Carolina Financial and Carolina Trust shall have received the opinion of Carolina Financial’s
legal counsel, dated as of the Closing, in form and substance customary in transactions of the type contemplated hereby, substantially
to the effect that on the basis of the facts, representations, and assumptions set forth in such opinion, which are consistent
with the state of facts existing at the Effective Time, (i) the Merger will be treated for federal income Tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and (ii) Carolina Financial and Carolina Trust will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. Such opinion may be based on, in addition to the review of such
matters of fact and Law as the opinion given considers appropriate, representations contained in certificates of officers of Carolina
Financial and Carolina Trust.
|
|
8.2
|
Conditions
to Obligations of Carolina Financial.
|
The
obligations of Carolina Financial to perform this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless waived by Carolina Financial pursuant to Section 10.6(a):
(a) Representations and Warranties. For purposes of this Section 8.2(a), the accuracy of the representations and warranties
of Carolina Trust set forth in this Agreement shall be assessed
as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided,
that representations and warranties which are confined to a specified date shall speak only as of such date). The representations
and warranties set forth in Sections 4.1, 4.2(a), 4.2(b)(i), 4.3, and 4.24 shall be true and correct (except for inaccuracies
which are de minimis in amount or effect). There shall not exist inaccuracies in the representations and warranties of
Carolina Trust set forth in this Agreement (including the representations and warranties set forth in Sections 4.1, 4.2(a), 4.2(b)(i),
4.3, and 4.24) such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Carolina Trust Material
Adverse Effect; provided, that for purposes of this sentence only, those representations and warranties which are qualified
by references to “material” or “Material Adverse Effect” or to the “Knowledge” of any Person
shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Carolina Trust to be performed
and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have
been duly performed and complied with in all material respects.
(c) Officers’ Certificate. Carolina Trust shall have delivered to Carolina Financial (i) a certificate, dated
as of the Closing Date and signed on its behalf by its chief executive officer and its chief financial officer, to the effect
that the conditions set forth in Section 8.1 as they relate to Carolina Trust and in Sections 8.2(a), 8.2(b), and 8.2(f) have
been satisfied.
(d) Secretary’s Certificate. Carolina Trust and Carolina Trust Bank shall have delivered a certificate of the
secretary of Carolina Trust and Carolina Trust Bank, dated as of the Closing Date, certifying as to (i) the incumbency of officers
of Carolina Trust and Carolina Trust Bank executing documents executed and delivered in connection herewith, (ii) a copy of the
Articles of Incorporation of Carolina Trust as in effect from the date of this Agreement until the Closing Date, along with a
certificate (dated not more than 10 days prior to the Closing Date) of the North Carolina Secretary of State as to the existence
of Carolina Trust; (iii) a copy of the Bylaws of the Carolina Trust as in effect from the date of this Agreement until the Closing
Date, (iv) a copy of the consent or resolutions of Carolina Trust’s Board of Directors authorizing and approving the applicable
matters contemplated hereunder, (v) a certificate of the Federal Reserve (dated not more than 10 days prior to the Closing Date)
certifying that the Carolina Trust is a registered bank holding company, (vi) a copy of the Articles of Incorporation of Carolina
Trust Bank as in effect from the date of this Agreement until the Closing Date, (vii) a copy of the Bylaws of Carolina Trust Bank
as in effect from the date of this Agreement until the Closing Date, (viii) a certificate of the North Carolina Commissioner of
Banks (dated not more than 10 days prior to the Closing Date) as to the good standing of Carolina Trust Bank, and (ix) a certificate
of the FDIC (dated not more than 10 days prior to the Closing Date) certifying that Carolina Trust Bank is an insured depository
institution.
(e) Claims Letters. Each of the directors of Carolina Trust and Carolina Trust Bank and the Executive Officers shall
have executed claims letters in the form attached hereto as Exhibit D and delivered the same to Carolina Financial.
(f) Non-Employee Director Non-Competition Agreements. Each of the Non-Employee Director Non-Competition Agreements executed
and delivered pursuant to Section 7.9(d) of this Agreement shall remain in full force and effect and no director party thereto
shall have advised Carolina Financial that he or she intends to breach any such agreement.
(g) Employment Agreement. The Employment Agreement executed and delivered pursuant to Section 7.9(h) of this Agreement
shall remain in full force and effect and the executive party thereto shall not have advised Carolina Financial that he intends
to breach such agreement.
(h) No Material Adverse Effect. There shall not have occurred any Carolina Trust Material Adverse Effect from the March
31, 2019 balance sheet to the Effective Time with respect to Carolina Trust or Carolina Trust Bank.
(i) Bank Merger. The Parties shall stand ready to consummate the Bank Merger immediately after the Merger.
|
|
8.3
|
Conditions
to Obligations of Carolina Trust.
|
The
obligations of Carolina Trust to perform this Agreement and consummate the Merger and the other transactions contemplated hereby
are subject to the satisfaction of the following conditions, unless waived by Carolina Trust pursuant to Section 10.6(b):
(a) Representations and Warranties. For purposes of this Section 8.3(a), the accuracy of the representations and warranties
of Carolina Financial set forth in this Agreement shall be assessed as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided
that representations and warranties which are confined to a specified date shall speak only as of such date). The representations
and warranties set forth in Sections 5.1, 5.2(a) and 5.2(b)(i), and 5.5 shall be true and correct (except for inaccuracies which
are de minimis in amount or effect). There shall not exist inaccuracies in the representations and warranties of Carolina
Financial set forth in this Agreement (including the representations and warranties set forth in Sections 5.1, 5.2(a) and 5.2(b)(i),
and 5.5) such that the aggregate effect of such inaccuracies has, or is reasonably likely to have, a Carolina Financial Material
Adverse Effect; provided that, for purposes of this sentence only, those representations and warranties which are qualified
by references to “material” or “Material Adverse Effect” or to the “Knowledge” of any Person
shall be deemed not to include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Carolina Financial to be
performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time
shall have been duly performed and complied with in all material respects.
(c) Officers’ Certificate. Carolina Financial shall have delivered to the Carolina Trust a certificate, dated
as of the Closing Date and signed on its behalf by its chief executive officer and its chief financial officer, to the effect
that the conditions set forth in Section 8.1 as they relate to Carolina Financial and in Sections 8.3(a), 8.3(b), and 8.3(f) have
been satisfied.
(d) Secretary’s Certificate. Carolina Financial and CresCom Bank shall have delivered a certificate of the secretary
of Carolina Financial and CresCom Bank, dated as of the Closing Date, certifying as to (i) the incumbency of officers of Carolina
Financial and CresCom Bank executing documents executed and delivered in connection herewith, (ii) a copy of the Certificate of
Incorporation of the Carolina Financial as in effect from the date of this Agreement until the Closing Date, along with a certificate
(dated not more than 10 days prior to the Closing Date) of the Secretary of State of the State of Delaware as to the good standing
of the Carolina Financial; (iii) a copy of the Bylaws of the Carolina Financial as in effect from the date of this Agreement until
the Closing Date, (iv) a copy of the consent or resolutions of Carolina Financial’s Board of Directors authorizing and approving
the applicable matters contemplated hereunder, (v) a certificate of the
Federal Reserve (dated not more than 10 days prior to
the Closing Date) certifying that the Carolina Financial is a registered financial holding company, (vi) a copy of the Articles
of Incorporation of CresCom Bank as in effect from the date of this Agreement until the Closing Date, (vii) a copy of the Bylaws
of CresCom Bank as in effect from the date of this Agreement until the Closing Date, (viii) a certificate of the South Carolina
Board of Financial Institutions (dated not more than 10 days prior to the Closing Date) as to the good standing of CresCom Bank,
and (ix) a certificate of the FDIC (dated not more than 10 days prior to the Closing Date) certifying that CresCom Bank is an
insured depository institution.
(e) Payment of Merger Consideration. Carolina Financial shall have executed and delivered an agreement with the Exchange
Agent obligating Carolina Financial to deliver the Merger Consideration and cash in an aggregate amount sufficient for payment
in lieu of fractional shares of Carolina Financial Common Stock to which holders of Carolina Trust Common Stock may be entitled
to the Exchange Agent within five Business Days of the Effective Time.
(f) No Material Adverse Effect. There shall not have occurred any Carolina Financial Material Adverse Effect from the
March 31, 2019 balance sheet to the Effective Time with respect to Carolina Financial.
Article
9
TERMINATION
Notwithstanding
any other provision of this Agreement, and notwithstanding the approval of this Agreement by the shareholders of Carolina Trust,
this Agreement may be terminated and the Merger abandoned at any time prior to the Effective Time:
(a) By mutual written agreement of Carolina Financial and Carolina Trust; or
(b) By Carolina Financial or Carolina Trust (provided, that the terminating Party is not then in material breach of
any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a breach by the other
Party of any representation or warranty contained in this Agreement which cannot be or has not been cured within 30 days after
the giving of written notice to the breaching Party of such breach and which breach is reasonably likely, in the opinion of the
non-breaching Party, to permit such Party to refuse to consummate the transactions contemplated by this Agreement pursuant to
the standard set forth in Section 8.2 or 8.3 as applicable; or
(c) By Carolina Financial or Carolina Trust in the event (i) any Consent of any Regulatory Authority required for consummation
of the Merger and the other transactions contemplated hereby shall have been denied by final non-appealable action of such authority
or if any action taken by such authority is not appealed within the time limit for appeal, (ii) any Law or Order permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger shall have become final and non-appealable, or (iii) the Requisite
Carolina Trust Shareholder Vote is not obtained at Carolina Trust’s Shareholders’ Meeting; or
(d) By Carolina Financial or Carolina Trust in the event that the Merger shall not have been consummated by February 28, 2020,
if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement
by the Party electing to terminate pursuant to this Section 9.1(d); or
(e) By Carolina Financial (provided, that Carolina Financial is not then in material breach of any representation, warranty,
covenant, or other agreement contained in this Agreement) in the event that (i) Carolina Trust’s Board shall have made an
Adverse Recommendation Change relating to an Acquisition Proposal; (ii) Carolina Trust’s Board shall have failed to reaffirm
the Carolina Trust Recommendation within 10 business days after Carolina Financial requests such at any time following the public
announcement of an Acquisition Proposal, provided, however, that any actions taken by Carolina Trust pursuant to
Section 7.3 of this Agreement shall not be considered a failure to reaffirm the Carolina Trust Recommendation, or (iii) Carolina
Trust shall have failed to comply in all material respects with its obligations under Section 7.1 or 7.3; or
(f) By Carolina Trust, if (i) Carolina Trust’s Shareholders’ Meeting has been held, (ii) the Requisite Carolina
Trust Shareholder Vote has not been obtained, (iii) prior to Carolina Trust’s Shareholders’ Meeting, Carolina Trust
has received a Superior Proposal which did not result from a breach of Section 7.3, and (iv) Carolina Trust’s Board has
determined to enter into a definitive agreement providing for such Superior Proposal upon termination of this Agreement in accordance
with this Section 9.1(f) and enters into such agreement concurrently with such termination; provided, that Carolina Trust
shall pay Carolina Financial the Termination Fee pursuant to Section 9.3(a) concurrently with and as a condition to the effectiveness
of such termination; or
(g)
by Carolina Trust, at any time prior to receipt of the Requisite Carolina Trust Shareholder Vote, if the Carolina Trust
Board shall have effected an Adverse Recommendation Change in response to, or as a result of, an Intervening Event.
|
|
9.2
|
Effect
of Termination.
|
In
the event of the termination and abandonment of this Agreement by either Carolina Financial or Carolina Trust pursuant to Section
9.1, this Agreement shall become void and have no effect, except that (i) the provisions of Sections 7.6, 9.2, 9.3, 10.2, and
10.3 shall survive any such termination and abandonment, and (ii) no such termination shall relieve the breaching Party from Liability
resulting from any breach by that Party of this Agreement.
(a) If Carolina Financial terminates this Agreement pursuant to Section 9.1(e) of this Agreement or Carolina Trust terminates
this Agreement pursuant to Section 9.1(f) of this Agreement, then Carolina Trust shall pay to Carolina Financial the sum of $4,712,000
(the “Termination Fee”) within three business days of the termination date, except as required by Section 9.1(f).
The Termination Fee shall be paid to Carolina Financial in same day funds. Carolina Trust hereby waives any right to set-off or
counterclaim against such amount.
(b) In the event that, (i) before the termination of this Agreement, an Acquisition Proposal with respect to Carolina Trust
shall have been communicated to or otherwise made known to the shareholders, senior management or Board of Directors of Carolina
Trust, or any Person shall have publicly announced an intention (whether or not conditional) to make an Acquisition Proposal with
respect to Carolina Trust, in either case after the date of this Agreement, (ii) thereafter this Agreement is terminated (A) by
Carolina Trust or Carolina Financial pursuant to Section 9.1(d) (if the Requisite Carolina Trust Shareholder Vote has not theretofore
been obtained), (B) by Carolina Financial pursuant to Section 9.1(b), or (C) by Carolina Trust or Carolina Financial pursuant
to Section 9.1(c)(iii), and (iii) prior to the date that is 12 months after the date of such termination, Carolina Trust consummates,
or enters into a definitive agreement to consummate, an Acquisition Transaction in which, as applicable, the acquirer acquires
a majority of the total outstanding
voting securities of Carolina Trust or Carolina Trust Bank, the shareholders of Carolina Trust
immediately preceding the transaction hold less than a majority of the equity interests of the surviving or resulting entity or
the acquirer acquires more than 50% of the assets of Carolina Trust, then Carolina Trust shall on the earlier of the date such
Acquisition Transaction is consummated or such definitive agreement is entered into, as applicable, pay Carolina Financial a fee
equal to the Termination Fee in same day funds. Carolina Trust hereby waives any right to set-off or counterclaim against such
amount.
(c) The Parties acknowledge that the agreements contained in this Article 9 are an integral part of the transactions contemplated
by this Agreement, and that without these agreements, they would not enter into this Agreement; accordingly, if Carolina Trust
fails to pay promptly any fee payable by it pursuant to this Section 9.3, then Carolina Trust shall pay to Carolina Financial
its reasonable costs and expenses (including reasonable attorneys’ fees) in connection with collecting such Termination
Fee, together with interest on the amount of the fee at the prime annual rate of interest (as published in The Wall Street
Journal) plus 2% as the same is in effect from time to time from the date such payment was due under this Agreement until
the date of payment.
|
|
9.4
|
Non-Survival
of Representations and Covenants.
|
Except
for Article 2, Article 3, Sections 7.6(b), 7.8, 7.9, 7.11, and 7.12 and this Article 9, the respective representations, warranties,
obligations, covenants, and agreements of the Parties shall not survive the Effective Time.
Article
10
MISCELLANEOUS
(a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings:
“Acquisition
Agreement” shall have the meaning as set forth in Section 7.3 of the Agreement.
“Acquisition
Proposal” means any proposal that is communicated to Carolina Trust’s chief executive officer, chief financial
officer or Board of Directors or publicly announced to Carolina Trust’s shareholders by any Person (other than Carolina
Financial or any of its Affiliates) for an Acquisition Transaction involving Carolina Trust or any of its present or future consolidated
Subsidiaries, or any combination of such Subsidiaries, the assets of which constitute 5% or more of the consolidated assets of
Carolina Trust as reflected on Carolina Trust’s consolidated statement of condition prepared in accordance with GAAP.
“Acquisition
Transaction” means any transaction or series of related transactions (other than the transactions contemplated by this
Agreement) involving: (i) any acquisition or purchase from Carolina Trust by any Person or Group (other than Carolina Financial
or any of its Affiliates) of 25% or more in interest of the total outstanding voting securities of Carolina Trust or any of its
Subsidiaries, or any tender offer or exchange offer that if consummated would result in any Person or Group (other than Carolina
Financial or any of its Affiliates) beneficially owning 25% or more in interest of the total outstanding voting securities of
Carolina Trust or any of its Subsidiaries, or any merger, consolidation, business combination or similar transaction involving
Carolina Trust pursuant to which the shareholders of Carolina Trust immediately preceding such transaction hold less than 75%
of the equity interests in the surviving or resulting entity (which includes the parent
corporation of any constituent corporation
to any such transaction) of such transaction; (ii) any sale or lease (other than in the ordinary course of business), or
exchange, transfer, license (other than in the ordinary course of business), acquisition or disposition of 5% or more of the assets
of Carolina Trust; or (iii) any liquidation or dissolution of Carolina Trust.
“Adverse
Recommendation Change” shall have the meaning as set forth in Section 7.1(b) of the Agreement.
“Affiliate”
of a Person means: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled
by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial
owner of any 10% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described
in clause (ii) acts in any such capacity.
“Aggregate
Cash Limit” shall have the meaning as set forth in Section 3.2(d) of the Agreement.
“Aggregate
Stock Limit” shall have the meaning as set forth in Section 3.2(d) of the Agreement.
“Agreement”
shall have the meaning as set forth in the introduction of the Agreement.
“Allowance”
shall have the meaning as set forth in Section 4.9(a) of the Agreement.
“Articles
of Merger” shall have the meaning as set forth in Section 1.3 of the Agreement.
“Assets”
of a Person means all of the assets, properties, businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized
in such Person’s business, directly or indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.
“Average
Closing Price” means the average of the closing sale prices of Carolina Financial Common Stock on the NASDAQ Capital
Market (as reported by Bloomberg L.P.) for the ten full trading days ending on the day preceding the date on which the Effective
Time is to occur.
“Bank
Agreement of Merger” shall have the meaning as set forth in Section 1.6 of the Agreement, and the form attached hereto
as Exhibit A.
“Bank
Merger” shall have the meaning as set forth in Section 1.6 of the Agreement.
“BHCA”
shall have the meaning as set forth in Section 4.1 of the Agreement.
“Carolina
Financial” shall have the meaning as set forth in the introduction of the Agreement.
“Carolina
Financial Awards” shall have the meaning as set forth in Section 3.1(e) of the Agreement.
“Carolina
Financial Common Stock” means the common stock, par value $0.01 per share, of Carolina Financial.
“Carolina
Financial Entities” means, collectively, Carolina Financial and all Carolina Financial Subsidiaries.
“Carolina
Financial Exchange Act Reports” shall have the meaning as set forth in Section 5.4(a) of the Agreement.
“Carolina
Financial Financial Advisor” shall mean Sandler O’Neill & Partners, L.P.
“Carolina
Financial Financial Statements” means (i) the consolidated balance sheets of Carolina Financial as of March 31, 2019,
and the related statements of income, changes in stockholders’ equity, and cash flows (including related notes and schedules,
if any) for the period ended March 31, 2019, and for each of the three fiscal years ended December 31, 2018, included in Exchange
Act Documents filed with the SEC by Carolina Financial, and (ii) the consolidated balance sheets of Carolina Financial (including
related notes and schedules, if any) and related statements of income, changes in stockholders’ equity, and cash flows (including
related notes and schedules, if any) included in Exchange Act Documents filed with the SEC by Carolina Financial with respect
to periods ended subsequent to March 31, 2017.
“Carolina
Financial Material Adverse Effect” means an event, change or occurrence which, individually or together with any other
event, change or occurrence, has a material adverse effect on (i) the financial position, property, business, assets or results
of operations of Carolina Financial and its Subsidiaries, taken as a whole, or (ii) the ability of Carolina Financial to
perform its material obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this
Agreement, provided, that “Carolina Financial Material Adverse Effect” shall not be deemed to include the effects
of (A) changes in banking and other Laws of general applicability or interpretations thereof by Governmental Authorities,
(B) changes in GAAP or regulatory accounting principles generally applicable to banks and their holding companies, (C) actions
and omissions of Carolina Financial (or any of its Subsidiaries) taken with the prior written Consent of Carolina Trust in contemplation
of the transactions contemplated hereby, (D) changes in economic conditions affecting financial institutions generally, including
changes in interest rates, credit availability and liquidity, and price levels or trading volumes in securities markets, except
to the extent Carolina Financial is materially and adversely affected in a disproportionate manner as compared to other community
banks and their holding companies in the Southeastern United States, (E) changes resulting from the announcement or pendency of
the transactions contemplated by this Agreement, or (F) the direct effects of negotiating, entering into, and compliance with
this Agreement on the operating performance of Carolina Financial. “Carolina Financial Material Adverse Effect” shall
not be deemed to include any failure to meet analyst projections, in and of itself, or, in and of itself, or the trading price
of Carolina Financial Common Stock (it being understood that the facts or occurrences giving rise or contributing to any such
effect, change or development which affects or otherwise relates to the failure to meet analyst financial forecasts or the trading
price, as the case may be, may be deemed to constitute, or be taken into account in determining whether there has been, or would
reasonably be expected to be, a Carolina Financial Material Adverse Effect).
“Carolina
Financial Security Program” shall have the meaning as set forth in Section 7.6(e) of the Agreement.
“Carolina
Financial Subsidiaries” means the Subsidiaries of Carolina Financial, which shall include any corporation, bank, savings
association, limited liability company, limited partnership, limited liability partnership or other organization acquired as a
Subsidiary of Carolina Financial in the future and held as a Subsidiary by Carolina Financial at the Effective Time.
“Carolina
Trust” shall have the meaning as set forth in the introduction of the Agreement.
“Carolina
Trust Benefit Plan(s)” shall have the meaning as set forth in Section 4.15(a) of the Agreement.
“Carolina
Trust’s Board” means the Board of Directors of Carolina Trust.
“Carolina
Trust Book-Entry Shares” shall have the meaning set forth in Section 3.1(b) of the Agreement.
“Carolina
Trust Common Stock” means the $2.50 par value common stock of Carolina Trust.
“Carolina
Trust Contracts” shall have the meaning as set forth in Section 4.16(a) of the Agreement.
“Carolina
Trust Disclosure Memorandum” means the written information entitled “Carolina Trust Disclosure Memorandum”
delivered with this Agreement, it being understood that a disclosure in any section of the Carolina Trust Disclosure Memorandum
shall be deemed to have been set forth in all other applicable sections of the Carolina Trust Disclosure Memorandum where it is
reasonably apparent on the face of such disclosure that such disclosure is applicable to such other sections of the Carolina Trust
Disclosure Memorandum, notwithstanding the omission of any cross-reference to such other section, and it being understood further
that the inclusion of any disclosure on the Carolina Trust Disclosure Memorandum does not make such disclosure a material disclosure.
“Carolina
Trust Entities” means, collectively, Carolina Trust and all Carolina Trust Subsidiaries.
“Carolina
Trust Entities’ D&O Policies” shall have the meaning as set forth in Section 7.11(b) of the Agreement.
“Carolina
Trust Equity Plans” means the Carolina Trust Bank 2001 Incentive Stock Option Plan, the Carolina Trust Bank 2005 Incentive
Stock Option Plan, the Carolina Trust Bank 2005 Nonstatutory Stock Option Plan, the Carolina Commerce Bank Employee Stock Option
Plan, and the Carolina Commerce Bank Director Stock Option Plan.
“Carolina
Trust ERISA Plan” shall have the meaning as set forth in Section 4.15(a) of the Agreement.
“Carolina
Trust Financial Advisor” means Raymond James & Associates, Inc.
“Carolina
Trust Financial Statements” means (i) the consolidated balance sheets of Carolina Trust as of March 31, 2019, and the
related statements of income, changes in shareholders’ equity, and cash flows (including related notes and schedules, if
any) for the quarter ended March 31, 2019, and for each of the three fiscal years ended December 31, 2018, included in Exchange
Act Documents filed with the SEC by Carolina Trust, and (ii) the consolidated balance sheets of Carolina Trust (including related
notes and schedules, if any) and related statements of income, changes in shareholders’ equity, and cash flows (including
related notes and schedules, if any) included in Exchange Act Documents filed with the SEC by Carolina Trust with respect to periods
ended subsequent to March 31, 2019.
“Carolina
Trust Material Adverse Effect” means an event, change or occurrence which, individually or together with any other event,
change or occurrence, has a material adverse effect on (i) the financial position, property, business, assets or results of operations
of Carolina Trust and its Subsidiaries, taken as a whole, or (ii) the ability of Carolina Trust to perform its material obligations
under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided, that “Carolina
Trust Material Adverse Effect” shall not be deemed to include the effects of (A) changes in banking and other Laws of general
applicability or interpretations thereof by Governmental Authorities, (B) changes in GAAP or regulatory accounting principles
generally applicable to banks and their holding companies, (C) actions and omissions of Carolina Trust (or any of its Subsidiaries)
taken with the prior written consent of Carolina Financial in contemplation of the transactions contemplated hereby, (D) changes
in economic conditions affecting financial institutions generally, including changes in interest rates, credit availability and
liquidity, and price levels or trading volumes in securities markets, except to the extent Carolina Trust is materially and adversely
affected in a disproportionate manner as compared to other community banks and their holding companies in the Southeastern United
States, (E) changes resulting from the announcement or pendency of the transactions contemplated by this Agreement, or (F) the
direct effects of negotiating, entering into, and compliance with this Agreement on the operating performance of Carolina Trust.
“Carolina Trust Material Adverse Effect” shall not be deemed to include any failure to meet analyst projections, in
and of itself, or, in and of itself, or the trading price of the Carolina Trust Common Stock (it being understood that the facts
or occurrences giving rise or contributing to any such effect, change or development which affects or otherwise relates to the
failure to meet analyst financial forecasts or the trading price, as the case may be, may be deemed to constitute, or be taken
into account in determining whether there has been, or would reasonably be expected to be, a Carolina Trust Material Adverse Effect).
“Carolina
Trust Options” shall have the meaning as set forth in Section 3.4(b) of the Agreement.
“Carolina
Trust Recommendation” shall have the meaning as set forth in Section 7.1(a) of the Agreement.
“Carolina
Trust Realty” shall have the meaning as set forth in Section 4.10(e) of the Agreement.
“Carolina
Trust’s Shareholders’ Meeting” means the meeting of Carolina Trust’s shareholders to be held pursuant
to Section 7.1(a), including any postponements or adjournments thereof.
“Carolina
Trust Subsidiaries” means the Subsidiaries of Carolina Trust and Carolina Trust Bank. As of the date of this Agreement,
the only Carolina Trust Subsidiaries are Carolina Trust Bank, which is a Subsidiary of Carolina Trust, and Western Carolina Holdings,
LLC, which is a Subsidiary of Carolina Trust Bank.
“Cash
Consideration” shall have the meaning as set forth in Section 3.1(a) of the Agreement.
“Cash
Election” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Cash
Election Number” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Cash
Election Shares” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Certificate
of Merger” shall have the meaning as set forth in Section 1.3 of the Agreement.
“Certificates”
shall have the meaning as set forth in Section 3.1(b) of the Agreement.
“Closing”
shall have the meaning as set forth in Section 1.2 of the Agreement.
“Closing
Date” means the date on which the Closing occurs.
“Code”
means the Internal Revenue Code of 1986, as amended, in effect from time to time.
“Consent”
means any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to
any Contract, Law, Order, or Permit.
“Consumer
Loan” a loan or other extension of credit to one or more individuals for household, family and other consumer purposes
which has been or would be classified as a “Consumer loan” in tabular data presented by Carolina Trust in an Exchange
Act Document, which, for the avoidance of doubt, excludes a loan which is or would be classified in such Exchange Act Document
as a “Residential mortgage.”
“Continuing
Employee” shall have the meaning as set forth in Section 7.9(a) of the Agreement.
“Contract”
means any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, license,
obligation, plan, practice, restriction, understanding, or undertaking of any kind or character, or other document to which any
Person is a party or that is binding on any Person or its capital stock, Assets or business.
“Data
Incident” means any actual or reasonably suspected unauthorized access to or acquisition, disclosure, use, or loss of
IIPI disclosed to any Carolina Financial Entity in connection with this Agreement (including hard copies) or breach or compromise
of Carolina Financial’s Security Program that presents a viable threat to any such IIPI or any Carolina Trust Entity’s
systems.
“Default”
means (i) any breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or
Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a
breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right of any Person
to exercise any remedy or obtain any relief under, terminate or revoke, suspend, cancel, or modify or change the current terms
of, or renegotiate, or to accelerate the maturity or performance of, or to increase or impose any Liability under, any Contract,
Law, Order, or Permit.
“DGCL”
means the Delaware General Corporation Law.
“Director
Non-Competition Agreement” shall have the meaning as set forth in Section 7.9(e) of the Agreement.
“Disqualified
Person” shall have the meaning as set forth in Section 4.15(f) of the Agreement.
“DOL”
shall have the meaning as set forth in Section 4.15(b) of the Agreement.
“Effective
Date” shall have the meaning as set forth in Section 1.2 of the Agreement.
“Effective
Time” shall have the meaning as set forth in Section 1.3 of the Agreement.
“Election
Deadline” shall have the meaning as set forth in Section 3.2(c) of the Agreement.
“Employee
Benefit Plan” means each pension, retirement, profit-sharing, deferred compensation, stock option, equity incentive,
synthetic equity incentive, phantom stock, employee stock ownership, share purchase, severance pay, vacation, bonus, retention,
change in control or other incentive plan, medical, vision, dental or other health plan, any life insurance plan, flexible spending
account, cafeteria plan, vacation, holiday, disability or any other employee benefit plan or fringe benefit plan, including any
“employee benefit plan,” as that term is defined in Section 3(3) of ERISA and any other plan, fund, policy, program,
practice, custom understanding or arrangement providing compensation or other benefits, whether or not such Employee Benefit Plan
is or is intended to be (i) covered or qualified under the Code, ERISA or any other applicable Law, (ii) written or oral, (iii)
funded or unfunded, (iv) actual or contingent or (v) arrived at through collective bargaining or otherwise.
“Environmental
Laws” shall mean all Laws relating to pollution or protection of human health or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata) and which are administered, interpreted or enforced by the
United States Environmental Protection Agency and state and local Governmental Authorities with jurisdiction over, and including
common law in respect of, pollution or protection of the environment, including: (i) the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. §§9601 et seq. (“CERCLA”); (ii) the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. §§6901 et seq. (“RCRA”);
(iii) the Emergency Planning and Community Right to Know Act (42 U.S.C. §§11001 et seq.); (iv) the Clean Air Act (42
U.S.C. §§7401 et seq.); (v) the Clean Water Act (33 U.S.C. §§1251 et seq.); (vi) the Toxic Substances Control
Act (15 U.S.C. §§2601 et seq.); (vii) any state, county, municipal or local statues, laws or ordinances similar or analogous
to the federal statutes listed in parts (i) - (vi) of this subparagraph; (viii) any existing amendments to the statues, laws or
ordinances listed in parts (i) - (vi) of this subparagraph, (ix) any rules, regulations, guidelines, directives, orders or the
like adopted pursuant to or implementing the statutes, laws, ordinances and amendments listed in parts (i) - (vii) of this subparagraph;
and (x) any other law, statute, ordinance, amendment, rule, regulation, guideline, directive, order or the like in effect now
relating to environmental, health or safety matters and other Laws relating to emissions, discharges, releases, or threatened
releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of any Hazardous Material.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended through the date of this Agreement.
“ERISA
Affiliate” means any trade or business, whether or not incorporated, which together with a Carolina Trust Entity would
be treated as a single employer under Code Section 414 or would be deemed a single employer within the meaning of Code Section
414.
“Exchange
Act” means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder.
“Exchange
Act Documents” means all forms, proxy statements, registration statements, reports, schedules, and other documents,
as amended or supplemented, including all certifications and statements required by the Exchange Act or Section 906 of the Sarbanes-Oxley
Act with
respect to any report that is an Exchange Act Document, filed, or required to be filed, by a Party or any of its Subsidiaries
with any Regulatory Authority pursuant to the Securities Laws.
“Exchange
Agent” shall have the meaning as set forth in Section 3.2(a) of the Agreement.
“Exchange
Fund” shall have the meaning as set forth in Section 3.2(a) of the Agreement.
“Exchange
Ratio” shall have the meaning as set forth in Section 3.1(a) of the Agreement.
“Executive
Officers” means the President and Chief Executive Officer of Carolina Trust, Executive Vice President and Chief Financial
Officer of Carolina Trust and the Executive Vice President and Chief Credit Officer of Carolina Trust Bank.
“Exhibits”
means the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference
herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being
attached hereto or thereto.
“Extinguished
Shares” shall have the meaning as set forth in Section 3.1(f) of the Agreement.
“FDIC”
means the Federal Deposit Insurance Corporation.
“Federal
Reserve” means the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of Richmond, as applicable.
“GAAP”
means generally accepted accounting principles in the United States, consistently applied during the periods involved.
“Governmental
Authority” means any federal, state, local, foreign, or other court, board, body, commission, agency, authority or instrumentality,
arbitral authority, self-regulatory authority, mediator, tribunal, including Regulatory Authorities and Taxing Authorities.
“Group”
shall have the meaning as set forth in Section 13(d) of the Exchange Act.
“Hazardous
Material” means any chemical, substance, waste, material, pollutant, or contaminant defined as or deemed hazardous or
toxic or otherwise regulated under any Environmental Law, including RCRA hazardous wastes, CERCLA hazardous substances, and state
regulated substances, pesticides and other agricultural chemicals, oil and petroleum products or byproducts and any constituents
thereof, urea formaldehyde insulation, lead in paint or drinking water, mold, asbestos (and specifically shall include asbestos
requiring abatement, removal, or encapsulation pursuant to the requirements of Environmental Law), and polychlorinated biphenyls
(PCBs), provided, notwithstanding the foregoing or any other provision in this Agreement to the contrary, the words “Hazardous
Material” shall not mean or include any such Hazardous Material used, generated, manufactured, stored, disposed of or otherwise
handled in normal quantities in the ordinary course of business in compliance with all applicable Environmental Laws, or such
that may be naturally occurring in any ambient air, surface water, ground water, land surface or subsurface strata.
“Holder
Representative” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“IIPI”
shall have the meaning as set forth in Section 4.13(b)(vii) of the Agreement.
“Indemnified
Party” shall have the meaning as set forth in Section 7.11(a) of the Agreement.
“Individually
Identifiable Personal Information” or “IIPI” shall have the meaning as set forth in Section 4.13(b)(vii)
of the Agreement.
“Intellectual
Property” means copyrights, patents, trademarks, service marks, service names, trade names, domain names, together with
all goodwill associated therewith, registrations and applications therefor, technology rights and licenses, computer software
(including any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions,
and other intellectual property rights.
“Intervening
Event” shall have the meaning as set forth in Section 7.1(b) of the Agreement.
“IRS”
shall have the meaning as set forth in Section 4.15(b) of the Agreement.
“Knowledge”
as used with respect to a Person (including references to such Person being aware of a particular matter) means those facts
that are known, or should reasonably have been known after reasonable inquiry of the records and employees of such Person, by
the chief executive officer or chief financial officer of such Person without any further investigation.
“Law”
means any code, law (including common law), ordinance, regulation, reporting or licensing requirement, rule, statute, regulation
or order applicable to a Person or its Assets, Liabilities or business, including those promulgated, interpreted or enforced by
any Regulatory Authority.
“Liability”
or “Liabilities” means any direct or indirect, primary or secondary, liability, indebtedness, obligation,
penalty, cost or expense (including reasonable attorneys’ fees, costs of investigation, collection and defense), claim,
deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented
for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
“Lien”
means any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse
right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or any property interest,
other than (i) Liens for current property Taxes not yet due and payable, and (ii) for any depository institution,
pledges to secure public deposits and other Liens incurred in the ordinary course of the banking business.
“Litigation”
means any action, arbitration, cause of action, lawsuit, claim, complaint, criminal prosecution, governmental or other examination
or investigation, audit (other than regular audits of financial statements by outside auditors), compliance review, inspection,
hearing, administrative or other proceeding relating to or affecting a Party, its business, its Assets or Liabilities (including
Contracts related to Assets or Liabilities), or the transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by Regulatory Authorities.
“Loan”
means all loan agreements, notes or borrowing arrangements (including leases, credit enhancements, commitments, guarantees
and interest-bearing assets) payable to the Carolina Trust Entities.
“Material”
or “material” for purposes of this Agreement shall be determined in light of the facts and circumstances
of the matter in question; provided, that any specific monetary amount stated in this Agreement shall determine materiality
in that instance.
“Merger”
shall have the meaning as set forth in the Recitals of the Agreement.
“Merger
Consideration” shall have the meaning as set forth in Section 3.1(a) of the Agreement.
“Mixed
Election” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“NCBCA”
means the North Carolina Business Corporation Act.
“Non-Election”
shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Non-Election
Shares” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Notice
of Recommendation Change” shall have the meaning as set forth in Section 7.1(b) of the Agreement.
“Off-Balance
Sheet Arrangements” shall have the meaning as set forth in Section 4.6 of the Agreement.
“Order”
means any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, directive,
ruling, or writ of any Governmental Authority.
“Party”
means Carolina Trust or Carolina Financial, as applicable, and “Parties” means Carolina Trust and Carolina
Financial.
“Party
in Interest” shall have the meaning as set forth in Section 4.15(f) of the Agreement.
“Permit”
means any federal, state, local, and foreign Governmental Authority approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the
benefit of any Person or its securities, Assets, or business, the absence of which or a default under would constitute a Carolina
Financial Material Adverse Effect or Carolina Trust Adverse Effect, as the case may be.
“Per
Share Purchase Price” shall have the meaning as set forth in Section 3.1(a) of the Agreement.
“Person”
means a natural person or any legal, commercial or Governmental Authority, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company, limited liability partnership, trust, business association,
group acting in concert, or any person acting in a representative capacity.
“PPACA”
shall have the meaning as set forth in Section 4.15(x) of the Agreement.
“Premium
Multiple” shall have the meaning as set forth in Section 7.11(b) of the Agreement.
“Prohibited
Transaction” shall have the meaning as set forth in Section 4.15(f) of the Agreement.
“Proxy
Statement/Prospectus” shall have the meaning as set forth in Section 4.2(c) of the Agreement.
“Qualified
Group” shall have the meaning set forth in Section 5.8 of the Agreement.
“RCRA”
shall have the meaning as set forth in the definition of “Environmental Laws” set forth above.
“Registration
Statement” shall have the meaning set forth in Section 4.2(c) of the Agreement.
“Regulatory
Authorities” means, collectively, the SEC, the NASDAQ Stock Market, the Financial Industry Regulatory Authority, Inc.,
the North Carolina Commissioner of Banks, the North Carolina Banking Commission, the South Carolina Board of Financial Institutions,
the FDIC, the Department of Justice, and the Federal Reserve and all other federal, state, county, local or other Governmental
Authorities having jurisdiction over a Party or its Subsidiaries.
“Representative”
means any investment banker, financial advisor, attorney, accountant, consultant, or other representative or agent of a Person.
“Requisite
Carolina Trust Shareholder Vote” shall have the meaning as set forth in Section 4.2(a) of the Agreement.
“Rights”
shall mean all arrangements, calls, commitments, Contracts, options, rights to subscribe to, scrip, warrants, or other binding
obligations of any character whatsoever by which a Person is or may be bound to issue additional shares of its capital stock or
other securities, securities or rights convertible into or exchangeable for, shares of the capital stock or other securities of
a Person or by which a Person is or may be bound to issue additional shares of its capital stock or other Rights.
“Sarbanes-Oxley
Act” means the Sarbanes-Oxley Act of 2002, and the rules and regulations promulgated thereunder.
“SEC”
means the United States Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, and the rules and regulations promulgated thereunder.
“Securities
Laws” means the Securities Act, the Exchange Act, the Investment Company Act of 1940, the Investment Advisors Act of
1940, the Trust Indenture Act of 1939, and the rules and regulations of any Regulatory Authority promulgated thereunder.
“Shareholder
Support Agreements” shall have the meaning as set forth in Section 7.9(e) of the Agreement.
“Stock
Consideration” shall have the meaning as set forth in Section 3.1(a) of the Agreement.
“Stock
Election” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Stock
Election Number” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Stock
Election Shares” shall have the meaning as set forth in Section 3.2(b) of the Agreement.
“Subsidiaries”
means all those corporations, banks associations, or other entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each
of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there
shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (ii) in
the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing
member, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.
“Superior
Proposal” means any bona fide written Acquisition Proposal made by a third party that if consummated would result in
such Person (or its shareholders) owning, directly or indirectly, more than 50% of the shares of Carolina Trust Common Stock then
outstanding (or of the shares of the surviving entity in a merger or the direct or indirect parent of the surviving entity in
a merger) or all or substantially all of the assets of Carolina Trust which Carolina Trust’s Board (after consultation with
the Carolina Trust Financial Advisor and the Carolina Trust’s outside counsel) determines (taking into account all financial,
legal, regulatory, and other aspects of such proposal and the third party making the proposal) in good faith to be (i) more favorable
to Carolina Trust’s Shareholders from a financial point of view than the Merger (taking into account all the terms and conditions
of such proposal and this Agreement (including any changes to the financial terms of this Agreement proposed by Carolina Financial
in response to such offer or otherwise)), and (ii) reasonably capable of being completed.
“Surviving
Corporation” means Carolina Financial as the surviving corporation resulting from the Merger as set forth in Section
1.1 of the Agreement.
“Surviving
Bank” means CresCom Bank as the surviving bank resulting from the Bank Merger as set forth in Section 1.6 of the Agreement.
“Tax”
or “Taxes” means any and all taxes and charges, fees, levies, imposts, duties, or assessments in the nature
of a tax, including income, gross receipts, excise, employment, sales, use, transfer, recording license, payroll, franchise, severance,
documentary, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal
property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other taxes, fees, assessments
or charges of any kind whatsoever, that, in any case, are imposed or required to be withheld by any Governmental Authority (domestic
or foreign), including any interest, penalties, and additions imposed thereon or with respect thereto.
“Tax
Return” means any report, return, information return, or other information required to be supplied to a Governmental
Authority in connection with Taxes, including any return of an affiliated or combined or unitary group that includes a Party or
its Subsidiaries.
“Taxing
Authority” means the Internal Revenue Service and any other Governmental Authority responsible for the administration
of any Tax.
“Termination
Fee” shall have the meaning as set forth in Section 9.3(a) of the Agreement.
“Treasury
Regulations” means the final regulations promulgated under the Code by the United States Department of the Treasury.
“WARN
Act” shall have the meaning as set forth in Section 4.14(d) of the Agreement.
(b) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they shall be deemed
followed by the words “without limitation”, and such terms shall not be limited by enumeration or example. When used
in this Agreement, words such as “herein”, “hereinafter”, “hereof”, “hereto”,
and “hereunder” refer to this Agreement as a whole, unless the context clearly requires otherwise.
Each
of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial
or other consultants, investment bankers, accountants, and counsel, and which in the case of Carolina Trust, shall be paid at
or prior to Closing and prior to the Effective Time.
|
|
10.3
|
Brokers
and Finders.
|
Except
for the Carolina Trust Financial Advisor as to Carolina Trust and the Carolina Financial Financial Advisor as to Carolina Financial,
each of the Parties represents and warrants that neither it nor any of its officers, directors, employees, or Affiliates has employed
any broker or finder or incurred any Liability for any financial advisory fees, investment bankers’ fees, brokerage fees,
commissions, or finders’ fees in connection with this Agreement or the transactions contemplated hereby. In the event of
a claim by any broker or finder based upon such broker’s representing or being retained by or allegedly representing or
being retained by Carolina Trust or Carolina Financial, each of Carolina Trust or Carolina Financial, as the case may be, agrees
to indemnify and hold the other Party harmless from any Liability in respect of any such claim. Carolina Trust has provided a
copy of the Carolina Trust Financial Advisor’s engagement letter and expected fee for its services as disclosed in Section
10.3 of the Carolina Trust Disclosure Memorandum and shall pay all amounts due thereunder at Closing and prior to the Effective
Time.
Except
as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) constitutes
the entire agreement between the Parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this Agreement expressed or implied, is intended to confer
upon any Person, other than the Parties or their respective successors, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, other than as provided in Sections 7.9 and 7.11.
To
the extent permitted by Law, and subject to Section 1.4, this Agreement may be amended by a subsequent writing signed by each
of the Parties upon the approval of each of the Parties, whether before or after the Requisite Carolina Trust Shareholder Vote
and the Requisite Carolina Financial Stockholder Votes of this Agreement have been obtained; provided, that after any such
approval by the holders of Carolina Trust Common Stock, there shall be made no amendment that (a) reduces or modifies in any respect
the consideration to be received by holders of Carolina Trust Common Stock or (b) alters or changes any of the terms and conditions
of this Agreement if such alteration or change would adversely affect the holders of Carolina Trust Common Stock.
(a) Prior to or at the Effective Time, Carolina Financial, acting through its Board of Directors, chief executive officer,
or other authorized officers, shall have the right to waive any Default in the performance of any term of this Agreement by Carolina
Trust, to waive or extend the time for the compliance or fulfillment by Carolina Trust of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the obligations of Carolina Financial under this Agreement,
except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless
in writing signed by a duly authorized officer of Carolina Financial.
(b) Prior to or at the Effective Time, Carolina Trust, acting through its Board of Directors, chief executive officer, or other
authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by Carolina Financial,
to waive or extend the time for the compliance or fulfillment by Carolina Financial of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the obligations of Carolina Trust under this Agreement,
except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless
in writing signed by a duly authorized officer of Carolina Trust.
(c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect
the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition
or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further
or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this
Agreement.
Except
as expressly contemplated hereby, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned
by any Party hereto (whether by operation of Law, including by merger or consolidation, or otherwise) without the prior written
consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and
be enforceable by the Parties and their respective successors and assigns.
All
notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand,
by registered or certified mail, postage pre-paid, or by courier or overnight carrier, or email (with, in the case of email, confirmation
of date and time by the transmitting equipment) to the persons at the addresses set forth below (or at such other address as may
be provided hereunder), and shall be deemed to have been delivered as of the date so delivered or refused:
|
|
Carolina Financial:
|
Carolina Financial Corporation
|
|
|
|
288 Meeting Street
|
|
|
|
Charleston, SC 29401
|
|
|
|
Attention: Jerold L. Rexroad
|
|
|
|
|
|
|
Copy to Counsel:
|
Nelson Mullins Riley & Scarborough
LLP
|
|
|
|
Poinsett Plaza, Suite 900
|
|
|
|
104 South Main Street
|
|
|
|
Greenville, SC 29601
|
|
|
|
Attention: Neil E. Grayson
|
|
|
|
|
|
|
Carolina Trust:
|
Carolina Trust BancShares, Inc.
|
|
|
|
901 East Main Street
|
|
|
|
Lincolnton, NC 28092
|
|
|
|
Attention: Jerry L. Ocheltree
|
|
|
|
|
|
|
Copy to Counsel:
|
Wyrick Robbins Yates & Ponton LLP
|
|
|
|
4101 Lake Boone Trail, Suite 300
|
|
|
|
Raleigh, NC 27607
|
|
|
|
Attention: Todd H. Eveson
|
|
|
10.9
|
Governing
Law; Jurisdiction.
|
Regardless
of any conflict of law or choice of law principles that might otherwise apply, the Parties agree that this Agreement shall be
governed by and construed in all respects in accordance with the laws of the State of South Carolina. The Parties agree that any
suit, action or proceeding brought by either Party to enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby shall be brought in any federal or state court located in Charleston,
South Carolina. Each of the Parties submits to the jurisdiction of any such court in any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated
hereby and hereby irrevocably waives the benefit of jurisdiction derived from present or future domicile or otherwise in such
action or proceeding. Each Party irrevocably waives, to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient forum.
This
Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
|
|
10.11
|
Captions;
Articles and Sections.
|
The
captions contained in this Agreement are for reference purposes only and are not part of this Agreement. Unless otherwise indicated,
all references to particular Articles or Sections shall mean and refer to the referenced Articles and Sections of this Agreement.
(a) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any Party, whether
under any rule of construction or otherwise. No Party to this Agreement shall be considered the draftsman. The Parties acknowledge
and agree that this Agreement has been reviewed, negotiated, and accepted by all Parties and their attorneys and shall be construed
and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of
all Parties hereto.
(b) No disclosure, representation or warranty shall be required to be made (or any other action taken) pursuant to this Agreement
that would involve the disclosure of confidential supervisory information of a Governmental Authority by any Party hereto to the
extent prohibited by applicable law, and, to the extent legally permissible, appropriate substitute disclosures or actions shall
be made or taken under circumstances in which the limitations of this sentence apply.
(c) Any reference contained in this Agreement to specific statutory or regulatory provisions or to specific Governmental Authorities
includes any successor statute or regulation, or Governmental Authority, as the case may be. Unless otherwise specified, the references
to “Section” and “Article” in this Agreement are to the Sections and Articles of this Agreement.
|
|
10.13
|
Enforcement
of Agreement.
|
The
Parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed
in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
Any
term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions
of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable.
[Signature
page follows]
IN
WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its duly authorized officers
as of the day and year first above written.
|
|
|
|
|
|
|
CAROLINA FINANCIAL CORPORATION
|
|
|
|
|
|
|
|
By:
|
/s/ Jerold L.
Rexroad
|
|
|
|
Name:
|
Jerold L. Rexroad
|
|
|
|
Title:
|
President and CEO
|
|
|
|
|
|
|
|
|
CAROLINA
TRUST BANCSHARES, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Jerry L.
Ocheltree
|
|
|
|
Name:
|
Jerry L. Ocheltree
|
|
|
|
Title:
|
President & CEO
|
|
[Signature
page to Agreement and Plan of Merger and Reorganization]
Annex B
July 15, 2019
Board of Directors
Carolina Trust BancShares, Inc.
901 East Main Street
Lincolnton, NC 28092
Members of the Board of Directors:
We understand that Carolina Financial Corporation
(“Carolina Financial”) and Carolina Trust BancShares, Inc. ( “Carolina Trust”) propose to enter into the
Agreement (defined below) pursuant to which, among other things, Carolina Financial will acquire 100% of the common stock, par
value $2.50 per share, of Carolina Trust (the “Common Shares”) pursuant to the merger (the “Merger”) of
Carolina Trust with and into Carolina Financial and that, in connection with the Merger, each issued and outstanding Common Share
will be converted into the right to receive, at the election of the holder, (1) $10.57 per share in cash, (2) 0.3000 shares of
Carolina Financial common stock or (3) a combination of cash and Carolina Financial common stock, subject to 10% of the Common
Shares being exchanged for cash and the remainder exchanged for Carolina Financial common stock (the “Merger Consideration”).
The Board of Directors of Carolina Trust (the “Board”) has requested that Raymond James & Associates, Inc. (“Raymond
James”) provide an opinion (the “Opinion”) to the Board as to whether, as of the date hereof, the Merger Consideration
to be received by the holders of the Common Shares in the Merger pursuant to the Agreement is fair from a financial point of view
to such holders. For purposes of this Opinion, and with your consent, we have assumed that the Merger Consideration is $10.53 per
share, which is calculated as the product of 10% multiplied by $10.57 plus the product of 90% multiplied by 0.3000 multiplied by
$35.09, which represents the 10 day average closing price for Carolina Financial’s common stock as of July 12, 2019.
In connection with our review of the proposed
Merger and the preparation of this Opinion, we have, among other things:
|
|
1.
|
reviewed the financial terms and conditions as stated in the draft of the Agreement and Plan of Merger and Reorganization by
and between Carolina Financial Corporation and Carolina Trust BancShares, Inc., dated as of July 13, 2019 (the “Agreement”);
|
|
|
2.
|
reviewed certain information related to the historical, current and future operations, financial condition and prospects of
Carolina Trust made available to us by Carolina Trust, including, but not limited to, financial projections prepared by the management
of Carolina Trust relating to Carolina Trust for the periods ending December 31, 2019 through 2024, as approved for our
use by Carolina Trust (the “Projections”);
|
|
|
3.
|
reviewed Carolina Trust’s and Carolina Financial’s recent public filings and certain other publicly available information
regarding Carolina Trust and Carolina Financial;
|
|
|
4.
|
reviewed financial, operating and other information regarding Carolina Trust and Carolina Financial and the industry in which
it operates;
|
|
|
5.
|
reviewed the financial and operating performance of Carolina Trust and those of other selected public companies that we deemed
to be relevant;
|
|
|
6.
|
considered the publicly available financial terms of certain transactions we deemed to be relevant;
|
4000 WestChase Boulevard, Suite 500 //
Raleigh, NC 27607
T 909.755.2600 // F 919.424.0110 // rjfinancialbanking.com
Raymond James & Associates, Inc., member
New York Stock Exchange/SIPC
Board of Directors
Carolina Trust BancShares, Inc.
July 15, 2019
Page 2
|
|
7.
|
reviewed the current and historical market prices and trading volume for the Common Shares, and the current market prices of
the publicly traded securities of certain other companies that we deemed to be relevant;
|
|
|
8.
|
reviewed a certificate, dated July 15, 2019, addressed to Raymond James from a member of senior management of Carolina Trust
regarding, among other things, the accuracy of financial information and data provided to, or discussed with, Raymond James by
or on behalf of Carolina Trust;
|
|
|
9.
|
conducted such other financial studies, analyses and inquiries and considered such other information and factors as we deemed
appropriate; and
|
|
|
10.
|
discussed with members of the senior management of Carolina Trust certain information relating to the aforementioned and any
other matters which we have deemed relevant to our inquiry.
|
With your consent, we have assumed and relied upon the accuracy
and completeness of all information supplied by or on behalf of Carolina Trust or otherwise reviewed by or discussed with us, and
we have undertaken no duty or responsibility to, nor did we, independently verify any of such information. We have not made or
obtained an independent appraisal of the assets or liabilities (contingent or otherwise) of Carolina Trust. We are not experts
in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for loan losses; accordingly,
we have assumed that such allowances for losses are in the aggregate adequate to cover such losses. With respect to the Projections
and any other information and data provided to or otherwise reviewed by or discussed with us, we have, with your consent, assumed
that the Projections and such other information and data have been reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of management of Carolina Trust, and we have relied upon Carolina Trust to advise us
promptly if any information previously provided became inaccurate or was required to be updated during the period of our review.
We express no opinion with respect to the Projections or the assumptions on which they are based. We have assumed that the final
form of the Agreement will be substantially similar to the draft reviewed by us, and that the Merger will be consummated in accordance
with the terms of the Agreement without waiver or amendment of any conditions thereto. Furthermore, we have assumed, in all respects
material to our analysis, that the representations and warranties of each party contained in the Agreement are true and correct
and that each such party will perform all of the covenants and agreements required to be performed by it under the Agreement without
being waived. We have relied upon and assumed, without independent verification, that (i) the Merger will be consummated in a manner
that complies in all respects with all applicable international, federal and state statutes, rules and regulations, and (ii) all
governmental, regulatory, and other consents and approvals necessary for the consummation of the Merger will be obtained and that
no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have
an effect on the Merger or Carolina Trust that would be material to our analyses or this Opinion.
Our opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us as of July 12, 2019 and any material change in such circumstances and
conditions would require a reevaluation of this Opinion, which we are under no obligation to undertake. We have relied upon and
assumed, without independent verification, that there has been no change in the business, assets, liabilities, financial condition,
results of operations, cash flows or prospects of Carolina Trust since the respective dates of the most recent financial statements
and other information, financial or otherwise, provided to us that would be material to our analyses or this Opinion, and that
there is no information or any facts that would make any of the information reviewed by us incomplete or misleading in any material
respect.
Board of Directors
Carolina Trust BancShares, Inc.
July 15, 2019
Page 3
We express no opinion
as to the underlying business decision to effect the Merger, the structure or tax consequences
of the Merger or the availability or advisability of any alternatives to the Merger.
We provided advice to the Board with respect to the proposed Merger. We did not, however, recommend any specific amount of consideration
or that any specific consideration constituted the only appropriate consideration for the Merger. We did not solicit indications
of interest with respect to a transaction involving Carolina Trust. This letter does not express any opinion as to the likely trading
range of Carolina Financial stock following the Merger, which may vary depending on numerous factors that generally impact the
price of securities or on the financial condition of Carolina Financial at that time. Our opinion is limited to the fairness, from
a financial point of view, of the Merger Consideration to be received by the holders of the Common Shares.
We express no opinion with respect to any other
reasons, legal, business, or otherwise, that may support the decision of the Board of Directors to approve or consummate the Merger.
Furthermore, no opinion, counsel or interpretation is intended by Raymond James on matters that require legal, accounting, tax
or regulatory advice. It is assumed that such opinions, counsel or interpretations have been or will be obtained from the appropriate
professional sources. Furthermore, we have relied, with the consent of the Board, on the fact that Carolina Trust has been assisted
by legal, accounting, tax and regulatory advisors and we have, with the consent of the Board, relied upon and assumed the accuracy
and completeness of the assessments by Carolina Trust and its advisors as to all legal, accounting, tax and regulatory matters
with respect to Carolina Trust and the Merger, including, without limitation, that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
In formulating our opinion, we have considered
only what we understand to be the consideration to be received by the holders of Common Shares as is described above and we did
not consider and we express no opinion on the fairness of the amount or nature of any compensation to be paid or payable to any
of Carolina Trust’s officers, directors or employees, or class of such persons, whether relative to the compensation received
by the holders of the Common Shares or otherwise. We have not been requested to opine as to, and this Opinion does not express
an opinion as to or otherwise address, among other things: (1) the fairness of the Merger to the holders of any class of securities,
creditors, or other constituencies of Carolina Trust, or to any other party, except and only to the extent expressly set forth
in the last sentence of this Opinion or (2) the fairness of the Merger to any one class or group of Carolina Trust’s or any
other party’s security holders or other constituencies vis-à-vis any other class or group of Carolina Trust’s
or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration
to be received in the Merger amongst or within such classes or groups of security holders or other constituents). We are not expressing
any opinion as to the impact of the Merger on the solvency or viability of Carolina Trust or Carolina Financial or the ability
of Carolina Trust or Carolina Financial to pay their respective obligations when they come due.
The delivery of this opinion was approved by an opinion committee
of Raymond James.
Raymond James has been engaged to render financial advisory services
to Carolina Trust in connection with the proposed Merger and will receive a fee for such services, a substantial portion of which
is contingent upon consummation of the Merger. Raymond James will also receive a fee upon the delivery of this Opinion, which is
not contingent upon the successful completion of the Merger or on the conclusion reached herein. In addition, Carolina Trust has
agreed to reimburse certain of our expenses and to indemnify us against certain liabilities arising out of our engagement.
Board of Directors
Carolina Trust BancShares, Inc.
July 15, 2019
Page 4
In the ordinary course of our business, Raymond James may trade
in the securities of Carolina Trust and/or Carolina Financial for our own account or for the accounts of our customers and, accordingly,
may at any time hold a long or short position in such securities. In the previous two years: (i) Raymond James provided financial
advisory services to Carolina Trust in connection with the acquisition of Clover Community Bankshares, Inc., for which it has been
paid a fee; (ii) Raymond James provided fixed income trading services to Carolina Trust Bank, a subsidiary of Carolina Trust, for
which it has been paid trading commissions; (iii) Raymond James served as underwriter for a public offering of common stock by
Carolina Financial and certain selling shareholders, for which Raymond James received compensation; (iv) Raymond James has served
and is serving as exclusive agent for a share purchase program of Carolina Financial, for which it has been paid commissions and
may be paid commissions in the future; (v) Raymond James provided fixed income trading services to CresCom Bank, a subsidiary of
Carolina Financial, for which it has been paid trading commissions; and (vi) CresCom Bank made an investment in a Raymond James
tax credit fund, for which Raymond James has earned a fee and will earn additional fees in the future. Furthermore, Raymond James
may provide investment banking, financial advisory and other financial services to Carolina Trust and/or Carolina Financial or
other participants in the Merger in the future, for which Raymond James may receive compensation.
It is understood that this letter is for the information
of the Board of Directors of Carolina Trust (solely in each director’s capacity as such) in evaluating the proposed Merger
and does not constitute a recommendation to any shareholder of Carolina Trust regarding how said shareholder should vote on the
proposed Merger. Furthermore, this letter should not be construed as creating any fiduciary duty on the part of Raymond James to
any such party. This Opinion may not be reproduced or used for any other purpose without our prior written consent, except that
this Opinion may be disclosed in and filed with a proxy statement used in connection with the Merger that is required to be filed
with the Securities and Exchange Commission, provided that this Opinion is quoted in full in such proxy statement.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received by the holders of the Common Shares in the Merger pursuant to the
Agreement is fair, from a financial point of view, to such holders.
Very truly yours,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
CAROLINA TRUST BANCSHARES, INC.
C/O BROADRIDGE P.O. BOX 1342 BRENTWOOD, NY 11717 VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your
voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date
or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records
and to create an electronic voting instruction form. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND
DATED. DETACH AND RETURN THIS PORTION ONLY CAROLINA TRUST BANCSHARES, INC. The Board of Directors recommends you vote FOR proposals
1, 2, and 3 below. For Against Abstain 1. Merger Proposal. Proposal to approve the Agreement and Plan of Merger and Reorganization
dated as of July 15, 2019, by and between Carolina Trust and Carolina Financial Corporation ("Carolina Financial"), as it may
be amended from time to time, under which Carolina Trust will be merged with and into Carolina Financial. 2. Merger-related Compensation
Proposal. Proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to Carolina
Trust's named executive officers that is based on or otherwise related to the merger. 3. Adjournment Proposal. Proposal to approve
the adjournment or postponement of the special meeting to a later date or dates, if necessary or appropriate, to solicit additional
proxies in the event there are not sufficient votes at the time of the special meeting to approve the merger agreement. NOTE:
On such other matters as may properly come before the Special Meeting, the Proxies are authorized to vote the shares represented
by this appointment of proxy in accordance with their best judgment. Please sign exactly as your name(s) appear(s) hereon. When
signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign
personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized
officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the
Special Meeting: The Notice of Meeting and Proxy Statement/Prospectus are available at www.proxyvote.com. Revocable Proxy
CAROLINA TRUST BANCSHARES, INC. Special Meeting of Shareholders December 18, 2019 10:00 a.m. This appointment of proxy is
solicited by the Board of Directors The undersigned shareholder(s) hereby appoint(s) William M. Wadsworth and Sue S. Stamey,
or either of them acting individually, as proxies (the "Proxies"), each with the power to appoint his/her substitute, and
hereby authorize(s) them to represent and to vote, as designated on the reverse side of this proxy card, all of the shares of
common stock of Carolina Trust BancShares, Inc. ("Carolina Trust") that the shareholder(s) is/are entitled to vote at
the Special Meeting of Shareholders to be held at 10:00 a.m., local time, on December 18, 2019, at The Laboratory Mill, 848
Southfork Road, Lincolnton, NC 28092, and at any adjournments thereof. This appointment of proxy, when properly executed,
will be voted in the manner directed herein. If no such direction is made, this appointment of proxy will be voted in
accordance with the Board of Directors' recommendations. By executing this appointment of proxy, you are authorizing the
Proxies to vote in accordance with their best judgment on any other matters brought before the special meeting. Continued and
to be signed on reverse side