<PAGE>
As filed with the Securities and Exchange Commission on August 31, 1994
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
BB&T FINANCIAL CORPORATION
(Exact name of registrant as specified in charter)
================================================================================
North Carolina 6711 56-1056232
(state or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
================================================================================
223 West Nash Street
Wilson, North Carolina 27893
(919) 399-4291
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Scott E. Reed
Senior Executive Vice President,
Treasurer, and Chief Financial Officer
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
(919) 399-4418
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Barbara E. Mathews, Esq. George Whitley, Esq.
Arnold & Porter LeClair, Ryan, Joynes, Epps
777 South Figueroa Street & Framme
Suite 4000 707 E. Main Street, 11th Floor
Los Angeles, CA 90017-2513 Richmond, VA 23219
(213) 243-4153 (804) 343-4089
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
<TABLE>
<CAPTION>
===================================================================================================
CALCULATION OF REGISTRATION FEE
===================================================================================================
<S> <C> <C> <C> <C>
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered/*/ unit price registration fee
- ---------------------------------------------------------------------------------------------------
Common Stock
($2.50 Par Value) 4,517,862 Not Applicable $29.875/**/ $46,542/***/
===================================================================================================
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- ------------------
/*/ The estimated maximum number of shares to be issued.
/**/ Estimated solely for the purpose of computing the registration fee.
Computed in accordance with Rule 457(f)(1) based upon 2,732,523 shares of
Commerce Common Stock outstanding as of August 29, 1994; 266,545 shares of
Commerce Common Stock issuable upon the exercise of options outstanding as of
August 29, 1994, 200,000 shares of Commerce Common Stock issuable pursuant to
the Commerce Bank Dividend Reinvestment and Stock Purchase Plan and 262,895
shares of Commerce Common Stock issuable upon conversion of Commerce's 10%
Convertible Subordinated Capital Notes due August 31, 2002; a market value of
Commerce Common Stock as of August 26, 1994 of $29.875 per share; and an
Exchange Ratio of 1.305.
/***/ 1/29 of 1% of the proposed maximum aggregate offering price.
<PAGE>
BB&T FINANCIAL CORPORATION
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Heading in Proxy
Item of Form S-4 Statement/Prospectus
---------------- --------------------
<S> <C>
1. Forepart of Registration Cover Page of Registration Statement;
Statement and Outside Front Cross-Reference Sheet; Outside Front Cover Page
Cover Page of Prospectus of Proxy Statement/Prospectus
2. Inside Front and Outside Available Information; Incorporation of Certain
Back Cover Pages of Documents by Reference; Table of Contents
Prospectus
3. Risk Factors, Ratio of Summary; Information Concerning the Special
Earnings to Fixed Charges Meeting; The Acquisition; Information About
and Other Commerce; Selected Financial Data; Selected
Consolidated Financial and Other Data of
Commerce; Ownership of Commerce Common Stock by
Certain Beneficial Owners and Management;
Market Prices and Dividends
4. Terms of Transaction Summary; The Acquisition; Description of BB&T
Financial Common Stock to be Issued in the
Acquisition and Comparison of Stockholders'
Rights
5. Pro Forma Financial Pro Forma Combined Condensed Financial
Information Statements
6. Material Contracts with Summary; The Acquisition--Background of and
the Company Being Acquired Reasons for the Acquisition Agreement
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts; Opinions
Experts and Counsel
9. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities
10. Information with Respect Summary; Information About BB&T Financial;
to S-3 Registrants Market Prices and Dividends
11. Incorporation of Certain Incorporation of Certain Documents by Reference
Information by Reference
12. Information with Respect Not Applicable
to S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Heading in Proxy
Item of Form S-4 Statement/Prospectus
---------------- --------------------
<S> <C>
14. Information with Respect Not Applicable
to Registrants Other Than
S-3 or S-2 Registrants
15. Information with Respect Incorporation of Certain Documents by
to S-3 Companies Reference; Summary; Information About Commerce;
Market Prices and Dividends
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect Not Applicable
to Companies Other than S-3
or S-2 Companies
18. Information If Proxies, Summary; Information Concerning the Special
Consents or Authorizations Meeting; The Acquisition
Are To Be Solicited
19. Information If Proxies, Not Applicable
Consents or Authorizations
Are Not To Be Solicited or
in an Exchange Offer
</TABLE>
-iii-
<PAGE>
[COMMERCE BANK LETTERHEAD]
[DATE]
Dear Fellow Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders of
Commerce Bank ("Commerce") to be at [Address] on , 1994, at [Time], Eastern
Time (the "Special Meeting").
At this important meeting, you will be asked to consider and vote on the
approval of an Agreement and Plan of Reorganization and a related Plan of
Merger (collectively, the "Acquisition Agreement") pursuant to which Commerce
will be combined with BB&T Financial Corporation ("BB&T Financial") by merging
Commerce with a wholly owned subsidiary of BB&T Financial (the "Merger"). Upon
consummation of the Merger, each outstanding share of Commerce common stock
will be exchanged for 1.305 shares of BB&T Financial common stock, with cash
being paid in lieu of issuing fractional shares.
Your Board of Directors has retained the investment banking firm of Alex.
Brown & Sons Incorporated ("Alex. Brown") to act as its financial advisor in
connection with the proposed transaction with BB&T Financial. As discussed in
the accompanying Proxy Statement/Prospectus, Alex. Brown has delivered to the
Board of Directors its written opinion that, as of this date, the terms of the
proposed transaction with BB&T Financial are fair to Commerce's stockholders
from a financial point of view.
The exchange of Commerce common stock for BB&T Financial common stock (other
than cash in lieu of any fractional shares) pursuant to the Acquisition
Agreement will be a tax-free transaction for federal income tax purposes.
Details of the proposed transaction are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with BB&T Financial requires the affirmative vote
of at least a majority of the outstanding shares of the common stock of
Commerce.
We wish to call your attention to the discussion in the accompanying Proxy
Statement/Prospectus concerning BB&T Financial's proposed affiliation with
Southern National Corporation ("SNC"), a North Carolina based bank holding
company with total assets of $8.2 billion at June 30, 1994. It is anticipated
that the effective date for that transaction, which is intended to effect a
"merger of equals," will occur after completion of our transaction with BB&T
Financial. Under the terms of the agreement with SNC, each share of BB&T
Financial common stock will be converted into 1.45 shares of the common stock
of the merged company which will be named Southern National Corporation and
whose common stock will be listed on the New York Stock Exchange under the
symbol "SNB." See "COMPARATIVE PER SHARE DATA" and "INFORMATION ABOUT BB&T
FINANCIAL--SNC Merger."
Your Board of Directors has unanimously approved the Acquisition Agreement
and the transaction with BB&T Financial and believes they are in the best
interests of Commerce and our stockholders. Accordingly, the Board unanimously
recommends that you vote TO APPROVE the Acquisition Agreement.
In view of the importance of the action to be taken, we urge you to complete,
sign and date your proxy, and return it promptly in the enclosed envelope,
whether or not you plan to attend the Special Meeting. Your vote is important,
regardless of the number of shares you own. If you attend the Special Meeting,
you may vote in person even if you have previously mailed your proxy.
We deeply appreciate your continuing loyalty and support, and we look forward
to seeing you at the Special Meeting.
Sincerely,
Thomas C. Broyles G. Robert Aston, Jr.
Chairman of the Board President and Chief Executive Officer
<PAGE>
COMMERCE BANK
VIRGINIA BEACH, VIRGINIA 23462
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1994
To Our Stockholders:
A Special Meeting of stockholders of Commerce Bank ("Commerce") will be held
at [Address] on , 1994 at [Time], Eastern Time ("Special Meeting"), for the
following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
between Commerce and BB&T Financial Corporation ("BB&T Financial"), dated
as of June 24, 1994 and amended as of August 25, 1994, and a related Plan
of Merger, dated as of June 24, 1994 (collectively, the "Acquisition
Agreement"), pursuant to which Branch Banking and Trust Company of
Virginia, a to be formed Virginia chartered bank and wholly owned
subsidiary of BB&T Financial, will be merged with and into Commerce (the
"Merger") and the outstanding shares of Commerce common stock will be
converted into shares of BB&T Financial common stock in accordance with the
exchange ratio described in the enclosed Proxy Statement/Prospectus; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Board of Directors has fixed [insert date], 1994 as the record date for
the Special Meeting, and only holders of record of Commerce common stock at the
close of business on that date are entitled to receive notice of and to vote at
the Special Meeting or any adjournments thereof.
By Order of the Board of Directors,
David W. Edmondson
Senior Vice President and Corporate
Secretary
Virginia Beach, Virginia
, 1994
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF COMMERCE RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE ACQUISITION AGREEMENT.
<PAGE>
PROXY STATEMENT/PROSPECTUS
COMMERCE BANK
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1994
BB&T FINANCIAL CORPORATION
PROSPECTUS
SHARES OF COMMON STOCK
PAR VALUE $2.50 PER SHARE
(SUBJECT TO CERTAIN ADJUSTMENTS)
This Proxy Statement/Prospectus is furnished by the Board of Directors of
Commerce Bank, Virginia Beach, Virginia ("Commerce") in connection with the
solicitation of proxies from the holders of shares of Commerce's outstanding
common stock, $2.50 par value per share ("Commerce Common Stock"), for use at
the special meeting of stockholders of Commerce to be held on , 1994
("Special Meeting").
At the Special Meeting, stockholders will be asked to consider and vote upon
an Agreement and Plan of Reorganization, dated as of June 24, 1994 and amended
as of August 25, 1994 (as amended, the "Reorganization Agreement"), entered
into by and between Commerce and BB&T Financial Corporation, Wilson, North
Carolina ("BB&T Financial"), and a related Plan of Merger, dated as of June 24,
1994 (the "Plan of Merger"), pursuant to which Branch Banking and Trust Company
of Virginia ("BB&T-VA"), a to be formed Virginia chartered bank and wholly
owned subsidiary of BB&T Financial, will be merged with and into Commerce (the
"Merger"). The Reorganization Agreement and Plan of Merger are referred to
herein as the "Acquisition Agreement."
In the Merger, the stockholders of Commerce will receive 1.305 shares of BB&T
Financial common stock, $2.50 par value per share ("BB&T Financial Common
Stock"), for each share of Commerce Common Stock ("Exchange Ratio") (the Merger
and share exchange collectively are the "Acquisition"); provided, that in the
event that BB&T Financial shall have a record date between June 24, 1994 and
the effective date of the Acquisition for a special distribution to
stockholders, a stock split, stock dividend or similar change in
capitalization, an equitable and appropriate adjustment shall be made to the
Exchange Ratio to reflect the effect of such distribution or change.
Alex. Brown & Sons Incorporated ("Alex. Brown") has rendered its opinion,
updated to the date hereof, to the Board of Directors of Commerce that the
terms proposed by BB&T Financial are fair to Commerce's stockholders from a
financial point of view. See "THE ACQUISITION--Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF COMMERCE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE THE ACQUISITION AGREEMENT. FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE ACQUISITION AGREEMENT.
This Proxy Statement/Prospectus and the accompanying form of proxy are being
sent to stockholders of Commerce beginning on or about , 1994.
This Proxy Statement/Prospectus does not cover any resales of the BB&T
Financial Common Stock offered hereby to be received by the stockholders deemed
to be "affiliates" of Commerce or BB&T Financial upon consummation of the
Acquisition. No person is authorized to make use of this Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Proxy Statement/Prospectus by those
stockholders of BB&T Financial not deemed to be "affiliates" of BB&T Financial
or Commerce.
On July 29, 1994, BB&T Financial entered into an Agreement and Plan of
Reorganization with Southern National Corporation ("SNC") pursuant to which
BB&T Financial will be merged with SNC in a "merger of equals." See
"INFORMATION ABOUT BB&T FINANCIAL--SNC Merger."
THE BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE BUREAU OF FINANCIAL INSTITUTIONS OF THE
VIRGINIA STATE CORPORATION COMMISSION OR ANY STATE SECURITIES AUTHORITY, NOR
HAS ANY OF THEM PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or make any representation
other than those contained or incorporated in this Proxy Statement/Prospectus,
and, if given or made, such information or representation should not be relied
upon as having been authorized. This Proxy Statement/Prospectus does not
constitute an offer to exchange or sell, or a solicitation of an offer to
exchange or purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction in
which such offer or solicitation is not authorized or to or from any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of BB&T Financial or Commerce since the date of
this Proxy Statement/Prospectus.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1994.
<PAGE>
AVAILABLE INFORMATION
BB&T Financial has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form S-4 under the Securities Act of
1933, as amended ("Securities Act"), relating to the shares of BB&T Financial
Common Stock that may be issued in connection with the Acquisition. This Proxy
Statement/Prospectus constitutes the prospectus of BB&T Financial filed as part
of the Registration Statement and does not contain all the information set
forth in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. The
information omitted may be obtained from the public reference facilities of the
Commission or inspected and copied at the principal or regional offices of the
Commission at the addresses listed in the next paragraph. Information contained
in this Proxy Statement/Prospectus regarding Commerce and its subsidiary has
been furnished by Commerce and information herein regarding BB&T Financial and
its subsidiaries has been furnished by BB&T Financial.
BB&T Financial and Commerce are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission in the case of BB&T Financial and the Federal Deposit Insurance
Corporation ("FDIC") in the case of Commerce. Such reports, proxy statements
and other information with regard to BB&T Financial can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices at 500 West Madison St., Suite 1400, Chicago, Illinois 60621
and 7 World Trade Center, New York, New York 11048. Copies of such materials
also can be obtained from the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information with regard to Commerce can be inspected and
copied at the FDIC's Registration and Disclosure Section, Room 253, 1776 F
Street, N.W., Washington, D.C. 20429.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by BB&T Financial with the
Commission are hereby incorporated by reference in this Proxy
Statement/Prospectus:
(i) BB&T Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993;
(ii) BB&T Financial's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994 and June 30, 1994; and
(iii) BB&T Financial's Current Reports on Form 8-K dated January 10,
1994, February 4, 1994, August 2, 1994, August 31, 1994 and September ,
1994.
The following documents previously filed by Commerce with the FDIC are hereby
incorporated by reference in this Proxy Statement/Prospectus:
(i) Commerce's Annual Report on Form F-2 for the fiscal year ended
December 31, 1993 and the amendment thereto dated August 30, 1994;
(ii) Commerce's Quarterly Reports on Form F-4 for the quarters ended
March 31, 1994 and June 30, 1994;
(iii) Commerce's Current Report on Form F-3 dated July 5, 1994; and
(iv) The description of Commerce Common Stock contained in Commerce's
registration statement filed pursuant to section 12 of the Exchange Act,
and any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by BB&T Financial and Commerce pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
consummation of the Acquisition and issuance of the shares of BB&T Financial
Common Stock offered hereby are deemed to be incorporated by reference in this
Proxy
2
<PAGE>
Statement/Prospectus and are deemed to be a part hereof from the date of filing
of such documents. Any statement contained in a document filed by BB&T
Financial or Commerce and incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE OTHER DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
BB&T FINANCIAL OR COMMERCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
DIRECTED TO BB&T FINANCIAL'S SECRETARY, 223 WEST NASH STREET, WILSON, NORTH
CAROLINA 27893, TELEPHONE (919) 339-4291 OR UPON WRITTEN OR ORAL REQUEST
DIRECTED TO COMMERCE'S SECRETARY, 5101 CLEVELAND STREET, SUITE 206, VIRGINIA
BEACH, VIRGINIA 23462, TELEPHONE (804) 456-1007, RESPECTIVELY. IN ORDER TO
ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENTS, THE REQUEST SHOULD BE MADE
NO LATER THAN CLOSE OF BUSINESS ON [DATE]. PERSONS REQUESTING COPIES OF
EXHIBITS TO DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS WILL BE CHARGED THE COST OF REPRODUCTION AND MAILING.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information......................................................
Incorporation of Certain Documents by Reference............................
Summary....................................................................
Selected Financial Data....................................................
Comparative Per Share Data.................................................
Information Concerning the Special Meeting.................................
The Acquisition............................................................
Pro Forma Combined Condensed Financial Statements..........................
Information About BB&T Financial...........................................
Information About Commerce.................................................
Selected Consolidated Financial and Other Data of Commerce.................
Ownership of Commerce Common Stock By Certain Beneficial Owners and
Management................................................................
Market Prices and Dividends................................................
Description of BB&T Financial Common Stock To Be Issued in the Acquisition
and Comparison of Stockholders' Rights....................................
Description of Stockholders' Rights of SNC.................................
Experts....................................................................
Opinions...................................................................
Stockholder Proposals......................................................
Other Matters..............................................................
</TABLE>
Appendices:
I. Agreement and Plan of Reorganization and Amendment No. 1 to Agreement and
Plan of Reorganization
II. Plan of Merger
III. Option Agreement
IV. Opinion of Alex. Brown & Sons Incorporated.
3
<PAGE>
SUMMARY
The following is a brief summary of this Proxy Statement/Prospectus and the
appendices hereto prepared in accordance with applicable disclosure
regulations. This summary is not intended to be complete and should be read in
conjunction with, and is qualified in its entirety by reference to, more
detailed information contained in this Proxy Statement/Prospectus, the
information incorporated by reference herein, the text of the Appendices hereto
and the other documents referred to herein and therein.
As used in this Proxy Statement/Prospectus, the terms "BB&T Financial" and
"Commerce" refer to such corporations respectively, and, unless the context
otherwise requires, to their respective subsidiaries or subsidiary.
TIME, PLACE, AND PURPOSE OF THE SPECIAL MEETING
The Special Meeting will be held on , 1994 at [Time], at [Address]. At the
Special Meeting, Commerce stockholders will vote upon a proposal to approve the
Acquisition Agreement, attached hereto as Appendices I and II. On , the
record date ("Record Date") for the Special Meeting, there were approximately
holders of record of the shares of Commerce Common Stock then
outstanding and entitled to vote at the Special Meeting. See "INFORMATION
CONCERNING THE SPECIAL MEETING."
PARTIES TO THE ACQUISITION
BB&T Financial
BB&T Financial, a North Carolina corporation headquartered in Wilson, North
Carolina, is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended ("BHCA"). BB&T Financial also is registered as a
savings institution holding company under the savings institution holding
company laws of North Carolina. The principal executive offices of BB&T
Financial are located at 223 West Nash Street, Wilson, North Carolina 27893,
and its telephone number is (919) 399-4291.
As of June 30, 1994, BB&T Financial had total consolidated assets of
approximately $9.9 billion, total deposits through its depository institution
subsidiaries of approximately $7.4 billion and consolidated stockholders'
equity of approximately $804.1 million. See "SELECTED FINANCIAL DATA" and
"INFORMATION ABOUT BB&T FINANCIAL."
BB&T Financial owns and operates four commercial bank subsidiaries: Branch
Banking and Trust Company ("BB&T-NC"), a wholly owned North Carolina chartered
bank subsidiary; and, through BB&T Financial Corporation of South Carolina
("BB&T Financial-SC") (which is a wholly-owned subsidiary of BB&T Financial),
Branch Banking and Trust Company of South Carolina ("BB&T-SC"), a wholly owned
South Carolina chartered banking corporation headquartered in Greenville, South
Carolina; The Lexington State Bank ("Lexington"), a wholly-owned South Carolina
chartered banking corporation headquartered in Lexington, South Carolina; and
The Community Bank of South Carolina ("Community"), a wholly-owned South
Carolina chartered banking corporation headquartered in Varnville, South
Carolina. As of June 30, 1994, BB&T-NC had assets of $8.3 billion and deposit
liabilities of $6.2 billion, BB&T-SC had assets of $510.6 million and deposit
liabilities of $453.7 million, Lexington had assets of $602.5 million and
deposit liabilities of $491.4 million and Community had assets of $117.2
million and deposit liabilities of $99.1 million. The deposits of BB&T-NC,
BB&T-SC, Lexington and Community are insured by the FDIC.
BB&T Financial also owns and operates two North Carolina chartered savings
bank subsidiaries: Mutual Savings Bank of Rockingham County, S.S.B., Inc.,
Reidsville, North Carolina ("Mutual Savings") and Citizens Savings Bank of
Mooresville, S.S.B., Inc., Mooresville, North Carolina ("Citizens-
Mooresville"). The deposits of Mutual Savings and Citizens-Mooresville are
insured by the FDIC. Together, the two savings
4
<PAGE>
bank subsidiaries had assets of $149 million and deposit liabilities of $124
million at June 30, 1994. These two institutions are expected to be merged or
otherwise consolidated into BB&T-NC in September, 1994. On August 22, 1994,
Citizens Savings Bank, S.S.B., Inc., Newton, North Carolina ("Citizens-
Newton"), which was a North Carolina chartered savings bank subsidiary of BB&T
Financial with assets of $247 million and deposit liabilities of $212 million
at June 30, 1994, was merged with and into BB&T-NC.
SNC Merger
On July 29, 1994, BB&T Financial and Southern National Corporation ("SNC")
entered into an Agreement and Plan of Reorganization, amended and restated as
of September , 1994, and a related Plan of Merger (the "SNC Agreement"),
pursuant to which BB&T Financial will be merged with SNC (after the effective
date of such merger, the "Continuing Corporation") in a "merger of equals" (the
"SNC Merger"). The Continuing Corporation will be named "Southern National
Corporation." The SNC Agreement also provides that after the SNC Merger, SNB-NC
will be merged with and into BB&T-NC and operate under the name "Branch Banking
and Trust Company," and that Southern National Bank of South Carolina ("SNB-
SC"), SNC's South Carolina national bank subsidiary, will be merged with and
into BB&T-SC and operate under the name "Branch Banking and Trust Company of
South Carolina." The headquarters of the Continuing Corporation will be located
in Winston-Salem, North Carolina, the present location of the administrative
headquarters of Southern National Bank of North Carolina ("SNB-NC"), SNC's
North Carolina national bank subsidiary. The SNC Agreement also provides that
the Board of Directors of the Continuing Corporation shall be comprised of 24
persons, 12 to be selected by the current Board of Directors of BB&T Financial
and 12 to be selected by the current Board of Directors of SNC. John A. Allison
IV, the current Chairman and Chief Executive Officer of BB&T Financial, will be
elected as Chairman of the Board and Chief Executive Officer of the Continuing
Corporation.
SNC is a registered bank holding company under the BHCA, having as its
principal assets all of the outstanding common stock of SNB-NC and SNB-SC. As
of June 30, 1994, SNC reported total assets of $8.2 billion, total deposits of
$6.2 billion and total stockholders' equity of $593.9 million. For the six
months ended June 30, 1994, SNC also reported earnings of $53 million, for a
1.31% return on assets and 19.88% return on common equity. Under the terms of
the SNC Agreement, each share of BB&T Financial Common Stock will be converted
into 1.45 shares of the common stock of the Continuing Corporation whose common
stock will be listed on the New York Stock Exchange under the Symbol "SNB." It
is anticipated that the SNC Merger will occur subsequent to the Acquisition.
For additional information concerning the SNC Merger, see "COMPARATIVE PER
SHARE DATA," "PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" and
"INFORMATION ABOUT BB&T FINANCIAL-SNC Merger."
BB&T Financial continues to evaluate the possibility of acquiring additional
commercial banks, savings institutions, insurance agencies and other companies
in North Carolina, South Carolina and Virginia. BB&T Financial may enter into
acquisition agreements with one or more of such institutions after the date of
this Proxy Statement/Prospectus.
Commerce
Commerce is a Virginia banking corporation headquartered in Virginia Beach,
Virginia. Commerce operates 21 banking offices serving the cities of Virginia
Beach, Portsmouth, Norfolk, Chesapeake, Suffolk, Hampton and Newport News,
Virginia, together with the Grafton area of York County located on the western
side of Newport News. The principal executive offices of Commerce are located
at 5101 Cleveland Street, Virginia Beach, Virginia 23462, and its telephone
number is (804) 456-1007.
As of June 30, 1994, Commerce had total assets of approximately $692.1
million, total deposits of approximately $636.4 million and total stockholders'
equity of approximately $46.6 million. See "INFORMATION ABOUT COMMERCE" and
"SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COMMERCE."
5
<PAGE>
TERMS OF THE ACQUISITION
Under the Acquisition Agreement, if all of the required regulatory approvals
are received and all of the conditions to the Acquisition are satisfied, BB&T-
VA will be merged with and into Commerce (the "Merger"), whereupon the
separate existence of BB&T-VA will cease. (Commerce as existing on and after
the "Effective Date" (as defined below) being hereinafter sometimes referred
to as the "Surviving Corporation.") See "THE ACQUISITION--Regulatory
Considerations." Pursuant to the Acquisition Agreement, stockholders of
Commerce will receive for each share of Commerce Common Stock 1.305 shares of
BB&T Financial Common Stock ("Exchange Ratio") (the Merger and share exchange
collectively are the "Acquisition"); provided, that in the event that BB&T
Financial shall have a record date between June 24, 1994 and the effective
date of the Acquisition for a special distribution to stockholders, a stock
split, stock dividend or similar change in capitalization, an equitable and
appropriate adjustment shall be made to the Exchange Ratio to reflect the
effect of such distribution or change. See "THE ACQUISITION--Exchange of
Commerce Common Stock."
At the Effective Date, Commerce's obligations with respect to its authorized
and outstanding 10% Convertible Subordinated Capital Notes Due 2002 ("Capital
Notes"), issued by Commerce pursuant to the Indenture, dated as of September
13, 1990, between Commerce and NationsBank of Virginia, N.A., as Trustee
("Indenture"), will be assumed by BB&T Financial and the Surviving Corporation
by a supplemental indenture and each holder of a Capital Note will have the
right, during the period such Capital Note is convertible, to convert each
Capital Note into shares of BB&T Financial Common Stock at a conversion rate
("Conversion Rate") equal to 1.305 shares of BB&T Financial Common Stock for
each share of Commerce Common Stock into which such Capital Notes would have
been converted immediately prior to the Effective Date, and cash in lieu of
any fractional shares. The Conversion Rate is subject to adjustment in
accordance with the terms of the Indenture. See "THE ACQUISITION--Exchange of
Commerce Common Stock."
In addition, at the Effective Date, Commerce's obligations with respect to
options granted under its 1985 Stock Option Plan and its 1993 Incentive Stock
Plan (the "Commerce Stock Option Plans") (allowing holders to acquire an
aggregate of up to 266,545 shares of Commerce Common Stock as of August 29,
1994) will be assumed by BB&T Financial and each stock option outstanding
under such plans will become the right to receive, upon payment by the holder
of the adjusted exercise price, that number of shares of BB&T Financial Common
Stock the option holder would have received pursuant to the Acquisition if he
or she had exercised such option immediately prior thereto, and cash in lieu
of any fractional shares. The conversion of the Commerce stock options is
subject to the restrictions imposed on "incentive stock options" by federal
law. See "THE ACQUISITION--Exchange of Commerce Common Stock," "THE
ACQUISITION--Interests of Certain Persons in the Acquisition and Effect of the
Acquisition on Employees and Benefit Plans--Stock Options" and "OWNERSHIP OF
COMMERCE COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
EFFECTIVE DATE OF THE ACQUISITION
The "Effective Date" of the Acquisition will be the time and date specified
in the Articles of Merger that are delivered for filing to the Virginia State
Corporation Commission. The Effective Date will occur as soon as practicable
following the date that all conditions specified in the Acquisition Agreement
have been satisfied or waived. The Effective Date currently is anticipated to
be in the fourth quarter of 1994. See "THE ACQUISITION--Conditions to
Consummation of the Acquisition."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION AND EFFECT OF THE ACQUISITION
ON EMPLOYEES AND BENEFIT PLANS
Effective at the Effective Date of the Acquisition, BB&T Financial will
enter into employment agreements with Commerce's executive officers G. Robert
Aston, Jr. and R. Scott Morgan. The agreements will provide for employment
terms of ten years and for certain other benefits and will supercede existing
employment agreements. Commerce and BB&T Financial also will enter into a
five-year consulting
6
<PAGE>
agreement with Commerce's Chairman of the Board, Thomas C. Broyles. The
Reorganization Agreement also contains provisions concerning the continued
employment of certain Commerce employees and with respect to employee benefits
after the Acquisition. See "THE ACQUISITION--Interests of Certain Persons in
the Acquisition and Effect of the Acquisition on Employees and Benefit Plans."
REGULATORY CONSIDERATIONS
The Acquisition cannot be consummated until all required approvals have been
received from the Board of Governors of the Federal Reserve System ("Federal
Reserve"), the FDIC and the Bureau of Financial Institutions of the Virginia
State Corporation Commission ("Bureau"). The FDIC approved the mailing of the
Proxy Statement and related materials on , 1994. The applications for
approval of the Acquisition by the Federal Reserve and the Bureau, the
organization of BB&T-VA by the Bureau and the Merger by the FDIC and the
Bureau, respectively, will be filed in September 1994. See "THE ACQUISITION--
Regulatory Considerations."
STOCKHOLDER APPROVAL
The Acquisition Agreement must be approved by the affirmative vote of at
least a majority of the outstanding shares of Commerce Common Stock. See
"INFORMATION CONCERNING THE SPECIAL MEETING--Record Date, Voting Rights and
Vote Required."
OPINION OF FINANCIAL ADVISOR
Commerce has retained Alex. Brown to act as its financial advisor in
connection with the Acquisition, and Alex. Brown has rendered its opinion to
Commerce's Board of Directors that the Exchange Ratio is fair from a financial
point of view to Commerce stockholders. The full text of Alex. Brown's opinion,
updated to the date hereof, is set forth as Appendix IV to this Proxy
Statement/Prospectus and should be read in its entirety with respect to the
assumptions made and other matters considered and limitations on the review
undertaken. See "THE ACQUISITION--Opinion of Financial Advisor."
OTHER CONDITIONS TO THE ACQUISITION
Consummation of the Acquisition is subject to the satisfaction of certain
conditions in addition to regulatory approvals, the approval of Commerce's
stockholders and receipt of the opinion of Alex. Brown. In particular, BB&T
Financial's obligations under the Acquisition Agreement are conditioned upon,
among other things, receipt of an opinion from KPMG Peat Marwick LLP that the
Acquisition will qualify for pooling-of-interests accounting treatment.
Commerce and BB&T Financial may waive certain of the conditions to their
respective obligations to consummate the Acquisition, other than (i) the
approvals required of Commerce's stockholders and of proper regulatory
authorities, and (ii) after approval of the Acquisition Agreement by Commerce's
stockholders, any reduction in the number of shares of BB&T Financial Common
Stock into which each share of Commerce Common Stock will be converted and
exchanged in the Acquisition or the payment terms for fractional interests. See
"THE ACQUISITION--Conditions to Consummation of the Acquisition."
TERMINATION
The Reorganization Agreement is subject to termination by the mutual
agreement in writing of the parties or, in case of certain defaults, by notice
of termination given by the party not in default. In addition, the
Reorganization Agreement may be terminated if the stockholders of Commerce do
not approve the Acquisition Agreement. Unless extended by the parties, the
Reorganization Agreement may be terminated by either party if the Acquisition
is not consummated before June 30, 1995, or at an earlier date if a required
approval of any regulatory agency is denied and the period for appeals from
that denial has expired. See "THE ACQUISITION--Termination."
7
<PAGE>
AMENDMENT
The Acquisition Agreement may be amended or supplemented in writing by mutual
agreement of BB&T Financial and Commerce, provided that such amendment or
supplement must be approved by their respective Boards of Directors and
provided further that no amendment or supplement executed after approval of the
Acquisition Agreement by Commerce's stockholders may reduce either the number
of shares of BB&T Financial Common Stock into which each share of Commerce
Common Stock will be converted and exchanged in the Acquisition or the payment
terms for fractional interests. See "THE ACQUISITION--Amendment."
DISSENTERS' RIGHTS
Under Virginia law, stockholders of Commerce will have no dissenters' rights
in connection with the Acquisition. See "THE ACQUISITION--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary discussion of certain federal income tax
consequences of the Acquisition to stockholders of Commerce. All stockholders
should read carefully the discussion in "THE ACQUISITION--Certain Federal
Income Tax Consequences of the Acquisition" and other sections of this Proxy
Statement/Prospectus.
Consummation of the Acquisition is conditioned upon receipt by the parties of
an opinion from KPMG Peat Marwick LLP, satisfactory in form and substance to
each of the parties, to the effect that the Acquisition will constitute one or
more reorganizations within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended ("Code"), and that the exchange of Commerce Common
Stock to the extent exchanged for BB&T Financial Common Stock will not give
rise to the recognition of gain or loss for federal income tax purposes to
Commerce's stockholders. See "THE ACQUISITION--Certain Federal Income Tax
Consequences of the Acquisition."
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL INCOME TAX LAWS AND BECAUSE THE
TAX CONSEQUENCES MAY VARY DEPENDING UPON A HOLDER'S INDIVIDUAL CIRCUMSTANCES OR
TAX STATUS, IT IS RECOMMENDED THAT EACH STOCKHOLDER OF COMMERCE CONSULT HIS OR
HER TAX ADVISER CONCERNING THE FEDERAL (AND ANY APPLICABLE STATE, LOCAL OR
OTHER) TAX CONSEQUENCES OF THE ACQUISITION.
RESALES BY AFFILIATES
As a condition to BB&T Financial's obligation to consummate the Acquisition,
affiliates of Commerce must have entered into agreements that they will not
sell any shares of BB&T Financial Common Stock received upon consummation of
the Acquisition except in compliance with Rule 145 under the Securities Act or
otherwise in compliance with the Securities Act and the rules and regulations
promulgated thereunder. See "THE ACQUISITION--Restrictions on Resales by
Affiliates."
OPTION AGREEMENT
As a condition of BB&T Financial's entering into the Reorganization Agreement
and to increase the probability that the Acquisition will be consummated,
Commerce and BB&T Financial entered into an Option Agreement, dated as of June
24, 1994 ("Option Agreement"). The Option Agreement provides for the purchase
by BB&T Financial of up to 540,000 shares of Commerce Common Stock
(approximately 19.8% of the Commerce Common Stock), subject to adjustment, at
an exercise price of $31.50 per share ("Commerce Option"). The Option Agreement
is attached to this Proxy Statement/Prospectus as Appendix III.
Exercise of the Commerce Option is permitted only upon the occurrence of the
events and subject to the limitations specified in the Option Agreement. See
"THE ACQUISITION--The Option Agreement."
8
<PAGE>
MARKET PRICES AND DIVIDENDS
The information presented in the following table reflects the last reported
sales prices for BB&T Financial Common Stock and Commerce Common Stock on June
23, 1994, the last trading day prior to the public announcement of the proposed
Acquisition, and the Commerce Common Stock equivalent per share basis,
calculated by multiplying the closing price of BB&T Financial Common Stock on
such date by the Exchange Ratio (1.305). The table also reflects the last
reported sales prices for BB&T Financial Common Stock and Commerce Common Stock
on or prior to [date immediately prior to mailing].
MARKET VALUE
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
COMMERCE EQUIVALENT
BB&T FINANCIAL COMMERCE PER SHARE BASIS
-------------- -------- -------------------
<S> <C> <C> <C>
June 23, 1994................... $31.25 $32.50 $40.78
, 1994.......................
</TABLE>
BB&T Financial Common Stock is traded in the NASDAQ Stock Market and the
shares are quoted on the Nasdaq/National Market System ("Nasdaq/NMS"). BB&T
Financial has paid regular quarterly cash dividends since 1921. Although BB&T
Financial currently intends to continue to pay quarterly cash dividends on the
BB&T Financial Common Stock, there can be no assurance that BB&T Financial's
dividend policy will remain unchanged after completion of the Acquisition. The
declaration and payment of dividends thereafter will depend upon business
conditions, operating results, capital and reserve requirements and the BB&T
Financial Board of Directors' consideration of other relevant factors. See
"MARKET PRICES AND DIVIDENDS."
Commerce Common Stock is traded in the NASDAQ Stock Market and the shares are
quoted on the Nasdaq/NMS. Commerce has paid regular quarterly cash dividends
since 1992. However, there can be no assurance that dividends would be paid in
the future. The declaration, payment and amount of any such future dividends
would depend upon business conditions, operating results, capital and reserve
requirements, regulatory authorizations and the consideration of other relevant
factors by the Commerce Board of Directors. See "MARKET PRICES AND DIVIDENDS."
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Upon completion of the Acquisition, stockholders of Commerce will become
stockholders of BB&T Financial and their rights as such will be governed by
North Carolina law and BB&T Financial's Amended Articles of Incorporation and
By-laws. The rights of the stockholders of BB&T Financial are different in some
respects from the rights of the stockholders of Commerce. See "DESCRIPTION OF
BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION AND COMPARISON OF
STOCKHOLDERS' RIGHTS" and "DESCRIPTION OF STOCKHOLDERS' RIGHTS OF SNC."
THE SHARES OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN
THEACQUISITION ARE NOT DEPOSITS AND ARE NOT INSURED BY THE
FDIC OR ANY OTHER GOVERNMENT AGENCY.
9
<PAGE>
SELECTED FINANCIAL DATA
The following tables represent selected historical financial information for
BB&T Financial, Commerce and SNC and selected combined pro forma financial
information for BB&T Financial, Commerce and SNC. This information is derived
from the historical consolidated financial statements of BB&T Financial,
Commerce and SNC. The information for BB&T Financial, Commerce and SNC set
forth below should be read in conjunction with such historical financial
statements and the notes thereto incorporated herein by reference.
The selected combined pro forma financial information showing the combined
results of BB&T Financial, Commerce and SNC is provided for informational
purposes only. It is not necessarily indicative of actual results that would
have been achieved had the Acquisition and the SNC Merger been consummated on
the dates at the beginning of the periods presented, nor is it necessarily
indicative of future results. For additional pro forma information, see "PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL (HISTORI-
CAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $391,720 $348,021 $724,678 $ 687,165 $ 702,387 $ 666,972 $ 654,914
Net income............. 55,379 50,939 105,012 82,621 68,335 61,309 53,015
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 9,878 $ 8,887 $ 9,867 $ 7,932 $ 7,391 $ 6,204 $ 6,204
Deposits............... 7,422 6,897 7,566 6,405 6,216 5,325 5,119
Long-term debt......... 396 106 351 127 118 104 116
Stockholders' equity... 804 763 797 654 576 457 407
PER SHARE DATA:
Net income............. $ 1.52 $ 1.47 $ 2.95 $ 2.53 $ 2.30 $ 2.20 $ 2.02
Fully diluted income... 1.52 1.43 2.91 2.43 2.21 2.13 1.95
Cash dividend declared. .54 .50 1.02 .91 .85 .81 .74
Book value, end of pe-
riod.................. 22.17 21.13 21.90 20.01 18.18 16.55 15.43
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 36,552 34,684 35,620 32,705 29,760 27,834 26,278
Fully diluted.......... 36,552 35,843 36,188 34,741 31,756 29,772 28,221
Shares outstanding-end-
ing................... 36,271 36,113 36,399 32,685 31,647 27,638 26,385
COMMERCE (HISTORICAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $ 28,694 $ 27,765 $ 57,902 $ 53,149 $ 46,787 $ 38,759 $ 31,505
Net income............. 3,602 3,148 6,551 4,942 2,599 547 1,687
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 692 $ 666 $ 690 $ 645 $ 479 $ 405 $ 303
Deposits............... 636 616 634 598 445 374 278
Long-term debt......... 7 7 7 6 6 6 1
Stockholders' equity... 47 40 44 37 24 21 21
PER SHARE DATA:
Net income............. $ 1.29 $ 1.15 $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86
Fully diluted income... 1.23 1.11 2.28 1.97 1.35 .29 .86
Cash dividend declared. .30 .22 .51 .26 .05 -- --
Book value, end of pe-
riod.................. 17.10 15.91 16.22 14.90 13.63 12.79 13.07
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 2,802 2,726 2,748 2,413 1,913 1,945 1,969
Fully diluted.......... 3,068 2,993 3,013 2,676 2,176 1,945 1,969
Shares outstanding-end-
ing................... 2,725 2,534 2,687 2,511 1,745 1,650 1,572
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL/COMMERCE
(PRO FORMA)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $420,414 $375,786 $782,580 $ 740,314 $ 749,174 $ 705,731 $ 686,419
Net income............. 58,981 54,087 111,563 87,563 70,934 61,856 54,702
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 10,570 $ 9,553 $ 10,557 $ 8,577 $ 7,870 $ 6,609 $ 6,507
Deposits............... 8,059 7,513 8,200 7,003 6,661 5,699 5,397
Long-term debt......... 403 113 358 133 124 110 117
Stockholders' equity... 851 803 841 691 600 478 428
PER SHARE DATA:
Net income............. $ 1.47 $ 1.41 $ 2.85 $ 2.44 $ 2.20 $ 2.04 $ 1.90
Fully diluted income... 1.46 1.37 2.80 2.35 2.11 1.98 1.84
Cash dividend declared. .54 .50 1.02 .91 .85 .81 .74
Book value, end of pe-
riod.................. 21.36 20.38 21.06 19.23 17.66 16.06 15.04
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 40,209 38,242 39,206 35,854 32,257 30,372 28,847
Fully diluted.......... 40,556 39,749 40,120 38,233 34,596 32,310 30,791
Shares outstanding-end-
ing................... 39,827 39,419 39,905 35,962 33,924 29,791 28,436
SNC (HISTORICAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $314,576 $324,918 $ 634,982 $653,348 $674,656 $667,803 $639,419
Net income............. 52,931 20,651 (19,024) 59,166 44,610 30,869 36,416
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 8,236 $ 7,585 $ 8,274 $ 7,380 $ 6,567 $ 6,403 $ 6,148
Deposits............... 6,229 6,042 6,323 6,041 5,504 5,149 4,981
Long-term debt......... 217 371 480 290 293 389 309
Common stockholders'
equity................ 520 522 487 501 425 370 349
Stockholders' equity... 594 595 564 575 425 370 349
PER SHARE DATA
Net income............. $ 1.15 $ .43 $ (.57) $ 1.34 $ 1.17 $ .82 $ .97
Fully diluted income... 1.10 .43 (.57) 1.31 1.17 .82 .97
Cash dividend declared. .34 .30 .64 .50 .46 .42 .39
Book value per common
share, end of period.. 11.98 12.63 11.34 13.15 12.15 10.95 10.33
AVERAGE SHARES OUTSTAND-
ING
(thousands):
Primary................ 43,636 41,899 42,331 40,778 38,079 37,461 37,375
Fully diluted.......... 48,189 46,468 46,889 44,994 38,112 37,461 37,375
Shares outstanding-end-
ing................... 43,386 41,333 42,961 38,090 34,993 33,776 33,770
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AT, OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT, OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL/COMMERCE/SNC
(PRO FORMA)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $734,990 $700,704 $1,417,562 $1,393,662 $1,423,830 $1,373,534 $1,325,838
Net income............. 111,912 74,738 92,539 146,729 115,544 92,725 91,118
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 18,807 $ 17,138 $ 18,837 $ 15,957 $ 14,437 $ 13,012 $ 12,655
Deposits............... 14,288 13,555 15,523 13,044 12,165 10,848 10,378
Long-term debt......... 620 483 838 423 417 499 426
Common stockholders'
equity................ 1,371 1,325 1,328 1,192 1,025 848 777
Stockholders' equity... 1,445 1,399 1,407 1,266 1,025 848 777
PER SHARE DATA
Net income............. $ 1.07 $ .72 $ .88 $ 1.53 $ 1.36 $ 1.14 $ 1.15
Fully diluted income... 1.05 .74 .89 1.48 1.33 1.12 1.14
Cash dividend declared. .34 .30 .64 .50 .46 .42 .39
Book value per common
share, end of period.. 13.56 13.45 13.17 13.21 12.18 11.02 10.36
AVERAGE SHARES OUTSTAND-
ING
(thousands):
Primary................ 101,938 97,350 99,180 92,765 84,852 81,500 79,203
Fully diluted.......... 106,995 104,104 105,064 103,438 88,275 84,310 82,022
Shares outstanding-end-
ing................... 101,135 98,491 100,823 90,235 84,183 76,973 75,002
</TABLE>
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents at the dates and for the periods indicated (i)
certain historical and pro forma combined per share data for BB&T Financial
Common Stock after giving effect to the Acquisition and to the combination that
would be effected by both the Acquisition and the SNC Merger and (ii) certain
historical and pro forma data for Commerce Common Stock. The pro forma
financial data relating to the Acquisition is presented using the pooling-of-
interests method of accounting and the application of the Exchange Ratio of
1.305 shares of BB&T Financial Common Stock for each outstanding share of
Commerce Common Stock. The pro forma financial data relating to the SNC Merger
assumes the prior consummation of the Acquisition and is presented using the
pooling-of-interests method of accounting and the application of the exchange
ratio in the SNC Merger of 1.45 shares of the Continuing Corporation's common
stock for each outstanding share of BB&T Financial Common Stock. The data
presented should be read in conjunction with the historical financial
statements and the related notes thereto included elsewhere herein or
incorporated herein by reference and in conjunction with the pro forma combined
condensed financial information included elsewhere herein.
<TABLE>
<CAPTION>
COMMERCE
COMMERCE EQUIVALENT
HISTORICAL BB&T/ EQUIVALENT BB&T/ PRO FORMA
------------------ COMMERCE PRO FORMA COMMERCE/ (BB&T/
BB&T PRO FORMA (BB&T/ SNC SNC COMMERCE/
FINANCIAL COMMERCE COMBINED COMMERCE) HISTORICAL PRO FORMA SNC)
--------- -------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER
SHARE
Six Months Ended June
30, 1994............... $ 1.52 $ 1.29 $ 1.47 $ 1.92 $ 1.15 $ 1.07 $ 2.02
Fiscal Years Ended (1)
1993................... 2.95 2.38 2.85 3.71 (.57) .88 1.67
1992................... 2.53 2.05 2.44 3.18 1.34 1.53 2.90
1991................... 2.30 1.36 2.20 2.87 1.17 1.36 2.57
FULLY DILUTED EARNINGS
PER SHARE
Six Months Ended June
30, 1994............... $ 1.52 $ 1.23 $ 1.46 $ 1.91 $ 1.10 $ 1.05 $ 1.99
Fiscal Years Ended (1)
1993................... 2.91 2.28 2.80 3.65 (.57) .89 1.68
1992................... 2.43 1.97 2.35 3.07 1.31 1.48 2.80
1991................... 2.21 1.35 2.11 2.75 1.17 1.33 2.52
CASH DIVIDENDS DECLARED
PER SHARE
Six Months Ended June
30, 1994............... $ .54 $ .30 $ .54 $ .70 $ .34 $ .34 $ .64
Fiscal Years Ended (1)
1993................... 1.02 .51 1.02 1.33 .64 .64 1.21
1992................... .91 .26 .91 1.19 .50 .50 .95
1991................... .85 .05 .85 1.11 .46 .46 .87
BOOK VALUE PER SHARE
As of June 30, 1994..... $22.17 $17.10 $21.36 $27.87 $11.98 $13.56 $25.66
Fiscal Years Ended (1)
1993................... 21.90 16.22 21.06 27.48 12.63 13.17 24.92
1992................... 20.01 14.90 19.23 25.10 11.34 13.21 25.00
1991................... 18.18 13.63 17.66 23.05 13.15 12.18 23.05
</TABLE>
- --------
(1) The fiscal years of BB&T Financial, Commerce and SNC end on December 31.
13
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the stockholders of
Commerce as of the Record Date and is accompanied by a form of proxy which is
solicited by the Board of Directors of Commerce for use at the Special Meeting
of Commerce's stockholders to be held on , 1994 and any adjournment thereof.
At the Special Meeting, stockholders will vote on whether to approve the
Acquisition Agreement. Proxies may be voted on such other matters as may
properly come before the Special Meeting, or any adjournment thereof, in the
best judgment of the proxy holders named therein.
Holders of Commerce Common Stock are requested to complete, date and sign the
accompanying proxy and return it promptly to Commerce in the enclosed postage-
paid envelope.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
Only the holders of Commerce Common Stock on the Record Date ( ) are
entitled to receive notice of and to vote at the Special Meeting and at any
adjournments thereof. On the Record Date, there were shares of Commerce
Common Stock outstanding which were held by approximately holders of
record. Each share of Commerce Common Stock outstanding on the Record Date is
entitled to one vote as to each of the matters submitted at the Special
Meeting.
APPROVAL OF THE ACQUISITION AGREEMENT WILL REQUIRE THE AFFIRMATIVE VOTE OF AT
LEAST A MAJORITY OF THE OUTSTANDING SHARES OF COMMERCE COMMON STOCK. FAILURE OF
A HOLDER OF COMMERCE COMMON STOCK TO VOTE SUCH SHARES WILL HAVE THE SAME EFFECT
AS A VOTE "AGAINST" THE ACQUISITION AGREEMENT.
As of the Record Date, the directors and executive officers of Commerce and
their affiliates owned a total of shares, or % of Commerce Common Stock,
all of which are expected to be voted in favor of the Acquisition Agreement.
VOTING AND REVOCATION OF PROXIES
The shares of Commerce Common Stock represented by properly completed proxies
received at or prior to the time for the Special Meeting will be voted as
directed by the stockholders, unless revoked as described below. If no
instructions are given, executed proxies will be voted "FOR" approval of the
Acquisition Agreement. If any other matters are properly presented at the
Special Meeting and may be properly voted on, the proxies solicited hereby will
be voted on such matters in accordance with the decision of a majority of the
Commerce Board of Directors. However, in such event, voting authority will only
be exercised to the extent permissible under the applicable federal securities
laws. Management is not aware of any other business to be presented at the
Special Meeting. This proxy is being solicited for the Special Meeting called
to consider the Acquisition Agreement and any adjournment(s) of the Special
Meeting and will not be used for any other meeting.
The presence of a stockholder at the Special Meeting will not automatically
revoke such stockholder's proxy. A stockholder may, however, revoke a proxy at
any time prior to its exercise by filing a written notice of revocation with,
or by delivering a duly executed proxy bearing a later date to, the Secretary
of Commerce at Commerce's principal executive offices prior to the Special
Meeting, or by attending the Special Meeting and voting in person. A proxy will
not be revoked by the death or incapacity of the stockholder executing it
unless, before the shares are voted, notice of such death or incapacity is
filed with the Secretary of Commerce or other person authorized to tabulate
votes.
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SOLICITATION OF PROXIES
Commerce will bear the costs of soliciting proxies, except under certain
circumstances. In addition to use of the mails, proxies may be solicited
personally or by telephone or facsimile by directors, officers and other
employees of Commerce, who will not be specially compensated for such
solicitation activities. Arrangements also will be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of shares held of record by
such persons, and such persons will be reimbursed for their reasonable expenses
incurred in that connection by Commerce. Commerce will not utilize the services
of a proxy soliciting firm in connection with the solicitation of proxies in
connection with the Special Meeting.
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Proxy Statement/Prospectus
and, if given or made, such information or representation should not be relied
upon as having been authorized by Commerce, BB&T Financial or any other person.
The delivery of this Proxy Statement/Prospectus will not, under any
circumstances, create any implication that there has been no change in the
affairs of Commerce or BB&T Financial since the date of this Proxy
Statement/Prospectus.
RECOMMENDATION
The Board of Directors of Commerce has unanimously approved the Acquisition
Agreement and believes that the proposed transaction is fair to and in the best
interests of Commerce and its stockholders. The Board of Directors of Commerce
unanimously recommends that Commerce's stockholders vote FOR approval of the
Acquisition Agreement.
In making its recommendation, the Board of Directors of Commerce has
considered, among other things, the opinion of Alex. Brown that BB&T
Financial's proposal is fair to Commerce's stockholders from a financial point
of view. See "THE ACQUISITION--Opinion of Financial Advisor."
THE ACQUISITION
The following summary of certain terms and provisions of the Reorganization
Agreement, Plan of Merger and Option Agreement is qualified in its entirety by
reference to each of such documents, which are incorporated by reference herein
and are attached hereto as Appendices I, II and III.
BACKGROUND OF THE ACQUISITION
In October 1993, BB&T Financial and Commerce, together with Commerce's
financial advisor, Alex. Brown, entered into discussions concerning a preferred
stock purchase arrangement whereby BB&T Financial would commit to purchase up
to $12 million of a newly created class of Commerce preferred stock. The
preferred stock, which was designed to qualify as Tier 1 capital for regulatory
purposes, would allow Commerce to enhance its capital position and would make
available additional capital to help support the possible future expansion of
Commerce. The preferred stock purchase agreement with BB&T Financial was
publicly announced in April, 1994, but no shares of preferred stock have been
issued thereunder.
During the course of the negotiations with respect to the preferred stock
arrangement, John A. Allison, IV, Chief Executive Officer of BB&T Financial,
expressed an interest on several occasions to his counterpart at Commerce, G.
Robert Aston, Jr., in exploring the possibility of a business combination of
BB&T Financial and Commerce. The discussions were general and exploratory in
nature and did not result in any specific offers or proposals being made. In
March, 1994, Mr. Allison reiterated the interest of BB&T Financial in exploring
the possibility of a potential business combination with Commerce. Mr. Aston
indicated to Mr. Allison that Commerce would be in a better position to respond
to BB&T Financial after the Commerce annual stockholders' meeting scheduled for
the middle of May.
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<PAGE>
In late May 1994, a special committee of the Commerce Board of Directors was
formed (the "Special Committee") to study the strategic options available to
Commerce, including the possibility of pursuing discussions with BB&T Financial
concerning a possible business combination. The Special Committee was comprised
of five independent directors from the Commerce Board (Messrs. Thomas C.
Broyles; J.W. Whiting Chisman, Jr.; Andrew S. Fine; Ernest F. Hardee; and J.
Alan Lindauer) and three members of Commerce senior management (Messrs. G.
Robert Aston, Jr., President and Chief Executive Officer; R. Scott Morgan,
Executive Vice President and Senior Lending Officer; and Gerald T. McDonald,
Executive Vice President and Chief Financial Officer).
The Special Committee held its first meeting on May 25, 1994. At that
meeting, representatives of Alex. Brown presented and discussed a financial
evaluation of Commerce assuming Commerce continued as an independent entity or
merged with a larger institution. Alex. Brown identified potential merger
partners and furnished estimates of the exchange ratios or prices that Commerce
could reasonably expect to receive in a business combination. A second meeting
of the Special Committee was held on May 31, 1994 with representatives of Alex.
Brown that focused primarily on a potential business combination with BB&T
Financial.
After considering the information furnished by Alex. Brown and based on
various other factors, including the prospect of remaining independent in view
of the likelihood of further consolidation in the banking industry and the
relationship already established with BB&T Financial in connection with the
preferred stock purchase arrangement, the Special Committee concluded that it
would be advisable to explore a potential business combination with BB&T
Financial involving a tax-free exchange of Commerce Common Stock. The Special
Committee believed that BB&T Financial had the financial capacity and desire to
make a proposal which would be attractive to Commerce stockholders from a
financial point of view. In addition, the Special Committee believed BB&T
Financial had a banking culture that would be compatible with that of Commerce,
particularly since Commerce would be able to operate as a separate bank within
the holding company system. Accordingly, the Special Committee authorized Alex.
Brown to contact BB&T Financial. In view of the discussions which ensued with
BB&T Financial and the ultimate result of the negotiations, Alex. Brown was not
thereafter authorized to contact other institutions concerning their possible
interest in submitting a merger proposal.
During the period of June 8 through June 13, 1994, three meetings took place
between representatives of BB&T Financial and Commerce at which potential terms
and conditions of a possible transaction with BB&T Financial were discussed.
Based on the preliminary discussions at these meetings, the parties decided to
meet on June 21 to negotiate the terms of the transaction, including price, and
to arrive at a definitive agreement. Over the course of the next two days, the
managements of BB&T Financial and Commerce, with the assistance of their
respective legal advisors and Commerce's financial advisor, negotiated the
terms of the transaction as set forth in the Acquisition Agreement and the
Option Agreement.
At a meeting of the Commerce Board of Directors on June 23, 1994, the
management of Commerce, as well as Commerce's financial and legal advisors,
reviewed for the Commerce Board of Directors, among other things, a summary of
the terms of the Acquisition Agreement and the Option Agreement. Alex. Brown
presented its analysis of the BB&T Financial offer and delivered its opinion,
updated to the date hereof, that the terms of the offer are fair to the
Commerce stockholders from a financial point of view. See "--Opinion of
Financial Advisor." Based upon its review and after receiving the advice of
Alex. Brown and considering various other factors, the Commerce Board of
Directors unanimously approved and authorized the execution and adoption of the
Acquisition Agreement and the Option Agreement. See "--Reasons for the
Acquisition; Recommendation of the Commerce Board of Directors" and "--The
Option Agreement." The terms of the Acquisition and the execution of the
Acquisition Agreement and the Option Agreement were announced in a joint press
release on June 24, 1994.
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REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE COMMERCE BOARD OF DIRECTORS
The Commerce Board of Directors believes that the Acquisition and the
Acquisition Agreement are in the best interests of Commerce and the Commerce
stockholders. As explained below, this conclusion is supported by the opinion
of its independent financial advisor. In considering the terms and conditions
of the Acquisition Agreement, the Commerce Board of Directors considered a
number of factors. The Commerce Board of Directors did not assign any relative
or specific weights to the factors considered. The material factors considered
were:
(i) The Financial Terms of the Acquisition. In this regard, the Commerce
Board of Directors was of the view that, based on historical and
anticipated trading ranges for BB&T Financial Common Stock, the value of
the consideration to be received by Commerce stockholders resulting from
the Exchange Ratio represented a fair multiple of Commerce's per share book
value, market value and earnings. The Commerce Board of Directors also
considered that, under the proposed Exchange Ratio and based on the
Commerce Board of Directors' belief that BB&T Financial would continue to
pay dividends at its current rate, although there can be no assurance that
current dividends are indicative of future dividends, the Acquisition would
result in a substantial increase in dividend income to Commerce
stockholders. See "COMPARATIVE PER SHARE DATA." In addition, the Commerce
Board of Directors considered the fact that, based on the Exchange Ratio,
Commerce stockholders would own approximately 10% of the combined company,
which percentage compared favorably to the percentages indicated by the
contribution analysis presented to the Board. See "--Opinion of Financial
Advisor" for a discussion of this comparative information.
(ii) The Terms, Other than the Financial Terms, and Structure of the
Acquisition. In this respect, the Commerce Board of Directors considered
the benefits to the customers and employees of Commerce and the communities
it serves by allowing Commerce to remain a separate bank within the BB&T
Financial system. The Commerce Board of Directors further considered the
active role that Commerce, as BB&T Financial's first merger partner in
Virginia, would play in connection with additional financial institution
acquisitions in Virginia. The Commerce Board of Directors also considered
that the Acquisition would qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). See "--Certain
Federal Income Tax Consequences."
(iii) Certain Financial and Other Information Concerning BB&T
Financial. In this respect, the Commerce Board of Directors considered,
among other things, the consistently high position of BB&T Financial among
its peer group of national and regional financial institutions in terms of
profitability, capital adequacy and asset quality. The Commerce Board of
Directors also considered that the historical dividends per share, net
income per share and book value per share of BB&T Financial Common Stock to
be received by Commerce stockholders, after giving effect to the Exchange
Ratio, would represent a substantial increase in the historical dividends
per share, net income per share and book value per share of Commerce Common
Stock, although there can be no assurance that pro forma amounts are
indicative of future dividends, income per share or book value per share of
BB&T Financial. The Commerce Board of Directors further considered the
diversification of risk associated with ownership in an institution which
serves a broad geographic area which encompasses most of North Carolina and
parts of South Carolina. In addition, the Commerce Board of Directors
considered the increased marketability and liquidity of BB&T Financial
Common Stock.
(iv) Opinion of Financial Advisor. The Commerce Board of Directors also
considered the opinion of Alex. Brown as to the fairness, from a financial
point of view, of the terms of the Acquisition Agreement to Commerce
stockholders. See "--Opinion of Financial Advisor."
(v) Certain other Considerations. The Commerce Board of Directors further
determined that the addition of resources resulting from the Acquisition
will enable Commerce to provide a wider and improved array of financial
services to consumers and businesses and to achieve added flexibility in
dealing with the changing competitive environment in its market area. In
addition, the Commerce Board of Directors considered the prospects of
nationwide interstate banking, the continued disintegration of
17
<PAGE>
traditional geographic and industry lines and the likelihood of further
consolidation in the banking industry.
The Commerce Board of Directors believes that the Acquisition and the
Acquisition Agreement are in the best interests of Commerce and the Commerce
stockholders. The Commerce Board of Directors unanimously recommends that
Commerce's stockholders vote TO APPROVE the Acquisition Agreement.
OPINION OF FINANCIAL ADVISOR
Commerce retained Alex. Brown to act as its financial advisor in connection
with the Acquisition and related matters. Commerce selected Alex. Brown to act
as its financial advisor based upon Alex. Brown's qualifications, expertise and
reputation, as well as its familiarity with Commerce's business and market
area. Alex. Brown regularly publishes research reports regarding Commerce, the
financial services industry in general and the businesses and securities of
publicly owned companies in that industry.
Representatives of Alex. Brown attended the meeting of Commerce's Board of
Directors on June 23, 1994, at which time the Acquisition Agreement was
approved and adopted. Alex. Brown rendered an opinion to Commerce's Board of
Directors that, on June 23, 1994, based on the matters set forth therein, the
Exchange Ratio of 1.305 shares of BB&T Financial Common Stock for each share of
Commerce Common Stock is fair to the stockholders of Commerce from a financial
point of view. Alex. Brown did not determine or recommend the type or amount of
merger consideration. No limitations were imposed by the Commerce Board of
Directors upon Alex. Brown with respect to the investigations made or
procedures followed by it in rendering its opinion.
The full text of Alex. Brown's opinion, updated to the date hereof, which
sets forth assumptions made, matters considered and limits on the review
undertaken, is attached hereto as Appendix IV and is incorporated herein by
reference. Commerce stockholders are urged to read the opinion of Alex. Brown
in its entirety. The following summary of the opinion is qualified in its
entirety by reference to the full text of the opinion.
In rendering its opinion, Alex. Brown (i) reviewed the Acquisition Agreement,
certain publicly available business and financial information concerning
Commerce and BB&T Financial and certain internal financial analyses and
forecasts for Commerce prepared by Commerce's management; (ii) held discussions
with members of executive management of Commerce and BB&T Financial regarding
the past and current business operations, financial condition and future
prospects of Commerce and BB&T Financial; (iii) reviewed the reported price and
trading activity of Commerce Common Stock and BB&T Financial Common Stock and
compared certain financial and stock market information for Commerce and BB&T
Financial with similar information for certain other companies, the securities
of which are publicly traded; (iv) reviewed the financial terms of certain
recent business combinations which Alex. Brown deemed comparable in whole or in
part; and (v) performed such other studies and analyses as Alex. Brown
considered appropriate.
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinion, Alex. Brown assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Commerce as to
the future financial performance of Commerce. Alex. Brown did not make an
independent evaluation or appraisal of the assets or liabilities of Commerce
nor was it furnished with any such appraisal.
The summary set forth below does not purport to be a complete description of
the analyses performed by Alex. Brown in this regard. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description.
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<PAGE>
Accordingly, notwithstanding the separate factors discussed below, Alex. Brown
believes that its analyses must be considered as a whole and that selecting
portions of its analyses or of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. No one of the analyses performed by
Alex. Brown was assigned a greater significance than any other. In performing
its analyses, Alex. Brown made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond Commerce or BB&T Financial's control. The analyses performed by
Alex. Brown are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of business do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Analysis of Selected Publicly Traded Companies. In preparing its opinion,
Alex. Brown, using publicly available information, compared selected financial
information including book value, tangible book value, recent earnings, asset
quality ratios and loan loss reserve levels, for Commerce and a group of
selected comparable financial institutions.
The group comprised ten selected banking organizations located in the states
of Arkansas, Georgia, North Carolina, South Carolina, Virginia and West
Virginia that possessed an asset base between $300 million and $1.5 billion
("Regional Comparable Group"). The Regional Comparable Group included Allied
Bankshares, Inc., Carolina First Corp., Century South Banks, Inc., L.S.B.
Bancshares, Inc. of South Carolina, NBSC Corp., Piedmont BankGroup, Inc.,
Premier Bankshares Corp., Simmons First National Corp., First United
Bancshares, Inc. and WesBanco, Inc. As of June 22, 1994, the relative multiples
of the market price of Commerce Common Stock and the mean market price of the
common stock of the Regional Comparable Group to such selected June 30, 1994
financial data were: to trailing 12 months earnings per share, 12.6x for
Commerce and 12.8x for the Regional Comparable Group; to stated book value,
172.6% for Commerce and 156.9% for the Regional Comparable Group; to tangible
book value, 176.2% for Commerce and 184.9% for the Regional Comparable Group;
and to total assets, 11.5% for Commerce and 15.2% for the Regional Comparable
Group.
Analysis of Comparable Acquisition Transactions. In preparing its opinion,
Alex. Brown analyzed certain comparable merger and acquisition transactions for
bank institutions based upon the acquisition price relative to stated book
value, latest twelve months earnings, total assets, premium to core deposits
and one month prior to announcement market price premium. The analysis included
a review and comparison of the mean multiples represented by a sample of
recently effected or pending bank acquisitions nationwide having a transaction
value between $50 million and $200 million which were announced since January
1, 1992 (a total of 55 transactions), as segmented into: (i) transactions in
Georgia, Maryland, North Carolina, South Carolina and Virginia (4 transactions)
("Regionally-Segmented Transactions"); (ii) transactions in which the selling
bank demonstrated a return on average assets of between 0.70% and 1.20% during
the year of an announced acquisition (25 transactions) ("Profitability-
Segmented Transactions"); and (iii) transactions in which the selling bank had
non-performing assets of less than 1.00% for the most recent quarter prior to
an announced acquisition (27 transactions) ("Asset Quality-Segmented
Transactions").
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Based on the closing stock price of BB&T Financial Common Stock on June 22,
1994 ($31.25), the market value of the merger consideration at June 23, 1994
was $40.78 per Commerce share (the "Comparison Value"). The relative multiples
of the Comparison Value and each of the comparable acquisition transaction
segmentations are provided in the following table:
<TABLE>
<CAPTION>
PURCHASE PRICE TO
---------------------------
ONE MONTH
LAST 12 PRIOR
MONTHS CORE MARKET
EARNINGS DEPOSIT PRICE
TRANSACTION GROUP BOOK VALUE PER SHARE ASSETS PREMIUM PREMIUM
----------------- ---------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
COMPARISON VALUE................ 238.6% 17.4x 18.2% 13.7% 51.7%
Comparable Acquisition Transac-
tions:
(a) Nationwide.................. 197.8% 14.7x 16.7% 10.9% 38.8%
(b) Regionally-Segmented........ 208.5% 21.0x 18.1% 11.3% 29.9%
(c) Profitability-Segmented..... 188.6% 15.9x 15.1% 9.5% 42.2%
(d) Asset Quality-Segmented..... 216.1% 15.7x 18.4% 12.7% 41.6%
</TABLE>
Contribution Analysis. Alex. Brown analyzed the historical (March 31, 1994)
contribution of each of Commerce and BB&T Financial (pro forma for its
acquisition of L.S.B. Bancshares, Inc. of South Carolina) to, among other
things, the total assets, total equity and three months ended March 31, 1994
net income of the pro forma combined company. This analysis showed that
Commerce would have contributed 6.51% of the total assets, 5.49% of the total
equity and 6.11% of the three months ended March 31, 1994 net income to the pro
forma combined company, compared with a proposed ownership of 10.0% of the
combined company to be held by Commerce stockholders. This analysis did not
include any merger synergies.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that Commerce
could produce through December 31, 1998, under different assumptions as to
required equity levels, if Commerce performed in accordance with management's
forecasts and certain variants thereof. Alex. Brown also estimated the terminal
value for Commerce's common equity after the period by applying book value
acquisition multiples (188.6%--238.6%) derived from the average price to book
multiples generated by the different segmentations in the comparable
transaction analysis. The dividend streams and terminal values were then
discounted to present values using discount rates ranging from 13.5% to 16.5%
which reflect different assumptions regarding the required rates of return of
holders or prospective buyers of Commerce Common Stock.
Reference Range. Based in part on the several analyses discussed above, Alex.
Brown developed, for purposes of its opinion, a reference range for the value
of Commerce Common Stock of $30.50 to $42.27 per share of Commerce Common
Stock. The values reflected in the foregoing reference range were considered
along with the other analyses performed by Alex. Brown and were not intended to
represent the price at which 100% of the Commerce Common Stock could actually
be sold. The foregoing reference range was based in part on the application of
economic and financial models and is not necessarily indicative of actual
values, which may be significantly more or less than such estimates. The
reference ranges does not purport to be an appraisal.
Compensation of Financial Advisor. Pursuant to the terms of an engagement
letter dated June 4, 1993 and an addendum dated May 31, 1994, Commerce has
agreed to pay Alex. Brown a fee of 1.00% of the aggregate consideration to be
paid in the Acquisition for acting as financial advisor to Commerce in
connection with the Acquisition, including rendering its opinion. Commerce paid
$25,000 of this fee to Alex. Brown upon execution of the engagement letter and
the balance of this fee is payable to Alex. Brown upon consummation of the
Acquisition. Whether or not the Acquisition is consummated, Commerce has agreed
to reimburse Alex. Brown for certain reasonable out-of-pocket expenses and has
also agreed to indemnify Alex. Brown and certain related persons against
certain liabilities relating to or arising out of its engagement.
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Certain Relationships. Alex. Brown has acted, from time to time, as financial
advisor to Commerce, including acting as financial advisor to Commerce in
connection with the Preferred Stock Purchase Agreement with BB&T Financial
dated April 21, 1994. In the ordinary course of its business, Alex. Brown makes
a market in Commerce and BB&T Financial securities and may hold positions in
securities of Commerce and BB&T Financial.
THE FULL TEXT OF ALEX. BROWN'S OPINION AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX IV TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE, AND
SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF THE OPINION OF ALEX. BROWN SET FORTH IN
THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE OPINION.
GENERAL DESCRIPTION OF THE TERMS OF THE ACQUISITION
On the Effective Date, holders of Commerce Common Stock will receive a number
of shares of BB&T Financial Common Stock based on the Exchange Ratio. See "--
Exchange of Commerce Common Stock." BB&T-VA will be merged with and into
Commerce, with Commerce as the surviving corporation and wholly owned
subsidiary of BB&T Financial (Commerce as existing on and after the Effective
Date being hereinafter sometimes referred to as the "Surviving Corporation").
Immediately after the Effective Date, BB&T Financial will distribute all of the
outstanding common stock of the Surviving Corporation to BB&T Financial
Corporation of Virginia, a to be formed Virginia corporation and wholly owned
subsidiary of BB&T Financial ("BB&T Financial-Va"), and the Surviving
Corporation will become a wholly owned subsidiary of BB&T Financial-Va. Unless
the BB&T Financial-Va Board of Directors votes otherwise, the Surviving
Corporation will be named "Commerce Bank" for a period of not less than three
years after the Effective Date.
Upon consummation of the Merger, all of the members of the Commerce Board of
Directors will become members of the Board of Directors of the Surviving
Corporation. In addition, BB&T Financial has agreed to cause seven members of
the Commerce Board of Directors designated by Commerce's Chief Executive
Officer (the "BB&T Financial-Va Designees"), and three other persons designated
by BB&T Financial, to become members of the BB&T Financial-Va Board of
Directors upon consummation of the Acquisition. The BB&T Financial-Va Designees
are: G. Robert Aston, Jr.; Ramon W. Breeden, Jr.; Thomas C. Broyles; J.W.
Whiting Chisman, Jr.; Andrew S. Fine; Ernest F. Hardee; and J. Alan Lindauer.
Mr. Lindauer will become Chairman of the Board of BB&T Financial-Va.
The Reorganization Agreement provides that BB&T Financial and Commerce will
each bear and pay their own costs and expenses incurred in connection with the
transactions contemplated by the Reorganization Agreement, including fees and
expenses of each party's own financial consultants, accountants and counsel,
except that BB&T Financial and Commerce will each bear and pay 50 percent of
the cost of printing this Proxy Statement/Prospectus. BB&T Financial will,
however, reimburse Commerce for all reasonable out-of-pocket expenses incurred
by Commerce in connection with the transactions contemplated by the
Reorganization Agreement if the Reorganization Agreement is terminated.
However, the Reorganization Agreement further provides that BB&T Financial's
obligation to reimburse Commerce for such expenses will not apply if Commerce
materially breaches any provision of the Acquisition Agreement or the Option
Agreement.
EXCHANGE OF COMMERCE COMMON STOCK
At the Effective Date, each share of Commerce Common Stock outstanding
immediately prior to the Effective Date will be exchanged for 1.305 shares of
BB&T Financial Common Stock; provided, that in the event that BB&T Financial
shall have a record date between June 24, 1994 and the effective date of the
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Acquisition for a special distribution to stockholders, a stock split, stock
dividend or similar change in capitalization, an equitable and appropriate
adjustment shall be made to the Exchange Ratio to reflect the effect of such
distribution or change.
No fractional shares of BB&T Financial Common Stock will be issued in
connection with the Acquisition. Instead, cash will be paid in lieu of
fractional shares in an amount equal to the product of the fractional share
multiplied by the average of the reported closing price of BB&T Financial
Common Stock on the Nasdaq/NMS on the ten trading days ending on the tenth
business day prior to the Effective Date of the Acquisition (the "BB&T
Financial Average Closing Price").
At the Effective Date, Commerce's obligations with respect to its authorized
and outstanding Capital Notes, issued by Commerce pursuant to the Indenture,
will be assumed by BB&T Financial and the Surviving Corporation by a
supplemental indenture and each holder of a Capital Note will have the right,
during the period such Capital Note is convertible, to convert each Capital
Note into shares of BB&T Financial Common Stock at a Conversion Rate equal to
1.305 shares of BB&T Financial Common Stock for each share of Commerce Common
Stock into which such Capital Notes would have been converted immediately prior
to the Effective Date, subject to payment of cash in lieu of any fractional
shares and to further adjustment in accordance with the terms of the Indenture.
To the extent not exercised prior to the Effective Date, Commerce's
obligations with respect to stock options granted under the Commerce Stock
Option Plans will be assumed by BB&T Financial and each stock option
outstanding under such plan shall become the right to receive, upon payment of
the adjusted exercise price, that number of shares of BB&T Financial Common
Stock the option holder would have received pursuant to the Acquisition if he
or she had exercised such option immediately prior thereto, and cash in lieu of
any fractional shares. The conversion of the Commerce stock options is subject
to the restrictions imposed on "incentive stock options" by federal law. See
"--Interests of Certain Persons in the Acquisition and Effect of the
Acquisition on Employees and Benefit Plans--Stock Options."
The market price of BB&T Financial Common Stock following the completion of
the Acquisition will depend on the results of operations and the financial
condition of BB&T Financial, the pending SNC Merger, the general level of
interest rates, the perception of the banking industry generally, and other
relevant factors that may affect the price of BB&T Financial Common Stock and
that may affect the securities markets generally. Accordingly, BB&T Financial
Common Stock could trade at prices higher or lower than those trading prices
that may have been considered by Commerce's Board of Directors in approving the
Exchange Ratio.
EXCHANGE OF COMMERCE COMMON STOCK CERTIFICATES
As soon as practical after the Effective Date, BB&T-NC, as the transfer agent
for BB&T Financial Common Stock ("Transfer Agent"), will mail to each holder of
record of Commerce Common Stock a letter of instruction regarding the
procedures to be followed in the exchange of certificates of Commerce Common
Stock for certificates of BB&T Financial Common Stock. When it is received,
holders of Commerce Common Stock should follow the instructions contained
therein.
Commerce's stockholders should not forward any certificates representing
shares of Commerce Common Stock except in accordance with the letter of
instruction from the Transfer Agent to be sent after the Effective Date.
COMMERCE'S STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES TO THE TRANSFER
AGENT UNTIL INSTRUCTED TO DO SO.
Upon surrender of certificates representing shares of Commerce Common Stock
to the Transfer Agent after the Effective Date, each holder of Commerce Common
Stock will receive a certificate representing the
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number of shares of BB&T Financial Common Stock to which such holder is
entitled pursuant to the Exchange Ratio, and each holder of Commerce Common
Stock entitled to receive a fraction of a share of BB&T Financial Common Stock
shall also receive cash in an amount equal to such fractional part of a share
of BB&T Financial Common Stock multiplied by the BB&T Financial Average Closing
Price. At the Effective Date, Commerce's obligations with respect to its
Capital Notes will be assumed by BB&T Financial and the Surviving Corporation
by a supplemental indenture, and each holder of a Capital Note will have the
right, during the period such Capital Note is convertible, to convert each
Capital Note into the number of shares of BB&T Financial Common Stock to which
such holder is entitled pursuant to the Conversion Rate, subject to payment of
cash in lieu of any fractional shares and to further adjustment in accordance
with the terms of the Indenture. In addition, at the Effective Date, Commerce's
obligations with respect to stock options granted under the Commerce Stock
Option Plans will be assumed by BB&T Financial, and each stock option
outstanding under each such Plan will become the right to receive, upon payment
of the adjusted exercise price, that number of shares of BB&T Financial Common
Stock the option holder would have received pursuant to the Acquisition if he
or she had exercised such option immediately prior thereto. However, a holder
of any Commerce option who would otherwise be entitled to receive a fraction of
a share of BB&T Financial Common Stock upon exercise of all his or her options
at any one time will receive cash in an amount equal to such fractional part of
a share of BB&T Financial Common Stock multiplied by the BB&T Financial Average
Closing Price. The conversion of the Commerce stock options is subject to the
restrictions imposed on "incentive stock options" by federal law.
A certificate for BB&T Financial Common Stock will be issued only in the name
in which the certificate for Commerce Common Stock surrendered for exchange is
registered. BB&T Financial will issue a single certificate for shares of BB&T
Financial Common Stock to which a Commerce stockholder is entitled. In no event
will the Transfer Agent, BB&T Financial or any party to the Acquisition be
liable to any person for any BB&T Financial Common Stock or dividends thereon
or cash delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
After the Effective Date and until surrender of Commerce Common Stock to the
Transfer Agent, each certificate that represented outstanding Commerce Common
Stock immediately prior to the Effective Date will be deemed to evidence
ownership of the number of shares of BB&T Financial Common Stock into which the
shares represented by such certificates have been exchanged and any right to
receive cash in lieu of fractional shares into which such shares would have
converted. No Commerce stockholder will, however, receive the dividends or
other distributions on BB&T Financial Common Stock until the certificates
representing Commerce Common Stock are surrendered for exchange. Upon surrender
of certificates representing Commerce Common Stock, each such stockholder will
receive the number of shares of BB&T Financial Common Stock to which such
stockholder is entitled under the Exchange Ratio and cash in lieu of any
fractional shares, plus any dividends or other distributions on BB&T Financial
Common Stock which are payable to holders as of any record date following the
Effective Date. No Commerce stockholder will be entitled to dividends, voting
rights or any other stockholder right in respect of any fractional share. All
fractional share interests of each stockholder will be aggregated, and no such
stockholder will receive a cash payment equal to, or greater than, the BB&T
Financial Average Closing Price.
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
The respective obligations of BB&T Financial and Commerce to consummate the
Acquisition are subject to the satisfaction of certain conditions, including,
without limitation, the taking of all necessary corporate action with respect
to the Acquisition Agreement, including the approval of the Acquisition
Agreement by the stockholders of Commerce; the continuing effectiveness of the
registration statement under the Securities Act and applicable state securities
or "Blue Sky" laws or exemptions to those laws; the registration or exemption
from registration under applicable state securities or "Blue Sky" laws of the
BB&T Financial Common Stock to be issued pursuant to the Acquisition Agreement;
the absence of any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits consummation of the
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transactions contemplated by the Reorganization Agreement; the receipt of an
opinion from BB&T Financial's counsel or tax advisor, in form and substance
satisfactory to Commerce and BB&T Financial, substantially to the effect that
the Acquisition will constitute one or more reorganizations under Section 368
of the Code, and that the stockholders of Commerce will not recognize any gain
or loss to the extent that such stockholders exchange shares of Commerce Common
Stock for shares of BB&T Financial Common Stock; the accuracy of the
representations and warranties set forth in the Reorganization Agreement in all
material respects as of the Effective Date as though made on and as of such
date; the performance by Commerce and BB&T Financial in all material respects
of all material obligations and compliance with all material covenants required
by the Reorganization Agreement; the receipt of certain opinions of counsel and
certificates from officers of Commerce and BB&T Financial; the receipt of all
necessary regulatory approvals for the Acquisition and expiration of all notice
periods and waiting periods required after the granting of any such approvals,
without any condition or requirement contained therein which, in the reasonable
opinion of the BB&T Financial Board of Directors, would so materially adversely
affect the business or economic benefits of the transactions contemplated by
the Reorganization Agreement as to render consummation of those transactions
inadvisable or unduly burdensome; and that neither BB&T Financial nor Commerce
has reasonably determined in good faith that there has been a material adverse
change in the condition, operations or prospects of the other party since
December 31, 1993.
Consummation of the Acquisition also is subject to the condition that BB&T
Financial will have received written agreements from the affiliates of Commerce
that they will not sell any shares of BB&T Financial Common Stock received upon
consummation of the Acquisition except in compliance with Rule 145 under the
Securities Act or otherwise in compliance with the Securities Act and the rules
and regulations promulgated thereunder. It is also a condition that BB&T
Financial will have determined that the Acquisition will qualify for the
pooling-of-interests method of accounting.
Either Commerce or BB&T Financial may waive certain of the conditions imposed
with respect to its or their respective obligations to consummate the
Acquisition, except for (i) the requirements that the Acquisition be approved
by Commerce's stockholders and that all required regulatory approvals for the
Acquisition be received and (ii) after approval of the Acquisition Agreement by
Commerce's stockholders, any reduction in the number of shares of BB&T
Financial Common Stock into which each share of Commerce Common Stock will be
converted in the Acquisition or the payment terms for fractional interests
thereof.
TERMINATION
The Reorganization Agreement may be terminated at any time on or prior to the
Effective Date by the mutual consent in writing of the parties. Either party
may elect to terminate the Reorganization Agreement by notifying the other
party in writing upon a breach by the other party in any material respect of
(i) any covenant or undertaking contained in the Reorganization Agreement, Plan
of Merger or Option Agreement, or (ii) any representation or warranty contained
in the Reorganization Agreement, which breach has been materially adverse. The
Reorganization Agreement may only be terminated as a result of such breach if
such breach has not been cured by the earlier of 30 days after the date on
which written notice of such breach is given to the party committing such
breach or the Effective Date. Either party may also elect to terminate the
Reorganization Agreement on the Effective Date if the conditions precedent to
the obligations of such party to consummate the transactions contemplated by
the Reorganization Agreement have not been satisfied or fulfilled. The
Reorganization Agreement also may be terminated by either party if any of the
regulatory applications for prior approval are denied and the time period for
appeals and requests for reconsideration of such denial has run, or if the
Commerce stockholder approval required to consummate the Acquisition is not
obtained. In addition, the Reorganization Agreement may be terminated by either
party if the Effective Date has not occurred prior to the close of business on
June 30, 1995. The Reorganization Agreement may also be terminated by either
party if such party determines in good faith that any condition precedent to
such party's obligations would be impossible to satisfy. The terminating party
must, however, give the other party notice
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<PAGE>
at least ten days prior to such termination and provide the other party a
reasonable opportunity to discuss the matter with a view to achieving a
mutually acceptable resolution.
AMENDMENT
The Acquisition Agreement may be amended or supplemented in writing by mutual
agreement of BB&T Financial and Commerce, provided that such amendment or
supplement must be approved by their respective Boards of Directors, and
provided further that no amendment or supplement executed after approval of the
Acquisition Agreement by Commerce's stockholders may reduce either the number
of shares of BB&T Financial Common Stock into which each share of Commerce
Common Stock will be converted in the Acquisition or the payment terms for
fractional interests. The Reorganization Agreement was amended as of August 25,
1994 to change the structure of the Acquisition to provide that BB&T-VA will be
a direct subsidiary of BB&T Financial prior to the Merger and, immediately
following the Merger, BB&T Financial will distribute all of the outstanding
common stock of the Surviving Corporation to BB&T Financial-Va and the
Surviving Corporation will become a subsidiary of BB&T Financial-Va.
CONDUCT OF COMMERCE'S AND BB&T FINANCIAL'S BUSINESS PRIOR TO THE EFFECTIVE DATE
Under the terms of the Reorganization Agreement, neither Commerce nor any
Commerce subsidiary may, without the prior written consent of BB&T Financial,
which consent may not be withheld on an arbitrary basis or basis inconsistent
with BB&T Financial's interests as an acquiror of Commerce, among other things:
(i) carry on its business other than in the usual, regular and ordinary course
in substantially the same manner as theretofore conducted, or establish or
acquire any new subsidiary or cause or permit any subsidiary to engage in any
new activity or expand any existing activities; (ii) declare, set aside, make
or pay any dividend or other distribution in respect of its capital stock that
would cause the Acquisition not to be accounted for as a pooling-of-interests,
as determined by BB&T Financial; (iii) issue any shares of its capital stock
other than pursuant to the Option Agreement, the Commerce Stock Option Plans,
the Capital Notes, or the Commerce Dividend Reinvestment and Stock Purchase
Plan; (iv) issue, grant or authorize any rights other than pursuant to the
Option Agreement or effect any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization; (v) amend its articles
of incorporation or by-laws; impose, or suffer the imposition, on any share of
stock held by Commerce in any Commerce subsidiary of any material lien, charge
or encumbrance or permit any such lien to exist; or waive or release any
material right or cancel or compromise any material debt or claim other than in
the ordinary course of business; (vi) merge with any other corporation or bank
or permit any other corporation, savings institution or bank to merge into it
or consolidate with any other corporation, savings institution or bank; acquire
control over any other firm, bank, corporation, savings institution or
organization; or liquidate, sell or otherwise dispose of any assets or acquire
any assets, other than in the ordinary course of its business; (vii) fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business except
where Commerce or any Commerce subsidiary is in good faith contesting the
validity of any of the foregoing; (viii) increase the rate of compensation of
any of its directors, officers or employees, or pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees, except in a manner and amount consistent with
past practice; (ix) enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees; provided however, that this subpart shall not prevent renewals of
any of the foregoing consistent with past practice; (x) solicit or encourage
inquiries or proposals with respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, Commerce or any Commerce subsidiary or any business
combination with Commerce or any Commerce subsidiary other than as contemplated
by the Reorganization Agreement; or authorize any officer, director, agent or
affiliate of it to do any of the above; or fail to notify BB&T Financial
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<PAGE>
immediately if any such inquiries or proposals are received by, any such
information is required from, or any such negotiations or discussions are
sought to be initiated with, Commerce; (xi) enter into (a) any material
agreement, arrangement or commitment not made in the ordinary course of
business, including, without limitation, agreements or memoranda of
understanding with regulatory authorities, (b) any agreement, indenture or
other instrument not made in the ordinary course of business relating to the
borrowing of money by Commerce or a Commerce subsidiary or guarantee by
Commerce or a Commerce subsidiary of any such obligation, (c) any agreement,
arrangement or commitment not cancellable by Commerce without penalty or cost
within 30 days after the Effective Date relating to the employment or severance
of a consultant or the employment, severance, election or retention in office
of any present or former director, officer or employee (this clause shall not
apply to the normal election of directors by stockholders and the election of
officers by directors not pursuant to a specific agreement, arrangement or
commitment not previously disclosed as provided in the Reorganization
Agreement), or (d) any contract, agreement or understanding with a labor union;
(xii) change its lending, investment or asset liability management policies in
any material respect or materially change the mix (by type of security) and
average maturity of the securities portfolio, except as may be required by
applicable law, regulation or directives, and except that after approval of the
Acquisition Agreement by its stockholders, Commerce shall cooperate in good
faith with BB&T Financial to adopt policies, practices and procedures
consistent with those used by BB&T Financial, effective on or before the
consummation of the Acquisition; (xiii) change its methods of accounting in
effect at December 31, 1993, except as required by changes in generally
accepted accounting principles concurred in by its independent certified public
accountants, or change any of its methods of reporting income and deductions
for federal income tax purposes from those employed in the preparation of its
federal income tax returns for the year ended December 31, 1993, except as
required by changes in law or regulation; or (xiv) agree to do any of the
foregoing.
Except with the prior written consent of Commerce, which consent may not be
arbitrarily or unreasonably withheld, prior to the Effective Date, neither BB&T
Financial nor any of its subsidiaries may: (i) exercise the Option Agreement
other than in accordance with its terms, or dispose of the shares of Commerce
Common Stock issuable upon exercise of the option rights conferred thereby
other than as permitted or contemplated by the terms of the Option Agreement,
see "THE ACQUISITION--The Option Agreement"; (ii) enter into a merger or other
business combination transaction with any other corporation or person in which
BB&T Financial would not be the surviving or continuing entity after the
consummation thereof; (iii) sell or lease all or substantially all of the
assets and business of BB&T Financial; or (iv) declare an extraordinary or
special dividend or distribution on BB&T Financial Common Stock in an amount
equal to more than 10% of BB&T Financial's stockholders' equity as reflected on
the financial statements of BB&T Financial as of the three months ended prior
to such payment.
REGULATORY CONSIDERATIONS
The Acquisition is subject to certain regulatory approvals, as set forth
below. To the extent that the following information describes statutes and
regulations, it is qualified in its entirety by reference to the particular
statutes and regulations and the regulations promulgated under such statutes.
The Acquisition is subject to approval by the Federal Reserve under the BHCA,
which prohibits a bank holding company, such as BB&T Financial or BB&T
Financial-Va, from acquiring direct or indirect ownership or control of more
than five percent (5%) of the voting shares of any bank, such as Commerce,
unless the Federal Reserve has approved the transaction. In considering an
application for approval of such an acquisition, the Federal Reserve reviews
the financial and managerial resources and future prospects of the bank holding
companies and the banks concerned and the convenience and needs of the
communities to be served. The Federal Reserve also is required to evaluate
whether the Acquisition would result in a monopoly or would be in furtherance
of any combination or conspiracy or attempt to monopolize the business of
banking in any part of the United States or otherwise would substantially
lessen competition or tend to create a monopoly or which in any manner would be
in restraint of trade, unless it finds that the
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<PAGE>
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In addition, the Federal
Reserve must take into account the records of BB&T Financial and Commerce in
meeting the credit needs of the entire community, including low- and moderate-
income neighborhoods, served by such institutions. The BHCA requires that any
bank acquisition or merger may not be consummated until the 30th day after
approval, during which the United States Department of Justice ("DOJ") may
challenge the transaction on antitrust grounds. BB&T Financial will submit an
application to the Federal Reserve for approval to consummate the Acquisition
in September 1994.
The Acquisition also is subject to approval by the Bureau under Section 6.1-
399 of the Code of Virginia, which permits a regional bank holding company,
such as BB&T Financial, to acquire, directly or indirectly, more than five
percent (5%) of the voting shares of a Virginia bank holding company, such as
BB&T Financial-Va, or a Virginia bank, such as BB&T-VA or Commerce, if the
Bureau has approved of the transaction based upon its review of an application
submitted to the Bureau pursuant to applicable law. Approval of such an
application is conditioned upon, among other things, the Bureau's determination
that the laws of the state in which the regional bank holding company is
located, in this case, North Carolina, would permit Virginia bank holding
companies to acquire banks and bank holding companies in that state. North
Carolina law would permit a Virginia bank holding company to acquire a bank or
bank holding company located in that state, subject to appropriate regulatory
approvals. The Bureau also must determine whether (i) the proposed acquisition
would be detrimental to the safety and soundness of the companies involved;
(ii) the applicant, its directors and officers are qualified by character,
experience and financial responsibility to control and operate a Virginia bank;
(iii) the proposed acquisition would be prejudicial to the interests of the
depositors, creditors, beneficiaries of fiduciary accounts or stockholders of
the companies involved; and (iv) the acquisition is in the public interest.
The organization of an interim Virginia-chartered bank, such as BB&T-VA, is
subject to approval by the Bureau of an application of an interim institution
to begin business in Virginia. Approval of an application is conditioned upon,
among other things, the Bureau's determination that the authorization of the
application would be in the public interest.
The Merger, in and of itself, is subject to approval by the FDIC pursuant to
the Bank Merger Act. The Bank Merger Act requires that the FDIC take into
consideration the financial and managerial resources and future prospects of
the existing and proposed institutions and the convenience and needs of the
communities to be served. Further, the FDIC may not approve the Merger if it
would result in a monopoly or if it would be in furtherance of any combination
or conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, or if its effect in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would be in any other manner in restraint of trade, unless the FDIC finds
that the anticompetitive effects of the Merger are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In addition, the FDIC
must take into account the record of performance of the existing and proposed
institution under the Community Reinvestment Act of 1977 ("CRA") in meeting the
credit needs of the entire community, including low- and moderate-income
neighborhoods, served by such institution. Applicable regulations also require
publication of notice of the application for approval of the Merger and provide
an opportunity for the public to comment on the application in writing and to
request a hearing.
The Bank Merger Act requires that any bank merger, including the Merger, may
not be consummated until the 30th day after approval, during which time the DOJ
may challenge the Merger on antitrust grounds.
The Merger will proceed under Section 6.1-43 of the Code of Virginia, which
allows bank mergers when all applicable laws governing such merger are complied
with.
The Acquisition will not proceed in the absence of all required approvals.
There can be no assurance that such approvals will be received and, if they
are, there can be no assurance as to the date of such approvals
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<PAGE>
or that such approvals will not be conditioned upon matters that could cause
the BB&T Financial Board of Directors to abandon the Acquisition. If any
condition or requirement is imposed which, in the reasonable opinion of the
BB&T Financial Board of Directors, would so materially adversely affect the
economic or business benefits to BB&T Financial of the transactions
contemplated by the Reorganization Agreement as to render consummation of the
transactions inadvisable or unduly burdensome, the Reorganization Agreement
permits BB&T Financial to terminate the Reorganization Agreement.
BB&T Financial and Commerce are not aware of any other governmental approvals
or actions that are required for consummation of the Acquisition or the Merger
except as described above. Should any such approval or action be required, it
is presently contemplated that such approval or action would be sought or
taken. There can be no assurance that any such approval or action, if needed,
could be obtained, would not delay consummation of the Acquisition or would not
be conditioned in a manner that would cause BB&T Financial to abandon the
Acquisition.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION AND EFFECT OF THE ACQUISITION
ON EMPLOYEES AND BENEFIT PLANS
Directors. Upon consummation of the Merger, all of the members of the
Commerce Board of Directors will become members of the Board of Directors of
the Surviving Corporation. In addition, BB&T Financial has agreed to cause
seven members of the Commerce Board of Directors designated by Commerce's Chief
Executive Officer, and three other persons designated by BB&T Financial, to
become members of the BB&T Financial-Va Board of Directors upon consummation of
the Merger. See "--General Description of the Terms of the Acquisition".
In connection with the Acquisition, Commerce and BB&T Financial will enter
into a five year consulting agreement ("Consulting Agreement") with Thomas C.
Broyles, the current Chairman of the Board of Commerce. Under the Consulting
Agreement Mr. Broyles will continue to provide services to Commerce and BB&T
Financial, particularly focusing on building ties in the communities served by
Commerce and assisting BB&T Financial in introducing itself to the Virginia
financial services market, and will receive compensation of $2,500 per month.
The Consulting Agreement also will contain other terms and conditions customary
to such agreements.
Indemnification of Directors and Officers. Following the Effective Date, BB&T
Financial has agreed to indemnify the directors and officers of Commerce who
are currently entitled to indemnification pursuant to Virginia law to the
maximum extent permitted by North Carolina and federal law, if applicable. In
addition, BB&T Financial has agreed to purchase and to keep in force directors'
and officers' liability insurance to provide coverage for actions or omissions
by directors and officers of Commerce for claims made for the period commencing
with and after the Effective Date. However, such insurance will be provided
only if, and to the extent that, any similarly situated officer or director of
BB&T Financial is insured from time to time. From and after the Effective Date,
BB&T Financial has also agreed to indemnify each present and former director of
Commerce (the "Indemnified Parties") against any and all costs or expenses
(including reasonable attorney's fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any and all claims, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Date, whether asserted or claimed prior to, at or after the
Effective Date, to the fullest extent permitted by applicable law (and also
advance expenses incurred to the fullest extent permitted by applicable law),
except for liability or litigation expense incurred on account of activities
known or believed by such person to be clearly in conflict with the best
interest of Commerce or BB&T Financial or activities such person had reasonable
cause to believe were criminal. Any Indemnified Party wishing to claim
indemnification under such provision must notify BB&T Financial thereof within
45 days of learning of such claim, action, suit, proceeding or investigation.
However,
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failure to so notify shall not relieve BB&T Financial of any liability it may
have to such Indemnified Party if such failure does not materially prejudice
the indemnifying party. BB&T Financial has agreed to pay the reasonable fees
and expenses of the Indemnified Parties as provided in the Reorganization
Agreement.
Employment Agreements. Upon consummation of the Acquisition, Messrs. Aston
and Morgan, who currently are officers of Commerce as described below (each, an
"Officer"), will enter into agreements (each an "Employment Agreement") with
BB&T Financial and Commerce providing for continued employment with BB&T
Financial for a period of ten years, in the positions, and for the base
salaries ("Base Salary") as are set forth below:
<TABLE>
<CAPTION>
CURRENT POSITION BASE
NAME WITH COMMERCE SALARY
---- ---------------- --------
<S> <C> <C>
G. Robert Aston............. President and Chief Executive Officer $418,000
R. Scott Morgan............. Executive Vice President and Senior $173,600
Lending Officer
</TABLE>
Subject to adjustment as described below, each Officer will receive a minimum
annual salary at least equal to the Base Salary. After the Effective Date, each
Officer, provided each is otherwise eligible to participate in the BB&T
Financial Executive Incentive Compensation Plan and the BB&T Financial Long-
Term Incentive Compensation Plan (the "Long-Term Plan" and, collectively, the
"Plans"), may elect to participate in the Plans. In the event that an Officer
makes such an election, such Officer's Base Salary will be reduced to reflect a
base salary which, when added to the "Target Award" (as defined in the BB&T
Financial Executive Incentive Compensation Plan) and the assumed value of
options granted under the Long-Term Plan (pursuant to BB&T Financial's standard
practices for valuing such options) would result in compensation equal to such
Officer's Base Salary. After the first year following the Effective Date, any
salary increase for any Officer will be determined in accordance with BB&T
Financial's annual salary plan. Each Officer will be entitled to receive, on
the same basis as other officers of BB&T Financial, such group employee
benefits as BB&T Financial may from time to time extend to its employees. In
addition, BB&T Financial agrees either to provide health insurance to each
Officer's dependents or to reimburse each Officer for the cost of providing
such health insurance under the BB&T Financial health insurance plan. Mr.
Aston's Employment Agreement also provides that Commerce either will continue
to pay the premiums due on that portion for which Mr. Aston is the beneficiary
of the Commerce insurance policy maintained on the life of Mr. Aston, or will
reimburse Mr. Aston for any amounts paid to him to maintain such insurance
policy, including any taxes due on the amount of such reimbursements.
If an Officer voluntarily terminates employment with BB&T Financial, such
Officer will be entitled to receive 50% of that Officer's compensation then
provided under the Employment Agreement until the end of the term of the
Employment Agreement. Subject to the limitations set forth in the Employment
Agreement, if an Officer terminates employment with BB&T Financial at any time
during the term of the Employment Agreement, the Officer may not engage in
businesses that compete with Commerce in specified areas.
In the event of a "Change in Control" (as defined in the Employment
Agreements) of BB&T Financial, each Officer will have the right to voluntarily
terminate his employment with Commerce or BB&T Financial up until 18 months
after the Change in Control. Each Officer also will be entitled to receive
benefits equal to approximately three years' Base Salary, group employee and
health insurance benefits.
The Employment Agreements will supercede existing employment agreements.
Stock Options. Certain executive officers of Commerce hold options under the
Commerce Stock Option Plans to acquire up to 259,743 shares of Commerce Common
Stock as of August 29, 1994. Such options, to the extent not exercised prior to
the Effective Date, will become, by virtue of the Acquisition, the right to
receive, upon payment of the adjusted exercise price specified in the option,
that number of shares of BB&T Financial Common Stock the option holder would
have received pursuant to the Acquisition if he or she had exercised such
option immediately prior thereto, and cash in lieu of any fractional shares.
See "THE ACQUISITION-- Exchange of Commerce Common Stock."
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Mr. Aston's Employment Agreement provides that, in addition to the other
options he may be entitled to exchange in the Acquisition, BB&T Financial
agrees to assume Commerce's obligations pursuant to certain nonqualified
options issued to him on December 16, 1992, to acquire up to 6,802 shares of
Commerce Common Stock. Each such stock option outstanding and held by Mr. Aston
shall become the right to receive, upon payment of the exercise price, 1.305
shares of BB&T Financial Common Stock for each share of Commerce Common Stock
covered by such options. The per share exercise price of the BB&T Financial
options shall equal the exercise price of the Commerce options of $23.50
divided by 1.305, or $18.01.
Employees and Benefit Plans. The Reorganization Agreement provides that, upon
the Effective Date, each person who is an employee of Commerce as of the
Effective Date (individually, an "Employee") shall automatically become an
employee of the Surviving Corporation, upon substantially the same terms and
conditions of employment, including compensation and benefits, and comparable
responsibilities that each Employee had on the day before the Effective Date.
BB&T Financial will attempt to avoid lay-offs of Commerce employees following
the Effective Date, and to meet efficiency goals for the Surviving Corporation
through attrition and reassignment. Each Employee will be eligible to receive
group hospitalization, medical, life, disability and other benefits comparable
to those provided to present employees of BB&T Financial without the imposition
of any waiting period or limitation on pre-existing conditions. Such benefits
shall not in the aggregate to all Employees as a group be less in amount or
value than those presently provided by Commerce. Employees also will have the
opportunity to participate in BB&T Financial's and its subsidiaries 401(k)
savings plans upon consummation of the Merger. Each participating employee will
have the right or option either to receive the benefits to which he or she is
entitled as a result of the termination of Commerce's 401(k) plan or to have
such benefits "rolled" into the 401(k) savings plans maintained by BB&T
Financial and its subsidiaries, on the same basis and applying the eligibility
standards as would apply to employees of BB&T Financial, recognizing past
service of those employees of Commerce as if such service had been performed on
behalf of BB&T Financial for vesting and qualification, but not for funding,
purposes.
Following the Merger, the Employees will be entitled to participate, to the
same extent and on the same terms as the employees of BB&T Financial, in any
retirement, pension or similar plans in effect for the benefit of BB&T
Financial employees (other than any employee stock ownership plan established
for the benefit of certain of BB&T Financial's employees) which when considered
as a whole will be no less favorable than the benefits currently provided to
such employees. Employees of Commerce will receive credit for their period of
service to such companies for participation and vesting purposes only.
RESTRICTIONS ON RESALES BY AFFILIATES
Certain directors and officers of Commerce may be deemed "affiliates" of
Commerce. Any sale or other disposition by such affiliates of BB&T Financial
Common Stock received by them pursuant to the Acquisition may be made only in
compliance with an exemption from the registration requirements of the
Securities Act and the restrictions set forth below.
The respective obligations of BB&T Financial and Commerce to consummate the
Acquisition are subject to the condition that each affiliate of Commerce must
execute and deliver to BB&T Financial a letter to the effect that each such
person will not dispose of any shares of BB&T Financial Common Stock to be
received pursuant to the Acquisition in violation of the Securities Act or the
applicable rules and regulations of the Commission.
This Proxy Statement/Prospectus may not be used by any such affiliate of
Commerce for the resale of any shares of BB&T Financial Common Stock received
pursuant to the Acquisition.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following is a summary description of certain anticipated federal income
tax consequences of the Acquisition to stockholders of Commerce; it is not
intended to be a complete description of the federal income
30
<PAGE>
tax consequences of the Acquisition. The federal income tax laws are complex,
and a stockholder's individual circumstances may affect the tax consequences to
the stockholder. In addition, no information is provided with respect to the
tax consequences of the Acquisition under applicable state, local and other tax
laws. Consequently, each Commerce stockholder is urged to consult his or her
own tax advisor regarding the tax consequences of the Acquisition.
Consummation of the Acquisition is conditioned upon the receipt by Commerce
and BB&T Financial of an opinion of KPMG Peat Marwick LLP, satisfactory in form
and substance to both parties, substantially to the effect that the Acquisition
will constitute one or more reorganizations under Section 368 of the Code and
that the stockholders of Commerce will not recognize any gain or loss for
federal income tax purposes to the extent that such stockholders exchange
shares of Commerce Common Stock for shares of BB&T Financial Common Stock. See
"--Conversion of Commerce Common Stock" and "--Conditions to Consummation of
the Acquisition."
If the Acquisition constitutes a reorganization within the meaning of Section
368 of the Code, (i) no gain or loss will be recognized by BB&T Financial or
Commerce by reason of the Acquisition; (ii) a stockholder of Commerce will
recognize no gain or loss for federal income tax purposes to the extent BB&T
Financial Common Stock is received in the Acquisition in exchange for Commerce
Common Stock; (iii) the tax basis in the BB&T Financial Common Stock received
by a stockholder will be the same as the tax basis in the Commerce Common Stock
surrendered in exchange therefor; and (iv) the holding period for BB&T
Financial Common Stock received in exchange for Commerce Common Stock will
include the period during which the stockholder held the Commerce Common Stock
surrendered in the exchange, provided that the Commerce Common Stock was held
as a capital asset at the Effective Date.
If Commerce Common Stock is held as a capital asset at the Effective Date,
the receipt of cash in lieu of a fractional share will give rise to capital
gain or loss measured by the difference, if any, between the amount of cash
received for such fractional share and a stockholder's basis in the fractional
share.
ACCOUNTING TREATMENT
BB&T Financial will use the pooling-of-interests method of accounting in
connection with the Acquisition. The pooling-of-interests method of accounting
combines assets and liabilities at their historical costs. It is a condition to
BB&T Financial's obligation to consummate the Acquisition that the Acquisition
qualify for treatment as a pooling-of-interests. See "PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS."
DISSENTERS' RIGHTS
Pursuant to Section 6.1-43 of the Code of Virginia, no stockholder of
Commerce is entitled to dissenters' rights in connection with the Acquisition.
Section 13.1-730 of the Code of Virginia generally grants dissenters' rights to
stockholders in connection with a plan of merger if stockholder approval is
required for the merger and the stockholder is entitled to vote on the merger.
However, Section 6.1-43 provides that in connection with the merger of Virginia
chartered banks, the dissenters' rights provision of Section 13.1-730 does not
apply.
THE OPTION AGREEMENT
The Option Agreement was entered into as a condition to BB&T Financial's
entering into the Reorganization Agreement and is intended to increase the
probability that the Acquisition will be consummated. Exercise of the Commerce
Option may tend to make the acquisition of a controlling interest in Commerce
more expensive to any prospective acquiror other than BB&T Financial even if
such an acquisition would be beneficial to Commerce's stockholders. The
existence of the Commerce Option is intended to make it less likely that a
prospective acquiror, other than BB&T Financial, will seek a business
combination with Commerce. The following is a brief summary of the Commerce
Option and is qualified in
31
<PAGE>
its entirety by reference to the Option Agreement, a copy of which is attached
to this Proxy Statement/Prospectus as Appendix III and incorporated by
reference herein.
The Option Agreement permits the exercise by BB&T Financial of the Commerce
Option to purchase 540,000 shares of Commerce Common Stock at a price of $31.50
per share (subject to adjustments), payable in cash, upon the occurrence of
certain events described below. The shares subject to the Commerce Option
represent approximately 19.8% of the outstanding Commerce Common Stock.
BB&T Financial may exercise the Commerce Option, in whole or in part, at any
time or from time to time, upon or after the occurrence of a "Purchase Event."
As used in the Option Agreement, "Purchase Event" means:
(i) Commerce shall have entered into an agreement with a person (other
than BB&T Financial or its affiliates) to: (a) acquire, merge or
consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all of the assets
of Commerce or (c) purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing more than 10% of the voting power of Commerce or
its subsidiary;
(ii) any person shall have acquired beneficial ownership of more than 10%
of the outstanding shares of Commerce Common Stock or shall have merged,
consolidated with or consummated a similar transaction with Commerce or
shall have purchased, leased or otherwise acquired all or substantially all
of Commerce's assets; or
(iii) a bona fide proposal is made by any person (other than BB&T
Financial or its affiliates) by public announcement or written
communication that is or becomes the subject of public disclosure, or in an
application to any federal or state regulatory authority, to (a) acquire,
merge or consolidate with, or enter into any similar transaction with
Commerce, (b) purchase, lease or otherwise acquire all or substantially all
of the assets of Commerce or (c) purchase or otherwise acquire (including
by way of merger, consolidation, share exchange, tender or exchange offer
or any similar transaction) securities representing more than 25% of the
voting power of Commerce.
Commerce is required to notify BB&T Financial upon the occurrence of a
transaction, offer or event giving rise to a Purchase Event. In the event BB&T
Financial wishes to exercise the Commerce Option, it must send Commerce written
notice specifying (i) the total number of shares it will purchase and (ii) the
place and date not earlier than three business days nor later than 20 business
days after the date on which such notice is given for the closing of such
purchase. If prior notification to, or approval of, any federal or state
regulatory agency is required, BB&T Financial and/or Commerce will promptly
file the required notice or application for approval and the period of time
that otherwise would run pursuant to such notice period will run instead from
the date on which the last required notification period has expired or has been
terminated or such approvals have been obtained and any requisite waiting
period has passed.
The Option Agreement will expire and terminate, to the extent not previously
exercised, upon the earlier of (i) the Effective Date; (ii) the date on which
the Reorganization Agreement is terminated, other than a termination based upon
a material breach by Commerce of specified covenants in the Reorganization
Agreement or the failure of Commerce to obtain stockholder approval of the
transactions contemplated by the Reorganization Agreement by the vote required
under applicable law, in either case following the occurrence of a Purchase
Event or (iii) 18 months after the Reorganization Agreement is terminated based
upon a material breach by Commerce of a specified covenant or the failure of
Commerce to obtain stockholder approval of the transactions contemplated by the
Reorganization Agreement by the vote required under applicable law, in either
case following the occurrence of a Purchase Event.
In the event that Commerce's capitalization changes by reason of a stock
dividend, split-up, merger, recapitalization, combination, exchange of shares
or the like, the number of shares subject to the Commerce Option and the
purchase price per share thereof will be adjusted so that the economic value of
the Commerce Option remains unaltered.
32
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet as of June
30, 1994, and unaudited pro forma combined condensed statements of income for
the six months ended June 30, 1994 and 1993 and the years ended December 31,
1993, 1992 and 1991, combine the historical financial statements of BB&T
Financial and Commerce after giving effect to the Acquisition and combine the
pro forma financial statements of BB&T Financial after giving effect to the
Acquisition with the historical financial statements of SNC. The pro forma
combined condensed balance sheet gives effect to the Acquisition and the SNC
Merger as if they had occurred on June 30, 1994, and the pro forma combined
condensed statements of income give effect to the Acquisition and the SNC
Merger as if they had occurred at the beginning of the period presented, in
each case, by the pooling-of-interests method of accounting. The pro forma per
share data assumes the application of the Exchange Ratio of 1.305 shares of
BB&T Financial Common Stock for each outstanding share of Commerce Common Stock
in the Acquisition and an exchange ratio of 1.45 shares of common stock of the
Continuing Corporation ("Continuing Corporation Common Stock") for each
outstanding share of BB&T Financial Common Stock. For additional information
about the SNC Merger, see "INFORMATION ABOUT BB&T FINANCIAL--SNC Merger."
The pro forma adjustments and combined amounts are provided for informational
purposes only. The pro forma financial information presented is not necessarily
indicative of actual results that would have been achieved had the Acquisition
and the SNC Merger been consummated on June 30, 1994, or at the beginning of
the periods presented, nor is it necessarily indicative of future results.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $262,116 16,704 278,820 198,181 477,001
Interest and dividends
on securities.......... 64,358 6,885 71,243 73,444 144,687
Interest on short-term
investments............ 1,374 343 1,717 608 2,325
-------- ------ ------- ------- -------
Total interest income. 327,848 23,932 351,780 272,233 624,013
-------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits.... 109,167 9,602 118,769 89,696 208,465
Interest on short-term
borrowed funds......... 20,660 30 20,690 15,575 36,265
Interest on long-term
debt................... 9,745 331 10,076 9,281 19,357
-------- ------ ------- ------- -------
Total interest ex-
pense................ 139,572 9,963 149,535 114,552 264,087
Net Interest Income..... 188,276 13,969 202,245 157,681 359,926
Provision for loan loss-
es..................... 4,500 1,200 5,700 2,703 8,403
-------- ------ ------- ------- -------
Net Interest Income
After Provision for
Loan Losses............ 183,776 12,769 196,545 154,978 351,523
Noninterest income...... 63,872 4,762 68,634 42,343 110,977
Noninterest expense..... 163,776 12,226 176,002 116,356 292,358
-------- ------ ------- ------- -------
Income before income
taxes.................. 83,872 5,305 89,177 80,965 170,142
Income taxes............ 28,493 1,703 30,196 28,034 58,230
-------- ------ ------- ------- -------
Net income.............. 55,379 3,602 58,981 52,931 111,912
Preferred dividend re-
quirement.............. -- -- -- 2,598 2,598
-------- ------ ------- ------- -------
Net income applicable to
common shares.......... $ 55,379 3,602 58,981 50,333 109,314
======== ====== ======= ======= =======
EARNINGS PER SHARE
Primary net income.... $ 1.52 1.29 1.47 1.15 1.07
Fully diluted net in-
come................. 1.52 1.23 1.46 1.10 1.05
======== ====== ======= ======= =======
AVERAGE COMMON SHARES
(thousands)
Primary............... 36,552 2,802 40,209 43,636 101,938
Fully diluted......... 36,552 3,068 40,556 48,189 106,995
======== ====== ======= ======= =======
</TABLE>
34
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T
BB&T FINANCIAL/ BB&T FINANCIAL/
FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
--------- -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans........ $230,686 15,002 245,688 200,581 446,269
Interest and dividends on
securities.............. 61,216 8,077 69,293 69,186 138,479
Interest on short-term
investments............. 717 323 1,040 1,530 2,570
-------- ------ ------- ------- -------
Total interest income.. 292,619 23,402 316,021 271,297 587,318
-------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits..... 107,185 10,311 117,496 100,491 217,987
Interest on short-term
borrowed funds.......... 9,758 9 9,767 7,465 17,232
Interest on long-term
debt.................... 3,990 304 4,294 11,661 15,955
-------- ------ ------- ------- -------
Total interest expense. 120,933 10,624 131,557 119,617 251,174
-------- ------ ------- ------- -------
Net Interest Income...... 171,686 12,778 184,464 151,680 336,144
Provision for loan loss-
es...................... 10,406 1,525 11,931 7,953 19,884
-------- ------ ------- ------- -------
Net Interest Income After
Provision for Loan
Losses.................. 161,280 11,253 172,533 143,727 316,260
Noninterest income....... 55,402 4,363 59,765 53,621 113,386
Noninterest expense...... 142,248 10,880 153,128 125,377 278,505
-------- ------ ------- ------- -------
Income before income tax-
es...................... 74,434 4,736 79,170 71,971 151,141
Income taxes............. 23,495 1,588 25,083 24,103 49,186
-------- ------ ------- ------- -------
Income before cumulative
effect of changes in
accounting principles... 50,939 3,148 54,087 47,868 101,955
Less cumulative effect of
changes in accounting
principles.............. -- -- -- 27,217 27,217
-------- ------ ------- ------- -------
Net income............... 50,939 3,148 54,087 20,651 74,738
-------- ------ ------- ------- -------
Preferred dividend re-
quirement............... -- -- -- 2,598 2,598
-------- ------ ------- ------- -------
Net income applicable to
common shares........... $ 50,939 3,148 54,087 18,053 72,140
======== ====== ======= ======= =======
EARNINGS PER SHARE
Primary
Income before
cumulative effect of
changes in accounting
principles............ $ 1.47 1.15 1.41 1.08 .98
Less: cumulative effect
of changes in
accounting principles. -- -- -- .65 .26
Net income........... 1.47 1.15 1.41 .43 .72
Fully diluted
Income before cumula-
tive effect of changes
in accounting princi-
ples.................. $ 1.43 1.11 1.37 1.03 1.02
Less: cumulative effect
of changes in
accounting principles. -- -- -- .60 .28
Net income........... 1.43 1.11 1.37 .43 .74
======== ====== ======= ======= =======
AVERAGE COMMON SHARES
(thousands)
Primary................ 34,684 2,726 38,242 41,899 97,350
Fully diluted.......... 35,843 2,993 39,749 46,468 104,104
======== ====== ======= ======= =======
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $479,212 30,861 510,073 405,121 915,194
Interest and dividends
on securities.......... 124,271 15,689 139,960 139,834 279,794
Interest on short-term
investments............ 1,668 697 2,365 2,355 4,720
-------- ------ ------- ------- ---------
Total interest income. 605,151 47,247 652,398 547,310 1,199,708
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 212,668 20,322 232,990 195,204 428,194
Interest on short-term
borrowed funds......... 24,733 26 24,759 18,525 43,284
Interest on long-term
debt................... 10,961 635 11,596 23,118 34,714
-------- ------ ------- ------- ---------
Total interest
expense.............. 248,362 20,983 269,345 236,847 506,192
-------- ------ ------- ------- ---------
Net Interest Income..... 356,789 26,264 383,053 310,463 693,516
Provision for loan
losses................. 19,048 2,825 21,873 31,438 53,311
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 337,741 23,439 361,180 279,025 640,205
Noninterest income...... 119,527 10,655 130,182 87,672 217,854
Noninterest expense..... 301,574 23,706 325,280 336,059 661,339
-------- ------ ------- ------- ---------
Income before income
taxes.................. 155,694 10,388 166,082 30,638 196,720
Income taxes............ 50,682 3,837 54,519 22,445 76,964
-------- ------ ------- ------- ---------
Net income before
cumulative effect of
changes in accounting
principles............. 105,012 6,551 111,563 8,193 119,756
Less cumulative effect
of changes in
accounting principles.. -- -- -- 27,217 27,217
-------- ------ ------- ------- ---------
Net income (loss)....... 105,012 6,551 111,563 (19,024) 92,539
Preferred dividend
requirement............ -- -- -- 5,196 5,196
-------- ------ ------- ------- ---------
Net income (loss)
applicable to common
shares................. $105,012 6,551 111,563 (24,220) 87,343
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary:
Income before
cumulative effect of
changes in accounting
principles........... $ 2.95 2.38 2.85 .07 1.16
Less: cumulative
effect of changes in
accounting
principles........... -- -- -- .64 .28
Net income (loss)... $ 2.95 2.38 2.85 (.57) .88
Fully-diluted:
Income before
cumulative effect of
changes in accounting
principles........... $ 2.91 2.28 2.80 .07 1.15
Less: cumulative
effect of changes in
accounting
principles........... -- -- -- .64 .26
Net income (loss)... $ 2.91 2.28 2.80 (.57) .89
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 35,620 2,748 39,206 42,331 99,180
Fully diluted......... 36,189 3,013 40,120 46,889 105,064
======== ====== ======= ======= =========
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $454,061 30,175 484,236 428,923 913,159
Interest and dividends
on securities.......... 135,529 13,689 149,218 137,025 286,243
Interest on short-term
investments............ 2,026 1,075 3,101 5,486 8,587
-------- ------ ------- ------- ---------
Total interest income. 591,616 44,939 636,555 571,434 1,207,989
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 249,876 21,845 271,721 251,172 522,893
Interest on short-term
borrowed funds......... 16,996 19 17,015 14,964 31,979
Interest on long-term
funds.................. 8,711 550 9,261 25,652 34,913
-------- ------ ------- ------- ---------
Total interest ex-
pense................ 275,583 22,414 297,997 291,788 589,785
-------- ------ ------- ------- ---------
Net Interest Income..... 316,033 22,525 338,558 279,646 618,204
Provision for loan loss-
es..................... 32,975 4,225 37,200 25,671 62,871
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 283,058 18,300 301,358 253,975 555,333
Noninterest income...... 95,549 8,210 103,759 81,914 185,673
Noninterest expense..... 254,133 19,091 273,224 236,731 509,955
-------- ------ ------- ------- ---------
Income before income
taxes.................. 124,474 7,419 131,893 99,158 231,051
Income taxes............ 41,853 2,477 44,330 39,992 84,322
-------- ------ ------- ------- ---------
Net income.............. 82,621 4,942 87,563 59,166 146,729
Preferred dividend re-
quirement.............. -- -- -- 4,605 4,605
-------- ------ ------- ------- ---------
Net income applicable to
common shares.......... $ 82,621 4,942 87,563 54,561 142,124
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary net income.... $ 2.53 2.05 2.44 1.34 1.53
Fully diluted net
income............... 2.43 1.97 2.35 1.31 1.48
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 32,705 2,413 35,854 40,778 92,765
Fully diluted......... 34,741 2,676 38,233 44,994 100,438
======== ====== ======= ======= =========
</TABLE>
37
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $467,671 31,725 499,396 456,154 955,550
Interest and dividends
on securities.......... 136,888 8,275 145,163 124,221 269,384
Interest on short-term
investments............ 6,939 1,027 7,966 10,569 18,535
-------- ------ ------- ------- ---------
Total interest income. 611,498 41,027 652,525 590,944 1,243,469
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 323,126 23,796 346,922 315,460 662,382
Interest on short-term
borrowed funds......... 18,023 94 18,117 20,078 38,195
Interest on long-term
debt................... 9,116 568 9,684 33,060 42,744
-------- ------ ------- ------- ---------
Total interest
expense.............. 350,265 24,458 374,723 368,598 743,321
-------- ------ ------- ------- ---------
Net Interest Income..... 261,233 16,569 277,802 222,346 500,148
Provision for loan
losses................. 42,317 2,925 45,242 30,602 75,844
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 218,916 13,644 232,560 191,744 424,304
Noninterest income...... 90,888 5,760 96,648 83,712 180,360
Noninterest expense..... 214,999 15,584 230,583 206,944 437,527
-------- ------ ------- ------- ---------
Income before income
taxes.................. 94,805 3,820 98,625 68,512 167,137
Income taxes............ 26,470 1,221 27,691 23,902 51,593
-------- ------ ------- ------- ---------
Net income.............. $ 68,335 2,599 70,934 44,610 115,544
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary net income.... $ 2.30 1.36 2.20 1.17 1.36
Fully diluted net
income............... 2.21 1.35 2.11 1.17 1.33
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 29,760 1,913 32,257 38,079 84,852
Fully diluted......... 31,756 2,176 34,596 38,112 88,275
======== ====== ======= ======= =========
</TABLE>
38
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BB&T BB&T
BB&T PRO FORMA FINANCIAL/ PRO FORMA FINANCIAL/
FINANCIAL COMMERCE ADJUSTMENTS COMMERCE SNC ADJUSTMENTS COMMERCE/SNC(C)
---------- -------- ----------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks,
noninterest-bearing.... $ 335,091 28,303 363,394 266,117 629,511
Interest-bearing bank
balances............... 31,447 12,613 44,060 12,760 56,820
Federal funds sold...... 31,260 -- 31,260 -- 31,260
Loans held for sale..... -- -- -- 45,327 45,327
Securities available for
sale................... 2,356,886 127,203 2,484,089 915,010 3,399,099
Securities held to
maturity............... 106,242 90,494 196,736 1,712,234 1,908,970
Loans................... 6,692,768 408,433 7,101,201 5,098,647 12,199,848
Less allowance for
loan losses............ 96,524 7,188 103,712 69,838 173,550
---------- ------- ---------- --------- ----------
Net loans.............. 6,596,244 401,245 6,997,489 5,028,809 12,026,298
Bank premises and
equipment.............. 150,662 19,229 169,891 146,725 316,616
Goodwill................ 32,635 385 33,020 6,377 39,397
Other assets............ 238,004 12,595 250,599 103,003 353,602
---------- ------- ---------- --------- ----------
Total assets........... $9,878,471 692,067 10,570,538 8,236,362 18,806,900
========== ======= ========== ========= ==========
LIABILITIES
Deposits
Noninterest-bearing.... $ 842,974 101,268 944,242 772,598 1,716,840
Interest-bearing....... 6,579,499 535,124 7,114,623 5,456,205 12,570,828
---------- ------- ---------- --------- ----------
Total deposits......... 7,422,473 636,392 8,058,865 6,228,803 14,287,668
Short-term borrowed
funds.................. 1,147,593 -- 1,147,593 1,131,961 2,279,554
Long-term debt.......... 396,252 6,790 403,042 216,686 619,728
Negative goodwill....... 35,155 -- 35,155 15,903 51,058
Other liabilities....... 72,895 2,292 75,187 49,142 124,329
---------- ------- ---------- --------- ----------
Total liabilities...... 9,074,368 645,474 9,719,842 7,642,495 17,362,337
---------- ------- ---------- --------- ----------
STOCKHOLDERS' EQUITY
Preferred stock......... -- -- -- 3,850 3,850
Common stock............ 90,678 6,813 2,077 (a) 99,568 216,928 189,179 (b) 505,675
Paid-in capital......... 278,775 29,787 (2,077)(a) 306,485 153,205 (189,179)(b) 270,511
Retained earnings....... 462,609 10,587 473,196 236,756 709,952
Unrealized holding gains
(losses) on securities
available for sale..... (21,632) (594) (22,226) (13,385) (35,611)
Less loan to employee
stock ownership plan... (4,419) -- (4,419) -- (4,419)
Less reserve for
restricted stock....... (1,908) -- (1,908) (3,487) (5,395)
---------- ------- ---------- --------- ----------
Total stockholders'
equity................. 804,103 46,593 850,696 593,867 1,444,563
---------- ------- ---------- --------- ----------
Total liabilities and
stockholders' equity.. $9,878,471 692,067 10,570,538 8,236,362 18,806,900
========== ======= ========== ========= ==========
</TABLE>
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) To reflect the issuance of 3,556,125 shares of BB&T Financial Common Stock
for all of the 2,725,163 outstanding shares of Commerce Common Stock, based
upon an exchange ratio of 1.305 shares of BB&T Financial Common Stock for
each outstanding share of Commerce Common Stock.
(b) To reflect the issuance of 57,749,354 shares of common stock of the
Continuing Corporation for all of the 39,827,141 outstanding shares of BB&T
Financial Common Stock, assuming the consummation of the Acquisition and an
exchange ratio of 1.45 shares of common stock of the Continuing Corporation
for each outstanding share of BB&T Financial Common Stock.
(c) In consummating the SNC Merger, BB&T Financial and SNC will incur one-time
charges to close and/or consolidate overlapping branch facilities and
eliminate other duplicative operations. It is estimated that these charges
will total approximately $ on an after tax basis and will be equal to
approximately 3.00%-4.50% of fully consolidated shareholders' equity.
40
<PAGE>
INFORMATION ABOUT BB&T FINANCIAL
BB&T FINANCIAL CORPORATION
BB&T Financial is a bank holding company, the principal assets of which are
all of the outstanding shares of common stock of BB&T-NC, BB&T Financial-SC
(which in turn owns all of the outstanding shares of capital stock of BB&T-SC,
Lexington and Community) and its two North Carolina savings bank subsidiaries.
BB&T Financial also includes among its assets interest-bearing bank balances
with and loans to BB&T-NC. BB&T Financial's principal sources of revenue are
interest, dividends and management fees received from its subsidiaries. There
are limitations on the subsidiaries' ability to supply funds to BB&T Financial.
See "MARKET PRICES AND DIVIDENDS." At June 30, 1994, BB&T Financial had
consolidated assets of approximately $9.9 billion, total insured deposits
through its subsidiaries of approximately $7.4 billion and total consolidated
stockholders' equity of approximately $804.1 million.
BRANCH BANKING AND TRUST COMPANY
BB&T-NC is a North Carolina chartered commercial bank. At June 30, 1994,
BB&T-NC operated 224 offices in 121 cities and towns in North Carolina and had
4,015 employees. BB&T-NC provides a wide range of commercial, consumer banking,
trust and investment services primarily through its branch network. BB&T-NC
also operates an insurance department and a travel department and is a broker-
dealer in government and municipal securities. At June 30, 1994, BB&T-NC had
total assets of approximately $8.3 billion, consolidated deposit liabilities of
approximately $6.2 billion and consolidated stockholders' equity of
approximately $655.5 million.
BRANCH BANKING AND TRUST COMPANY OF SOUTH CAROLINA
BB&T-SC, a South Carolina chartered commercial bank, is among the ten largest
banks in South Carolina. At June 30, 1994, BB&T-SC operated 19 offices in five
counties in South Carolina and had approximately 182 employees. BB&T-SC
provides a full range of commercial banking, consumer banking, trust and
investment services through its branch network. At June 30, 1994, BB&T-SC had
total assets of approximately $510.6 million, deposit liabilities of
approximately $453.7 million and stockholders' equity of approximately $44.2
million.
LEXINGTON AND COMMUNITY
Lexington and Community are both South Carolina chartered commercial banks.
At June 30, 1994, Lexington operated 17 offices in 9 cities and towns in South
Carolina, had 350 employees and had total assets of approximately $602.5
million, deposit liabilities of approximately $491.4 million and stockholders'
equity of approximately $55.8 million. At June 30, 1994, Community operated 8
offices in 7 cities and towns in South Carolina, had 75 employees and had total
assets of approximately $117.2 million, deposit liabilities of approximately
$99.1 million and stockholders' equity of approximately $9.0 million. Both
banks provide a full range of commercial banking, trust and investment services
through their respective branch networks. Lexington and Community also offer
discount brokerage services both directly and through Carolina Securities
Corporation.
BB&T-SC, Lexington and Community are expected to be merged or otherwise
consolidated into a single bank to be named "Branch Banking and Trust Company
of South Carolina."
SAVINGS BANK SUBSIDIARIES
BB&T Financial owns two North Carolina chartered savings banks in North
Carolina: Mutual Savings, with $87 million in assets at June 30, 1994; and
Citizens-Mooresville, with $64 million in assets at June 30, 1994. A third
North Carolina chartered savings bank subsidiary, Citizens-Newton, with $247
million in assets at June 30, 1994, was merged into BB&T-NC on August 22, 1994.
The savings banks are engaged primarily
41
<PAGE>
in the business of attracting deposits from the public and originating
residential mortgage, commercial and consumer loans. At June 30, 1994, the
three savings banks had 155 employees of whom 47 were officers, and operated 16
offices in 12 cities in North Carolina. Mutual Savings and Citizens-Mooresville
are expected to be merged or otherwise consolidated into BB&T-NC in September,
1994.
BB&T FINANCIAL'S ACQUISITION PROGRAM
BB&T Financial primarily has focused its business strategy on meeting the
banking needs of the retail and small and middle market commercial customer
through an extensive branch network. To complement this strategy, since 1990,
BB&T Financial has expanded its customer base through the acquisition of 14
North Carolina-based savings institutions with aggregate assets of
approximately $3.1 billion and branches of a 15th savings institution and,
through the acquisition of L.S.B. Bancshares, Inc. of South Carolina, a
registered bank holding company, two South Carolina-based commercial banks
(Lexington and Community) with aggregate assets of approximately $706 million
and aggregate deposit liabilities of approximately $574 million as of June 30,
1994. All the acquired savings institutions have been or will be merged into
BB&T-NC, and Lexington and Community are expected to be merged or otherwise
consolidated with BB&T-SC into a single bank to be named "Branch Banking and
Trust Company of South Carolina."
On July 29, 1994, BB&T Financial entered into the SNC Agreement pursuant to
which SNC will be merged with BB&T Financial in a "merger of equals." See
"SUMMARY--Parties to the Acquisition." For additional detailed information
regarding the SNC Merger, see "--SNC Merger" below.
In the last three years, BB&T Financial also has acquired the assets and
liabilities of eleven insurance agencies with operations in several cities
throughout North Carolina. The agencies write commercial and personal insurance
policies as agents on behalf of various insurance underwriters. All insurance
operations are conducted through a department of BB&T-NC in the communities
where the acquired agencies operated.
BB&T Financial continues to evaluate possible acquisitions of commercial
banks, savings institutions, insurance agencies and other companies in the
Carolinas and Virginia and may after the date of this Proxy
Statement/Prospectus enter into agreements to acquire one or more such
institutions.
Additional information about BB&T Financial's completed acquisitions and the
SNC Merger is included in the BB&T Financial documents incorporated by
reference in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." See also "PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
42
<PAGE>
MANAGEMENT
The following tables set forth the current directors and executive officers
of BB&T Financial and certain information concerning their background.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR OF
BB&T
AGE AS OF PRINCIPAL OCCUPATION(S) FINANCIAL
NAME 12/31/93 DURING LAST FIVE YEARS SINCE
---- --------- ----------------------- -----------
<C> <C> <S> <C>
Joseph B. Alala, Jr... 60 Senior Partner, Alala, 1983
Mullen, Holland and Cooper,
P.A. (Attorneys), Gastonia,
N.C.
John A. Allison IV.... 45 Chairman of the Board and 1986
Chief Executive Officer of
BB&T Financial and Branch
Banking and Trust Company,
Wilson, N.C.
W. Watson Barnes...... 57 President, Wilson Petroleum 1981
Company, Inc. (Distributor
of Petroleum products),
Wilson, N.C.
Paul B. Barringer..... 63 President and Chief 1975
Executive Officer, Coastal
Lumber Company (Dealer in
lumber products), Weldon,
N.C.
Robert L. Brady....... 63 Senior Vice President, 1991
Branch Banking and Trust
Company, Greensboro, N.C.
Prior to April 1992,
President, Gate City
Federal Savings Bank,
Greensboro, N.C.
Raymond S. Caughman... 67 President, The Lexington June 1994
State Bank, Lexington, S.C.
W. G. Clark III....... 60 President, Clark Industries, 1981
Inc. (Farming), Tarboro,
N.C.
Jesse W. Corbett, Jr.. 57 Personal Investments, 1981
Morehead City, N.C. Prior
to June 1988, President,
Corbett Motor Company, Inc.
(Automobile dealership),
Wilson, N.C.
W. R. Cuthbertson, Jr. 63 Senior Vice President, 1983
Branch Banking and Trust
Company, Charlotte, N.C.
Fred H. Deaton, Jr.... 62 Personal Investments, 1974
Statesville, N.C.
Albert J. Dooley, Sr.. 64 Partner, Dooley, Dooley, June 1994
Spence & Parker, P.A.
(Attorneys), Lexington,
S.C.
Joe L. Dudley, Sr..... 56 President and Chief 1992
Executive Officer, Dudley
Products, Inc. (Hair care
products), Greensboro, N.C.
Tom D. Efird.......... 54 President, Standard 1982
Distributors, Inc.
(Beverage wholesaler),
Gastonia, N.C.
O. William Fenn, Jr... 67 Personal Investments, High 1991
Point, N.C. Prior to April
1992, Vice Chairman, LADD
Furniture Company
(Furniture manufacturer),
High Point, N.C.
James E. Heins........ 63 Telecommunications 1985
Consultant, Pinehurst, N.C.
Prior to August, 1991, Vice
President of Government
Relations, ALLTEL
Corporation
(Telecommunications),
Sanford, N.C.
Raymond A. Jones, Jr.. 69 Personal Investments, 1975
Charlotte, N.C.
Kelly S. King......... 45 Senior Executive Vice 1991
President, BB&T, and
President, Branch Banking
and Trust Company.
J. Ernest Lathem, M.D. 60 Urologist, The Willow 1987
Practice, P.A., Greenville,
S.C.
James H. Maynard...... 54 Chairman, Investors 1985
Management Corporation
(Restaurants), Raleigh,
N.C.
A. Winniett Peters.... 67 Chairman of the Board, 1977
Standard Commercial Tobacco
Company (Tobacco processors
and exporters), Wilson,
N.C.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OF
BB&T
AGE AS OF PRINCIPAL OCCUPATION(S) FINANCIAL
NAME 12/31/93 DURING LAST FIVE YEARS SINCE
---- --------- ----------------------- -----------
<C> <C> <S> <C>
Richard L. Player, Jr... 59 President, Player, Inc. 1990
(Commercial and
industrial general
contractor),
Fayetteville, N.C.
Larry J. Waggoner....... 58 Real Estate Development 1985
and Investments, Naples,
Fla. Prior to August
1991 President, Rental
Towel & Uniform
Services, Inc. (Rental
services), Graham, N.C.
Henry G. Williamson, Jr. 46 President and Chief 1986
Operating Officer, BB&T
Financial and Chief
Operating Officer,
Branch Banking and Trust
Company, Wilson, N.C.
William B. Young, M.D... 68 Retired Specialist in 1974
Internal Medicine,
Wilson, N.C.
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EMPLOYEE OF
AGE AS OF PRINCIPAL OCCUPATION(S) BB&T-
NAME 12/31/93 DURING LAST FIVE YEARS NC SINCE
---- --------- ----------------------------- -----------
<C> <C> <S> <C>
John A. Allison IV...... 45 Chairman of the Board and 1971
Chief Executive Officer,
BB&T Financial and Branch
Banking and Trust Company
Henry G. Williamson, Jr. 46 President and Chief Operating 1972
Officer, BB&T Financial and
Chief Operating Officer,
Branch Banking and Trust
Company
Kelly S. King........... 45 Senior Executive Vice 1972
President, BB&T Financial
and President, Branch
Banking and Trust Company
W. Kendall Chalk........ 48 Senior Executive Vice 1975
President, BB&T Financial
and Branch Banking and Trust
Company
Scott E. Reed........... 45 Senior Executive Vice 1972
President and Treasurer,
BB&T Financial and Senior
Executive Vice President,
Branch Banking and Trust
Company
</TABLE>
CAPITAL ADEQUACY GUIDELINES
Bank Holding Companies. The Federal Reserve has adopted risk-based capital
guidelines for bank holding companies. Under these guidelines, the minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%. At least half of
the total capital is required to be "Tier 1 capital," principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items. The remainder ("Tier 2 capital") may consist of a limited amount of
subordinated debt, certain hybrid capital instruments and other debt
securities, perpetual preferred stock, and a limited amount of the general loan
loss allowance. In addition to the risk-based capital guidelines, the Federal
Reserve has adopted a minimum Tier 1 (leverage) capital ratio, under which a
bank holding company must maintain a minimum level of Tier 1 capital to average
total consolidated assets of at least 3% in the case of a bank holding company
which has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 100 to 200 basis points above the stated
minimum.
The following table sets forth BB&T Financial's regulatory capital position
at June 30, 1994 on a historical basis as well as a pro forma basis assuming
consummation of the Acquisition. See "PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
44
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, 1994
------------------------------
HISTORICAL PRO FORMA
-------------- --------------
<S> <C> <C> <C> <C>
Stockholders' Equity............................ $804,103 $850,696
======== ========
REGULATORY CAPITAL
Tier 1 risk-based:
Actual........................................ $781,765 12.26% $828,069 12.13%
Required...................................... 254,959 4.00 272,993 4.00
-------- ----- -------- -----
Excess........................................ $526,806 8.26% $555,076 8.13%
======== ===== ======== =====
Total risk-based:
Actual........................................ $861,648 13.52% $918,593 13.46%
Required...................................... 509,917 8.00 545,987 8.00
-------- ----- -------- -----
Excess........................................ $351,731 5.52% $372,606 5.46%
======== ===== ======== =====
Leverage:
Actual........................................ $781,765 7.96% $828,069 7.88%
Required...................................... 294,698 3.00 315,270 3.00
-------- ----- -------- -----
Excess........................................ $487,067 4.96% $512,799 4.88%
======== ===== ======== =====
</TABLE>
45
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
each federal banking agency, including the Federal Reserve, to revise its risk-
based capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of
nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. The Federal Reserve, the FDIC
and the Office of the Comptroller of the Currency ("OCC") have issued a joint
advance notice of proposed rulemaking, and have issued a revised proposal,
soliciting comments on a proposed framework for implementing the interest rate
risk component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighed by risk factors that approximate the instruments' price sensitivity to
a 100 basis point change in interest rates. Institutions with interest rate
risk exposure in excess of a threshold level would be required to hold
additional capital proportional to that risk. The Federal Reserve, the FDIC,
the OCC and the Office of Thrift Supervision also issued a joint notice of
proposed rulemaking soliciting comments on a proposed revision to the risk-
based capital guidelines to take account of concentration of credit risk and
the risk of non-traditional activities. The proposal would amend each agency's
risk-based capital standards by explicitly identifying concentration of credit
risk and the risk arising from non-traditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The proposal was adopted without modification as a final rule by the
Federal Reserve on August 3, 1994, and by the FDIC on August 9, 1994.
Publication of a final interagency rule is subject to the completion of each
agency's approval process. The final rule will not become effective until 30
days after publication. BB&T Financial does not expect the final rule to have a
material impact on its capital requirements.
FDIC-Insured, Non-Member Banks. As state-chartered, FDIC-insured institutions
which are not members of the Federal Reserve System, BB&T-NC, BB&T-SC,
Lexington and Community are subject to capital requirements imposed by the
FDIC. The FDIC requires state-chartered banks to comply with risk-based capital
standards substantially similar to those required by the Federal Reserve. See
"--Capital Adequacy Guidelines--Bank Holding Companies." The FDIC also requires
state-chartered banks to maintain a minimum leverage ratio similar to that
adopted by the Federal Reserve. Under the FDIC's leverage capital requirement,
state nonmember banks such as BB&T-NC, BB&T-SC, Community and Lexington that
(i) receive the highest rating during the examination process and (ii) are not
anticipating or experiencing any significant growth are required to maintain a
minimum leverage ratio of 3% of Tier 1 capital to total assets; all other banks
are required to maintain a minimum ratio of 100 to 200 basis points above the
stated minimum, with an absolute minimum leverage ratio of not less than 4%. As
of December 31, 1993, the Tier 1 and total risk-based capital ratios of BB&T-NC
were 13.06% and 14.66%, respectively, and its leverage capital ratio was 8.56%;
the Tier 1 and total risk-based capital ratios of BB&T-SC were 11.04% and
12.29%, respectively, and its leverage capital ratio was 8.77%; the Tier 1 and
total risk-based capital ratios of Lexington were 13.65% and 14.86%,
respectively, and its leverage capital ratio was 7.95%; and the Tier 1 and
total risk-based capital ratios of Community were 13.28% and 14.53%,
respectively, and its leverage capital ratio was 7.03%.
SNC MERGER
General. BB&T Financial and SNC entered in the SNC Agreement on July 29,
1994. Pursuant to the SNC Agreement, BB&T Financial will be merged with SNC in
a "merger of equals," with the name of the continuing corporation to be
"Southern National Corporation." The effective date of the SNC Merger is
currently anticipated to be in the first half of 1995. (The surviving company
as existing on and after the effective date of the SNC Merger is hereinafter
referred to as the "Continuing Corporation.") On a pro forma basis as of June
30, 1994, the Continuing Corporation would have $18.8 billion in assets and
would have the largest deposit market share in North Carolina and the third
largest deposit market share in South Carolina. The headquarters of the
Continuing Corporation will be in Winston-Salem, North Carolina, the present
location of the administrative headquarters of SNB-NC.
46
<PAGE>
As soon as practicable after the consummation of the SNC Merger, the SNC
Agreement provides that SNB-NC will be merged (the "North Carolina Bank
Merger") with and into BB&T-NC under the name "Branch Banking and Trust
Company" (BB&T-NC as it will exist from and after the consummation of the North
Carolina Bank Merger is referred to herein as the "NC Continuing Bank"), and
SNB-SC will be merged (the "South Carolina Bank Merger") with and into BB&T-SC
under the name "Branch Banking and Trust Company of South Carolina" (BB&T-SC as
it will exist from and after the consummation of the South Carolina Bank Merger
is referred to herein as the "SC Continuing Bank"). Each of SNB-NC and SNB-SC
is a full-service commercial bank providing a wide range of commercial and
retail banking services through 231 offices throughout North and South
Carolina.
SNC also operates a savings bank in North Carolina, SNB Savings Bank, Inc.,
S.S.B. ("SNB Savings"). SNB Savings is engaged primarily in the origination of
mortgage loans on residential real estate. SNC has two other active
subsidiaries: Unified Investors Life Insurance Company ("Unified") and Southern
International Corporation ("Southern"). Unified is a reinsurer and underwriter
of certain credit life and accident and health insurance written by a non-
affiliated insurance company in connection with certain loans made by the
banking and savings bank subsidiaries of SNC. Southern provides advice to
customers of SNC's subsidiaries who conduct international business. Through
subsidiaries of SNB-NC and SNB Savings, SNC is also engaged in selling
property, casualty and life insurance; offering investment alternatives,
including discount brokerage services, fixed rate and variable annuities,
mutual funds, government and municipal bonds; and providing lease financing of
personal and real property to retail and commercial customers, as well as to
states and municipalities.
The Board of Directors of BB&T Financial has concluded that the consummation
of the SNC Merger is in the best interest of BB&T Financial and, with the
advice of independent financial advisors, that the terms of the SNC Merger are
fair to BB&T Financial stockholders. BB&T Financial believes that the SNC
Merger is an important element in its efforts to expand its market share in the
North Carolina and South Carolina banking markets. In addition to the
opportunity to expand its business in the Carolinas by a merger with a
profitable and established bank holding company of comparable size and its
subsidiary institutions, BB&T Financial's Board of Directors, in approving the
SNC Agreement, considered, among other things, information concerning the
financial condition, results of operations and future prospects of SNC, SNB-NC
and SNB-SC; the nature of the banking business of SNC, SNB-NC and SNB-SC; and
the overall compatibility of the management of SNC, SNB-NC and SNB-SC with that
of BB&T Financial and its subsidiaries. BB&T Financial's Board of Directors
also believes that the combination of BB&T Financial's resources with those of
SNC will enable the resulting organization to realize certain economies of
scale, to provide a wider array of financial services to customers of each of
its subsidiaries and to compete more effectively in the rapidly changing
financial services industry.
Upon consummation of SNC Merger, the Continuing Corporation will operate 535
banking offices in the North and South Carolina banking market. The combined
entity, through Commerce, also will operate 21 banking offices in Virginia.
Terms of SNC Merger. Under the terms of the SNC Agreement, each share of SNC
common stock, par value $5.00 per share ("SNC Common Stock"), outstanding
immediately prior to the effective date of the SNC Merger (other than shares
held by dissenting stockholders) will remain one share of common stock of the
Continuing Corporation (after the effective date of the SNC Merger, "Continuing
Corporation Common Stock"). Each share of BB&T Financial Common Stock
outstanding immediately prior to the effective date of the SNC Merger (other
than shares held by dissenting stockholders) will be converted into 1.45 shares
of Continuing Corporation Common Stock, and cash in lieu of any fractional
shares. Additionally, each share of SNC 6 3/4% Cumulative Convertible Preferred
Stock, Series A ("SNC Series A Preferred Stock") outstanding immediately prior
to the effective date of the SNC Merger will remain one share of Continuing
Corporation Series A Preferred Stock, designated as "6 3/4% Cumulative
Convertible Preferred Stock, Series A," with the same terms, designations,
preferences, limitations, privileges and relative rights as the
47
<PAGE>
SNC Series A Preferred Stock. Pro forma financial information giving effect to
the Acquisition and the combination of BB&T Financial and Commerce with SNC
appears herein under "PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
Comparative per share data that, among other things, present pro forma data in
terms of one share of Commerce common stock, appears herein under "COMPARATIVE
PER SHARE DATA." The SNC Agreement includes certain provisions affecting the
conduct of BB&T Financial's business pending consummation of the SNC Merger.
Copies of the SNC Agreement are available upon request directed to BB&T
Financial's Secretary at the address set forth under "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Consummation of the SNC Merger is contingent upon, among other things,
obtaining various federal and state regulatory approvals and the approval of
the stockholders of BB&T Financial and SNC.
Management and Operations of Continuing Corporation. The SNC Agreement
provides for a 24 member Board of Directors of the Continuing Corporation,
comprised of 12 directors selected by the BB&T Financial Board of Directors and
12 directors selected by the SNC Board of Directors. The Board of Directors of
the NC Continuing Bank will be comprised of current BB&T Financial and SNC
directors who do not serve as directors of the Continuing Corporation and such
other persons as may be determined at the time the North Carolina Bank Merger
is effected.
After consummation of the SNC Merger, John A. Allison IV ("Allison") shall be
elected Chairman of the Board and Chief Executive Officer of the Continuing
Corporation, and L. Glenn Orr, Jr. ("Orr"), the current chairman of the SNC
Board of Directors, and Allison will be elected as members of the Executive
Committee of the Continuing Corporation's Board of Directors for as long as
they are directors of the Continuing Corporation. Each committee of the Board
of Directors of the Continuing Corporation will consist of an equal number of
directors who were BB&T Financial and SNC directors prior to the SNC Merger.
Allison and Orr will each serve on the Boards of Directors of the NC Continuing
Bank and the SC Continuing Bank.
After consummation of the SNC Merger, it is expected that Orr will retire and
that Allison will be the Chief Executive Officer of the Continuing Corporation.
Allison and four additional officers of BB&T Financial and four officers from
SNC will comprise the executive management group of the Continuing Corporation.
Stock Option Agreements. Simultaneously with the execution of the SNC
Agreement, SNC granted BB&T Financial an option (the "SNC Option") to purchase
up to 8,663,736 authorized but unissued shares of SNC Common Stock at a price
of $20.625 per share, such number of shares and exercise price being subject to
adjustment in certain circumstances. Also simultaneously with the execution of
the SNC Agreement, BB&T Financial granted SNC an option (the "BB&T Financial
Option") to purchase up to 7,217,932 authorized but unissued shares of BB&T
Financial Common Stock at a price of $30.625 per share, such number of shares
and exercise price being subject to adjustment in certain circumstances. The
purpose of the BB&T Financial Option and the SNC Option is to increase the
likelihood that the SNC Merger will be consummated by making more difficult and
more expensive a third-party attempt to acquire control of BB&T Financial,
BB&T-NC or BB&T-SC, or SNC, SNB-NC or SNB-SC. Accordingly, the BB&T Financial
Option and the SNC Option are each exercisable only upon the occurrence of
certain events that create the potential of another party acquiring control of
BB&T Financial, BB&T-NC or BB&T-SC, or SNC, SNB-NC or SNB- SC. Although the
shares issuable upon the exercise of the BB&T Financial Option and the SNC
Option represent approximately 16.6% of the BB&T Financial Common Stock and SNC
Common Stock, respectively, that would be outstanding after such exercise,
neither BB&T Financial nor SNC may acquire more than 5% of the other company's
common stock without prior approval of the Federal Reserve Board (although the
options may be transferred to other parties under certain circumstances). The
SNC Option would terminate (i) on the effective date of the SNC Merger, (ii)
upon termination of the SNC Agreement under certain circumstances or (iii) on
the date one year after termination of the SNC Agreement due to a
48
<PAGE>
willful breach by SNC of any specified covenant in the SNC Agreement or, under
certain circumstances, the failure of SNC's stockholders to approve the SNC
Merger. The BB&T Financial Option would terminate (i) upon the effective date
of the SNC Merger, (ii) upon the termination of the SNC Agreement under certain
circumstances or (iii) on the date one year after termination of the SNC
Agreement due to a willful breach by BB&T Financial of any specified covenant
in the SNC Agreement or, under certain circumstances, the failure of BB&T
Financial's stockholders to approve the SNC Merger. Copies of the SNC
Agreement, SNC Option and BB&T Financial Option are available upon request from
the Secretary of BB&T Financial.
INFORMATION INCORPORATED BY REFERENCE
For additional information about BB&T Financial and the SNC Merger described
above contained in documents incorporated by reference in this Proxy
Statement/Prospectus, see "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
49
<PAGE>
INFORMATION ABOUT COMMERCE
GENERAL
Commerce is a commercial bank chartered in 1978 under the laws of the
Commonwealth of Virginia and headquartered in Virginia Beach, Virginia.
Commerce provides a broad range of financial services through 21 banking
offices serving the cities of Virginia Beach, Portsmouth, Norfolk, Chesapeake,
Suffolk, Hampton and Newport News, Virginia, together with the Grafton area of
York County located on the western side of Newport News (commonly referred to
as the "Hampton Roads area"). At June 30, 1994, Commerce had total assets of
approximately $692.1 million, total deposits of approximately $636.4 million
and total stockholders' equity of approximately $46.6 million.
Commerce maintains a regional "Banking Group" for each of the six
geographically distinct communities within the Hampton Roads area. From a
customer perspective, each Banking Group is marketed as a separate bank
headquartered in its community, with its own president and commercial loan
officers and a regional board of directors. It is the responsibility of each
regional board, acting under delegated authority of the Board of Directors, to
direct Commerce's overall development of its respective region.
The Hampton Roads area covers the Norfolk-Virginia Beach-Newport News
metropolitan statistical area ("MSA"), which is the second largest MSA in
Virginia, with a population of 1.4 million based on 1990 census figures. This
area, which covers both the north and south sides of the James River at the
mouth of the Chesapeake Bay, contains the two largest Virginia cities in terms
of population, Virginia Beach and Norfolk, with populations of 393,000 and
261,000, respectively, based on 1990 census figures. The economy of the area is
heavily influenced by major United States military installations and extensive
port activity. Ship building and ship repair, a diversified industrial base and
tourism also contribute significantly to the local economy.
Commerce is subject to state and federal banking laws and regulations which
impose specific requirements or restrictions on and provide for general
regulatory oversight with respect to virtually all aspects of its operations.
As of June 30, 1994, Commerce employed 345 people on a full-time equivalent
basis.
INFORMATION INCORPORATED BY REFERENCE
For additional information about Commerce contained in documents incorporated
by reference in this Proxy Statement/Prospectus, see the documents referred to
in "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
50
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COMMERCE
The following table presents summary financial information for Commerce. This
information is derived from the historical consolidated financial statements of
Commerce. The information set forth below should be read in conjunction with
such historical financial statements and the notes incorporated by reference
herein.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income......... $ 23,932 $ 23,402 $ 47,247 $ 44,939 $ 41,027 $ 35,273 $ 28,644
Interest expense........ 9,963 10,624 20,983 22,414 24,458 21,925 16,987
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 13,969 12,778 26,264 22,525 16,569 13,348 11,657
Provision for loan
losses................. 1,200 1,525 2,825 4,225 2,925 2,695 715
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses............ 12,769 11,253 23,439 18,300 13,644 10,653 10,942
Noninterest income...... 4,693 4,277 9,248 7,112 4,860 3,475 2,861
Securities gains........ 69 86 1,407 1,098 900 11 --
Noninterest expense..... 12,226 10,880 23,706(1) 19,091 15,584 13,475 11,448
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 5,305 4,736 10,388 7,419 3,820 664 2,355
Income taxes............ 1,703 1,588 3,837 2,477 1,221 117 668
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 3,602 $ 3,148 $ 6,551 $ 4,942 $ 2,599 $ 547 $ 1,687
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income:
Primary............... $ 1.29 $ 1.15 $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86
Fully diluted......... 1.23 1.11 2.28 1.97 1.35 .29 .86
Book value.............. 17.10 15.91 16.22 14.90 13.63 12.79 13.07
Cash dividends declared. .30 .22 .51 .26 .05 -- --
======== ======== ======== ======== ======== ======== ========
DAILY AVERAGES:
Assets.................. $685,716 $640,941 $656,528 $571,461 $443,927 $347,634 $269,712
Earning assets.......... 633,949 592,057 606,714 526,600 406,751 318,480 247,086
Loans, net of unearned
income................. 392,227 331,154 347,585 314,338 293,190 250,719 197,567
Investment securities... 228,293 243,380 243,039 190,922 98,556 57,981 39,988
Deposits................ 626,807 590,961 604,608 529,560 410,756 319,620 245,430
Long-term debt.......... 6,808 6,450 6,650 5,649 5,685 2,376 76
Shareholders' equity.... 46,484 39,158 40,783 31,577 22,309 21,156 19,595
Primary shares
outstanding............ 2,802 2,726 2,748 2,412 1,913 1,945 1,969
Fully diluted shares
outstanding............ 3,068 2,993 3,013 2,679 2,176 1,945 1,969
======== ======== ======== ======== ======== ======== ========
AT PERIOD END:
Assets.................. $692,067 $666,397 $689,630 $644,849 $478,659 $405,437 $303,251
Earning assets.......... 638,743 619,422 638,864 590,494 437,149 368,856 276,801
Loans, net of unearned
income................. 408,433 347,084 378,258 326,265 302,900 280,231 214,428
Investment securities... 217,697 254,224 247,175 238,680 123,727 71,937 47,872
Deposits................ 636,392 616,186 634,141 597,984 445,175 374,366 278,067
Long-term debt.......... 6,790 6,866 6,828 5,626 5,671 5,697 711
Shareholders' equity.... 46,593 40,322 43,589 37,413 23,770 21,105 20,549
Allowance for loan
losses................. 7,188 6,645 6,527 5,671 3,717 3,387 2,228
Nonperforming assets.... 5,273 4,877 3,998 6,189 5,851 2,266 2,341
======== ======== ======== ======== ======== ======== ========
FINANCIAL RATIOS:
Return on average
assets................. 1.06% .99% 1.00% .86% .59% .16% .63%
Return on average
shareholders' equity... 15.62 16.21 16.06 15.65 11.65 2.59 8.61
Net interest margin..... 4.44 4.35 4.33 4.28 4.07 4.19 4.72
Net overhead ratio...... 2.40 2.25 2.23(2) 2.27 2.64 3.14 3.48
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) 1993 included a special non-recurring noncash adjustment of $910,000 for
the write down of an intangible asset.
(2) 1993 excludes item 1 above.
51
<PAGE>
OWNERSHIP OF COMMERCE COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1994, certain information as
to each person who was known to be the beneficial owner of more than 5% of the
outstanding shares of Commerce Common Stock and as to the shares of Commerce
Common Stock beneficially owned by directors individually and by all officers
and directors of Commerce as a group. Such information is based upon certain
reports regarding such ownership required to be filed with the FDIC pursuant
to the Exchange Act and the stock ownership records of Commerce.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
AMOUNT AND NATURE OF COMMERCE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK OUTSTANDING(1)
------------------------ ----------------------- ---------------------------
<S> <C> <C>
FMR Corp. ("Fidelity In-
vestments")
Boston, Massachusetts.... 237,000 8.7%
Sally James Andrews....... 6,300(2)(3) *
G. Robert Aston, Jr. ..... 88,936(2)(4) 3.0%
Ramon W. Breeden, Jr. .... 87,317(2)(3) 2.9%
John W. Brown............. 1,512 *
Thomas C. Broyles......... 29,778 1.0%
Bradford L. Cherry........ 4,023(3) *
J.W. Whiting Chisman,
Jr. ..................... 113,621(2)(3) 3.8%
Elwood L. Edwards......... 2,545 *
Andrew S. Fine............ 114,600(2)(3) 3.8%
Ernest F. Hardee.......... 79,615(2) 2.7%
John C. Harry, III........ 2,032 *
E.L. Hudson............... 45,476(2)(3) 1.5%
William J. Jones.......... 12,663(2) *
Arthur J. Lancaster, Jr. . 11,193(2) *
W. Ashton Lewis........... 31,395(2)(3) 1.1%
J. Alan Lindauer, Jr. .... 106,687(2)(3)(5) 3.6%
R. Scott Morgan........... 20,958(2)(4) *
Donald N. Patten.......... 24,414(2)(3) *
Edward B. Snyder.......... 24,458(2)(3) *
George W. Vakos........... 28,039(2)(3) 1.0%
F. Lewis Wood............. 20,308(2)(3) *
All Directors and Execu-
tive Officers as a Group. 914,717(2)(3)(4) 30.6%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934 (the "1934 Act"), as adopted by the FDIC with which Commerce
files reports, proxy statements and other information pursuant to the
informational requirements of the 1934 Act. Under this rule, in general, a
person is deemed to be the beneficial owner of a security if he has or
shares the power to vote or to direct the voting of the security or the
power to dispose or to direct the disposition of the security, or if he
has the right to acquire beneficial ownership of the security within 60
days.
(2) Includes the indicated number of shares, or shares that may be acquired
upon the conversion of the Capital Notes, held by their close relatives or
held jointly with their spouses or as custodians or trustees for the
benefit of their children or others--Mrs. Andrews, 5,200 shares; Mr.
Aston, 1,859 shares; Mr. Breeden, 22,178 shares; Mr. Chisman, 11,757
shares; Mr. Fine, 4,506 shares; Mr. Hardee, 56,359 shares; Mr. Hudson,
1,211 shares; Mr. Lancaster, 7,906 shares; Mr. Lewis, 8,704 shares; Mr.
Lindauer, 1,770 shares; Mr. Morgan, 75 shares; Mr. Patten, 3,384 shares;
Mr. Snyder, 11,655 shares; Mr. Vakos, 7,808 shares; and Mr. Wood, 5,892
shares; and all executive officers (exclusive of Messrs. Aston and Morgan)
as a group, 1,204 shares. The amounts shown in the table also include the
indicated number of shares, and shares that may be acquired upon the
conversion of the Capital Notes, held by certain corporations and
partnerships under the control of--Mr. Fine, 93,523 shares; Mr. Hardee,
1,839 shares; Mr. Hudson, 34,298 shares; Mr. Jones, 10,688 shares; Mr.
Lewis, 16,194 shares; and Mr. Patten, 4,736 shares.
52
<PAGE>
(3) Includes the indicated number of shares that may be acquired upon the
conversion of the Capital Notes held in their own names or for their
benefit--Mrs. Andrews, 263 shares; Mr. Breeden, 13,158 shares; Mr. Cherry,
1,316 shares; Mr. Chisman, 46,895 shares; Mr. Fine, 2,790 shares; Mr.
Hudson, 1,421 shares; Mr. Lewis, 1,737 shares; Mr. Lindauer, 8,369 shares;
Mr. Patten, 2,894 shares; Mr. Snyder, 1,053 shares; Mr. Vakos, 6,421
shares; and Mr. Wood, 2,737 shares.
(4) Includes the indicated number of shares that may be acquired within 60 days
pursuant to the exercise of stock options granted under the Commerce Stock
Option Plans--Mr. Aston, 79,732 shares; Mr. Morgan, 13,040 shares; and all
other executive officers as a group, 149,011 shares.
(5) Includes 34,786 shares held by Commerce's Trust Department as trustee for
Mr. Lindauer, and as to which shares Mr. Lindauer has the power to direct
the voting.
53
<PAGE>
MARKET PRICES AND DIVIDENDS
BB&T Financial Common Stock is actively traded in the NASDAQ Stock Market
under the symbol "BBTF," and is quoted on the Nasdaq/NMS. Commerce Common Stock
is traded in the NASDAQ Stock Market under the symbol "CBVA" and the shares are
quoted on the Nasdaq/NMS.
The following tables reflect the high and low closing sales prices for BB&T
Financial Common Stock and Commerce Common Stock as quoted on the Nasdaq/NMS
for the periods indicated. Prices shown represent interdealer prices without
retail mark-up, mark-down or commissions, and may not represent actual
transactions.
BB&T Financial
<TABLE>
<CAPTION>
TABLE OF CLOSING PRICES
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter........................... $33.63 $29.13 $35.38 $31.00 $27.75 $21.88
2nd Quarter........................... 31.50 28.13 35.88 30.25 30.13 25.50
3rd Quarter........................... 34.63 32.25 29.88 27.38
4th Quarter........................... -- -- 35.88 29.13 32.25 28.75
Commerce
<CAPTION>
TABLE OF CLOSING PRICES
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter........................... $27.50 $25.50 $24.50 $19.12 $19.00 $13.50
2nd Quarter........................... 39.00 24.50 24.75 21.00 19.50 15.75
3rd Quarter........................... 25.50 22.75 17.50 15.75
4th Quarter........................... -- -- 25.50 23.00 21.50 17.00
</TABLE>
Cash Dividends Paid Per Share
The following table reflects the cash dividends per share paid or declared on
the BB&T Financial Common Stock for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
1st Quarter...................................................... $.27 $.25 $.22
2nd Quarter...................................................... .27 .25 .22
3rd Quarter...................................................... .29 .25 .22
4th Quarter...................................................... -- .27 .25
</TABLE>
The holders of BB&T Financial Common Stock are entitled to receive dividends
when and if declared by the BB&T Financial Board of Directors out of funds
legally available therefor. BB&T Financial has paid regular quarterly cash
dividends since 1921. Although BB&T Financial currently intends to continue to
pay quarterly cash dividends on the BB&T Financial Common Stock, there can be
no assurance that BB&T Financial's dividend policy will remain unchanged after
completion of the Acquisition. The declaration and payment of dividends
thereafter will depend upon business conditions, operating results, capital and
reserve requirements and the BB&T Financial Board of Directors' consideration
of other relevant factors.
BB&T Financial is a legal entity separate and distinct from its subsidiaries
and its revenues depend in significant part on the payment of dividends from
its subsidiary financial institutions, particularly BB&T-NC. BB&T Financial's
bank subsidiaries are subject to certain legal restrictions on the amount of
dividends they
54
<PAGE>
are permitted to pay. For example, North Carolina chartered banks, such as
BB&T-NC, are subject to legal limitations on the amount of dividends they are
permitted to pay. Prior approval of the Commissioner is required if the total
of all dividends declared by BB&T-NC in any calendar year exceeds its net
profits (as defined by statute) for that year combined with its retained net
profits (as defined by statute) for the preceding two calendar years, less any
required transfers to surplus. South Carolina chartered banks, such as BB&T-SC,
Lexington and Community are required by regulation to obtain the prior written
approval of the South Carolina State Board of Financial Institutions to pay any
cash dividend. A Virginia chartered bank, such as Commerce, is prohibited from
paying a dividend that would impair its paid-in capital. In addition, the
Bureau may limit the payment of dividends by any Virginia chartered bank if it
determines that the limitation is in the public interest and is necessary to
ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as BB&T-NC,
BB&T-SC, Lexington, Community and Commerce are prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
defined in federal law). Based on its subsidiaries' current financial
condition, BB&T Financial does not expect that this provision will have any
impact on its ability to obtain dividends from its insured depository
institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by BB&T Financial's bank subsidiaries.
The declaration, payment and amount of any such future dividends would depend
upon business conditions, operating results, capital, reserve requirements,
regulatory authorizations and the consideration of other relevant factors by
the BB&T Financial Board of Directors.
The following table reflects the cash dividends paid per share on the
Commerce Common Stock for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
1st Quarter................................................... $.15 $.08 $.05
2nd Quarter................................................... .15 .10 .05
3rd Quarter................................................... .15 .12 .05
4th Quarter................................................... -- .14 .08
</TABLE>
The holders of Commerce Common Stock are entitled to receive dividends when
and if declared by the Commerce Board of Directors out of funds legally
available therefor. The declaration, payment and amount of any future dividends
would depend upon business conditions, operating results, capital, reserve
requirements, regulatory authorizations and the consideration of other relevant
factors by the Commerce Board of Directors. There can, therefore, be no
assurance that any dividends would be paid in the future.
DESCRIPTION OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED
IN THE ACQUISITION AND COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
BB&T Financial's authorized capital stock consists of two classes,
represented by 100,000,000 shares of BB&T Financial Common Stock, $2.50 par
value, of which 36,271,016 shares were issued and outstanding and 6,479,309
shares were reserved for issuance as of June 30, 1994 and 4,000,000 shares of
nonvoting preferred stock, $2.50 par value, no shares of which are issued or
outstanding. BB&T Financial's Amended Articles of Incorporation authorize the
BB&T Financial Board of Directors, without stockholder approval, to fix the
preferences, limitations and relative rights of the preferred stock and to
establish series of such preferred stock and determine the variations between
each series. If any shares of preferred stock are issued, the rights of holders
of BB&T Financial Common Stock will be subject to the rights and preferences
conferred to holders of such preferred stock.
55
<PAGE>
Commerce's authorized capital stock consists of two classes represented by
5,000,000 shares of Commerce Common Stock, $2.50 par value, of which 2,725,163
shares were issued and outstanding and 1,396,809 shares were reserved for
issuance as of June 30, 1994, and 1,000,000 shares of preferred stock, $5.00
par value, no shares of which are issued or outstanding. Commerce's Amended
Articles of Incorporation authorize the Commerce Board of Directors, without
stockholder approval, to fix the preferences, limitations and relative rights
of the preferred stock and to establish series of such preferred stock and
determine the variations between each series. If any shares of preferred stock
are issued, the rights of the holders of Commerce Common Stock will be subject
to the rights and preferences conferred to the holders of such preferred stock.
DIVIDEND RIGHTS
The holders of BB&T Financial Common Stock are entitled to share ratably in
dividends when and as declared by the BB&T Financial Board of Directors out of
funds legally available therefor. One of the principal sources of income to
BB&T Financial is dividends from its subsidiaries. For a description of certain
restrictions on the payment of dividends by banks, see "MARKET PRICES AND
DIVIDENDS." BB&T Financial's Amended Articles of Incorporation permit the BB&T
Financial Board of Directors to issue non-voting preferred stock with terms set
by the BB&T Financial Board of Directors, which terms may include the right to
receive dividends ahead of the holders of BB&T Financial Common Stock. No
shares of such preferred stock are presently outstanding.
The holders of Commerce Common Stock also are entitled to share ratably in
dividends when and as declared by the Commerce Board of Directors out of funds
legally available therefor. For a description of certain restrictions on the
payment of dividends of banks, see "MARKET PRICES AND DIVIDENDS." Commerce's
Amended Articles of Incorporation permit the Commerce Board of Directors to
issue preferred stock with terms set by the Commerce Board of Directors, which
terms may include the right to receive dividends ahead of the holders of
Commerce Common Stock. No shares of such preferred stock are presently
outstanding.
VOTING RIGHTS
The holders of BB&T Financial Common Stock and Commerce Common Stock have one
vote for each share held on any matter presented for consideration by the
stockholders. Under North Carolina law, the right of cumulative voting in the
election of directors is denied to stockholders of publicly held corporations
such as BB&T Financial.
Under Virginia law, the right of cumulative voting in the election of
directors does not exist unless it is expressly provided for in the
corporation's articles of incorporation. Commerce's Amended Articles of
Incorporation do not provide for cumulative voting.
PREEMPTIVE RIGHTS
Neither the holders of BB&T Financial Common Stock nor the holders of
Commerce Common Stock have any preemptive or preferential rights to purchase or
to subscribe for additional shares of BB&T Financial Common Stock or Commerce
Common Stock, respectively, or any other securities that BB&T Financial or
Commerce may issue.
ASSESSMENT AND REDEMPTION
The shares of BB&T Financial Common Stock presently outstanding are, and
those shares of BB&T Financial Common Stock issuable upon consummation of the
Acquisition will be, when issued, fully paid and nonassessable. Such shares are
not convertible and do not have any redemption provisions.
56
<PAGE>
The shares of Commerce Common Stock presently outstanding are fully paid and
nonassessable and such shares do not have any redemption provisions.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding up of BB&T Financial or
Commerce, whether voluntary or involuntary, the holders of BB&T Financial
Common Stock or Commerce Common Stock, as applicable, will be entitled to share
ratably in any of the net assets or funds of BB&T Financial or Commerce,
respectively, which are available for distribution to their stockholders after
the satisfaction of their liabilities or after adequate provision is made
therefor, subject to the rights of the holders of any preferred stock
outstanding at the time.
TRANSFER AGENT
The Transfer Agent and Registrar for BB&T Financial Common Stock is BB&T-NC.
Commerce serves as the Transfer Agent and Registrar for Commerce Common Stock.
CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of the By-laws and Amended Articles of Incorporation of
BB&T Financial, the Amended Articles of Incorporation of Commerce and North
Carolina and Virginia law, and certain other arrangements, some of which are
described below, may discourage an attempt to acquire control of BB&T Financial
or Commerce which a majority of the stockholders of BB&T Financial or Commerce
might determine to be in their best interest or in which stockholders might
receive a premium over the current market price for their shares. These
provisions also may render the removal of a director or of the entire Board of
Directors of BB&T Financial or Commerce, as applicable, more difficult and may
deter or delay corporate changes of control which have not received the
requisite approval of the Board of Directors of BB&T Financial or Commerce, as
applicable.
Election and Removal of Directors. All of BB&T Financial's directors are
elected each year. Under BB&T Financial's Amended Articles of Incorporation,
approval by the vote of at least two-thirds of the outstanding shares of BB&T
Financial Common Stock is required for the removal of any director or the
entire BB&T Financial Board of Directors. Under North Carolina law, a director
may be removed by stockholder vote only if the number of votes cast to remove
him exceeds the number of votes cast not to remove him.
All of Commerce's directors are elected each year. Under Virginia law, a
director of Commerce may be removed with or without cause by stockholder vote
if the number of votes cast to remove him constitutes a majority of the votes
entitled to be cast at a meeting called for such purpose.
Authorized Preferred Stock. BB&T Financial's Amended Articles of
Incorporation authorize 4,000,000 shares of nonvoting preferred stock. The BB&T
Financial Board of Directors may, subject to applicable law and the rules of
the National Association of Securities Dealers for Nasdaq/NMS companies,
authorize the issuance of preferred stock at such times, for such purposes and
for such consideration as it may deem advisable without further stockholder
approval. The issuance of preferred stock under certain circumstances may have
the effect of discouraging an attempt by a third party to acquire control of
BB&T Financial by, for example, authorizing the issuance of a series of
preferred stock with rights and preferences designed to impede the proposed
transaction. A series of preferred stock also could be used for a stockholder
rights plan, which may be adopted without stockholder approval. Such a plan, if
adopted, could deter attempts by third parties to acquire a significant number
of shares of BB&T Financial Common Stock without the prior approval of the BB&T
Financial Board of Directors.
57
<PAGE>
Commerce's Amended Articles of Incorporation authorize the issuance of up to
1,000,000 shares of preferred stock. The Commerce Board of Directors could,
subject to applicable law and the rules of the National Association of
Securities Dealers for Nasdaq/NMS companies, issue this preferred stock with
such rights and preferences as the Board of Directors deems desirable without
stockholder approval for purposes similar to those described above. Therefore,
the existence of such authorized preferred stock could deter attempts of third
parties to acquire a significant number of shares of Commerce Common Stock
without prior approval of the Board of Directors of Commerce.
North Carolina and Virginia Stockholder Protection Legislation. The North
Carolina Shareholder Protection Act and the North Carolina Control Share
Acquisition Act both apply to BB&T Financial. These Acts are designed to
protect stockholders against certain changes in control and to provide
stockholders with the opportunity to vote on whether to accord voting rights to
certain stockholders.
The North Carolina Shareholder Protection Act ("N.C. Shareholder Protection
Act") is a "fair price" statute that requires the affirmative vote of 95% of
the voting shares of a corporation for the adoption of a business combination
(including a merger) with another entity if the other entity beneficially owns
more than 20% of the voting shares of the corporation. This vote is not
required if the stockholders of the corporation receive a specified minimum
price for their shares as part of the business combination and the stockholders
receive a proxy statement for the purpose of soliciting their approval for the
business combination. The proxy statement must contain the opinion of those
directors not elected by the other entity as to the advisability of the
business combination and may include an opinion from an outside investment firm
as to the fairness of the transaction. A North Carolina corporation may opt out
of the provisions of the N.C. Shareholder Protection Act in its articles of
incorporation or by-laws.
The North Carolina Control Share Acquisition Act ("Share Acquisition Act")
requires the approval of a majority of a corporation's disinterested
stockholders before an acquiror of the corporation's shares who crosses one of
three voting thresholds (20%, 33 1/3% or 50%) may obtain voting control with
respect to those shares that exceed the threshold. The Share Acquisition Act
also provides disinterested stockholders with certain redemption rights if the
acquiror gains majority voting power for the election of the corporation's
directors as a result of the affirmative vote of the disinterested
stockholders. A merger pursuant to an agreement of merger with the corporation
does not fall under the purview of the Share Acquisition Act. A North Carolina
corporation may opt out of the provisions of the Share Acquisition Act in its
articles of incorporation or by-laws.
BB&T Financial has chosen not to opt out of the N.C. Shareholder Protection
Act or the Share Acquisition Act. BB&T Financial's Amended Articles of
Incorporation and By-laws do not contain any provision that would prevent the
application of either of the Acts to BB&T Financial. As a result, the effect of
these Acts may be to deter or delay changes in control which are opposed by the
BB&T Financial Board of Directors or stockholders.
The Virginia Stock Corporation Act ("VSCA") also provides similar
restrictions on "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases, or other dispositions of
material assets, issuances of securities, dissolutions, and similar
transactions) with an "interested stockholder" (generally the beneficial owner
of more than 10% of any class of the corporation's outstanding voting shares).
During the three years following the date a stockholder becomes an interested
stockholder, any affiliated transaction with the interested stockholder must be
approved by both a majority of the "disinterested directors" (those directors
who were directors before the interested stockholder became an interested
stockholder or who were recommended for election by a majority of disinterested
directors) and by the affirmative vote of the holders of two-thirds of the
corporation's voting shares other than shares beneficially owned by the
interested stockholder. The foregoing requirements do not apply to affiliated
transactions if, among other things, a majority of the disinterested directors
approve the interested stockholder's acquisition of voting shares making such a
person an interested stockholder prior to such
58
<PAGE>
acquisition. Beginning three years after the stockholder becomes an interested
stockholder, the corporation may engage in an affiliated transaction with the
interested stockholder if (i) the affiliated transaction is approved by the
holders of two-thirds of the corporation's voting shares, other than shares
beneficially owned by the interested stockholder, (ii) the affiliated
transaction has been approved by a majority of the disinterested directors or
(iii) subject to certain additional requirements, in the affiliated transaction
the holders of each class or series of voting shares will receive consideration
meeting specified fair price and other requirements designed to insure that all
stockholders receive fair and equivalent consideration, regardless of when they
tendered their shares.
On June 23, 1994, the directors of Commerce by the requisite vote adopted a
resolution that exempts BB&T Financial from the restrictions of the affiliated
transactions provisions of the VSCA.
Prior to the enactment of the foregoing legislation, the stockholders of
Commerce approved the adoption of a so-called "fair-price amendment" to the
Amended Articles of Incorporation. The fair-price amendment generally provides
that certain business combinations (including mergers, consolidations,
dispositions of assets and similar corporate transactions) involving Commerce
and a person or entity owning 5% or more of Commerce Common Stock (an
"Acquiring Person") must be approved by the holders of at least 80% of the
outstanding shares of Commerce Common Stock, unless such business combination
either:
(i) has been approved by at least 80% of those directors who are not
affiliated or associated with the Acquiring Person, or
(ii) will result in the receipt by all stockholders of a specified
minimum amount and form of payment for their shares and will satisfy
certain other conditions.
The fair-price amendment does not apply to the Acquisition.
Under the VSCA's control share acquisitions law, voting rights of shares of
stock of a Virginia corporation acquired by an acquiring person at ownership
levels of 20%, 33 1/3% and 50% of the outstanding shares may, under certain
circumstances, be denied unless conferred by a special stockholder vote of a
majority of the outstanding shares entitled to vote for directors, other than
shares held by the acquiring person and officers and directors of the
corporation or, among other exceptions, such acquisition of shares is made
pursuant to a merger agreement with the corporation or the corporation's
articles of incorporation or by-laws permit the acquisition of such shares
prior to the acquiring person's acquisition thereof. If authorized in the
corporation's articles of incorporation or by-laws, the statute also permits
the corporation to redeem the acquired shares at the average per share price
paid for them if the voting rights are not approved or if the acquiring person
does not file a "control share acquisition statement" with the corporation
within sixty days of the last acquisition of such shares. If voting rights are
approved for control shares comprising more than fifty percent of the
corporation's outstanding stock, objecting stockholders may have the right to
have their shares repurchased by the corporation for "fair value."
The VSCA's control share acquisitions law does not apply to the Acquisition.
Supermajority Voting Provisions. BB&T Financial's Amended Articles of
Incorporation require the affirmative vote of two-thirds of the outstanding
shares entitled to vote to approve a merger, consolidation, or other business
combination, unless the transaction is approved, prior to consummation, by two-
thirds of the members of the BB&T Financial Board of Directors. This provision
could tend to make the acquisition of BB&T Financial more difficult to
accomplish without the cooperation or favorable recommendation of the BB&T
Financial Board of Directors.
The VSCA provides that, unless a corporation's articles of incorporation
provide for a higher or lower vote, certain significant corporate actions must
be approved by the affirmative vote of the holders of more than two-thirds of
the votes entitled to be cast on the matter. Corporate actions requiring a two-
thirds vote include amendments to a corporation's articles of incorporation,
adoption of plans of merger or exchange, sales of all or substantially all of a
corporation's assets other than in the ordinary course of business and adoption
of plans of dissolution ("Fundamental Actions"). The VSCA provides that a
corporation's articles of incorporation may either increase the vote required
to approve Fundamental Actions or may decrease the required vote to not less
than a majority of the votes entitled to be cast.
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The supermajority provision contained in Commerce's Amended Articles of
Incorporation decreases the stockholder vote required to approve Fundamental
Actions to the affirmative vote of the holders of a majority of the shares
entitled to vote, provided that two-thirds of the members of the Board of
Directors then in office have approved and recommended the approval of the
Fundamental Action. In the absence of such approval and recommendation by the
Board, the stockholder vote required for approval of Fundamental Actions is
increased to 80% of the shares entitled to vote on the matter.
The Acquisition was approved by two-thirds of the members of the Board of
Directors of Commerce and thus requires the affirmative vote of only a majority
of the shares entitled to vote on the Acquisition.
Amendments to Articles of Incorporation. BB&T Financial's Amended Articles of
Incorporation require approval by holders of at least two-thirds of the
outstanding shares entitled to vote in order to amend certain provisions of
BB&T Financial's Amended Articles of Incorporation. Those provisions require
holders of at least two-thirds of its outstanding shares to approve (i) the
removal of a director or the entire BB&T Financial Board of Directors, (ii) a
merger, consolidation or other business combination not approved by two-thirds
of the BB&T Financial Board of Directors and (iii) an amendment or repeal of
the By-laws. Any other amendment of the Amended Articles of Incorporation
requires the affirmative vote of the holders of a majority of the shares
entitled to vote on such amendment.
See the discussion above concerning "Supermajority Voting Provisions" with
respect to the stockholder vote requirements to amend Commerce's Amended
Articles of Incorporation.
Amendments to By-laws. BB&T Financial's By-laws may be amended by either the
vote of a majority of the BB&T Financial Board of Directors or by the
affirmative vote of the holders of at least two-thirds of the outstanding BB&T
Financial Common Stock.
Commerce's By-laws may be amended at any time by either the vote of a
majority of the Commerce Board of Directors or of the Commerce stockholders if
the votes cast in support of an amendment to the By-laws exceed the votes cast
opposing such amendment.
Employee Stock Plans. BB&T Financial established employee stock ownership
plans for the benefit of the employees of certain savings institutions upon
their acquisitions by BB&T Financial. These plans, which hold 255,906 shares of
BB&T Financial Common Stock as of June 30, 1994, are subparts of BB&T
Financial's Savings and Thrift Plan, which holds an additional 1,639,839 shares
of BB&T Financial Common Stock as of June 30, 1994. Under plan terms,
participants in BB&T Financial's Savings and Thrift Plan have the right to
direct the trustee as to the voting of the shares held in their accounts on all
matters, including the election of directors. Under these plans, including each
employee stock ownership plan, the trustee is required, subject to applicable
law, to vote the shares as to which participant directions are not received and
as to shares not allocated to participant accounts in the same proportion as
the allocated shares as to which directions are received. Plan terms also would
require the trustee of each plan to follow participant instructions as to the
tendering of any shares held in participant accounts in the event of a tender
offer. Shares allocated to participant accounts as to which instructions are
not received and unallocated shares are, again subject to applicable law,
tendered pursuant to the same procedures as to which shares would be voted. As
a result of these so-called "pass-through" provisions, any third-party attempt
to acquire control of BB&T Financial by means of a proxy contest or tender
offer may require the support of the plan participants. The BB&T Financial
employee stock plans established thus may tend to discourage such attempts to
the extent that participants oppose third-party attempts to acquire control and
stockholder approval or support is required for such attempts.
Commerce has not established an employee stock ownership or similar plan.
THE SHARES OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION ARE
NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
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DESCRIPTION OF STOCKHOLDERS' RIGHTS OF SNC
Under the terms of the SNC Agreement, SNC will be merged with and into BB&T
Financial, which will then continue as the Continuing Corporation under its
existing Amended Articles of Incorporation. In such event, the SNC Merger would
not have a material effect on the rights of Commerce stockholders once they
become stockholders of BB&T Financial. Under certain circumstances, however,
BB&T Financial and SNC may agree that BB&T Financial will be merged with and
into SNC, which will then continue as the Continuing Corporation under its
existing Amended and Restated Articles of Incorporation. In such case, the SNC
Merger would have an effect on the rights of Commerce stockholders. Therefore,
the following information describing the rights of the stockholders of SNC is
provided.
GENERAL
SNC is authorized to issue 120,000,000 shares of SNC Common Stock, $5 par
value, of which 43,385,610 shares were issued and outstanding as of June 30,
1994. SNC is also authorized to issue 5,000,000 shares of preferred stock, $5
par value ("SNC Preferred Stock"), of which 770,000 shares of SNC Series A
Preferred Stock have been issued.
The SNC Series A Preferred Stock was issued in connection with an offering of
3,080,000 Depositary Shares, each representing one-quarter interest in a share
of SNC Series A Preferred Stock. Each owner of a Depositary Share is entitled,
in proportion to the one-quarter interest in a share of SNC Series A Preferred
Stock represented by such Depositary Share, to all the rights and preferences
of the SNC Series A Preferred Stock represented thereby (including dividend,
voting, redemption, conversion and liquidation rights). The SNC Series A
Preferred Stock is convertible at any time into such number of whole shares of
SNC Common Stock as is equal to the aggregate stated value of shares
surrendered for conversion divided by $16.93 per share of SNC Common Stock,
subject to adjustment (under formulae set forth in SNC's Amended and Restated
Articles of Incorporation) in certain events.
Under SNC's Amended and Restated Articles of Incorporation, the SNC Board of
Directors, or a duly authorized committee thereof, has the power, without
further action by the SNC stockholders, to provide for the issuance of
preferred stock in one or more series and to fix the voting power,
designations, preferences and relative, participating, optional or special
rights, and qualifications, limitations or restrictions thereof, by adopting a
resolution or resolutions creating and designating such series. The rights of
the holders of SNC Common Stock are subject to the rights and preferences of
the holders of SNC Series A Preferred Stock and would be subject to any rights
and preferences of any other SNC preferred stock or series thereof that the SNC
Board of Directors may issue.
DIVIDEND RIGHTS
Unless SNC's Amended and Restated Articles of Incorporation are amended to
provide otherwise, SNC may issue to the holders of shares of SNC Common Stock
share dividends in SNC Common Stock. If certain requirements are met, share
dividends in shares of another class or series may be issued to holders of SNC
Common Stock. Additionally, the holders of shares of SNC Common Stock will be
entitled to receive such other distributions as the Board of Directors of SNC
may declare, and the requirement that no distributions may be made if, after
giving effect thereto (i) SNC would not be able to pay its debts as they become
due in the ordinary course of business or (ii) SNC's total assets would be less
than the sum of SNC's total liabilities plus the amount that would be needed,
if SNC were to be dissolved at the time of distribution, to satisfy claims of
holders of SNC Series A Preferred Stock and such stockholders which have
preferential rights superior to the rights of holders of SNC Common Stock.
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Holders of shares of the SNC Series A Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of SNC, out of assets
of SNC legally available for payment, an annual cash dividend of 6.75% per
annum (equivalent to $1.6875 per Depositary Share). Dividends on the SNC Series
A Preferred Stock are cumulative from the date of issue and payable quarterly
on February 15, May 15, August 15 and November 15 of each year commencing May
15, 1992, at such annual rate. Dividends payable on the SNC Series A Preferred
Stock for any period less than a full dividend period shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. Each such dividend
will be payable to holders of record as they appear on the stock register of
SNC on such record dates, not more than 60 days nor less than 10 days preceding
the payment dates, as shall be fixed by the SNC Board of Directors. In the
event that full cumulative dividends on the SNC Series A Preferred Stock have
not been paid when due, SNC may not declare or pay any dividends or make other
distributions (other than dividends payable in shares of common stock or other
capital stock of SNC ranking junior to the SNC Series A Preferred Stock with
respect to the payment of dividends and upon liquidation, dissolution or
winding up, or options, warrants or rights to
subscribe for or purchase such shares) on its Common Stock or on any other
capital stock of SNC ranking junior to the SNC Series A Preferred Stock with
respect to the payment of dividends, or purchase, redeem or otherwise acquire
any shares of SNC Series A Preferred Stock (other than with funds previously
deposited in trust for the redemption of shares of SNC Series A Preferred Stock
pursuant to any sinking fund) or any other shares of capital stock of SNC
ranking on a parity with or junior to the SNC Series A Preferred Stock (except
by conversion into or exchange for capital stock of SNC ranking junior to the
SNC Series A Preferred Stock as to payment of dividends and upon liquidation,
dissolution or winding up).
Debt instruments to which SNC is subject contain provisions restricting its
payment of dividends. Under the most restrictive of these provisions, at June
30, 1994, approximately $ million was available for the payment of dividends
on SNC's capital stock.
While SNC is not subject to the restrictions on dividends applicable to
national banks, the ability of SNC to pay distributions to the holders of SNC
Common Stock will depend to a large extent upon the amount of dividends SNB-NC
and SNB-SC, which are subject to the restrictions imposed by the National Bank
Act, and SNB Savings, which is subject to the restrictions imposed by the
regulations of the Savings Institution Division of the North Carolina
Department of Commerce, pay to SNC.
There can be no assurance as to the payment of dividends on shares of SNC
Common Stock in the future since such payment will depend upon the earnings and
financial condition of SNC and its bank and savings bank subsidiaries, as well
as other related factors.
VOTING RIGHTS
Each holder of SNC Common Stock is entitled to one vote per share and to the
same and identical voting rights as other holders of SNC Common Stock. Holders
of SNC Common Stock do not have cumulative voting rights in the election of
directors so long as SNC has shares of any class of securities entitled to be
voted at a meeting that are held of record by more than 2,000 stockholders or
listed on a national securities exchange, unless SNC's Amended and Restated
Articles of Incorporation are amended to provide otherwise. Directors shall be
elected by a plurality of the votes cast, and at each election for directors
every shareholder entitled to vote at such election shall have the right to
vote, in person or by proxy, the number of shares outstanding of record in his
name for as many persons as there are directors to be elected.
Shares of SNC Common Stock owned by any of its subsidiaries in a non-
fiduciary capacity are not eligible to vote on any matter. Shares of SNC Common
Stock held by SNC or any of its subsidiaries either as a sole- or co-fiduciary
may be voted in the election of directors and in all other matters by the
registered owners, unless otherwise limited by the terms of the individual
trust agreements.
In general, unless SNC's Amended and Restated Articles of Incorporation are
amended to provide otherwise or a bylaw is adopted by the stockholders, action
on a matter is approved if the votes cast favoring the action exceed the votes
cast opposing the action. However, generally (i) the affirmative vote of a
majority
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of the shares entitled to be cast of each voting group entitled to vote
separately is required to approve a merger or share exchange, (ii) the
affirmative vote of a majority of the shares of each voting group entitled to
vote thereon is required to amend SNC's Amended and Restated Articles of
Incorporation, if the amendment would give rise to dissenters' rights and (iii)
the affirmative vote of a majority of the shares of capital stock of SNC
entitled to be cast is required to approve the dissolution of SNC or to approve
the sale of all or substantially all the property of SNC other than in the
regular course of business. With respect to sales of assets in the regular
course of business, the SNC Board of Directors may approve the sale of all or
substantially all the property of SNC without shareholder approval.
Holders of SNC Common Stock have dissenters' rights of appraisal with respect
to their shares of SNC Common Stock as provided by statute in connection with
certain types of merger or share exchange transactions. Dissenters' rights are
also available with respect to certain sales of all or substantially all the
property of SNC and amendments to SNC's Amended and Restated Articles of
Incorporation that materially and adversely affect certain enumerated rights of
the dissenters' shares.
The SNC Board of Directors, without stockholder approval, may issue shares of
SNC Preferred Stock with voting and conversion rights that could adversely
affect the voting power of the holders of SNC Common Stock.
Holders of SNC Series A Preferred Stock do not have any voting rights except
as set forth below or as otherwise from time to time expressly required by law.
Whenever dividends on any shares of SNC Series A Preferred Stock are in arrears
for six full quarterly periods, whether or not consecutive, the holders of such
shares of SNC Series A Preferred Stock (voting separately as a class with all
other series of cumulative preferred stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election
of two additional directors (on the terms set forth below) of SNC at the next
annual meeting of stockholders and at each subsequent meeting until all
dividends accumulated on such shares of SNC Series A Preferred Stock have been
fully paid or set aside for payment. In such case, the entire SNC Board of
Directors will be increased by two directors. Each director so elected will
continue to serve for the full term for which he has been elected,
notwithstanding that prior to the end of such term such default ceases to
exist.
So long as any shares of SNC Series A Preferred Stock remain outstanding, SNC
will not, without the affirmative vote of the holders of at least two-thirds of
the shares of SNC Series A Preferred Stock outstanding at the time, given in
person or by proxy, at a meeting (voting separately as one class): (i)
authorize, create or issue, or increase the authorized or issued amount of, any
class of series of stock ranking prior to the SNC Series A Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, (ii) authorize, create or issue, or increase the
authorized or issued amount of, any class or series of stock (including any
class or series of preferred stock) which ranks on a parity with the SNC Series
A Preferred Stock as to dividends and upon liquidation, dissolution or winding
up ("Parity Stock") unless SNC's Amended and Restated Articles of Incorporation
or other provisions of the charter creating or authorizing such class or series
provide that if in any case the stated dividends or amounts payable upon
liquidation, dissolution or winding up are not paid in full on the SNC Series A
Preferred Stock and all outstanding shares of Parity Stock, the shares of all
Parity Stock will share ratably in the payment of dividends, including
accumulations (if any) in accordance with the sums which would be payable on
all Parity Stock if all dividends in respect of all shares of Parity Stock were
paid in full, and on any distribution of assets upon liquidation, dissolution
or winding up ratably in accordance with the sums which would be payable in
respect of all shares of Parity Stock if all sums payable were discharged in
full or (iii) amend, alter or repeal the provisions of SNC's Amended and
Restated Articles of Incorporation, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such shares of SNC Series A Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
authorized preferred stock or any outstanding series of preferred stock or any
other capital stock of SNC, or the creation and issuance of other series of
preferred stock including SNC Series A Preferred Stock, or of any other capital
stock of SNC, in each case ranking on a parity with or
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junior to the SNC Series A Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
PREEMPTIVE RIGHTS
The stockholders of SNC do not have preemptive rights. Thus, if additional
shares of SNC Common Stock or SNC preferred stock were issued, holders of such
stock, to the extent they did not participate in such additional issuance of
shares, would own proportionately smaller interests in a larger amount of
outstanding capital stock.
ASSESSMENT AND REDEMPTION
All outstanding shares of SNC Common Stock are, and those to be issued
pursuant to the SNC Agreement will be, fully paid and nonassessable.
The SNC Common Stock is not convertible, redeemable or entitled to any
sinking fund.
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the affairs of
SNC, holders of outstanding shares of SNC Common Stock are entitled to share,
in proportion to their respective interests, in SNC's assets and funds
remaining after payment, or provision for payment, of all debts and other
liabilities of SNC. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of SNC, the holders of shares of the SNC Series A
Preferred Stock will be entitled to receive out of the assets of SNC available
for distribution to stockholders, before any distribution is made to holders of
Common Stock, liquidating distributions in the amount of $100 per share of the
SNC Series A Preferred Stock (equivalent to $25 per Depositary Share), plus
accrued but unpaid dividends to, but excluding, the date of final distribution,
but the holders of the shares of the SNC Series A Preferred Stock will not be
entitled to receive the liquidation price of such shares until the liquidation
preference of any other shares of SNC's capital stock ranking senior to the SNC
Series A Preferred Stock with respect to rights upon liquidation, dissolution
or winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. No such senior capital stock of SNC is
outstanding, and the holders of the SNC Series A Preferred Stock have certain
voting rights with respect to the issuance of any such senior capital stock.
See "--Voting Rights." If upon any voluntary or involuntary liquidation,
dissolution or winding up of SNC, the assets of SNC shall be insufficient to
make such full payments to holders of the SNC Series A Preferred Stock and any
other preferred stock ranking with respect to rights upon liquidation,
dissolution or winding up on a parity with the SNC Series A Preferred Stock,
then such assets shall be distributed pro-rata among holders of the SNC Series
A Preferred Stock or any other such preferred stock. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of the SNC Series A Preferred Stock will not be entitled to any further
participation in any distribution of assets by SNC. Neither a consolidation or
merger of SNC with or into another corporation nor a merger of another
corporation with or into SNC nor a sale, lease or conveyance of all or any part
of SNC's property or business shall be considered a liquidation, dissolution,
or winding up of SNC.
Because SNC is a bank and savings bank holding company, its rights, the
rights of its creditors and of its stockholders, including the holders of the
shares of the SNC Series A Preferred Stock, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization may be subject to
the prior claims of the subsidiary's creditors except to the extent that SNC
may itself be a creditor with recognized claims against the subsidiary and any
interests in the liquidation accounts established by savings associations or
savings banks acquired by SNC for the benefit of eligible account holders in
connection with the conversion of such savings associations to stock form. The
Board of Directors of SNC, without shareholder approval, may issue SNC
preferred stock with liquidation rights that may affect the amount of assets
and funds remaining for payment to holders of SNC Common Stock upon a
liquidation of SNC.
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CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
The provisions of SNC's By-laws and Amended and Restated Articles of
Incorporation providing for classification of the Board of Directors into three
separate classes and removal of directors only for cause may have certain anti-
takeover effects.
The rights of holders of SNC Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Any such issuance may adversely affect the interests of
holders of SNC Common Stock by limiting the control which such holders may
exert by exercise of their voting rights, by subordinating their rights in
liquidation to the rights of the holders of such preferred stock, and
otherwise. In addition, the issuance of preferred stock of SNC may, in some
circumstances, deter or discourage takeover attempts and other changes in
control of SNC, including takeovers and changes in control which some holders
of SNC Common Stock may deem to be in their best interests and in the best
interests of SNC, by making it more difficult for a person who has gained a
substantial equity interest in SNC to obtain voting control or to exercise
control effectively. SNC has no current plans or agreements with respect to the
issuance of any shares of preferred stock other than the issuance of SNC Series
A Preferred Stock.
Election and Removal of Directors. The SNC By-laws provide for a Board of
Directors having not less than three nor more than twenty-five members as
determined from time to time by vote of a majority of the members of the Board
of Directors or by resolution of the stockholders of SNC. As long as the
stockholders of SNC do not have cumulative voting rights with respect to the
election of directors, the SNC Board of Directors may increase or decrease the
number of directors not more than 30% in any twelve-month period. Vacancies,
whether arising from an increase in the number of directors or from the failure
by stockholders to elect the full authorized number of directors, may be filled
by the stockholders or by the SNC Board of Directors (by the affirmative vote
of a majority of the remaining directors if less than a quorum of the directors
remains). Pursuant to SNC's By-laws, however, less than a majority of the full
SNC Board of Directors may not increase the number of directors to a number
which: (i) exceeds by more than two the number of directors last fixed by
stockholders where such number was fifteen or less or (ii) exceeds by more than
four the number of directors last fixed by stockholders where such number was
sixteen or more. Presently, membership on the SNC Board of Directors is fixed
at twenty-three.
Pursuant to SNC's Amended and Restated Articles of Incorporation, members of
the SNC Board of Directors can be removed only for cause. In addition, the
directors may be removed only by the vote of a majority of the outstanding
shares of SNC Common Stock entitled to vote in the election of directors.
The SNC Board of Directors is divided into three classes so that each
director serves for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. In the event
of any increase in the authorized number of directors, the newly created
directorships resulting from such increase would be apportioned among the three
classes of directors so as to maintain such classes as nearly equal as
possible. Because the classification of directors, unless the stockholders act
under North Carolina law to remove directors from office, two annual meetings
generally would be required to elect a majority of the SNC Board of Directors,
and three rather than one would be required to replace the entire board.
Amendment of the provisions of SNC's Amended and Restated Articles of
Incorporation providing for the structure of the SNC Board of Directors and
proving for the removal of directors and the selection of a director to fill a
vacancy on the SNC Board of Directors requires the affirmative vote of not less
than two-thirds of the total number of issued and outstanding shares of SNC
Common Stock entitled to vote thereon.
North Carolina Stockholder Protection Legislation. The N.C. Shareholder
Protection Act and the Share Acquisition Act both apply to SNC.
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EXPERTS
The consolidated financial statements of BB&T Financial and its subsidiaries
included in BB&T Financial's Annual Report on Form 10-K for the year ended
December 31, 1993 incorporated herein by reference have been incorporated by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. Such financial
statements have been restated in BB&T Financial's Current Report on Form 8-K
dated August 31, 1994.
The consolidated financial statements of BB&T Financial and its subsidiaries
which are incorporated herein by reference from BB&T Financial's Current Report
on Form 8-K dated August 31, 1994, which restates the consolidated financial
statements that are incorporated by reference from BB&T Financial's Annual
Report on Form 10-K for the year ended December 31, 1993 to reflect the
acquisition of L.S.B. Bancshares, Inc. of South Carolina by BB&T Financial
during 1994, have been incorporated by reference herein in reliance upon the
reports of KPMG Peat Marwick LLP and other auditors, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firms as experts in accounting and auditing.
The financial statements of Commerce at December 31, 1993 and for the year
then ended incorporated by reference herein have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated by reference herein. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Commerce as of December 31, 1992 and for each of
the two years in the period ended December 31, 1992 incorporated by reference
herein have been incorporated by reference in reliance on the report of Coopers
& Lybrand, independent accountants, incorporated by reference herein, and have
been incorporated by reference in reliance upon the authority of that firm as
experts in auditing and accounting.
OPINIONS
The validity of the shares of BB&T Financial Common Stock offered hereby is
being passed upon for BB&T Financial by Jerone C. Herring, Esquire, Vice
President and Secretary of BB&T Financial. As of the date of this Prospectus,
Mr. Herring beneficially owned shares of BB&T Financial Common Stock and
held options exercisable within 60 days of such date to acquire shares of
BB&T Financial Common Stock. Certain matters with regard to the federal law
will be passed upon for BB&T Financial by Arnold & Porter, Washington, D.C.,
special counsel to BB&T Financial. Certain matters with regard to the federal
and Virginia income tax consequences of the Acquisition have been passed upon
for BB&T Financial by KPMG Peat Marwick.
STOCKHOLDER PROPOSALS
It is not anticipated that Commerce will hold a 1995 Annual Meeting of
Stockholders unless the Acquisition is not consummated prior to April 1995. If
the Acquisition is not consummated prior to that time, any stockholder proposal
intended for inclusion in Commerce's proxy materials for the 1995 Annual
Meeting of Stockholders must be received at Commerce's main office at 5101
Cleveland Street, Suite 206, Virginia Beach, Virginia 23462 no later than .
Any such proposal shall be subject to the requirements of the proxy rules
adopted by the FDIC under the Exchange Act.
OTHER MATTERS
The Commerce Board of Directors does not intend to bring any matter before
the Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Stockholders, nor does it know of any matter to be brought
before the Special Meeting by others. If, however, any other matters properly
come before the Special Meeting, it is the intention of each of the
proxyholders to vote such proxy in accordance with the decision of a majority
of the Commerce Board of Directors.
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Reorganization Agreement" or
"Agreement"), dated as of June 24, 1994, between COMMERCE BANK ("Commerce"), a
bank chartered under the laws of the Commonwealth of Virginia, having its home
office at 5101 Cleveland Street, Virginia Beach, Virginia 23462, and BB&T
FINANCIAL CORPORATION ("BB&T Financial"), a North Carolina corporation having
its home office at 223 West Nash Street, Wilson, North Carolina 27893.
WITNESSETH
Whereas, the parties hereto desire that Branch Banking and Trust Company of
Virginia ("BB&T-VA"), a to be formed Virginia chartered bank, which will be a
wholly owned subsidiary of BB&T FINANCIAL CORPORATION OF VIRGINIA ("BB&T
Financial-Va"), a to be formed Virginia corporation and wholly owned subsidiary
of BB&T Financial, shall be merged with and into Commerce (said transaction
being hereinafter referred to as the "Merger") pursuant to a plan of merger in
the form attached hereto as Annex A ("Plan of Merger");
Whereas, the parties desire to provide for certain undertakings, conditions,
representations, warranties and covenants in connection with the transactions
contemplated hereby;
Now, Therefore, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
"Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956,
as amended.
"BB&T Financial Common Stock" shall mean the shares of common stock, par
value $2.50 per share, of BB&T Financial.
"BB&T Financial Subsidiary" shall mean each of Branch Banking and Trust
Company, a North Carolina chartered bank subsidiary of BB&T Financial, and
Branch Banking and Trust Company of South Carolina, an indirect wholly owned
subsidiary of BB&T Financial.
"Closing Date" shall mean the date specified pursuant to Section 4.11 hereof
as the date on which the parties hereto shall close the transactions
contemplated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"CRA" shall mean the Community Reinvestment Act of 1977, as amended.
"Effective Date" shall mean the date specified pursuant to Section 4.11
hereof as the effective date of the Merger.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup
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costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based upon, or
resulting from the presence, or release into the environment, of any Materials
of Environmental Concern.
"Environmental Laws" means all applicable federal, state and local laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, that relate to pollution or protection
of human health or the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"Financial Statements" shall mean (a) with respect to BB&T Financial, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
BB&T Financial as of December 31, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the three years ended December 31,
1993, 1992 and 1991 as filed by BB&T Financial in Securities Documents and (ii)
the consolidated balance sheets of BB&T Financial (including related notes and
schedules, if any) and related statements of income, shareholders' equity and
cash flows (including related notes and schedules, if any) included in
Securities Documents filed by BB&T Financial with respect to periods ended
subsequent to December 31, 1993, and (b) with respect to Commerce, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Commerce as of December 31, 1993 and 1992 and the related consolidated
statements of income, changes in shareholders' equity and cash flows (including
related notes and schedules, if any) for each of the three years ended December
31, 1993, 1992 and 1991 as filed by Commerce in Securities Documents and (ii)
the consolidated balance sheets of Commerce (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 Securities Documents filed by Commerce with respect to periods ended
subsequent to December 31, 1993.
"Commerce Subsidiary" shall mean Commerce Financial Services, Inc.
"Joint Venture" shall mean any joint venture, partnership or similar
arrangement in which Commerce or the Commerce Subsidiary is a member, party to
or partner (whether general or limited).
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, results of operations, business or prospects of Commerce.
"Materials of Environmental Concern" means pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other materials
regulated under Environmental Laws.
"Option Agreement" shall mean the Option Agreement dated as of even date
herewith between Commerce and BB&T Financial, which shall be executed
immediately following execution of this Reorganization Agreement.
"Previously Disclosed" shall mean disclosed in (i) a Securities Document
delivered by one party to the other on or prior to the execution of this
Reorganization Agreement or (ii) in a letter from one party to the other party
delivered and dated not later than July 1, 1994 specifically referring to this
Agreement, provided that such letter is not materially inconsistent with a
draft of such letter delivered to the other party and dated on or prior to the
date of this Agreement.
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"Proxy Statement" shall mean the proxy statement together with any
supplements thereto sent to shareholders of Commerce to solicit their votes in
connection with this Agreement and the Plan of Merger.
"Registration Statement" shall mean the registration statement with respect
to the BB&T Financial Common Stock to be issued in the Merger as declared
effective by the Commission under the Securities Act.
"Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership interests, and stock
appreciation rights, performance units and similar stock-based rights whether
or not they obligate the issuer thereof to issue stock or other securities or
to pay cash.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, proxy statements, registration
statements and all similar documents filed, or required to be filed, pursuant
to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules
and regulations of the Commission and the FDIC promulgated thereunder.
"State Board" shall mean the Virginia State Corporation Commission, Bureau of
Financial Institutions.
"TILA" shall mean the Truth in Lending Act, as amended.
"VASCA" shall mean the Virginia Stock Corporation Act, as amended.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMMERCE
Commerce represents and warrants to BB&T Financial as follows:
2.1 CAPITAL STRUCTURE
The authorized capital stock of Commerce consists of (i) 5,000,000 shares of
common stock, par value $2.50 per share ("Commerce Common Stock") and (ii)
1,000,000 shares of preferred stock, par value $5.00 per share. As of the date
hereof, there were 2,725,163 shares of Commerce Common Stock issued and
outstanding and no shares of preferred stock outstanding. All outstanding
shares of Commerce Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. No other classes of capital stock of
Commerce are authorized. No shares of Commerce Common Stock are held in the
treasury of Commerce. No shares of capital stock have been reserved for any
purpose, except for (i) 262,895 shares of Commerce Common Stock in connection
with Commerce's 10% Convertible Subordinated Capital Notes due August 31, 2002
("Convertible Notes"), (ii) 209,637 shares of Commerce Common Stock in
connection with Commerce's 1985 Stock Option Plan, (iii) 157,500 shares of
Commerce Common Stock in connection with Commerce's 1993 Incentive Stock Plan
(clauses (ii) and (iii) together are referred to herein as the "Stock Option
Plans"), (iv) 234,547 shares of Commerce Common Stock in connection with
Commerce's Dividend Reinvestment and Stock Purchase Plan, (v) 480,000 shares of
Commerce Common Stock in connection with the Preferred Stock Purchase Agreement
with BB&T Financial dated April 21, 1994 ("Preferred Stock Purchase Agreement")
and (vi) 540,000 shares of Commerce Common Stock in connection with the Option
Agreement. Except as set forth herein, there are no Rights authorized, issued
or outstanding with respect to the capital stock of Commerce. Shareholders of
Commerce do not have preemptive rights.
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2.2 ORGANIZATION, STANDING AND AUTHORITY
Commerce is a bank duly organized, validly existing and in good standing
under the laws of the Commonwealth of Virginia with full corporate power and
authority to carry on its business as now conducted and does not do business in
any other states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires
qualification to do business.
2.3 OWNERSHIP OF COMMERCE SUBSIDIARY
Except as Previously Disclosed, Commerce does not own, directly or
indirectly, any outstanding capital stock or other voting securities or
ownership interests of any corporation, bank, savings association, partnership,
Joint Venture, or other organization, except for the Commerce Subsidiary. The
outstanding shares of capital stock of the Commerce Subsidiary are validly
issued and outstanding, fully paid and nonassessable and all such shares are
directly or indirectly owned by Commerce free and clear of all liens, claims
and encumbrances or preemptive rights of any person. No Rights are authorized,
issued or outstanding with respect to the capital stock of the Commerce
Subsidiary and there are no agreements, understandings or commitments relating
to the right of Commerce to vote or to dispose of said shares. None of the
shares of capital stock of the Commerce Subsidiary has been issued in violation
of the preemptive rights of any person.
2.4 ORGANIZATION, STANDING AND AUTHORITY OF THE COMMERCE SUBSIDIARY
The Commerce Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of Virginia. The Commerce Subsidiary: (i) has
full corporate power and authority to carry on its business as now conducted;
(ii) is duly qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where failure to so qualify
would not have a Material Adverse Effect; and (iii) is not engaged in any
activities that have not been Previously Disclosed.
2.5 AUTHORIZED AND EFFECTIVE AGREEMENT
a. Commerce has all requisite corporate power and authority to enter into and
(subject to receipt of all necessary governmental approvals and the receipt of
approval of stockholders of Commerce of the Plan of Merger) to perform all of
its obligations under this Reorganization Agreement, the Plan of Merger and the
Option Agreement. The execution and delivery of this Reorganization Agreement,
the Plan of Merger and the Option Agreement and consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action in respect thereof, except, in the
case of this Reorganization Agreement and the Plan of Merger, the approval of
Commerce shareholders pursuant to and to the extent required by applicable law.
This Reorganization Agreement, the Plan of Merger and the Option Agreement
constitute legal, valid and binding obligations of Commerce, each of which is
enforceable against Commerce in accordance with its respective terms, in each
such case subject to (i) bankruptcy, fraudulent transfer, insolvency,
moratorium, reorganization, conservatorship, receivership, or other similar
laws from time to time in effect relating to or affecting the enforcement of
rights of creditors of FDIC-insured institutions or the enforcement of
creditors' rights generally, (ii) laws relating to the safety and soundness of
depository institutions and their holding companies, and (iii) general
principles of equity, and except that the availability of equitable remedies or
injunctive relief is within the discretion of the appropriate court.
b. Neither the execution and delivery of this Reorganization Agreement, the
Plan of Merger and the Option Agreement nor consummation of the transactions
contemplated hereby or thereby, nor compliance by Commerce with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the articles of incorporation, charter or by-laws of Commerce
or the Commerce Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result
in the creation of any lien, charge or encumbrance upon any material property
or asset of Commerce or the Commerce Subsidiary pursuant to, any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation, or
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(iii) subject to receipt of all required governmental approvals, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Commerce or the Commerce Subsidiary.
2.6 SECURITIES DOCUMENTS AND REPORTS
Commerce has timely filed all Securities Documents required by the Securities
Laws since December 31, 1988, and such Securities Documents complied in all
material respects with the Securities Laws as in effect at the times of such
filings. Commerce has in all material respects timely filed all reports
required to be filed with the FDIC and the State Board and such reports
complied in all material respects with applicable law and regulations as in
effect at the times of such filings.
2.7 FINANCIAL STATEMENTS; MINUTE BOOKS
The Financial Statements of Commerce fairly present or will fairly present,
as the case may be, the consolidated financial position of Commerce and the
Commerce Subsidiary as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity and statements of cash flows for
the periods then ended (subject, in the case of unaudited interim statements,
to normal year-end audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis (except as stated
therein). The minute books of Commerce and the Commerce Subsidiary contain
legally sufficient records of all meetings and other corporate actions of its
shareholders and Board of Directors (including committees of its Board of
Directors).
2.8 MATERIAL ADVERSE CHANGE
Commerce has not, on a consolidated basis, suffered any material adverse
change in its business, financial condition, results of operations or prospects
since December 31, 1993.
2.9 ABSENCE OF UNDISCLOSED LIABILITIES
Neither Commerce nor the Commerce Subsidiary has any liability (contingent or
otherwise) that is material to Commerce on a consolidated basis or that, when
combined with all similar liabilities, would be material to Commerce on a
consolidated basis, except as has been Previously Disclosed and except for
liabilities made in the ordinary course of its business consistent with past
practices since the date of Commerce's most recent Financial Statements.
2.10 PROPERTIES
a. Commerce and the Commerce Subsidiary have good and marketable title free
and clear of all liens, encumbrances, charges, defaults or equitable interests
to all of the properties and assets, real and personal, reflected on the
consolidated balance sheet included in the Financial Statements of Commerce as
of December 31, 1993 or acquired after such date, except (i) liens for current
taxes not yet due and payable, (ii) pledges to secure deposits and other liens
incurred in the ordinary course of banking business, (iii) such imperfections
of title, easements and encumbrances, if any, as are not material in character,
amount or extent, or (iv) dispositions and encumbrances for adequate
consideration in the ordinary course of business.
b. All material leases pursuant to which Commerce or the Commerce Subsidiary,
as lessee, leases real or personal property, are, with respect to Commerce or
the Commerce Subsidiary, valid and enforceable in accordance with their
respective terms, in each such case subject to (i) bankruptcy, fraudulent
transfer, insolvency, moratorium, reorganization, conservatorship,
receivership, or other similar laws from time to time in effect relating to or
affecting the enforcement of rights of creditors of FDIC-insured institutions
or the enforcement of creditors' rights generally, (ii) laws relating to the
safety and soundness of depository institutions and their holding companies,
and (iii) general principles of equity, and except that the availability of
equitable remedies or injunctive relief is within the discretion of the
appropriate court.
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2.11 ENVIRONMENTAL MATTERS
a. Commerce and the Commerce Subsidiary are in substantial compliance with
all Environmental Laws. Neither Commerce nor the Commerce Subsidiary has
received any communication alleging that Commerce or the Commerce Subsidiary is
not in such compliance and, to the best knowledge of Commerce, there are no
present circumstances that would prevent or interfere with the continuation of
such compliance.
b. Commerce has not received notice of any pending, and is not aware of any
threatened, legal, administrative, arbitral or other proceedings, asserting
Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition of, any liability arising under any Environmental Laws upon (i)
Commerce or the Commerce Subsidiary, (ii) any person or entity whose liability
for any Environmental Claim Commerce or the Commerce Subsidiary has or may have
retained either contractually or by operation of law, (iii) any real or
personal property owned or leased by Commerce or the Commerce Subsidiary, or
any real or personal property which Commerce or the Commerce Subsidiary has
been, or is, judged to have managed or to have supervised or to have
participated in the management of, or (iv) any real or personal property in
which Commerce or the Commerce Subsidiary holds a security interest securing a
loan recorded on the books of Commerce or the Commerce Subsidiary. Neither
Commerce nor the Commerce Subsidiary is subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
c. With respect to all real and personal property owned or leased by Commerce
or the Commerce Subsidiary, or all real and personal property which Commerce or
the Commerce Subsidiary has been, or is, judged to have managed or to have
supervised or to have participated in the management of, Commerce has provided
BB&T Financial with access to copies of any environmental audits, analyses and
surveys that have been prepared relating to such properties (a list of all of
which has been Previously Disclosed). To the best of Commerce's knowledge,
Commerce and the Commerce Subsidiary are in compliance in all material respects
with all recommendations contained in any such environmental audits, analyses
and surveys.
d. There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against Commerce or the Commerce Subsidiary or against any person or
entity whose liability for any Environmental Claim Commerce or the Commerce
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
2.12 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the consolidated balance sheets
included in the Financial Statements of Commerce is or will be adequate in the
opinion of Commerce management in all material respects as of their respective
dates under the requirements of generally accepted accounting principles
applicable to banks to provide for reasonably anticipated losses on outstanding
loans net of recoveries.
2.13 TAX MATTERS
a. Commerce and the Commerce Subsidiary, and each of their predecessors, have
timely filed (or requests for extensions have been timely filed and any such
extensions have been granted and have not expired) all federal, state and
material local (and, if applicable, foreign) tax returns required by applicable
law to be filed by them (including, without limitation, estimated tax returns,
income tax returns, information returns, and withholding and employment tax
returns) and have paid, or where payment is not required to have been made,
have set up an adequate reserve or accrual for the payment of, all taxes
required to be paid in respect of the periods covered by such returns and, as
of the Effective Date, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment of,
all taxes for any subsequent periods ending on or prior to the Effective Date.
Neither Commerce nor the
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Commerce Subsidiary will have any material liability for any such taxes in
excess of the amounts so paid or reserves or accruals so established.
b. All federal, state and local (and, if applicable, foreign) tax returns
filed by Commerce are complete and accurate in all material respects. Neither
Commerce nor the Commerce Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge. No deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Commerce or the Commerce Subsidiary which
have not been settled and paid. There are currently no agreements in effect
with respect to Commerce or the Commerce Subsidiary to extend the period of
limitations for the assessment or collection of any tax. No audit examination
or deficiency or refund litigation with respect to such returns are pending.
2.14 EMPLOYEE BENEFIT PLANS
a. Commerce has Previously Disclosed true and complete copies of all stock
option, employee stock purchase and stock bonus plans, qualified pension or
profit-sharing plans, deferred compensation, bonus or group insurance contracts
and any other incentive, welfare or employee benefit plans or agreements
maintained for the benefit of employees or former employees of Commerce or the
Commerce Subsidiary together with (i) the most recent actuarial and financial
reports prepared with respect to any qualified plans, (ii) the most recent
annual reports filed with any government agency, and (iii) all rulings and
determination letters and any open requests for rulings or letters that pertain
to any qualified plan.
b. Neither Commerce nor the Commerce Subsidiary (or any pension plan
maintained by any of them) has incurred any material liability to the Pension
Benefit Guaranty Corporation or the Internal Revenue Service with respect to
any pension plan qualified under Section 401 of the Code except liabilities to
the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all
of which have been fully paid. No reportable event under Section 4043(b) of
ERISA has occurred with respect to any such pension plan.
c. Neither Commerce nor the Commerce Subsidiary participates in, or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from, a multiemployer plan (as such term is defined in ERISA).
d. A favorable determination letter has been issued by the Internal Revenue
Service with respect to each "employee pension plan" (as defined in Section
3(2) of ERISA) of Commerce which is intended to be qualified under Section 401
of the Code to the effect that such plan is qualified under Section 401 of the
Code and tax exempt under Section 501 of the Code. No such letter has been
revoked or, to Commerce's knowledge, threatened to be revoked and Commerce does
not know of any ground on which such revocation may be based. Neither Commerce
nor the Commerce Subsidiary has a material liability under any such plan that
is not reflected on the consolidated balance sheet included in the Financial
Statements of Commerce as of December 31, 1993 or March 31, 1994.
e. No prohibited transaction (which shall mean any transaction prohibited by
Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975
of the Code, whether by statutory, class or individual exemption) has occurred
with respect to any employee benefit plan maintained by Commerce or the
Commerce Subsidiary which would result in the imposition, directly or
indirectly, of a material excise tax under Section 4975 of the Code.
2.15 CERTAIN CONTRACTS
a. Except as Previously Disclosed, neither Commerce nor any Commerce
Subsidiary is a party to, is bound or affected by, or receives benefits under
(i) any material agreement, arrangement or commitment whether or not made in
the ordinary course of business (other than loans or loan commitments or
certificates of deposit made in the ordinary course of banking business), or
any agreement materially restricting its
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business activities, including, without limitation, agreements or memoranda of
understanding with regulatory authorities, (ii) any agreement, indenture or
other instrument relating to the borrowing of money by Commerce or the Commerce
Subsidiary or the guarantee by Commerce or the Commerce Subsidiary of any such
obligation, which cannot be terminated within less than 30 days after the
Closing Date by Commerce or the Commerce Subsidiary (without payment of any
penalty or cost by Commerce or the Commerce Subsidiary), (iii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election or retention in office of any present or former director
or officer, which cannot be terminated within less than 30 days after the
Closing Date by Commerce or the Commerce Subsidiary (without payment of any
penalty or cost by Commerce or the Commerce Subsidiary), or (iv) any contract,
agreement or understanding with a labor union, in each case whether written or
oral.
b. Neither Commerce nor the Commerce Subsidiary is in default, which default
would have a material adverse effect on Commerce on a consolidated basis or the
transactions contemplated herein, under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument whether entered into
in the ordinary course of business or otherwise and whether written or oral,
and there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default.
2.16 LEGAL PROCEEDINGS; REGULATORY APPROVALS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of Commerce,
threatened (or unasserted but considered by Commerce to be probable of
assertion and which, if asserted, would have at least a reasonable probability
of an unfavorable outcome) against Commerce or the Commerce Subsidiary or
against any asset, interest, or right of Commerce or the Commerce Subsidiary,
or against any officer, director or employee of either of them that in any such
case, if decided adversely, might have a Material Adverse Effect. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted,
pending or, to the knowledge of Commerce and each of the directors and
executive officers of Commerce, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any present or former director
or officer of Commerce or the Commerce Subsidiary that might give rise to a
claim for indemnification, and to the best knowledge of Commerce and each of
its directors and executive officers and each of the directors and executive
officers of the Commerce Subsidiary, there is no reasonable basis for any such
action, suit or proceeding. There are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein, in the Plan of Merger or the Option Agreement. No fact or
condition (including but not limited to compliance with the CRA) relating to
Commerce or the Commerce Subsidiary known to Commerce exists that would prevent
Commerce or BB&T Financial from obtaining all of the federal and state
regulatory approvals contemplated herein.
2.17 COMPLIANCE WITH LAWS
Each of Commerce and the Commerce Subsidiary is in compliance in all material
respects with all statutes and regulations (including, but not limited to, the
CRA and regulations promulgated thereunder, the TILA and regulations
promulgated thereunder and other consumer banking laws) applicable and material
to the conduct of its business (except for any violations not material to the
business, operations or financial condition of Commerce and the Commerce
Subsidiary on a consolidated basis), and neither Commerce nor the Commerce
Subsidiary has received notification that has not elapsed, been withdrawn or
abandoned by any agency or department of federal, state or local government (i)
asserting a violation or possible violation of any such statute or regulation
and which violation would be likely to have a Material Adverse Effect on a
consolidated basis, (ii) threatening to revoke any license, franchise, permit
or government authorization, or (iii) restricting or in any way limiting its
operations. Neither Commerce nor the Commerce Subsidiary is subject to any
regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and none of them has received any
communication requesting that they enter into any of the foregoing. Without
limiting the generality of the foregoing, Commerce has timely filed all
currency transaction reports required to be filed and taken all other actions
required under the Currency and
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Foreign Transactions Reporting Act, as amended, codified at 31 U.S.C. (S) 5301
et seq., and its implementing regulations.
2.18 BROKERS AND FINDERS
Neither Commerce nor the Commerce Subsidiary, nor any of their respective
officers, directors or employees has employed any broker, finder or financial
advisor or incurred any liability of Commerce or the Commerce Subsidiary for
any fees or commissions in connection with the transactions contemplated
herein, in the Plan of Merger or in the Option Agreement (except for fees to
accountants and lawyers and Alex. Brown & Sons Incorporated).
2.19 INSURANCE
Commerce and the Commerce Subsidiary each currently maintain insurance in the
amounts and for the coverages Previously Disclosed. Neither Commerce nor the
Commerce Subsidiary has received any notice of a premium increase or
cancellation or a failure to renew with respect to any insurance policy or
bond, and within the last three years, neither Commerce nor the Commerce
Subsidiary has been refused any insurance coverage sought or applied for, and
neither Commerce nor the Commerce Subsidiary has any reason to believe that
existing insurance coverage cannot be renewed as and when the same shall
expire, upon terms and conditions as favorable as those presently in effect,
other than possible increases in premiums or unavailability of coverage that do
not result from any extraordinary loss experience on the part of Commerce or
the Commerce Subsidiary.
2.20 REPURCHASE AGREEMENTS
With respect to all agreements currently outstanding pursuant to which
Commerce or the Commerce Subsidiary has purchased securities subject to an
agreement to resell, Commerce and the Commerce Subsidiary have a valid,
perfected first lien or security interest in the securities or other collateral
securing such agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby. With respect to all agreements currently
outstanding pursuant to which Commerce or the Commerce Subsidiary has sold
securities subject to an agreement to repurchase, Commerce and the Commerce
Subsidiary have not pledged collateral materially in excess of the amount of
the debt secured thereby. Neither Commerce nor the Commerce Subsidiary has
pledged collateral materially in excess of the amount required under any
interest rate swap or other similar agreement currently outstanding.
2.21 DEPOSIT ACCOUNTS
The deposit accounts of Commerce are insured by the Bank Insurance Fund of
the FDIC to the maximum extent permitted by federal law, and Commerce has paid
all premiums and assessments and filed all reports required to have been paid
or filed under the FDIA.
2.22 LOANS
a. With respect to each loan on the books and records of Commerce, including
unfunded portions of outstanding lines of credit and loan commitments: (i)
such loan is a valid loan; (ii) its principal balance as shown on the books and
records of Commerce is true and correct as of the last date shown thereon;
(iii) all purported signatures on and executions of any document in connection
with such loan are genuine; (iv) all related documentation has been signed or
executed by all necessary parties; (v) Commerce has custody of all documents or
microfilm records thereof related to such loan (as such documents relate to the
matters described in clauses (i)-(iv) and (vi)-(vii) hereof); (vi) to the
extent secured, such loan has been secured by valid liens and security
interests which have been perfected; and (vii) such loan is the legal, valid
and binding obligation of the obligor named therein, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
All loans on the books and records of Commerce have been originated and
administered in accordance with the terms
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of the underlying notes related thereto. Neither the terms of such loans, nor
any of the loan documentation, nor the manner in which such loans have been
administered and serviced, violates any federal, state or local law, rule,
regulation or ordinance applicable thereto, including, without limitation,
Regulation O of the Federal Reserve Board, the TILA, Regulation Z of the
Federal Reserve Board, the Equal Credit Opportunity Act, as amended, and state
laws, rules and regulations relating to consumer protection, installment sales
and usury.
b. Commerce has Previously Disclosed all investments and loans, including
loan guarantees, to which Commerce or the Commerce Subsidiary is a party with
any director, executive, officer or 5% shareholder of Commerce or any person,
corporation, or enterprise controlling, controlled by or under common control
with any of the foregoing.
2.23 CERTAIN INFORMATION
When the Proxy Statement is mailed, and at the time of the meeting of
shareholders of Commerce to vote upon the Plan of Merger, the Proxy Statement
and all amendments or supplements thereto, with respect to all information set
forth therein furnished by Commerce relating to Commerce and the Commerce
Subsidiary, (i) shall comply in all material respects with the applicable
provisions of the Securities Laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BB&T FINANCIAL
BB&T Financial represents and warrants to Commerce as follows:
3.1 CAPITAL STRUCTURE OF BB&T FINANCIAL
The authorized capital stock of BB&T Financial consists of (i) 4,000,000
shares of preferred stock, par value $2.50 per share, and (ii) 100,000,000
shares of BB&T Financial Common Stock, of which 32,195,746 shares were issued
and outstanding on March 31, 1994. All outstanding shares of BB&T Financial
Common Stock have been duly issued and are validly outstanding, fully paid and
nonassessable. As of the date of this Agreement, BB&T Financial has reserved
6,504,441 shares of BB&T Financial Common Stock for issuance under its benefit
plans and Dividend Reinvestment Plan. Except as set forth herein, there are no
Rights authorized, issued or outstanding with respect to the capital stock of
BB&T Financial. None of the shares of capital stock of BB&T Financial has been
issued in violation of the preemptive rights of any person.
3.2 ORGANIZATION, STANDING AND AUTHORITY OF BB&T FINANCIAL
BB&T Financial is a corporation duly organized, validly existing and in good
standing under the laws of the state of North Carolina, with full corporate
power and authority to carry on its business as now conducted and is duly
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification and where failure to so qualify would have
a material adverse effect on the financial condition, results of operation, or
business of BB&T Financial on a consolidated basis. BB&T Financial is
registered as a bank holding company under the Bank Holding Company Act.
3.3 AUTHORIZED AND EFFECTIVE AGREEMENT
a. BB&T Financial has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement and
the Option Agreement. The execution and delivery of
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this Reorganization Agreement and the Option Agreement and consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
BB&T Financial. This Reorganization Agreement and the Option Agreement
constitute legal, valid and binding obligations of BB&T Financial, in each such
case enforceable against it in accordance with their respective terms subject
to (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws in effect from time to time relating to or
affecting the enforcement of the rights of creditors of FDIC-insured
institutions or the enforcement of creditors' rights generally, (ii) laws
relating to the safety and soundness of depository institutions and their
holding companies, and (iii) general principles of equity, and except that the
availability of remedies or injunctive relief is within the discretion of the
appropriate court.
b. Neither the execution and delivery of this Reorganization Agreement nor
the Option Agreement, nor consummation of the transactions contemplated hereby
or thereby, nor compliance by BB&T Financial with any of the provisions hereof
or thereof shall (i) conflict with or result in a breach of any provision of
the articles of incorporation or by-laws of BB&T Financial or any BB&T
Financial Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result
in the creation of any lien, charge or encumbrance upon any property or asset
of BB&T Financial or any BB&T Financial Subsidiary pursuant to any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation which
would have a material adverse effect on the business, operations or financial
conditions of BB&T Financial and the BB&T Financial Subsidiaries taken as a
whole, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to BB&T Financial or any BB&T Financial Subsidiary.
3.4 ORGANIZATION, STANDING AND AUTHORITY OF BB&T FINANCIAL SUBSIDIARIES
Each BB&T Financial Subsidiary is a duly organized corporation, validly
existing and in good standing under applicable laws. Each BB&T Financial
Subsidiary (i) has full power and authority to carry on its business as now
conducted and (ii) is duly qualified to do business in the states of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires such qualification and where failure to so
qualify would have a material adverse effect on the financial condition,
results of operations, business or prospects of BB&T Financial on a
consolidated basis. BB&T Financial-Va will be registered as a bank holding
company under the Bank Holding Company Act and applicable Virginia law on or
prior to the closing.
3.5 SECURITIES DOCUMENTS
BB&T Financial has timely filed all Securities Documents required by the
Securities Laws since December 31, 1988 and such Securities Documents complied
in all material respects with the Securities Laws as in effect at the times of
such filings.
3.6 FINANCIAL STATEMENTS
The Financial Statements of BB&T Financial fairly present or will fairly
present, as the case may be, the consolidated financial position of BB&T
Financial and the BB&T Financial Subsidiaries as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity and changes
in cash flows for the periods then ended in conformity with generally accepted
accounting principles applicable to financial institutions applied on a
consistent basis.
3.7 MATERIAL ADVERSE CHANGE
BB&T Financial has not, on a consolidated basis, suffered any material
adverse change in its business, financial condition, results of operations or
prospects since December 31, 1993.
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3.8 LEGAL PROCEEDINGS; REGULATORY APPROVALS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of BB&T Financial,
threatened (or unasserted but considered by BB&T Financial to be probable of
assertion and which, if asserted, would have at least a reasonable probability
of an unfavorable outcome) against BB&T Financial or any BB&T Financial
Subsidiary or against any asset, interest or right of BB&T Financial or any
BB&T Financial Subsidiary, or against any officer, director or employee of any
of them that, if decided adversely, might have a material adverse effect on the
financial condition, results of operations, business or prospects of BB&T
Financial on a consolidated basis. To the knowledge of BB&T Financial, there
are no actual or threatened actions, suits or proceedings which present a claim
to restrain or prohibit the transactions contemplated herein or in the Plan of
Merger. No fact or condition (including but not limited to CRA compliance)
relating to BB&T Financial or any BB&T Financial Subsidiary known to BB&T
Financial exists that would prevent BB&T Financial from obtaining all of the
federal and state regulatory approvals contemplated herein.
3.9 OWNERSHIP OF BB&T FINANCIAL SUBSIDIARIES
The outstanding shares of capital stock or other ownership interests of the
BB&T Financial Subsidiaries are validly issued and outstanding, fully paid and
nonassessable, and all such shares are directly or indirectly owned by BB&T
Financial free and clear of all liens, claims and encumbrances or preemptive
rights of any person. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of any BB&T Financial
Subsidiary and there are no agreements, understandings or commitments relating
to the right of BB&T Financial to vote or to dispose of said shares or other
ownership interests.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES
Neither BB&T Financial nor any BB&T Financial Subsidiary has any liability
(contingent or otherwise) that is material to BB&T Financial on a consolidated
basis or that, when combined with all similar liabilities, would be material to
BB&T Financial on a consolidated basis, except as disclosed in the Financial
Statements of BB&T Financial and except for liabilities made in the ordinary
course of its business consistent with past practices since the date of BB&T
Financial's most recent Financial Statements.
3.11 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the consolidated balance sheets
included in the Financial Statements of BB&T Financial is or will be in the
opinion of BB&T Financial's management adequate in all material respects as of
their respective dates under the requirements of generally accepted accounting
principles applicable to banks and bank holding companies to provide for
reasonably anticipated losses on outstanding loans net of recoveries.
3.12 TAX MATTERS
a. BB&T Financial and the BB&T Financial Subsidiaries, and each of their
predecessors, have timely filed all federal, state and local (and, if
applicable, foreign) tax returns required by applicable law to be filed by them
(including, without limitation, estimated tax returns, income tax returns,
information returns, and withholding and employment tax returns) and have paid,
or where payment is not required to have been made, are contesting payment
thereof in good faith, or have set up an adequate reserve or accrual for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns and, as of the Effective Date, will have paid, or where payment is
not required to have been made, will have set up an adequate reserve or accrual
for the payment of, all taxes for any subsequent periods ending on or prior to
the Effective Date which are not being contested in good faith. Neither BB&T
Financial nor any of the BB&T Financial Subsidiaries will to BB&T Financial's
knowledge have any material liability for any such taxes in excess of the
amounts so paid or reserves or accruals so established.
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b. All federal, state and local (and, if applicable, foreign) tax returns
filed by BB&T Financial and the BB&T Financial Subsidiaries are complete and
accurate in all material respects. Neither BB&T Financial nor any of the BB&T
Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, and none of them has requested any extension of time
within which to file any tax returns in respect of any fiscal year or portion
thereof which have not since been filed. No deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against BB&T Financial or any BB&T Financial
Subsidiary which have not been settled and paid. There currently are no
agreements in effect with respect to BB&T Financial or any BB&T Financial
Subsidiary to extend the period of limitations for the assessment or collection
of any tax.
3.13 COMPLIANCE WITH LAWS
Each of BB&T Financial and the BB&T Financial Subsidiaries is in material
compliance with all statutes and regulations (including, but not limited to,
CRA and regulations promulgated thereunder, TILA and regulations promulgated
thereunder and other consumer banking laws) applicable and material to the
conduct of its business (except for any violations not material to the
business, operations or financial condition of BB&T Financial and its
subsidiaries taken as a whole), and neither BB&T Financial nor any BB&T
Financial Subsidiary has received notification that has not elapsed, been
withdrawn or abandoned from any agency or department of federal, state or local
government (i) asserting a violation or possible violation of any such statute
or regulation, and which violations would be likely to have a material adverse
effect on the business, operations or financial condition of BB&T Financial and
the BB&T Financial Subsidiaries taken as a whole, (ii) threatening to revoke
any license, franchise, permit or government authorization, or (iii)
restricting or in any way limiting its operations. Neither BB&T Financial nor
any BB&T Financial Subsidiary is subject to any regulatory or supervisory cease
and desist order, agreement, directive or memorandum of understanding, and none
of them has received any communication requesting that they enter into any of
the foregoing. Without limiting the generality of the foregoing, each BB&T
Financial Subsidiary has timely filed all currency transaction reports required
to be filed and taken all other actions required under the Currency and Foreign
Transactions Reporting Act as amended, codified at 31 U.S.C. (S) 5301 et seq.,
and its implementing regulations.
3.14 CERTAIN INFORMATION
When the Proxy Statement is mailed, and at all times subsequent to such
mailing up to and including the time of the meeting of shareholders of Commerce
to vote on the Merger, the Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished by BB&T
Financial relating to BB&T Financial, including pro forma information insofar
as it relates to BB&T Financial and entities other than Commerce and the
Commerce Subsidiary, (i) shall comply in all material respects with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
3.15 EMPLOYEE BENEFIT PLANS
a. Neither BB&T Financial nor any other BB&T Financial Subsidiary (or any
pension plan maintained by any of them) has incurred any material liability to
the Pension Benefit Guaranty Corporation or the Internal Revenue Service with
respect to any pension plan qualified under Section 401 of the Code except
liabilities to the Pension Benefit Guaranty Corporation pursuant to Section
4007 of ERISA, all of which have been fully paid. No reportable event under
Section 4043(b) of ERISA has occurred with respect to any such pension plan.
b. Neither BB&T Financial nor any BB&T Financial Subsidiary participates in,
or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from, a multiemployer plan (as such term is defined in
ERISA).
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c. A favorable determination letter has been issued by the Internal Revenue
Service with respect to each "employee pension plan" (as defined in Section
3(2) of ERISA) of BB&T Financial or any BB&T Financial Subsidiary to the effect
that such plan is qualified under Section 401 of the Code and tax exempt under
Section 501 of the Code. No such letter has been revoked or, to BB&T
Financial's knowledge, threatened to be revoked and BB&T Financial does not
know of any ground on which such revocation may be based. Neither BB&T
Financial nor any BB&T Financial Subsidiary has a material liability under any
such plan that is not reflected on the consolidated balance sheet included in
the Financial Statements of BB&T Financial as of December 31, 1993.
d. No prohibited transaction (which shall mean any transaction prohibited by
Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975
of the Code) has occurred with respect to any employee benefit plan maintained
by BB&T Financial or any BB&T Financial Subsidiary (i) which would result in
the imposition, directly or indirectly, of a material excise tax under Section
4975 of the Code, or (ii) the correction of which would have a material adverse
effect on the business, operations or financial condition of BB&T Financial and
the BB&T Financial Subsidiaries taken as a whole.
ARTICLE IV
COVENANTS
4.1 SHAREHOLDERS' MEETING
Commerce shall submit this Reorganization Agreement and the Plan of Merger to
its shareholders for approval at a special meeting to be held as soon as
practicable, and the Board of Directors of Commerce shall unanimously recommend
that the shareholders vote for such approval, provided, however, that if Alex.
Brown & Sons Incorporated delivers an opinion to the Board of Directors of
Commerce that the transactions contemplated hereby are not fair to the
shareholders of Commerce from a financial point of view as of the date of the
Proxy Statement or any supplement thereto, the Board of Directors shall not be
required to so recommend approval.
4.2 PROXY STATEMENT; REGISTRATION STATEMENT
BB&T Financial and Commerce shall cooperate in the timely preparation and
filing of the Registration Statement with the Commission and the FDIC and BB&T
Financial shall use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act, which Registration Statement, at
the time it becomes effective, and on the Effective Date, shall in all material
respects conform to the requirements of the Securities Act and the general
rules and regulations of the Commission under the Securities Act. The
Registration Statement shall include the form of Proxy Statement for the
meeting of Commerce's shareholders to be held for the purpose of having such
shareholders vote upon approval of this Reorganization Agreement and the Plan
of Merger. Commerce shall use its best efforts to cause the Proxy Statement to
be cleared for mailing to Commerce stockholders by the FDIC, and the Proxy
Statement shall, on the date of mailing and on the Effective Date, conform in
all material respects to the requirements of the Securities Laws and the rules
and regulations of the FDIC thereunder. Commerce shall cause the Proxy
Statement to be mailed to its shareholders. Commerce will furnish to BB&T
Financial the information required to be included in the Registration Statement
with respect to its business and affairs before it is filed with the Commission
and the FDIC and again before any amendments are filed, and shall have the
right to review and consult with BB&T Financial on the form of, and any
characterizations of such information included in, the Registration Statement
prior to the filing with the Commission. BB&T Financial shall take all actions
required to register or obtain exemptions from such registration for the BB&T
Financial Common Stock to be issued in connection with the transactions
contemplated by this Agreement and the Plan of Merger under applicable state
"Blue Sky" securities laws, as appropriate.
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4.3 ADDITIONAL ACTS; APPLICATIONS
a. BB&T Financial shall take all action necessary to organize BB&T Financial-
Va and BB&T-VA and shall cause BB&T Financial-Va and BB&T-VA to take such
actions as may be necessary to effect the Merger.
b. Commerce agrees to approve, execute and deliver any amendment to this
Agreement and the Plan of Merger and any additional plans and agreements
requested by BB&T Financial to modify the structure of, or to substitute
parties to, the transactions contemplated hereby, provided that such
modifications do not adversely affect the economic benefits of such
transactions or otherwise abrogate the covenants and other agreements contained
in this Agreement.
c. As promptly as practicable after the date hereof, BB&T Financial and
Commerce shall submit applications for prior approval of the transactions
contemplated herein to the Federal Reserve Board, the FDIC and the State Board,
and/or any other federal, state or local government agency, department or body
the approval of which is required for consummation of the Merger and the other
transactions contemplated hereby. BB&T Financial promptly shall furnish
Commerce with copies after filing of applications with these or any other
regulatory agencies filed by BB&T Financial or any BB&T Financial Subsidiary.
Commerce and BB&T Financial each represent and warrant to the other that all
information concerning it and its directors, officers and shareholders and
concerning its subsidiaries included (or submitted for inclusion) in any such
application shall be true, correct and complete in all material respects as of
the date presented.
4.4 BEST EFFORTS
BB&T Financial and Commerce shall each use its best efforts in good faith,
and each of them shall cause its subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with
and otherwise cooperate in the preparation and filing of the documents referred
to in Sections 4.2 and 4.3 above or elsewhere herein, and (ii) take or cause to
be taken all action necessary or desirable on its part so as to permit
consummation of the Merger at the earliest possible date, including, without
limitation, (a) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that neither Commerce nor the Commerce Subsidiary
shall agree to make any payments or modifications to agreements in connection
therewith without the prior written consent of BB&T Financial, and (b)
requesting the delivery of appropriate opinions, consents and letters from its
counsel, independent auditors and financial advisors. Neither BB&T Financial
nor Commerce shall take, or cause or to the best of its ability permit to be
taken, any action that would substantially delay or impair the prospects of
completing the Merger pursuant to this Agreement and the Plan of Merger,
provided that nothing herein contained shall preclude BB&T Financial from
exercising its rights under the Option Agreement.
4.5 CERTAIN ACCOUNTING MATTERS
Commerce and BB&T Financial shall consult and cooperate with each other
concerning such accounting and financial matters as may be necessary or
appropriate to facilitate the Merger (taking into account BB&T Financial's
policies, practices and procedures), including without limitation issues
arising in connection with record keeping, loan classification, valuation
adjustments, levels of loan loss reserves and other accounting practices.
4.6 INVESTIGATION AND CONFIDENTIALITY
Commerce will keep BB&T Financial advised of all material developments
relevant to its business and to consummation of the Merger, and BB&T Financial
will advise Commerce of any material adverse change in its financial condition
or operations and all material developments that are likely adversely to affect
consummation of the Merger. BB&T Financial and Commerce each may make or cause
to be made such investigation of the financial and legal condition of the other
as such party reasonably deems necessary or
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advisable in connection with the transactions contemplated herein, provided,
however, that such investigation shall be reasonably related to such
transactions and shall not interfere unnecessarily with normal operations. BB&T
Financial and Commerce agree to furnish the other and the other's advisors with
such financial data and other information with respect to its business and
properties as such other party shall from time to time reasonably request. No
investigation pursuant to this Section 4.6 shall affect or be deemed to modify
any representation or warranty made by, or the conditions to the obligations
hereunder of, either party hereto. Each party hereto shall, and shall cause
each of its directors, officers, attorneys and advisors to, maintain the
confidentiality of all information obtained in such investigation which is not
otherwise publicly disclosed by the other party, said undertaking with respect
to confidentiality to survive any termination of this Agreement pursuant to
Section 6.1 hereof. In the event of the termination of this Agreement, each
party shall return to the furnishing party or, at the request of the furnishing
party, destroy and certify the destruction of all confidential information
previously furnished in connection with the transactions contemplated by this
Agreement.
4.7 PRESS RELEASES
BB&T Financial and Commerce shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby and thereby, and consult
with each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall
prohibit either party, following notification to the other party, from making
any disclosure which its counsel deems necessary.
4.8 FORBEARANCES OF COMMERCE
Except with the prior written consent of BB&T Financial, which consent shall
not be withheld on an arbitrary basis or on a basis inconsistent with BB&T
Financial's interests as an acquiror of Commerce, between the date hereof and
the Effective Date, Commerce shall not, and shall cause the Commerce Subsidiary
not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, or
establish or acquire any new subsidiary or cause or permit any subsidiary
to engage in any new activity or expand any existing activities;
(b) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock that would cause the business combination
contemplated hereby not to be accounted for as a pooling of interests, as
determined by BB&T Financial;
(c) issue any shares of its capital stock other than pursuant to the
Option Agreement, the Commerce Stock Option Plans, the Convertible Notes or
the Commerce Dividend Reinvestment and Stock Purchase Plan;
(d) issue, grant or authorize any Rights other than pursuant to the
Option Agreement or effect any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization;
(e) amend its articles of incorporation or by-laws; impose, or suffer the
imposition, on any share of stock held by Commerce in any Commerce
Subsidiary of any material lien, charge or encumbrance or permit any such
lien to exist; or waive or release any material right or cancel or
compromise any material debt or claim other than in the ordinary course of
business;
(f) merge with any other corporation or bank or permit any other
corporation, savings institution or bank to merge into it or consolidate
with any other corporation, savings institution or bank; acquire control
over any other firm, bank, corporation, savings institution or
organization; or liquidate, sell or otherwise dispose of any assets or
acquire any assets, other than in the ordinary course of its business;
(g) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of
its business except where Commerce [or any Commerce Subsidiary] is in good
faith contesting the validity of any of the foregoing;
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(h) increase the rate of compensation of any of its directors, officers
or employees, or pay or agree to pay any bonus to, or provide any other
employee benefit or incentive to, any of its directors, officers or
employees, except in a manner and amount consistent with past practice;
(i) enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase,
stock appreciation right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related
thereto, in respect of any of its directors, officers or other employees;
provided, however, that this subparagraph shall not prevent renewals of any
of the foregoing consistent with past practice;
(j) solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, Commerce or
any business combination with Commerce other than as contemplated by this
Agreement (except where the failure to furnish such information or
participate in such negotiations or discussions would, on the advice of
counsel, constitute a breach of the fiduciary or legal obligations of
Commerce's Board of Directors to its shareholders); or authorize any
officer, director, agent or affiliate of it to do any of the above; or fail
to notify BB&T Financial immediately if any such inquiries or proposals are
received by, any such information is required from, or any such
negotiations or discussions are sought to be initiated with, Commerce;
(k) enter into (i) any material agreement, arrangement or commitment not
made in the ordinary course of business, including, without limitation,
agreements or memoranda of understanding with regulatory authorities, (ii)
any agreement, indenture or other instrument not made in the ordinary
course of business relating to the borrowing of money by Commerce or the
Commerce Subsidiary or guarantee by Commerce or the Commerce Subsidiary of
any such obligation, (iii) any agreement, arrangement or commitment not
cancellable by Commerce without penalty or cost within 30 days after the
Effective Date relating to the employment or severance of a consultant or
the employment, severance, election or retention in office of any present
or former director, officer or employee (this clause shall not apply to the
normal election of directors by shareholders and the election of officers
by directors not pursuant to a specific agreement, arrangement or
commitment not Previously Disclosed); or (iv) any contract, agreement or
understanding with a labor union;
(l) change its lending, investment or asset liability management policies
in any material respect or materially change the mix (by type of security)
and average maturity of the securities portfolio, except as may be required
by applicable law, regulation, or directives, and except that after
approval of the Plan of Merger by its shareholders Commerce shall cooperate
in good faith with BB&T Financial to adopt policies, practices and
procedures consistent with those utilized by BB&T Financial, effective on
or before the Closing Date;
(m) change its methods of accounting in effect at December 31, 1993,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any
of its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
returns for the year ended December 31, 1993, except as required by changes
in law or regulation; or
(n) agree to do any of the foregoing.
4.9 PLAN OF MERGER; RESERVATION OF SHARES
a. On the Effective Date, the Merger shall be effected in accordance with the
Plan of Merger attached hereto as Annex A. In this connection, BB&T Financial
undertakes and agrees (i) to adopt and to cause BB&T Financial-Va and BB&T-VA
to adopt the Plan of Merger; (ii) to vote the shares of BB&T Financial-Va and
BB&T-VA Common Stock for approval of the Plan of Merger; and (iii) to pay or
cause to be paid when
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due the number of shares of BB&T Financial Common Stock to be distributed
pursuant to Article V of the Plan of Merger and any cash required to be paid
for fractional shares pursuant to Article V, Paragraph 7 of the Plan of Merger.
b. BB&T Financial shall reserve for issuance such number of shares of BB&T
Financial Common Stock as shall be necessary to pay the consideration to be
distributed to Commerce's stockholders as contemplated in Article V, Paragraph
1 of the Plan of Merger. If at any time the aggregate number of shares of BB&T
Financial Common Stock remaining unissued (or in treasury) shall not be
sufficient to effect the Merger, BB&T Financial shall take all appropriate
action to increase the amount of the authorized BB&T Financial Common Stock.
4.10 EMPLOYMENT AGREEMENTS
BB&T Financial shall enter into employment agreements with those Commerce
employees as have been Previously Disclosed on the terms Previously Disclosed.
4.11 CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Agreement and the Plan of Merger shall
be consummated at a closing to be held at the executive offices of BB&T
Financial, or such other place as shall be agreed to by BB&T Financial and
Commerce, on the first business day following satisfaction of the conditions to
consummation of the Merger set forth in Article V hereof, or such later date
within 30 days thereafter as may be specified by BB&T Financial, or such later
date as the parties may otherwise agree. The Merger shall become effective upon
the Effective Date, which shall be the time and date specified in the Articles
of Merger evidencing the Merger, as filed with the State Corporation Commission
of Virginia.
4.12 AFFILIATES
Commerce shall identify those persons who may be deemed to be "affiliates" of
Commerce within the meaning of Rule 145 promulgated by the Commission under the
Securities Act. Commerce shall cause each person so identified to deliver to
BB&T Financial at least 30 days prior to the Effective Date a written agreement
providing that such person will not dispose of BB&T Financial Common Stock
received in the Merger except in compliance with the Securities Act and the
rules and regulations promulgated thereunder and except as consistent with
qualifying the transactions contemplated hereby for pooling of interests
accounting treatment.
4.13 DIRECTORS AND OFFICERS INSURANCE.
a. Following the Effective Date, each director and officer of Commerce who is
currently entitled to indemnification pursuant to Virginia law shall be
indemnified, in accordance with BB&T Financial's bylaw provisions, to the
maximum extent permitted under North Carolina and federal law, if applicable.
b. BB&T Financial agrees to purchase and to keep in force directors' and
officers' liability insurance to provide coverage for actions or omissions by
directors and officers of Commerce for claims made for the period commencing
with and after the Effective Date; provided, however, that such insurance will
be provided only if, and to the extent that, any similarly situated officer or
director of BB&T Financial is insured from time to time.
c. From and after the Effective Date, BB&T Financial agrees to indemnify and
hold harmless each present and former director and officer of Commerce (the
"Indemnified Parties"), against any and all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any and all
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Date, whether asserted or
claimed prior to, at or after the Effective
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Date, to the fullest extent permitted by applicable law (and also advance
expenses incurred to the fullest extent permitted by applicable law), provided,
however, that BB&T Financial will not indemnify any person against liability or
litigation expense such person may incur on account of activities that were at
the time taken known or believed by such person to be clearly in conflict with
the best interest of BB&T Financial or Commerce or, with respect to any
criminal action or proceeding, activities that the person had reasonable cause
to believe were unlawful.
d. Any Indemnified Party wishing to claim indemnification under Section
4.13(c), upon learning of any such claim, action, suit, proceeding or
investigation, shall within forty-five (45) days upon learning of such claim,
action, suit, proceeding or investigation, notify BB&T Financial thereof, but
the failure to so notify shall not relieve BB&T Financial of any liability it
may have to such Indemnified Party if such failure does not materially
prejudice the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) BB&T Financial shall have the right to assume the defense thereof
and BB&T Financial shall not 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
BB&T Financial elects not to assume such defense, or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between BB&T Financial and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and BB&T Financial shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that BB&T
Financial shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction unless the use
of one counsel for such Indemnified Parties would present such counsel with a
conflict of interest, (ii) the Indemnified Parties will cooperate in the
defense of any such matter and (iii) BB&T Financial shall not be liable for any
settlement effected without its prior written consent which shall not be
unreasonably withheld; and provided further that BB&T Financial shall not have
any obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. If such indemnity is not available with respect to any Indemnified Party,
then the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect the relative benefit received by such
Indemnified Party in any transaction which was the subject of, and the relative
fault of such Indemnified Party with respect to, such claim, action, suit,
proceeding or investigation by the Indemnified Party.
4.14 EMPLOYEES AND EMPLOYEE BENEFIT PLANS
a. (i) Upon the Effective Date, each person who is an employee of
Commerce as of such Effective Date (individually an "Employee") shall
automatically become an employee of the Surviving Corporation (as defined
in the Plan of Merger), upon substantially the same terms and conditions of
employment, including compensation and benefits, and comparable
responsibilities that each Employee had on the day before the Effective
Date.
(ii) BB&T Financial will attempt, consistent with achieving the goals
identified in Section 4.17(c), to avoid lay-offs of Commerce employees
following the Effective Date, and to meet efficiency goals for the Surviving
Corporation through attrition and reassignment.
b. Each Employee shall be eligible to receive group hospitalization, medical,
life, disability and other benefits comparable to those provided to the present
employees of BB&T Financial without the imposition of any waiting period or
limitation on pre-existing conditions; provided, however, such benefits shall
not in the aggregate to all Employees as a group be less in amount or value
than those presently provided by Commerce.
c. Commerce shall cause its 401(k) plan to be merged with the 401(k) plans
maintained by BB&T Financial and the BB&T Financial Subsidiaries or be
terminated following the Merger. The parties shall reach agreement as to the
appropriate method of accomplishing this result (either termination or merger)
as soon
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as practicable. If the Commerce plan is terminated, the rights and interests of
the employees of Commerce in such plan shall become fully vested, with each
participating Employee having the right or option either to receive the
benefits to which they are entitled as a result of the termination of the plan
or to have such benefits "rolled" into the 401(k) Plan maintained by BB&T
Financial and the BB&T Financial Subsidiaries for the benefit of their
employees, and on the same basis and applying the same eligibility standards as
would apply to employees of BB&T Financial and the BB&T Financial Subsidiaries.
Following the Merger, the Employees of Commerce shall be entitled to
participate, to the same extent and on the same terms as the employees of BB&T
Financial, in any retirement, pension or similar plans in effect for the
benefit of the employees of BB&T Financial (other than any employee stock
ownership plan established for the benefit of certain of BB&T Financial's
employees) which when considered as a whole for all Employees considered as a
group shall be no less favorable in the aggregate than the benefits currently
provided to the Employees of Commerce. Notwithstanding the foregoing, the
parties shall use their best efforts to work out an arrangement with applicable
law pursuant to which the amount that any Employee is entitled to receive under
the BB&T Financial pension plan shall be offset by the amount such Employee is
entitled to receive under the Commerce Supplemental Retirement Plan ("SRP") so
that the retirement benefits any Employee is entitled to receive after the
Merger shall not exceed the retirement benefits such Employee would be entitled
to receive under the BB&T Financial pension plan or the SRP, whichever is
greater, and such arrangement will not consider employees' contributions to the
SRP made by Commerce in lieu of salary increases for 1994.
d. For purposes of participating in all plans and benefits of BB&T Financial,
such Employees shall receive credit for their period of service to Commerce for
participation and vesting purposes only.
e. To the extent that this Section 4.14 contemplates or requires the taking
of action or forbearance by any subsidiary of BB&T Financial, BB&T Financial
shall cause such subsidiary to take such action or to so forbear.
4.15 FORBEARANCES OF BB&T FINANCIAL
Except with the prior written consent of Commerce, which consent shall not be
arbitrarily or unreasonably withheld, between the date hereof and the Effective
Date, neither BB&T Financial nor any BB&T Financial Subsidiary shall:
a. exercise the Option Agreement other than in accordance with its terms,
or dispose of the shares of Commerce Common Stock issuable upon exercise of
the option rights conferred thereby other than as permitted or contemplated
by the terms thereof;
b. enter into a merger or other business combination transaction with any
other corporation or person in which BB&T Financial would not be the
surviving or continuing entity after the consummation thereof;
c. sell or lease all or substantially all of the assets and business of
BB&T Financial; or
d. declare an extraordinary or special dividend or distribution on its
common stock in an amount equal to more than 10% of BB&T Financial's
stockholders' equity as reflected on the Financial Statements of BB&T
Financial as of the three months ended prior to such payment.
4.16 MEMBERSHIP ON THE BOARD OF DIRECTORS
a. Upon consummation of the Merger, all of the members of the Board of
Directors of Commerce will become directors of the Surviving Corporation.
b. Upon consummation of the Merger, BB&T Financial shall cause seven of the
present members of the Board of Directors of Commerce, to be named by the Chief
Executive Officer of Commerce, and three other persons to become members of the
Board of Directors of BB&T Financial-Va. J. Allan Lindauer will become the
Chairman of the Board of BB&T Financial-Va.
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c. Upon consummation of the Merger, BB&T Financial shall cause three members
of the Board of Directors of Commerce, designated by the Board of Directors of
Commerce immediately prior to the Merger, to become members of the Board of
Directors of BB&T Financial.
4.17 OPERATION OF COMMERCE
a. Unless the Board of Directors of BB&T Financial-Va votes otherwise, the
Surviving Corporation in the Merger will be named Commerce Bank for not less
than three years after the Effective Date. Unless the Board of Directors of
BB&T Financial-Va votes otherwise, the principal executive office of BB&T
Financial-Va will be located in the Hampton Roads area of Virginia.
b. BB&T Financial will make a reasonable effort to locate facilities and
expand employment opportunities in Commerce's current market area when doing
so would not impose an economic or operational burden on BB&T Financial.
c. The Board of Directors of the Surviving Corporation will cause the
Surviving Corporation after the Effective Date to reduce its non-interest
expenses by at least 20% from the level of non-interest expenses as reported
for the year ended December 31, 1993 in Commerce's Financial Statements within
three years from the Closing Date.
d. Commerce may make charitable and civic contributions, consistent with its
philosophy in making charitable or civic contributions, in the communities
served by Commerce in amounts of at least $500,000 over a period of five years
from the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT--BB&T FINANCIAL AND COMMERCE
The respective obligations of BB&T Financial and Commerce to effect the
transactions contemplated by this Agreement shall be subject to satisfaction
or waiver of the following conditions at or prior to the Effective Date:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Reorganization Agreement and the Option Agreement
and consummation of the transactions contemplated hereby and thereby shall
have been duly and validly taken, including without limitation the approval
of the shareholders of Commerce;
(b) The Registration Statement (including any post-effective amendments
thereto) shall be effective under the Securities Act, and BB&T Financial
and Commerce shall have received all state securities or "Blue Sky" permits
or other authorizations, or confirmations as to the availability of an
exemption from registration requirements as may be necessary and no
proceedings shall be pending or to the knowledge of BB&T Financial
threatened by the Commission or any state "Blue Sky" securities
administration to suspend the effectiveness of such Registration Statement;
and the BB&T Financial Common Stock to be issued as contemplated in the
Plan of Merger shall have either been registered or be subject to exemption
from registration under applicable state securities laws;
(c) Neither BB&T Financial, any BB&T Financial Subsidiary, Commerce nor
the Commerce Subsidiary shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated by this Reorganization
Agreement; and
(d) Commerce and BB&T Financial shall have received an opinion of BB&T
Financial's counsel or tax advisor in form and substance satisfactory to
Commerce and BB&T Financial substantially to the effect that the Merger
will constitute one or more reorganizations under Section 368 of the Code
and
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that the shareholders of Commerce will not recognize any gain or loss to
the extent that such shareholders exchange shares of Commerce Common Stock
for shares of BB&T Financial Common Stock.
5.2 CONDITIONS PRECEDENT -- COMMERCE
The obligations of Commerce to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Date unless waived by Commerce
pursuant to Section 6.4 hereof:
(a) The representations and warranties of BB&T Financial set forth in
Article III hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Commerce (which consent may not be unreasonably withheld);
(b) BB&T Financial shall have in all material respects performed all
material obligations and complied with all material covenants required by this
Agreement;
(c) BB&T Financial shall have delivered to Commerce a certificate, dated the
Effective Date and signed by its Chairman or President, to the effect that the
conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c), 5.2(a), 5.2(c) and
5.2(f), to the extent applicable to BB&T Financial, have been satisfied and
that there are no actions, suits, claims, governmental investigations or
procedures instituted, pending or, to the best of his knowledge, threatened
that reasonably may be expected to have a material adverse effect on BB&T
Financial or that present a claim to restrain or prohibit the transactions
contemplated herein or in the Plan of Merger;
(d) Commerce shall have received such opinions of the General Counsel to
BB&T Financial as to matters of North Carolina law, and other counsel as to
matters of federal law, as it shall reasonably request;
(e) All approvals of the transactions contemplated herein from the
Federal Reserve Board, the FDIC, the State Board and any other state or
federal government agency, department or body, the approval of which is
required for the consummation of the Merger, shall have been received and
all waiting periods with respect to such approvals shall have expired; and
(f) Commerce shall not have reasonably determined in good faith that
there has been a material adverse change in the condition, operations or
prospects of BB&T Financial since December 31, 1993, provided that if the
impact of SFAS 115 is less than 15% of total equity on the most recent
month end balance sheet date prior to the Closing Date, such impact shall
be excluded in determining whether a material adverse change has occurred,
but if such impact is 15% or more of total equity, such impact may be taken
into account in determining whether a material adverse change has occurred.
5.3 CONDITIONS PRECEDENT--BB&T FINANCIAL
The obligations of BB&T Financial to effect the transactions contemplated by
this Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Date, unless waived by BB&T Financial
pursuant to Section 6.4 hereof:
(a) The representations and warranties of Commerce set forth in Article
II hereof shall be true and correct in all material respects as of the date
of this Agreement and as of the Effective Date as though made on and as of
the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in
writing by BB&T Financial (which consent may not be unreasonably withheld);
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(b) The parties hereto shall have received all regulatory approvals
required in connection with the transactions contemplated by this
Reorganization Agreement, all notice periods and waiting periods required
after the granting of any such approvals shall have passed, and all such
approvals shall be in effect; provided, however, that no such approval
shall have imposed any condition or requirement which, in the reasonable
opinion of the Board of Directors of BB&T Financial, would so materially
adversely affect the business or economic benefits of the transactions
contemplated by this Agreement as to render consummation of such
transactions inadvisable or unduly burdensome;
(c) Commerce shall have in all material respects performed all material
obligations and complied with all material covenants required by this
Agreement;
(d) Commerce shall have delivered to BB&T Financial a certificate, dated
the Effective Date and signed by its Chairman or President, to the effect
that the conditions set forth in Sections 5.1(a), 5.1(b), 5.3(a), 5.3(b)
and 5.3(c), to the extent applicable to Commerce, have been satisfied and
that there are no actions, suits, claims, governmental investigations or
procedures instituted, pending or, to the best of his knowledge, threatened
that reasonably may be expected to have a Material Adverse Effect on
Commerce or that present a claim to restrain or prohibit the transactions
contemplated herein or in the Plan of Merger;
(e) BB&T Financial shall have received such opinions of counsel as it
shall reasonably request;
(f) BB&T Financial shall not have reasonably determined in good faith
that there has been a material adverse change in the condition, operations
or prospects of Commerce since December 31, 1993, provided that if the
impact of SFAS 115 is less than 15% of total equity on the most recent
month end balance sheet date prior to the Closing Date, such impact shall
be excluded in determining whether a material adverse change has occurred,
but if such impact is 15% or more of total equity, such impact may be taken
into account in determining whether a material adverse change has occurred.
(g) BB&T Financial shall have received the written agreements from
affiliates as specified in Section 4.12 hereof; and
(h) BB&T Financial shall have determined that the transactions
contemplated herein qualify for accounting treatment as a pooling of
interests.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
6.1 TERMINATION
This Agreement may be terminated:
(a) at any time on or prior to the Effective Date, by the mutual consent
in writing of the parties hereto;
(b) at any time on or prior to the Effective Date, by BB&T Financial in
writing if Commerce has, or by Commerce in writing if BB&T Financial has,
in any material respect, breached (i) any covenant or undertaking contained
herein, in the Plan of Merger, in the Option Agreement, or (ii) any
representation or warranty contained herein, which breach has been
materially adverse, and, in the case of (i) or (ii), if such breach has not
been cured by the earlier of 30 days after the date on which written notice
of such breach is given to the party committing such breach or the
Effective Date;
(c) on the Effective Date, by either party hereto in writing, if any of
the conditions precedent to the obligations of such party to consummate the
transactions contemplated hereby have not been satisfied or fulfilled;
(d) at any time, by either party hereto in writing, if any of the
applications for prior approval referred to in Section 4.3 hereof are
denied, and the time period for appeals and requests for reconsideration
has run;
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(e) at any time, by either party hereto in writing, if the shareholders
of Commerce do not approve the transactions contemplated herein;
(f) by either party hereto in writing, if the Effective Date has not
occurred by the close of business on June 30, 1995;
(g) at any time prior to August 24, 1994, by BB&T Financial in writing,
if BB&T Financial determines in its sole good faith judgment that the
financial condition, business or prospects of Commerce are materially
adversely different from what was reasonably expected by BB&T Financial
after the performance of its due diligence prior to the execution of this
Agreement; provided that BB&T Financial shall inform Commerce upon such
termination as to the reasons for BB&T Financial's determination; and,
provided further, that this Section 6.1(h) shall not limit in any way the
due diligence investigation of Commerce which BB&T Financial may perform or
otherwise affect any other rights which BB&T Financial has after the date
hereof and after August 24, 1994, under the terms of this Agreement;
(h) at any time prior to August 24, 1994, by Commerce in writing, if
Commerce determines in its sole good faith judgment that the financial
condition, business or prospects of BB&T Financial (as such condition,
business or prospects may affect the market price of BB&T Financial Common
Stock) are materially different from what was reasonably expected by
Commerce after the performance of its due diligence prior to the execution
of this Agreement; provided that Commerce shall inform BB&T Financial upon
such determination as to the reasons for Commerce's determination; and
provided, further, that this Section 6.1(i) shall not limit in any way the
due diligence investigation of BB&T Financial which Commerce may perform or
otherwise affect any other rights which Commerce has after the date hereof
and after August 24, 1994, under the terms of this Agreement; and
(i) at any time, by either party hereto in writing, if such party
determines in good faith that any condition precedent to such party's
obligations to consummate the Merger is or would be impossible to satisfy,
provided that the terminating party has given the other party notice with
respect thereto at least ten days prior to such termination and has given
the other party a reasonable opportunity to discuss the matter with a view
to achieving a mutually acceptable resolution.
6.2 EFFECT OF TERMINATION
In the event this Agreement or the Plan of Merger is terminated pursuant to
Section 6.1 hereof, both this Agreement and the Plan of Merger shall become
void and have no effect, except that (i) the provisions hereof relating to
confidentiality and expenses set forth in Sections 4.6 and 7.1, respectively,
shall survive any such termination and (ii) a termination pursuant to Section
6.1(b) hereof shall not relieve the breaching party from liability for an
uncured breach of the covenant or agreement giving rise to such termination.
6.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement or the Plan
of Merger or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Date other than
covenants that by their terms are to be performed after the Effective Date,
provided that no such representations, warranties or covenants shall be deemed
to be terminated or extinguished so as to deprive BB&T Financial or Commerce
(or any director, officer or controlling person thereof) of any defense at law
or in equity which otherwise would be available against the claims of any
person, including, without limitation, any shareholder or former shareholder of
either BB&T Financial or Commerce, the aforesaid representations, warranties
and covenants being material inducements to consummation by BB&T Financial and
Commerce of the transactions contemplated herein.
6.4 WAIVER
Except with respect to any required regulatory approval, each party hereto by
written instrument signed by an executive officer of such party, may at any
time (whether before or after approval of the Agreement
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and the Plan of Merger by the shareholders of Commerce) extend the time for the
performance of any of the obligations or other acts of the other party hereto
and may waive (i) any inaccuracies of the other party in the representations or
warranties contained in this Agreement, the Plan of Merger or any document
delivered pursuant hereto or thereto, (ii) compliance with any of the
covenants, undertakings or agreements of the other party, or satisfaction of
any of the conditions precedent to its obligations, contained herein or in the
Plan of Merger, or (iii) the performance by the other party of any of its
obligations set out herein or therein; provided that no such waiver or
amendment or supplement pursuant to Section 6.5 hereof executed after approval
of this Agreement and the Plan of Merger by the shareholders of Commerce shall
reduce either the number of shares of BB&T Financial Common Stock into which
each share of Commerce Common Stock shall be converted in the Merger or the
payment terms for fractional interests.
6.5 AMENDMENT OR SUPPLEMENT
This Agreement and the Plan of Merger may be amended or supplemented at any
time by mutual agreement of BB&T Financial and Commerce subject to the proviso
to Section 6.4 hereof. Any such amendment or supplement must be in writing and
approved by their respective boards of directors.
ARTICLE VII
MISCELLANEOUS
7.1 EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred by it in
connection with the transactions contemplated by this Reorganization Agreement,
including fees and expenses of its own financial consultants, accountants and
counsel, except that BB&T Financial and Commerce shall each bear and pay 50
percent for the cost of printing the Proxy Statement. Notwithstanding the
foregoing, BB&T Financial shall reimburse Commerce for all reasonable out-of-
pocket expenses incurred by Commerce in connection with the transactions
contemplated by this Agreement if this Agreement is terminated; provided,
however, that BB&T Financial's obligation to reimburse Commerce for such
expenses shall not apply if Commerce materially breaches any provision of this
Agreement, the Plan of Merger or the Option Agreement.
7.2 ENTIRE AGREEMENT
This Agreement and the Option Agreement contain the entire agreement between
the parties with respect to the transactions contemplated hereunder and
thereunder and supersedes all prior arrangements or understandings with respect
thereto, written or oral, other than documents referred to herein or therein.
The terms and conditions of this Agreement and the Option Agreement shall inure
to the benefit of and be binding upon the parties hereto and thereto and their
respective successors. Nothing in this Agreement or the Option Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
7.3 NO ASSIGNMENT
Neither of the parties hereto may assign any of its rights or obligations
under this Reorganization Agreement to any other person.
7.4 NOTICES
All notices or other communications which are required or permitted hereunder
shall be in writing and sufficient if delivered personally or sent by overnight
express or by registered or certified mail, postage prepaid, addressed as
follows:
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If to Commerce:
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
With a required copy to:
Mays & Valentine
1111 East Main Street
Richmond, VA 23208-1122
Attention: George P. Whitley
If to BB&T Financial:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
With a required copy to:
Arnold & Porter
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: Barbara E. Mathews
7.5 CAPTIONS
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Agreement.
7.6 COUNTERPARTS
This Reorganization Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
7.7 GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina applicable to
agreements made and entirely to be performed within such jurisdiction except to
the extent federal law may be applicable.
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In Witness Whereof, the parties hereto, intending to be legally bound hereby,
have caused this Reorganization Agreement to be executed in counterparts by
their duly authorized officers and their corporate seal to be hereunto affixed
and attested by their officers thereunto duly authorized, all as of the day and
year first above written.
Attest BB&T FINANCIAL CORPORATION
/s/ Jerone C. Herring By: /s/ John A. Allison IV
- ------------------------------------- -----------------------------------
(SEAL)
Attest COMMERCE BANK
/s/ Brenda P. Harper By: /s/ G. Robert Aston, Jr.
- ------------------------------------- -----------------------------------
(SEAL)
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AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 1, dated August 25, 1994, is made to the Agreement and
Plan of Reorganization ("Reorganization Agreement"), dated as of June 24, 1994,
between COMMERCE BANK ("Commerce"), a bank chartered under the laws of the
Commonwealth of Virginia, having its home office at 5101 Cleveland Street,
Virginia Beach, Virginia 23462, and BB&T FINANCIAL CORPORATION ("BB&T
Financial"), a North Carolina corporation having its home office at 223 West
Nash Street, Wilson, North Carolina 27893.
WITNESSETH
WHEREAS, the parties hereto previously have entered into the Reorganization
Agreement;
WHEREAS, the parties hereto desire to amend the Reorganization Agreement to
effect an amendment to the Plan of Merger attached as Annex A to the
Reorganization Agreement to provide that BB&T-VA will be a direct subsidiary of
BB&T Financial prior to the Effective Date of the Merger, and that immediately
after the Effective Date of the Merger, the Surviving Corporation will be a
wholly owned subsidiary of BB&T Financial-Va;
NOW, THEREFORE, in consideration of the premises and of the respective
agreements herein contained and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. Definitions. Unless otherwise specified herein, capitalized terms used
herein and defined in the Reorganization Agreement or the Plan of Merger shall
have the same meanings herein as set forth therein.
2. Amendment of Plan of Merger.
a. The third recital of the Plan of Merger is amended to read in its entirety
as follows:
WHEREAS, BB&T-VA is a newly formed wholly owned subsidiary of BB&T
Financial; and
b. The following recital is inserted in its entirety between the third and
fourth recitals of the Plan of Merger:
WHEREAS, after the Effective Date (as hereinafter defined), the Surviving
Corporation (as hereinafter defined) shall be a wholly owned subsidiary of
BB&T Financial Corporation of Virginia, a to be formed Virginia corporation
which will be a wholly owned subsidiary of BB&T Financial; and
3. Savings Clause. In all other respects the Reorganization Agreement and
Plan of Merger shall remain in full force and effect.
4. Counterparts. This Amendment may be executed in any number of
counterparts, which taken together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have caused this Amendment to be executed by their duly authorized officers and
their corporate seal to be hereunto affixed and attested by their officers
thereunder duly authorized, all as of the day and year first above written.
Attest BB&T Financial Corporation
________________________________ By __________________________________
(SEAL)
Commerce Bank
Attest
________________________________ By __________________________________
(SEAL)
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APPENDIX II
ANNEX A
PLAN OF MERGER OF
COMMERCE BANK WITH AND INTO
BRANCH BANKING AND TRUST COMPANY
OF VIRGINIA ("BB&T-VA")
Plan of Merger ("Plan of Merger") dated as of June 24, 1994 by and between
Commerce Bank ("Commerce"), a Virginia bank having its principal office at 5101
Cleveland Street, Virginia Beach, Virginia 23462, BB&T FINANCIAL CORPORATION
("BB&T Financial"), a North Carolina corporation having its principal office at
223 West Nash Street, Wilson, North Carolina 27893 and Branch Banking and Trust
Company of Virginia ("BB&T-VA"), a Virginia bank having its principal office at
5101 Cleveland Street, Virginia Beach, Virginia 23462.
WITNESSETH
Whereas, Commerce is a bank chartered under the laws of the Commonwealth of
Virginia, the authorized capital stock of which consists of 5,000,000 shares of
common stock, par value $2.50 per share ("Commerce Common Stock"), of which, on
the date hereof, 2,725,163 shares are issued and outstanding; and 1,000,000
shares of preferred stock, $5.00 par value per share, of which no shares are
issued or outstanding; and
Whereas, BB&T Financial is a bank holding company incorporated under the laws
of the state of North Carolina, the authorized capital stock of which consists
of 100,000,000 shares of common stock, par value $2.50 per share ("BB&T
Financial Common Stock"), 32,195,746 of which were issued and outstanding at
March 31, 1994, and 4,000,000 shares of preferred stock, par value $2.50 per
share, none of which are issued or outstanding; and
Whereas, BB&T-VA is a newly formed wholly owned subsidiary of BB&T Financial
Corporation of Virginia, a Virginia corporation and wholly owned subsidiary of
BB&T Financial;
Whereas, the respective Boards of Directors of Commerce and BB&T Financial
deem the merger of BB&T-VA with and into Commerce, under and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the best
interests of the respective corporations and their respective shareholders, and
the respective Boards of Directors of Commerce and BB&T Financial have adopted
resolutions approving this Plan of Merger and, in the case of BB&T Financial
and Commerce, an Agreement and Plan of Reorganization dated as of June 24, 1994
("Reorganization Agreement"); and
Whereas, the Board of Directors of Commerce has directed that this Plan of
Merger and the Reorganization Agreement be submitted to its shareholders for
approval;
Now, Therefore, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto do hereby agree that the Plan of Merger
shall be as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
Subject to the terms and conditions of this Plan of Merger, on the Effective
Date (as hereinafter defined), BB&T-VA shall be merged with and into Commerce
pursuant to the provisions of, and with the effect provided in, Article 12 of
the Virginia Stock Corporation Act ("VASCA") (said transaction being
hereinafter
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referred to as the "Merger"). On the Effective Date, the separate existence of
BB&T-VA shall cease and Commerce, as the surviving corporation, shall continue
unaffected and unimpaired by the Merger (Commerce as existing on and after the
Effective Date being hereinafter sometimes referred to as the "Surviving
Corporation"). The name of the Surviving Corporation shall remain "Commerce
Bank."
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
The Articles of Incorporation and the By-laws of Commerce in effect
immediately prior to the Effective Date shall be the Articles of Incorporation
and the By-laws of the Surviving Corporation, in each case until amended in
accordance with applicable law.
ARTICLE III
BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Corporation
shall consist of the following persons:
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ARTICLE IV
CAPITAL
Each share of capital stock of BB&T-VA issued and outstanding immediately
prior to the Effective Date shall, on the Effective Date, continue to be
issued and outstanding, and shall be an identical outstanding share of the
Surviving Corporation.
ARTICLE V
CONVERSION AND EXCHANGE OF COMMERCE COMMON STOCK;
FRACTIONAL SHARE INTERESTS
1. On the Effective Date, except as provided in paragraphs 3, 6 and 7 of
this Article, each share of Commerce Common Stock outstanding immediately
prior to the Effective Date shall by virtue of the Merger be converted into
and exchanged for 1.305 shares of BB&T Financial Common Stock (the "Exchange
Ratio").
In the event that BB&T Financial shall have a record date between June 24,
1994 and the Effective Date for a special distribution to stockholders, a
stock split, stock dividend or similar change in capitalization, an equitable
and appropriate adjustment shall be made to the Exchange Ratio to reflect the
effect of such distribution or change.
2. The "BB&T Financial Average Closing Price," as used herein, shall refer
to the average of the reported closing price of BB&T Financial Common Stock on
the Nasdaq/National Market System on the ten trading days ("Computation Days")
ending on the tenth business day prior to the Effective Date.
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3. On the Effective Date, all shares of Commerce Common Stock owned
beneficially by Commerce or any subsidiary of Commerce other than in a
fiduciary capacity or in connection with a debt previously contracted and all
shares of Commerce Common Stock owned by BB&T Financial or owned beneficially
by any subsidiary of BB&T Financial other than in a fiduciary capacity or in
connection with a debt previously contracted shall be cancelled and no cash,
stock or other property shall be delivered in exchange therefor.
4. On and after the Effective Date, each holder of a certificate or
certificates theretofore representing outstanding shares of Commerce Common
Stock (any such certificate being hereinafter referred to as a "Certificate")
may surrender the same to BB&T Financial or its agent for cancellation and each
such holder shall be entitled upon such surrender to receive in exchange
therefor certificate(s) representing the number of whole shares of BB&T
Financial Common Stock to which such holder is entitled as provided herein and
a check in an amount equal to the amount of cash, without interest, to which
such holder is entitled for any fraction of share under paragraph 7 of this
Article. Until so surrendered, each Certificate shall be deemed for all
purposes to evidence ownership of the number of shares of BB&T Financial Common
Stock into which the shares represented by such Certificates have been changed
or converted as aforesaid. No dividend or other distribution payable with
respect to the shares of BB&T Financial Common Stock shall be paid to an
entitled former shareholder of Commerce until such shareholder surrenders his
Certificate or Certificates representing Commerce Common Stock for exchange as
provided in this paragraph 4. Certificates surrendered for exchange by any
person constituting an "affiliate" of Commerce for purposes of Rule 145(c)
under the Securities Act of 1933, as amended, shall not be exchanged for
certificates representing whole shares of BB&T Financial Common Stock until
BB&T Financial has received from such person the written agreement contemplated
by Section 4.12 of the Reorganization Agreement.
5. Upon the Effective Date, the stock transfer books of Commerce shall be
closed and no transfer of Commerce Common Stock by such holder shall thereafter
be made or recognized.
6. In the event that prior to the Effective Date the outstanding shares of
Commerce Common Stock shall have been increased, decreased, or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock
split, or other like change in capitalization, all without BB&T Financial
receiving consideration therefor, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of BB&T Financial
Common Stock to be thereafter delivered pursuant to this Plan of Merger and the
Reorganization Agreement.
7. Notwithstanding any other provision hereof, each holder of shares of
Commerce Common Stock who would otherwise have been entitled to receive a
fraction of a share of BB&T Financial Common Stock shall receive, in lieu
thereof, cash in an amount equal to such fractional part of a share of BB&T
Financial Common Stock multiplied by the BB&T Financial Average Closing Price.
No such holder shall be entitled to dividends, voting rights or any other
shareholder right in respect of any fractional share. All fractional share
interests of each holder shall be aggregated, and no such holder shall receive
a cash payment equal to, or greater than, the BB&T Financial Average Closing
Price.
8. Any other provision in this Plan of Merger or the Reorganization Agreement
notwithstanding, no party hereto or agent thereof shall be liable to a holder
of Commerce Common Stock for any amount paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat, or similar law.
9. On the Effective Date, BB&T Financial and the Surviving Corporation shall,
by Supplemental Indenture, assume all of the obligations of Commerce under the
outstanding 10% Convertible Subordinated Capital Notes Due 2002 ("Capital
Notes"), issued by Commerce pursuant to the Indenture dated as of September 13,
1990, between Commerce and NationsBank of Virginia, N.A., as Trustee
("Indenture"), and take all action necessary to provide for the issuance of
BB&T Financial Common Stock upon conversion of
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the Capital Notes, so that, on and after the Effective Date, each holder of a
Capital Note shall have the right, during the period such Capital Note is
convertible, to convert such Capital Note only into shares of BB&T Financial
Common Stock at a conversion rate of 1.305 shares of BB&T Financial Common
Stock for each share of Commerce Common Stock into which such Capital Notes
might have been converted immediately prior to the Effective Date, subject to
payment of cash in lieu of fractional shares and to further adjustment in
accordance with Article 12 of the Indenture.
10. On the Effective Date, Commerce's obligations under its 1985 Stock Option
Plan and its 1993 Incentive Stock Plan (together, "Stock Option Plans") shall
be assumed by BB&T Financial and each stock option outstanding ("Commerce
Options") under Commerce's Stock Option Plans (except as provided in Paragraph
7 of this Article) shall be converted and exchanged, without any action on the
part of the holders thereof, into options to acquire, upon payment of the
adjusted exercise price (which shall equal the exercise price per share for the
Commerce Options immediately prior to the Merger, divided by the Exchange
Ratio), the number of shares of BB&T Financial Common Stock ("BB&T Option") the
option holder would have received pursuant to the Merger if he or she had
exercised his or her Commerce options immediately prior thereto; provided,
however, that in respect of any stock option which is an "incentive stock
option" within the meaning of Section 422A of the Internal Revenue Code of
1954, as amended ("Code"), the conversion hereinabove provided for shall comply
with the requirements of Section 425(a) of the Code, including the requirement
that such converted options shall not give to the holder thereof any benefits
additional to those which such holder had prior to such conversion under the
option as originally granted.
ARTICLE VI
EFFECTIVE DATE OF THE MERGER
Articles of Merger evidencing the transactions contemplated herein shall be
delivered for filing to the State Corporation Commission of Virginia as
provided in Section 13.1-720 of Article 12 of the VASCA. The Merger shall be
effective at the time and on the date specified in such Articles of Merger
(such date and time being herein referred to as the "Effective Date").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall consider or be advised that
any further assignments, conveyances or assurances are necessary or desirable
to vest, perfect or confirm in the Surviving Corporation title to any property
or rights of Commerce, or otherwise carry out the provisions hereof, the proper
officers and directors of Commerce, as of the Effective Date, and thereafter
the officers of the Surviving Corporation, acting on behalf of Commerce, shall
execute and deliver any and all property or assignments, conveyances and
assurances, and do all things necessary or desirable to vest, perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise carry out the provisions hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of BB&T Financial, BB&T-VA and Commerce to effect the Merger
as herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Reorganization Agreement.
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ARTICLE IX
ABANDONMENT AND TERMINATION
Anything contained in this Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of Commerce, this Plan
of Merger may be terminated and the Merger abandoned as provided in the
Reorganization Agreement.
ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time by mutual
agreement of BB&T Financial, BB&T-VA and Commerce. Any such amendment or
supplement must be in writing and approved by their respective Boards of
Directors and shall be subject to the proviso in Section 6.5 of the
Reorganization Agreement.
2. Any notice or other communication required or permitted under this Plan of
Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia applicable to agreements made and
entirely to Commonwealth be performed in such jurisdiction, except to the
extent federal law may be applicable.
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APPENDIX III
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN.
OPTION AGREEMENT
This Agreement dated as of June 24, 1994, between BB&T Financial Corporation,
a North Carolina corporation ("BB&T Financial"), and Commerce Bank, a bank
chartered under the laws of the Commonwealth of Virginia ("Commerce").
WITNESSETH:
Whereas, the Boards of Directors of BB&T Financial and Commerce have approved
an Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated
as of June 24, 1994 between BB&T Financial and Commerce, providing for the
merger of Commerce with and into an indirect subsidiary of BB&T Financial (the
"Merger"), which Reorganization Agreement has been executed by the parties
immediately prior to this Agreement;
Whereas, as a condition to BB&T Financial's entry into the Reorganization
Agreement and in consideration of such entry, Commerce has agreed to grant to
BB&T Financial the option set forth herein;
Now, Therefore, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms defined in the Reorganization Agreement and
used herein shall have the same meanings as in the Reorganization Agreement.
2. Grant of Option. Commerce hereby grants to BB&T Financial an option (the
"Option") to purchase up to 540,000 shares of authorized but unissued shares of
Commerce Common Stock at a price of $31.50 per share (the "Exercise Price")
payable in cash as provided in Section 4 hereof; provided, however, that such
number of shares shall be reduced if and to the extent necessary so that the
number of shares for which this Option is exercisable shall not exceed 19.9% of
the issued and outstanding Commerce Common Stock, before giving effect to the
exercise of the Option. The number of shares of Commerce Common Stock that may
be received upon the exercise of the Option are subject to adjustment as set
forth herein.
3. Exercise of Option. (a) Subject to compliance with applicable law and
regulation, BB&T Financial may exercise the Option, in whole or part, at any
time or from time to time if a Purchase Event (as defined below) shall have
occurred and be continuing.
(b) Commerce shall notify BB&T Financial promptly in writing of the
occurrence of any transaction, offer or event giving rise to a Purchase Event.
If more than one of the transactions, offers or events giving rise to a
Purchase Event is undertaken or effected by the same person or occurs at the
same time, then all such transactions, offers and events shall give rise only
to one Purchase Event, which Purchase Event shall be deemed continuing for all
purposes hereof until all such transactions are terminated or abandoned by such
person and all such events have ceased or ended.
(c) In the event BB&T Financial wishes to exercise the Option, it shall send
to Commerce a written notice (an "Exercise Notice," the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares BB&T Financial will purchase, pursuant to such exercise, and (ii) a
place and date not earlier than three business days nor later than 20 business
days from the Notice Date for the closing of such purchase with respect to such
exercise (the "Option Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such purchase, BB&T Financial, and/or if required by applicable law,
Commerce, shall promptly file the required notice or
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application for approval and shall expeditiously process the same and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which the last required notification period has
expired or been terminated or such approvals have been obtained and any
requisite waiting periods shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of:
(i) the Effective Date of the Merger;
(ii) the date on which the Reorganization Agreement is terminated, other
than a termination based upon, following or in connection with either (A) a
material breach by Commerce of a Specified Covenant (as hereinafter
defined) or (B) the failure of Commerce to obtain shareholder approval of
the transactions contemplated by the Reorganization Agreement by the vote
required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or
(iii) 18 months after the Reorganization Agreement is terminated based
upon a material breach by Commerce of a Specified Covenant or the failure
of Commerce to obtain shareholder approval of the transactions contemplated
by the Reorganization Agreement by the vote required under applicable law,
in either case following the occurrence of a Purchase Event.
(e) Notwithstanding the foregoing, if BB&T Financial provides Commerce with
an Exercise Notice relating to all or part of such Option, and Commerce tenders
performance of its obligations hereunder on the Option Closing Date specified
herein but BB&T Financial fails to tender performance of its obligations
hereunder on such Option Closing Date, then the Option shall expire and
terminate effective at 5:00 p.m., Eastern time on such Option Closing Date.
(f)(i) As used herein, "Purchase Event" shall mean when:
(A) Commerce shall have entered into an agreement with a person (other
than BB&T Financial or its affiliates) to: (a) acquire, merge or
consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all of the assets
of Commerce, or (c) purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing more than 10 percent of the voting power of
Commerce or any of its subsidiaries; or
(B) any person shall have acquired beneficial ownership of more than 10
percent of the outstanding shares of Commerce Common Stock; or any person
shall have merged, consolidated with or consummated a similar transaction
with Commerce or any person shall have purchased, leased or otherwise
acquired all or substantially all of Commerce's assets; or
(C) a bona fide proposal is made by any person (other than BB&T Financial
or its affiliates) by public announcement or written communication that is
or becomes the subject of public disclosure, or in an application to any
federal or state regulatory authority, to (a) acquire, merge or consolidate
with, or enter into any similar transaction with Commerce, (b) purchase,
lease or otherwise acquire all or substantially all the of the assets of
Commerce, or (c) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange, tender or exchange offer or any similar
transaction) securities representing more than 25 percent of the voting
power of Commerce;
(ii) A "Specified Covenant" shall mean any of Commerce's covenants or
agreements provided in the Reorganization Agreement.
(iii) The term "person" shall have the meaning specified in Section
3(a)(9), and "beneficial ownership" shall have the meaning specified under
Section 13(d)(3), of the Exchange Act.
4. Payment and Delivery of Certificates. (a) At the closing referred to in
Section 3 hereof, BB&T Financial shall pay to Commerce the aggregate purchase
price for the shares purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a financial institution
designated by Commerce.
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(b) At any closing relating to an exercise of the Option, simultaneously with
the delivery of cash by BB&T Financial as provided in subsection (a) with
respect to the Option, Commerce shall deliver to BB&T Financial a certificate
or certificates representing the number of shares purchased by BB&T Financial,
and BB&T Financial shall deliver to Commerce a letter agreeing that BB&T
Financial will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
5. Representations. Commerce hereby represents and warrants to, and covenants
with, BB&T Financial as follows:
(a) Commerce has taken all necessary corporate action to authorize and
reserve for issuance the full number of shares of Commerce Common Stock
issuable upon exercise of the Option, and shall continue to reserve such
shares until this Agreement is terminated as provided herein.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable.
6. Adjustment upon Changes in Capitalization. In the event of any change in
Commerce Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the number of
shares subject to the Option and its purchase price per share shall be adjusted
appropriately so that the economic value of the Option is unaltered. In the
event that any shares of Common Stock of Commerce are issued after the date of
this Agreement other than in a transaction described in the first sentence of
this Section 6 or pursuant to the exercise of the Option, the number of shares
subject to the Option shall be adjusted so that, immediately after such
issuance, the number of shares (together with the number of shares previously
issued under the Option) equals 19.9 percent (subject to reduction as provided
in Section 2 hereof) of the sum of (a) the then-outstanding shares of Commerce
Common Stock plus (b) the number of shares subject to the Option after the
adjustment provided in this sentence. Nothing contained in this Section 6 shall
be deemed to authorize Commerce to breach any provision of the Reorganization
Agreement or the Plan of Merger.
7. Severability. If any term, provision, covenant or restriction contained in
this Option Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Option Agreement shall remain in full force and effect, and shall in no
way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option will not permit the holder to
acquire the full number of shares of Commerce Common Stock provided in Section
2 hereof (as adjusted pursuant to Section 6 hereof), it is the express
intention of Commerce to allow the holder to acquire such lesser number of
shares as may be permissible, without any amendment or modification hereof.
8. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein, this
Agreement contains 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. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. Nothing in
this Agreement, expressed or implied, is intended to confer upon any party,
other than the parties hereto, and their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
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(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement to any other person, without the
express written consent of the other party, except that BB&T Financial may
assign in whole or in part the Option and other benefits and obligations
hereunder without limitation to any of its wholly owned subsidiaries and
BB&T Financial may assign in whole or in part the Option and other benefits
and obligations hereunder without limitation if a Purchase Event has
occurred and BB&T Financial shall have delivered to Commerce a copy of a
letter from the staff of the Commission, or an opinion of counsel, in form
and substance reasonably satisfactory to Commerce, to the effect that such
assignment will not violate the requirements of the Securities Act;
provided that prior to any such assignment, BB&T Financial shall give
written notice of the proposed assignment to Commerce, and within 24 hours
of receipt of such notice of a bona fide proposed assignment, Commerce may
purchase the Option at a price and on other terms at least as favorable to
BB&T Financial as that set forth in the notice of assignment.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally or sent by Federal Express, Express Mail, another service which
provides overnight delivery, telegram or telex or other facsimile
transmission addressed as follows:
If to Commerce:
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
With a required copy to:
Mays & Valentine
1111 East Main Street
Richmond, VA 23208-1122
Attention: George P. Whitley
If to BB&T:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
Facsimile: (919) 399-4418
With a required copy to:
Arnold & Porter
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: Barbara E. Mathews
Facsimile: (213) 243-4153
Any notice hereunder shall be deemed delivered when received at the
address of such party set forth above (or to such other address as such
party hereto shall advise the other in writing).
(e) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by
Commerce and that this Agreement may be enforced by BB&T Financial through
injunctive or other equitable relief.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without regard to
principles of conflicts of laws thereof.
In Witness Whereof, each of the parties hereto has executed this Agreement as
of the day and year first written above.
BB&T FINANCIAL CORPORATION
By: /s/ John A. Allison IV
-------------------------------
Title: Chairman and Chief Executive
Officer
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COMMERCE BANK
By: /s/ G. Robert Aston, Jr.
-------------------------------
Title: President and CEO
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APPENDIX IV
ALEX. BROWN LETTERHEAD
, 1994
The Board of Directors
Commerce Bank
5101 Cleveland Street
Virginia Beach, Virginia 23462
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the holders of the common stock,
par value $2.50 per share (the "Shares"), of Commerce Bank (the "Company")
pursuant to an Agreement and Plan of Reorganization and a related Plan of
Merger (collectively, the "Acquisition Agreement"), and other related
documents, dated as of June 24, 1994, entered into by and between the Company
and BB&T Financial Corporation ("BB&T"), providing for the merger of the
Company with and into Branch Banking & Trust Company of Virginia, a wholly
owned subsidiary of BB&T Financial Corporation of Virginia (the "Merger"). The
Acquisition Agreement provides, among other things, for each share of the
Company's Shares to be converted in the Merger into 1.305 (the "Exchange
Ratio") shares of BB&T Common Stock.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors of
the Company in connection with the transactions described above and will
receive a fee for our services which is contingent upon the consummation of the
transaction contemplated by the Agreement. Alex. Brown & Sons has, from time to
time, provided financial advice to the Company, and has most recently acted as
financial advisor to the Company in connection with the Preferred Stock
Purchase Agreement with BB&T dated April 21, 1994. Alex. Brown & Sons
Incorporated regularly publishes research reports regarding the financial
services industry and the businesses and securities of publicly owned companies
in that industry.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning the Company and BB&T and certain internal
financial analyses and other information furnished to us by the Company and
BB&T. We have also held discussions with members of the senior management of
the Company and BB&T regarding the business and prospects of their respective
financial institutions. In addition, we have (i) reviewed the reported price
and trading activity for the Shares and BB&T Common Stock, (ii) compared
certain financial and stock market information for the Company and BB&T,
respectively, with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the Agreement and related
documents, (iv) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (v) reviewed the
potential pro forma impact of the Merger on BB&T's financial condition,
operating results and per share figures and (vi) performed such other studies
and analyses and considered such other factors as we deemed appropriate.
We have not independently verified the information above and for purposes of
this opinion have assumed the accuracy, completeness and fairness thereof. With
respect to information relating to the prospects of the Company and BB&T, we
have assumed that such information reflects the best currently available
estimates and judgments of the respective managements of the Company and BB&T
as to the likely future financial performance of the Company and BB&T. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities of the Company or BB&T, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
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Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio pursuant to the Acquisition Agreement
is fair, from a financial point of view, to the holders of Shares.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: _________________________________
Donald W. Delson
Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. The Registrant is incorporated under the laws of North Carolina. Sections
55-8-50 through 55-8-58 of the General Statutes of North Carolina provide for
indemnification of directors, officers, employees and agents of a North Carolina
corporation. The following is a summary of these provisions:
1. Subject to certain exceptions, a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if (i) he conducted himself in good faith;
(ii) he reasonably believed (a) in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests and (b) in all
other cases, that his conduct was at least not opposed to its best interests;
and (iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. Moreover, unless limited by its articles of
incorporation, a corporation must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding in
which he was a party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding. Expenses
incurred by a director in defending a proceeding may be paid by the corporation
in advance of the final disposition of such proceeding as authorized by the
board of directors in the specific case or as authorized or required under any
provision in the articles of incorporation or bylaws or by any applicable
resolution or contract upon receipt of an undertaking by or on behalf of a
director to repay such amount unless it shall ultimately be determined that he
is entitled to be so indemnified by the corporation against such expenses. A
director may also apply for court-ordered indemnification under certain
circumstances.
2. Unless a corporation's articles of incorporation provide otherwise, (i)
an officer of a corporation is entitled to mandatory indemnification and is
entitled to apply for court-ordered indemnification to the same extent as a
director; (ii) the corporation may indemnify or advance expenses to an officer,
employee, or agent of a corporation to the same extent as to a director; and
(iii) a corporation may also indemnify or advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
3. In addition and separate and apart from the indemnification rights
discussed above, a corporation may, in its articles of incorporation or bylaws,
or by contract or resolution, indemnify or agree to indemnify any one of its
directors, officers, employees or agents against liability and expenses in any
proceeding (including without limitation a proceeding brought by or on behalf of
the corporation itself) arising out of their status as such or their activities
in any of the foregoing capacities; provided, however, that a corporation may
not indemnify or agree to indemnify a person against liability or expenses he
may incur on account of his activities which were at the time taken known or
believed by him to be clearly in conflict with the best interests of the
corporation. A corporation may likewise and to the same extent indemnify or
agree to indemnify any person who, at the request of the corporation, is or was
serving as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise or as a trustee or administrator under an employee benefit plan. Any
such provision for indemnification may also include provisions for recovery from
the corporation of reasonable costs, expenses and attorneys' fees in connection
with the enforcement of rights to indemnification and may further include
provisions establishing reasonable procedures for determining and enforcing the
rights granted therein.
B. The Registrant's Articles of Incorporation provide for the indemnification
of directors to the fullest extent authorized by North Carolina law as it exists
or may hereafter be amended. A director shall not be personally liable for any
monetary damages relating to a breach of duty as a director to the Registrant,
its stockholders or otherwise.
-1-
<PAGE>
C. Article VII of the Registrant's Bylaws provides for indemnification of
Registrant's directors, officers, employees or agents against certain expenses,
including attorneys' fees, and payments made in satisfaction of judgments, money
decrees, fines and penalties for which they may become liable in such and other
fiduciary capacities, exclusive of indemnification for certain activities
involving criminal misconduct or clearly in conflict with the best interest of
the Registrant.
D. The Registrant has purchased liability insurance for its directors and
certain of its officers covering certain liabilities which may be incurred by
such directors and officers of the Registrant in connection with the performance
of their duties.
The indemnification provisions in the Registrant's Articles of Incorporation
and Bylaws may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
The following are filed as exhibits to this Registration Statement:
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Reorganization dated June 24, 1994 by and
between Commerce Bank and the Registrant. (Included as Appendix I to
Proxy Statement/Prospectus filed herewith.)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated July 25,
1994 by and between Commerce Bank and the Registrant. (Included as
part of Appendix I to Proxy Statement/Prospectus filed herewith.)
2.3 Plan of Merger dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix II to Proxy Statement/Prospectus
filed herewith.)
2.4 Option Agreement dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix III to Proxy
Statement/Prospectus filed herewith.)
2.5 Preferred Stock Purchase Agreement dated April 21, 1994 by and between
Commerce Bank and Registrant.
4.1 Specimen stock certificate for the Registrant's common stock, $2.50
par value (incorporated by reference herein from the identified
exhibit to Registrant's registration statement on Form S-14 (File No.
2-68274) as filed and declared effective on August 5, 1980).
4.2 Excerpts from Registrant's Bylaws (Article II, Sections 8 and 9)
relating to rights of holders of Registrant's common stock
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-8 (File No. 2-91779) as
filed and declared effective on July 10, 1984).
-2-
<PAGE>
4.3 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's 8 3/4% Convertible Subordinated Debentures
due 2003, including the form of Registrant's Debentures appended
hereto (incorporated by reference herein from the identified exhibit
to Registrant's registration statement on Form S-3 (File No. 2-96007)
as filed and declared effective on March 7, 1985).
4.4 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's Floating Rate Subordinated Notes due 1997,
including the form of Registrant's Notes appended thereto
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-3 (File No. 33-1965) as
filed and declared effective on December 12, 1985).
*5.1 Opinion of Jerone C. Herring, Esquire, Vice President and Secretary
to the Registrant, regarding the legality of the securities to be
registered hereby.
8.1 Opinion of KPMG Peat Marwick LLP, Tax Advisors to the Registrant,
regarding certain federal and Virginia income tax consequences of
the Acquisition.
23.1 Consent of KPMG Peat Marwick LLP dated August 30, 1994 (BB&T).
23.2 Consent of KPMG Peat Marwick LLP with regard to the opinion set forth
in Exhibit 8.1 hereto.
23.3 Consent of Ernst & Young LLP dated August 26, 1994 (Commerce).
23.4 Consent of Coopers & Lybrand dated August 30, 1994 (Commerce).
*23.5 Consent of Jerone C. Herring, Esquire, Vice President and Secretary
of the Registrant, included as part of Exhibit 5.1 hereto.
23.6 Consent of Alex. Brown & Sons Incorporated dated August, 1994.
23.7 Consent of Donald G. Jones and Company, P.A. dated August 30, 1994
(BB&T).
24.1 Powers of Attorney from certain signatory directors and officers of
BB&T Financial Corporation.
99.1 Form of Notice of Special Meeting to stockholders of Commerce Bank
(Included as a part of the Proxy Statement/Prospectus filed
herewith).
99.2 Form of Proxy solicited by Board of Directors of Commerce Bank.
99.3 Opinion of Alex. Brown & Sons Incorporated (Included as Appendix IV
to the Proxy Statement/Prospectus filed herewith).
99.4 Annual Report on Form F-2 for Commerce Bank for the Year Ended
December 31, 1993.
99.5 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
March 31, 1994.
99.6 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
June 30, 1994.
99.7 Current Report on Form F-3 for Commerce Bank dated July 5, 1994.
-3-
<PAGE>
99.8 Proxy Statement for Commerce Bank for 1994 Annual Meeting of
Stockholders.
99.9 Amendment to Form F-2 dated August 30, 1994.
- ------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
a. ITEM 512 OF REGULATION S-K
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where the
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(6) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
-4-
<PAGE>
(7) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(8) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions set forth in response to Item 20
hereof, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
b. ITEM 22(b) OF FORM S-4
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
c. ITEM 22(c) OF FORM S-4
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilson and State of North
Carolina, on August 30, 1994.
BB&T FINANCIAL CORPORATION
By: /s/ Jerone C. Herring
------------------------------------
Jerone C. Herring, Secretary
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed by the following persons in the capacities indicated
on August 30, 1994.
Name Capacity
- ---- --------
John A. Allison IV Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)
Scott E. Reed Treasurer (Principal Financial and Accounting
Officer)
Joseph B. Alala, Jr. Director
W. Watson Barnes Director
Paul B. Barringer Director
Robert L. Brady Director
Raymond S. Caughman Director
W. G. Clark III Director
Jesse W. Corbett, Jr. Director
W. R. Cuthbertson, Jr. Director
Fred H. Deaton, Jr. Director
Albert J. Dooley, Sr. Director
Joe L. Dudley, Sr. Director
Tom D. Efird Director
O. William Fenn, Jr. Director
-6-
<PAGE>
James E. Heins Director
Raymond A. Jones, Jr. Director
Kelly S. King Director
J. Ernest Lathem, M.D. Director
James H. Maynard Director
A. Winniett Peters Director
Richard L. Player, Jr. Director
Larry J. Waggoner Director
Henry G. Williamson, Jr. Director
William B. Young, M.D. Director
By: /s/ Jerone C. Herring
----------------------------------------------
Jerone C. Herring, Attorney in Fact
-7-
<PAGE>
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Reorganization dated June 24, 1994 by and
between Commerce Bank and the Registrant. (Included as Appendix I to
Proxy Statement/Prospectus filed herewith.)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated July 25,
1994 by and between Commerce Bank and the Registrant. (Included as
part of Appendix I to Proxy Statement/Prospectus filed herewith.)
2.3 Plan of Merger dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix II to Proxy Statement/Prospectus
filed herewith.)
2.4 Option Agreement dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix III to Proxy
Statement/Prospectus filed herewith.)
2.5 Preferred Stock Purchase Agreement dated April 21, 1994 by and between
Commerce Bank and Registrant.
4.1 Specimen stock certificate for the Registrant's common stock, $2.50
par value (incorporated by reference herein from the identified
exhibit to Registrant's registration statement on Form S-14 (File No.
2-68274) as filed and declared effective on August 5, 1980).
4.2 Excerpts from Registrant's Bylaws (Article II, Sections 8 and 9)
relating to rights of holders of Registrant's common stock
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-8 (File No. 2-91779) as
filed and declared effective on July 10, 1984).
<PAGE>
4.3 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's 8 3/4% Convertible Subordinated Debentures
due 2003, including the form of Registrant's Debentures appended
hereto (incorporated by reference herein from the identified exhibit
to Registrant's registration statement on Form S-3 (File No. 2-96007)
as filed and declared effective on March 7, 1985).
4.4 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's Floating Rate Subordinated Notes due 1997,
including the form of Registrant's Notes appended thereto
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-3 (File No. 33-1965) as
filed and declared effective on December 12, 1985).
*5.1 Opinion of Jerone C. Herring, Esquire, Vice President and Secretary
to the Registrant, regarding the legality of the securities to be
registered hereby.
8.1 Opinion of KPMG Peat Marwick LLP, Tax Advisors to the Registrant,
regarding certain federal and Virginia income tax consequences of the
Acquisition.
23.1 Consent of KPMG Peat Marwick LLP dated August 30, 1994 (BB&T).
23.2 Consent of KPMG Peat Marwick LLP with regard to the opinion set forth
in Exhibit 8.1 hereto.
23.3 Consent of Ernst & Young LLP dated August 26, 1994 (Commerce).
23.4 Consent of Coopers & Lybrand dated August 30, 1994 (Commerce).
*23.5 Consent of Jerone C. Herring, Esquire, Vice President and Secretary
of the Registrant, included as part of Exhibit 5.1 hereto.
23.6 Consent of Alex. Brown & Sons Incorporated dated August, 1994.
23.7 Consent of Donald G. Jones and Company, P.A. dated August 30, 1994
(BB&T).
24.1 Powers of Attorney from certain signatory directors and officers of
BB&T Financial Corporation.
99.1 Form of Notice of Special Meeting to stockholders of Commerce Bank
(Included as a part of the Proxy Statement/Prospectus filed
herewith).
99.2 Form of Proxy solicited by Board of Directors of Commerce Bank.
99.3 Opinion of Alex. Brown & Sons Incorporated (Included as Appendix IV
to the Proxy Statement/Prospectus filed herewith).
99.4 Annual Report on Form F-2 for Commerce Bank for the Year Ended
December 31, 1993.
99.5 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
March 31, 1994.
99.6 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
June 30, 1994.
99.7 Current Report on Form F-3 for Commerce Bank dated July 5, 1994.
<PAGE>
99.8 Proxy Statement for Commerce Bank for 1994 Annual Meeting of
Stockholders.
99.9 Amendment to Form F-2 dated August 30, 1994.
- ------------------
* To be filed by amendment.
<PAGE>
Exhibit 2.5
PREFERRED STOCK PURCHASE AGREEMENT
----------------------------------
This Preferred Stock Purchase Agreement is made and entered into as of
this 21st day of April, 1994, by and between BB&T Financial Corporation, a North
Carolina corporation (the "Purchaser") and Commerce Bank, a bank chartered under
the laws of the State of Virginia (the "Bank").
WHEREAS, the Purchaser desires to purchase and the Bank desires to issue
and sell to the Purchaser up to one hundred twenty thousand (120,000) shares of
Non-Cumulative Preferred Stock, Series A, of the Bank, par value $5.00 per
share, having the terms and conditions set forth in Exhibit A hereto (the
"Preferred Stock"), on the terms and subject to the conditions hereinafter set
forth;
WHEREAS, the Board of Directors of the Purchaser has approved this
Agreement and has determined that the arrangements provided for herein are in
the best interests of the Purchaser and its stockholders; and
WHEREAS, the Board of Directors of the Bank has approved this Agreement
and has determined that the arrangements provided for herein are in the best
interests of the Bank and its stockholders;
NOW, THEREFORE, in consideration of the foregoing recitals and the
representations, warranties and covenants herein set forth, and subject to the
conditions herein set forth, the parties hereto agree as follows:
ARTICLE I
---------
Definitions
-----------
For purposes of this Agreement, the following expressions shall have the
meanings respectively set forth below:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" of, or any person "affiliated" with, the person or entity
specified, shall mean any corporation, partnership, joint venture, association,
organization or other person or entity that directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, the person or entity specified.
"Agreement" shall mean this Preferred Stock Purchase Agreement, made and
entered into on the date first above written by and between the Purchaser and
the Bank.
<PAGE>
"Bank Holding Company Act" shall mean the Bank Holding Company Act of
1956, as amended.
"Commitment" shall have the meaning set forth in Section 2.01(b) hereof.
"Common Stock" shall have the meaning set forth in Section 4.01(b)
hereof, or shall mean other securities into which the Preferred Stock shall
become convertible pursuant to the terms of the Preferred Stock.
"Conversion Shares" shall mean the shares of Common Stock issuable upon
conversion of the Preferred Stock.
"Federal Reserve" shall mean the Board of Governors of the Federal
Reserve System, or any successor thereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation, or any
successor thereto.
"Initial Closing" shall mean the closing of the transaction described in
Section 2.01(a) of this Agreement.
"Initial Closing Date" shall mean the first business day following
satisfaction of the conditions precedent set forth in Articles VII and VIII
hereof, or such other date as may be mutually agreed to by the parties hereto.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotation National Market System.
"Preferred Stock" shall have the meaning set forth in the first Whereas
clause hereof.
"Purchase Price" shall mean $100.00 per share of Preferred Stock.
"Purchased Shares" shall mean the shares of Preferred Stock which the
Bank shall sell to the Purchaser pursuant to this Agreement.
"SEC" shall mean the United States Securities and Exchange Commission, or
any successor thereto.
"Shares" shall mean the Purchased Shares and the Conversion Shares,
collectively.
"Subsequent Closing" shall mean a closing of a transaction described in
Section 2.01(b) of this Agreement.
"Subsequent Closing Date" shall mean the date mutually agreed to by the
parties hereto upon which the Subsequent Closing shall occur.
- 2 -
<PAGE>
ARTICLE II
----------
Purchase and Sale of Shares
---------------------------
2.01 Purchase of Shares from the Bank.
--------------------------------
(a) Initial Closing. At the Initial Closing, on the terms and
---------------
subject to the conditions set forth herein, the Bank shall issue, sell and
deliver to the Purchaser, and the Purchaser shall purchase for the Purchase
Price and accept from the Bank, 30,000 shares of Preferred Stock. At the Initial
Closing, the Bank shall deliver to the Purchaser a certificate or certificates
registered in the name of the Purchaser and evidencing the number of Purchased
Shares purchased by the Purchaser and shall take all actions necessary to
reflect such issuance and purchase on the Bank's books and records.
(b) Commitment to Purchase and Sell Additional Shares. The
-------------------------------------------------
Purchaser hereby commits to purchase and the Bank hereby commits to issue and
sell to the Purchaser up to an additional 90,000 shares of Preferred Stock (the
"Commitment") at one or more Subsequent Closings, unless the Commitment is
otherwise terminated as provided herein. The Bank's rights under the Commitment
may be exercised by sending written notice to the Purchaser specifying the
number of shares to be purchased, which number may not be less than 10,000
shares on any one occasion. Purchaser shall purchase such shares within 60 days
of receipt of such notice, provided, however, that if within such 60 day period
any required regulatory approval or clearance to purchase such shares has not
been received or any required waiting period following such approval or
clearance has not expired, the Purchaser shall purchase such shares within five
business days following receipt of such approval or clearance or expiration of
such waiting period. The Commitment shall expire at the close of business on the
last day of the calendar quarter in which the Commitment shall commence, but
shall be renewed automatically on such date for an additional calendar quarter
and on a quarterly basis thereafter until December 31, 2000 (so that the last
renewal date shall be September 30, 1999) so long as at all times up to and
including the renewal date, the amount of the Bank's total tangible equity plus
loan loss reserves is not less than seven times the amount of its Non-performing
Assets. For purposes of this Section 2.01(b), the term "Non-performing Assets"
shall mean non-accrual and restructured loans and foreclosed property. The Bank
shall report the amount of its tangible equity plus loan loss reserves and its
Non-performing Assets to the Purchaser as of the end of each month within 10
days after the end of each month. Notwithstanding the foregoing, the Commitment
may be terminated at any time by the Purchaser by written notice to the Bank,
given before or after receipt of notice from the Bank of the exercise of its
rights under the Commitment, (i) upon the
- 3 -
<PAGE>
resignation or termination of the employment of G. Robert Aston, Jr. as chief
executive officer of the Bank, (ii) if the amount of the Bank's tangible equity
plus loan loss reserves is less than seven times the amount of its Non-
performing Assets, (iii) upon a material adverse change in the business or
prospects of the Bank, solely as determined by the Purchaser, (iv) upon
occurrence of any event giving rise to a right by the Purchaser to convert the
Preferred Stock pursuant to the terms thereof, (v) if issuance of the number of
shares of Common Stock issuable upon conversion of the number of shares of
Preferred Stock that would be outstanding after giving effect to the issuance of
the number of shares of Preferred Stock specified in the notice by the Bank of
the exercise of its rights under the Commitment would require shareholder
approval under the Bank's charter or bylaws or under applicable law or the rules
for quotation of the Common Stock on NASDAQ or any national securities exchange
on which the Common Stock may be listed, and such shareholder approval has not
been obtained, or (vi) if the Bank is in breach of its covenant to maintain
authorized and unissued shares of Common Stock as set forth in Section 5.07
hereof.
(c) Subsequent Closing. At any Subsequent Closing, on the terms
------------------
and subject to the conditions set forth herein, the Bank shall issue, sell and
deliver to the Purchaser, and the Purchaser shall purchase for the Purchase
Price and accept from the Bank, the number of shares of Preferred Stock
specified in the notice given by the Bank to the Purchaser under Section 2.01(b)
hereof.
At any Subsequent Closing, the Bank shall deliver to the Purchaser
a certificate or certificates registered in the name of the Purchaser and
evidencing the number of Purchased Shares purchased by the Purchaser and shall
take all actions necessary to reflect such issuance and purchase on the Bank's
books and records.
2.02 Purchase Price of Shares.
------------------------
The aggregate Purchase Price to be paid at each of the Initial Closing in
accordance with Section 2.01(a) and the Subsequent Closing in accordance with
Section 2.01(c) shall be payable by the Purchaser by wire transfer to an account
designated in a writing delivered to the Purchaser by the Bank at least two
business days prior to the Initial Closing Date or the Subsequent Closing Date,
as the case may be, or by certified check in immediately available funds drawn
to the order of the Bank if no such writing is timely delivered.
2.03 Closings.
--------
The Initial Closing and any Subsequent Closing shall take place at the
principal executive office of the Purchaser, at
- 4 -
<PAGE>
10:00 a.m., on the Initial Closing Date and any Subsequent Closing Date, as the
case may be, or at any other place and time as the parties may agree.
ARTICLE III
-----------
Representations and Warranties
------------------------------
of Purchaser
------------
3.01 The Purchaser represents and warrants to the Bank as follows:
(a) Organization, Authority and Binding Agreement. The Purchaser
---------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of North Carolina, and has full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been effectively authorized on the part of the
Purchaser by all necessary action, corporate or otherwise. This Agreement has
been duly executed and delivered by an authorized officer of the Purchaser and,
assuming due execution and delivery by the Bank, constitutes a legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms, except as enforcement thereof may be limited by general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity) and the effect of applicable bankruptcy, insolvency,
moratorium and other similar laws of general application relating to or
affecting creditors rights generally, including, without limitation, the effect
of statutory or other laws regarding fraudulent conveyances and preferential
transfers.
(b) Agreement Not in Breach of Other Instruments. The execution
--------------------------------------------
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof will not violate or
result in a breach of any of the terms or provisions of, or constitute a default
under, or conflict with, any material agreement, mortgage, indenture, deed of
trust, lease, loan agreement or other agreement or instrument to which the
Purchaser is a party or by which it is bound, the articles of incorporation or
bylaws or similar documents of the Purchaser, or any judgment, decree, order,
writ, award or injunction of any court, governmental body or arbitrator, or any
law, rule or regulation applicable to the Purchaser.
(c) Consents and Approvals. No consents, approvals or
----------------------
authorizations from any governmental entities or any other person, under any
law, rule, regulation, contract or agreement, are required for the execution,
delivery and performance of this Agreement by the Purchaser or the
- 5 -
<PAGE>
consummation by the Purchaser of the transactions contemplated hereby, except as
have been or will have been obtained by the Initial Closing Date.
(d) Investment Representation. The Purchaser is or will be acquiring
-------------------------
the Purchased Shares and the Conversion Shares, as the case may be, from the
Bank for its own account for investment only and not with a view to making a
distribution thereof within the meaning of the 1933 Act. Neither the Purchased
Shares nor the Conversion Shares will be sold or transferred by the Purchaser in
violation of the securities laws of the United States or any state thereof or
other jurisdiction, nor in violation of Article VI of this Agreement. The
Purchaser is aware that as of the date hereof neither the Purchased Shares nor
the Conversion Shares have been registered under the 1933 Act or any state or
other jurisdiction's securities laws, and that the Purchased Shares and the
Conversion Shares must be held indefinitely unless subsequently registered or an
exemption from such registration is available. The Purchaser is aware that it
will not be readily able to liquidate its investment in the Purchased Shares and
the Conversion Shares. The Purchaser is a bona fide resident of the
jurisdiction set forth for its address in Section 10.01 and has no present
intention of changing its jurisdiction of residence. The Purchaser understands
and agrees that the certificate or certificates representing the Purchased
Shares and the Conversion Shares will bear a legend substantially to the effect
set forth in Section 6.03(b) and that a stop transfer order may be placed with
respect thereto. The proposed investment in the Purchased Shares and the
Conversion Shares is a permissible and legal investment for the Purchaser under
any legal investment laws applicable to the Purchaser.
(e) Access; Sophistication; etc.
---------------------------
1. The Purchaser is an "accredited investor" as that term is
defined in Rule 501 of Regulation D promulgated by the SEC under the 1933 Act
and was not formed for the specific purpose of acquiring the Purchased Shares or
the Conversion Shares. The Purchaser has conducted its own independent review of
the Bank and its financial condition and has relied only on such review and the
representations, warranties, terms and conditions of this Agreement.
2. The Purchaser acknowledges that all documents, books and
records requested by it and pertaining to the Bank have been made available to
it for inspection by it and its agents and representatives; that it and its
agents and representatives have had a reasonable opportunity to ask questions
of, and receive answers from, the Bank or officers of the Bank concerning the
terms and conditions of the offering of the Purchased Shares and the business
and prospects of the Bank.
- 6 -
<PAGE>
The Purchaser and its respective agents and representatives have such knowledge
and experience in financial and business matters as to enable them to utilize
the information made available to them in connection with the purchases
contemplated hereby, to evaluate the merits and risks of an investment in the
Bank and to make an informed decision with respect thereto and such an
evaluation and informed decision has been made.
(f) No Brokerage Fees. No broker or finder has acted for the
-----------------
Purchaser in connection with this Agreement or the transactions contemplated
hereby and no broker or finder is entitled to any brokerage or finder's fees or
other commission in respect of such transactions based in any way on agreements,
arrangements or understandings made by or on behalf of the Purchaser.
(g) No Misleading Statements, etc. No representation or warranty made
------------------------------
by the Purchaser in any certificate, agreement, schedule or other document
furnished or to be furnished to the Bank or to any federal or state governmental
agency in connection with this Agreement and the transactions contemplated
hereby as of their respective dates contains or will contain any untrue
statement of material fact or omits or will omit to state any material fact
required to be stated therein or necessary to make such representation or
warranty or statement not misleading.
ARTICLE IV
----------
Representations and Warranties
------------------------------
of the Bank
-----------
4.01 The Bank represents and warrants to the Purchaser that:
(a) Organization, Good Standing and Authority. The Bank is a bank
-----------------------------------------
duly organized, validly existing and in good standing under the laws of Virginia
and has full corporate power and authority to carry on its business as now
conducted and to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
issuance, transfer, conveyance and sale of the Purchased Shares to the
Purchaser, the issuance, transfer, conveyance and sale of the Conversion Shares
upon conversion of the Preferred Stock, and the consummation of the transactions
contemplated hereby have been effectively authorized on the part of the Bank by
the Board of Directors of the Bank. This Agreement has been duly executed and
delivered by an authorized officer of the Bank and, assuming due execution and
delivery by the Purchaser, constitutes a legal, valid and binding obligation of
the Bank enforceable against it in accordance with its terms, except as
enforcement thereof may be limited by general
- 7 -
<PAGE>
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity) and the effect of applicable bankruptcy,
receivership, conservatorship, insolvency, moratorium and other similar laws of
general application relating to or affecting creditors' rights generally,
including, without limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers.
(b) Capital Stock. The authorized capital stock of the Bank on the
-------------
date hereof consists of (i) 5,000,000 shares of common stock, par value $2.50
per share (the "Common Stock"), of which 2,702,538 shares are issued and
outstanding, and (ii) 1,000,000 shares of preferred stock, par value $5.00 per
share of which no shares are issued and outstanding. All issued and outstanding
shares of Common Stock have been validly authorized and issued and are validly
outstanding, fully paid and nonassessable, and no such outstanding shares were
issued in violation of any preemptive rights, nor do any such shares have a
claim to preemptive rights. No shares of Common Stock are held in the treasury
of the Bank. The Bank has reserved for issuance, as of the date hereof, shares
of Common Stock sufficient at all times for issuance pursuant to the conversion
of the Purchased Shares and no other shares of capital stock have been reserved
for any purpose, except for (i) 262,895 shares of Common Stock in connection
with the Bank's 10% Convertible Subordinated Capital Notes due August 31, 2002
("Convertible Notes"), (ii) 209,637 shares of Common Stock in connection with
the Bank's 1985 Stock Option Plan, (iii) 157,500 shares of Common Stock in
connection with the Bank's 1993 Incentive Stock Plan and (iv) 234,547 shares of
Common Stock in connection with the Bank's Dividend Reinvestment and Stock
Purchase Plan. There are no other outstanding warrants, options, rights, calls
or commitments of any kind relating to, or any presently effective agreements or
understandings with respect to, the capital stock of the Bank, whether issued or
unissued, or securities convertible into capital stock of the Bank, other than
as contemplated by this Agreement. The Bank is not a party to or bound by, any
contract, indenture, agreement or instrument, or any note, debenture, bond or
other security, under the terms of which or pursuant to which, the Bank's right
to declare or pay dividends on the Common Stock or the Preferred Stock or to
redeem the Preferred Stock in accordance with the terms thereof is restricted.
(c) Agreement Not in Breach of Other Instruments. The execution,
--------------------------------------------
delivery and performance of this Agreement, the issuance, transfer, conveyance
and sale of the Purchased Shares to the Purchaser, the issuance, transfer,
conveyance and sale of the Conversion Shares upon conversion of the Preferred
Stock, and the consummation of the transactions contemplated hereby, will not
violate, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or conflict with,
- 8 -
<PAGE>
any material agreement, mortgage, indenture, deed of trust, lease, loan
agreement or other agreement or instrument to which the Bank is a party or by
which it is bound, the charter or bylaws or similar documents of the Bank or any
judgment, decree, order, writ, award or injunction of any court, governmental
body or arbitrator, or any law, rule or regulation applicable to the Bank.
(d) Consents and Approvals. The Bank has obtained, or will have
----------------------
obtained by the Initial Closing Date, all consents, approvals or authorizations
from all governmental entities or otherwise, prescribed by any law, rule,
regulation, contract or agreement which may be required for the execution,
delivery and performance of this Agreement by the Bank, the issuance, transfer,
conveyance and sale of the Purchased Shares to the Purchaser, the issuance,
transfer, conveyance and sale of the Conversion Shares upon conversion of the
Preferred Stock, and the consummation by the Bank of the transactions
contemplated hereby. No consent or approval of the Bank's stockholders is
required by law or the Bank's charter or bylaws or similar documents of the Bank
or by the rules for quotation of the Common Stock on NASDAQ for the execution,
delivery and performance by the Bank of this Agreement, including without
limitation the issue and sale of the Purchased Shares and the Conversion Shares,
and the performance of the terms of the Preferred Stock, except that approval of
the Bank's stockholders would be required under the rules for quotation of the
Common Stock on NASDAQ for the issuance of any Conversion Shares (i) if such
issuance would result in a change in control of the Bank, or (ii) in an amount
equal to 20% or more of the Bank's outstanding Common Stock for less than the
greater of book or market value of the Common Stock.
(e) Authorization of Stock. The Purchased Shares have been duly and
----------------------
validly authorized and, when the Purchased Shares are issued and paid for by the
Purchaser as contemplated by this Agreement, the Purchased Shares will be
validly issued and outstanding, fully paid and nonassessable and will not have
been issued in violation of any preemptive rights. Upon consummation of the
purchase contemplated hereby, the Purchaser will acquire from the Bank good and
marketable title to the Purchased Shares, free and clear of all covenants,
conditions, restrictions, voting trust arrangements, liens, charges,
encumbrances, options and adverse claims or rights whatsoever, except those
imposed by the Purchaser; provided, however, that subsequent transfers by the
-------- -------
Purchaser may be subject to compliance with applicable laws and the terms of
this Agreement. The Common Stock to be issued upon conversion of the Preferred
Stock has been duly and validly authorized and, when issued upon conversion of
the Preferred Stock, will be validly issued and outstanding, fully paid and
nonassessable and will not have been issued in violation of any preemptive
rights. Upon the conversion of the Preferred Stock, the Purchaser will acquire
- 9 -
<PAGE>
from the Bank good and marketable title to such Common Stock, free and clear of
all covenants, conditions, restrictions, voting trust arrangements, liens,
charges, encumbrances, options and adverse claims or rights whatsoever, except
those imposed by the Purchaser; provided, however, that subsequent transfers by
-------- -------
the Purchaser may be subject to compliance with applicable laws and the terms of
this Agreement.
(f) Corporate Documents. True and correct copies of the charter and
-------------------
bylaws of the Bank, certified by an appropriate officer of the Bank, have been
delivered to the Purchaser and such charter and bylaws have not been amended
since the respective dates of certification thereof, nor have the Board of
Directors or the stockholders of the Bank taken any action for the purpose of
effecting the amendment or modification of such charter or bylaws. The deposit
accounts of the Bank are insured by the FDIC to the maximum extent permitted by
federal law. The Bank has made all filings required to be made by applicable
law with the FDIC and any other federal or state governmental authority, all of
which complied when filed in all material respects with applicable banking laws
and regulations. The Bank has previously delivered to the Purchaser true and
complete copies of all reports, schedules, registration statements and
definitive proxy statements filed by the Bank with the FDIC since December 31,
1987, and all other material reports filed by the Bank with any federal or state
governmental authority since December 31, 1987.
(g) Compliance with Law and Agreements. The Bank is not in default
----------------------------------
under or in violation of any provision of its charter or bylaws or any note,
bond, indenture, mortgage, deed of trust, loan agreement or any other agreement
to which it is a party or by which it is bound or to which any of its properties
or assets is subject, other than such defaults or violations as would not, in
the aggregate, have a material adverse effect on the business, operations,
prospects or financial condition of the Bank, and the Bank is not in violation
of any statute, rule, regulation, order, writ, decree or injunction of any court
or governmental agency or body having jurisdiction over it or any of its
properties which if enforced would have a material adverse effect on the
business, operations, prospects or financial condition of the Bank. Bank has
not received notification from any agency or department of federal, state or
local government (i) asserting a violation of any such statute, regulation, or
order, (ii) threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations. The
Bank is not subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment, and has not
received any communication requesting that it enter into any of the foregoing.
- 10 -
<PAGE>
(h) Legal Proceedings. There are no legal, administrative,
-----------------
arbitration or other proceedings, claims or actions or governmental
investigations or reviews of any nature with respect to the Bank or to which any
of its assets are subject and, to the best of the Bank's knowledge, there is no
reasonable basis for, and there has not been threatened, any such proceeding,
claim, action or governmental investigation or review with respect to the Bank
(i) which, if adversely determined, would be reasonably likely to, either
individually or in the aggregate, have a material adverse effect, or (ii) which
could have a material adverse effect on the ability of the Bank to consummate
the transactions contemplated hereunder or to issue the Purchased Shares or the
Conversion Shares upon conversion of the Preferred Stock. The Bank is not
subject to any order, judgment or decree which is reasonably likely to have a
material adverse effect.
(i) Financial Statements. The Bank has delivered to the Purchaser
--------------------
audited financial statements for the fiscal years ended December 31, 1991,
December 31, 1992 and December 31, 1993 ("Financial Statements"). Each of the
balance sheets included in the Financial Statements (including any related notes
and schedules) fairly presents the financial position of the Bank as of its date
and each of the statements of income, cash flows and of changes in shareholders'
equity included in the Financial Statements (including any related notes and
schedules) fairly presents the results of operations, cash flows and changes in
shareholders' equity, as the case may be, of the Bank for the period set forth
therein, in each case in accordance with generally accepted accounting
principles consistently applied during the period involved, except as may be
noted therein. Except as set forth in the Financial Statements, the Bank has no
indebtedness, obligation or liability (contingent or otherwise) that, either
alone or when combined with all similar obligations or liabilities, would be
material to the Bank, and there does not exist a set of circumstances that, to
the knowledge of the Bank, could reasonably be expected to result in any such
material indebtedness, obligation or liability. The Bank has not suffered any
material adverse change in its business, financial condition or results of
operations since December 31, 1993.
(j) No Broker. Except for Alex. Brown & Sons Incorporated ("Alex
---------
Brown"), no broker or finder has acted for the Bank in connection with this
Agreement or the transactions contemplated hereby, and no broker or finder is
entitled to any brokerage or finder's fees or other commission in respect of
such transactions based in any way on agreements, arrangements or understandings
made by or on behalf of the Bank. The Bank has fully disclosed to the Purchaser
all financial agreements, arrangements and understandings with Alex Brown.
- 11 -
<PAGE>
(k) No Misleading Statements, etc. No representation or warranty
-----------------------------
made by the Bank in or pursuant to this Agreement and no statement by the Bank
in any certificate, agreement, schedule or other document furnished or to be
furnished to the Purchaser or to any federal or state governmental agency in
connection with this Agreement and the transactions contemplated hereby contains
or will contain as of their respective dates any untrue statement of material
fact or omits or will omit to state any material fact required to be stated
therein or necessary to make such representation or warranty or statement not
misleading. No reports or documents, copies of which are referred to herein as
being furnished to the Purchaser pursuant hereto, as of their respective dates
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein not misleading.
ARTICLE V
---------
Covenants and Undertakings of the Bank
--------------------------------------
5.01 Resolutions of the Bank. The Bank shall promptly furnish to the
-----------------------
Purchaser copies of resolutions dated on or before the date hereof, certified by
its secretary or assistant secretary as having been duly adopted by its Board of
Directors authorizing and approving the execution and delivery of this Agreement
by the Bank and authorizing the officers of the Bank to do all things necessary
to carry out and complete the terms and provisions hereof and thereof. Such
resolutions shall include authorization of the issuance of the Purchased Shares
(having the terms set forth in Exhibit A hereto) and authorization of the
reservation of shares for and issuance of the Common Stock to be issued upon
conversion of the Purchased Shares.
5.02 Assistance. The Bank shall use its best efforts to apply for and
----------
obtain and to assist the Purchaser in applying for and obtaining such approvals
of governmental authorities as may, at any time, be required, in the opinion of
the Purchaser, to be obtained by the Bank or the Purchaser to authorize the
transactions contemplated by this Agreement, including without limitation the
issuance and delivery of the Purchased Shares and the Conversion Shares. The
Bank shall furnish to the Purchaser all information (complying with the
representation and warranty set forth in Section 4.01(k) hereof) concerning the
Bank required for use in any application or statement to be made by the
Purchaser to any governmental body in connection with the transactions
contemplated by this Agreement. In the event of any pending or threatened legal
action or proceeding seeking to challenge the legality or validity of the
transactions contemplated by this Agreement, the Bank shall not provide any
- 12 -
<PAGE>
assistance with respect to, and shall vigorously defend, any such legal actions
or proceeding (provided, however, that the foregoing shall not preclude the Bank
-------- -------
from entering into a settlement of or otherwise resolving such legal action or
proceeding if the Bank deems it advisable to do so).
5.03 Financial Statements. The Bank shall maintain its books and
--------------------
records in accordance with generally accepted accounting principles as well as
any regulatory reporting requirements required by the FDIC. The Bank shall
further maintain its books and records in the usual, regular and ordinary
manner. Promptly following the filing thereof, the Bank shall deliver to the
Purchaser copies of all reports filed with the FDIC. Promptly following the
issuance thereof, the Bank shall deliver to the Purchaser copies of all press
releases issued by the Bank.
5.04 Notification of Proceedings. The Bank shall notify the Purchaser
---------------------------
promptly of any proceedings, claims, actions or governmental investigations or
reviews which relate to the transactions contemplated by this Agreement.
5.05 Registration Rights. In the event offers or sales of Common Stock
-------------------
shall become subject to registration or filing requirements under the 1933 Act,
as amended, or similar regulations of any banking or other governmental agency,
the Bank shall enter into a registration rights agreement with the Purchaser,
containing standard terms and conditions, whereby the Bank shall agree to
provide "piggy-back" registration rights upon request by the Purchaser.
5.06 Stock Exchange Listing. The Bank shall use its best efforts to
----------------------
maintain the quotation of the Common Stock on the NASDAQ National Market System.
Effective upon issuance of the Conversion Shares, the Bank shall cause the
Conversion Shares to be approved for quotation on the NASDAQ National Market
System and any national securities exchange on which shares of Common Stock may
at such time be listed.
5.07 Reservation of Shares of Common Stock; Shareholder Approval. The
-----------------------------------------------------------
Bank shall at all times maintain authorized and unissued shares of Common Stock
in an amount equal to two times the maximum number of shares of Common Stock
into which the Preferred Stock would be convertible assuming the Commitment were
exercised in full. If, at the time of a Change in Control Event (as defined in
Exhibit A hereto), shareholder approval of the issuance of Common Stock upon
conversion of the Preferred Stock would be required under applicable law or the
rules for quotation of Common Stock on NASDAQ or of any national securities
exchange on which the Common Stock is listed, the Bank shall seek to obtain the
requisite shareholder approval as promptly as practicable after the occurrence
of such Change in Control Event.
- 13 -
<PAGE>
5.08 Issuance of Additional Preferred Stock. Without the prior written
--------------------------------------
consent of the Purchaser, the Bank shall not issue any shares of Preferred Stock
or other preferred stock of the Bank ranking on a parity with the Preferred
Stock except as contemplated by this Agreement or in widely dispersed public
offering or in a private offering in which no person would acquire more than 5%
of the preferred stock sold in such offering.
ARTICLE VI
----------
Covenants and Undertakings of the Purchaser
-------------------------------------------
6.01 Confidentiality. The Purchaser shall keep confidential all
---------------
information and documents furnished to it by or on behalf of the Bank and not
use the same to its competitive advantage (other than as contemplated by this
Agreement or evaluation of any other transaction with the Bank), and shall cause
its Affiliates, agents, representatives, investors and employees to keep
confidential all such information and documents furnished to them by such
Purchaser and not use the same to their advantage (other than as contemplated by
this Agreement), except (i) to the extent such information or documents are or
thereafter become lawfully obtainable from other sources or are in the public
domain through no fault on its or their part, (ii) to the extent such
information or documents are required to be disclosed by the Purchaser pursuant
to an order of a court of competent jurisdiction, provided, however, that the
-------- -------
Bank is provided prompt notice to the extent permitted by law so that it may
seek a protective order or other appropriate remedy, or (iii) as is consented to
in writing by the Bank.
6.02 Transfer of Shares. The Purchaser agrees that it shall not
------------------
transfer, sell or otherwise hypothecate the Purchased Shares, except with the
prior written consent of the Bank. Subsequent to the conversion of the
Purchased Shares into Common Stock, the Purchaser agrees that it shall not
transfer, sell or otherwise hypothecate the Conversion Shares, except in the
open market or in a public or private offering, and shall not sell the
Conversion Shares to a single purchaser without the written consent of the Bank.
6.03 Disposition of Shares.
---------------------
(a) The Purchaser understands and agrees that neither the Purchased
Shares nor the Conversion Shares have been registered under either the 1933 Act
or any applicable state securities laws (the "State Acts") and may not lawfully
be sold or otherwise disposed of for value except upon registration of such
transfer in accordance with the securities registration requirements of the 1933
Act and any applicable State Acts, or pursuant to an exemption from such
registration requirements.
- 14 -
<PAGE>
(b) Any certificates evidencing the Purchased Shares and the
Conversion Shares acquired hereby shall be imprinted with a conspicuous legend
in substantially the following form:
The securities represented by this certificate have not been
registered under either the Securities Act of 1933 (the
"Act") or applicable state securities laws (the "State Acts")
and shall not be sold or otherwise disposed of for value by
the holder hereof except upon registration of such sale or
disposition in accordance with the securities registration
requirements of the Act or of any applicable State Acts, or
pursuant to an exemption from such registration requirements.
The securities represented by this certificate were acquired
pursuant to a Preferred Stock Purchase Agreement dated
____________, 1994 between BB&T Financial Corporation and
Bank, which agreement contains provisions restricting the
transferability of such securities. A copy of such agreement
is available at the principal offices of Bank and should be
reviewed carefully before any person seeks to acquire such
securities.
6.04 Notification of Proceedings. The Purchaser shall notify the Bank
---------------------------
promptly of any proceedings, claims, actions or governmental investigations or
reviews which relate to the transactions contemplated by this Agreement.
ARTICLE VII
-----------
Conditions Precedent to Obligations
of the Purchaser
-----------------------------------
7.01 The obligations of the Purchaser under this Agreement to be
performed at the Initial Closing and any Subsequent Closing shall, at the option
of the Purchaser, be subject to the satisfaction, on or prior to such Initial
Closing or Subsequent Closing, as the case may be, of the following conditions:
(a) No Misrepresentation or Breach of Covenants and Warranties.
----------------------------------------------------------
There shall have been no material breach by the Bank in the performance of any
of its covenants and agreements
- 15 -
<PAGE>
contained or referred to herein; each of the representations and warranties of
the Bank, shall be true and correct in all material respects as of the Initial
Closing Date and the Subsequent Closing Date, as the case may be, as though made
as of each such date and there shall have been delivered to the Purchaser a
certificate or certificates to the foregoing effect dated as of each such date
and signed by the chief executive officer of the Bank.
(b) Opinion of Counsel for the Bank. The Purchaser shall have
-------------------------------
received from counsel for the Bank an opinion, dated the date of the Initial
Closing or the Subsequent Closing, as the case may be, in form and substance
satisfactory to the Purchaser and its counsel, addressing the matters set forth
in Exhibit B hereto.
(c) No Restraint. No order by a court of competent jurisdiction shall
------------
have been issued which would restrain or prohibit or otherwise challenge the
legality or validity of the transactions contemplated hereby.
(d) Bank Holding Company Act. Purchaser shall have obtained written
------------------------
confirmation (i) from the Federal Reserve that the transactions contemplated
hereunder do not require approval under the Bank Holding Company Act or the
Federal Reserve's regulations, thereunder and that upon consummation of the
transactions contemplated hereunder the Purchaser would not be deemed to control
the Bank for purposes of the Bank Holding Company Act or the Federal Reserve's
regulations thereunder and (ii) from the Virginia State Corporation Commission
that the transactions contemplated hereunder do not require approval under
Chapter 15 of the Code of Virginia.
(e) Regulatory Consents. The Bank shall have received any consents,
-------------------
authorizations, orders and approvals of, and made any filings and registrations
with, any United States or state governmental commission, board or other
regulatory body, required for or in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
(f) Additional Documents. The Bank shall have delivered such
--------------------
additional documents evidencing satisfaction of the conditions specified in this
Article VII as may be reasonably requested by the Purchaser or its counsel.
(g) Cross Liability. Purchaser shall have obtained either (i) written
---------------
confirmation from the FDIC that the purchase of Preferred Stock pursuant to this
Agreement will not cause the Purchaser or any of its Affiliates to be under
"common control" with the Bank for purposes of Section 1815(e) of the Federal
Deposit Insurance Act or any regulations promulgated thereunder,
- 16 -
<PAGE>
or (ii) if such common control exists, a written waiver from the FDIC of any
liability resulting therefrom.
ARTICLE VIII
------------
Conditions Precedent to Obligations
of the Bank
-----------------------------------
8.01 The obligations of the Bank under this Agreement to be performed at
the Initial Closing and any Subsequent Closing, shall, at the option of the
Bank, be subject to the satisfaction, on or prior to such Initial Closing or
Subsequent Closing, as the case may be, of the following conditions:
(a) No Misrepresentation or Breach of Covenants and Warranties. There
----------------------------------------------------------
shall have been no material breach by the Purchaser in the performance of any of
its covenants and agreements contained or referred to herein; each of the
representations and warranties of the Purchaser contained or referred to in this
Agreement shall be true and correct in all material respects as of the Initial
Closing Date and the Subsequent Closing Date, as the case may be, as though made
as of such date and there shall have been delivered to the Bank a certificate or
certificates to such effect, dated as of each such date and signed by the
President or Senior Executive Vice President of the Purchaser.
(b) Opinion of Counsel for the Purchaser. The Bank shall have
------------------------------------
received from counsel for the Purchaser (who may be an employee of the
Purchaser) an opinion, dated the date of the Initial Closing or the Subsequent
Closing, as the case may be, in form and substance satisfactory to the Bank and
its counsel, addressing the matters set forth in Exhibit C hereto.
(c) No Restraint. No order by a court of competent jurisdiction shall
------------
have been issued which would restrain or prohibit or otherwise challenge the
legality or validity of the transactions contemplated hereby.
(d) Regulatory Consents. The Purchaser shall have received any
-------------------
consents, authorizations, orders and approvals of, and made any filings and
registrations with, any United States or state governmental commission, board or
other regulatory body, required for or in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
(e) Additional Documents. The Purchaser shall have delivered such
--------------------
additional documents evidencing satisfaction of the conditions specified in this
Article VIII as may be reasonably requested by the Bank or its counsel.
- 17 -
<PAGE>
ARTICLE IX
----------
Termination
-----------
9.01 Mutual Agreement. This Agreement shall terminate on December 31,
----------------
2000, and may be earlier terminated:
(a) at any time by mutual written agreement of the parties;
(b) upon non-renewal or termination of the Commitment as provided
in Section 2.01(b) or Section 5.07 hereof;
(c) at any time by the Purchaser in writing, if the Bank has, or by
the Bank in writing, if the Purchaser has, in any material respect, breached (i)
any covenant or undertaking contained herein or (ii) any representation or
warranty contained herein, and in case of (ii), if such breach has not been
cured 30 days after the date on which written notice of such breach is given to
the party committing such breach;
(d) on the Initial Closing Date or any Subsequent Closing Date, by
any party hereto in writing, if any of the conditions precedent to the
obligations of such party to consummate the transactions contemplated hereby
have not been satisfied or fulfilled; or
(e) by any party hereto in writing, if the Initial Closing Date has
not occurred by the close of business on June 30, 1994.
9.02 Effect of Termination. Upon termination of this Agreement pursuant
---------------------
to this Article IX, each party shall bear its own costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby and
neither party shall have any liability to the other arising out of this
Agreement, provided that nothing set forth in this Section 9.02 shall relieve
any party who has breached its obligations under this Agreement from any
liability arising by virtue of such breach and provided further that the
provisions of Section 6.01 and, so long as the Preferred Stock is outstanding,
Sections 5.05 through 5.08, shall continue in effect notwithstanding any such
termination.
ARTICLE X
---------
Miscellaneous
-------------
10.01 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be
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<PAGE>
delivered personally, by first-class, certified or registered mail or by Federal
Express or any other reputable overnight courier service, addressed as follows:
If to the Purchaser:
- -------------------
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
If to the Bank:
- --------------
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
Either party may change the persons required to receive notices, requests,
demands or other communications hereunder or its or his or her address by
sending a notice of such change to the other party in accordance with the
provisions of this Section 10.01. All notices, requests, demands and other
communications hereunder shall be deemed delivered when received by all persons
entitled to their receipt.
10.02 Assignability and Parties in Interest. This Agreement shall not be
-------------------------------------
assignable by either of the parties hereto without the written consent of the
other party. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns. No
third party shall be entitled to a benefit hereunder nor be entitled to sue in
law or in equity to enforce any part of this Agreement.
10.03 Governing Law. This Agreement shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws, and not the laws pertaining
to choice or conflicts of laws, of the State of Virginia. Each of the parties
hereto irrevocably consents that any legal action or proceeding against it or
any of its property with respect to this Agreement may be brought in any court
of the State of Virginia or any Federal court of the United States of America in
each case located in Virginia, or both, and by the execution and delivery of
this Agreement each party hereto hereby accepts with regard to any such action
or proceeding for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Service of all
complaints and other papers in connection with any such action or proceeding may
be made in
- 19 -
<PAGE>
accordance with Section 10.01 hereof and each party agrees that service in such
manner shall be adequate for all such purposes.
10.04 Counterparts. This Agreement may be executed simultaneously in one
------------
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute but one and the same instrument.
10.05 Best Efforts. Subject to the terms and conditions herein provided,
------------
each of the parties hereto agrees to use its best efforts and to cooperate with
the other party as promptly as practicable 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 and regulations, or otherwise, including without
limitation, filing appropriate applications to obtain all necessary approvals,
consents, waivers and other regulatory approvals, to consummate, as soon as
practicable, the transactions contemplated by this Agreement, and to continue
the prosecution of such applications in good faith.
10.06 Publicity. Except as may be required by law as advised by a
---------
written opinion of counsel, neither party shall issue any press release or make
any other public announcement or comment relating to this Agreement or the
transactions contemplated hereby without the prior consent of the other party,
which consent shall not be unreasonably withheld.
10.07 Complete Agreement. This Agreement and the Exhibits hereto
------------------
delivered pursuant hereto contain the entire agreement between the parties
hereto with respect to the transactions contemplated herein and, except as
provided herein, supersede all previous oral and written and all contemporaneous
oral negotiations, commitments, writings and understandings.
10.08 Amendments and Waivers.
----------------------
(a) This Agreement and all Exhibits hereto may be amended only by a
writing signed by the Bank and the Purchaser.
(b) No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right hereunder or operate to constrain the rights of any other parties
hereunder. No waiver of any one right shall operate as a waiver of any
subsequent right.
10.09 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.10 Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of
- 20 -
<PAGE>
such invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be signed as of the date first above written.
BB&T FINANCIAL CORPORATION
ATTEST:
/s/ Harllee W. Lyon By:/s/ Scott E. Reed
- -------------------------- ---------------------------
Harllee W. Lyon Scott E. Reed
Assistant Secretary Senior Executive Vice
President and Treasurer
COMMERCE BANK
ATTEST:
/s/ Brenda P. Harper By:/s/ G. Robert Aston, Jr.
- -------------------------- ---------------------------
Brenda P. Harper G. Robert Aston, Jr.
Assistant Corporate President and Chief
Secretary Executive Officer
- 21 -
<PAGE>
EXHIBIT A
NONCUMULATIVE
PREFERRED STOCK, SERIES A
I. Designation and Number, Issuance.
--------------------------------
This series is designated the Non-Cumulative Preferred Stock, Series A,
par value $5.00 per share (hereinafter called the "Series A Preferred Stock" or
this "Series") of Commerce Bank (the "Bank"). The number of shares constituting
this Series shall be up to one hundred twenty thousand (120,000). Such number
may be increased or decreased at any time or from time to time in accordance
with law up to the maximum number of shares of Preferred Stock authorized to be
issued under the charter of the Bank, as amended, less all shares at the time
authorized of any other series of preferred stock; provided that no decrease
shall reduce the number of shares of this Series to a number less than that of
the shares then outstanding. Shares of this Series will be dated as of the date
of issue.
II. Preference.
----------
The preferences of each share of Series A Preferred Stock with respect to
dividend payments or distributions upon the voluntary or involuntary
liquidation, dissolution or winding up of the Bank (herein referred to as
"liquidation"), as the case may be, will be in every respect on a parity with
the preferences of every other share of Series A Preferred Stock as to dividend
payments or upon liquidation. The rights of the Series A Preferred Stock will
not be junior to the rights of any other class or series of capital stock of the
Bank as to dividend payments or upon liquidation.
III. Voting Rights.
-------------
Except as otherwise required by law, the holders of shares of Series A
Preferred Stock shall have no voting rights.
IV. Dividends.
---------
4.01. Rights To Receive Dividends. The holders of shares of this Series
---------------------------
shall be entitled to receive, when, as and if declared by the Board of Directors
of the Bank, out of funds legally available therefor, noncumulative dividends in
cash at the rate per annum payable as set forth in this Section IV.
<PAGE>
4.02. Noncumulative Dividends and Dividend Rate.
-----------------------------------------
(a) Dividends on the shares of this Series shall be paid in cash and
shall be noncumulative; therefore, if a dividend on the shares of this Series
with respect to any Dividend Period (as defined below) is not declared by the
Board of Directors of the Bank, the Bank shall have no obligation at any time to
pay a dividend on the shares of this Series in respect of such Dividend Period.
(b) The annual dividend rate on each share of this Series shall be the
Liquidation Value (as defined in Section 5.01 hereof) multiplied by a percentage
as follows: (i) from the date of issuance through December 31, 1996, 6.75%; and
(ii) beginning on January 1, 1997 (or, if later, the date of issuance), 275
basis points over the most recently reported interest rate for the three-year
Constant Maturity Treasury Note (as quoted on Telerate page 7052, or a
comparable source if such source is not available) on the last business day
prior to the Dividend Payment Date, but not more than 11.0% (the "Maximum
Dividend Rate") or less than 5.0%. Dividends shall be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each a
"Dividend Payment Date"). Each period beginning on the later of the date of
issuance or the day next following a Dividend Payment Date and ending on the
next succeeding Dividend Payment Date shall be a "Dividend Period."
(c) No full dividends shall be declared or paid or set apart for payment
on any other preferred stock of the Bank in respect of any dividend period
unless, (i) except with respect to any series of preferred stock that at that
time pays dividends on a periodic basis different from that of the Series A
Preferred Stock, full dividends on all outstanding shares of this Series for the
then-current Dividend Period shall have been paid in full or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment, and (ii) with respect to any series of preferred
stock that at that time pays dividends on a periodic basis different from that
of the Series A Preferred Stock, full dividends on all outstanding shares of
this Series for the immediately preceding Dividend Period have been declared and
paid. Holders of the shares of this Series shall not be entitled to any
dividends, whether payable in cash or stock, in excess of the noncumulative
dividends declared by the Board of Directors as set forth in this Section IV.
(d) Except as provided in Section 4.02(c), if full dividends on all
outstanding shares of this Series at the rate per share set out in this Section
4.02 shall not have been declared and paid or set aside for payment for the
immediately preceding Dividend Period, the Bank shall not, until full dividends
have been declared and paid or set aside for payment
- 2 -
<PAGE>
on all outstanding shares of this Series for a subsequent Dividend Period, (i)
declare or pay or set aside for payment any dividends (other than a dividend in
Common Stock or in any other securities ranking junior to this Series as to
dividends and upon liquidation of the Bank) or make any other distribution or
payments on the Common Stock or any other securities of the Bank ranking junior
to shares of this Series with respect to the payment of dividends or upon
liquidation or (ii) make any payment on account of the purchase, redemption or
other retirement of, or pay or make available any monies for a sinking fund for
the redemption of, any shares of Common Stock or such other securities ranking
junior to this Series except by conversion into or exchange for securities of
the Bank ranking junior to this Series as to dividends and upon liquidation.
V. Liquidation Rights.
------------------
5.01. Payment Upon Liquidation. In the event of any liquidation,
------------------------
dissolution or winding up of the Bank, whether voluntary or involuntary, the
holders of outstanding shares of this Series shall be entitled to receive out of
the assets of the Bank, or the proceeds thereof, before any payment or
distribution shall be made on the Common Stock or any other class of capital
stock, upon liquidation, a liquidation distribution in the amount of $100.00
(the "Liquidation Value") per share of this Series plus an amount per share
equal to all accrued and unpaid dividends thereon for the then-current Dividend
Period pro rated based on the number of days elapsed during such Dividend Period
prior to the date of final distribution to such holders (collectively, the
"Liquidation Amount"). After payment of the full amount of such Liquidation
Amount, the holders of this Series shall not be entitled to any further
participation in any distribution of assets of the Bank.
5.02. Insufficient Assets. If, upon any liquidation, dissolution or
-------------------
winding up of the Bank, whether voluntary or involuntary, the assets of the
Bank, or proceeds thereof, distributable among the holders of the shares of this
Series shall be insufficient to pay in full the Liquidation Amount set forth in
Section 5.01 then such assets, or the proceeds thereof, shall be distributed
among the holders of this Series ratably in accordance with the respective
amounts which would be payable on such shares of this Series if all amounts
payable thereon were paid in full.
5.03. Payments on Securities Ranking Junior. In the event of any such
-------------------------------------
liquidation, dissolution or winding up of the Bank, whether voluntary or
involuntary, unless and until payment in full is made to the holders of all
outstanding shares of this Series of the Liquidation Amount pursuant to Section
5.01, no dividend or other distribution or payment shall be made to the holders
of the Common Stock or any other
- 3 -
<PAGE>
class of securities ranking upon liquidation junior to the shares of this
Series, and no purchase, redemption or other acquisition for any consideration
by the Bank shall be made in respect of the shares of the Common Stock or such
other class of securities.
5.04. Definition of Liquidation. Neither the consolidation nor merger
-------------------------
of the Bank into or with another bank, bank holding company or corporation, nor
the sale, lease or exchange (for cash, shares of equity stock, securities or
other consideration) of all or substantially all of the property and assets of
the Bank, shall be deemed to be a liquidation, dissolution or winding up of the
Bank within the meaning of this Article V.
VI. Redemption.
----------
6.01. Authorization for Redemption and Redemption Price.
-------------------------------------------------
(a) The Bank may, at its option, redeem the shares of this Series, in
whole but not in part, at any time on or after December 31, 1996 at the
applicable Redemption Price.
(b) The Bank may, at its option, redeem the shares of this Series, in
whole and not in part, at any time on or after a Change in Control Transaction
as defined in Article VIII hereof has been consummated. In addition to the
Redemption Price, upon (i) a redemption of the Series A Preferred Stock on or
after a Change in Control Transaction has been consummated, or (ii) consummation
of a Change in Control Transaction within 12 months following the redemption of
the Series A Preferred Stock pursuant to Section 6.01(a), the holder(s) of the
Series A Preferred Stock at the time of such redemption shall be entitled to be
paid the Special Redemption Premium. Notwithstanding the foregoing, the
holder(s) of the Series A Preferred Stock shall not be entitled to be paid the
Special Redemption Premium pursuant to this Section 6.01(b) during the period
any of the following events or conditions shall remain in effect: (1) a Capital
Shortfall (as defined in Section 7.01(a)); (2) the Bank has become subject to a
formal or informal action, agreement or directive with the Federal Deposit
Insurance Corporation ("FDIC") that includes a requirement for the Bank to raise
additional capital; or (3) the FDIC has determined that payment of the Special
Redemption Premium would limit its ability to take any necessary action to
resolve the Bank as a problem or failing institution.
6.02. Redemption Notice. In the event the Bank shall redeem shares of
-----------------
this Series pursuant to Section 6.01(a) or (b), written notice of such
redemption (a "Notice of Redemption") shall be given by first class mail,
postage prepaid, mailed not less than 15 nor more than 60 days prior to the date
set for redemption ("Redemption Date"), to each
- 4 -
<PAGE>
holder of record of the shares to be redeemed, at such holder's address as the
same appears on the stock register of the Bank. Each Notice of Redemption shall
state: (1) the Redemption Date; (2) the Redemption Price, the amount of accrued
and unpaid dividends per share on the shares to be redeemed, and, if applicable,
the Special Redemption Premium; (3) the place or places where certificates for
such shares are to be surrendered for payment of the Redemption Price; and (4)
that dividends on the shares to be redeemed will cease to accrue on such
Redemption Date. No defect in the Notice of Redemption or in the mailing
thereof or publication of its contents shall affect the validity of the
redemption proceedings.
6.03. Redemption Procedures. On or after a Redemption Date, each holder
---------------------
of shares of this Series that were called for redemption shall surrender the
certificate or certificates, if such shares are held at the time of redemption
by such holder, evidencing such shares to the Bank at any place designated for
such surrender in the Notice of Redemption and shall then be entitled to receive
payment of the Redemption Price for each share, all accrued and unpaid dividends
thereon and, if applicable, the Special Redemption Premium.
6.04. Deposit of Redemption Funds. On the Redemption Date specified in
---------------------------
the Notice of Redemption given pursuant to Section 6.02, the Bank shall, and at
any time after the Notice of Redemption shall have been mailed and before such
Redemption Date, the Bank may deposit for the pro rata benefit of the holders of
the shares of this Series so set for redemption the funds necessary for such
redemption with a bank or trust company having a capital and surplus of at least
$500 million. Any money so deposited by the Bank and unclaimed at the end of
two years from the date designated for such redemption shall revert to the
general fund of the Bank. After such reversion, such bank or trust company
shall, upon demand, pay over to the Bank such unclaimed amounts and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof to such holder and such holder shall look only to the Bank for payment
of the Redemption Price, accrued and unpaid dividends and the Special Redemption
Premium, if applicable. Any interest accrued on funds so deposited pursuant to
this Section 6.04 shall be paid from time to time to the Bank for its own
account.
6.05. Effect of Redemption.
--------------------
(a) If a Notice of Redemption shall have been given, then upon the date
of the deposit referred to in the preceding subsection, all rights of holders of
the shares so set for redemption shall cease, except the right of holders of
such shares to receive the Redemption Price, accrued and unpaid dividends and
the Special Redemption Premium, if applicable,
- 5 -
<PAGE>
against delivery of such shares, if such shares are held at the time of
redemption by such holder, but without interest, and such shares shall cease to
be outstanding.
(b) Any shares of this Series which shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued shares
of preferred stock of the Bank, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
6.06. Special Redemption Premium Payment Procedures. In the event a
---------------------------------------------
Change in Control Transaction is consummated within 12 months following the
redemption of the Series A Preferred Stock pursuant to Section 6.01(a), the Bank
shall, within ten business days following such consummation, pay the Special
Redemption Premium by check mailed to the holder(s) of record of the Series A
Preferred Stock on the Redemption Date, at such holder's address as it appeared
on the stock register of the Bank on such date or such other address as the
holder shall have provided to the Bank.
VII. Conversion.
----------
7.01. Authorization for Conversion.
----------------------------
(a) The holder(s) of the Series A Preferred Stock shall have the right,
at its (their) option, to convert all such shares into shares of Common Stock
within 60 days after the date (the "Report Date") on which the Bank publicly
reports, in a report filed with the FDIC or press release, a leverage ratio, as
defined in FDIC regulations, of less than the greater of (i) 4.75% or (ii) if
the minimum leverage ratio required for the Bank to be deemed adequately
capitalized under FDIC regulations is greater than 4.0%, the minimum leverage
ratio plus 0.75% (a "Capital Shortfall"; a conversion pursuant to this Section
7.01, a "Capital Shortfall Conversion").
(b) The holder(s) of the Series A Preferred Stock shall have the right,
at its (their) option, to convert all such shares into shares of Common Stock if
the Bank elects not to redeem, or is prohibited by applicable law or by the
FDIC, the SCC or other applicable federal or state regulatory authority from
redeeming, the Series A Preferred Stock on or after a Change in Control
Transaction has been consummated (a "Change in Control Conversion").
7.02. Conversion Terms and Conditions. The conversion of the Series A
-------------------------------
Preferred Stock shall be on and subject to the following terms and conditions:
(a) Each share of Series A Preferred Stock shall be convertible at the
principal executive office of the Bank or
- 6 -
<PAGE>
at the office of any transfer agent for the Bank's Common Stock, into a number
of fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock equal to the Liquidation Value
divided by the Conversion Price.
(b) In order to convert shares of Series A Preferred Stock into Common
Stock the holder thereof shall (i) surrender at any office hereinabove mentioned
the certificate or certificates therefor, duly endorsed as assigned to the Bank
or in blank, and (ii) give written notice to the Bank at such office that he
elects to convert such shares in Common Stock. Such surrender shall be made
within 60 days of the Report Date in the case of a Capital Shortfall Conversion
and within 30 days of the consummation of a Change in Control Transaction in the
case of a Change in Control Conversion (provided that if regulatory approval for
acquisition of the shares of Common Stock upon conversion has been sought by the
holder(s), such period shall be extended to the date 30 days after such approval
is obtained).
(c) No payment or adjustment shall be made upon any conversion on
account of any dividends declared and not yet paid on the shares of Series A
Preferred Stock surrendered for conversion or on account of any dividends on the
Common Stock issued upon conversion; provided, however, that holders of the
-------- -------
Series A Preferred Stock shall be entitled to receive any dividend payable to
holders of record of shares of Common Stock on a date prior to the date of
conversion of their shares of Series A Preferred Stock if such shares are
converted prior to the payment date for such dividend.
(d) Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the surrender
of such shares for conversion in accordance with the foregoing provisions, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such Common Stock at such time.
(e) As promptly as practicable on or after the conversion date, the Bank
shall issue and shall deliver at such office a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion and cash
in lieu of any fraction of a share, as hereinafter provided, to the person or
persons entitled to receive the same.
(f) The Bank shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of shares of the Series A Preferred Stock,
two times the full number of shares of Common Stock then
- 7 -
<PAGE>
deliverable upon the conversion of all shares of the Series A Preferred Stock
then outstanding.
(g) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which would otherwise be
issuable, the Bank shall pay a cash adjustment in respect of such fraction in an
amount equal to the same fraction of the Conversion Price (as hereinafter
defined) at the close of business on the day of conversion.
(h) In case of any consolidation of the Bank with, or merger of the Bank
or share exchange into, any other person, any merger of another person into the
Bank (other than a merger or share exchange which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock), any sale or transfer of all or substantially all of the assets of
the Bank, or any acquisition of 100% of the outstanding Common Stock held by
persons other than constituent persons (as hereinafter defined) or affiliates
thereof or the Bank (a "Merger Transaction"), lawful provision shall be made as
a part of the terms of such Merger Transaction whereby each share of the Series
A Preferred Stock shall convert automatically into a share of preferred stock of
such other person having terms (including redemption, liquidation and conversion
rights) substantially identical to those of this Series and the holder of each
share of such preferred stock shall have the right thereafter to convert such
share into the kind and amount of securities, cash and other property receivable
upon such Merger Transaction by a holder of the number of shares of Common Stock
of the Bank into which a share of the Series A Preferred Stock might have been
converted at the Conversion Price in effect immediately prior to such Merger
Transaction, assuming such holder of Common Stock of the Bank is not a person
with which the Bank consolidated or into which the Bank merged or which merged
into the Bank or exchanged its shares or to which such sale or transfer was
made, as the case may be (a "constituent person"), or an affiliate of a
constituent person; provided, however, that if the kind or amount of securities,
-------- -------
cash and other property receivable upon such Merger Transaction is not the same
for each share of Common Stock held immediately prior to such Merger Transaction
by persons other than a constituent person or an affiliate thereof, then for the
purposes of this Paragraph (h) the kind and amount of securities, cash and other
property receivable upon such Merger Transaction with respect to any share of
Common Stock into which a share of the Series A Preferred Stock may be converted
shall be deemed to be the kind and amount available (upon election or otherwise)
to holders of shares of Common Stock immediately prior to such Merger
Transaction other than a constituent person or an affiliate thereof, with such
election rights and such other rights and on such other terms and conditions as
are applicable to the holders of Common Stock, treating the holders of Series A
- 8 -
<PAGE>
Preferred Stock as if they were holders of the number of shares of Common Stock
into which such shares of Series A Preferred Stock are then convertible. The
above provisions of this Paragraph (h) shall similarly apply to successive
Merger Transactions.
(i) The Bank will pay any and all taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of shares of the
Series A Preferred Stock pursuant hereto. The Bank shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock in a name other than that in
which the shares of the Series A Preferred Stock so converted were registered,
and no such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Bank the amount of any such tax, or has
established to the satisfaction of the Bank that such tax has been paid.
VIII. Definitions of Terms.
--------------------
(a) Any securities of the Bank will be deemed to rank:
(1) senior to the shares of this Series, either as to dividends
or upon liquidation, if the holders of such securities will be
entitled to the receipt of dividends payments or of amounts
distributable upon dissolution, liquidation or winding up of the
Bank, as the case may be, in preference or priority to the holders
of shares of this Series;
(2) on a parity with shares of this Series, either as to
dividends or upon liquidation, whether or not the dividends,
dividend dates or redemption or liquidation prices per share or
optional or mandatory redemption provisions, if any, be different
from those of this Series, if the holders of such securities will be
entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Bank, as the case
may be, in proportion to their respective dividend rates or
liquidation prices, without preference or priority, one over the
other, as between the holders of such securities and the holders of
shares of this Series; and
(3) junior to shares of this Series, either as to dividends or
upon
- 9 -
<PAGE>
liquidation, if such class shall be common stock or if the holders of
this Series will be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the
Bank, as the case may be, in preference or priority to the holders of
such securities.
(b) The term "Change in Control Event" means any of the following events
or transactions:
(1) any person (other than BB&T Financial Corporation ("BB&T"), or
any affiliate of BB&T) shall have commenced a bona fide tender or
exchange offer to purchase shares of Common Stock such that upon
consummation of such offer such person would own or control, if such
person is a depository institution or deposition institution holding
company, 25% or more, and in the case of any other person, 50% or
more, of the outstanding shares of Common Stock;
(2) the Bank shall have entered into an agreement with any person
(other than BB&T or any BB&T affiliate), or any person (other than
BB&T or any BB&T affiliate) shall have filed an application or notice
with the FDIC or any other federal or state regulatory agency for
clearance or approval, to (x) merge or consolidate, or enter into any
similar transaction, with the Bank, (y) purchase, lease or otherwise
acquire all or substantially all of the assets of the Bank or (z)
purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing, if such person is a depository institution or
depository institution holding company, 25% or more, and in the case
of any other person, 50% or more, of the voting power of the Bank;
(3) any person (other than BB&T or any BB&T affiliate) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of, if such person is a depository institution or
depository institution holding company, 25% or more, and in the case
of any other person, 50% or more, of the outstanding
- 10 -
<PAGE>
shares of Common Stock (the term "beneficial ownership" for purposes
hereof having the meaning assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder); or
(4) any person (other than BB&T or any BB&T affiliate) shall have
made a bona fide proposal to the Bank by public announcement or
written communication that is or becomes the subject of public
disclosure to (x) acquire the Bank by merger, consolidation, purchase
of all or substantially all of its assets or any other similar
transaction, (y) purchase or otherwise acquire securities
representing, if such person is a depository institution or
depository institution holding company, 25% or more, and in the case
of any other person, 50% or more, of the voting power of the Bank, or
(z) make an offer described in clause (1) above;
provided, however, that a Change in Control Event shall not include a
reorganization that involves only the acquisition of control of the Bank by a
newly formed company that is formed by the Bank for such purpose.
(c) The term "Change in Control Transaction" shall mean any of the
following transactions shall have been consummated:
(1) a Merger Transaction as defined in Section 7.02(h) hereof; or
(2) any person (other than BB&T or any BB&T affiliate) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of, if such person is a depository institution or
depository institution holding company, 25% or more, and in the case
of any other person, 50% or more, of the outstanding shares of Common
Stock (the term "beneficial ownership" for purposes hereof having the
meaning assigned thereto in Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder);
provided, however, that a Change in Control Transaction shall not include a
reorganization that involves only the
- 11 -
<PAGE>
acquisition of control of the Bank by a newly formed company that is formed by
the Bank for such purpose.
(d) The term "Common Stock" means the common stock, par value $2.50,
of the Bank.
(e) The term "Conversion Price" means the closing market price per
share of the Common Stock as quoted on NASDAQ on the Initial Closing Date as
defined in the Preferred Stock Purchase Agreement dated April 21, 1994 between
the Bank and BB&T, provided that Conversion Price in effect at any time shall be
subject to adjustment as follows:
(1) In case the Bank shall (i) pay a dividend or make a
distribution on the Common Stock in shares of its capital stock, (ii)
subdivide or reclassify its outstanding Common Stock into a greater
number of securities, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of securities, the Conversion
Price in effect immediately prior thereto shall be adjusted so that
the holder of any Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
capital stock of the Bank which such holder would have owned or have
been entitled to receive after the happening of any of the events
described above had such Preferred Stock been converted immediately
prior to the happening of such event. An adjustment made pursuant to
this subsection (1) shall become effective immediately after the
record date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(2) In case the Bank shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them
(within a 45 calendar-day period expiring after such record date) to
subscribe for or purchase shares of Common Stock or securities
convertible into shares of Common Stock at a price per share (or a
conversion price per share) less than the current market price per
share of Common Stock (as defined in subsection (4) below) at such
record date, the Conversion Price in effect immediately prior thereto
shall be
- 12 -
<PAGE>
adjusted so that it shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to such record date
by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of
shares which the aggregate offering price of the total number of
shares so offered (or the aggregate initial conversion price of the
convertible securities so offered) would purchase at such current
market price, and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock offered for subscription
or purchase (or into which the convertible securities so offered are
initially convertible). Such adjustment shall be made successively
whenever such a record date is fixed, and shall become effective
immediately after such record date. In determining whether any
rights or warrants entitle the holders to subscribe for or purchase
shares of Common Stock at less than such current market price, and in
determining the aggregate offering price of such shares, there shall
be taken into account any consideration received by the Bank for such
rights or warrants, the value of such consideration, if other than
cash, to be determined by the Board of Directors of the Bank.
(3) In case the Bank shall fix a record date for making a
distribution to all holders of its Common Stock of its obligations,
securities or property (excluding cash dividends or distributions
paid from retained earnings or consolidated net income of the Bank or
referred to in subsection (1) above) or rights or warrants to
subscribe or purchase (excluding those referred to in subsection (2)
above), then in each such case the Conversion Price shall be adjusted
so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a
fraction of which the numerator shall be the current market price per
share (as defined in subsection (4) below) of the Common Stock
- 13 -
<PAGE>
on such record date less the then fair market value (as determined by
the Board of Directors of the Bank whose determination shall be
conclusive) of the portion of the obligations, securities or property
so distributed or of such rights or warrants applicable to one share
of Common Stock, and the denominator shall be the current market
price per share (as defined in subsection (4) below) of the Common
Stock. Such adjustment shall be made successively whenever such a
record date is fixed and shall become effective immediately after
such record date.
(4) For the purpose of any computation under subsection (2) and (3)
above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for the
30 consecutive business days commencing 45 business days before the
day in question. The closing price for any day shall be (i) if the
Common Stock is listed or admitted for trading on any national
securities exchange, the last sale price (regular way), or the
average of the closing bid and ask prices if no sale occurred, of
Common Stock on the principal securities exchange on which the Common
Stock is listed, (ii) if not listed as described in (i), the mean
between the closing high bid and low asked quotations of Common Stock
on NASDAQ, or any similar system or automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(iii) if not quoted as described in clause (ii), the mean between the
high bid and low asked quotations for Common Stock as reported by the
National Quotation Bureau Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock
on at least five of the 10 preceding days. If none of the conditions
set forth above is met, the closing price of Common Stock on any day
or the average of such closing prices for any period shall be current
fair market value of Common Stock as determined by the Board of
Directors based upon an independent appraisal.
- 14 -
<PAGE>
(5) No adjustment in the Conversion Price will be required unless
such adjustment would require a change of at least 1% in the
Conversion Price then in effect; provided, however, that any
adjustment that would otherwise be required to be made shall be
carried forward and taken into account in determining whether any
subsequent adjustment is required. Except as set forth above, the
Conversion Price will not be adjusted for the issuance of Common
Stock or any securities convertible into or exchangeable or
exercisable for Common Stock, or carrying the right or option to
purchase or otherwise acquire the foregoing, in exchange for cash,
other property or services.
(6) Whenever the Conversion Price is adjusted, as herein provided,
the Bank shall promptly file with any conversion agent an officers'
certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the Bank
shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the date on which
such adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the holder of each share of
Preferred Stock at such holder's last address appearing on the
security register of the Bank.
(f) The term "Redemption Price" means:
Prior to
December 31, 1997 - 104% of Liquidation Value
December 31, 1997-
December 30, 1998 - 103% of Liquidation Value
December 31, 1998-
December 30, 1999 - 102% of Liquidation Value
December 31, 1999-
December 30, 2000 - 101% of Liquidation Value
On or after
December 31, 2000 - 100% of Liquidation Value.
- 15 -
<PAGE>
(g) The term "Special Redemption Premium" means an amount equal to 10% of
the Liquidation Value of the shares of Series A Preferred Stock redeemed.
- 16 -
<PAGE>
Exhibit 8.1
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
August 29, 1994
Board of Directors
Commerce Bank
5101 Cleveland Street
Virginia Beach, Virginia 23462
Board of Directors
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Gentlemen:
You have requested our opinion as to the federal and Virginia income tax
consequences resulting from a plan pursuant to which Branch Banking and Trust
Company of Virginia ("BB&T-VA"), a to be formed Virginia chartered bank and
wholly owned subsidiary of BB&T Financial Corporation ("BB&T Financial"),
established solely to effect the acquisition of Commerce Bank ("Commerce") by
BB&T Financial, will be merged with and into Commerce, whereupon the separate
existence of BB&T-VA will cease (the "Merger"). Pursuant to the Merger, the
shareholders of Commerce will receive shares of BB&T Financial common stock
("BB&T Financial Common Stock") in exchange for their Commerce common stock
("Commerce Common Stock"). After the Effective Date, BB&T Financial will
contribute all of outstanding common stock of the Surviving Corporation to BB&T
Financial Corporation of Virginia ("BB&T Financial-Va") and the Surviving
Corporation will become a wholly owned subsidiary of BB&T Financial-Va.
You have submitted for our consideration certain representations as to the
proposed transaction, and copies of the Agreement and Plan of Reorganization,
dated as of June 24, 1994, as amended, (the "Reorganization Agreement"), a
related Plan of Merger dated as of June 24, 1994 (the "Plan of Merger") and the
Form S-4 Registration Statement to be filed with the Securities and Exchange
Commission on or about August 29, 1994. Our opinion is based on a review of the
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 2
information above and certain assumption of fact. It is also based on existing
tax law and authorities that are subject to change. We have not reviewed the
legal documents necessary to effectuate the steps to be undertaken and we assume
that all steps will be effectuated under state and federal law and will be
consistent with the legal documentation and with the list of steps submitted to
us.
FACTS
BB&T Financial, a North Carolina corporation, is a registered bank holding
company headquartered in Wilson, North Carolina and the parent holding company
of Branch Banking and Trust Company, a North Carolina chartered bank subsidiary,
and, through BB&T Financial Corporation of South Carolina (which is a
wholly-owned subsidiary of BB&T Financial), Branch Banking & Trust Company of
South Carolina, The Lexington State Bank and The Community Bank of South
Carolina, three South Carolina chartered banking corporations. BB&T Financial
has authorized two classes of capital stock, consisting of common and nonvoting
preferred. Common shareholders are entitled to one vote for each share of stock
held. BB&T-VA and BB&T Financial-Va, both to be formed Virginia corporations,
will be wholly owned subsidiaries of BB&T Financial.
Commerce is a banking corporation formed under the laws of the State of
Virginia. Commerce's authorized capital stock consists of two classes
represented by 5,000,000 shares of common stock, $2.50 par value, ("Commerce
Common Stock") of which 2,725,163 shares are issued and outstanding, and
1,000,000 shares of preferred stock, $5.00 par value, no shares of which are
issued or outstanding.
For valid business purposes, pursuant to the Reorganization Agreement and Plan
of Merger, BB&T-VA will be merged with and into Commerce, with Commerce as the
surviving entity. Each share of Commerce Common Stock will be converted into
newly issued shares of BB&T Financial Common Stock based upon the Exchange
Ratio, as defined in the Plan of Merger. The Exchange Ratio will be 1.305
shares of BB&T Financial Common Stock for every share of Commerce Common Stock
outstanding immediately prior to the Effective Date, provided that in the event
that BB&T Financial shall have a record date between June 24, 1994 and the
Effective Date for a special distribution to stockholders, a stock split, stock
dividend or similar change in capitalization, an equitable and appropriate
adjustment shall be made to the Exchange Ratio to reflect the effect of such
distribution or change.
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 3
At the Effective Date, Commerce's obligations with respect to its authorized and
outstanding 10% Convertible Subordinated Capital Notes Due 2002 ("Capital
Notes"), issued by Commerce pursuant to the Indenture, dated as of September 13,
1990, between Commerce and NationsBank of Virginia, N.A., as Trustee
("Indenture"), will be assumed by BB&T Financial and Commerce by a supplemental
indenture and each holder of a Capital Note will have the right, during the
period such Capital Note is convertible, to convert each Capital Note into
shares of BB&T Financial Common Stock at a conversion rate ("Conversion Rate")
equal to 1.305 shares of BB&T Financial Common Stock for each share of Commerce
Common Stock into which such Capital Notes would have been converted immediately
prior to the Effective Date, and cash in lieu of any fractional shares (the
"Note Conversion"). The Conversion Rate is subject to adjustment in accordance
with the terms of the Indenture.
To the extent not exercised prior to the Effective Date, Commerce's obligations
with respect to stock options granted under its 1985 Stock Option Plan and its
1993 Incentive Stock Option Plan (the "Commerce Stock Option Plans") will be
assumed by BB&T Financial and each stock option outstanding under such plan
shall become the right to receive, upon payment of the adjusted exercise price,
that number of shares of BB&T Financial Common Stock the option holder would
have received pursuant to the Merger if he or she had exercised such option
immediately prior thereto, and cash in lieu of any fractional shares (the
"Option Conversion").
No fractional shares of BB&T Financial Common Stock will be issued in connection
with the Merger. Instead, cash will be paid in lieu of fractional shares in an
amount equal to the product of the fractional share multiplied by the average of
the reported closing price of BB&T Financial Common Stock on the NASDAQ/National
Market System (trading symbol "BBTF") on the ten trading days ending on the
tenth business day prior to the Effective Date of the Merger.
After the Effective Date, BB&T Financial will contribute all of outstanding
common stock of the Surviving Corporation to BB&T Financial-Va and the
Surviving Corporation will become a wholly owned subsidiary of BB&T
Financial-Va.
The Merger is subject to the receipt of regulatory approval from appropriate
parties, including the Bureau of Financial Institutions of the Virginia State
Corporation Commission, the Board of Governors of the Federal Reserve System and
the Federal Deposit Insurance Corporation.
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 4
In addition to the foregoing statement of facts, the following representations
have been made:
(a) The fair market value of BB&T Financial Common Stock received by the
shareholders of Commerce will be approximately equal to the fair market
value of Commerce Common Stock surrendered in the exchange.
(b) There is no plan or intention by the shareholders of Commerce to sell,
exchange or otherwise dispose of any of the BB&T Financial Common Stock
received in the Merger.
(c) Following the Merger, Commerce will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value
of its gross assets, and at least 90% of the fair market value of BB&T-
VA's and at least 70% of the fair market value of BB&T-VA's gross assets
held immediately prior to the Merger. For purposes of this representation,
amounts paid by Commerce or BB&T-VA to dissenters, amounts paid by
Commerce or BB&T-VA to shareholders who receive cash or other property,
amounts used by Commerce or BBT&T-VA to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends)
made by Commerce will be included as assets of Commerce or BB&T-VA,
respectively.
(d) Prior to the Merger, BB&T Financial will be in control of BB&T-VA
within the meaning of Section 368(c) of the Internal Revenue Code of
1986 (the "Code").
(e) Commerce has no plan or intention to issue additional shares of its
stock that would result in BB&T Financial losing control of Commerce
within the meaning of Section 368(c)
(f) BB&T Financial has no plan or intention to reacquire any of its stock
issued in the Merger.
(g) BB&T Financial has no plan or intention to liquidate Commerce; to
merge Commerce with or into another corporation; to sell or otherwise
dispose of the stock of Commerce, except for transfers of the stock to
corporations controlled by BB&T Financial; or to cause Commerce to sell or
otherwise dispose of any of its assets or the assets acquired from BB&T-VA
in the Merger, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by Commerce.
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 5
(h) BB&T-VA will have no liabilities assumed by Commerce, and will not
transfer to Commerce any assets subject to liabilities, in the Merger.
(i) Following the Merger, Commerce will continue its historical business
or use a significant portion of its historic business assets in a
business.
(j) BB&T Financial, BB&T-VA, Commerce and the shareholders of Commerce
will pay their respective expenses, if any, incurred in connection with
the Merger.
(k) There is no intercorporate indebtedness existing between BB&T
Financial and Commerce or between BB&T-VA and Commerce that was issued,
acquired, or will be settled at a discount.
(l) In the Merger, shares of Commerce Common Stock representing control
of Commerce, as defined in Section 368(c), will be exchanged solely for
voting stock of BB&T Financial. For purposes of this representation,
shares of Commerce Common Stock exchanged for cash or other property
originating with BB&T Financial will be treated as outstanding Commerce
Common Stock on the date of the Merger.
(m) At the time of the Merger, Commerce will not have outstanding any
warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock in Commerce that, if
exercised or converted, would affect BB&T Financial's acquisition or
retention of control of Commerce, as defined in Section 368(c).
(n) BB&T Financial does not own, nor has it owned during the past five
years, any shares of the stock of Commerce.
(o) No two parties to the transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv).
(p) On the Effective Date, the fair market value of the assets of
Commerce will equal or exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which the assets are subject.
(q) Commerce is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 6
(r) The payment of cash in lieu of fractional shares of BB&T Financial
Common Stock is not separately bargained for consideration, rather it is
merely to save the expense and inconvenience of issuing and transferring
fractional share interests. The total cash consideration in lieu of
fractional shares will be less than one percent of the total consideration
paid in the transaction and no Commerce shareholder who elects to exchange
his or her Commerce Common Stock for BB&T Financial Common Stock will
receive cash for more than one share of BB&T Financial Common Stock.
(s) None of the compensation received by any shareholder-employees of
Commerce will be separate consideration for, or allocable to, any of their
shares of Commerce Common Stock; none of the shares of BB&T Financial
Common Stock received by any shareholder-employee of Commerce will be
separate consideration for, or allocable to, any employment agreement; and
the compensation to be paid to any shareholder-employees of Commerce will
be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
Opinion
FEDERAL INCOME TAX CONSEQUENCES
- -------------------------------
Based solely on the above facts and representations, it is our opinion that:
(1) Provided that the merger of BB&T-VA with and into Commerce, as
contemplated by the Reorganization Agreement and Plan of Merger, qualifies
as a statutory merger under Virginia law, the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code. The reorganization will not be disqualified by
reason of the fact that the stock of Commerce acquired by BB&T Financial
in the Merger will be contributed to BB&T Financial-Va following the
Merger. Section 368(a)(2)(C) and Treas. Reg. Sec. 1.368-2(j)(4).
(2) Each of BB&T Financial, BB&T-VA and Commerce will be a party to the
reorganization within the meaning of Section 368(b).
(3) No gain or loss will be recognized by BB&T-VA upon the transfer of its
assets to Commerce in the Merger. Sections 357(a) and 361(a). No gain or
loss will be recognized to BB&T Financial upon its transfer of the stock
of Commerce to BB&T Financial-Va following the Merger. Section 361(a).
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 7
(4) No gain or loss will be recognized by Commerce upon the receipt of the
assets of BB&T-VA in the Merger. No gain or loss will be recognized to
BB&T Financial-Va upon the receipt of the stock of Commerce from BB&T
Financial following the Merger. Section 1032(a).
(5) No gain or loss will be recognized by BB&T Financial upon the receipt of
Commerce Common Stock in the Merger. Section 354(a)(1).
(6) The basis of the assets of BB&T-VA in the hands of Commerce will be the
same as the basis of such assets in the hands of BB&T-VA immediately prior
to the Merger. Section 362(b).
(7) The holding period of the assets of BB&T-VA in the hands of Commerce will
include the period during which such assets were held by BB&T-VA
immediately prior to the Merger. Section 1223(2).
(8) No gain or loss will be recognized by the shareholders of Commerce upon
receipt of BB&T Financial Common Stock (including any fractional share
interests to which they may be entitled) in exchange for their holdings
of Commerce Common Stock. Section 354(a)(1).
(9) The basis of the BB&T Financial Common Stock to be received by the
shareholders of Commerce (and any fractional share interests to which they
may be entitled) will be the same as the basis in the Commerce Common
Stock surrendered in the exchange. Section 358(a)(1).
(10) The holding period of the BB&T Financial Common Stock received by the
shareholders of Commerce (and any fractional share interests to which
they may be entitled) will include the holding period of Commerce Common
Stock prior to the exchange, provided that Commerce Common Stock is held
as a capital asset in the hands of the shareholders of Commerce on the
date of the exchange. Section 1223(1).
(11) The tax attributes enumerated in Section 381(c), including any earnings
and profits or a deficit of earnings and profits, will be taken into
account by Commerce following the Merger.
<PAGE>
[LETTERHEAD OF PEAT MARWICK APPEARS HERE]
Board of Directors
August 29, 1994
Page 8
(12) The payment of cash in lieu of fractional share interests of BB&T
Financial Common Stock will be treated as if the fractional shares of BB&T
Financial Common Stock were distributed as part of the exchange to
Commerce shareholders and then redeemed by BB&T Financial. The cash
payments will be treated as having been received as distributions in full
payment for the stock redeemed as provided in Section 302(a) of the Code.
Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev. Proc. 77-41, 1977-2 C.B. 574.
VIRGINIA INCOME TAX CONSEQUENCES
- --------------------------------
It is our opinion that the State of Virginia will, for Virginia income tax
purposes, treat the Merger in an identical manner as it is treated by the
Internal Revenue Service for federal income tax purposes. Virginia Code Sec.
58.1-402 and 58.1-301.
THE NOTE CONVERSION AND THE OPTION CONVERSION
- ---------------------------------------------
Nothing in the foregoing opinion is to be construed either explicitly or
implicitly as opining on the federal or Virginia income tax consequences of
either the Note Conversion or the Option Conversion.
Sincerely,
KPMG Peat Marwick LLP
Sheldon M. Fox, Partner
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
BB&T Financial Corporation
We consent to the use of our report dated January 19, 1994, except as to note 2
which is as of June 30, 1994, included in BB&T Financial Corporation's Current
Report on Form 8-K dated August 31, 1994, which restates portions of the
Company's Annual Report on Form 10-K for the year ended December 31, 1993 to
give effect to the acquisition of L.S.B. Bancshares, Inc. ("L.S.B.") in 1994
which has been accounted for under the pooling-of-interests method, incorporated
by reference in the Form S-4 Registration Statement and to the reference to our
firm under the heading "Experts" in the related Proxy Statement/Prospectus.
We also consent to the use of our report dated January 19, 1994 included in BB&T
Financial Corporation's Annual Report on Form 10-K for the year ended December
31, 1993, incorporated by reference in the Form S-4 Registration Statement. Such
financial statements were restated subsequent to the Company's Annual Report on
Form 10-K in the Company's Current Report on Form 8-K dated August 31, 1994 to
give effect to the LSB acquisition occurring in 1994 and accounted for under the
pooling-of-interests method.
KPMG Peat Marwick LLP
Raleigh, North Carolina
August 30, 1994
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK APPEARS HERE]
Exhibit 23.2
TAX ADVISORS' CONSENT
Board of Directors
Commerce Bank
Board of Directors
BB&T Financial Corporation
We consent to the inclusion of our tax opinion dated August 19, 1994, regarding
the federal and Virginia income tax consequences of the Merger, in Exhibit No.
8.1 of the Form S-4 Registration Statement to be filed with the Securities and
Exchange Commission, and the references to our firm under the headings
"SUMMARY - Certain Federal Income Tax Consequences", "THE ACQUISITION - Certain
Federal Income Tax Consequences of the Acquisition" and "Opinions" in the
Prospectus/Proxy Statement.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Raleigh, North Carolina
August 30, 1994
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption of "Experts" in the
Registration Statement (Form S-4) and related Prospectus of BB&T Financial
Corporation for the registration of 4,517,862 shares of its common stock and to
the incorporation by reference therein of our report dated January 21, 1994,
with respect to the 1993 financial statements and schedule of Commerce Bank
included in its Annual Report (Form F-2) for the year ended December 31, 1993,
filed with the Securities and Exchange Commission as Exhibit 99.4 to this
Registration Statement.
/s/ Ernest & Young LLP
Richmond, Virginia
August 26,1994
<PAGE>
Exhibit 23.4
Consent of Independent Accountants
----------------------------------
We consent to the incorporation by reference in the registration statement of
BB&T Financial Corporation on Form S-4 of our report dated January 15, 1993 on
our audits of the financial statements of Commerce Bank as of December 31, 1992
and 1991 and for each of the three years in the period ended December 31, 1992,
which report is incorporated by reference in the Commerce Bank Form F-2 Annual
Report for the year ended December 31, 1993, which Form F-2 is incorporated by
reference in this Form S-4. We also consent to the reference to our firm under
the caption "Experts."
Norfolk, Virginia /s/ COOPERS & LYBRAND L.L.P.
August 30, 1994
<PAGE>
Exhibit 23.6
CONSENT OF FINANCIAL ADVISOR TO COMMERCE BANK
As financial advisor to Commerce Bank, we hereby consent to the
incorporation in this registration statement of our Fairness Opinion and to all
references to our Firm included in this registration statement.
ALEX. BROWN & SONS INCORPORATED
Baltimore, Maryland By: /s/ Donald W. Delson
----------------------------
Donald W. Delson
Managing Director
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report included herein and incorporated
herein by reference, and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus.
/s/ DONALD G. JONES AND COMPANY, P.A.
-----------------------------------------
DONALD G. JONES AND COMPANY, P.A.
Columbia, South Carolina
August 30, 1994
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Joseph B. Alala, Jr.
------------------------
Joseph B. Alala, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or
officer of BB&T Financial Corporation, a corporation organized under the laws of
the State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Harring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all
documents required to be filed with respect thereto, relating to the
registration of shares of the Company's common stock under the Securities Act of
1993 in connection with the Company's acquisition of Commerce Bank, granting
unto said attorneys and each of them, full power and authority to do and to
perform each and every act and thing requisite and necessary to be done in
order to effectuate the same as fully to all intents and purposes as he himself
might or could do if personally present, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, may lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ John A. Allison IV
---------------------------
John A. Allison IV
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ W. Watson Barnes
------------------------
W. Watson Barnes
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Paul B. Barringer
------------------------
Paul B. Barringer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Robert L. Brady
------------------------
Robert L. Brady
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Raymond S. Caughman
------------------------
Raymond S. Caughman
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ W. G. Clark III
------------------------
W. G. Clark III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Jesse W. Corbett, Jr.
-------------------------
Jesse W. Corbett, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ W. R. Cuthbertson, Jr.
--------------------------
W. R. Cuthbertson, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Fred H. Deaton, Jr.
------------------------
Fred H. Deaton, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Albert J. Dooley, Sr.
------------------------
Albert J. Dooley, Sr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Joe L. Dudley, Sr.
------------------------
Joe L. Dudley, Sr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Tom A. Efird
------------------------
Tom A. Efird
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ O. W. Fenn, Jr.
------------------------
O. W. Fenn, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ James E. Heins
------------------------
James E. Heins
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Raymond A. Jones, Jr.
------------------------
Raymond A. Jones, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Kelly S. King
------------------------
Kelly S. King
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ J. Ernest Lathem
------------------------
J. Ernest Lathem
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ James H. Maynard
------------------------
James H. Maynard
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ A. Winniett Peters
------------------------
A. Winniett Peters
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Richard L. Player, Jr.
------------------------
Richard L. Player, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Scott E. Reed
------------------------
Scott E. Reed
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Larry J. Waggoner
------------------------
Larry J. Waggoner
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ Henry G. Williamson, Jr.
------------------------
Henry G. Williamson, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that the undersigned director and/or officer
of BB&T Financial Corporation, a corporation organized under the laws of the
State of North Carolina ("Company"), hereby constitutes and appoints John A.
Allison IV, Scott Reed and Jerone Herring and each of them (with full power of
each of them to act alone), his true and lawful attorney-in-fact and agent for
him and on his behalf and in his name, place and stead, in any and all
capacities, including on behalf of the Company, to sign, execute and file with
the Securities and Exchange Commission (or any other governmental or regulatory
authority) a Registration Statement on Form S-4 or such other appropriate form
(as any of such attorneys may determine) and all amendments (including
post-effective amendments) thereto, with all exhibits and any and all documents
required to be filed with respect thereto, relating to the registration of
shares of the Company's common stock under the Securities Act of 1933 in
connection with the Company's acquisition of Commerce Bank, granting unto said
attorneys and each of them, full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in order to
effectuate the same as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director and/or officer has hereunto
set his hand as of the date specified.
Dated: August 23, 1994
/s/ William B. Young
------------------------
William B. Young
<PAGE>
Exhibit 99.2
COMMERCE BANK
This Proxy is Solicited on Behalf of The Board of Directors
The undersigned hereby appoints [to be provided], or any of them, the
attorney or attorneys and proxy or proxies of the undersigned, with full power
of substitution, to attend the Special Meeting of Shareholders of Commerce
Bank, Virginia Beach, Virginia ("Commerce") to be held [date], at [time], at
[address], and at any adjournment thereof, and to vote all shares of stock of
Commerce that the undersigned shall be entitled to vote at such meeting. Said
proxies are instructed to vote on the matter set forth in the proxy statement
as specified below.
1. To approve an Agreement and Plan of Reorganization, dated as of June 24,
1994 and amended as of August 25, 1994, and a related Plan of Merger,
dated as of June 24, 1994, providing for the merger of Branch Banking and
Trust Company of Virginia, a to be formed Virginia chartered bank and
wholly-owned subsidiary of BB&T Financial Corporation ("BB&T Financial"),
with and into Commerce and, in connection therewith, the conversion of
each outstanding share of common stock of Commerce into the right to
receive 1.305 shares of common stock of BB&T Financial as described in
the Proxy Statement/Prospectus of Commerce and BB&T Financial, dated
[date].
FOR [_] AGAINST [_] ABSTAIN [_]
(has same effect as Against)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
THIS PROXY WHEN PROPERLY SIGNED AND DATED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL
NUMBER 1 AS SPECIFIED ABOVE.
Dated: ______________, 1994
_________________________________
_________________________________
Please sign exactly as name
appears on stock certificate.
When signing as attorney,
executor, administrator, trustee
or guarantor, please give full
title. If more than one trustee,
all should sign. This proxy may
be revoked any time prior to its
exercise.
<PAGE>
EXHIBIT 99.4
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20219
FORM F-2 ANNUAL REPORT
UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1993
COMMERCE BANK
A VIRGINIA CORPORATION
TIN 54-1027360 FDIC CERTIFICATE NO. 512927
5101 Cleveland Street
Virginia Beach, Virginia 23462
(804) 456-1005
Securities registered under section 12 (b) of the Act: None
Securities registered under section 12 (g) of the Act:
Common Stock (Par Value 2.50)
Indicate by check mark if disclosure of delinquent filers pursuant to item 10 is
not contained herein, and will not be contained, to the best of bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amendment of this Form F-2. [ ]
Indicate by check mark whether the bank (1) has filed all reports required to be
filed by section 13 of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the bank has required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1994: $68,816,773.50 based upon a $25.50
closing price as reported by the National Association of Securities Dealers
Automated Quotation National Market System.
Indicate the number of shares outstanding of each of the registrants' classes of
common stock as of February 28, 1994: Common Stock, ($2.50 Par Value)
2,698,697 shares outstanding
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended December
31, 1993 are incorporated by reference into Parts II and III.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on May 12, 1994 are incorporated by reference into Parts I, II and III.
------------
1
<PAGE>
TABLE OF CONTENTS
ITEM PAGE NUMBER
---- -----------
PART I
1 Business 3
2 Properties 10
3 Legal Proceedings 10
4 Security Ownership of Certain 10
Beneficial Owners and Management
PART II
5 Market for Bank's Common Stock 10
and Related Security Holder Matters
6 Selected Financial Data 11
7 Management's Discussion and Analysis 11
of Financial Condition and Results
of Operations
8 Financial Statements and 11
Supplementary Data
PART III
9 Directors and Principal Officers 11
of the Bank
10 Management Compensation and Transactions 11
11 Exhibits, Financial Statements, 11
Schedules and Reports on Form F-3
2
<PAGE>
Item 1. Business
--------
General
- -------
Commerce Bank ("Commerce") is a commercial bank chartered in 1978 under the
laws of the Commonwealth of Virginia and headquartered in Virginia Beach,
Virginia. It provides a broad range of financial services through twenty-one
banking offices serving the cities of Virginia Beach, Portsmouth, Norfolk,
Chesapeake, Suffolk, Hampton, Newport News and Grafton, Virginia. At December
31, 1993, Commerce had total assets of $689.6 million, total loans of $378.3
million, total deposits of $634.1 million and total shareholders' equity of
$43.6 million. As of that date, based on total assets and deposits, Commerce
was the largest independent bank headquartered in the Hampton Roads area.
Commerce differentiates the delivery of its products and services by
tailoring its efforts to each of the markets it serves. To effect this
strategy, Commerce maintains a regional "Banking Group" for each of the six
geographically distinct communities within the Hampton Roads area. The regional
Banking Groups allow Commerce to identify more effectively customer needs and to
respond to those needs with local decision-making authority. This corporate
structure is designed so that the senior management of Commerce is intimately
involved in the decisions made at the branch level, thereby increasing
responsiveness and furthering judgments based on seasoned experience.
From a customer perspective, each Banking Group is marketed as a separate
bank headquartered in its community. This home town banking image is cultivated
by each Banking Group having its own president and commercial loan officers and
a regional board of directors that is active and visible in its community. It
is the responsibility of each regional board, acting under delegated authority
of the Board of Directors, to direct Commerce's overall development of its
respective region. This operating philosophy emphasizes the making of marketing
and customer decisions at the regional level (within centrally mandated and
monitored control standards) and administrative and operational decisions at the
central bank level. The home town banking image is further enhanced through the
building of upper scale branch offices, with at least one office in each Banking
Group having the appearance of a headquarters office. Commerce believes its
home town banking strategy has particular appeal in its marketplace given the
current customer confusion in the market caused by several thrift failures and
the acquisition of certain larger banking organizations by out-of-market
institutions.
Commerce believes that the regional Banking Group strategy facilitates
customer service by ensuring that senior management is actively involved in each
community and is available on a day-to-day basis to respond to the needs of the
customers in each community. At the branch level, customer service is
encouraged by emphasizing that the primary responsibility of branch employees is
to respond to the deposit product and consumer borrowing needs of the customers,
with inquiries relating to other lending, trust and mortgage banking needs being
directed to the regional Banking Group's main office. This emphasis at the
branch level is underscored by providing branch managers with lending
authorities that do not exceed $25,000 and compensating the branch managers on
the basis of deposit growth from new and existing customers. With the emphasis
on deposit gathering and consumer lending at the branch level, all other loan
generation and development is the responsibility of the regional president and
the regional board of directors. To ensure consistency and appropriate pricing
and credit controls, all deposit pricing is determined by the Chief Financial
Officer of Commerce and a centralized credit function closely monitors the
lending decisions of the six regions. Asset quality controls include requiring
Commerce's centralized credit review and analysis team to analyze all unsecured
credit decisions in excess of $150,000 for a particular banking relationship
prior to funding, to review all loans generated
3
<PAGE>
throughout all regions within 120 days after funding and to review all loans
over $250,000 (and a substantial portion of each Banking Group's smaller loans)
annually.
With the addition of a new management team in 1985, Commerce has made a
significant investment in the development of a strategic franchise in the
Hampton Roads area to position itself for future earnings growth. Asset size
has grown from $66.5 million at December 31, 1985 to $689.6 million at December
31, 1993. During that same period, the number of banking offices has increased
from Commerce's initial four offices in Virginia Beach to twenty-one with the
establishment of regional Banking Groups in Portsmouth, Chesapeake, Norfolk, and
on the Peninsula (serving the cities of Hampton, Newport News and Grafton - York
County) through de novo entry and in Suffolk through a branch acquisition. The
following table sets forth certain deposit information concerning each of the
six Banking Groups.
<TABLE>
<CAPTION>
Deposits
Banking Group - Number of at December 31, 1993
Date Established Offices (In thousands)
---------------- ------- --------------
<S> <C> <C>
Virginia Beach - 1978.. 5 $170,839
Portsmouth - 1985...... 4 187,498
Peninsula - 1986....... 4 94,534
Chesapeake - 1987...... 4 77,774
Norfolk - 1987......... 2 76,234
Suffolk - 1990......... 1 27,262
</TABLE>
Total deposits have increased from $53.9 million at December 31, 1985 to
$634.1 millon at December 31, 1993. Commerce believes that this growth rate is
reflective of the market acceptance of its regional Banking Group strategy due
to the high level of customer service provided.
The development of Commerce's franchise has required significant capital
expenditures for facility development, furniture and fixtures and personnel
expenses. Initially, those expenditures adversely affected Commerce's operating
results, but have positioned Commerce for future earnings as reflected in 1993
operating results. Since 1990, Commerce began to eliminate the excess capacity
in its branch system by acquiring approximately $175.8 million in thrift
deposits through three separate transactions, including two with the RTC.
These thrift deposit assumption transactions have enabled Commerce to
enhance its interest sensitivity position and to improve its net interest margin
through repricing opportunities and replacement of higher priced volatile
funding sources. In addition, these transactions have allowed Commerce to
improve operating efficiencies and enhance its market share. Although Commerce
expects to consider further expansion in the Hampton Roads area, particularly
through deposit assumption transactions involving local institutions,
management's primary focus is on further improving operating efficiencies and
profitability while enhancing market share without commensurate increases in
capital expenditures.
To help finance the expansion of its franchise and to further improve
market identity and penetration through shareholder relationships in its market
area, Commerce prior to 1992 conducted four common stock offerings, through
which it has raised approximately $21.6 million in additional capital. In 1990,
Commerce raised an additional $5 million of Tier 2 risk-based capital through
the sale of
4
<PAGE>
Convertible Notes. The securities sold in those offerings were sold
primarily to existing shareholders and residents of the markets in which Banking
Groups have been established. In May 1992, Commerce issued 625,000 shares of
common stock through an underwritten public offering that resulted in net
proceeds of $9 million.
The Hampton Roads area covers the Norfolk-Virginia Beach-Newport News MSA,
which is the second largest MSA in Virginia, with a population of 1.4 million
based on 1990 census figures. This area, which covers both the north and south
sides of the James River at the mouth of the Chesapeake Bay, contains the two
largest Virginia cities in terms of population, Virginia Beach and Norfolk, with
populations of approximately 393,000 and 261,000, respectively. In addition,
this area contains the cities of Hampton, Newport News, Chesapeake and
Portsmouth, each with populations over 100,000, and the city of Suffolk. The
economy of this area is influenced by major United States military installations
and extensive port activity. Shipbuilding and ship repair, a diversified
industrial base and tourism also contribute significantly to the local economy.
Employees
- ---------
On December 31, 1993, a total of 327 persons were employed by Commerce, of
whom 54 were part-time. Commerce considers relations with its employees to be
good.
Competition
- -----------
In its market area, Commerce is subject to intense competition from a
number of local, regional and super-regional banking organizations, along with
other financial institutions and companies that offer financial services, such
as savings and loan associations, credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance companies,
mortgage companies and other financial service enterprises. Competition among
financial institutions is based upon interest rates offered on deposit accounts,
interest rates charged on loans and other credit and service charges, the
quality of services rendered, the convenience of banking facilities and, in the
case of loans to large commercial borrowers, relative lending limits.
Additional competition for depositors' funds comes from issuers and suppliers of
U.S. Government securities, private debt obligations and other investment
alternatives for depositors. Many of Commerce's non-bank competitors are not
subject to the same extensive federal regulations that govern federally insured
banks and state regulations governing state chartered banks. As a result, such
non-bank competitors may have certain advantages over Commerce in providing
certain services. Many of the financial organizations in competition with
Commerce have much greater financial resources than Commerce and are able to
offer similar services at varying costs with greater loan capacities.
More recently, competition has been impacted by the exit or closure of
thrifts in Hampton Roads. Additionally, the banking industry has experienced a
recent phase of consolidation and several of Commerce's competitors have been
acquired by out-of-state banks. Management believes these conditions have
provided opportunities to Commerce based on its positioning in the market.
Additionally, Commerce seeks to provide personalized services through
management's knowledge and awareness of its market area, customers and
borrowers. Management believes this knowledge and awareness provides a
competitive advantage in serving the retail depositors and the small and mid-
sized commercial businesses that comprise Commerce's customer base.
5
<PAGE>
General
- -------
Supervision and Regulations
- ---------------------------
Commerce is extensively regulated under both federal and state law. The
following is a brief summary of certain statutes, rules and regulations
affecting Commerce. This summary is qualified in its entirety by reference to
the particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to Commerce's business. Supervision, regulation and examination of
banks by the bank regulatory agencies are intended primarily for the protection
of depositors rather than shareholders.
Commerce is organized as a Virginia-chartered banking corporation and is
regulated and supervised by the Bureau of Financial Institutions of the SCC. In
addition, Commerce is regulated and supervised by the FDIC, which serves as its
primary federal regulator. Accordingly, the SCC and the FDIC conduct regular
examinations of Commerce, reviewing the adequacy of the loan loss reserves,
quality of the loans and investments, propriety of management practices,
compliance with laws and regulations and other aspects of Commerce's operations.
In addition to these regular examinations, Commerce must furnish to the FDIC
quarterly reports containing detailed financial statements and schedules.
Federal and Virginia banking laws and regulations govern all areas of the
operations of Commerce, including reserves, loans, mortgages, capital, issuance
of securities, payment of dividends and establishment of branches. Federal and
state bank regulatory agencies also have the general authority to limit the
dividends paid by insured banks and bank holding companies if such payment may
be deemed to constitute an unsafe and unsound practice. As its primary federal
regulator, the FDIC has authority to impose penalties, initiate civil and
administrative actions and take other steps intended to prevent Commerce from
engaging in unsafe or unsound practices. In this regard, the FDIC has adopted
capital adequacy requirements applicable to FDIC-insured nonmember state banks,
such as Commerce.
Under the provisions of federal law, federally insured banks are subject,
with certain exceptions, to certain restrictions on extensions of credit to
their parent holding companies or other affiliates, on investments in the stock
or other securities of affiliates, and on the taking of such stock or securities
as collateral from any borrower. In addition, such banks are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit or the providing of any property or service.
Banks are also subject to the provisions of the Community Reinvestment Act
of 1977, which require the appropriate federal bank regulatory agency, in
connection with its regular examination of a bank, to assess the bank's record
in meeting the credit needs of the community serviced by the bank, including
low- and moderate-income neighborhoods. The regulatory agency's assessment of
the bank's record is made available to the public. Further, such assessment is
required of any bank which has applied to, among other things, establish a new
branch office that will accept deposits, relocate an existing office or merge or
consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. Commerce received a satisfactory
rating at its last examination during 1993.
In 1986, the Virginia Banking Act was amended to remove the geographic
restrictions governing the establishment of branch banking offices. Subject to
the approval of the appropriate bank regulatory authorities, Commerce may now
establish a branch office anywhere in Virginia. Virginia permits regional
reciprocal acquisitions of in-state banks and bank holding companies which have
been in existence for at least two years by bank holding companies which
generally hold 80% of their deposits
6
<PAGE>
in a region consisting of Alabama, Arkansas, Florida, Georgia, Kentucky,
Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia, West Virginia and the District of Columbia. The interstate acquirer
must maintain its principal place of business (measured in terms of deposits) in
one such state which accords reciprocal acquisition privileges to Virginia
banks. Virginia also permits the establishment by out-of-state bank holding
companies and general business corporations (wherever located) of a single-
office bank whose operations are limited to the credit card business, so long as
that office provides employment for 40 people in Virginia and is operated in a
manner not likely to attract customers from other in-state banks.
Capital Adequacy
- ----------------
Commerce is required to comply with the capital adequacy standards set by
the FDIC. Currently, there are two basic measures of capital adequacy: (i) a
risk-based measure and (ii) a Tier 1 leverage measure. All applicable capital
standards must be satisfied for an institution to be considered in compliance.
They are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies, to account
for off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance
sheet items.
The minimum standard for the ratio of capital to risk-weighted assets
(including certain off-balance sheet obligations, such as standby letters of
credit) is 8%. At least half of that capital must consist of common equity,
retained earnings and noncumulative perpetual preferred stock, less goodwill and
other intangibles ("Tier 1 risk-based capital"). The remainder ("Tier 2 risk-
based capital") may consist of a limited amount of other preferred stock,
mandatory convertible securities, subordinated debt and a limited amount of loan
loss reserves. The sum of Tier 1 risk-based capital and Tier 2 risk-based
capital is "Total risk-based capital." At December 31, 1993, Commerce had no
preferred stock outstanding but did have outstanding Convertible Notes in the
principal amount of $5 million, which qualify as Tier 2 risk-based capital.
At December 31, 1993, Commerce had fully phased-in Tier 1 and Total risk-
based capital ratios of 9.74% and 12.14%, respectively.
The FDIC also has adopted regulations which supplement the risk-based
guidelines to include a minimum leverage ratio of 3% Tier 1 capital to total
assets less goodwill (the "Leverage ratio"). The FDIC emphasized that the 3%
Leverage ratio constitutes a minimum requirement for well-run banking
organizations having diversified risk, including no undue interest rate
exposure, excellent asset quality, high liquidity, good earnings and a composite
regulatory rating of 1 under the regulatory rating system for banks. Banking
organizations experiencing or anticipating significant growth, as well as those
organizations which do not satisfy the criteria described above, will be
required to maintain a minimum Leverage ratio ranging generally from 4% to 5%.
At December 31, 1993, Commerce had a Leverage ratio of 6.49%.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to the banking industry beyond current levels. However,
Commerce is unable to predict whether or when higher capital requirements would
be imposed.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order,
7
<PAGE>
and must submit a capital plan within 60 days to the FDIC. If the Leverage ratio
falls to 2% or less, the bank may be deemed to be operating in an unsafe or
unsound condition, allowing the FDIC to take various enforcement actions,
including possible termination of insurance or placing the institution into
receivership.
Recent Legislative Developments
- -------------------------------
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA provides
increased funding for the Bank Insurance Fund ("BIF") and provides for expanded
regulation of depository institutions and their affiliates, including bank
holding companies.
The BIF funding and reserve restoration provisions could result in
significant increases in the assessment rate on deposits of BIF institutions.
Under current law, as amended by FDICIA, the insurance assessment paid by BIF-
insured institutions shall be as specified in a schedule required to be issued
by the FDIC that would specify, at semiannual intervals, target reserve ratios
designed to increase the reserve ratio to 1.25% of estimated insured deposits
(or such higher ratio as the FDIC may determine in accordance with statute) in
15 years. Beginning with the first semiannual period of calendar year 1993 and
for each subsequent semiannual period, banks will pay semiannual assessments
under a transitional risk-based assessment system which became effective on
November 2, 1992. Under this system, banks will pay a semiannual assessment at a
rate based upon the assessment risk classification assigned to the bank by the
FDIC. In determining the assessment risk classification, the FDIC will assign
each bank to one of three capital groups and to one of three supervisory
subgroups. Depending upon the assessment risk classification assigned to a
bank, the semiannual assessments to be paid by banks assigned to the highest
capital group and highest supervisory subgroups range from .23% to .31% for
banks assigned to the lowest capital group and lowest supervisory subgroup.
Banks will be notified of their assessment risk classification by the first day
of the month preceding each semiannual period. The Bank is classified in the
highest capital and supervisory group, resulting in the lowest available deposit
insurance premium (.23% annually).
FDICIA further provides authority for special assessments against insured
deposits and for the development of a general risk-based deposit insurance
assessment system under which the premium levels of BIF institutions will vary
in relation to their perceived risk profiles.
FDICIA also provides the federal banking agencies with broad power to take
corrective action to resolve problems of insured depository institutions. The
extent of these powers depends upon whether the institutions in question are
"well capitalized," "adequately capitalized," undercapitalized," "significantly
undercapitalized," or "critically undercapitalized."
The Federal Reserve has issued a rule which sets the capital level for each
of the five capital categories established in FDICIA. Under the rule, a bank is
deemed to be "well capitalized" if the bank has a total risk-based capital ratio
of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or greater, has a
leverage capital ratio of 5% or greater, and is not subject to any order or
final capital directive by the Federal Reserve to meet and maintain a specific
capital level for any capital measure. A bank is deemed "adequately
capitalized" if the bank has a total risk-based capital ratio of 8% or greater,
a Tier 1 risk-based capital ratio of 4% or greater and a leverage capital ratio
of 4% or greater (or 3% or greater for the most highly rated banks), and does
not meet the definition of a "well capitalized" bank. A bank that has total
risk-based capital, Tier 1 risk-based capital and leverage capital
8
<PAGE>
that is less than 8%, 4% and 4%, respectively, is deemed "undercapitalized."
Under the regulation, "significantly undercapitalized" banks are those with
total risk-based capital, Tier 1 risk-based capital and leverage capital that is
less than 5%, 3% and 3%, respectively. Finally, "critically undercapitalized"
banks are defined as those banks which have a ratio of tangible equity to total
assets that is equal to or less than 2%. A depository institution may be deemed
to be in a capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
Under these guidelines, Commerce met all of the requirements for and was
classified as a well-capitalized institution.
FDICIA generally prohibits an insured depository institution from making a
capital distribution (including a dividend) or paying any management fees to any
person having control of the institution if, after making the payment, the
institution would be undercapitalized. Institutions that are classified
"undercapitalized" are subject to the following mandatory supervisory actions:
increased monitoring by the institution's federal regulator; a requirement to
submit a capital restoration plan; a restriction on growth of the institution's
total assets; and a limitation on the institution's ability to make any
acquisition, open any new branch offices or engage in any new line of business
without approval of the institution's federal regulator. Institutions that are
classified "significantly undercapitalized" are subject to mandatory supervisory
actions applicable to "undercapitalized" institutions and are required to
restrict the payment of bonuses and raises to senior executive officers of the
institution. With certain exceptions, "critically undercapitalized"
institutions are required to be placed in conservatorship or receivership within
90 days.
FDICIA also provides that the federal regulators may have discretion to
take certain actions with respect to any institution that is undercapitalized to
resolve the problems of the institution. These discretionary supervisory
actions include: placing limits on asset growth and restrictions on activities;
requiring the institution to issue additional capital stock (which may include
voting stock) or be acquired; placing restrictions on transactions with
affiliates; restricting the interest rates the institutions may pay on deposits;
ordering a new election for the institution's board of directors; requiring that
certain senior executive officers or directors be dismissed; prohibiting the
payment of principal or interest on subordinate debt; prohibiting the holding
company form making capital distributions without prior regulatory approval; and
requiring the holding company to divest the institution or any other affiliate.
FDICIA also amended current law to permit only a "well-capitalized" depository
institution to accept brokered deposits without prior regulatory approval.
FDICIA contains a number of consumer banking provisions and requires annual
examination of all insured institutions by the appropriate federal banking
agency with some exceptions for small, well-capitalized institutions and state-
chartered institutions examined by state regulators. The federal banking
agencies are required to set compensation standards for insured depository
institutions that would prohibit excessive compensation, fees or benefits to
officers, directors, employees and principal shareholders; FDICIA also expands
the range of merger, purchase and assumption, and deposit transfer transactions
involving banks and savings associations that are exempt from payment of exit
and entry fees for transfers of deposits between the BIF and the Savings
Association Insurance Fund.
The foregoing is a summary and general description of certain provisions of
FDICIA and does not purport to be complete. Many of the provisions of the
FDICIA will be implemented through the adoption of regulators by the various
federal banking agencies. Moreover, many of the significant provisions of the
legislation have not yet become effective. As of the date hereof, Commerce is
continuing to study the legislation but cannot yet assess its impact on
Commerce.
9
<PAGE>
Monetary Policy and Economic Controls
- -------------------------------------
The banking business is affected not only by general economic conditions,
but also by the monetary policies of the Federal Reserve Board. Changes in the
discount rate on member bank borrowing, availability of borrowing at the
"discount window," open market operations, the imposition of changes in reserve
requirements against bank deposits and the imposition of and changes in reserve
requirements against certain borrowings by banks and their affiliates are some
of the instruments of monetary policy available to the Federal Reserve Board.
The monetary policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
monetary policies of the Federal Reserve Board are influenced by various
factors, including inflation, unemployment and short- and long-term changes in
the international trade balance and in the fiscal policies of the United States
Government. Future monetary policies and the effect of such policies on the
future business and earnings of Commerce cannot be predicted.
Item 2. Properties
----------
Commerce's Main Office, a Virginia Beach and a Portsmouth banking office,
and three Chesapeake banking offices are held in fee and are unencumbered. The
remaining offices are leased under agreements expiring at various dates over the
next ten years, with year-to-year renewals thereafter. In addition to its
twenty-one banking offices, Commerce maintains an operations center in
Chesapeake in order to centralize data processing and other administrative
functions. See Note 8 to the audited Financial Statements included in the 1993
Annual Report to Shareholders for additional information concerning Commerce's
commitments and expense under its lease agreements.
Item 3. Legal Proceedings
-----------------
Commerce is a party to various legal proceedings in the ordinary course of
its business. Based on information presently available, and after consultation
with legal counsel, management believes that the ultimate outcome in such
proceedings, in the aggregate, will not have any material adverse effect on the
financial condition of Commerce.
Item 4. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Security Ownership of Certain Beneficial Owners and Management is
incorporated by reference to the bank's 1994 Proxy Statement and Notice of
Annual Meeting of Shareholders.
Item 5. Market for the Bank's Common Stock and Related Security Holder Matters
----------------------------------------------------------------------
Market for the bank's common stock and related security holder matters is
incorporated by reference to the bank's 1993 Annual Report to Shareholders.
Item 6. Selected Financial Data
-----------------------
10
<PAGE>
Selected financial data is incorporated by reference from the Bank's 1993
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Management's discussion and analysis of financial condition and results of
operations is incorporated by reference from the bank's 1993 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Financial statements and supplementary data is incorporated by reference
from the Bank's 1993 Annual Report to Shareholders.
Item 9. Directors and Principal Officers of the Bank
--------------------------------------------
Information on the directors and principal officers of the Bank is
incorporated by reference from the bank's 1994 Proxy Statement and Notice of
Annual Shareholders Meeting.
Item 10. Management Compensation and Transactions
----------------------------------------
Information on management compensation and transactions is incorporated by
reference to the bank's 1994 Proxy Statement and Notice of Annual Shareholders
Meeting.
Item 11. Exhibits, Financial Statements, Schedules and Reports on Form F-3
-----------------------------------------------------------------
(a) 1. Financial Statement
The following financial statements are incorporated by reference to
Commerce Bank's 1993 Annual Report to Shareholders:
. Balance Sheet at December 31, 1993 and 1992
. Income Statement for the three years ended December 31, 1993
. Statement of Cashflows for the three years ended December 31, 1993
. Statement of Changes in Shareholders' equity for the three years ended
December 31, 1993
. Notes to Financial Statements
. Report of Independent Public Auditors
2. Financial Statement Schedules
. Schedule II - Loans to Officers, Directors, Principal Security
Holders, and any associates of the Foregoing Persons
Schedules other than these listed above have been omitted since they are
either not required or not applicable, or the information called for is
shown in the financial statements or notes thereto.
11
<PAGE>
(b) Reports on Form F-3: there were no reports required to be filed during the
fourth quarter of 1993.
(c) Exhibits - There were no exhibits required to be filed during 1993.
(d) Statement regarding computation of per share earnings is incorporated by
reference from the 1993 Annual Report to Shareholders.
(e) Statements regarding computation of ratios are incorporated by reference
from the 1993 Annual Report to Shareholders.
(f) 1993 Annual Report to Shareholders
(g) Change in accounting principles - there were no changes in accounting
principles other than accounting for income taxes as required by the
Financial Accounting Standards Board.
(h) Previously unfiled documents - none.
(i) Subsidiaries of the Bank: Commerce Financial Services, Inc.
12
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
bank has duly caused this registration statement to be signed on its behalf by
the undersigned thereunto duly authorized.
COMMERCE BANK
By: /s/ Gerald T. McDonald
-----------------------------
Gerald T. McDonald
Executive Vice President and
Chief Financial Officer
/s/ Clyde E. McFarland, Jr.
-----------------------------
Clyde E. McFarland, Jr.
Vice President and Controller
13
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
bank has duly caused this registration to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ THOMAS C. BROYLES /s/ G. ROBERT ASTON, JR.
- ------------------------------ ------------------------------
THOMAS C. BROYLES G. ROBERT ASTON, JR.
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
/s/ SALLY J. ANDREWS /s/ WILLIAM J. JONES
- ------------------------------ ------------------------------
SALLY J. ANDREWS WILLIAM J. JONES
/s/ RAMON W. BREEDEN, JR. /s/ ARTHUR J. LANCASTER
- ------------------------------ ------------------------------
RAMON W. BREEDEN, JR. ARTHUR J. LANCASTER
/s/ JOHN W. BROWN OUT-OF-TOWN
- ------------------------------ ------------------------------
JOHN W. BROWN W. ASHTON LEWIS
/s/ BRADFORD L. CHERRY /s/ J. ALAN LINDAUER, C.M.C.
- ------------------------------ ------------------------------
BRADFORD L. CHERRY J. ALAN LINDAUER, C.M.C.
/s/ J. W. WHITING CHISMAN, JR. /s/ R. SCOTT MORGAN
- ------------------------------ ------------------------------
J. W. WHITING CHISMAN, JR. R. SCOTT MORGAN
/s/ ELWOOD L. EDWARDS OUT-OF-TOWN
- ------------------------------ ------------------------------
ELWOOD L. EDWARDS DONALD N. PATTEN
/s/ ANDREW S. FINE /s/ EDWARD B. SNYDER
- ------------------------------ ------------------------------
ANDREW S. FINE EDWARD B. SNYDER
/s/ ERNEST F. HARDEE /s/ JUDGE GEORGE W. VAKOS
- ------------------------------ ------------------------------
ERNEST F. HARDEE JUDGE GEORGE W. VAKOS
/s/ JOHN C. HARRY, III /s/ F. LEWIS WOOD
- ------------------------------ ------------------------------
JOHN C. HARRY, III F. LEWIS WOOD
/s/ ERNEST L. HUDSON
- ------------------------------
ERNEST L. HUDSON
14
<PAGE>
EXHIBIT 99.5
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D. C. 20429
FORM F-4
QUARTERLY REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1994
COMMERCE BANK
-------------
(Exact name of bank as specified in charter)
54-1027360 22584
-------------------------------------------------------
(I.R.S. Identification No.) (FDIC Insurance Cert. No.)
-------------------------------------------------------
VIRGINIA
--------
(State of Incorporation)
3450 Pacific Avenue
Virginia Beach, Virginia 23451
(804) 456-1093
---------------
(Address of principal office and telephone number)
Indicate by check mark whether the Bank (1) has filed all reports required
to be filed by section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date.
2,702,538 shares of common stock ($2.50 par value) were outstanding as of
March 31, 1994.
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
COMMERCE BANK
BALANCE SHEET
(Unaudited)
(In thousands, except common stock data)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993 1993
--------- -------- --------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 29,503 $ 23,807 $ 25,800
Temporary investments 22,416 25,988 13,431
Securities:
Held to maturity (Market value March 31: 1994 -
$87,090, 1993 - $248,200, December 31, 1993 -
$251,596) 88,588 240,076 247,175
Available for sale 137,047 - -
--------- -------- --------
Total Securities 225,633 240,078 247,175
Loans:
Commercial 177,888 140,516 165,409
Consumer 104,208 90,370 102,611
Real estate mortgage 91,259 82,926 88,850
Real estate construction & development 12,954 15,477 17,074
Tax-exempt 6,419 6,174 6,477
Less: Unearned income and deferred fees (1,741) (3,646) (2,163)
--------- -------- --------
Loans, net of unearned income and deferred fees 390,987 331,817 378,258
Less: Allowance for loan losses (6,809) (6,211) (6,527)
--------- -------- --------
Loans, net 384,178 325,606 371,731
Bank premises and equipment net 18,892 16,568 18,384
Foreclosed property 2,733 5,035 3,080
Other assets 10,160 11,877 10,029
--------- -------- --------
Total assets $ 693,515 $ 648,959 $ 689,630
- --------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest bearing demand $ 97,089 $ 89,695 $ 103,197
Interest bearing demand 77,843 59,464 72,221
Money market savings 242,129 251,184 227,751
Regular savings 30,238 23,912 28,389
Certificates of deposit less than $100,000 152,706 150,130 164,122
Certificates of deposit greater than $100,000 35,860 24,486 38,461
--------- -------- --------
Total deposits 635,865 598,871 634,141
Short-term borrowings - 175 1,400
Long-term debt 6,809 6,890 6,828
Other liabilities 4,659 4,240 3,672
--------- -------- --------
Total liabilities 647,333 610,176 646,041
--------- -------- --------
Shareholders' Equity
Common stock, $2.50 par: 5,000,000 shares authorized:
2,702,538, 2,522,667 and 2,686,792 issued and outstanding 6,756 6,307 6,717
Capital surplus 29,359 25,556 29,062
Retained earnings 9,155 6,950 7,810
Unrealized loss on marketable equity securities - (30) 0
Net unrealized gains on securities available for sale 912 - -
--------- -------- --------
Total shareholders' equity 46,182 38,783 43,589
--------- -------- --------
Total liabilities and shareholders' equity $ 693,515 $ 648,959 $ 689,630
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
COMMERCE BANK
STATEMENT OF INCOME
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, March 31, December 31,
Three Months Ended, 1994 1993 1993
------------- ------------- --------------
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 8,045 $ 7,376 $ 7,702
Securities held to maturity and
available for sale 3,541 4,002 3,772
Temporary investments 164 160 414
--------- --------- ---------
Total interest income 11,750 11,538 11,888
Interest Expense
Deposits 4,737 5,178 4,992
Short-term borrowings 29 2 10
Long-term debt 165 145 165
--------- --------- ---------
Total interest expense 4,931 5,325 5,167
--------- --------- ---------
Net Interest Income 6,819 6,213 6,721
Provision for loan losses 600 800 600
--------- --------- ---------
Net Interest Income After
Provision For Loan Losses 6,219 5,413 6,121
Noninterest Income
Service charges on deposit accounts 939 770 943
Mortgage brokerage income 590 746 668
Credit card merchant fees 196 168 254
Securities gains 59 86 52
Trust income 170 150 155
Other income 440 253 326
--------- --------- ---------
Total noninterest income 2,394 2,173 2,398
Noninterest Expenses
Salaries and benefits 2,875 2,555 2,793
Occupancy of bank premises 665 583 637
Furniture and equipment 414 424 396
Other expenses 2,010 1,776 2,168
--------- --------- ---------
Total noninterest expenses 5,964 5,338 5,994
--------- --------- ---------
Income Before Income Taxes 2,649 2,248 2,525
Provision for income taxes 888 748 834
--------- --------- ---------
Net Income $ 1,761 $ 1,500 $ 1,691
- -----------------------------------------------------------------------------------------------------
Net Income Per Share
Primary $ 0.63 $ 0.55 $ 0.61
Fully diluted 0.60 0.53 0.58
Weighted Average Shares Outstanding
Primary 2,789 2,719 2,773
Fully diluted 3,054 2,989 3,037
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
COMMERCE BANK
STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31, 1994 1993
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,761 $ 1,500
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 600 800
Depreciation and amortization of premises and equipment 425 381
Net amortization of premiums and accretion of discounts 213 165
Amortization of intangible assets 68 80
Gain on sale of securities available for sale (59) -
Gain on sale of securities held to maturity - (86)
(Increase) decrease in deferred income tax benefits (90) 6
(Decrease) increase in interest receivable 165 (711)
Decrease in interest payable (173) (66)
Increase in other liabilities 1,138 979
Decrease in other assets 73 49
--------- ---------
Net cash provided by operating activities 4,121 3,097
--------- ---------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities, calls and prepayments - 4,859
Proceeds from sales - 5,062
Purchases (9,358) (11,398)
Securities available for sale:
Proceeds from maturities, calls and prepayments 12,603 -
Proceeds from sales 19,045 -
Net increase in temporary investments (8,985) (10,299)
Purchases of premises and equipment (933) (205)
Net sale (repurchase) of loan participations (450) 29
Net (increase) decrease in loans (12,597) 4,018
--------- ---------
Net cash used in investing activities (675) (7,934)
--------- ---------
Cash Flows From Financing Activities:
Net increases in deposit accounts 1,724 887
Proceeds from issuance of common stock 336 125
Net decrease in short-term borrowings (1,400) (388)
Principal payments on capital lease obligations (19) (21)
Cash dividends paid (384) (191)
--------- ---------
Net cash provided by financing activities 257 412
--------- ---------
Net increase in cash and due from banks 3,703 (4,425)
Cash and due from banks at beginning of period 25,800 28,232
--------- ---------
Cash and due from banks at end of period $ 28,767 $ 23,807
- -------------------------------------------------------------------------------------------
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for interest $ 5,104 $ 5,392
Noncash financing and investing activities:
Capital lease obligation - 1,285
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
COMMERCE BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Unrealized
Loss on
Common Stock Marketable
----------------------- Capital Retained Equity
Shares Amount Surplus Earnings Security Total
---------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1993
Balance at January 1, 1993 2,511 $ 6,278 $ 25,460 $ 5,705 $ (30) $ 37,413
Net income - - - 1,500 - 1,500
Issuance of common stock 11 29 96 - - 125
Cash dividends declared - - - (255) - (255)
---------- ------------ ------------ ------------ ------------- ------------
Balance at March 31, 1993 2,522 $ 6,307 $ 25,556 $ 6,950 $ (30) $ 38,783
---------- ------------ ------------ ------------ ------------- ------------
Three months ended March 31, 1994
Balance at January 1, 1994 2,687 $ 6,717 $ 29,062 $ 7,810 $ - $ 43,589
Adjustment to beginning balance
for change in accounting method
for net unrealized gain on
securities available for sale,
net of tax of $1,253,000 - - 2,327 - 2,327
Net income - - - 1,761 - 1,761
Issuance of common stock 16 39 297 - - 336
Change in net unrealized gains on
securities available for sale, net
of tax benefit of $763,000 - - (1,417) - (1,417)
Cash dividends declared - - - (414) - (414)
---------- ------------ ------------ ------------ ------------- ------------
Balance at March 31, 1994 2,703 $ 6,756 $ 29,359 $ 9,155 $ 912 $ 46,182
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Notes to Financial Statements
- -----------------------------
Note 1. General
-------
The financial statements in this report have not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of the
financial position and results of operations for the interim periods have been
made. All such adjustments are of a normal recurring nature. These statements
should be read in conjunction with the 1993 annual report on Form F-2. Results
of operations for the three months ended March 31, 1994 are not necessarily
indicative of the results of operations for the full year or any other interim
periods.
Note 2. Preferred Stock Arrangement with BB&T Financial Corporation
-----------------------------------------------------------
Subsequent to March 31, 1994, Commerce entered into an arrangement with
BB&T Financial Corporation, Wilson, North Carolina under which BB&T has agreed
to purchase up to $12 million of a newly created class of Commerce preferred
stock.
The preferred stock arrangement with BB&T calls for BB&T to purchase
initially 30,000 shares of a new series of Commerce Bank preferred stock for
$3.0 million, with a commitment through December 31, 2000 by BB&T to purchase an
additional 90,000 shares for $9.0 million upon demand by Commerce. The
preferred stock is intended to qualify as Tier 1 capital for bank regulatory
purposes.
The initial annual dividend rate on the preferred stock is 6.75% through
1996. Thereafter, the rate will float to 275 basis points over the interest
rate on the 3-year U.S. Treasury note, subject to a ceiling of 11.0% and a floor
of 5.0%. The preferred stock is nonvoting and will have a liquidation value of
$100 per share.
The preferred stock may be redeemed by Commerce Bank, subject to the
receipt of required bank regulatory approvals. Any redemption is subject to the
payment of the applicable redemption premium, including a special redemption
premium of 10% of the aggregate liquidation value of the outstanding shares of
preferred stock in the case of redemption upon a change in control of Commerce.
If the preferred stock is not first redeemed, it may be converted at the
option of BB&T into Commerce common stock in the limited circumstances where
5
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Commerce's leverage capital ratio falls below a designated minimum level or if a
change in control with respect to Commerce occurs. The conversion price will
equal the closing market price of Commerce common stock on the date of initial
issuance of the preferred stock. Based on Commerce's closing price of $25.00 on
Wednesday, April 20th, each share of preferred stock would be convertible in the
limited circumstances described above into four shares of Commerce common stock,
and the conversion of the initial 30,000 shares of preferred stock would
represent on a pro forma basis 4.2% of Commerce's then outstanding common
shares.
While it is anticipated that the initial sale of $3.0 million of preferred
stock will close by the end of April, there are no definite plans at this time
for sale to BB&T of any of the remaining 90,000 shares of preferred stock
covered by the commitment.
The sale of the Commerce preferred stock to BB&T is subject to receipt of
confirmation from the FDIC that the preferred stock qualifies as Tier 1 capital
and from the Federal Reserve on certain other regulatory matters.
Note 3. Commitments
-----------
At March 31, 1994, the amount of off-balance sheet commitments to extend
credit were $31.4 million and standby letters of credit and financial guarantees
were $5.7 million.
Note 4. Accounting Change
-----------------
Effective January 1, 1994, Commerce adopted Statement of Financial
Accounting Standard No. 115 ("SFAS 115") "Accounting for Certain Investments in
Debt and Equity Securities". In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. SFAS 115 requires that certain securities be classified into one of
three categories: held to maturity, available for sale, or trading based on
management's ability and intent at time of purchase. Securities classified as
held to maturity are carried at their amortized cost; securities classified as
available for sale are carried at their fair values with the amount of
unrealized gains or losses, net of income taxes, reported as a separate
component of shareholders' equity; and securities classified as trading are
carried at their fair value with the unrealized gains or losses
6
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
included in earnings.
As a result of the adoption of SFAS 115, on January 1, 1994, Commerce
classified securities with a fair value of approximately $155 million as
securities available for sale. The opening balance of shareholders equity was
increased by $2.32 million relating to net unrealized gain on securities
available for sale of $3.58 million, less applicable income taxes of $1.25
million. Prior to the adoption of SFAS 115, securities deemed available for
sale were carried at the lower of aggregate amortized cost or market value.
Note 5. Earnings Per Share
------------------
Primary earnings per share are calculated on the basis of the weighted
average number of shares outstanding during the period after giving retroactive
effect to the 5% stock dividends declared in 1993 and 1992. Dilutive stock
options have been converted to common stock equivalents for the calculation of
weighted average shares outstanding based upon the average market price of
Commerce's common stock. Fully diluted earnings per share assumes the
conversion of outstanding convertible subordinated capital notes and elimination
of interest paid thereon, after tax effect, and the exercise of dilutive stock
options, as of the beginning of each period. The dilutive effect of outstanding
options and convertible subordinated debt is computed using the greater of the
closing price or the average market price of Commerce's stock. The computation
of earnings per share is provided on the following page.
7
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Earnings per share were determined as follows:
<TABLE>
<CAPTION>
(In thousands except per share)
Three months ended March 31, 1994 1993
----- -----
<S> <C> <C>
Primary
Average common shares outstanding 2,695 2,645
Dilutive common stock options assumed exercised 94 74
- ------------------------------------------------------------------
Average primary shares outstanding 2,789 2,719
- ------------------------------------------------------------------
Net Income 1,761 1,500
Per Share Amount .63 .55
- ------------------------------------------------------------------
Fully diluted
Average common shares outstanding 2,695 2,645
Dilutive common stock options 96 81
Dilutive convertible subordinated capital
notes assumed converted 263 263
- ------------------------------------------------------------------
Average fully diluted shares outstanding 3,054 2,989
- ------------------------------------------------------------------
Net Income 1,761 1,500
Add interest on convertible subordinated
capital notes, after taxes 81 81
- ------------------------------------------------------------------
Adjusted net income 1,842 1,581
- ------------------------------------------------------------------
Per share amount .60 .53
- ------------------------------------------------------------------
</TABLE>
8
<PAGE>
COMMERCE BANK FINANCIAL HIGHLIGHTS
(Dollars in thousands, except
per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993 Increase
----------- ---------- ------------
<S> <C> <C> <C>
Earnings:
Net interest income $ 6,819 $ 6,213 9.8 %
Net income 1,761 1,500 17.4
- -------------------------------------------------------------------------------
Per Share Data:
Net income :
Primary $ 0.63 $ 0.55 14.5 %
Fully diluted 0.60 0.53 13.2
Book value at period end 17.09 15.37 11.2
Cash dividends 0.15 0.10 50.0
- -------------------------------------------------------------------------------
Selected Financial Ratios:
Return on average assets 1.05 % 0.97 %
Return on average equity 15.25 15.85
Net interest spread 3.83 3.80
Net interest margin 4.38 4.33
Net overhead ratio 2.33 2.27
Average loans / average deposits 61.84 57.10
- -------------------------------------------------------------------------------
Daily Averages:
Assets $ 683,119 $ 629,588 8.5 %
Earning assets 631,930 581,498 8.7
Loans, net of unearned income 384,233 326,879 17.5
Investment securities 234,876 239,994 (2.1)
Deposits 621,360 580,925 7.0
Shareholders' equity 46,828 38,386 22.0
Primary shares outstanding 2,789 2,719 2.6
Fully diluted shares outstanding 3,054 2,989 2.2
- -------------------------------------------------------------------------------
At Period End:
Assets $ 693,515 $ 648,959 6.9 %
Earning assets 639,035 597,883 6.9
Loans, net of unearned income 390,987 331,817 17.8
Investment securities 225,633 240,078 (6.0)
Deposits 635,865 598,871 6.2
Shareholders' equity 46,182 38,783 19.1
Allowance for loan losses 6,809 6,211 9.6
Nonperforming assets 4,227 6,855 (38.3)
- -------------------------------------------------------------------------------
Risk-Based Capital Ratios:
Tier I 10.47 % 9.69 %
Total 12.88 12.27
Tier I leverage 6.63 5.84
Total risk weighted assets $ 432,010 $ 377,791
- -------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
COMMERCE BANK
Selected Quarterly Financial Data
(Dollars in thousands, except
per share data)
<TABLE>
<CAPTION>
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
1994 1993 1993 1993 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Interest income $ 11,750 $ 11,888 $ 11,957 $ 11,864 $ 11,538
Interest expense 4,931 5,167 5,192 5,299 5,325
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,819 6,721 6,765 6,565 6,213
Provision for loan losses 600 600 700 725 800
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 6,219 6,121 6,065 5,840 5,413
Noninterest income 2,335 2,346 2,625 2,190 2,087
Securities gains 59 53 1,268 - 86
Noninterest expense (1) 5,964 5,995 6,831 5,542 5,338
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,649 2,525 3,127 2,488 2,248
Provision for income taxes 888 834 1,415 840 748
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,761 $ 1,691 $ 1,712 $ 1,648 $ 1,500
====================================================================================================================================
Per Share Data:
Net income :
Primary $ 0.63 $ 0.61 $ 0.62 $ 0.60 $ 0.55
Fully diluted 0.60 0.58 0.60 0.57 0.53
Book value at period end 17.09 16.22 16.48 15.91 15.37
Cash dividends 0.15 0.15 0.14 0.12 0.10
Common stock price: (2)
High 27.50 25.50 25.50 24.75 24.50
Low 25.50 23.00 22.75 21.00 19.12
Close 26.50 24.00 23.75 24.25 24.50
====================================================================================================================================
Average Balance Sheet Data
Assets:
Loans, net of unearned income $ 384,233 $ 369,323 $ 354,239 $ 339,361 $ 326,879
Investment securities 234,876 245,039 240,369 246,729 239,994
Temporary Investments 12,821 12,356 20,941 16,409 14,625
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 631,930 626,718 615,549 602,499 581,498
Allowance for loan losses (6,809) (6,844) (6,713) (6,313) (5,885)
Other Assets 57,998 58,637 56,375 55,984 53,975
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 683,119 $ 678,511 $ 665,211 $ 652,170 $ 629,588
====================================================================================================================================
Liabilities and Shareholders'
Equity:
Interest bearing deposits $ 528,279 $ 529,081 $ 516,719 $ 511,875 $ 501,638
Short-term borrowings 3,623 1,337 818 859 429
Long-term borrowings 6,818 6,837 6,856 6,878 6,018
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 538,720 537,255 524,393 519,612 508,085
Non interest bearing liabilities 93,081 98,291 99,022 92,636 83,117
Equity 46,828 42,965 41,796 39,922 38,386
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 683,119 $ 678,511 $ 665,211 $ 652,170 $ 629,588
====================================================================================================================================
Financial Ratios:
Return on average assets 1.05 % 0.99 % 1.02% 1.01% 0.97%
Return on average equity 15.25 15.61 16.25 16.56 15.85
Net interest margin 4.38 4.28 4.36 4.37 4.33
====================================================================================================================================
</TABLE>
(1) The third quarter of 1993 included a non-recurring, noncash adjustment of
$910,000 for the write down of an intangible asset.
(2) As reported by NASDAQ
10
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding and
evaluating the results of operations and financial condition of Commerce Bank
("Commerce"). The following should be read in conjunction with Commerce's 1993
Annual Report on Form F-2.
Performance Summary
- -------------------
Net income for the first quarter of 1994 was $1.8 million and represented a
17.4% increase over first quarter earnings for 1993 of $1.5 million. Fully
diluted earnings per share were $.60 for the first quarter of 1994 compared with
$.53 for the first quarter of 1993.
The return on annualized average assets was 1.05% for the first quarter of
1994 compared with .97% for the same period in 1993. The annualized return of
average equity was 15.25% for the first quarter of 1994 compared with 15.85% for
the same period of 1993. ROA of 1.05% for the first quarter of 1994 was up from
the fourth quarter 1993 ROA of .99% while ROE decreased from 15.61% for the
fourth quarter of 1993 to 15.25% for the first quarter of 1994.
Total assets at March 31, 1994 were $693.5 million while total deposits
were $635.9 million which represented a 6.9% and 6.2% growth rate over the prior
year levels, respectively. Average earning assets increased 8.7% to $631.9
million during the first quarter of 1994 when compared with 1993.
11
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
The following table presents an analysis of Commerce's return on average
assets and equity.
<TABLE>
<CAPTION>
Analysis of Return on Average Assets and Equity
March 31, December 31,
Three Months Ended 1994 1993 1993
-------- -------- ------------
<S> <C> <C> <C>
As a percent of average earning assets:
Net Interest Income 4.38 % 4.33 % 4.25 %
Provision for Loan Losses (0.39) (0.56) (0.38)
Noninterest Income 1.50 1.46 1.49
Noninterest Expenses (3.83) (3.72) (3.79)
Securities Gains 0.04 0.06 0.03
Applicable Income Taxes (0.57) (0.52) (0.53)
-------- ------- ------------
Return on Average Earning Assets 1.13 % 1.05 % 1.07 %
Multiplied by
Average Earning Assets to Average Total Assets 92.51 92.36 92.37
-------- ------- ------------
Return on Average Assets 1.05 % 0.97 % 0.99 %
Multiplied by
Ratio of Average Assets to Average Equity 14.52 16.34 15.77
-------- ------- ------------
Return on Average Total Equity 15.25 % 15.85 % 15.61 %
- ---------------------------------------------------------------------------------
</TABLE>
EARNINGS ANALYSIS
Net Interest Income
- -------------------
Net interest income, the principal source of Commerce's earnings, is the
amount of income generated by interest-earning assets (primarily loans and
investment securities) reduced by the total interest cost of the funds (chiefly
deposits) incurred to carry them.
Net interest income for the first quarter of 1994 was $6.8 million, a 9.8%
increase over comparative 1993. Average earning assets increased $50.4 million,
or 8.7%, rising from $581.5 million for the first quarter of 1993 to $631.9
million in 1994.
12
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Net interest margin was 4.38% for the first quarter of 1994, reflecting a 5
basis point improvement over comparative 1993. Net interest margin for 1994 was
favorably impacted by a 18% increase in average loans which was partially offset
by a 66 basis point decrease in yield. The annualized yield on earning assets
decreased 51 basis points from 8.05% for the first quarter of 1994 to 7.54% for
comparative 1994. The decline was principally due to a lower rate environment.
The annualized cost of interest bearing liabilities decreased 54 basis
points, from 4.25% for the first quarter of 1993 to 3.71% for the first quarter
of 1994. The decrease was due to a lower rate environment as the yield on
interest bearing deposits decreased 55 basis points, from 4.19% for the first
quarter of 1993 to 3.64% for compartive 1994. See "Deposits" for further
information on Commerce's deposit structure and cost rates.
Net interest margin improved 13 basis points when comparing the fourth
quarter of 1993 with the first quarter of 1994. Net interest spread improved 12
basis points reflecting a 10 basis point decrease on the cost of interest
bearing deposits. Net interest income was $6.8 million for the first quarter of
1994, representing a 15% increase.
The tables on the following page present Commerce's average balance sheet,
interest earned or paid and the related yields and rates on major categories for
the first quarter of 1994 and 1993, and the fourth quarter of 1993.
13
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended March 31, 1994 / Three Months Ended March 31, 1993
---------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate Change due to (3)
--------------------- --------------------- --------------- Increase -----------------------
Assets: 1994 1993 1994 1993 1994 1993 (Decrease) Rate Volume
--------- --------- --------- --------- ------- ------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned
income & deferred fees
(1)(2) $ 384,233 $ 326,879 $ 8,045 $ 7,376 8.49 % 9.15 % $ 669 $ (559) $ 1,228
Investment securities(2) 234,876 239,994 3,541 4,002 6.11 6.61 (461) (360) (101)
Temporary investments 12,821 14,625 164 160 5.19 4.44 4 25 (21)
--------- --------- --------- --------- --------- --------- ---------
Total earning assets 631,930 581,498 11,750 11,538 7.54 8.05 212 (894) 1,106
Allowance for loan losses (6,723) (5,885)
Nonearning assets 57,912 53,975
--------- ---------
Total assets $ 683,119 $ 629,588
========= =========
Liabilities &
Shareholders' Equity:
Interest bearing deposits $ 528,279 $ 501,638 $ 4,737 $ 5,179 3.64 % 4.19 % $ (442) $ (706) $ 264
Short-term borrowings 3,623 430 29 2 2.50 1.89 27 2 25
Long-term debt 6,818 6,017 165 144 9.81 9.71 21 1 20
--------- --------- --------- --------- --------- --------- ---------
Total interest bearing
liabilities 538,720 508,085 4,931 5,325 3.71 4.25 (394) (703) 309
Noninterest bearing
liabilities 97,571 83,117
Shareholders' equity 46,828 38,386
--------- ---------
Total liabilities &
equity $ 683,119 $ 629,588
========= ========= --------- --------- --------- --------- ---------
Net interest income $ 6,819 $ 6,213 $ 606 $ (191) $ 797
========= ========= ========= ========= =========
Net interest spread 3.83 % 3.80 %
Net interest margin 4.38 % 4.33 %
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended March 31, 1994 / Three Months Ended December 31, 1993
---------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate Change due to (3)
--------------------- --------------------- --------------- Increase -----------------------
Assets: 1994 1993 1994 1993 1994 1993 (Decrease) Rate Volume
--------- --------- --------- --------- ------- ------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned
income & deferred fees
(1)(2) $ 384,233 $ 369,323 $ 8,045 $ 7,974 8.49 % 8.57 % $ 71 $ (105) $ 176
Investment securities(2) 234,876 245,039 3,541 3,772 6.11 6.11 (231) 0 (231)
Temporary investments 12,821 12,356 164 140 5.19 4.50 24 (36) 60
--------- --------- --------- --------- --------- --------- ---------
Total earning assets 631,930 626,718 11,750 11,886 7.54 7.52 (136) (141) 5
Allowance for loan losses (6,723) (6,527)
Nonearning assets 57,912 58,320
--------- ---------
Total assets $ 683,119 $ 678,511
========= =========
Liabilities &
Shareholders' Equity:
Interest bearing deposits $ 528,279 $ 529,081 $ 4,737 $ 4,992 3.64 % 3.74 % $ (255) $ (242) $ (13)
Short-term borrowings 3,623 1,337 29 10 3.25 2.97 19 1 18
Long-term debt 6,818 6,837 165 166 9.81 9.63 (1) (1) 0
--------- --------- --------- --------- --------- --------- ---------
Total interest bearing
liabilities 538,720 537,255 4,931 5,168 3.71 3.82 (237) (242) 5
Noninterest bearing
liabilities 97,571 98,291
Shareholders' equity 46,828 42,965
--------- ---------
Total liabilities & equity $ 683,119 $ 678,511
========= ========= --------- --------- --------- --------- ---------
Net interest income $ 6,819 $ 6,718 $ 101 $ 101 $ 0
========= ========= ========= ========= =========
Net interest spread 3.83 % 3.71 %
Net interest margin 4.38 % 4.25 %
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans, and income on such loans is recognized on a
cash basis.
(2) Interest and yields are presented on a book basis, as tax-equivalent
adjustments are not significant.
(3) The changes for each category of income and expenses are divided between
the portion of change attributable to the variances in average levels and
yields or rates for that category, with the amount of change that cannot
be separated being allocated to each variance proportionately.
14
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Noninterest Income
- ------------------
Total noninterest income, exclusive of securities gains, was $2.3 million
for the first quarter of 1994, representing a 11.9% increase over the same
period of 1993. Service charges on deposit accounts increased $169,000 or 21.9%
during the first quarter of 1994 when compared with 1993 and were due to the
implementation of various fee charges and account and activity growth. Mortgage
brokerage income decreased $156,000 or 20.9% when comparing the first quarter of
1994 with 1993 reflecting a decrease in refinancing loan origination volume.
Other income increased 73.9% or $187,000 for the first quarter of 1994 over 1993
and was due to a higher volume of fee-based customer services. Commerce
recorded $59,000 in securities gains during the first quarter of 1994 compared
with $86,000 for the same period of 1993.
Noninterest income, exclusive of securities gains, for the first quarter of
1994 decreased $11,000 or .5% when compared with the fourth quarter of 1993.
The following table provides an analysis of noninterest income.
<TABLE>
<CAPTION>
(Dollars in thousands)
Increase(Decrease)
--------------------------------------------------------------------------------------
Three Months Ended March 31, /
------------------------------------------ ----------------------------------------
Three Months Ended March 31, Three Months Ended December 31, /
------------------------------------------ ----------------------------------------
1994 over 1993 1994 over 1993
------------------ ------------------
1994 1993 Amount Percent 1994 1993 Amount Percent
------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $ 939 $ 770 $ 169 21.9 % $ 939 $ 943 $ (4) (0.4)%
Mortgage brokerage income 590 746 (156) (20.9) 590 668 (78) (11.7)
Credit card merchant fees 196 168 28 16.7 196 254 (58) (22.8)
Trust income 170 150 20 13.3 170 155 15 9.7
Other income 440 253 187 73.9 440 326 114 35.0
------ ------ ------ ------ ------ ------
2,335 2,087 248 11.9 2,335 2,346 (11) (.5)
Securities gains 59 86 27 (31.4) 59 52 7 (13.5)
------ ------ ------ ------ ------ ------
Total noninterest income $2,394 $2,173 $ 221 10.2 % $2,394 $2,398 $ (4) (.2)%
====== ====== ====== ====== ====== ======
</TABLE>
n/m -- not meaningful
15
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Noninterest Expense
- -------------------
Total noninterest expense for the first quarter of 1994 was $6.0 million,
representing a 11.7% increase over the comparative period of 1993.
Salaries and benefits expense was $2.9 million for the first quarter of
1994, up 12.5% from comparative 1993. The higher expense reflected an increase
in the number of employees to service growth in the customer base. The number
of full-time-equivalent employees was 340 at March 31, 1994 compared with 294
for March 31, 1993.
Occupancy of bank premises expense increased 14.1% or $82,000, during the
first quarter of 1994 when compared with 1993 due to scheduled rent increases
and increased lease space for branch locations and operations.
FDIC insurance premiums increased 7.7%, or $25,000, during the first
quarter of 1994 when compared with 1993 due to growth in the deposit base.
Other expenses increased 14.4%, or $209,000 for the first quarter of 1994
when compared with 1993. The increase was primarily due to the added expenses
of servicing a larger customer base.
Noninterest expense for the first quarter of 1994 decreased $30,000 or .5%
when compared with the fourth quarter of 1993.
The following table provides an analysis of noninterest expense.
<TABLE>
<CAPTION>
(Dollars in thousands)
Increase(Decrease)
--------------------------------------------------------------------------------------
Three Months Ended March 31,
------------------------------------------ ----------------------------------------
Three Months Ended March 31, Three Months Ended December 31,
------------------------------------------ ----------------------------------------
1994 over 1993 1994 over 1993
------------------ ------------------
1994 1993 Amount Percent 1994 1993 Amount Percent
------ ------ ------ ------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $2,875 $2,555 $ 320 12.5 % $2,875 $2,793 $ 82 2.9 %
Occupancy of bank premises 665 583 82 14.1 665 637 28 4.4
Furniture and equipment 414 424 (10) (2.4) 414 396 18 4.5
FDIC insurance premiums 351 326 25 7.7 351 338 13 3.8
Other expenses 1,659 1,450 209 14.4 1,659 1,830 (171) (9.3)
------ ------ ------ ------ ------ ------
Total noninterest expenses $5,964 $5,338 $ 626 11.7 % $5,964 $5,994 $ (30) (0.5)%
====== ====== ====== ====== ====== ======
</TABLE>
16
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Provision for Income Taxes
- --------------------------
Commerce reported income taxes of $888,000 and $748,000 for the first
quarter of 1994 and 1993, respectively. The effective tax rate was 33.5% and
33.3%, respectively.
BALANCE SHEET ANALYSIS
Temporary Investments
- ---------------------
Temporary investments were $22.4 million at March 31, 1994 and consisted of
interest bearing deposits with other banks in the amount of $1 million, federal
funds sold of $2.0 million, and mortgage loans held for sale of $6.4 million.
Temporary investments are used for daily cash management purposes, management of
short-term interest rate opportunities and interest rate risk, and as a result
daily balances vary. The average balance of temporary investments during the
first quarter of 1994 was $12.8 million and represented 2.0% of total earning
assets compared with 2.5% for 1993.
Securities
- ----------
As further discussed under Financial Statements Note 4, Commerce adopted
SFAS No. 115. Total securities were $225.6 million on March 31, 1994,
representing a 6% decrease from comparative 1993.
Loans and Asset Quality
- -----------------------
During the first quarter of 1994, average loans, net of unearned income and
deferred fees, increased 17.5% to $384.2 million and were 60.8% of total earning
assets compared with 56.2% for 1993. Loans, net of unearned income and deferred
fees, at March 31, 1994 were $391.0 million, representing a $59.2 million or
17.8% increase over comparative 1993. Commercial loans increased $37.4 million,
or 26.6% while consumer loans increased 15%, or $13.8 million when comparing
March 31, 1994 with March 31, 1993.
Nonperforming assets at March 31, 1994 were $4.2 million as compared with
$6.9 million a year earlier and $4.0 million at December 31, 1993.
17
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Net loan charge-offs were $318,000 for the first quarter of 1994, compared
with $260,000 for the same respective period of 1993. The provision for loan
losses for the first quarter of 1994 was $600,000, compared with the $800,000
provision for comparative 1993.
The allowance for loan losses at March 31, 1994 was $6.8 million, which was
equivalent to 1.74% of period end loans, compared with 1.87% at March 31, 1993
and 1.73% at December 31, 1993.
The following tables summarize activity in the allowance for loan losses
and provide information on nonperforming assets and asset quality ratios.
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended
March 31, December 31, March 31,
Allowance for Loan Losses 1994 1993 1993
---------- ------------ ----------
<S> <C> <C> <C>
Balance, beginning of period $ 6,527 $ 6,985 $ 5,671
Provision charged to earnings 600 600 800
Loan charge-offs (411) (1,109) (372)
Loan recoveries 93 51 112
--------- --------- ---------
Net charge-offs (318) (1,058) (260)
--------- --------- ---------
Balance, end of period $ 6,809 $ 6,527 $ 6,211
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
March 31, December 31, March 31,
Nonperforming assets: 1994 1993 1993
---------- ------------ ----------
<S> <C> <C> <C>
Nonperforming loans $ 1,494 $ 918 $ 1,820
Foreclosed property 2,733 3,080 5,035
--------- --------- ---------
Total nonperforming assets 4,227 3,998 6,855
========= ========= =========
Loans past due 90 days
accruing interest $ 1,010 $ 404 $ 558
- --------------------------------------------------------------------------------------------
Asset Quality Ratios
Allowance for loan losses
to nonperforming loans 4.56 X 7.11 X 3.41 X
Allowance for loan losses
to period end loans 1.74 % 1.73 % 1.87 %
Nonperforming assets to
period end assets 0.61 0.58 1.06
Nonperforming assets to
period end loans 1.08 1.06 2.07
Net charge-offs to average
loans (annualized) 0.33 0.57 0.32
- --------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Deposits
- --------
Total deposits at March 31, 1994 were $635.9 million, representing an
increase of 6.2% or $37 million over comparative 1993. The growth in deposits
was attributable to market share gains in the existing branch locations.
The cost of interest bearing deposits was 4.19%, 3.74% and 3.64% for the
first and fourth quarters of 1993, and first quarter of 1994 respectively, and
reflected the continued lowering of market rates of interest.
Average noninterest bearing deposits increased 17.4% during the first
quarter of 1994 when compared with the first quarter of 1993. Average
noninterest bearing demand deposits as a percentage of average total deposits
were 15.0% during the first quarter of 1994 compared with 13.6% for 1993.
The following table sets forth a summary of Commerce's various deposits
categories and their respective cost rates.
Average Balance/Cost Rate
-------------------------
<TABLE>
<CAPTION>
March 31, March 31, December 31,
Three months ended, 1994 1993 1993
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand $ 69,688 2.21 % $ 59,890 2.72 % $ 68,595 2.27 %
Money market savings 237,718 3.14 246,142 3.84 226,774 3.21
Certificates:Less than $100,000 158,305 4.85 151,910 5.26 171,861 4.89
Greater than $100,000 33,985 5.17 21,925 5.85 33,224 5.31
Regular savings 28,583 2.74 21,771 3.00 28,627 2.77
-------- -------- --------
Total interest bearing 528,279 3.64 501,638 4.19 529,081 3.74
Noninterest bearing 93,081 79,287 94,760
-------- -------- --------
Total $621,360 3.09 % $580,925 3.62 % $623,841 3.17 %
======== ======== ========
</TABLE>
19
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Short-Term Borrowings and Long-Term Debt
- ----------------------------------------
Commerce had no short-term borrowings at March 31, 1994, however, the
average balance during the first quarter of 1994 was $3.6 million. Long-term
debt was $6.8 million at March 31, 1994 and consisted of $5 million, 10%
convertible subordinated capital notes issued September 1, 1990 and capital
lease obligations of $1.8 million.
Common Stock and Dividends
- --------------------------
Commerce's Board of Directors declared a $.15 cash dividend during the
first quarter of 1994 representing a 50% increase over the $.10 declared for
1993.
The high and low prices for Commerce's common stock are set forth with
other selected quarterly financial data on page 10.
Liquidity and Capital Structure
- -------------------------------
Commerce continued to experience a high degree of liquidity during the
first quarter of 1994 as reflected in its liquid asset ratio of 40.0% at March
31, 1994. Average loans to average deposits were 61.8% for the first quarter of
1994 in comparison with 56.3% for 1993.
Subsequent to March 31, 1994, Commerce entered into an arrangement with
BB&T Financial Corporation, under which BB&T has agreed to purchase up to $12
million of a newly created class of Commerce preferred stock. Financial
Statement Note 2 provides a summary of the arrangement.
Shareholders' equity at March 31, 1994 was $46.2 million, or 19.1% above
comparative 1993. As further discussed under Financial Statements Note 4,
Commerce adopted SFAS No. 115 effective January 1, 1994. As a result, net
unrealized gains of $912,000 were recorded as a separate component of
shareholders' equity.
20
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
The following table provides information on the risk-based capital position of
Commerce.
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1994 1993 1993
---------- --------- ------------
<S> <C> <C> <C>
Tier I Capital:
Shareholders' equity $ 46,183 $ 38,783 $ 43,589
Less: intangible assets 956 2,158 1,024
-------- -------- --------
Total Tier I 45,227 36,625 42,565
Tier II Capital:
Qualifying allowance for loan losses (1) 5,418 4,724 5,460
Mandatory convertible debt instruments 4,995 4,995 4,995
-------- -------- --------
Total Tier II 10,413 9,719 10,455
-------- -------- --------
Total Risk Based Capital $ 55,640 $ 46,344 $ 53,020
======== ======== ========
Total Assets $693,515 $648,959 $689,630
Total Risk Weighted Assets 432,010 377,791 436,800
Risk Weighted Assets to Total Assets 62.29% 58.21% 63.34%
Risk Based Capital Ratios:
Tier I (4% minimum requirement) 10.47% 9.69% 9.74%
Total (8% miminum requirement) 12.88% 12.27% 12.14%
Tier I Leverage Ratio (3% minimum 6.63% 5.84% 6.49%
requirement)
- --------------------------------------------------------------------------------
</TABLE>
(1) Limited to 1.25% of risk weighted assets
21
<PAGE>
COMMERCE BANK
Form F-4
March 31, 1994
Signatures
Under the requirements of the Securities Exchange Act of 1934, the Bank has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
COMMERCE BANK
Date: May 12, 1994 /s/ Gerald T. McDonald
------------------------- ------------------------------
Gerald T. McDonald
Executive Vice President
and Chief Financial Officer
(804) 456-1007
Date: May 12, 1994 /s/ Clyde McFarland
------------------------- ------------------------------
Clyde McFarland
Vice President/Controller
(804) 456-1093
22
<PAGE>
EXHIBIT 99.6
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D. C. 20429
FORM F-4
QUARTERLY REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1994
COMMERCE BANK
-------------
(Exact name of bank as specified in charter)
54-1027360 22584
------------------------------------------------------------
(I.R.S. Identification No.) (FDIC Insurance Cert. No.)
------------------------------------------------------------
VIRGINIA
--------
(State of Incorporation)
3450 Pacific Avenue
Virginia Beach, Virginia 23451
(804) 456-1093
---------------
(Address of principal office and telephone number)
Indicate by check mark whether the Bank (1) has filed all reports required
to be filed by section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date.
2,725,163 shares of common stock ($2.50 par value) were outstanding as of
June 30, 1994.
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
COMMERCE BANK
BALANCE SHEET
(Unaudited)
(In thousands, except common stock data)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 28,303 $ 22,680 $ 25,800
Temporary investments 12,613 17,115 13,431
Securities:
Held to maturity (Market value June 30, 1994 - $88,230
1993 - $262,085, December 31, 1993 - $251,596) 90,494 254,224 247,175
Available for sale 127,203 - -
----------- ----------- -----------
Total Securities 217,697 254,224 247,175
Loans:
Commercial 183,013 149,698 165,409
Consumer 109,634 92,582 102,611
Real estate mortgage 96,327 86,545 88,850
Real estate construction & development 14,871 14,906 17,074
Tax-exempt 6,354 6,443 6,477
Less: Unearned income and deferred fees (1,766) (3,090) (2,163)
----------- ----------- -----------
Loans, net of unearned income and deferred fees 408,433 347,084 378,258
Less: Allowance for loan losses (7,188) (6,645) (6,527)
----------- ----------- -----------
Loans, net 401,245 340,439 371,731
Bank premises and equipment, net 19,229 16,830 18,384
Foreclosed property 2,870 4,433 3,080
Other assets 10,110 10,676 10,029
----------- ----------- -----------
Total assets $ 692,067 $ 666,397 $ 689,630
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Noninterest bearing demand $ 101,268 $ 102,179 $ 103,197
Interest bearing demand 74,792 58,397 72,221
Money market savings 247,108 249,957 227,751
Regular savings 31,198 27,191 28,389
Certificates of deposit less than $100,000 146,027 150,280 164,122
Certificates of deposit greater than $100,000 35,999 28,182 38,461
----------- ----------- -----------
Total deposits 636,392 616,186 634,141
Short-term borrowings - 175 1,400
Long-term debt 6,790 6,866 6,828
Other liabilities 2,292 2,848 3,672
----------- ----------- -----------
Total liabilities 645,474 626,075 646,041
----------- ----------- -----------
Shareholders' Equity
Common stock, $2.50 par: 10,000,000 shares authorized:
2,725,163, 2,533,914, and 2,686,792 issued and outstanding 6,813 6,335 6,717
Capital surplus 29,787 25,721 29,062
Retained earnings 10,587 8,296 7,810
Unrealized loss on marketable equity securities - (30) -
Net unrealized loss on securities available for sale (594) - -
----------- ----------- -----------
Total shareholders' equity 46,593 40,322 43,589
----------- ----------- -----------
Total liabilities and shareholders' equity $ 692,067 $ 666,397 $ 689,630
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE>
COMMERCE BANK
STATEMENT OF INCOME
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $ 8,659 $ 7,625 $ 16,704 $ 15,002
Securities held to maturity and
available for sale 3,344 4,075 6,885 8,077
Temporary investments 179 164 343 323
------------ ------------ ------------ ------------
Total interest income 12,182 11,864 23,932 23,402
Interest Expense
Deposits 4,865 5,133 9,602 10,311
Short-term borrowings - 7 30 9
Long-term debt 167 159 331 304
------------ ------------ ------------ ------------
Total interest expense 5,032 5,299 9,963 10,624
------------ ------------ ------------ ------------
Net Interest Income 7,150 6,565 13,969 12,778
Provision for loan losses 600 725 1,200 1,525
------------ ------------ ------------ ------------
Net Interest Income After
Provision For Loan Losses 6,550 5,840 12,769 11,253
Noninterest Income
Service charges on deposit accounts 1,021 825 1,960 1,595
Mortgage brokerage income 391 622 981 1,368
Credit card merchant fees 275 234 471 402
Securities gains 10 - 69 86
Trust income 172 165 342 315
Other income 499 344 939 597
------------ ------------ ------------ ------------
Total noninterest income 2,368 2,190 4,762 4,363
Noninterest Expenses
Salaries and benefits 2,818 2,656 5,693 5,211
Occupancy of bank premises 688 591 1,353 1,174
Furniture and equipment 465 387 879 811
Other expenses 2,291 1,908 4,301 3,684
------------ ------------ ------------ ------------
Total noninterest expenses 6,262 5,542 12,226 10,880
------------ ------------ ------------ ------------
Income Before Income Taxes 2,656 2,488 5,305 4,736
Provision for income taxes 815 840 1,703 1,588
------------ ------------ ------------ ------------
Net Income $ 1,841 $ 1,648 $ 3,602 $ 3,148
- ---------------------------------------------------------------------------------------------------------------------
Net Income Per Share
Primary $ 0.66 $ 0.60 $ 1.29 $ 1.15
Fully diluted 0.63 0.57 1.23 1.11
Weighted Average Shares Outstanding
Primary 2,789 2,748 2,802 2,726
Fully diluted 3,050 3,018 3,068 2,993
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
COMMERCE BANK
STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30, 1994 1993
------------- -------------
<S> <C> <C>
Cash Flows From Operating
Activities:
Net income $ 3,602 $ 3,148
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 1,200 1,525
Depreciation and amortization of premises and equipment 913 774
Net amortization of premiums and accretion of discounts 361 337
Amortization of intangible assets 136 161
Gain on sale of securities available for sale (69) -
Gain on sale of securities held to maturity - (86)
(Increase) decrease in deferred income tax benefits (90) 6
(Decrease) increase in interest receivable 17 (43)
Decrease in interest payable (273) (66)
Decrease in other liabilities (1,133) (462)
Decrease in other assets 66 1,103
------------- -------------
Net cash provided by operating activities 4,730 6,397
------------- -------------
Cash Flows From Investing Activities:
Securities held to maturity:
Proceeds from maturities, calls and prepayments - 12,651
Proceeds from sales - 5,062
Purchases (23,483) (33,508)
Securities available for sale:
Proceeds from maturities, calls and prepayments 29,016 -
Proceeds from sales 23,653 -
Net decrease (increase) in temporary investments 818 6,800
Purchases of premises and equipment (1,758) (860)
Net sale (repurchase) of loan participations 232 (512)
Net increase in loans (30,946) (19,225)
------------- -------------
Net cash used in investing activities (2,468) (29,592)
------------- -------------
Cash Flows From Financing Activities:
Net increases in deposit accounts 2,251 18,202
Proceeds from issuance of common stock 218 318
Net decrease in short-term borrowing (1,400) (388)
Principal payments on capital lease obligations (38) (45)
Cash dividends paid (790) (444)
------------- -------------
Net cash provided by financing activities 241 17,643
------------- -------------
Net (decrease) increase in cash and due from banks 2,503 (5,552)
Cash and due from banks at beginning of period 25,800 28,232
------------- -------------
Cash and due from banks at end of period $ 28,303 $ 22,680
- ----------------------------------------------------------------------------------------------------------
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period:
Interest $ 10,236 $ 10,690
Income taxes 2,149 1,887
Noncash financing and investing activities:
Capital lease obligation - 1,285
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
COMMERCE BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
(In thousands)
Unrealized
Loss on
Marketable
Common Stock Capital Retained Equity
--------------------
Shares Amount Surplus Earnings Security Total
-------- -------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1993
Balance at January 1, 1993 2,511 $ 6,278 $ 25,460 $ 5,705 $ (30) $ 37,413
Net income - - - 3,148 - 3,148
Issuance of common stock 23 57 261 - - 318
Cash dividends declared - - - (557) - (557)
-------- -------- --------- ---------- ---------- --------
Balance at June 30, 1993 2,534 $ 6,335 $ 25,721 $ 8,296 $ (30) $ 40,322
-------- -------- --------- ---------- ---------- --------
Six months ended June 30, 1994
Balance at January 1, 1994 2,687 $ 6,717 $ 29,062 $ 7,810 $ - $ 43,589
Adjustment to beginning balance for change in
accounting method for net unrealized gain on
securities available for sale, net of tax of $1,253,000 - - 2,327 - 2,327
Net income - - - 3,602 - 3,602
Issuance of common stock 38 96 725 - - 821
Change in net unrealized loss on securities
available for sale, net of tax effect - - - (2,921) - (2,921)
Cash dividends declared - - - (825) - (825)
-------- -------- --------- ---------- ---------- ---------
Balance at June 30, 1994 2,725 $ 6,813 $ 29,787 $ 9,993 $ - $ 46,593
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
Notes to Financial Statements
- -----------------------------
Note 1. General
-------
The financial statements in this report have not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of the
financial position and results of operations for the interim periods have been
made. All such adjustments are of a normal recurring nature. These statements
should be read in conjunction with the 1993 annual report on Form F-2 and the
March 31, 1994 report on Form F-4. Results of operations for the six months
ended June 30, 1994 are not necessarily indicative of the results of operations
for the full year or any other interim periods.
Note 2. Merger with BB&T Financial Corporation
--------------------------------------
Commerce Bank ("Commerce") entered into an Agreement and Plan of
Reorganization, dated as of June 24, 1994 (the "Agreement"), with BB&T Financial
Corporation, a bank holding company headquartered in Wilson, North Carolina
("BB&T"). The Agreement provides for the merger of Commerce with and into a
subsidiary of BB&T.
As an inducement for BB&T to enter into the Agreement, Commerce entered
into a Stock Option Agreement, dated as of June 24, 1994 (the "Option
Agreement"), whereby it granted BB&T an irrevocable option (the "Option") to
purchase up to that number of shares of Commerce's common stock (the "Option
Shares") as would equal 19.9% of the aggregate shares of Commerce common stock
that would be outstanding immediately after the issuance of the Option Shares
upon full exercise of the Option, at a price of $31.50 per Option Share. The
Option is exercisable, in whole or in part, at any time and from time to time
for a designated period of time following the occurrence of a "Purchase Event"
(as defined in the Option Agreement).
Note 3. Commitments
-----------
At June 30, 1994, the amount of off-balance sheet commitments to extend
credit were $69.0 million and standby letters of credit and financial guarantees
were $5.25 million.
5
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
Note 4. Accounting Change
-----------------
Effective January 1, 1994, Commerce adopted Statement of Financial
Accounting Standard No. 115 ("SFAS 115") "Accounting for Certain Investments in
Debt and Equity Securities". In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. SFAS 115 requires that certain securities be classified into one of
three categories: held to maturity, available for sale, or trading based on
management's ability and intent at time of purchase. Securities classified as
held to maturity are carried at their amortized cost; securities classified as
available for sale are carried at their fair values with the amount of
unrealized gains or losses, net of income taxes, reported as a separate
component of shareholders' equity; and securities classified as trading are
carried at their fair value with the unrealized gains or losses included in
earnings.
As a result of the adoption of SFAS 115, on January 1, 1994, Commerce
classified securities with a fair value of approximately $155 million as
securities available for sale. The opening balance of shareholders' equity was
increased by $2.32 million relating to net unrealized gain on securities
available for sale of $3.58 million, less applicable income taxes of $1.25
million. Prior to the adoption of SFAS 115, securities deemed available for
sale were carried at the lower of aggregate amortized cost or market value.
Note 5. Earnings Per Share
------------------
Primary earnings per share are calculated on the basis of the weighted
average number of shares outstanding during the period after giving retroactive
effect to the 5% stock dividends declared in 1993 and 1992. Dilutive stock
options have been converted to common stock equivalents for the calculation of
weighted average shares outstanding based upon the average market price of
Commerce's common stock. Fully diluted earnings per share assumes the
conversion of outstanding convertible subordinated capital notes and elimination
of interest paid thereon, after tax effect, and the exercise of dilutive stock
options, as of the beginning of each period. The dilutive effect of outstanding
options and convertible subordinated debt is computed using the greater of the
closing price or the average market price of Commerce's stock. The computation
of earnings per share is provided on the following page.
6
<PAGE>
COMMERCE BANK
Form F-4
June 30,1994
Earnings per share were determined as follows:
(In thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Primary
Average common shares outstanding 2,695 2,674 2,705 2,649
Dilutive common stock options assumed exercised 94 74 97 77
----------------------------------------------------------------------------------------------------
Average primary shares outstanding 2,789 2,748 2,802 2,726
----------------------------------------------------------------------------------------------------
Net Income $1,841 $1,648 $3,602 $3,148
Per Share Amount .66 .60 1.29 1.15
----------------------------------------------------------------------------------------------------
Fully diluted
Average common shares outstanding 2,695 2,674 2,705 2,649
Dilutive common stock options 92 81 100 81
Dilutive convertible subordinated capital
notes assumed converted 263 263 263 263
----------------------------------------------------------------------------------------------------
Average fully diluted shares outstanding 3,050 3,018 3,068 2,993
----------------------------------------------------------------------------------------------------
Net Income $1,841 $1,648 $3,602 $3,148
Add interest on convertible subordinated
capital notes, after taxes 81 81 162 162
----------------------------------------------------------------------------------------------------
Adjusted net income $1,922 $1,729 $3,764 $3,310
----------------------------------------------------------------------------------------------------
Per share amount $.63 $.57 $1.23 $ 1.11
----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
COMMERCE BANK FINANCIAL HIGHLIGHTS
(Dollars in thousands, except
per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Increase Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net interest income $ 7,150 $ 6,565 8.9 % $ 13,969 $ 12,778 9.3 %
Net income 1,841 1,648 11.7 3,602 3,148 14.4
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
Net income :
Primary $ 0.66 $ 0.60 10.0 % $ 1.29 $ 1.15 12.2 %
Fully diluted 0.63 0.57 10.5 1.23 1.11 10.8
Book value at period end - - 17.10 15.91 7.5
Cash dividends 0.15 0.12 25.0 0.30 0.22 36.4
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios:
Return on average assets 1.07 % 1.01 % 1.06 % 0.99 %
Return on average equity 16.00 16.56 15.62 16.21
Net interest spread 3.94 3.81 3.88 3.80
Net interest margin 4.51 4.37 4.44 4.35
Net overhead ratio 2.46 2.23 2.40 2.25
Average loans / average deposits 63.29 56.48 62.58 56.00
- ------------------------------------------------------------------------------------------------------------------------------------
Daily Averages:
Assets $ 688,284 $ 652,170 5.5 % $ 685,716 $ 640,941 7.0 %
Earning assets 635,945 602,499 5.6 633,949 592,057 7.1
Loans, net of unearned income 400,133 339,361 17.9 392,227 333,154 17.7
Investment securities 221,782 246,729 (10.1) 228,293 243,380 (6.2)
Deposits 632,194 600,887 5.2 626,807 590,961 6.1
Shareholders' equity 46,145 39,922 15.6 46,484 39,158 18.7
Primary shares outstanding 2,789 2,748 1.5 2,802 2,726 2.8
Fully diluted shares outstanding 3,050 3,018 1.1 3,068 2,993 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
At Period End:
Assets $ 692,067 $ 666,397 3.9 %
Earning assets 638,743 619,422 3.1
Loans, net of unearned income 408,433 347,084 17.7
Investment securities 217,697 254,224 (14.4)
Deposits 636,392 616,186 3.3
Shareholders' equity 46,593 40,322 15.6
Allowance for loan losses 7,188 6,645 8.2
Nonperforming assets 5,273 4,877 8.1
- ------------------------------------------------------------------------------------------------------------------------------------
Risk-Based Capital Ratios:
Tier I 10.27 % 9.71 %
Total 12.63 12.23
Tier I leverage 6.67 5.99
Total risk weighted assets $ 450,871 $ 394,039
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
COMMERCE BANK
Selected Quarterly Financial Data
(Dollars in thousands, except
per share data)
<TABLE>
<CAPTION>
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1994 1994 1993 1993 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of operations:
Interest income $ 12,182 $ 11,750 $ 11,888 $ 11,957 $ 11,864
Interest expense 5,032 4,931 5,167 5,192 5,299
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 7,150 6,819 6,721 6,765 6,565
Provision for loan losses 600 600 600 700 725
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 6,550 6,219 6,121 6,065 5,840
Noninterest income 2,358 2,335 2,346 2,625 2,190
Securities gains 10 59 53 1,268 -
Noninterest expense (1) 6,262 5,964 5,995 6,831 5,542
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,656 2,649 2,525 3,127 2,488
Provision for income taxes 815 888 834 1,415 840
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 1,841 $ 1,761 $ 1,691 $ 1,712 $ 1,648
=======================================================================================================================
Per Share Data:
Net income :
Primary $ 0.66 $ 0.63 $ 0.61 $ 0.62 $ 0.60
Fully diluted 0.63 0.60 0.58 0.60 0.57
Book value at period end 17.10 17.09 16.22 16.48 15.91
Cash dividends 0.15 0.15 0.15 0.14 0.12
Common stock price: (2)
High 39.00 27.50 25.50 25.50 25.50
Low 24.50 25.50 23.00 22.75 22.50
Close 39.00 26.50 24.00 23.75 25.50
=======================================================================================================================
Average Balance Sheet Data
Assets:
Loans, net of unearned income $ 400,133 $ 384,233 $ 369,323 $ 354,239 $ 339,361
Investment securities 221,782 234,876 245,039 240,369 246,729
Temporary Investments 14,030 12,821 12,356 20,941 16,409
- -----------------------------------------------------------------------------------------------------------------------
Total earning assets 635,945 631,930 626,718 615,549 602,499
Allowance for loan losses (6,912) (6,809) (6,844) (6,713) (6,313)
Other Assets 59,251 57,998 58,637 56,375 55,984
Total Assets $ 688,284 $ 683,119 $ 678,511 $ 665,211 $ 652,170
=======================================================================================================================
Liabilities and Shareholders'
Equity:
Interest bearing deposits $ 532,136 $ 528,279 $ 529,081 $ 516,719 $ 511,875
Short-term borrowings 77 3,623 1,337 818 859
Long-term borrowings 6,799 6,818 6,837 6,856 6,878
- -----------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 539,012 538,720 537,255 524,393 519,612
Non interest bearing liabilities 103,127 93,081 98,291 99,022 92,636
Equity 46,145 46,828 42,965 41,796 39,922
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $ 688,284 $ 683,119 $ 678,511 $ 665,211 $ 652,170
=======================================================================================================================
Financial Ratios:
Return on average assets 1.07 % 1.05 % 0.99 % 1.02 % 1.01 %
Return on average equity 16.00 15.25 15.61 16.25 16.56
Net interest margin 4.51 4.38 4.28 4.36 4.37
=======================================================================================================================
</TABLE>
(1) The third quarter of 1993 included a non-recurring, noncash adjustment of
$910,000 for the write down of an intangible asset.
(2) As reported by NASDAQ
9
<PAGE>
COMMERCE BANK
Form F-4
June 30,1994
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist readers in understanding and
evaluating the results of operations and financial condition of Commerce Bank
("Commerce"). The following should be read in conjunction with Commerce's 1993
Annual Report on Form F-2 and the March 31, 1994 report on Form F-4.
Performance Summary
- -------------------
Net income for the second quarter of 1994 was $1.84 million and represented
a 11.7% increase over second quarter earnings for 1993 of $1.65 million.
Primary earnings per share were $.66 compared with $.60, and fully diluted
earnings per share were $.63 compared with $.57 for the second quarter of 1994
compared with 1993. Net income for the first six months of 1994 was $3.60
million or 14.4% above comparable 1993 net income of $3.15 million. Primary
earnings per share were $1.29 compared with $1.15, and fully diluted earnings
per share were $1.23 compared with $1.11 for the second half of 1993. The
increase in net income for the second quarter and first half of 1993 was due to
a higher net interest income, increased noninterest income and a lower provision
for loan losses. Net income for the second quarter of 1994 was 4.54%, or
$80,000 above the $1.76 million reported for the first quarter of 1994.
The return on annualized average assets was 1.07% for the second quarter of
1994 compared with 1.01% for the same period in 1993. The annualized return of
average equity was 16.00% for the second quarter of 1994. In comparison, ROE
was 16.56% for the same period of 1993. ROA for the first half of 1994 was
1.06% while ROE was 15.62% compared with .99% and 16.21% for the first half of
1993, respectively.
Total assets at June 30, 1994 were $692.1 million while total deposits were
$636.4 million and represented a 3.9% and 3.3% growth rate over the prior year
levels, respectively. Average earning assets increased 5.6% to $635.9 million
during the second quarter of 1994 when compared with 1993.
10
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
The following table presents an analysis of Commerce's return on average
assets and equity.
<TABLE>
<CAPTION>
June 30, March 31,
Three Months Ended 1994 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
As a percent of average earning assets:
Net Interest Income 4.51 % 4.42 % 4.38 %
Provision for Loan Losses (0.38) (0.49) (0.39)
Noninterest Income 1.49 1.47 1.50
Noninterest Expenses (3.95) (3.73) (3.83)
Securities Gains 0.01 - 0.04
Applicable Income Taxes (0.51) (0.57) 0.57
---------- ---------- ----------
Return on Average Earning Assets 1.16 % 1.10 % 1.13 %
Multiplied by
Average Earning Assets to Average Total Assets 92.40 92.38 92.51
---------- ---------- ----------
Return on Average Assets 1.07 % 1.01 % 1.05 %
Multiplied by
Ratio of Average Assets to Average Equity 14.95 16.40 14.52
---------- ---------- ----------
Return on Average Total Equity 16.00 % 16.56 % 15.25 %
- ---------------------------------------------------------------------------------------------
</TABLE>
EARNINGS ANALYSIS
Net Interest Income
- -------------------
Net interest income, the principal source of Commerce's earnings, is the
amount of income generated by interest-earning assets (primarily loans and
investment securities) reduced by the total interest cost of the funds (chiefly
deposits) incurred to carry them.
Net interest income for the second quarter of 1994 was $7.15 million, a
8.9% increase over comparative 1993. Net interest income for the first half of
1994 was $14.0 million or 9.3% above comparative 1993. Net interest margin for
the second quarter and first half of 1994 was 4.51% and 4.44%, respectively, and
represented an improvement from 4.37% and 4.35% for the comparative periods of
1993. The increase in net interest income for 1994 benefitted from growth in
average earning assets, including 18% loan growth for both periods, and
favorable interest rate spreads due to a reduced cost of funds. Net interest
spread for the second quarter of 1994 was 3.94% versus 3.81% for the second
quarter of 1993
11
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
and 3.83% for the first quarter of 1994. Net interest spread for the first half
of 1994 improved 8 basis points, to 3.88% from 3.80% for the first half of 1993.
Average earning assets increased $33.4 million, or 5.6%, rising from $602.5
million for the second quarter of 1993 to $635.9 million in 1994. Average
earning assets for the first half of 1994 were $633.9 million, or 7.1% above
$592.0 million for comparative 1993. Average earning assets increased 6.4%
during the second quarter of 1994 when compared with the first quarter of 1994
while the mix reflected continued growth in loans.
The annualized yield on earning assets decreased 22 basis points, from
7.90% for the second quarter of 1993 to 7.68% for comparative 1994.
The annualized cost of interest bearing liabilities decreased 35 basis
points, from 4.09% for the second quarter of 1993 to 3.74% for the second
quarter of 1994. The decrease in annualized cost of interest bearing
liabilities is due to the deposit mix to a greater proportion of rate sensitive
products, increased noninterest bearing deposits, and lower rates of interest.
(See Deposits). The cost of interest bearing liabilities decreased 16 basis
points, from 3.71% for the first quarter of 1994 to 3.74% for the second quarter
of 1994.
Substantially, the same factors impacted net interest income when comparing
the first half of 1994 with 1993 as were discussed above for the three months
ended June 30, 1994 and 1993.
12
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
The following tables provide Commerce's average balance sheet, interest
earned or paid and the related yields and rates on major categories.
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended June 30, / Three Months Ended June 30,
----------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate Change due to (3)
--------------------- --------------------- --------------- Increase ----------------------
Assets: 1994 1993 1994 1993 1994 1993 (Decrease) Rate Volume
---------- ---------- --------- --------- ------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned
income & deferred fees
(1)(2) $ 400,133 $ 339,361 $ 8,659 $ 7,625 8.68 % 9.01 % $ 1,034 $ (270) $ 1,304
Investment securities(2) 221,782 246,729 3,344 4,075 6.05 6.62 (731) (336) (395)
Temporary investments 14,030 16,409 178 164 5.12 4.01 15 40 (26)
---------- ---------- --------- --------- ---------- --------- ----------
Total earning assets 635,945 602,499 12,181 11,864 7.68 7.90 318 (566) 883
Allowance for loan losses (6,723) (6,313)
Nonearning assets 59,062 55,984
---------- ----------
Total assets $ 688,284 $ 652,170
========== ==========
Liabilities &
Shareholders' Equity:
Interest bearing deposits $ 532,136 $ 511,875 $ 4,865 $ 5,133 3.67 % 4.02 % $ (268) $ (464) $ 196
Short-term borrowings 77 859 - 7 2.59 3.27 (7) (1) (6)
Long-term debt 6,799 6,878 167 159 9.85 9.27 8 10 (2)
---------- ---------- --------- --------- ---------- --------- ----------
Total interest bearing
liabilities 539,012 519,612 5,032 5,299 3.74 4.09 (267) (455) 188
Noninterest bearing
liabilities 103,127 92,636
Shareholders' equity 46,145 39,922
---------- ----------
Total liabilities &
equity $ 688,284 $ 652,170
========== ========== --------- --------- ---------- --------- ----------
Net interest income $ 7,149 $ 6,565 $ 585 $ (111) $ 695
========= ========= ========== ========= ==========
Net interest spread 3.94 % 3.81 %
Net interest margin 4.51 % 4.37 %
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended June 30, / Three Months Ended March 31,
---------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate Change due to (3)
--------------------- --------------------- --------------- Increase ----------------------
Assets: 1994 1993 1994 1993 1994 1993 (Decrease) Rate Volume
---------- ---------- --------- --------- ------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned
income & deferred fees
(1)(2) $ 400,133 $ 384,233 $ 8,659 $ 8,045 8.68 % 8.49 % $ 614 $ 214 $ 400
Investment securities(2) 221,782 234,876 3,344 3,541 6.05 6.11 (197) (29) (168)
Temporary investments 14,030 12,821 178 164 5.12 5.19 14 (2) 16
---------- ---------- --------- --------- ---------- --------- ----------
Total earning assets 635,945 631,930 12,181 11,750 7.68 7.54 431 183 248
Allowance for loan losses (6,723) (6,723)
Nonearning assets 59,062 57,912
---------- ----------
Total assets $ 688,284 $ 683,119
========== ==========
Liabilities &
Shareholders' Equity:
Interest bearing deposits $ 532,136 $ 528,279 $ 4,865 $ 4,737 3.67 % 3.64 % $ 128 $ 67 $ 61
Short-term borrowings 77 3,623 - 29 2.59 2.50 (29) (5) (24)
Long-term debt 6,799 6,818 166 165 9.79 9.81 1 0 1
---------- ---------- --------- --------- ---------- --------- ----------
Total interest bearing
liabilities 539,012 538,720 5,031 4,931 3.74 3.71 100 62 38
Noninterest bearing
liabilities 103,127 97,571
Shareholders' equity 46,145 46,828
---------- ----------
Total liabilities &
equity $ 688,284 $ 683,119
========== ========== ---------- ---------- ---------- --------- ----------
Net interest income $ 7,150 $ 6,819 $ 331 $ 121 $ 210
========== ========== ========== ========= ==========
Net interest spread 3.94 % 3.83 %
Net interest margin 4.51 % 4.38 %
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
<TABLE>
<CAPTION>
Three Months Ended June 30, / Three Months Ended June 30,
----------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate Change due to (3)
--------------------- --------------------- --------------- Increase ----------------------
Assets: 1994 1993 1994 1993 1994 1993 (Decrease) Rate Volume
---------- ---------- --------- --------- ------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned
income & deferred fees
(1)(2) $ 392,227 $ 333,154 $ 16,704 $ 15,002 8.59 % 9.14 % $ 1,702 $ (925) $ 2,627
Investment securities(2) 228,293 243,380 6,885 8,077 6.08 6.69 (1,192) (710) (482)
Temporary investments 13,429 15,523 343 323 5.15 4.19 20 68 (48)
---------- ---------- --------- --------- ---------- --------- ----------
Total earning assets 633,949 592,057 23,932 23,402 7.61 7.97 530 (1,567) 2,097
Allowance for loan losses (6,818) (6,101)
Nonearning assets 58,585 54,985
---------- ----------
Total assets $ 685,716 $ 640,941
========== ==========
Liabilities &
Shareholders' Equity:
Interest bearing deposits $ 530,218 $ 506,784 $ 9,602 $ 10,311 3.65 % 4.10 % $ (709) $ (1,170) $ 461
Short-term borrowings 1,840 646 30 9 3.29 2.81 21 1 20
Long-term debt 6,808 6,450 331 304 9.80 9.50 27 9 18
---------- ---------- --------- --------- ---------- --------- ----------
Total interest bearing
liabilities 538,866 513,880 9,963 10,624 3.73 4.17 (661) (1,160) 499
Noninterest bearing
liabilities 100,366 87,903
Shareholders' equity 46,484 39,158
---------- ----------
Total liabilities &
equity $ 685,716 $ 640,941
========== ========== ---------- --------- ----------
Net interest income $ 13,969 $ 12,778 $ 1,191 $ (407) $ 1,598
========= ========= ========== ========= ==========
Net interest spread 3.88 % 3.80 %
Net interest margin 4.44 % 4.35 %
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans, and income on such loans is recognized on a
cash basis.
(2) Interest and yields are presented on a book basis, as tax-equivalent
adjustments are not significant.
(3) The changes for each category of income and expenses are divided between
the portion of change attributable to the variances in average levels and
yields or rates for that category, with the amount of change that cannot
be separated being allocated to each variance proportionately.
Noninterest Income
- ------------------
Total noninterest income was $2.37 million for the second quarter of 1994,
representing a 8.1% increase over the same period of 1993. Total noninterest
income, exclusive of securities gains, for the first half of 1994 was $4.69
million, or 9.7% above the $4.28 million earned in comparative 1993. Commerce
recorded $69,000 in securities gains during the first half of 1994 compared with
$86,000 for the same period of 1993. Noninterest income, exclusive of
securities gains, for the second quarter of 1994 was $23,000 or 1.0% above the
first quarter of 1994.
The increase in noninterest income, exclusive of securities gains and
mortgage brokerage income, for the second quarter and first half of 1994
benefitted from growth in all categories of income. The decrease in mortgage
brokerage income reflects a decline in refinancing activity due to increased
interest rates.
14
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
The following tables provide an analysis of noninterest income.
(Dollars in thousands)
<TABLE>
<CAPTION>
Increase(Decrease)
----------------------------------------------------------------------------------------------------
Three Months Ended June 30, /
------------------------------------------------ ----------------------------------------------
Three Months Ended June 30, Three Months Ended March 31,
------------------------------------------------ ----------------------------------------------
1994 over 1993 1994 over 1994
---------------------- ----------------------
1994 1993 Amount Percent 1994 1994 Amount Percent
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $ 1,021 $ 825 $ 196 23.8 % $ 1,021 $ 939 $ 82 8.7 %
Mortgage brokerage income 391 622 (231) (37.1) 391 590 (199) (33.7)
Credit card merchant fees 275 234 41 17.5 275 196 79 40.3
Trust income 172 165 7 4.2 172 170 2 1.2
Other income 499 344 155 45.1 499 440 59 13.4
-------- -------- -------- -------- -------- --------
2,358 2,190 168 7.7 2,358 2,335 23 1.0
Securities gains 10 - 10 n/m 10 59 (49) (83.1)
-------- -------- -------- -------- -------- --------
Total noninterest
income $ 2,368 $ 2,190 $ 178 8.1 % $ 2,368 $ 2,394 $ (26) (1.1) %
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------
1994 over 1993
----------------------------
1994 1993 Amount Percent
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 1,960 $ 1,595 $ 365 22.9 %
Mortgage brokerage income 981 1,368 (387) (28.3)
Credit card merchant fees 471 402 69 17.2
Trust income 342 315 27 8.6
Other income 939 597 342 57.3
-------- -------- ------------
4,693 4,277 419 9.7
Securities gains 69 86 (17) (19.8)
-------- -------- ------------
Total noninterest income $ 4,762 $ 4,363 $ 399 9.1 %
======== ======== ============
n/m -- not meaningful
</TABLE>
Noninterest Expense
- -------------------
Total noninterest expense for the second quarter and first half of 1994 was
$6.26 million and $12.2 million, respectively, which represented a 13.0% and
12.4% increase over the comparative periods of 1993. The increase in
noninterest expense is primarily due to servicing a larger customer base in
1994.
15
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
Salaries and benefits expense was $2.82 million for the second quarter of
1994, up 6.1% from comparative 1993. Salaries and benefits for the first six
months of 1994 were $5.69 million or 9.2% above comparative 1993. The higher
expense reflected regular merit and promotional increases along with an increase
in the number of employees to service growth in the customer base. The number
of full-time-equivalent employees was 344 at June 30, 1994 compared with 304 for
June 30, 1993.
Occupancy of bank premises expense increased 15.2% or $179,000, during the
first half of 1994 when compared with 1993 due to scheduled rent increases and
increased lease space for branch locations and operations. Furniture and
equipment expense increased 8.4% or $68,000 during the first half of 1994 over
comparative 1993 as a result of expenses associated with maintenance and
depreciation charges from equipment upgrades. FDIC insurance premiums increased
7.7%, or $50,000, during the first half of 1994 when compared with 1993 due to
growth in the deposit base.
Other expenses increased 18.7%, or $567,000 for the first half of 1994 when
compared with 1993. The increase was primarily due to the added expenses of
supporting customer services.
Noninterest expense for the second quarter of 1994 increased $298,000 or
5.0% when compared with the first quarter of 1994.
16
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
The following tables provide an analysis of noninterest expense.
<TABLE>
<CAPTION>
(Dollars in thousands)
Increase(Decrease)
-------------------------------------------------------------------------------------
Three Months Ended June 30,
-------------------------------------- --------------------------------------
Three Months Ended June 30,/ Three Months Ended March 31,
-------------------------------------- --------------------------------------
1994 over 1993 1994 over 1994
---------------- ----------------
1994 1993 Amount Percent 1994 1994 Amount Percent
------- ------- ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 2,818 $ 2,656 $ 162 6.1 % $ 2,818 $ 2,875 $ (57) (2.0)%
Occupancy of bank premises 688 591 97 16.4 688 665 23 3.5
Furniture and equipment 465 387 78 20.2 465 414 51 12.3
FDIC insurance premiums 351 326 25 7.7 351 351 - -
Other expenses 1,940 1,582 358 22.6 1,940 1,659 281 16.9
------- ------- ------ ------- ------- ------
Total noninterest expenses $ 6,262 $ 5,542 $ 720 13.0 % $ 6,262 $ 5,964 $ 298 5.0 %
======= ======= ====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,/
---------------------------------------
1994 over 1993
-----------------
1994 1993 Amount Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Salaries and benefits $ 5,693 $ 5,211 $ 482 9.2 %
Occupancy of bank premises 1,353 1,174 179 15.2
Furniture and equipment 879 811 68 8.4
FDIC insurance premiums 702 652 50 7.7
Other expenses 3,599 3,032 567 18.7
------- ------- -------
Total noninterest expenses $12,226 $10,880 $1,346 12.4 %
======= ======= =======
</TABLE>
Provision for Income Taxes
- --------------------------
Commerce reported a provision for income taxes of $815,000 and $840,000 for
the second quarter of 1994 and 1993, respectively, for an effective tax rate of
30.7% and 33.8%. The provision for income taxes for the first half of 1994 was
$1.70 million, or 7.2% above the 1993 level and was due to increased earnings.
BALANCE SHEET ANALYSIS
Temporary Investments
- ---------------------
Temporary investments were $12.6 million at June 30, 1994 and consisted of
interest bearing deposits with other banks in the amount of $1.0 million,
mortgages held for sale of $1.6 million, and federal funds sold of $10.0
million. Temporary investments are used for daily cash management purposes,
manage-
17
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
ment of short-term interest rate opportunities and interest rate risk, and
as a result daily balances vary. The average balance of temporary investments
during the second quarter of 1994 was $14.0 million and represented 2.2% of
total earning assets compared with $16.4 million or 2.7% for 1993. The average
balance of temporary investments for the first half of 1994 was $13.4 million,
or 2.1% of total average earning assets, compared with $15.5 million, or 2.62%
for comparative 1993.
Securities
- ----------
As further discussed under Financial Statements Note 4, Commerce adopted
SFAS No. 115 effective January 1, 1994. Total securities were $217.7 million on
June 30, 1994, representing a 14.4% decrease from comparative 1993.
Loans and Asset Quality
- -----------------------
During the first six months of 1994, average loans, net of unearned income
and deferred fees, increased 17.7% to $392.2 million and were 61.9% of total
earning assets compared with 56.2% for 1993. Loans, net of unearned income were
$408.4 million at June 30, 1994, or 17.7% and $61.4 million above the $347.1
million reported at June 30, 1993.
Nonperforming assets at June 30, 1994 were $5.27 million as compared with
$4.88 million a year earlier and $4.0 million at the end of 1993.
Net loan charge-offs were $221,000 for the second quarter of 1994, compared
with $291,000 for the same period of 1993. Net loan charge-offs for the first
half of 1994 declined 2.2% to $539,000 from $551,000 for comparative 1993. The
provision for loan losses for the second quarter of 1994 was $600,000, compared
with the $725,000 provision for comparative 1993. The provision for loan losses
for the first half of 1994 was $1.2 million, or 21.3% and $325,000 lower than
the $1.53 million reported for comparative 1993. The decline in the provision
for loan losses during 1994 correlates with a lower level of net loan charge-
offs and improvement in other asset quality indicators.
The allowance for loan losses at June 30, 1994 was $7.19 million, which was
equivalent to 1.76% of period end loans, compared with 1.91% for the second
quarter of 1993.
18
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
The following table summarizes activity in the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended Six Months Ended
------------------------------- ------------------
June 30, June 30, March 31, June 30,
Allowance for Loan Losses 1994 1993 1994 1994 1993
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 6,809 $ 6,211 $ 6,527 $ 6,527 $ 5,671
Provision charged to earnings 600 725 600 1,200 1,525
Loan charge-offs (314) (402) (411) (725) (774)
Loan recoveries 93 111 93 186 223
-------- -------- --------- -------- --------
Net charge-offs (221) (291) (318) (539) (551)
-------- -------- --------- -------- --------
Balance, end of period $ 7,188 $ 6,645 $ 6,809 $ 7,188 $ 6,645
======== ======== ========= ======== ========
</TABLE>
The following table shows the level of nonperforming assets and related
information for the periods indicated.
<TABLE>
<CAPTION>
(In thousands)
June 30, June 30, March 31,
Nonperforming assets: 1994 1993 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Nonperforming loans $ 2,403 $ 444 $ 1,494
Foreclosed property 2,870 4,433 2,733
-------------- ------------- --------------
Total nonperforming assets 5,273 4,877 4,227
============== ============= ==============
Loans past due 90 days accruing interest $ 1,647 $ 339 $ 1,010
- -------------------------------------------------------------------------------------------------------
Asset Quality Ratios
Allowance for loan losses to nonperforming loans 2.99 X 14.97 X 4.56 X
Allowance for loan losses to period end loans 1.76 % 1.91 % 1.74 %
Nonperforming assets to period end loans 1.29 1.41 0.61
Nonperforming assets to period end assets 0.76 0.73 1.08
Net charge-offs to average loans (annualized) 0.28 0.33 0.33
- -------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
Deposits
- --------
Total deposits at June 30, 1994 were $636.4 million, representing an
increase of 3.3% or $20.2 million over comparative 1993. Total average deposits
increased 6.1% during the first six months of 1994 to $626.8 million when
compared with the first half of 1993.
The cost of interest bearing deposits was 3.67% for the second quarter of
1994 compared with 4.02% for the second quarter of 1993 and 3.64% for the first
quarter of 1994. The cost of interest bearing deposits for the first half of
1994 was 3.65%, or 45 basis points lower than the 4.10% cost for the first half
of 1993. The lower cost in 1994 reflects the continued lowering of market rates
of interest.
Average noninterest bearing demand deposits as a percentage of average
total deposits were 15.41% and 14.24% during the first half of 1994 and 1993,
respectively. Average noninterest bearing demand deposits were 15.8% and 14.8%
of average total deposits for the second quarter of 1994 and 1993, respectively.
The following table sets forth a summary of Commerce's various deposits
categories and their respective cost rates.
<TABLE>
<CAPTION>
(In thousands)
Average Balance/Cost Rate
- --------------------------------------------------------------------------------------------------------------------------
June 30, June 30, March 31,
Three months ended, 1994 1993 1994
----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand $ 73,140 2.21 % $ 60,280 2.52 % $ 69,688 2.21 %
Money market savings 243,938 3.31 249,506 3.62 237,718 3.14
Certificates:Less than $100,000 152,235 4.82 150,989 5.17 158,305 4.85
Greater than $100,000 31,200 5.26 24,527 5.89 33,985 5.17
Regular savings 31,623 2.71 26,573 2.97 28,583 2.74
----------- ----------- -----------
Total interest bearing 532,136 3.67 511,875 4.02 528,279 3.64
Noninterest bearing 100,058 89,012 93,081
----------- ----------- -----------
Total $ 632,194 3.17 % $ 600,887 3.43 % $ 621,360 3.09 %
=========== =========== ===========
</TABLE>
20
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
<TABLE>
<CAPTION>
(In thousands)
Average Balance/Cost Rate
- ---------------------------------------------------------------------------------------------
June 30, June 30,
Six months ended, 1994 Mix 1993 Mix
-------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing demand $ 71,423 2.21 % 13.47 $ 60,086 2.62 % 11.86
Money market savings 240,845 3.23 45.42 247,833 3.97 48.90
Certificates:Less than $100,000 154,805 4.85 29.20 151,027 5.23 29.80
Greater than $100,000 32,585 5.23 6.15 23,233 5.89 4.58
Regular savings 30,560 2.70 5.76 24,605 2.96 4.86
-------- ------ -------- ------
Total interest bearing 530,218 3.65 100.00 506,784 4.10 100.00
Noninterest bearing 96,589 84,177
-------- --------
Total $626,807 3.21 % $590,961 3.62 %
-------- --------
</TABLE>
Short-Term Borrowings and Long-Term Debt
- ----------------------------------------
Commerce had no short-term borrowings at June 30, 1994, however, the
average balance during the first half of 1994 was $1.8 million. Long-term debt
was $6.79 million at June 30, 1994 and consisted of $5.0 million, 10%
convertible subordinated capital notes issued September 1, 1990 and capital
lease obligations of $1.79 million.
Common Stock and Dividends
- --------------------------
Commerce's Board of Directors declared a $.15 cash dividend during the
second quarter of 1994 representing a 25% increase over the $.12 declared in
1993.
The high and low prices for Commerce's common stock are set forth with
other selected quarterly financial data on page 9.
Liquidity and Capital Structure
- -------------------------------
Commerce continued to experience a high degree of liquidity during the
second quarter of 1994, as reflected in its liquid asset ratio of 37.5% at June
30, 1994. Average loans to average deposits were 62.6% for the first half of
1994 in comparison with 56.0% for 1993.
Shareholders' equity was $46.6 million at June 30, 1994, representing a
21
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
15.6% increase over the prior year.
The following table provides information on the risk-based capital
position of Commerce.
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993 1993
----------- ---------- --------------
<S> <C> <C> <C>
Tier I Capital:
Shareholders' equity $ 47,187 $ 40,322 $ 43,589
Less: intangible assets 888 2,077 1,024
----------- ----------- --------------
Total Tier I 46,299 38,245 42,565
Tier II Capital:
Qualifying allowance for loan losses (1) 5,655 4,947 5,460
Mandatory convertible debt instruments 4,995 4,995 4,995
----------- ---------- --------------
Total Tier II 10,650 9,942 10,455
----------- ---------- --------------
Total Risk Based Capital $ 56,949 $ 48,187 $ 53,020
=========== =========== ==============
Total Assets $692,067 $666,397 $689,630
Total Risk Weighted Assets 450,871 394,039 436,800
Risk Weighted Assets to Total Assets 65.15% 59.13% 63.34%
Risk Based Capital Ratios:
Tier I (4% minimum requirement) 10.27% 9.71% 9.74%
Total (8% minimum requirement) 12.63% 12.23% 12.14%
Tier I Leverage Ratio (3% minimum requirement) 6.67% 5.99% 6.49%
</TABLE>
- --------------------------------------------------------------------------------
(1) Limited to 1.25% of risk weighted assets
22
<PAGE>
COMMERCE BANK
Form F-4
June 30, 1994
Signatures
Under the requirements of the Securities Exchange Act of 1934, the Bank has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
COMMERCE BANK
Date: August 10, 1994 /s/ Gerald T. McDonald
--------------- ----------------------------
Gerald T. McDonald
Executive Vice President/CFO
(804) 456-1006
Date: August 10, 1994 /s/ Clyde E. McFarland
--------------- ----------------------------
Clyde E. McFarland
Vice President/Controller
(804) 456-1093
23
<PAGE>
99.7
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
FORM F-3
CURRENT REPORT
Pursuant to Section 13 of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 24, 1994.
--------------
COMMERCE BANK
-------------
(Exact name of bank as specified in its charter)
Commonwealth of Virginia
------------------------
(State or other jurisdiction of incorporation)
5101 Cleveland Street, Virginia Beach, Virginia 23462
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Bank's telephone number, including area code: (804) 456-1007
----------------
<PAGE>
Items 1-11 and Item 13 of Form F-3 have been omitted from this Report as these
Items are not applicable.
Item 12. Other Materially Important Events
Commerce Bank (the "Bank") entered into an Agreement and Plan of
Reorganization, dated as of June 24, 1994 (the "Agreement"), with BB&T Financial
Corporation, a bank holding company headquartered in Wilson, North Carolina
("BB&T"). The Agreement provides for the merger of the Bank with and into a
subsidiary of BB&T. Attached as an exhibit hereto is a copy of the press release
issued on June 24, 1994 announcing the proposed transaction.
As an inducement for BB&T to enter into the Agreement, the Bank
entered into a Stock Option Agreement, Dated as of June 24, 1994 (the "Option
Agreement"), whereby it granted BB&T an irrevocable option (the "Option") to
purchase up to that number of shares of Bank common stock (the "Option Shares")
as would equal 19.9% of the aggregate shares of Bank common stock that would be
outstanding immediately after the issuance of the Option Shares upon full
exercise of the Option, at a price of $13.50 per Option Share. The Option is
exercisable, in whole or in part, at any time and from time to time for a
designated period of time following the occurrence of a "Purchase Event" (as
defined in the Option Agreement). A copy of the Option Agreement is attached
hereto as an exhibit.
Signatures
----------
Under the requirements of the Securities Exchange Act of 1934, the
Bank has duly caused the Report to be signed on its behalf by the undersigned
hereunto duly authorized.
COMMERCE BANK
By: /s/ Gerald T. McDonald
------------------------
Gerald T. McDonald
Executive Vice President
Date: July 5, 1994
<PAGE>
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN.
OPTION AGREEMENT
----------------
This AGREEMENT dated as of June 24, 1994, between BB&T Financial
Corporation, a North Carolina corporation ("BB&T Financial"), and Commerce Bank,
a bank chartered under the laws of the Commonwealth of Virginia ("Commerce").
W I T N E S S E T H:
--------------------
WHEREAS, the Boards of Directors of BB&T Financial and Commerce have
approved an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of June 24, 1994 between BB&T Financial and Commerce,
providing for the merger of Commerce with and into an indirect subsidiary of
BB&T Financial (the "Merger"), which Reorganization Agreement has been executed
by the parties immediately prior to this Agreement;
WHEREAS, as a condition to BB&T Financial's entry into the Reorganization
Agreement and in consideration of such entry, Commerce has agreed to grant to
BB&T Financial the option set forth herein;
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms defined in the Reorganization Agreement
-----------
and used herein shall have the same meanings as in the Reorganization Agreement.
2. Grant of Option. Commerce hereby grants to BB&T Financial an option
---------------
(the "Option") to purchase up to 540,000 shares of authorized but unissued
shares of Commerce Common Stock at a price of $31.50 per share (the "Exercise
Price") payable in cash as provided in Section 4 hereof; provided, however, that
such number of shares shall be reduced if and to the extent necessary so that
the number of shares for which this Option is exercisable shall not exceed 19.9%
of the issued and outstanding Commerce Common Stock, before giving effect to the
exercise of the Option. The number of shares of Commerce Common Stock that may
be received upon the
<PAGE>
exercise of the option are subject to adjustment as set forth herein.
3. Exercise of Option. (a) Subject to compliance with applicable law and
regulation, BB&T Financial may exercise the Option, in whole or part, at any
time or from time to time if a Purchase Event (as defined below) shall have
occurred and be continuing.
(b) Commerce shall notify BB&T Financial promptly in writing of the
occurrence of any transaction, offer or event giving rise to a Purchase Event.
If more than one of the transactions, offers or events giving rise to a
Purchase Event is undertaken or effected by the same person or occurs at the
same time, then all such transactions, offers and events shall give rise only to
one Purchase Event, which Purchase Event shall be deemed continuing for all
purposes hereof until all such transactions are terminated or abandoned by such
person and all such events have ceased or ended.
(c) In the event BB&T Financial wishes to exercise the Option, it shall
send to Commerce a written notice (an "Exercise Notice," the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares BB&T Financial will purchase, pursuant to such exercise, and (ii) a place
and date not earlier than three business days nor later than 20 business days
from the Notice Date for the closing of such purchase with respect to such
exercise (the "Option Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such purchase, BB&T Financial, and/or if required by applicable law,
Commerce, shall promptly file the required notice or application for approval
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which the
last required notification period has expired or been terminated or such
approvals have been obtained and any requisite waiting periods shall have
passed.
(d) The Option shall expire and terminate, to the extent not
previously exercised, upon the earlier of:
(i) the Effective Date of the Merger;
(ii) the date on which the Reorganization Agreement is
terminated, other than a
- 2 -
<PAGE>
termination based upon, following or in connection with either (A) a material
breach by Commerce of a Specified Covenant (as hereinafter defined) or (B) the
failure of Commerce to obtain shareholder approval of the transactions
contemplated by the Reorganization Agreement by the vote required under
applicable law, in the case that either (A) or (B) follow the occurrence of a
Purchase Event; or
(iii) 18 months after the Reorganization Agreement is terminated
based upon a material breach by Commerce of a Specified Covenant or the failure
of Commerce to obtain shareholder approval of the transactions contemplated by
the Reorganization Agreement by the vote required under applicable law, in
either case following the occurrence of a Purchase Event.
(e) Notwithstanding the foregoing, if BB&T Financial provides Commerce
with an Exercise Notice relating to all or part of such Option, and Commerce
tenders performance of its obligations hereunder on the Option Closing Date
specified herein but BB&T Financial fails to tender performance of its
obligations hereunder on such Option Closing Date, then the Option shall
expire and terminate effective at 5:00 p.m., Eastern time on such Option Closing
Date.
(f)(i) As used herein, "Purchase Event" shall mean when:
(A) Commerce shall have entered into an agreement with a person
(other than BB&T Financial or its affiliates) to: (a) acquire, merge or
consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all or the assets of
Commerce, or (c) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing more that 10 percent of the voting power of Commerce or any of its
subsidiaries; or
(B) any person shall have acquired beneficial ownership of more
than 10 percent of the outstanding shares of Commerce Common Stock; or any
person shall have merged, consolidated with or consummated a similar transaction
with Commerce or any person shall have purchased, leased or otherwise acquired
all or substantially all of Commerce's assets; or
- 3 -
<PAGE>
(C) a bona fide proposal is made by any person (other than
BB&T Financial or its affiliates) by public announcement or written
communication that is or becomes the subject of public disclosure, or in an
application to any federal or state regulatory authority, to (a) acquire, merge
or consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all of the assets of
Commerce, or (c) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange, tender or exchange offer or any similar
transaction) securities representing more than 25 percent of the voting power of
Commerce;
(ii) A "Specified Covenant" shall mean any of Commerce's
covenants or agreements provided in the Reorganization Agreement.
(iii) The term "person" shall have the meaning specified in
Section 3(a)(9), and "beneficial ownership" shall have the meaning specified
under Section 13(d)(3), of the Exchange Act.
4. Payment and Delivery of Certificates. (a) At the closing referred to
------------------------------------
in Section 3 hereof, BB&T Financial shall pay to Commerce the aggregate purchase
price for the shares purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a financial institution
designated by Commerce.
(b) At any closing relating to an exercise of the Option,
simultaneously with the delivery of cash by BB&T Financial as provided in
subsection (a) with respect to the Option, Commerce shall deliver to BB&T
Financial a certificate or certificates representing the number of shares
purchased by BB&T Financial, and BB&T Financial shall deliver to Commerce a
letter agreeing that BB&T Financial will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this Option
Agreement.
5. Representations. Commerce hereby represents and warrants to, and
---------------
covenants with, BB&T Financial as follows:
(a) Commerce has taken all necessary corporate action to authorize and
reserve for issuance the full number of shares of Commerce Common Stock
- 4 -
<PAGE>
issuable upon exercise of the Option, and shall continue to reserve such shares
until this Agreement is terminated as provided herein.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. Adjustment upon Changes in Capitalization. In the event of any change
-----------------------------------------
in Commerce Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the number of
shares subject to the Option and its purchase price per share shall be adjusted
appropriately so that the economic value of the Option is unaltered. In the
event that any shares of Common Stock of Commerce are issued after the date of
this Agreement other than in a transaction described in the first sentence of
this Section 6 or pursuant to the exercise of the Option, the number of shares
subject to the Option shall be adjusted so that, immediately after such
issuance, the number of shares (together with the number of shares previously
issued under the Option) equals 19.9 percent (subject to reduction as provided
in Section 2 hereof) of the sum of (a) the then-outstanding shares of Commerce
Common Stock plus (b) the number of shares subject to the Option after the
adjustment provided in this sentence. Nothing contained in this Section 6 shall
be deemed to authorize Commerce to breach any provision of the Reorganization
Agreement or the Plan of Merger.
7. Severability. If any term, provision, covenant or restriction
------------
contained in this Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Option Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated. If for any
reason such court or regulatory agency determines that the Option will not
permit the holder to acquire the full number of shares of Commerce Common Stock
provided in Section 2 hereof (as adjusted pursuant to Section 6 hereof), it is
the express intention of Commerce to allow the holder to acquire such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
- 5 -
<PAGE>
8. Miscellaneous. (a) Expenses. Except as otherwise provided herein, each
------------- --------
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
----------------
this Agreement contains 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. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
----------
rights or obligations under this Agreement to any other person, without the
express written consent of the other party, except that BB&T Financial may
assign in whole or in part the Option and other benefits and obligations
hereunder without limitation to any of its wholly owned subsidiaries and BB&T
Financial may assign in whole or in part the Option and other benefits and
obligations hereunder without limitation if a Purchase Event has occurred and
BB&T Financial shall have delivered to Commerce a copy of a letter from the
staff of the Commission, or an opinion of counsel, in form and substance
reasonably satisfactory to Commerce, to the effect that such assignment will not
violate the requirements of the Securities Act; provided that prior to any such
assignment, BB&T Financial shall give written notice of the proposed assignment
to Commerce, and within 24 hours of receipt of such notice of a bona fide
proposed assignment, Commerce may purchase the Option at a price and on other
terms at least as favorable to BB&T Financial as that set forth in the notice
of assignment.
(d) Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by Federal Express, Express Mail, another service which provides
overnight delivery,
- 6 -
<PAGE>
telegram or telex or other facsimile transmission addressed as follows:
If to Commerce:
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
With a required copy to:
Mays & Valentine
1111 East Main Street
Richmond, VA 23208-1122
Attention: George P. Whitley
If to BB&T:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
Facsimile: (919) 399-4418
With a required copy to:
Arnold & Porter
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: Barbara E. Mathews
Facsimile: (213) 243-4153
Any notice hereunder shall be deemed delivered when received at the address
of such party set forth above (or to such other address as such party hereto
shall advise the other in writing).
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
--------------------
inadequate remedy for a breach of the provisions of this Agreement by Commerce
and that
- 7 -
<PAGE>
this Agreement may be enforced by BB&T Financial through injunctive or other
equitable relief.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Virginia without regard to
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the day and year first written above.
BB&T FINANCIAL CORPORATION
By: /s/ John A. Allison IV
------------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------
COMMERCE BANK
By: /s/ G. Robert Aston, Jr.
------------------------------------
Title: President & CEO
---------------------------------
- 8 -
<PAGE>
EXHIBIT 99.8
[LOGO OF COMMERCE BANK
APPEARS HERE]
April 11, 1994
Dear Fellow Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held at the Radisson Hotel in Hampton, Virginia on Thursday, May 12, 1994, at
12:00 noon. The formal notice of the Annual Meeting and Proxy Statement
describing the matters to be presented are enclosed. Please give them your
prompt and careful attention.
The matters scheduled for consideration at the meeting are the election of
directors, the ratification of the appointment of directors to the six Regional
Boards serving the Virginia Beach, Portsmouth, Peninsula, Chesapeake, Norfolk
and Suffolk communities, the approval of an amendment to the Bank's Articles of
Incorporation to increase the number of authorized shares of Common Stock to
10,000,000, and the ratification of the appointment of independent auditors. We
will also report to you on the Bank's condition and performance.
The meeting will be followed by a reception at the Hampton Air & Space
Museum that we hope you will be able to attend.
Your continuing interest in the business of Commerce Bank is appreciated,
and we hope you will attend the Annual Meeting. Whether or not you are
personally present, it is important that your shares be represented at the
meeting. Accordingly, please sign, date, and mail the enclosed Proxy promptly.
If you wish to vote in accordance with the Board of Directors' recommendations,
it is not necessary to specify your choices. You may merely sign, date, and
return the enclosed Proxy.
We hope you will be with us.
Cordially,
/s/ Thomas C. Broyles /s/ G. Robert Aston, Jr.
Thomas C. Broyles G. Robert Aston, Jr.
Chairman of the Board President and Chief
Executive Officer
<PAGE>
COMMERCE BANK
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 12, 1994
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Commerce Bank will be held at the
Radisson Hotel located at 700 Settlers Road, Hampton, Virginia, on Thursday, May
12, 1994 at 12:00 noon for the following purposes:
1. To elect directors for the ensuing year, or until their successors have
been elected and qualified (page 1);
2. To ratify the appointment of the members elected to serve on the six
Regional Boards of Directors for the Virginia Beach, Portsmouth,
Peninsula, Chesapeake, Norfolk and Suffolk communities (page 6);
3. To approve an amendment to the Bank's Articles of Incorporation to
increase the number of authorized shares of Common Stock from 5,000,000
to 10,000,000 shares (page 14);
4. To ratify the appointment of Ernst & Young as independent accountants
and auditors for 1994 (page 15); and
5. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1994 as
the record date for determination of shareholders entitled to notice of and to
vote at the meeting and any adjournments thereof.
By Order of the Board of Directors,
David W. Edmondson, C.P.A.
Senior Vice President
and Corporate Secretary
April 11, 1994
<PAGE>
COMMERCE BANK
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 12, 1994
GENERAL
The enclosed proxy is solicited by the Board of Directors of Commerce Bank
(the "Bank") for the Annual Meeting of Shareholders (the "Annual Meeting") of
the Bank to be held Thursday, May 12, 1994, at the time and place and for the
purposes set forth in the accompanying Notice of the Annual Meeting.
Shareholders may revoke their proxies at any time prior to their exercise by
written notice to the Bank, by submitting a proxy bearing a later date, or by
attending the Annual Meeting and requesting to vote in person. The approximate
mailing date of this Proxy Statement and accompanying proxy is April 11, 1994.
OUTSTANDING SHARES, RECORD DATE AND SOLICITATION
Only those shareholders of record at the close of business on March 31,
1994, are entitled to notice of and to vote at the Annual Meeting or any
adjournments thereof. The number of shares of Common Stock, par value $2.50 per
share ("Common Stock"), of the Bank outstanding and entitled to vote as of the
record date was 2,702,538. Shareholders are entitled to one vote for each share
held on such date.
The cost of solicitation of proxies will be borne by the Bank.
Solicitation is being made by mail, and if necessary may be made in person, or
by telephone or special letter by officers and regular employees of the Bank,
none of whom will receive additional compensation for performing such services.
Proxies properly executed will be voted at the Annual Meeting or any
adjournments thereof in the manner specified therein.
OWNERSHIP OF 5% OR MORE
No person owns 5% or more of the outstanding shares of Common Stock,
except for FMR Corp. ("Fidelity Investments"), Boston, Massachusetts, which
owned 248,850 shares of Common Stock, representing 9.3% of the outstanding
shares, according to the most recent Schedule 13G filing of Fidelity Investments
received by the Bank.
ELECTION OF DIRECTORS - PROPOSAL ONE
Nominees for Election
The twenty-one persons named below,all of whom currently serve on the
Board of Directors, will be nominated to serve as directors until the 1995
Annual Meeting of Shareholders or until their successors have been duly elected
and qualified. The persons named in the proxy will vote for the election of the
nominees named below unless authority is withheld. If for any reason any of the
persons named below should become unavailable to serve, an event which
management does not anticipate, proxies will be voted for the remaining
nominees and such other person or persons as the Board of Directors may
designate.
<PAGE>
<TABLE>
<CAPTION>
Number
(Percent) of
Served as Principal Shares Owned
Director Occupation During as of
Name and Age Since Past Five Years March 1, 1994 (1)
- ------------ ----- --------------- -----------------
<S> <C> <C> <C>
Sally James Andrews, 46 1990 Deputy City Attorney, 6,265* (2)(3)
City of Hampton
G. Robert Aston, Jr., 48 1985 President and Chief 82,121 (2)(4)
Executive Officer of the Bank (3.0%)
Ramon W. Breeden, Jr., 60 1978 Chief Executive Officer, 87,317 (2)(3)
The Breeden Companies, Inc., (3.2%)
Virginia Beach, Va.
(real estate development)
John W. Brown, 44 1990 Attorney-at-Law, 1,502* (5)
John W. Brown, P.C.,
Chesapeake, Va.
Thomas C. Broyles, 63 1978 Chairman of the Board of the 29,778 (5)
Bank; Attorney-at-Law, (1.1%)
Member of the law firm of
Kaufman & Canoles, Norfolk, Va.
Bradford L. Cherry, 52 1985 President and Treasurer, 3,952* (3)
Cherry Carpet, Inc.,
Portsmouth, Va.
J. W. Whiting Chisman, Jr., 52 1986 Vice-Chairman of the Board 91,886 (2)(3)
of the Bank; Private Investor (3.3%)
since December 1988; formerly
served as President and Manager,
Chisman Company, Hampton, Va.
(producers of ready mix concrete)
Elwood L. Edwards, C.P.A., 55 1986 Certified Public Accountant, 2,528*
President of the accounting
firm of Eggleston, Smith,
Hall, Cotman & Company, P.C.,
Newport News, Va.
Andrew S. Fine, 57 1978 Attorney-at-Law, Member 114,491 (2)(3)(5)
of the law firm of Fine, (4.2%)
Fine, Legum & Fine, P.C.
Virginia Beach, Va.
Ernest F. Hardee, 53 1985 Vice-Chairman of the Board 79,319 (2)(6)
of the Bank, Hardee Realty Corp (2.9%)
Portsmouth, Va.
(real estate management)
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Number
(Percent) of
Served as Principal Shares Owned
Director Occupation During as of
Name and Age Since Past Five Years March 1, 1994 (1)
------------ --------- ----------------- -----------------
<S> <C> <C> <C>
John C. Harry, III, 57 1990 President, John C. Harry, 1,217*
Inc., Norfolk, Va. (real
estate appraiser)
E. L. Hudson, 64 1982 Owner, Hudson Enterprises 45,217 (2)(3)
Norfolk, Va. (1.7%)
(construction contracting
and real estate leasing)
William J. Jones, 57 1979 President, Atlantic X-Ray 12,452* (2)
Service, Inc., Virginia
Beach, Va. (medical equipment
sales)
Arthur J. Lancaster, Jr., 75 1987 President, Bennett's Creek 11,148* (2)
Wholesale Nursery, Suffolk, Va.
W. Ashton Lewis, 48 1985 President, Bill Lewis 31,310 (2)(3)
Chevrolet Corporation, (1.2%)
Chesapeake, Va. (retail)
automobile sales)
J. Alan Lindauer, C.M.C., 54 1985 President, Waterside 103,813 (2)(3)(6)(7)
Management, Inc., (3.8%)
Virginia Beach, Va.
(business and financial
consulting)
R. Scott Morgan, 48 1986 Executive Vice President 26,410* (2)(4)
and Senior Lending Officer
of the Bank
Donald N. Pattern, 51 1986 Attorney-at-Law, Member 24,316* (2)(3)(5)
of the law firm of Patten,
Wornom & Watkins, L.C.,
Newport News, Va.
Edward B. Snyder, 66 1982 President, Checkered Flag 24,323* (2)(3)
Motor Car Company,
Virginia Beach, Va.
(retail automobile sales)
George W. Vakos, 62 1984 Judge (retired); President 27,930 (2)(3)
Atlantic Enterprises, Inc. (1.0%)
t/a Oceanfront Inn,
Virginia Beach, Va.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Number
(Percent) of
Served as Principal Shares Owned
Director Occupation During as of
Name and Age Since Past Five Years March 1, 1994 (1)
------------ --------- ----------------- -----------------
<S> <C> <C> <C>
F. Lewis Wood, 55 1986 Chairman of the Board, 20,238* (2)(3)
Hampton Motor Corporation
t/a Hampton Chevrolet-Jeep
Eagle, Hampton, Va.
(retail automobile sales)
All Directors and Executive 884,896 (2)(3)(4)
Officers as a Group (32 persons) (29.8%)
</TABLE>
- -----------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934 (the "1934 Act"), as adopted by the Federal Deposit Insurance
Corporation with which the Bank files reports, proxy statements and other
information pursuant to the informational requirements of the 1934 Act.
Under this rule, in general, a person is deemed to be the beneficial owner
of a security if he has or shares the power to vote or to direct the voting
of the security or the power to dispose or to direct the disposition of the
security, or if he has the right to acquire beneficial ownership of the
security within 60 days.
(2) Includes the indicated number of shares, or shares that may be acquired
upon the conversion of the Bank's 10% Convertible Subordinated Capital
Notes (the "Convertible Notes"), held by their close relatives or held
jointly with their spouses or as custodians or trustees for the benefit of
their children or others -- Mrs. Andrews, 4,646 shares; Mr. Aston, 1,855
shares; Mr. Breeden, 22,178 shares; Mr. Chisman, 11,757 shares; Mr. Fine,
4,641 shares; Mr. Hardee, 59,421 shares; Mr. Hudson, 1,211 shares; Mr.
Lancaster, 7,883 shares; Mr. Lewis, 7,679 shares; Mr. Lindauer, 1,410
shares; Mr. Morgan, 74 shares; Mr. Patten, 3,384 shares; Mr. Snyder, 11,591
shares; Mr. Vakos, 7,783 shares; and Mr. Wood, 5,892 shares; and all
executive officers as a group, 1,194 shares. The amounts shown in the table
also include the indicated number of shares, and shares that may be
acquired upon the conversion of the Bank's Convertible Notes, held by
certain corporations and partnerships under the control of -- Mr. Chisman,
4,211 shares; Mr. Fine, 93,523 shares; Mr. Hardee, 1,869 shares; Mr.
Hudson, 34,091 shares; Mr. Jones, 10,688 shares; Mr. Lewis, 54 shares; and
Mr. Patten, 4,710 shares.
(3) Includes the indicated number of shares that may be acquired upon the
conversion of the Bank's Convertible Notes held in their own names or for
their benefit -- Mrs. Andrews, 789 shares; Mr. Breeden, 13,158 shares; Mr.
Cherry, 1,316 shares; Mr. Chisman, 42,684 shares; Mr. Fine, 2,632 shares;
Mr. Hudson, 1,421 shares; Mr. Lewis, 1,737 shares; Mr. Lindauer, 8,369
shares; Mr. Patten, 2,894 shares; Mr. Snyder, 1,053 shares; Mr. Vakos,
6,421 shares, and Mr. Wood, 2,737 shares.
(4) Includes the indicated number of shares that may be acquired within 60 days
pursuant to the exercise of stock options granted under the Bank's stock
option plans - Mr. Aston, 79,732 shares; Mr. Morgan, 13,040 shares; and all
executive officers as a group, 149,011 shares. See "Executive Compensation-
Stock Option Plans."
(5) See "Executive Compensation - Transactions with Management."
(6) Does not include 12,154 shares that each of Messrs. Hardee and Lindauer may
acquire pursuant to a currently exercisable stock option agreement they
have entered into with another director of the Bank.
-4-
<PAGE>
(7) Includes 21,923 shares held by the Bank's Trust Department as trustee for
Mr. Lindauer, and as to which shares Mr. Lindauer has the power to direct
the voting.
There are no family relationships among any of the directors or between any
of the directors and executive officers of the Bank.
During 1993, the Board of Directors of the Bank held a total of twelve
meetings. The Executive Committee of the Board of Directors met ten times, the
Audit Committee five times, and Compensation/Stock Option Committee one time.
All nominees who served as directors of the Bank, except for Messrs. Bresden and
Jones, attended at least 75% of all the meetings of the Board and committees on
which they served.
Committees of the Board of Directors
The Board of Directors of the Bank has a total of five committees,
including standing Executive, Audit, Compensation/Stock Option, Trust and
Marketing Committees.
The Executive Committee consists of Messrs. Aston (Chairman), Bresden,
Broyles, Chisman, Fine, Hardee, Jones, Lewis, Lindauer and Wood. The primary
duties of the Executive Committee are to act in the Board's stead when the Board
is not in session, during which time the Committee possesses all the powers of
the Board in the management of the business and affairs of the Bank, except as
otherwise limited by law.
The Audit Committee consists of Messrs. Edwards (Chairman), Cherry, Hardee,
Lancaster and Mr. Dennis R. Deans from the Norfolk Community Board of Directors.
The committee is responsible for reviewing the financial condition of the Bank,
its internal controls and audit program, the performance and findings of the
internal audit staff, and any action taken thereon by management. The Committee
reviews audit and examination reports of regulatory agencies and of the
independent auditors. The Audit Committee also selects the Bank's independent
auditors for appointment by the Board, subject to appropriate ratification.
The Compensation/Stock Option Committee consists of Messrs. Fine
(Chairman), Broyles, Chisman, Hardee, Jones, Lindauer and Wood. This Committee
approves the compensation of senior management and administers the Bank's stock
option plans.
The Board does not have a nominating committee. The entire Board of
Directors selects and recommends a slate of nominees to be voted on for election
as directors at each Annual Meeting and selects persons to fill vacancies on the
Board.
Directors' Compensation
Directors of the Bank in 1993 received $350 for attendance at each meeting
of the Board. Directors serving on the Executive Committee received $200 for
each meeting attended. Directors serving on the Audit and Compensation/Stock
Option Committees received $50 for each meeting attended. No director who is an
employee of the Bank is compensated for services as a member of any committee of
the Board. Members of each of the Virginia Beach, Portsmouth, Peninsula,
Norfolk, Chesapeake and Suffolk Regional Boards of Directors received $200 in
1993 for each meeting attended.
-5-
<PAGE>
RATIFICATION OF REGIONAL BOARDS - PROPOSAL TWO
In addition to the Corporate Board of Directors described above, the Bank
has six Regional Boards of Directors to guide its development of each of the
six distinct market areas the Bank serves: Virginia Beach, Portsmouth, the
Peninsula, Chesapeake, Norfolk and Suffolk. The Corporate Board is made up of
representatives from each of the six Regional Boards. It is the responsibility
of each Regional Board, acting under delegated authority of the Corporate Board,
to direct the overall development of its respective community and to make local
loan decisions below specified dollar amounts.
The members of the respective Regional Boards of Directors are as follows:
Virginia Beach Board of Directors
---------------------------------
Andrew S. Fine, Chairman William L. Hendricks
Attorney-at-Law President, Weather Makers, Inc.
Fine, Fine, Legum & Fine, P.C.
Ernest L. Hudson
Robert W. Berry, Jr., Vice Chairman Owner, Hudson Enterprises
Manager, C & P Telephone Company (Retired)
William J. Jones
G. Robert Aston, Jr. President, Atlantic X-Ray Service,
President and Chief Executive Officer, Inc.
Commerce Bank
John Jay, M.D.
Frederick W. Twyman, III General Hospital Pathologists
President/Virginia Beach, Commerce Bank
Gary D. McMahan, General Agent
Ramon W. Breeden, Jr. Massachusetts Mutual Life Insurance
Chief Executive Officer Company
The Breeden Companies
J. Harry Mote, President
Thomas C. Broyles J. Harry Mote & Son General
Attorney-at-Law Contractors, Inc.
Kaufman & Canoles:
Chairman of the Board, Commerce Bank Edward B. Snyder
President, Checkered Flag Motor
Van H. Cunningham Car Company
Chairman, Charter Investment Group
Louisa Strayhorn
Robert E. Fentress Reengineering Facilitator,
Senior Vice President, Commerce Bank Internal Management Consultant,
(Retired) Sentara Health System
James N. Fletcher George W. Vakos
Vice President, Commerce Bank Retired Judge; President, Atlantic
(Retired) Enterprises, Inc. t/a
Oceanfront Inn
Bertram L. Warren, Jr., M.D.
Obstatrics and Gynecology, Inc.
-6-
<PAGE>
Portsmouth Board of Directors
-----------------------------
Arthur L. Cherry, Chairman Ernest F. Hardee
Chairman and Chief Executive President, Hardee Realty Corporation;
Officer, Cherry Carpet, Inc. Vice Chairman of the Board,
Commerce Bank
G. Robert Aston, Jr.
President and Chief Executive Officer, James W. Holley, III, D.D.S.
Commerce Bank
Arthur J. Lancaster, Jr.
R. Scott Morgan President, Bennett's Creek Wholesale
Executive Vice President and Nursery; President, Lancaster Old Toy
Senior Landing Officer, Commerce Bank and Train Museum
P. Ward Robinett, Jr. Jerrold L. Miller
President/Portsmouth, Commerce Bank President, Earl Industries, Inc.
Bradford L. Cherry William S. Moore, Jr.
President and Treasurer, Attorney-at-Law
Cherry Carpet, Inc. Member, Virginia House of Delegates
W. Carroll Crescy C. Dick Park, M.D.
President, Sales Systems, Ltd. Cardiovascular and Thoracic
of Virginia, The Aloha Motel Surgical Associates, Inc.
Garland R. Culpeper, President, Charles H. Parkerson
Culpepper Radiator Service, Inc. President, Lancaster Farms, Inc.
Neal P. Davis, D.D.S. Robert B. Seal, M.D.
(Retired) Dr. R. B. Seal, Ltd.
W. Durbin Donahue, D.V.M. Robert L. Sondej
Churchland Animal Hospital, Inc. Attorney-at-Law
Sondej & Whitlow, P.C.
John W. Frankos, C.P.A.
Falles & Associates Ned D. Taylor, D.D.S.
Drs. Dodson, Taylor and Jett, Inc.
Nancy G. Wren
-7-
<PAGE>
Peninsula Board of Directors
----------------------------
J. W. Whiting Chisman, Jr,. Chairman S. Frear Hawkins, II
Private Investor and Developer; Attorney-at-Law,
Vice Chairman of the Board, Commerce Bank Hawkins, Burcher & Boester
G. Robert Aston, Jr. Daniel B. Nice
President and Chief Executive Officer, Vice President
Commerce Bank Nice Brother, Inc.
Dennis A. Holbrook Donald N. Patten
President/Peninsula, Commerce Bank Attorney-at-Law
Patten, Wornom & Watkins, L.C.
Sally James Andrews Robert F. Ripley, Jr.
Deputy City Attorney Attorney-at-Law
for Hampton, Virginia
Secretary/Treasurer, G.C.R., Inc.
Douglas H. Chessen, M.D.
Douglas H. Chessen, M.D., P.C.
Barry E. DuVal F. Lewis Wood
President, DuVal Associates, Inc. Chairman of the Board
Mayor of Newport News Hampton Motor Corporation
t/a Hampton Chevrolet-Jeep-Eagle
Elwood L. Edwards, C.P.A. Dorothy F. Wright
President, President, DFW Corporation
Eggleston, Smith, Hall, Cotman & Company
Chesapeake Board of Directors
-----------------------------
W. Ashton Lewis, Chairman Mark L. Earley, Sr.
President, Attorney-at-Law
Bill Lewis Chevrolet Corporation Tavss, Fetcher, Earley & King, P.C.
Virginia State Senator
G. Robert Aston, Jr. Paul J. Farrell
President and Chief Executive Officer, President, Rosewell Corporation
Commerce Bank
William A. Copeland, Jr. Stephanie J. Marioneaux, M.D.
President/Chesapeake, Commerce Bank Stephanie J. Marioneaux, M.D., P.C.
Dr. C. Fred Bateman Juan M. Montero, II, M.D.
Superintendent, Chesapeake Public Schools Juan M. Montero, II, M.D., Inc.
E. Lee Baynor Carl C. Rumsey, Sr.
President, Baynor Furniture President and Chief Executive
Officer,
Oil Transport, Inc.
John W. Brown Lee W. Smith, Sr.
Attorney-at-Law President and Chief Executive
John W. Brown, P.C. Officer,
Lee's Contracting Services, Inc.
Lloyd H. Burton Pat J. Viola, C.P.A.
Executive Vice President, Goodman & Company
Burton Lumber Corporation
-8-
<PAGE>
Norfolk Board of Directors
--------------------------
Dorothy M. Doumar, Chairman J. Alan Lindauer, C.M.C.
President, Waterside Management, Inc.
G. Robert Aston, Jr. Thomas E. Robinson
President and Chief Executive Officer, President, Robinson & Wetmore
Commerce Bank
W. Thomas Pearson, Jr. William P. Robinson, Jr.
President/Norfolk, Commerce Bank Attorney-at-Law, Robinson, Madison,
Fulton and Anderson; Member, Virginia
House of Delegates
Gloria J. Abel Robert M. Rubin, D.M.D.
Senior Vice President and Senior Banking Drs. Rubin, Karesh and Shivar, Ltd.
Director, Commerce Bank
Gary M. Bowers Jack B. Taylor, M.D.
President, The Jonathan Corporation (Retired)
Bettie Minette Cooper John J. Vavals
Attorney-at-Law, Kaufman & Canoles
Dennis R. Deans, C.P.A.
Partner, McPhillips, Lieland and Deans
David W. Edmondson, C.P.A.
Senior Vice President and
Corporate Secretary, Commerce Bank
Suffolk Board of Directors
--------------------------
McLemore Birdsong, Jr., Chairman William C. Glermak
Vice President, Birdsong Corporation Administrator, Obioi Hospital
G. Robert Aston, Jr. John C. Harry, III
President and Chief Executive Officer, President, John C. Harry, Inc.
Commerce Bank
William C. Branche Robert M. Hayes
President/Suffolk, Commerce Bank District Manager, Virginia Power
Company
Carroll H. Brinkley David L. Holland
President, President, Southern Oil
C. W. Brinkley, Inc.
Ray E. Duke Robert V. House
President, Treasurer, Suffolk Insurance
Duke Oldsmobile-Cadillac Corporation Corporation
E. Grier Ferguson Wayne K. Sawyer
Attorney-at-Law, Ferguson & Rawls, P.C. Vice President, Bennett's Creek
Wholesale Nursery
Russell R. Smith, Jr.
Vice President, O'Connor
and Company, Inc.
-9-
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services in all capacities to the Bank for the years ended
December 31, 1993, 1992 and 1991 of those persons who were, at December 31, 1993
(i) the chief executive officer and (ii) the other four most highly compensated
executive officers of the Bank (the "Named Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------------------
Other All Other
Name and Compen- Compen-
Principal Position Year Salary Bonus (1) sation (2) sation (3)
- ------------------ ---- ------ --------- ---------- ----------
G. Robert Aston, Jr. 1993 $193,600 $196,500 - $187,826
President/Chief 1992 133,225 150,000 - 249,902
Executive Officer 1991 132,600 85,000 - 57,427
R. Scott Morgan 1993 $118,600 $ 55,000 - $ 12,375
Executive Vice 1992 92,925 50,000 - 12,006
President and Senior 1991 82,600 30,000 - 11,032
Lending Officer
Gerald T. McDonald 1993 $ 90,000 $ 35,000 - $ 11,946
Executive Vice 1992 75,000 45,000 - 9,942
President and Chief 1991 68,800 27,000 - 6,831
Financial Officer
Dennis A. Holbrook 1993 $ 83,025 $ 34,243 - $ 9,499
President/Peninsula 1992 76,875 20,000 - 7,811
1991 75,000 15,000 - 4,635
P. Ward Robinett, Jr.(4) 1993 $ 95,000 $ 20,900 - $ 4,750
President/Portsmouth 1992 0 15,000 - 0
1991 0 0 - 0
- ---------------------
(1) Amounts awarded by the Compensation/Stock Option Committee.
(2) The amount of compensation in the form of perquisites or other personal
benefits properly categorized in this column did not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported in each year
for the Named Officers and, therefore, is not required to be reported
(3) The amounts shown in this column consists of the following: (i) Bank
matching contributions or accruals to the Bank's 401(k) Thrift and Profit
Sharing Plan - such amounts for 1993 are $7,930, $6,625, $7,446, and
$5,347, respectively for Messrs. Aston, Morgan, McDonald and Holbrook.
(ii) an officers deferred compensation plan - such amounts for 1993 are
$34,000, $5,750, $4,500, $4,152, and $4,750, respectively for Messrs.
Aston, Morgan, McDonald, Holbrook and Robinett. (iii) Life Insurance
Premiums - such amount for 1993 was $20,986 for Mr. Aston. (iv)
Supplemental Compensation Agreement - such amount for 1993 was $125,000 for
Mr. Aston.
(4) Mr. Robinett commenced his employment with the Bank on December 15, 1992.
-10-
<PAGE>
The total cash compensation for all executive officers as a group (13
persons) for 1993 was $1,893,376.
The Bank does not have a pension or retirement plan in effect for
employees. The Bank does, however, have a 401(k) Thrift and Profit Sharing Plan
for employees and a Deferred Compensation Plan for directors, both as described
below. The Bank provides group life, health and long-term disability insurance
coverage for all officers of the Bank and covers 51% of the premium costs for
this coverage for all employees and officers. No compensation was paid or
accrued during 1993 the distribution of which is subject to some future event.
Employment Arrangements
In 1985, the Bank entered into an employment agreement with Mr. Aston for
a period of five years at a base salary, together with incentive or bonus
compensation, in amounts determined by the Board of Directors in accordance with
the salary administration program then in effect. That agreement expired on
March 31, 1990. In accordance with the terms of a new employment agreement dated
as of April 30, 1992, Mr. Aston will be employed for a five-year term beginning
on May 1, 1992 and ending on April 30, 1997, unless renewed by the Bank for one
additional year. Under the agreement, Mr. Aston's base salary may not be less
than $130,000 per year, and the amount of his bonus compensation may not be less
than 3% of the Bank's "net operating revenues" for that year. If, however, the
annual net operating revenues of the Bank do not exceed $1.5 million, the Bank
is not obligated to pay a cash bonus to Mr. Aston for that year. Net operating
revenues are defined as the consolidated net income of the Bank, but do not
include any proceeds from a transaction that is of a non-recurring or
extraordinary nature. To help provide for his retirement, the agreement provides
that the Bank will set aside each year, whether in the form of an annuity
contract or a deferred compensation account or a combination thereof, an amount
equal to 10% of Mr. Aston's total base salary and bonus compensation for that
year. The compensation arrangements set forth in the agreement are based on the
cash compensation and other benefits paid to Mr. Aston since 1990. Similar to
his original employment agreement, the agreement further provides for certain
benefits in the event of a "change of control" of the Bank. A "change of
control" is defined in the agreement to include (i) the acquisition by any
person of 25% or more of either the then outstanding shares of Common Stock or
the combined voting power of the Bank's then outstanding voting securities,
subject to certain exceptions as described therein, (ii) the approval by
shareholders of a merger, share exchange or consolidation of the Bank with any
other corporation, subject to certain exceptions as described therein or (iii) a
change in the composition of the Board of Directors that results in the members
of the incumbent Board (as defined in the agreement) no longer constituting at
least a majority of the Board. If a change of control occurs, Mr. Aston will be
entitled to receive a severance allowance in an amount equal to the product of
his average annual compensation based on the most recent five taxable years
multiplied by two.
On December 30, 1992, the Bank entered into a Supplemental Compensation
Agreement with Mr. Aston that provides for the payment to Mr. Aston of a total
of $315,000 over a three year period beginning in 1993. This agreement provides
that payments are to be made in eight equal quarterly installments of $31,250
each beginning on January 15, 1993 and continuing on the 15th day of each April,
July, October and January through October 15, 1994, followed by 4 equal
quarterly installments of $16,250 each beginning on January 15, 1995 and
continuing on April 15, July 15 and ending on October 15, 1995. If Mr. Aston
ceases to be employed by the Bank for any reason other than his death or
disability or a change in control of the Bank (as defined in the agreement), no
payment of any then unpaid installments shall be made under the agreement and
all rights of Mr. Aston to receive payments will be forfeited. The agreement
further provides that in the event of Mr. Aston's death or a change in control
of the Bank, any then unpaid installments under the agreement will be
accelerated and paid in one lump sum. In the event of his permanent and total
disability, payments under the agreement will continue as
<PAGE>
originally scheduled. The obligation of the Bank to make payments under the
agreement is an unfunded obligation payable solely from the general assets of
the Bank subject to the claims of the Bank's general creditors.
On November 6, 1991, the Bank entered into a letter agreement with Mr.
Dennis A. Holbrook providing for the Bank to employ Mr. Holbrook as President of
the Peninsula Region. On November 17, 1992, the Bank entered into a letter
agreement with Mr. P. Ward Robinett, Jr., providing for the Bank to employ Mr.
Robinett as President of the Portsmouth Region. On April 5, 1993, the Bank
entered into a letter agreement with Mr. Frederick W. Twyman, III, providing for
the Bank to employ Mr. Twyman as President of the Virginia Beach Region. The
agreements have a three-year term and provide for the Bank to pay Messrs.
Holbrook, Robinett and Twyman, respectively, a base salary of $75,000, $95,000
and $80,000 per year which is subject to the Board of Directors discretion for
adjustment, as well as to awards of bonuses and commissions. In addition, if any
of these individuals should resign as a result of a material adverse change in
their duties or a material reduction in their base salary, or if the Bank
terminates their employment "without cause" (as defined below), then the Bank
generally must pay a post-termination salary for two years to Messrs. Holbrook,
Robinett and Twyman in the amount of $75,000, $95,000 and $80,000, respectively.
Any such post-termination payments would be reduced, however, by any
compensation they receive from other employers. In addition, they would not be
entitled to any such payments if they did not use reasonable efforts to obtain
comparable employment after the resignation or termination. Pursuant to the
agreement, a termination of employment is "without cause" unless it results from
(i) negligent action that damages the Bank or its relations with its customers
or employees, (ii) retirement or death, (iii) conviction of a crime of moral
turpitude or (iv) use of drugs or alcohol in a manner that interferes with the
performance of their duties.
Stock Option Plans
The Bank has two separate stock option plans. Under The Commerce Bank 1985
Stock Option Plan (the "1985 Plan"), the Board of Directors may grant to
management employees of the Bank incentive stock options (which are eligible for
more favorable tax treatment for optionees than non-qualified options) and
non-qualified options covering an aggregate of 209,637 shares of the Bank's
Common Stock, as adjusted to reflect the five 5% stock dividends paid since the
adoption of the 1985 Plan. The Bank's 1993 Incentive Stock Plan (the "1993
Plan") provides for the granting of both incentive and non-qualified stock
options covering an aggregate of 157,500 shares. Tandem stock appreciation
rights may be attached to stock options granted under each plan, and the 1993
Plan provides for the granting of restricted stock awards. No stock appreciation
rights or restricted stock awards have been granted.
Employees are selected to receive awards under the Plans based upon their
responsibilities and their present and potential contributions to the success of
the Bank. The exercise price of all options, stock appreciation rights and
restricted stock awards granted under the Plans may not be less than the fair
market value of the Common Stock on the date of grant, and no option or stock
appreciation right may be exercised more than ten years after the date of grant.
The awards are not transferable other than by will or the laws of descent and
distribution.
As of March 31, 1994, a total of 22 persons held options under the Plans
covering an aggregate of 270,042 shares. These options have a weighted average
exercise price of $14.75 per share and expire at various dates between 1996 and
2003. As of that same date, an aggregate of 97,095 shares remained available
under the Plans for additional grants.
During 1993, stock options covering an aggregate of 62,918 shares were
granted, including options for 5,250, 10,418 and 15,750 shares to Messrs.
McDonald, Holbrook and Robinett,
<PAGE>
respectively, all of whom are named in the Cash Compensation Table. All of the
options granted during 1993 had an exercise price of $22.86.
During 1993, two executive officers exercised options covering an
aggregate of 6,000 shares. Mr. R. Scott Morgan, Executive Vice President and
Senior Lending Officer of the Bank, exercised an option for 1,500 shares with an
option price of $9.41 per share. The aggregate net value of the securities
(i.e., market value of the Common Stock less the option exercise price) received
by Mr. Morgan in connection with the exercise of the option was approximately
$21,885. Mr. William T. Hodsden also exercised a non-qualified option during
1993 for 4,500 shares with an option price of $9.88, which corresponds to an
aggregate net value of securities received of approximately $52,290.
Thrift and Profit Sharing Plan
Under the Commerce Bank Thrift and Profit Sharing Plan ("Thrift Plan"), in
which substantially all employees with at least one year of service are
eligible, each participant may make pre-tax savings contributions by payroll
deduction up to 15% of covered compensation, but not over $8,994 in 1993. The
Bank makes a matching contribution on the first 6% of each participant's covered
compensation to the Thrift Plan from current or accumulated profits in a
percentage determined by the Bank. The Bank may make additional contributions at
its discretion, but the Bank also may amend or terminate the Thrift Plan at any
time without shareholder approval. The matching Bank contribution to the Thrift
Plan may be used to invest in Common Stock of the Bank at its then current
market value.
Deferred Compensation Plan
The Commerce Bank Directors' Deferred Compensation Plan (the "Deferred
Compensation Plan") allows a director to elect to defer payment of directors
fees until a later date. All of the directors that serve on the Board of
Directors of the Bank, the six Regional Boards of Directors, and such other
boards as the Board of Directors may in the future establish may elect to
participate in the Deferred Compensation Plan, which included 50 participants at
March 1, 1994.
The Deferred Compensation Plan provides that any amounts deferred
thereunder will be applied toward the purchase of shares of the Bank's Common
Stock at its then current market value. It provides that the Bank may purchase
either newly-issued shares or shares in the open market. During 1993, 3,991
shares of the Bank's Common Stock were purchased under the Deferred Compensation
Plan.
The shares purchased with a participating director's fees will be held in
a separate trust until the date of distribution designated by such director. In
order to ensure the proper tax treatment, the shares held in the trust will be
subject to the claims of the Bank's creditors. Accordingly, the participants
will have no preference or guarantee of distribution while the shares continue
to be held in the trust.
The Bank may amend or terminate the Deferred Compensation Plan at any time
and from time to time without shareholder approval.
Loans to Officers and Directors
Certain directors and executive officers of the Bank, members of their
immediate families and corporations, partnerships and other entities with which
such person are associated are customers of the Bank. As such, they had
transactions in the ordinary course of business with the Bank during 1993, and
will have additional transactions with the Bank in the future. All loans and
commitments to lend included in such transactions were made in the ordinary
course of
<PAGE>
business, upon substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and have not involved more than the normal risk of collectibility
or presented other unfavorable features. As of December 31, 1993, loans from the
Bank to all executive officers and directors and/or corporations and other
entities in which they are significantly interested amounted to approximately
$20.3 million, which equaled the yearly high. This amount represented
approximately 47% of the total equity capital of the Bank as of December 31,
1993. During 1993, no lending relationship between the Bank and any of its
executive officers of directors and/or corporations or other entities in which
they are significantly interested exceeded 10% of the Bank's equity capital at
December 31, 1993.
Transactions with Management
In the ordinary course of its business, the Bank has engaged in certain
transactions with certain of its officers and directors and/or corporations and
other entities in which they are significantly interested. All such transactions
have been made on substantially the same terms as those prevailing at the time
for comparable transactions with unaffiliated parties. The Bank has engaged
Kaufman & Canoles, the firm of which Mr. Broyles is a partner, Fine, Fine, Logum
& Fine, P.C. the firm of which Mr. Fine is a partner, Patten, Wornom & Watkins,
L.C., the firm of which Mr. Patten is a partner, and Mr. Brown for certain
legal services during the year.
The Bank leases office space at its banking office at 5101 Cleveland
Street in Virginia Beach from the Runnymede Corporation, a Virginia corporation
in which Andrew S. Fine, a director of the Bank, holds approximately a 33%
interest. The lease agreement with Runnymede Corporation contains substantially
the same terms and conditions as those prevailing at the time it was entered
into for the rental of comparable office space form unaffiliated parties. The
Bank's other lease agreements are with unrelated parties. Except for the
foregoing lease agreement with Mr. Fine, no transactions with management during
1993, 1992 or 1991, involved more than $60,00 in the aggregate for any one
interested officer or director during that year.
AMENDMENT TO THE ARTICLES OF INCORPORATION - PROPOSAL THREE
The Board of Directors on March 31, 1994 adopted resolutions declaring it
advisable to increase the authorized number of shares of Common Stock from
5,000,000 to 10,000,000 shares and, for the purpose of effecting such increase,
to amend the first sentence of Article III of the Articles of Incorporation to
read as follows:
The Corporation shall have the authority to issue ten
million (10,000,000) shares of Common Stock, par
value $2.50 per share, and one million (1,000,000)
shares of Serial Preferred Stock, par value $5.00 per
share.
As of March 31, 1994, the Bank had issued and outstanding an aggregate of
2,702,538 shares of Common Stock. No shares of serial preferred stock have been
issued. In addition, a total of 364,637 shares of Common Stock are currently
reserved for the issuance of shares upon the exercise of options, 262,895 shares
are reserved for issuance upon conversion of the Bank's 10% Convertible
Subordinated Capital Notes and an additional 234,321 shares are reserved for
issuance under the dividend reinvestment and stock purchase plan. The Bank
therefore has 1,435,607 shares of Common Stock unissued and unreserved. The
Board of Directors believes that the increase in number of authorized shares of
Common Stock is advisable because of the limited number of unissued and
unreserved shares of Common Stock presently available, and because such increase
will give the Bank greater flexibility in considering and planning future
operations. The Common Stock would be available for issuance by the Board of
Directors for proper corporate purposes including, but not limited to, stock
dividends, stock splits, acquisitions
<PAGE>
and the raising of capital through the sale of stock. Although the Board of
Directors has no present plans for the additional shares, the authorization of
such shares will enable the Bank to act promptly if appropriate circumstances
arise which will require issuance of such shares.
The authorization of additional shares of Common Stock will not, standing
alone, affect the rights of holders of issued shares of Common Stock. Depending
on the circumstances, an issuance of additional shares of Common Stock could
affect the existing holders of shares of Common Stock by diluting the per share
earnings and voting power of Common Stock. Shareholders do not have preemptive
rights to subscribe for, purchase or receive any shares of authorized capital
stock of the Bank.
The proposed amendment may be considered to have certain "anti-takeover"
implications. This is so because it is possible that shares of the additionally
authorized Common Stock could be issued in order to dilute the stock ownership
and voting power of a shareholder attempting to acquire control of the Bank, for
example, through a merger, tender offer, proxy contest or otherwise. The Board
of Directors could issue the additionally authorized shares of Common Stock to
discourage or make more difficult such a takeover attempt which could have the
effect of protecting current management.
The Board of Directors already has the power to authorize the issuance of
shares of Common Stock for any purpose which it deems to be in the Bank's best
interest. Although adoption of this amendment would increase the number of
shares of Common Stock available for issuance, it would not confer any
additional powers upon the Board of Directors.
In order for the proposed amendment to the first sentence of Article III to
be adopted, it must be approved by the affirmative vote of the holders of at
lease a majority of the outstanding shares.
The Board recommends a vote "FOR" the proposed amendment.
RATIFICATION OF SELECTION OF ACCOUNTANTS - PROPOSAL FOUR
On the recommendation of the Audit Committee, the Board of Directors has
appointed Ernst & Young, Certified Public Accountants, as the Bank's independent
auditors for the year ending December 31, 1994, and considers it desirable that
the appointment be ratified by the shareholders. A partner of Ernst & Young is
expected to attend the Annual Meeting, with the opportunity to make a statement
and/or respond to appropriate questions from shareholders.
OTHER MATTERS
Management knows of no other business to be brought before the Annual
Meeting. Should any other business properly be presented for action at the
meeting, the shares represented by the enclosed proxy will be voted by the
persons named therein in accordance with their best judgment and in the best
interests of the Bank.
THE BANK'S ANNUAL REPORT ON FORM F-2 FOR THE YEAR ENDED DECEMBER 31,
1993, FILED WITH THE FEDERAL DEPOSIT INSURANCE CORPORATION IS AVAILABLE TO
SHAREHOLDERS FREE OF CHARGE UPON WRITTEN REQUEST TO:
Gerald T. McDonald
Executive Vice President and Chief Financial Officer
Commerce Bank
5101 Cleveland Street
Virginia Beach, Virginia 23462
-15-
<PAGE>
Exhibit 99.9
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20219
----------------
AMENDMENT NO. 1
TO
FORM F-2
ANNUAL REPORT
UNDER
SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1993
----------------
COMMERCE BANK
A VIRGINIA CORPORATION
TIN 54-1027360 FDIC CERTIFICATE NO. 512927
5101 CLEVELAND STREET
VIRGINIA BEACH, VIRGINIA 23462
(804) 456-1005
SECURITIES REGISTERED UNDER SECTION 12 (b) OF THE ACT: None
SECURITIES REGISTERED UNDER SECTION 12 (g) OF THE ACT: Common Stock (Par Value
2.50)
<PAGE>
ITEM 11. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 3
Commerce Bank (the "Bank") hereby amends its Form F-2 Annual Report for the
year ended December 31, 1993 to include as an exhibit under this Item 11 the
report of its former independent auditors, Coopers & Lybrand, with respect to
that firm's audit of the financial statements of the Bank at December 31, 1992
and for each of the two years in the period ended December 31, 1992.
------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Bank has duly caused this Amendment No. 1 to its Form F-2 Annual Report to be
signed on its behalf by the undersigned thereunto duly authorized.
COMMERCE BANK
Dated: August 29, 1994
By:
----------------------------------
Gerald T. McDonald
Executive Vice President
and Chief Financial Officer
