<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1994
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6711 56-0898180
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6565
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARION A. COWELL, JR., ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6828
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
ANTHONY GAETA, JR., ESQ.
WARD AND SMITH, P.A.
TWO HANNOVER SQUARE
FAYETTEVILLE STREET MALL
POST OFFICE BOX 2091
RALEIGH, NORTH CAROLINA 27602-2901
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after the effective date of this 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. [ ]
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED PER UNIT ING PRICE
<S> <C> <C> <C>
Common Stock
(including rights to
purchase shares of Common
Stock or junior
participating Class A
Preferred Stock).......... 600,000 shares (1) $7.125(2) $17,505,740(2)
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE
<S> <C>
Common Stock
(including rights to
purchase shares of Common
Stock or junior
participating Class A
Preferred Stock).......... $5,471(2)
</TABLE>
(1) Represents the estimated number of shares of Common Stock, par value
$3.33 1/3 per share, issuable by First Union Corporation (FUNC) upon
consummation of the merger of American Bancshares, Inc. (ABI) into FUNC (the
Merger).
(2) Pursuant to Rules 457(f)(1) and 457(c), the registration fee for the FUNC
Common Stock is based on the average of the bid and asked prices of ABI
common stock in the over-the-counter market pink-sheets on March 8, 1994
($7.125), and computed based on the estimated maximum number of such shares
(2,456,946), including shares issuable upon conversion of ABI convertible
preferred stock, that may be exchanged for the securities being registered.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
FIRST UNION CORPORATION PROSPECTUS
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE RESPONSES
TO THE ITEMS OF PART I OF FORM S-4.
<TABLE>
<CAPTION>
FORM S-4 ITEM LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page of
Prospectus.............................................................. Outside front cover page; facing page
2. Inside Front and Outside Back Cover Pages of Prospectus................. AVAILABLE INFORMATION; TABLE OF CONTENTS
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information............................................................. SUMMARY
4. Terms of the Transaction................................................ SUMMARY; GENERAL INFORMATION; THE MERGERS;
DESCRIPTION OF FUNC CAPITAL STOCK; CERTAIN
DIFFERENCES IN THE RIGHTS OF ABI AND FUNC
STOCKHOLDERS; ANNEX B; ANNEX C; ANNEX D
5. Pro Forma Financial Information......................................... PRO FORMA FINANCIAL INFORMATION
6. Material Contacts with the Company Being Acquired....................... THE MERGERS; ADDITIONAL MATTERS
7. Additional Information Required for Reoffering by Persons and Parties
Deemed to Be Underwriters............................................... *
8. Interests of Named Experts and Counsel.................................. LEGAL OPINIONS; EXPERTS
9. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities............................................................. *
10. Information with Respect to S-3 Registrants............................. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; SUMMARY; RECENT DEVELOPMENTS; FUNC
AND FUNB-NC; CERTAIN REGULATORY
CONSIDERATIONS
11. Incorporation of Certain Information by Reference....................... INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; RECENT DEVELOPMENTS
12. Information with Respect to S-2 or S-3 Registrants...................... *
13. Incorporation of Certain Information by Reference....................... *
14. Information with Respect to Registrants Other Than S-3 or
S-2 Registrants......................................................... *
15. Information with Respect to S-3 Companies............................... *
16. Information with Respect to S-2 or S-3 Companies........................ *
17. Information with Respect to Companies Other Than S-2 or
S-3 Companies........................................................... ABI AND AMERICAN BANK;
ANNEX A
18. Information if Proxies, Consents or Authorizations are to be
Solicited............................................................... INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; SUMMARY; GENERAL INFORMATION; THE
MERGERS; ABI AND AMERICAN BANK; FUNC AND
FUNB-NC; EXPERTS; ANNEX D
19. Information if Proxies, Consents or Authorizations are not to be
Solicited, or in an Exchange Offer...................................... *
</TABLE>
* Not applicable.
<PAGE>
AMERICAN BANCSHARES, INC.
201 EAST WINDSOR STREET
MONROE, NORTH CAROLINA 28112
(704) 283-2176
, 1994
Dear Stockholder:
On behalf of the Board of Directors, I want to extend to you a cordial
invitation to attend a Special Meeting of Stockholders of American Bancshares,
Inc. (ABI). The meeting will be held at a.m., Monroe time, on
, 1994, in the Union County Chamber of Commerce Building, 903
Skyway Drive, Monroe, North Carolina.
The purpose of the meeting is to vote on a proposal to approve an Agreement
and Plan of Mergers, dated as of November 17, 1993 (the Merger Agreement), among
ABI, American Commercial Savings Bank, Inc., SSB (American Bank), First Union
Corporation (FUNC) and First Union National Bank of North Carolina (FUNB-NC),
and the related Plan of Merger, pursuant to which Merger Agreement and Plan of
Merger, ABI would merge with and into FUNC (the Corporate Merger), and pursuant
to which Merger Agreement, American Bank would merge with and into FUNB-NC (the
Bank Merger and together with the Corporate Merger, the Mergers). FUNC is the
ninth largest bank holding company in the nation, based on total assets at
December 31, 1993.
Upon consummation of the Corporate Merger (i) each outstanding share of ABI
common stock (excluding any shares held by dissenting stockholders and certain
shares held by ABI or FUNC) would be converted into the right to receive 0.211
shares of FUNC common stock, subject to possible adjustment under certain
circumstances (the Exchange Ratio), and (ii) each outstanding share of ABI
convertible preferred stock (excluding any shares held by dissenting
stockholders ) would be converted into the right to receive a number of shares
of FUNC common stock equal to the product of (a) the Exchange Ratio, and (b)
159, the number of shares of ABI common stock into which a share of ABI
convertible preferred stock was convertible as of September 30, 1993, in a
transaction that is generally tax-free for federal income tax purposes, all as
more fully discussed in the accompanying Prospectus/Proxy Statement.
In the event of a decline in the price of FUNC common stock below certain
levels and under certain conditions, the Exchange Ratio may, but is not required
to, be adjusted, as discussed in the accompanying Prospectus/Proxy Statement
under THE MERGERS -- Possible Common Stock Exchange Ratio Adjustment. The common
stock of FUNC is actively traded and is listed on the New York Stock Exchange
(NYSE). The last reported sale price of FUNC common stock on the NYSE Composite
Transactions Tape on , 1994 was $ per share.
Consummation of the Mergers is subject to certain conditions, including
approval of the Merger Agreement and the related Plan of Merger by ABI
stockholders and approval of the Mergers by various regulatory agencies.
Approval of the Merger Agreement and the related Plan of Merger requires
the affirmative vote of a majority of the votes entitled to be cast at the
meeting by the holders of ABI common stock. Approval of the Merger Agreement and
the related Plan of Merger will also require the affirmative vote of a majority
of the votes entitled to be cast at the meeting by the holders of ABI
convertible preferred stock, voting as a separate class. In connection with the
execution of the Merger Agreement, the directors of ABI, who are the beneficial
owners of approximately 85 percent of the outstanding shares of ABI convertible
preferred stock, agreed to vote such shares in favor of approval of the Merger
Agreement and the related Plan of Merger at the meeting. Accordingly, assuming
such shares are so voted, the Merger Agreement and related Plan of Merger will
be approved at the meeting by the requisite vote of the holders of ABI
convertible preferred stock.
The accompanying Notice of Special Meeting and Prospectus/Proxy Statement
contain information about the Mergers. I urge you to carefully review such
information, the information in FUNC's 1993 Annual Report on Form 10-K and 1994
Annual Meeting Proxy Statement, copies of which are available as indicated in
the accompanying Prospectus/Proxy Statement under AVAILABLE INFORMATION.
<PAGE>
THE BOARD OF DIRECTORS OF ABI HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT
AND THE RELATED PLAN OF MERGER AND RECOMMENDS THAT THE STOCKHOLDERS OF ABI
APPROVE THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER. A FAILURE TO VOTE,
EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY CHECKING THE ABSTAIN BOX
THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER
AGREEMENT AND THE RELATED PLAN OF MERGER. EVEN IF YOU PLAN TO ATTEND THE MEETING
IN PERSON, PLEASE COMPLETE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID, RETURN ADDRESSED ENVELOPE.
Yours very truly,
RUSSELL W. POPE
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
AMERICAN BANCSHARES, INC.
201 EAST WINDSOR STREET
MONROE, NORTH CAROLINA 28112
(704) 283-2176
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1994
, 1994
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of American
Bancshares, Inc. (ABI) will be held at a.m., Monroe time, on ,
1994, in the Union County Chamber of Commerce Building, 903 Skyway Drive,
Monroe, North Carolina for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Mergers, dated as of November 17, 1993 (the Merger Agreement), among
ABI, American Commercial Savings Bank, Inc., SSB (American Bank), First
Union Corporation (FUNC) and First Union National Bank of North Carolina
(FUNB-NC), a subsidiary of FUNC, and the related Plan of Merger,
pursuant to which Merger Agreement and Plan of Merger (i) ABI would
merge with and into FUNC (the Corporate Merger), (ii) each outstanding
share of ABI common stock (excluding any shares held by dissenting
stockholders and certain shares held by ABI or FUNC) would be converted
into the right to receive 0.211 shares of FUNC common stock, subject to
possible adjustment under certain circumstances (the Exchange Ratio),
and (iii) each outstanding share of ABI convertible preferred stock
(excluding any shares held by dissenting stockholders) would be
converted into the right to receive a number of shares of FUNC common
stock equal to the product of (a) the Exchange Ratio, and (b) 159, the
number of shares of ABI common stock into which a share of ABI
convertible preferred stock was convertible as of September 30, 1993,
and pursuant to which Merger Agreement, American Bank would merge with
and into FUNB-NC (the Bank Merger and together with the Corporate
Merger, the Mergers) all on and subject to the terms and conditions
contained therein.
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
A copy of the Merger Agreement, including the related Plan of Merger set
forth in Exhibit C thereto, is set forth in ANNEX B to the accompanying
Prospectus/Proxy Statement.
The Board of Directors of ABI has fixed , 1994, as the
record date for the determination of stockholders entitled to notice of and to
vote at the meeting and, accordingly, only holders of record of ABI common stock
and ABI convertible preferred stock at the close of business on that date will
be entitled to notice of and to vote at the meeting.
Approval of the Merger Agreement and the related Plan of Merger requires
the affirmative vote of a majority of the votes entitled to be cast at the
meeting by the holders of ABI common stock. Approval of the Merger Agreement and
the related Plan of Merger will also require the affirmative vote of a majority
of the votes entitled to be cast at the meeting by the holders of ABI
convertible preferred stock, voting as a separate class. In connection with the
execution of the Merger Agreement, the directors of ABI, who are the beneficial
owners of approximately 85 percent of the outstanding shares of ABI convertible
preferred stock, agreed to vote such shares in favor of approval of the Merger
Agreement and the related Plan of Merger at the meeting. Accordingly, assuming
such shares are so voted, the Merger Agreement and related Plan of Merger will
be approved at the meeting by the requisite vote of the holders of ABI
convertible preferred stock.
PURSUANT TO THE NORTH CAROLINA BUSINESS CORPORATION ACT, HOLDERS OF ABI
COMMON STOCK AND ABI CONVERTIBLE PREFERRED STOCK ENTITLED TO VOTE ON APPROVAL OF
THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER HAVE THE RIGHT TO DISSENT
FROM SUCH APPROVAL AND TO DEMAND PAYMENT OF THE FAIR VALUE OF EACH SUCH HOLDER'S
SHARES OF ABI COMMON STOCK AND/OR ABI CONVERTIBLE PREFERRED STOCK, AS
APPLICABLE, IN THE EVENT THE CORPORATE MERGER IS CONSUMMATED. A HOLDER OF ABI
COMMON STOCK AND/OR ABI CONVERTIBLE PREFERRED STOCK WHO WISHES TO ASSERT SUCH
HOLDER'S DISSENTERS' RIGHTS MUST (I) DELIVER TO ABI, BEFORE SUCH VOTE IS TAKEN
ON THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER, WRITTEN NOTICE OF SUCH
HOLDER'S INTENT TO DEMAND PAYMENT FOR SUCH SHARES IF THE CORPORATE MERGER IS
CONSUMMATED, (II) NOT VOTE SUCH SHARES IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT AND THE RELATED PLAN OF MERGER, AND (III) COMPLY WITH THE FURTHER
PROVISIONS OF THE NORTH CAROLINA BUSINESS CORPORATION ACT, IN ORDER TO BE
ENTITLED TO RECEIVE IN CASH, IF THE CORPORATE MERGER IS CONSUMMATED, THE FAIR
VALUE OF SUCH HOLDER'S ABI COMMON STOCK AND/OR ABI CONVERTIBLE PREFERRED STOCK,
AS APPLICABLE. A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT AND THE RELATED
PLAN OF MERGER WILL NOT CONSTITUTE WRITTEN NOTICE OF AN INTENT TO DEMAND PAYMENT
NOR WILL A FAILURE TO VOTE AGAINST SUCH APPROVAL CONSTITUTE A WAIVER OF
DISSENTERS' RIGHTS. A COPY OF THE APPLICABLE PROVISIONS OF THE NORTH CAROLINA
BUSINESS
<PAGE>
CORPORATION ACT REFERRED TO ABOVE IS SET FORTH IN ANNEX D TO THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT AND A SUMMARY OF SUCH PROVISIONS IS SET FORTH IN THE
ACCOMPANYING PROSPECTUS/PROXY STATEMENT UNDER THE MERGERS -- DISSENTERS' RIGHTS.
THE BOARD OF DIRECTORS OF ABI RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER.
By Order of the Board of Directors of
AMERICAN BANCSHARES, INC.,
JOHN O. SUMMEY, JR.
SECRETARY
EVEN STOCKHOLDERS WHO EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON ARE URGED
TO DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR APPOINTMENT OF PROXY AND VOTE
YOUR SHARES IN PERSON. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY FOR ANY
REASON, EACH PROXY SHOULD BE COMPLETED AND RETURNED. YOUR COOPERATION WILL BE
APPRECIATED. YOUR PROXY WILL BE VOTED WITH RESPECT TO THE MATTERS IDENTIFIED
THEREON IN ACCORDANCE WITH ANY SPECIFICATIONS ON THE PROXY. A FAILURE TO VOTE,
EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY CHECKING THE ABSTAIN BOX
THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER
AGREEMENT AND THE RELATED PLAN OF MERGER.
<PAGE>
<TABLE>
<S> <C>
PROSPECTUS PROXY STATEMENT
FIRST UNION CORPORATION AMERICAN BANCSHARES, INC.
COMMON STOCK SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
(PAR VALUE $3.33 1/3 PER SHARE) , 1994
</TABLE>
This Prospectus/Proxy Statement is being furnished by American Bancshares,
Inc., a North Carolina corporation (ABI), to the holders of (i) ABI common
stock, par value $1.00 per share (ABI Common Stock), and (ii) ABI Series A
Convertible Preferred Stock, par value $1.00 per share (ABI Preferred Stock), as
a proxy statement in connection with the solicitation of proxies by the ABI
Board of Directors for use at a special meeting of stockholders of ABI to be
held at a.m., Monroe time, on , 1994, in the Union County
Chamber of Commerce Building, 903 Skyway Drive, Monroe, North Carolina (the
Special Meeting), and at any adjournment or adjournments thereof.
This Prospectus/Proxy Statement, the accompanying Notice of Special Meeting
and the form of proxy enclosed herewith are first being mailed to the
stockholders of ABI on or about , 1994.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve an Agreement and Plan of Mergers, dated as of November 17, 1993 (the
Merger Agreement), among ABI, American Commercial Savings Bank, Inc., SSB
(American Bank), First Union Corporation, a North Carolina corporation (FUNC),
and First Union National Bank of North Carolina, a subsidiary of FUNC (FUNB-NC),
and the related Plan of Merger (set forth in Exhibit C to the Merger Agreement),
pursuant to which Merger Agreement and Plan of Merger, ABI would merge with and
into FUNC (the Corporate Merger) and pursuant to which Merger Agreement,
American Bank would merge with and into FUNB-NC (the Bank Merger and together
with the Corporate Merger, the Mergers), all on and subject to the terms and
conditions contained therein. See SUMMARY, THE MERGERS and ANNEX B to this
Prospectus/Proxy Statement.
Upon consummation of the Corporate Merger (i) each outstanding share of ABI
Common Stock (excluding any shares held by dissenting stockholders and certain
shares held by ABI or FUNC) would be converted into the right to receive 0.211
shares of FUNC common stock, par value $3.33 1/3 per share (together with the
FUNC Rights (as hereinafter defined) attached thereto, FUNC Common Stock),
subject to possible adjustment under certain circumstances (the Common Stock
Exchange Ratio), with cash in lieu of the issuance of any fractional share
interest, and (ii) each outstanding share of ABI Preferred Stock (excluding any
shares held by dissenting stockholders) would be converted into the right to
receive a number of shares of FUNC Common Stock equal to the product of (a) the
Common Stock Exchange Ratio, and (b) 159, the number of shares of ABI Common
Stock into which a share of ABI Preferred Stock was convertible as of September
30, 1993 (the Preferred Stock Exchange Ratio).
In the event of a decline in the price of FUNC Common Stock below certain
levels and under certain conditions, the Common Stock Exchange Ratio (and as a
result the Preferred Stock Exchange Ratio) may, but is not required to, be
adjusted. See THE MERGERS -- Possible Common Stock Exchange Ratio Adjustment.
This document also constitutes a prospectus of FUNC relating to the shares
(the FUNC Common Shares) of FUNC Common Stock that are issuable to the holders
of ABI Common Stock and ABI Preferred Stock upon consummation of the Corporate
Merger. See DESCRIPTION OF FUNC CAPITAL STOCK and CERTAIN DIFFERENCES IN THE
RIGHTS OF ABI AND FUNC STOCKHOLDERS.
Based on the 2,299,854 shares of ABI Common Stock outstanding on the Record
Date (as hereinafter defined), the 157,092 shares of ABI Common Stock into which
the 988 outstanding shares of ABI Preferred Stock were convertible on September
30, 1993, and the 0.211 Common Stock Exchange Ratio, approximately 518,416 FUNC
Common Shares will be issuable upon consummation of the Corporate Merger.
FUNC Common Stock is listed and traded on the New York Stock Exchange
(NYSE). There is no active trading market for ABI Common Stock, which is quoted
in the over-the-counter market pink sheets. On November 16, 1993, the last
business day prior to public announcement of the execution of the Merger
Agreement, the last reported sale price per share of FUNC Common Stock on the
NYSE Composite Transactions Tape and the closing asked price per share of ABI
Common Stock in the over-the-counter market pink sheets were $39.875 and $7.50,
respectively. On , 1994, such prices were $ and $ ,
respectively. There is no public trading market for ABI Preferred Stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE FUNC COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS , 1994
<PAGE>
AVAILABLE INFORMATION
FUNC and ABI are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the Exchange Act), and, in accordance therewith, file reports, proxy
statements and other information with the Securities and Exchange Commission
(the Commission). Reports, proxy statements and other information filed by FUNC
and ABI can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's Regional Offices in New York (75 Park Place, 14th Floor,
New York, New York 10007) and Chicago (Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661) and copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and other information relating to FUNC can also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus/Proxy Statement does not contain all of the information set
forth in the Registration Statement on Form S-4, of which this Prospectus/Proxy
Statement is a part, and the exhibits thereto (together with any amendments or
supplements thereto, the Registration Statement ), which has been filed by FUNC
with the Commission under the Securities Act of 1933, as amended, and the rules
and regulations thereunder (the Securities Act), certain portions of which have
been omitted pursuant to the rules and regulations of the Commission and to
which portions reference is hereby made for further information.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES CERTAIN FUNC DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF SUCH
DOCUMENTS IS AVAILABLE WITHOUT CHARGE (OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS) TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER TO WHOM A
PROSPECTUS/PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST FROM:
FIRST UNION CORPORATION, INVESTOR RELATIONS, TWO FIRST UNION CENTER, CHARLOTTE,
NORTH CAROLINA 28288-0206 (TELEPHONE NUMBER (704) 374-6782). IN ORDER TO ENSURE
TIMELY DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
, 1994.
All information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to FUNC was supplied by FUNC, and all
information contained in this Prospectus/Proxy Statement with respect to ABI was
supplied by ABI.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus/Proxy Statement
and, if given or made, such information or representations must not be relied
upon as having been authorized by FUNC or ABI. Neither the delivery of this
Prospectus/Proxy Statement nor any distribution of the securities to which this
Prospectus/Proxy Statement relates shall, under any circumstances, create any
implication that there has been no change in the affairs of FUNC or ABI since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. This Prospectus/Proxy Statement does not constitute
an offer to sell or a solicitation of an offer to buy any securities other than
the securities to which it relates or an offer to sell or solicitation of an
offer to buy such securities in any circumstances in which such an offer or
solicitation is not lawful.
The Commissioner of Insurance of the State of North Carolina has not
approved or disapproved this offering nor has the Commissioner passed upon the
accuracy or adequacy of this Prospectus/Proxy Statement.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed by FUNC with the Commission (FUNC File No.
1-10000) under Section 13(a) or 15(d) of the Exchange Act is hereby incorporated
by reference in this Prospectus/Proxy Statement:
FUNC's Annual Report on Form 10-K for the year ended December 31, 1993.
Certain financial and other information relating to ABI (Commission File
No. 0-20414) is contained in ANNEX A to this Prospectus/Proxy Statement.
All documents filed by FUNC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting are hereby incorporated by reference into this Prospectus/Proxy
Statement and shall be deemed a part hereof from the date of filing of such
documents.
Any statement contained herein, in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of the Registration Statement and this
Prospectus/Proxy Statement to the extent that a statement contained herein, in
any supplement hereto or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement, this Prospectus/Proxy Statement or any supplement hereto.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION.................................................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................ 3
SUMMARY................................................................................................................ 6
GENERAL INFORMATION.................................................................................................... 16
General.............................................................................................................. 16
Record Date; Votes Required.......................................................................................... 16
THE MERGERS............................................................................................................ 17
General.............................................................................................................. 17
Possible Common Stock Exchange Ratio Adjustment...................................................................... 17
Effective Date....................................................................................................... 18
Exchange of ABI Certificates......................................................................................... 18
Background and Reasons............................................................................................... 19
Opinion of Financial Advisor......................................................................................... 20
Interests of Certain Persons......................................................................................... 22
Certain Federal Income Tax Consequences.............................................................................. 22
Business Pending Consummation........................................................................................ 23
Regulatory Approvals................................................................................................. 23
Conditions to Consummation; Termination.............................................................................. 24
Waiver; Amendment.................................................................................................... 24
Dissenters' Rights................................................................................................... 25
Accounting Treatment................................................................................................. 26
Expenses............................................................................................................. 27
Stock Option Agreement............................................................................................... 27
Market Prices........................................................................................................ 28
Dividends............................................................................................................ 29
ABI AND AMERICAN BANK.................................................................................................. 30
History.............................................................................................................. 30
Memorandum of Understanding.......................................................................................... 30
Lending Activities................................................................................................... 31
Investment Activities................................................................................................ 39
Sources of Funds..................................................................................................... 40
Properties........................................................................................................... 43
Employees............................................................................................................ 43
Market Price of ABI Common Stock and ABI Preferred Stock............................................................. 44
Dividend Policy...................................................................................................... 44
Legal Proceedings.................................................................................................... 44
Management's Discussion and Analysis of Results of Operation and Financial Condition................................. 44
Directors and Executive Officers..................................................................................... 52
Security Ownership of Management..................................................................................... 53
FUNC AND FUNB-NC....................................................................................................... 54
General.............................................................................................................. 54
History and Business................................................................................................. 54
CERTAIN REGULATORY CONSIDERATIONS...................................................................................... 55
General.............................................................................................................. 55
Payment of Dividends................................................................................................. 55
Borrowings........................................................................................................... 56
Capital.............................................................................................................. 56
FIRREA............................................................................................................... 57
FDICIA............................................................................................................... 57
FDIC Insurance Assessments........................................................................................... 58
Depositor Preference Statute......................................................................................... 59
North Carolina Regulation............................................................................................ 59
The FHLB............................................................................................................. 59
Liquidity Requirements............................................................................................... 60
DESCRIPTION OF FUNC CAPITAL STOCK...................................................................................... 61
Authorized Capital................................................................................................... 61
FUNC Common Stock.................................................................................................... 61
FUNC Preferred Stock................................................................................................. 61
FUNC Class A Preferred Stock......................................................................................... 62
Rights Plan.......................................................................................................... 62
Other Provisions..................................................................................................... 63
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
</TABLE>
<TABLE>
<S> <C>
CERTAIN DIFFERENCES IN THE RIGHTS OF ABI AND FUNC STOCKHOLDERS......................................................... 64
General.............................................................................................................. 64
Authorized Capital................................................................................................... 64
Amendment of Articles of Incorporation or Bylaws..................................................................... 64
Size and Classification of Board of Directors........................................................................ 64
Removal of Directors................................................................................................. 65
Stockholder Meetings................................................................................................. 65
Director Nominations................................................................................................. 65
Stockholder Proposals................................................................................................ 66
Stockholder Protection Rights Plan................................................................................... 66
RESALE OF FUNC COMMON SHARES........................................................................................... 66
ADDITIONAL MATTERS..................................................................................................... 67
OPINIONS............................................................................................................... 67
EXPERTS................................................................................................................ 67
OTHER MATTERS.......................................................................................................... 67
ANNEXES:
ANNEX A -- CONSOLIDATED FINANCIAL STATEMENTS OF ABI.................................................................. A-1
ANNEX B -- AGREEMENT AND PLAN OF MERGERS, INCLUDING THE STOCK OPTION AGREEMENT, THE ABI DIRECTORS' AGREEMENT AND THE
RELATED PLAN OF MERGER.................................................................................... B-1
ANNEX C -- FAIRNESS OPINION OF THE MERITAS GROUP, INC. .............................................................. C-1
ANNEX D -- ARTICLE 13 OF THE NORTH CAROLINA BUSINESS CORPORATION ACT RELATING TO DISSENTERS' RIGHTS.................. D-1
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION RELATING TO THE
MERGERS CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT. THIS SUMMARY IS
NOT INTENDED TO BE A SUMMARY OF ALL MATERIAL INFORMATION RELATING TO THE MERGERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES
HERETO AND IN THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS/PROXY
STATEMENT. A COPY OF THE MERGER AGREEMENT (INCLUDING THE STOCK OPTION AGREEMENT
(AS HEREINAFTER DEFINED), THE ABI DIRECTORS' AGREEMENT (AS HEREINAFTER DEFINED)
AND THE RELATED PLAN OF MERGER) IS SET FORTH IN ANNEX B TO THIS PROSPECTUS/PROXY
STATEMENT AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS
OF THE MERGERS. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE
PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES. AS USED IN THIS
PROSPECTUS/PROXY STATEMENT, THE TERMS FUNC, FUNB-NC, ABI AND AMERICAN BANK REFER
TO SUCH ORGANIZATIONS, RESPECTIVELY, AND, UNLESS THE CONTEXT OTHERWISE REQUIRES,
SUCH CORPORATIONS AND THEIR RESPECTIVE SUBSIDIARIES.
PARTIES TO THE MERGERS
FUNC
FUNC is a North Carolina-based, multi-bank holding company registered under
the Bank Holding Company Act of 1956, as amended (the BHCA). FUNC provides a
wide range of commercial and retail banking services and trust services in North
Carolina, Florida, South Carolina, Georgia, Tennessee, Virginia, Maryland and
Washington, D.C. FUNC also provides various other financial services, including
mortgage banking, home equity lending, insurance and discount brokerage
services, through other subsidiaries. As of December 31, 1993, and for the year
then ended, FUNC reported assets of $70.8 billion, net loans of $46.9 billion,
deposits of $53.7 billion, stockholders' equity of $5.2 billion and net income
applicable to common stockholders of $793 million, and as of such date FUNC
operated through 1,525 offices in 39 states and one foreign country. FUNC is the
ninth largest bank holding company in the United States, based on total assets
at December 31, 1993. The principal executive offices of FUNC are located at One
First Union Center, Charlotte, North Carolina 28288-0013, and its telephone
number is (704) 374-6565. See FUNC AND FUNB-NC.
FUNB-NC
FUNB-NC is a national banking association that provides a wide range of
commercial and retail banking services and trust services in North Carolina.
FUNB-NC also provides various other financial services, including home equity
lending and discount brokerage services. As of December 31, 1993, and for the
year then ended, FUNB-NC's call report included assets of $22.0 billion, net
loans of $13.6 billion, deposits of $17.3 billion, stockholder's equity of $1.2
billion and net income of $265 million, and as of such date FUNB-NC operated
through 267 banking offices in North Carolina and one foreign country and
through 168 additional offices in 37 states. FUNB-NC's principal executive
offices are located at One First Union Center, Charlotte, North Carolina
28288-0013, and its telephone number is (704) 374-6161. See FUNC AND FUNB-NC.
ABI AND AMERICAN BANK
ABI is a savings bank holding company registered under the BHCA. ABI's
principal asset is the stock of American Bank, which provides commercial and
retail banking services in Union and Mecklenburg Counties of North Carolina. As
of December 31, 1993, and for the year then ended, ABI reported assets of $235
million, net loans of $186 million, deposits of $210 million, stockholders'
equity of $16 million and net income applicable to common stockholders of
$657,000, and as of such date ABI operated through 12 offices in Union and
Mecklenburg Counties of North Carolina. The principal executive offices of ABI
and Amercian Bank are located at 201 East Windsor Street, Monroe, North Carolina
28112, and their telephone number is (704) 283-2176. See ABI AND AMERICAN BANK.
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held on , 1994, at a.m.,
Monroe time, in the Union County Chamber of Commerce Building, 903 Skyway Drive,
Monroe, North Carolina, for the purpose of ABI stockholders considering and
voting upon a proposal to approve the Merger Agreement and the related Plan of
Merger.
The Board of Directors of ABI (the ABI Board) has fixed , 1994,
as the record date for stockholders entitled to notice of and to vote at the
Special Meeting (the Record Date). As of such date, there were 2,299,854 shares
of ABI Common Stock and 988 shares of ABI Preferred Stock outstanding and
entitled to be voted at the Special Meeting.
See GENERAL INFORMATION.
6
<PAGE>
THE MERGERS; EXCHANGE RATIOS
Under the terms of the Merger Agreement, ABI will merge with and into FUNC
and American Bank will merge with and into FUNB-NC. Upon consummation of the
Corporate Merger (i) each outstanding share of ABI Common Stock (excluding any
shares of stock as to which holders have perfected their dissenters' rights
(Dissenting Shares) and any held by FUNC or ABI or their respective
subsidiaries, other than in a fiduciary capacity or in satisfaction of a debt
previously contracted (FUNC/ABI Held Shares)) would be converted into the right
to receive 0.211 shares of FUNC Common Stock, subject to possible adjustment
under certain circumstances, with cash in lieu of the issuance of any fractional
share interest, and (ii) each outstanding share of ABI Preferred Stock
(excluding any Dissenting Shares) would be converted into the right to receive a
number of shares of FUNC Common Stock equal to the product of (a) the Common
Stock Exchange Ratio, and (b) 159, the number of shares of ABI Common Stock into
which a share of ABI Preferred Stock was convertible as of September 30, 1993.
See THE MERGERS -- Possible Common Stock Exchange Ratio Adjustment, DESCRIPTION
OF FUNC CAPITAL STOCK and CERTAIN DIFFERENCES IN THE RIGHTS OF ABI AND FUNC
STOCKHOLDERS.
Immediately following consummation of the Corporate Merger on the Effective
Date (as hereinafter defined) or as soon thereafter as FUNB-NC may deem
appropriate, the Bank Merger will be consummated.
POSSIBLE COMMON STOCK EXCHANGE RATIO ADJUSTMENT
The Merger Agreement may be terminated in certain circumstances, including
by the ABI Board, at its sole option, if (i) the FUNC Closing Price (as
hereinafter defined) on the date on which the approval of the Office of the
Comptroller of the Currency (OCC) required for consummation of the Bank Merger
is received (the OCC Approval Date) is less than $32.50, and (ii) the percentage
decline in such price from $40.50 is more than 20 percentage points greater than
the percentage decline in the weighted average closing price on the OCC Approval
Date of the common stocks of a group (the Index Group) of 16 other publicly
traded bank holding companies from $32.31 (the weighted average closing price of
the common stocks of the Index Group on November 18, 1993) (an FUNC Common Stock
Decline); provided, however, that the Merger Agreement may not be so terminated
if FUNC elects, at its sole option, to increase the Common Stock Exchange Ratio
(and as a result the Preferred Stock Exchange Ratio) as provided in the Merger
Agreement. See THE MERGERS -- Possible Common Stock Exchange Ratio Adjustment.
VOTES REQUIRED
Approval of the Merger Agreement and the related Plan of Merger requires
the affirmative vote of a majority of the votes entitled to be cast at the
Special Meeting by (i) the holders of ABI Common Stock, and (ii) the holders of
ABI Preferred Stock, voting as a separate class.
The directors and executive officers of ABI (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting, (i) 349,836 shares of ABI Common Stock, which
represent approximately 15 percent of the outstanding shares of ABI Common Stock
entitled to be voted, and (ii) 835 shares of ABI Preferred Stock, which
represent approximately 85 percent of the outstanding shares of ABI Preferred
Stock entitled to be voted. In a letter dated November 17, 1993, all of the
directors of the ABI Board agreed to vote such shares of ABI Preferred Stock in
favor of approval of the Merger Agreement and the related Plan of Merger at the
Special Meeting (the ABI Directors' Agreement, a copy of which is included in
Exhibit B of ANNEX B to this Prospectus/Proxy Statement). Accordingly, assuming
such shares are so voted, the Merger Agreement and related Plan of Merger will
be approved at the Special Meeting by the requisite vote of the holders of ABI
Preferred Stock.
See GENERAL INFORMATION -- Record Date; Votes Required.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE ABSTAIN BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER.
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Mergers, the Mergers will become effective (the Effective Date) on such date as
FUNC notifies ABI in writing not less than five days prior thereto, provided
such date is not more than 30 days after such conditions have been satisfied or
waived. Subject to the foregoing, it is currently anticipated that the Mergers
will be consummated in the second quarter of 1994. If the Mergers are
consummated in such quarter, or in any other quarter, ABI stockholders should
not assume or expect that the Effective Date will precede the record date for
the
7
<PAGE>
dividend on FUNC Common Stock for that quarter, so as to enable such
stockholders to receive such dividend. See THE MERGERS -- Exchange of ABI
Certificates and -- Conditions to Consummation; Termination.
RECOMMENDATION OF ABI'S BOARD OF DIRECTORS
The ABI Board has adopted the Merger Agreement and the related Plan of
Merger by unanimous vote, believes they are in the best interests of ABI and its
stockholders and are fair to ABI's stockholders and recommends their approval by
ABI's stockholders. See THE MERGERS -- Background and Reasons; ABI.
FAIRNESS OPINION
The Meritas Group, Inc. (Meritas) has advised the ABI Board that, in its
opinion, the consideration of 0.211 shares of FUNC Common Stock for each share
of ABI Common Stock is fair, from a financial point of view, to the holders of
ABI Common Stock and, after effective conversion, to the holders of ABI
Preferred Stock. The full text of the Meritas' opinion, dated as of the date of
the Prospectus/Proxy Statement (the Opinion), which describes the procedures
followed, assumptions made, limitations on the review undertaken and other
matters in connection with rendering such opinion, is set forth in ANNEX C to
this Prospectus/Proxy Statement and should be read in its entirety by ABI
stockholders. For further information regarding the opinion of Meritas, see THE
MERGERS -- Fairness Opinion.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In connection with the execution of the Merger Agreement, FUNB-NC entered
into 13-month employment agreements with Russell W. Pope, President and Chief
Executive Officer of ABI and American Bank, and John O. Summey, Jr., Chief
Financial Officer of ABI and American Bank. The agreements provide for the
employment term to commence on the Effective Date, with annual salaries of
$165,000 for Mr. Pope and $96,250 for Mr. Summey and severance payments at the
end of the employment term of $63,462 for Mr. Pope and $37,019 for Mr. Summey.
The agreements also contain noncompete provisions pursuant to which Messrs.
Pope and Summey agree not to engage in any financial business which competes
with FUNB-NC in Union or Mecklenburg Counties, North Carolina for a 36-month
period following the end of the employment term. In consideration of such
noncompete provisions, FUNB-NC has agreed to pay $38,224 to Mr. Pope and $22,297
to Mr. Summey at the end of the employment term. The rights of Messrs. Pope and
Summey to receive payments under their existing respective American Commercial
Savings Bank, Inc. Employee Salary Continuation Agreements dated March 16,
1992 (the Salary Continuation Agreements), will not be affected by the FUNB-NC
employment agreements with Messrs. Pope and Summey. The Salary Continuation
Agreements provide that Mr. Pope and Mr. Summey will receive $70,000 and
$40,000 annually, respectively, for a period of 15 years upon reaching the age
of 55 or retirement, whichever occurs last.
FUNC also has agreed, subject to certain limitations, to use its reasonable
best efforts to maintain ABI's existing directors' and officers' liability
insurance policy (or a policy providing comparable coverage) covering persons
who were covered by such insurance on the date of the Merger Agreement, for a
period of six months after the Effective Date, on terms no less favorable than
those in effect on the date of the Merger Agreement, subject to certain
limitations as to the premium payable for such coverage.
See THE MERGERS -- Interests of Certain Persons.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Corporate Merger is conditioned on receipt by FUNC and
ABI of an opinion of Sullivan & Cromwell, special counsel for FUNC, dated as of
the Effective Date, to the effect that no gain or loss will be recognized for
federal income tax purposes by stockholders of ABI who receive FUNC Common
Shares in exchange for their shares of ABI Common Stock or ABI Preferred Stock,
other than in respect of cash received in lieu of fractional share interests.
Gain or loss will be recognized in respect of cash received as a result of the
exercise by holders of ABI Common Stock or ABI Preferred Stock of dissenters'
rights. See THE MERGERS -- Certain Federal Income Tax Consequences.
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH ABI STOCKHOLDER, IT IS RECOMMENDED THAT ABI STOCKHOLDERS
CONSULT THEIR TAX ADVISERS CONCERNING THE FEDERAL (AND ANY STATE AND LOCAL) TAX
CONSEQUENCES OF THE CORPORATE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
8
<PAGE>
RESALE OF FUNC COMMON SHARES
The FUNC Common Shares will be freely transferable by the holders of such
shares, except for those shares held by those holders who may be deemed to be
affiliates (generally including directors, certain executive officers and ten
percent or more stockholders) of ABI or FUNC under applicable federal securities
laws. See RESALE OF FUNC COMMON SHARES.
BUSINESS PENDING CONSUMMATION
ABI has agreed in the Merger Agreement not to take certain actions relating
to the operation of ABI pending consummation of the Mergers, without the prior
written consent of FUNC, except as otherwise permitted by the Merger Agreement.
These actions include, without limitation: (i) paying any dividends, other than
dividends on ABI Preferred Stock in accordance with its terms, or redeeming or
otherwise acquiring any shares of its capital stock, or issuing any additional
shares of its capital stock or giving any person the right to acquire any such
shares, or issuing any long-term debt; (ii) increasing the rate of compensation
or paying any bonus to any of its directors, officers or employees; (iii)
entering into or modifying any employment agreements or employee benefit plans;
(iv) disposing of any material portion of its assets or acquiring any
substantial portion of the business or property of any other entity; or (v)
taking any other action not in the ordinary course of business.
ABI also has agreed that, prior to the Effective Date, it will use its best
efforts to modify its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
consistent with those policies and practices applied by FUNC.
See THE MERGERS -- Business Pending Consummation; ABI AND AMERICAN
BANK -- History; AMERICAN BANK and -- Memorandum of Understanding.
REGULATORY APPROVALS
The Mergers are subject to the prior approval (or the receipt of a waiver
therefrom or the receipt of an exemption from approval therefrom) of the Board
of Governors of the Federal Reserve System (the Federal Reserve Board), the OCC
and the Administrator of the North Carolina Savings Institutions Division (the
Administrator), as applicable. Applications have either been filed or are
expected to be filed in the near future with each of such regulatory authorities
for such approvals or waivers. There can be no assurance that the necessary
regulatory approvals or waivers will be obtained or as to the timing or
conditions of such approvals or waivers. See CERTAIN REGULATORY CONSIDERATIONS.
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Mergers is subject, among other things, to: (i)
approval of the Merger Agreement and the related Plan of Merger by the requisite
vote of the stockholders of ABI; (ii) receipt of the regulatory approvals
referred to above without any restrictions or conditions which would so
materially adversely impact the economic or business benefits to FUNC of the
transactions contemplated by the Merger Agreement so as to render inadvisable
the consummation of the Mergers; (iii) no court or governmental or regulatory
authority having taken any action which prohibits the Mergers; (iv) the
Registration Statement being effective; (v) receipt by FUNC of a letter,
satisfactory to FUNC, from its independent certified public accountants that the
Corporate Merger will qualify for pooling of interests accounting treatment and
a letter from ABI's independent certified public accountants to the effect that
they are not aware of any facts or circumstances that might cause the Corporate
Merger not to qualify for pooling of interests accounting treatment; and (vi)
the FUNC Common Shares having been approved for listing on the NYSE, subject to
official notice of issuance.
The Merger Agreement may be terminated by mutual agreement of the Boards of
Directors of FUNC and ABI. The Merger Agreement may also be terminated by the
Board of Directors of either FUNC or ABI if the Corporate Merger does not occur
on or before September 30, 1994, or if certain conditions set forth in the
Merger Agreement are not met. The ABI Board also is entitled to terminate the
Merger Agreement, at its sole option, in the event there is an FUNC Common Stock
Decline and FUNC does not elect, at its sole option, to increase the Common
Stock Exchange Ratio as provided in the Merger Agreement.
See THE MERGERS -- Possible Common Stock Exchange Ratio Adjustment and
-- Conditions to Consummation; Termination.
9
<PAGE>
DISSENTERS' RIGHTS
Holders of ABI Common Stock and ABI Preferred Stock entitled to vote on
approval of the Merger Agreement and the related Plan of Merger have the right
to dissent from such approval and, upon consummation of the Corporate Merger and
the satisfaction of certain specified procedures, to receive cash in respect of
the fair value of each such holder's shares of ABI Common Stock and/or ABI
Preferred Stock, as applicable, in accordance with the applicable provisions of
the North Carolina Business Corporation Act (NCBCA). The procedures to be
followed by dissenting stockholders are summarized under THE
MERGERS -- Dissenters' Rights. A copy of the applicable provisions of the NCBCA
is set forth in ANNEX D to this Prospectus/Proxy Statement. FAILURE TO FOLLOW
SUCH PROVISIONS PRECISELY MAY RESULT IN LOSS OF SUCH DISSENTERS' RIGHTS.
In general, any dissenting stockholder who perfects such holder's statutory
dissenters' rights to be paid in cash the fair value of such holder's ABI Common
Stock and/or ABI Preferred Stock, as applicable, will recognize gain or loss for
federal income tax purposes upon receipt of such cash. See THE
MERGERS -- Certain Federal Income Tax Consequences.
STOCK OPTION AGREEMENT
As a condition to FUNC's entering into the Merger Agreement and in
consideration thereof, ABI entered into a Stock Option Agreement with FUNC,
dated as of November 17, 1993 (the Stock Option Agreement). The Stock Option
Agreement is set forth in Exhibit A to the Merger Agreement, which is set forth
in ANNEX B to this Prospectus/Proxy Statement. Pursuant to the Stock Option
Agreement, ABI granted to FUNC an irrevocable option (the Option), exercisable
only under certain limited and specifically defined circumstances, none of
which, to the best of ABI's and FUNC's knowledge, has occurred as of the date
hereof, to purchase up to 443,700 authorized but unissued shares of ABI Common
Stock for a purchase price of $7.50 per share (the Purchase Price), subject to
adjustment in certain circumstances. The Purchase Price represents the closing
asked price per share of ABI Common Stock in the over-the-counter market pink
sheets on November 16, 1993, the last business day prior to the date on which
execution of the Merger Agreement was publicly announced. The number of shares
of ABI Common Stock subject to the Option represents approximately 19.3 percent
of the outstanding shares of ABI Common Stock, before giving effect to the
issuance of such shares. FUNC does not have any voting rights with respect to
the shares of ABI Common Stock subject to the Option prior to exercise of the
Option. The purchase of any shares of ABI Common Stock by FUNC pursuant to the
Option is subject to compliance with applicable law, including receipt of
necessary approvals under the BHCA.
The Stock Option Agreement and the Option are intended to make it more
difficult for another party to acquire ABI, thereby increasing the likelihood
that the Mergers will occur. See THE MERGERS -- Stock Option Agreement.
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following unaudited information, adjusted for any stock dividends and
stock splits, reflects, where applicable, certain comparative per common share
data related to book value, cash dividends paid, income and market value: (i) on
a historical basis for FUNC and ABI; (ii) on a pro forma combined basis per
share of FUNC Common Stock reflecting consummation of the Corporate Merger with
the 0.211 Common Stock Exchange Ratio; and (iii) on an equivalent pro forma
basis per share of ABI Common Stock reflecting consummation of the Corporate
Merger with the 0.211 Common Stock Exchange Ratio. Such information has been
prepared giving effect to the Corporate Merger on a pooling of interests
accounting basis. See THE MERGERS -- Accounting Treatment.
As discussed under THE MERGERS -- Possible Common Stock Exchange Ratio
Adjustment, the Common Stock Exchange Ratio (and as a result the Preferred Stock
Exchange Ratio) is subject to possible adjustment as a result of an FUNC Common
Stock Decline. It is not expected that the pro forma information presented would
be materially different if the Common Stock Exchange Ratio were adjusted as a
result of an FUNC Common Stock Decline.
10
<PAGE>
The information shown below should be read in conjunction with the
historical financial statements of FUNC and ABI, including the respective notes
thereto, which are set forth in ANNEX A (with respect to ABI) or the documents
incorporated herein by reference (with respect to FUNC). See AVAILABLE
INFORMATION, INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE and ANNEX A. As to
ABI, information for periods ended prior to September 14, 1992, represents
information for American Bank. On that date, ABI became the holding company of
American Bank pursuant to a corporate reorganization.
<TABLE>
<CAPTION>
DECEMBER 31,
1993
<S> <C>
BOOK VALUE PER COMMON SHARE:
Historical:
FUNC....................................................................................................... $28.90
ABI........................................................................................................ 6.63
Pro forma combined per FUNC common share (1).................................................................. 28.91
Equivalent pro forma per ABI common share (2)................................................................. $ 6.10
</TABLE>
(1) Pro forma combined book value per FUNC common share amounts represent the
sum of pro forma combined FUNC common stockholders' equity amounts and ABI
total stockholders' equity, divided by pro forma combined year-end common
shares outstanding.
(2) Equivalent pro forma book value per ABI common share amounts represent the
pro forma combined book value per FUNC common share amounts, multiplied by
the 0.211 Common Stock Exchange Ratio.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1993 1992 1991
<S> <C> <C> <C>
CASH DIVIDENDS PAID PER COMMON SHARE:
Historical:
FUNC per common share......................................................................... $ 1.50 1.28 1.12
ABI per common share.......................................................................... .10 -- .05
ABI per preferred share....................................................................... 95.00 101.50 --
Pro forma combined per FUNC common share (3)..................................................... 1.45 1.05 .90
Equivalent pro forma per ABI common share (4).................................................... .31 .22 .19
Equivalent pro forma per ABI preferred share (5)................................................. $48.68 26.49 --
</TABLE>
(3) Pro forma combined cash dividends paid per FUNC common share amounts
represent pro forma combined cash dividends paid on common stock
outstanding, divided by pro forma combined average common shares
outstanding.
(4) Equivalent pro forma cash dividends paid per ABI common share amounts
represent pro forma combined per FUNC common share amounts multiplied by
the 0.211 Common Stock Exchange Ratio. The current annualized dividend
rate per share for FUNC Common Stock, based upon the most recently
declared quarterly dividend rate of $.40 per share payable on March 15,
1994, would be $1.60. On an equivalent pro forma basis, such current
annualized FUNC dividend per ABI common share would be $.34, based on the
0.211 Common Stock Exchange Ratio and $53.68 per share of ABI Preferred
Stock based on the Preferred Stock Exchange Ratio. Future FUNC and ABI
dividends are dependent upon their respective earnings and financial
conditions, government regulations and policies and other factors.
Pursuant to a memorandum of understanding entered into by the directors
of American Bank with the Federal Deposit Insurance Corporation (the
FDIC), American Bank is prohibited from paying dividends to ABI without
prior written consent from the FDIC and the Administrator. This
restriction on American Bank's ability to pay dividends to ABI
effectively prohibits ABI from paying dividends on ABI Common Stock
or ABI Preferred Stock without prior written consent from the FDIC and the
Administrator. To date, the FDIC and the Administrator have approved payment
of the quarterly dividends on ABI Preferred Stock. See THE
MERGERS -- Exchange of ABI Certificates, -- Business Pending Consummation
and -- Dividends and ABI AND AMERICAN BANK -- Memorandum of Understanding.
(5) Equivalent pro forma cash dividends per share of ABI Preferred Stock amount
represents equivalent pro forma per share of ABI Common Stock multiplied by
the Preferred Stock Exchange Ratio.
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
1993 1992 1991
<S> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS:
Historical:
FUNC........................................................................................... $4.73 2.23 2.24
ABI............................................................................................ .28 .50 .39
Pro forma combined per FUNC common share (6)...................................................... 4.72 2.22 2.24
Equivalent pro forma per ABI common share (7)..................................................... $1.00 .47 .47
</TABLE>
(6) Pro forma combined income per FUNC common share amounts represent pro forma
combined net income applicable to common stockholders divided by pro forma
combined average common shares outstanding.
(7) Equivalent pro forma income per ABI common share amounts represent the pro
forma combined income per FUNC common share multiplied by the 0.211 Common
Stock Exchange Ratio.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT PRO FORMA EQUIVALENT PRO FORMA
FUNC ABI PER ABI COMMON SHARE (8) PER ABI PREFERRED SHARE (9)
<S> <C> <C> <C> <C>
MARKET VALUE PER COMMON SHARE:
November 16, 1993.......................... $39.875 7.50 8.375 1,337.75
, 1994.......................... $
</TABLE>
(8) Equivalent pro forma market values per ABI common share amounts represent
the historical market values per share of FUNC Common Stock multiplied by
the 0.211 Common Stock Exchange Ratio, rounded down to the nearest
one-eighth. The FUNC and ABI historical market values per share represent
the last reported sale price per share of FUNC Common Stock on the NYSE
Composite Transaction Tape and the closing asked price per share of ABI
Common Stock in the over-the-counter market pink sheets: (i) on November 16,
1993, the last business day preceding public announcement of the execution
of the Merger Agreement, and (ii) on , 1994. For additional
market prices and information as to the trading activity of FUNC Common
Stock and ABI Common Stock, see THE MERGERS -- Market Prices. Because the
market price of FUNC Common Stock is subject to fluctuation, the market
value of the FUNC Common Shares that holders of ABI Common Stock and ABI
Preferred Stock would receive upon consummation of the Corporate Merger may
increase or decrease prior to the receipt of such shares following the
Effective Date. ABI stockholders are urged to obtain current market
quotations for FUNC Common Stock.
(9) Equivalent pro forma market values per share of ABI Preferred Stock amounts
represent the equivalent pro forma market value per share of ABI Common
Stock multiplied by the Preferred Stock Exchange Ratio.
SELECTED FINANCIAL DATA
The following tables set forth certain unaudited historical consolidated
selected financial information for FUNC and ABI and certain unaudited pro forma
combined selected financial data, giving effect to the Corporate Merger (with
the Common Stock Exchange Ratio of 0.211) on a pooling of interests accounting
basis. See THE MERGERS -- Accounting Treatment. This information should be read
in conjunction with the historical financial statements of FUNC and ABI,
including the respective notes thereto, which are set forth in ANNEX A (with
respect to ABI) or incorporated herein by reference (with respect to FUNC). See
AVAILABLE INFORMATION, INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE and ANNEX
A.
As discussed under THE MERGERS -- Possible Common Stock Exchange Ratio
Adjustment, the Common Stock Exchange Ratio (and as a result the Preferred Stock
Exchange Ratio) is subject to possible adjustment as a result of an FUNC Common
Stock Decline. It is not expected that the pro forma information presented would
be materially different if the Common Stock Exchange Ratio were adjusted as a
result of an FUNC Common Stock Decline.
12
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990
<S> <C> <C> <C> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income................................................... $ 4,556,332 4,479,385 4,647,440 4,829,520
Interest expense.................................................. 1,790,439 2,020,968 2,742,996 3,094,334
Net interest income............................................... 2,765,893 2,458,417 1,904,444 1,735,186
Provision for loan losses......................................... 221,753 414,708 648,284 425,409
Net interest income after provision for loan losses............... 2,544,140 2,043,709 1,256,160 1,309,777
Securities available for sale transactions........................ 25,767 34,402 -- --
Investment security transactions.................................. 7,435 (2,881) 155,048 7,884
Noninterest income................................................ 1,165,086 1,032,651 914,511 690,672
Noninterest expense............................................... 2,521,647 2,526,678 1,905,918 1,680,973
Income before income taxes........................................ 1,220,781 581,203 419,801 327,360
Income taxes...................................................... 403,260 196,152 71,070 64,993
Net income........................................................ 817,521 385,051 348,731 262,367
Dividends on preferred stock...................................... 24,900 31,979 34,570 33,868
Net income applicable to common stockholders...................... $ 792,621 353,072 314,161 228,499
PER COMMON SHARE DATA
Net income........................................................ $ 4.73 2.23 2.24 1.68
Cash dividends.................................................... 1.50 1.28 1.12 1.08
Book value........................................................ 28.90 25.25 23.23 21.81
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).................................................... 243,845 167,601 126,029 116,696
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 70,786,969 63,828,031 59,273,177 54,588,410
Loans, net of unearned income..................................... 46,876,177 41,923,767 41,383,580 36,050,719
Deposits.......................................................... 53,742,411 49,150,965 47,176,223 38,194,268
Long-term debt.................................................... 3,061,944 3,151,260 2,630,930 1,850,860
Preferred stockholders' equity.................................... 284,041 297,215 397,356 317,011
Common stockholders' equity....................................... 4,923,584 4,161,948 3,463,441 2,983,361
Total stockholders' equity........................................ $ 5,207,625 4,459,163 3,860,797 3,300,372
Preferred shares outstanding...................................... 6,318 6,846 10,851 7,293
Common shares outstanding......................................... 170,338 164,849 149,112 136,777
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ $68,101,222 61,145,974 55,095,439 52,124,595
Loans, net of unearned income..................................... 43,631,410 41,270,991 37,314,358 35,877,585
Deposits.......................................................... 50,248,848 47,173,706 40,482,433 36,209,083
Long-term debt.................................................... 3,006,560 2,789,653 2,187,595 1,587,497
Common stockholders' equity....................................... 4,550,048 3,889,256 3,131,716 2,937,441
Total stockholders' equity........................................ $ 4,839,397 4,213,896 3,467,437 3,244,473
Common shares outstanding......................................... 167,692 158,683 140,003 135,622
<CAPTION>
1989
<S> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income................................................... 4,179,100
Interest expense.................................................. 2,703,623
Net interest income............................................... 1,475,477
Provision for loan losses......................................... 139,291
Net interest income after provision for loan losses............... 1,336,186
Securities available for sale transactions........................ --
Investment security transactions.................................. 19,018
Noninterest income................................................ 532,295
Noninterest expense............................................... 1,445,836
Income before income taxes........................................ 441,663
Income taxes...................................................... 87,840
Net income........................................................ 353,823
Dividends on preferred stock...................................... 1,380
Net income applicable to common stockholders...................... 352,443
PER COMMON SHARE DATA
Net income........................................................ 2.62
Cash dividends.................................................... 1.00
Book value........................................................ 20.49
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).................................................... 106,952
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 45,506,847
Loans, net of unearned income..................................... 31,600,776
Deposits.......................................................... 31,531,770
Long-term debt.................................................... 1,514,834
Preferred stockholders' equity.................................... 13,773
Common stockholders' equity....................................... 2,868,913
Total stockholders' equity........................................ 2,882,686
Preferred shares outstanding...................................... 551
Common shares outstanding......................................... 140,023
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 43,224,474
Loans, net of unearned income..................................... 29,507,834
Deposits.......................................................... 29,804,143
Long-term debt.................................................... 1,554,548
Common stockholders' equity....................................... 2,758,156
Total stockholders' equity........................................ 2,771,982
Common shares outstanding......................................... 134,446
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders to average common
stockholders' equity............................................ 17.42% 9.08 10.03 7.78
Net income to:
Average total stockholders' equity.............................. 16.89 9.14 10.06 8.09
Average assets.................................................. 1.20 .63 .63 .50
Average stockholders' equity to average assets.................... 7.11 6.89 6.29 6.22
Allowance for loan losses to:
Net loans....................................................... 2.18 2.24 2.06 1.95
Nonaccrual and restructured loans............................... 147 96 72 77
Nonperforming assets............................................ 111 70 50 56
Net charge-offs to average net loans.............................. .58 .86 1.48 .68
Nonperforming assets to loans, net and foreclosed properties...... 1.95 3.19 4.10 3.42
Capital ratios:*
Tier 1 capital.................................................. 9.14 9.22 7.56 6.53
Total capital................................................... 14.64 14.31 11.76 10.83
Leverage........................................................ 6.13 6.55 5.31 4.90
Net interest margin............................................... 4.78% 4.77 4.08 3.99
<CAPTION>
CONSOLIDATED PERCENTAGES
<S> <C>
Net income applicable to common stockholders to average common
stockholders' equity............................................ 12.78
Net income to:
Average total stockholders' equity.............................. 12.76
Average assets.................................................. .82
Average stockholders' equity to average assets.................... 6.41
Allowance for loan losses to:
Net loans....................................................... 1.12
Nonaccrual and restructured loans............................... 131
Nonperforming assets............................................ 89
Net charge-offs to average net loans.............................. .39
Nonperforming assets to loans, net and foreclosed properties...... 1.25
Capital ratios:*
Tier 1 capital.................................................. --
Total capital................................................... --
Leverage........................................................ --
Net interest margin............................................... 4.15
</TABLE>
* The 1990-1992 capital ratios are not restated for pooling of interests
acquisitions.
13
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990
<S> <C> <C> <C> <C>
ABI (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income................................................... $ 18,702 20,323 21,874 21,836
Interest expense.................................................. 10,598 12,894 15,826 16,815
Net interest income............................................... 8,104 7,429 6,048 5,021
Provision for loan losses......................................... 2,208 1,102 530 820
Net interest income after provision for loan losses............... 5,896 6,327 5,518 4,201
Investment security transactions.................................. 696 653 -- --
Noninterest income................................................ 1,124 1,142 733 303
Noninterest expense............................................... 6,646 5,943 4,571 3,893
Income before income taxes........................................ 1,070 2,179 1,680 611
Income taxes...................................................... 319 921 767 210
Net income........................................................ $ 751 1,258 913 401
Dividends on preferred stock...................................... 94 100 -- --
Net income applicable to common stockholders...................... $ 657 1,158 913 401
PER COMMON SHARE DATA
Net income........................................................ $ .28 .50 .39 .17
Cash dividends.................................................... .10 -- .05 --
Book value........................................................ 6.63 6.43 5.94 5.60
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).................................................... 231 -- 116 --
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 235,403 245,768 223,412 220,335
Loans, net of unearned income..................................... 186,442 195,803 198,571 199,026
Deposits.......................................................... 210,388 218,315 184,527 194,380
Long-term debt.................................................... 7,425 9,328 21,948 10,453
Preferred stockholders' equity.................................... 988 988 920 --
Common stockholders' equity....................................... 15,256 14,986 13,828 13,027
Total stockholders' equity........................................ $ 16,244 15,974 14,748 13,027
Common shares outstanding, net.................................... 2,300 2,330 2,330 2,327
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders to average common
stockholders' equity............................................ 5.42% 8.04 6.80 3.14
Net income to:
Average stockholders' equity.................................... 4.66 8.15 6.67 3.26
Average assets.................................................. .31 .52 .41 .19
Allowance for loan losses to:
Net loans....................................................... 1.18 .49 .30 .07
Nonperforming assets............................................ 100 54 40 7
Net charge-offs to average net loans.............................. .50 .38 .03 .40
Nonperforming assets to loans, net and foreclosed properties...... 1.19 .91 .76 .98
Capital ratios:
Tier 1 capital.................................................. 9.04 8.56 -- --
Total capital................................................... 10.29 9.11 -- --
Leverage........................................................ 6.54% 6.28 -- --
<CAPTION>
1989
<S> <C>
ABI (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income................................................... 20,176
Interest expense.................................................. 15,892
Net interest income............................................... 4,284
Provision for loan losses......................................... 64
Net interest income after provision for loan losses............... 4,220
Investment security transactions.................................. --
Noninterest income................................................ 252
Noninterest expense............................................... 3,082
Income before income taxes........................................ 1,390
Income taxes...................................................... 483
Net income........................................................ 907
Dividends on preferred stock...................................... --
Net income applicable to common stockholders...................... 907
PER COMMON SHARE DATA
Net income........................................................ .40
Cash dividends.................................................... --
Book value........................................................ 5.40
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands).................................................... --
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 208,901
Loans, net of unearned income..................................... 188,968
Deposits.......................................................... 177,762
Long-term debt.................................................... 16,539
Preferred stockholders' equity.................................... --
Common stockholders' equity....................................... 12,490
Total stockholders' equity........................................ 12,490
Common shares outstanding, net.................................... 2,313
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders to average common
stockholders' equity............................................ 7.55
Net income to:
Average stockholders' equity.................................... 7.79
Average assets.................................................. .46
Allowance for loan losses to:
Net loans....................................................... .05
Nonperforming assets............................................ 65
Net charge-offs to average net loans.............................. .02
Nonperforming assets to loans, net and foreclosed properties...... .08
Capital ratios:
Tier 1 capital.................................................. --
Total capital................................................... --
Leverage........................................................ --
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991 1990
FUNC AND ABI
<S> <C> <C> <C> <C>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Net income applicable to common stockholders...................... $ 793,278 354,230 315,074 228,900
PER COMMON SHARE DATA
Net income applicable to common stockholders...................... 4.72 2.23 2.24 1.68
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 71,022,372 64,073,799 59,496,589 54,808,745
Loans, net of unearned income..................................... 47,062,619 42,119,570 41,582,151 36,249,745
Deposits.......................................................... 53,952,799 49,369,280 47,360,750 38,388,648
Long-term debt.................................................... 3,069,369 3,160,588 2,652,878 1,861,313
Preferred stockholders' equity.................................... 285,029 298,203 398,276 317,011
Common stockholders' equity....................................... 4,938,840 4,176,934 3,477,269 2,996,388
Total stockholders' equity........................................ $ 5,223,869 4,475,137 3,875,545 3,313,399
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans....................................................... 2.17% 2.24 2.05 1.94
Nonperforming assets............................................ 111 70 50 56
Net charge-offs to average net loans.............................. .58 .86 1.48 .68
Nonperforming assets to loans, net and foreclosed properties...... 1.94% 3.18 4.08 3.41
<CAPTION>
1989
FUNC AND ABI
<S> <C>
PRO FORMA COMBINED SELECTED FINANCIAL DATA
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Net income applicable to common stockholders...................... 353,350
PER COMMON SHARE DATA
Net income applicable to common stockholders...................... 2.62
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets............................................................ 45,715,748
Loans, net of unearned income..................................... 31,789,744
Deposits.......................................................... 31,709,532
Long-term debt.................................................... 1,531,373
Preferred stockholders' equity.................................... 13,773
Common stockholders' equity....................................... 2,881,403
Total stockholders' equity........................................ 2,895,176
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans....................................................... 1.12
Nonperforming assets............................................ 89
Net charge-offs to average net loans.............................. .39
Nonperforming assets to loans, net and foreclosed properties...... 1.25
</TABLE>
15
<PAGE>
GENERAL INFORMATION
GENERAL
This Prospectus/Proxy Statement is being furnished by ABI to its
stockholders as a proxy statement in connection with the solicitation of proxies
by the Board of Directors of ABI for use at the Special Meeting to be held on
, 1994, and any adjournment or adjournments thereof, to consider
and vote upon: (i) a proposal to approve the Merger Agreement and the related
Plan of Merger; and (ii) such other business as may come before the Special
Meeting or any adjournment or adjournments thereof.
This document is also furnished by FUNC to the holders of ABI Common Stock
and ABI Preferred Stock as a prospectus in connection with the issuance by FUNC
of the FUNC Common Shares, upon consummation of the Corporate Merger.
After having been submitted, the enclosed proxy may be revoked by the
person giving it, at any time before it is exercised, by: (i) submitting written
notice of revocation of such proxy to the Secretary of ABI; (ii) submitting a
proxy having a later date; or (iii) such person appearing at the Special Meeting
and requesting a return of the proxy. All shares represented by valid proxies
will be exercised in the manner specified thereon. If no specification is made,
such shares will be voted in favor of approval of the Merger Agreement and the
related Plan of Merger.
Directors, officers and employees of ABI and FUNC may solicit proxies from
ABI stockholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services. All expenses associated with the solicitation of proxies in the form
enclosed will be borne by the party incurring the same, except for printing
expenses, which will be shared equally between FUNC and ABI.
THE ABI BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT AND THE RELATED
PLAN OF MERGER, BELIEVES THEY ARE IN THE BEST INTERESTS OF ABI AND ITS
STOCKHOLDERS AND RECOMMENDS THEIR APPROVAL BY ABI STOCKHOLDERS. SEE THE
MERGERS -- BACKGROUND AND REASONS; ABI.
RECORD DATE; VOTES REQUIRED
The ABI Board has fixed , 1994, as the Record Date for
stockholders entitled to notice of and to vote at the Special Meeting, and
accordingly, only holders of ABI Common Stock and ABI Preferred Stock of record
at the close of business on that day will be entitled to notice of and to vote
at the Special Meeting. The number of shares of ABI Common Stock outstanding on
the Record Date was 2,299,854, each of such shares being entitled to one vote.
The number of shares of ABI Preferred Stock outstanding on the Record Date was
988, each of such shares being entitled to one vote.
Approval of the Merger Agreement and the related Plan of Merger requires
the affirmative vote of a majority of the votes entitled to be cast at the
Special Meeting by (i) the holders of ABI Common Stock, and (ii) the holders of
ABI Preferred Stock, voting as a separate class.
The directors and executive officers of ABI (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting (i) 349,836 shares of ABI Common Stock, which
represent approximately 15 percent of the outstanding shares of ABI Common Stock
entitled to be voted, and (ii) 835 shares of ABI Preferred Stock, which
represent approximately 85 percent of the outstanding shares of ABI Preferred
Stock entitled to be voted. Such directors entered into the ABI Directors'
Agreement (a copy of which is included in Exhibit B of ANNEX B to this
Prospectus/Proxy Statement) whereby they agreed to vote such shares of ABI
Preferred Stock in favor of approval of the Merger Agreement and the related
Plan of Merger at the Special Meeting. Accordingly, assuming such shares are so
voted, the Merger Agreement and related Plan of Merger will be approved at the
Special Meeting by the requisite vote of the holders of ABI Preferred Stock.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE ABSTAIN BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT AND THE RELATED PLAN OF MERGER.
16
<PAGE>
THE MERGERS
THE FOLLOWING INFORMATION RELATING TO THE MERGERS IS NOT INTENDED TO BE A
COMPLETE DESCRIPTION OF ALL MATERIAL INFORMATION RELATING TO THE MERGERS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO AND
THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT
(INCLUDING THE STOCK OPTION AGREEMENT, THE ABI DIRECTORS' AGREEMENT AND THE
RELATED PLAN OF MERGER) IS SET FORTH IN ANNEX B TO THIS PROSPECTUS/PROXY
STATEMENT AND REFERENCE IS MADE THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS
OF THE MERGERS. STOCKHOLDERS OF ABI ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
GENERAL
Under the terms of the Merger Agreement, ABI will merge with and into FUNC
and American Bank will merge with and into FUNB-NC. Upon consummation of the
Corporate Merger (i) each outstanding share of ABI Common Stock (excluding any
Dissenting Shares and any FUNC/ABI Held Shares) would be converted, by virtue of
the Corporate Merger, automatically and without any action on the part of the
holder thereof, into the right to receive 0.211 shares of FUNC Common Stock,
subject to possible adjustment as set forth in the Merger Agreement and as
illustrated below, with cash in lieu of the issuance of any fractional share
interest, and (ii) each outstanding share of ABI Preferred Stock (excluding any
Dissenting Shares) would be converted, by virtue of the Corporate Merger,
automatically and without any action on the part of the holder thereof, into the
right to receive a number of shares of FUNC Common Stock equal to the product of
(a) the Common Stock Exchange Ratio, and (b) 159, the number of shares of ABI
Common Stock into which a share of ABI Preferred Stock was convertible as of
September 30, 1993. Each holder of ABI Common Stock and ABI Preferred Stock who
would otherwise be entitled to a fractional share of FUNC Common Stock will
receive cash in lieu thereof in an amount determined by multiplying (x) the last
reported sale price per share of FUNC Common Stock on the NYSE Composite
Transactions Tape on the last trading day prior to the Effective Date by (y) the
fraction of a share of FUNC Common Stock to which such holder would otherwise be
entitled.
For a discussion of the rights of holders of ABI Common Stock or ABI
Preferred Stock who elect to dissent from approval of the Merger Agreement and
the related Plan of Merger, see -- Dissenters' Rights.
POSSIBLE COMMON STOCK EXCHANGE RATIO ADJUSTMENT
The Merger Agreement may be terminated in certain circumstances, including
by the ABI Board, at its sole option, if (i) the last reported sale price of
FUNC Common Stock on the NYSE Composite Transactions Tape on the OCC Approval
Date (the FUNC Closing Price) is less than $32.50, and (ii) an FUNC Common Stock
Decline has occurred; provided, however, that the Merger Agreement may not be so
terminated if FUNC elects, at its sole option, to increase the Common Stock
Exchange Ratio (and as a result the Preferred Stock Exchange Ratio) as set forth
in the Merger Agreement and as illustrated below. There can be no assurance that
the ABI Board will exercise its right to terminate the Merger Agreement in the
event of an FUNC Common Stock Decline and, if the ABI Board does elect to so
terminate the Merger Agreement, there can be no assurance that FUNC will elect
to increase the Common Stock Exchange Ratio as provided in the Merger Agreement
and as illustrated below.
The effect of the above provisions on the Common Stock Exchange Ratio may
be illustrated by the following three scenarios:
(i) The first scenario would occur if the FUNC Closing Price is not
less than $32.50, in which case there would be no FUNC Common Stock Decline
and no adjustment to the Common Stock Exchange Ratio.
(ii) The second scenario would occur if the FUNC Closing Price is less
than $32.50, but the FUNC Ratio is not more than 20 percent below the Index
Group Ratio. Under this scenario, there would be no FUNC Common Stock
Decline and no adjustment to the Common Stock Exchange Ratio.
(iii) The third scenario would occur if the FUNC Closing Price is less
than $32.50 and the FUNC Ratio is more than 20 percent below the Index
Group Ratio. Under this scenario, the ABI Board may, at its sole option,
terminate the Merger Agreement unless FUNC elects, at its sole option, to
increase the Common Stock Exchange Ratio so as to eliminate the FUNC Common
Stock Decline.
THE ABOVE SCENARIOS ARE FOR ILLUSTRATIVE PURPOSES ONLY AND ARE NOT INTENDED
TO, AND DO NOT, REFLECT THE VALUE OF THE FUNC COMMON SHARES THAT MAY ACTUALLY BE
RECEIVED BY HOLDERS OF ABI COMMON STOCK AND ABI PREFERRED STOCK UPON
CONSUMMATION OF THE CORPORATE MERGER.
17
<PAGE>
STOCKHOLDERS OF ABI SHOULD BE AWARE THAT THE FUNC CLOSING PRICE ON WHICH
THE OCCURRENCE OF AN FUNC COMMON STOCK DECLINE AND THE SUBSEQUENT ADJUSTMENT, IF
ANY, TO THE COMMON STOCK EXCHANGE RATIO, WILL BE BASED ON THE CLOSING SALE
PRICES OF FUNC COMMON STOCK DURING A 20-DAY PERIOD ENDING ON THE OCC APPROVAL
DATE, WHICH APPROVAL DATE WOULD OCCUR NOT LESS THAN 30 DAYS PRIOR TO THE
EFFECTIVE DATE. ACCORDINGLY, BECAUSE THE MARKET PRICE OF FUNC COMMON STOCK
BETWEEN THE OCC APPROVAL DATE AND THE EFFECTIVE DATE, AS WELL AS THE DATE
CERTIFICATES REPRESENTING FUNC COMMON SHARES ARE DELIVERED IN EXCHANGE FOR
SHARES OF ABI COMMON STOCK AND ABI PREFERRED STOCK FOLLOWING CONSUMMATION OF THE
CORPORATE MERGER, WILL FLUCTUATE AND POSSIBLY DECLINE, THE VALUE OF THE FUNC
COMMON SHARES ACTUALLY RECEIVED BY HOLDERS OF ABI COMMON STOCK AND ABI PREFERRED
STOCK MAY BE LESS OR MORE THAN (I) THE FUNC CLOSING PRICE, OR (II) THE VALUE OF
THE FUNC COMMON STOCK ON THE EFFECTIVE DATE RESULTING FROM THE COMMON STOCK
EXCHANGE RATIO OR ANY POSSIBLE ADJUSTMENT TO THE COMMON STOCK EXCHANGE RATIO, AS
ILLUSTRATED ABOVE.
If FUNC or any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between November 18, 1993, and the OCC
Approval Date, the prices for FUNC Common Stock or such other common stocks
shall be appropriately adjusted for all purposes, including determining whether
there is an FUNC Common Stock Decline or determining any adjustment to the
Common Stock Exchange Ratio as illustrated above (and, in the case of any such
transaction by FUNC, the Common Stock Exchange Ratio also shall be appropriately
adjusted).
The ABI Board has made no decision as to whether it would exercise its
right to terminate the Merger Agreement if there is an FUNC Common Stock
Decline. THE ABI BOARD RESERVES THE RIGHT TO CONSUMMATE THE CORPORATE MERGER IN
THE EVENT OF AN FUNC COMMON STOCK DECLINE WITHOUT ANY ADJUSTMENT TO THE COMMON
STOCK EXCHANGE RATIO AND WITHOUT ANY FURTHER ACTION BY THE STOCKHOLDERS OF ABI.
Any such decision will be made by the ABI Board in light of the circumstances
existing at the time the ABI Board has the opportunity to make such an election.
If the ABI Board elects to exercise its termination right, ABI must give FUNC
notice of that decision during a 15-day period beginning on the OCC Approval
Date, but the ABI Board may withdraw such notice, at its sole option, at any
time during such 15-day period. During the seven-day period after receipt of
such notice, FUNC has the option, in its sole discretion, to adjust the Common
Stock Exchange Ratio in the manner set forth in the Merger Agreement and as
illustrated above and thereby avoid such termination of the Merger Agreement.
FUNC is under no obligation to adjust the Common Stock Exchange Ratio, and there
can be no assurance that FUNC would elect to adjust the Common Stock Exchange
Ratio if the ABI Board were to exercise its right to terminate the Merger
Agreement as set forth above. Any such decision will be made by FUNC in light of
the circumstances existing at the time FUNC has the opportunity to make such an
election. If FUNC elects to adjust the Common Stock Exchange Ratio as set forth
in the Merger Agreement and as illustrated above, it must give ABI prompt notice
of that election and such adjusted Common Stock Exchange Ratio, in which case no
termination of the Merger Agreement shall occur as a result of an FUNC Common
Stock Decline.
THE FOREGOING DISCUSSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
APPLICABLE PROVISIONS IN THE MERGER AGREEMENT RELATING TO POSSIBLE ADJUSTMENT TO
THE COMMON STOCK EXCHANGE RATIO AS THE RESULT OF AN FUNC COMMON STOCK DECLINE.
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Mergers, the Effective Date will occur on such date as FUNC notifies ABI in
writing not less than five days prior thereto, provided such date is not more
than 30 days after such conditions have been satisfied or waived. Subject to the
foregoing, it is currently anticipated that the Mergers will be consummated in
the second quarter of 1994. If the Mergers are consummated in such quarter, or
in any other quarter, ABI stockholders should not assume or expect that the
Effective Date will precede the record date for the dividend on FUNC Common
Stock for that quarter, so as to enable such stockholders to receive such
dividend. The Board of Directors of either FUNC or ABI may terminate the Merger
Agreement if the Effective Date does not occur on or before September 30, 1994.
See -- Exchange of ABI Certificates and -- Conditions to Consummation;
Termination.
EXCHANGE OF ABI CERTIFICATES
As promptly as practicable after the Effective Date, FUNC will send or
cause to be sent to each holder of record of ABI Common Stock and ABI Preferred
Stock, transmittal materials for use in exchanging all of such holder's
certificates representing ABI Common Stock and ABI Preferred Stock for a
certificate or certificates representing the FUNC Common Shares
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to which such holder is entitled and a check or checks for such holder's
fractional share interests, as appropriate. The transmittal materials will
contain information and instructions with respect to the surrender and exchange
of such certificates.
ABI STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for ABI Common Stock and ABI
Preferred Stock, as applicable, registered in the name of a holder of such
certificates (or indemnity satisfactory to FUNC and the exchange agent selected
by FUNC if any of such certificates are lost, stolen or destroyed), together
with a properly completed letter of transmittal, such exchange agent will mail
to such holder a certificate or certificates representing the number of FUNC
Common Shares to which such holder is entitled, together with all undelivered
dividends or distributions in respect of such shares and, where applicable, a
check or checks for any fractional share interests (in each case, without
interest).
All FUNC Common Shares issued pursuant to the Corporate Merger will be
deemed issued as of the Effective Date. After the Effective Date, former holders
of record of ABI Common Stock and ABI Preferred Stock will be entitled to vote
at any meeting of holders of FUNC Common Stock the number of FUNC Common Shares
into which their ABI shares have been converted, regardless of whether they have
surrendered their ABI Common Stock or ABI Preferred Stock certificates. FUNC
dividends having a record date after the Effective Date will include dividends
on all FUNC Common Shares issued in the Corporate Merger, but no dividend or
other distribution payable to the holders of record of FUNC Common Shares at or
as of any time after the Effective Date will be distributed to the holder of any
ABI Common Stock or ABI Preferred Stock certificates until such holder
physically surrenders all such certificates as hereinabove described. Promptly
after such surrender, all undelivered dividends and other distributions and,
where applicable, a check or checks for any fractional share interests, will be
delivered to such holder (in each case, without interest). FUNC dividends having
a record date before the Effective Date (which record date may, in FUNC's sole
discretion, be the day immediately preceding the Effective Date, or any other
day prior to the Effective Date) will not include dividends on the FUNC Common
Shares issued in the Corporate Merger. After the Effective Date, the stock
transfer books of ABI will be closed and there will be no transfers on the
transfer books of ABI of the shares of ABI Common Stock and ABI Preferred Stock
that were outstanding immediately prior to the Effective Date.
BACKGROUND AND REASONS
ABI
The ABI Board has a legal duty to act primarily for the benefit of the
corporation and its stockholders. In performing this duty the ABI Board
carefully studied and considered the effects and ramifications of the Mergers on
ABI and its stockholders. In particular, the ABI Board considered the strategic
alternatives available to ABI. The savings and loan financial crisis of the
1980s caused a significant movement toward consolidation in the financial
services industry. Moreover, federal and state regulatory restrictions have been
heightened as a result of increasing national concern about the safety and
soundness of financial institutions that provide depository services. While
interest rates in the early 1990s have remained stable, the potential for higher
interest rates in the future, together with increased competition from other
savings institutions and commercial banks having an asset base many times the
size of ABI, caused the ABI Board to consider the long-term future of ABI and
its ability to continue to provide competitive financial services. A number of
recent developments have caused ABI to come under increased competitive
pressure, including increased consolidation in ABI's immediate market area,
increased consolidation in the industry as a whole, entry of the commercial
banking industry into home mortgage lending, and a growing perception by the
banking public that all financial institutions should provide a full range of
banking services.
Ultimately, the ABI Board determined that the only viable alternative for
ABI was to combine with a large commercial bank holding company having the
resources to successfully compete in the current financial services market. ABI
was informally approached by a number of potential acquirors. On December 21,
1992, ABI entered into a non-binding letter of intent (the Letter of Intent)
with SouthTrust Corporation, Birmingham, Alabama (SouthTrust) that contemplated
the acquisition of ABI by SouthTrust or one of its affiliates. In connection
with the Letter of Intent, ABI and SouthTrust entered into a stock option
agreement (the SouthTrust Option) whereby SouthTrust was issued an option to
purchase up to 9.9 percent of the issued and outstanding shares of ABI Common
Stock. After further study and analysis of the strategic implications of the
proposed acquisition, ABI and SouthTrust determined that the transaction was not
in the best interest of either corporation. Consequently, ABI and SouthTrust
reached a mutual decision not to enter into a definitive acquisition agreement.
Both the Letter of Intent and the SouthTrust Option were terminated on March 1,
1993, without liability to either party. Shortly thereafter, ABI began
negotiations with FUNB-NC which resulted in the Merger Agreement.
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The ABI Board determined that the Mergers will be fair to ABI's
stockholders because of the liquidity of FUNC Common Stock and the Common Stock
Exchange Ratio provided by the Merger Agreement. The ABI Board determined that
the Mergers will be in the best interest of ABI's depositors because a broader
array of transaction accounts will be offered both to individuals and
businesses. The ABI Board determined that the Mergers will be in the best
interest of ABI's borrowers because a broader array of loan products will be
offered to both individuals and businesses.
THE ABI BOARD RECOMMENDS THAT ABI STOCKHOLDERS VOTE FOR APPROVAL OF THE
MERGER AGREEMENT AND THE RELATED PLAN OF MERGER.
FUNC
FUNC is based in Mecklenburg County and, through FUNB-NC, operates branch
banking offices throughout most of North Carolina. However, FUNB-NC does not
have any branch banking offices in Union County, where ABI is based and which is
adjacent to Mecklenburg County. FUNC believes that Union County is an attractive
market and that the Mergers provide an excellent opportunity to enter such
market. See FUNC -- History and Business.
OPINION OF FINANCIAL ADVISOR
ABI retained Meritas to act as its financial advisor in connection with the
Corporate Merger. Representatives of Meritas attended meetings with the ABI
Board and members of ABI's management to consider the proposed Mergers,
including the meeting on November 15, 1993, at which the Merger Agreement was
reviewed and approved. At the November 15, 1993 meeting, Meritas rendered its
oral opinion that, as of the date of such meeting, the consideration of 0.211
shares of FUNC Common Stock for each share of ABI Common Stock was fair, from a
financial point of view, to the holders of ABI Common Stock and, after effective
conversion, to the holders of ABI Preferred Stock. Meritas has also delivered
its Opinion, dated as of the date of this Prospectus/Proxy Statement to the ABI
Board that such consideration is fair, from a financial point of view, to the
holders of ABI Common Stock including the holders of ABI Common Stock resulting
from the conversion of ABI Preferred Stock. The November 15, 1993 opinion was
substantially identical to the Opinion, which is set forth in ANNEX C to this
Prospectus/Proxy Statement. No limitations were imposed by the ABI Board upon
Meritas with respect to the investigations made or procedures followed by it in
rendering the Opinion.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C
TO THIS PROSPECTUS/PROXY STATEMENT, IS INCORPORATED HEREIN BY REFERENCE, AND
SHOULD BE READ BY THE STOCKHOLDERS OF ABI IN ITS ENTIRETY. THE SUMMARY OF THE
OPINION SET FORTH IN THIS PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE OPINION.
In arriving at the Opinion, Meritas reviewed, among other things, certain
publicly available business and financial information relating to FUNC and ABI.
Meritas also reviewed certain other information provided to it by FUNC and ABI,
and discussed with ABI's management the respective businesses and prospects of
ABI. Meritas also considered certain financial and stock market data of FUNC and
ABI, compared that information with similar data for other publicly held bank
holding companies, thrifts and thrift holding companies and considered the
financial terms of certain other comparable transactions which have recently
been announced or effected, as further discussed below. Meritas also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which it deemed relevant. In connection
with its review, Meritas did not independently verify any of the foregoing
information and Meritas relied on such information being complete and accurate
in all material respects. In addition, Meritas did not make an independent
evaluation or appraisal of the assets of FUNC or ABI. In connection with
evaluating the Mergers, Meritas was not requested to and did not solicit other
third party indications of interest in acquiring all or any part of ABI.
In connection with rendering the Opinion and preparing its various
presentations to the ABI Board, Meritas performed a variety of financial
analyses, including those summarized below. The summary set forth below does not
purport to be a complete description of the analyses performed by Meritas 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 a summary
description. Accordingly, notwithstanding the separate factors summarized below,
Meritas believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. In performing its analyses, Meritas
made numerous assumptions with respect to regulatory factors, industry
performance, business and economic conditions and other matters, many of which
are beyond ABI's or FUNC's control. The analyses performed by Meritas are not
necessarily
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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 businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
COMPARABLE TRANSACTION ANALYSIS
Meritas performed an analysis of prices paid for selected thrifts and
thrift holding companies in order to obtain a valuation range based upon recent
transactions similar to the Corporate Merger. Multiples of book value, tangible
book value, and trailing twelve months earnings as well as deposit premiums
implied by the consideration to be received by stockholders of ABI in the
Corporate Merger were compared with certain multiples paid in comparable
transactions. Comparable transactions were considered to include transactions
involving bank holding company acquisitions of thrifts or thrift holding
companies. The comparable transactions included the following pending or
completed transactions: Southern Bancshares, N.C. Inc. buying Citizens Savings
Bank; First Bancorporation of Ohio buying Great Northern Financial Corporation;
Old Kent Financial Corporation buying University Financial Corporation;
Susquehanna Bancshares Corporation buying Central Financial Corporation; and
BB&T Financial Corporation buying FirstFincorp.
Based on the proposed consideration per share, 0.211 shares of FUNC Common
Stock for each share of ABI Common Stock as of February 24, 1994, the analysis
yielded a range of transaction values (i) to book value of .95X to 2.10X with an
average of 1.49X (compared to 1.30X for the Corporate Merger), (ii) to tangible
book value of 1.17X to 2.12X with an average of 1.55X (compared to 1.36X for the
Corporate Merger), and (iii) to trailing twelve months earnings of 4.5X to 20.1X
with an average of 13.4X (compared to 30.8X for the Corporate Merger).
Additionally, Meritas examined the consideration paid less tangible equity as a
function of total deposits yielding a range of values of between 1.11 percent
and 8.70 percent with an average of 4.56 percent compared to 2.68 percent for
the Corporate Merger.
PEER GROUP FINANCIAL COMPARISON
Meritas compared historical stock price data, earnings and dividend data
and financial ratios for FUNC to the corresponding data and ratios of Banc One
Corporation, SunTrust Banks, Inc., PNC Financial Corporation, and Barnett Banks,
Inc. Such data and ratios included nonperforming assets to total assets; tier 1,
risk-based and total capital ratios; net interest margins; noninterest expense
ratios; return on average assets and return on average equity for the four
quarters ended September 30, 1993; price to book value ratio; price to earnings
multiple; and dividend yield for the year ended December 31, 1993. The financial
data and ratios were computed as of September 30, 1993, and the historical stock
price data were computed as of January 31, 1994.
FUNC's ratio of nonperforming assets to total assets was higher than that
of the comparison bank holding companies. FUNC's regulatory capital ratios were
lower than all but one of the comparison group in tier 1 capital and total
capital, but exceeded three of the four comparative companies in risk-based
capital. FUNC's net interest margin was greater than one of the four comparable
holding companies, while noninterest expense was less than the comparable ratio
for two of the four. FUNC's return on average assets exceeded that of one of the
comparative companies, while return on average equity exceed that of two
companies. The market price to book value ratio of FUNC was greater than that of
one comparative company, while its price to earnings ratio was lower than those
in the group. The dividend yield for FUNC Common Stock exceeded that of all but
one of the comparative companies.
In connection with the Opinion, Meritas confirmed the appropriateness of
its reliance on the analyses used to render its November 15, 1993 opinion by
performing procedures to update certain of such analyses and reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
Meritas was chosen by the ABI Board as ABI's financial advisor in
connection with the Corporate Merger on the basis of Meritas' experience in the
valuation of securities in connection with mergers and acquisitions. Meritas is
a financial consulting firm that is engaged, among other things, in the
evaluation of thrift and banking institutions and their securities, the
negotiation and structuring of merger and acquisition transactions, and other
financial advisory matters for financial institutions. Except as described
herein, Meritas is not affiliated in any way with ABI, FUNC or their respective
affiliates.
For its services, including the issuance of the Opinion, Meritas will
receive fees of approximately $100,000 in the event the Corporate Merger is
consummated. ABI has agreed to pay certain fees and to reimburse Meritas for its
out-of-pocket expenses incurred in connection with the activities contemplated
by its engagement, regardless of whether the Corporate Merger is consummated.
ABI has further agreed to indemnify Meritas against certain liabilities which
may arise in connection with its engagement.
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INTERESTS OF CERTAIN PERSONS
In connection with the execution of the Merger Agreement, FUNB-NC entered
into 13-month employment agreements with Russell W. Pope, President and Chief
Executive Officer of ABI and American Bank, and John O. Summey, Jr., Chief
Financial Officer of ABI and American Bank. The agreements provide for the
employment term to commence on the Effective Date, with annual salaries of
$165,000 for Mr. Pope and $96,250 for Mr. Summey and severance payments at the
end of the employment term of $63,462 for Mr. Pope and $37,019 for Mr. Summey.
The agreements also contain noncompete provisions pursuant to which Messrs.
Pope and Summey agree not to engage in any financial business which competes
with FUNB-NC in Union or Mecklenburg Counties, North Carolina for a 36-month
period following the end of the employment term. In consideration of such
noncompete provisions, FUNB-NC has agreed to pay $38,224 to Mr. Pope and $22,297
to Mr. Summey at the end of the employment term. The rights of Messrs. Pope and
Summey to receive payments under their existing respective Salary Continuation
Agreements will not be affected by the respective FUNB-NC employment agreements
with Messrs. Pope and Summey. The Salary Continuation Agreements provide that
Mr. Pope and Mr. Summey will receive $70,000 and $40,000 annually, respectively,
for a period of 15 years upon reaching the age of 55 or retirement, whichever
occurs last.
FUNC also agreed in the Merger Agreement to use its reasonable best efforts
to maintain ABI's existing directors' and officers' liability insurance policy
(or FUNC's existing policy) covering persons who were covered by such insurance
on the date of the Merger Agreement for a period of six months after the
Effective Date, provided that FUNC will not be obligated to make annual premium
payments for such coverage which exceed the annual premium payment on ABI's
policy in effect on the date of the Merger Agreement.
FUNC agreed in the Merger Agreement that, except as otherwise provided in
the Merger Agreement with respect to severance, vacation and pension benefits,
as soon as administratively practicable following the Effective Date, employees
of ABI will generally be entitled to participate in FUNC's benefit and similar
plans on substantially the same terms and conditions as employees of FUNC,
giving effect, for eligibility and vesting of benefits (but not for accrual of
benefits), to years of service with ABI as if such service were with FUNC.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE CORPORATE MERGER. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION
PURPOSES ONLY AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS ABI
STOCKHOLDERS, IF ANY, WHO RECEIVED THEIR ABI COMMON STOCK OR ABI PREFERRED
STOCK UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION, AND ABI STOCKHOLDERS THAT ARE INSURANCE COMPANIES,
SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN PERSONS.
Sullivan & Cromwell, special counsel for FUNC, has advised FUNC and ABI
that in its opinion:
(i) No gain or loss will be recognized for federal income tax
purposes by ABI stockholders upon the exchange in the Corporate Merger of
shares of ABI Common Stock or ABI Preferred Stock solely for FUNC Common
Shares (except with respect to cash received in lieu of a fractional share
interest in FUNC Common Shares).
(ii) The basis of FUNC Common Shares received in the Corporate Merger
by ABI stockholders (including the basis of any fractional share interest
in FUNC Common Shares) will be the same as the basis of the shares of ABI
Common Stock or ABI Preferred Stock surrendered in exchange therefor.
(iii) The holding period of the FUNC Common Shares received in the
Corporate Merger by an ABI stockholder (including the holding period of any
fractional share interest in FUNC Common Shares) will include the holding
period during which the shares of ABI Common Stock or ABI Preferred Stock
surrendered in exchange therefor were held by the ABI stockholder,
provided such shares of ABI Common Stock or ABI Preferred Stock were held
as capital assets.
(iv) Cash received by a holder of ABI Common Stock or ABI Preferred
Stock in lieu of a fractional share interest in FUNC Common Shares will be
treated as received in exchange for such fractional share interest and,
provided the fractional share would have constituted a capital asset in the
hands of such holder, the holder should in general recognize capital gain
or loss in an amount equal to the difference between the amount of cash
received and the portion of the adjusted tax basis in the ABI Common Stock
or ABI Preferred Stock allocable to the fractional share interest.
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In addition, consummation of the Corporate Merger is conditioned on receipt
by FUNC and ABI of an opinion of Sullivan & Cromwell, dated as of the Effective
Date, to the effect that (i) the Corporate Merger constitutes a reorganization
under Section 368 of the Internal Revenue Code of 1986, as amended, and (ii) no
gain or loss will be recognized by ABI stockholders who receive FUNC Common
Stock in exchange for their shares of ABI Common Stock or ABI Preferred Stock,
except that gain or loss may be recognized as to cash received in lieu of
fractional share interests.
The opinions of Sullivan & Cromwell summarized above are or will be based,
among other things, on assumptions relating to certain facts and circumstances
of, and the intentions of the parties to, the Mergers, which assumptions will
have been made with the consent of ABI and FUNC.
The exchange of ABI Common Stock or ABI Preferred Stock for cash pursuant
to the exercise of dissenters' rights will be a taxable transaction. Holders of
ABI Common Stock or ABI Preferred Stock electing to exercise dissenters' rights
should consult their own tax advisers as to the tax treatment in their
particular circumstances. See -- Dissenters' Rights .
BECAUSE CERTAIN TAX CONSEQUENCES OF THE CORPORATE MERGER MAY VARY DEPENDING
UPON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER AND OTHER FACTORS, EACH
STOCKHOLDER OF ABI IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISER TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE CORPORATE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
BUSINESS PENDING CONSUMMATION
ABI has agreed in the Merger Agreement not to take certain actions relating
to the operation of ABI pending consummation of the Mergers, without the prior
approval of FUNC, except as otherwise permitted in the Merger Agreement. These
actions include, without limitation: (i) paying any dividends, other than
dividends on ABI Preferred Stock in accordance with its terms, or redeeming or
otherwise acquiring any shares of its capital stock, or issuing any additional
shares of its capital stock or giving any person the right to acquire any such
shares, or issuing any long-term debt; (ii) increasing the rate of compensation
or paying any bonus to any of its directors, officers or employees; (iii)
entering into or modifying any employment agreements or employee benefit plans;
(iv) disposing of any material portion of its assets or acquiring any
substantial portion of the business or property of any other entity; or (v)
taking any other action not in the ordinary course of business.
ABI has also agreed that, prior to the Effective Date, it will use its best
efforts to modify its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) so as to be
consistent with those policies and practices applied by FUNC.
See ABI AND AMERICAN BANK -- History; AMERICAN BANK and -- Memorandum of
Understanding.
REGULATORY APPROVALS
The Corporate Merger is subject to the prior approval (or the receipt of a
waiver therefrom or the receipt of an exemption from approval therefrom) of the
Federal Reserve Board under the BHCA. The Bank Merger is subject to the prior
approval by the OCC under the federal Bank Merger Act (BMA). The BHCA and the
BMA each require that the relevant regulatory agency take into consideration,
among other factors, the financial and managerial resources and future prospects
of the institutions and the convenience and needs of the communities to be
served. The BHCA and the BMA each prohibit the relevant regulatory agency from
approving the Corporate Merger or the Bank Merger, as the case may be, (i) if it
would result in a monopoly or be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or (ii) 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 in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anti-competitive effects of such merger are
clearly outweighed by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The relevant regulatory agency has the authority to deny an application
if it concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act of 1977. Under the BHCA and the BMA, the Bank Merger
may not be consummated until the 30th day following the date of the approval of
the relevant regulatory agency during which time the U.S. Department of Justice
may challenge such merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of such an approval unless a court
specifically orders otherwise. An application pursuant to the BMA was filed with
the OCC and accepted as complete on February 15, 1994. The OCC indicated that it
will decide on the application on or before April 14, 1994, but that
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it may extend the time for such decision by 30 days. The Mergers are also
subject to the prior approval (or the receipt of a waiver therefrom) of the
Administrator. An application necessary to obtain the Administrator's approval
has been filed.
FUNC has specifically sought, and subsequently qualified for, an exemption
for the Corporate Merger from the requirement of prior approval from the Federal
Reserve Board under the BHCA pursuant to Section 225.12(d)(2) of Regulation Y,
which provides that a transaction such as the Corporate Merger is exempt from
prior approval if (i) there is effected simultaneously therewith a transaction
such as the Bank Merger, (ii) such transaction is subject to the prior approval
requirement of the appropriate federal regulatory agency under the BMA, and
(iii) the Corporate Merger is in substance a transaction similar to the Bank
Merger. Therefore, the transactions contemplated by the Merger Agreement do not
require the prior approval of the Federal Reserve Board under the BHCA.
The Corporate Merger and the Bank Merger cannot proceed in the absence of
the requisite regulatory approvals or waivers. THERE CAN BE NO ASSURANCE THAT
SUCH REGULATORY APPROVALS WILL BE OBTAINED, AND, IF THE CORPORATE MERGER AND THE
BANK MERGER ARE APPROVED, THERE CAN BE NO ASSURANCE AS TO THE DATE OF ANY SUCH
APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT ANY SUCH APPROVALS WILL NOT
CONTAIN A CONDITION OR REQUIREMENT WHICH CAUSES SUCH APPROVALS TO FAIL TO
SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED BELOW
UNDER -- CONDITIONS TO CONSUMMATION; TERMINATION. THERE CAN LIKEWISE BE NO
ASSURANCE THAT THE U.S. DEPARTMENT OF JUSTICE OR A STATE ATTORNEY GENERAL WILL
NOT CHALLENGE THE CORPORATE MERGER OR THE BANK MERGER, OR IF SUCH A CHALLENGE IS
MADE, AS TO THE RESULT THEREOF. ANY APPROVALS, IF AND WHEN RECEIVED FROM THE
APPLICABLE REGULATORY AGENCIES, DO NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE MERGERS BY SUCH AGENCIES.
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Mergers is subject, among other things, to: (i)
approval of the Merger Agreement and the related Plan of Merger by the requisite
vote of the stockholders of ABI; (ii) receipt of the regulatory approvals
referred to above without any restrictions or conditions which would so
materially adversely impact the economic or business benefits to FUNC of the
transactions contemplated by the Merger Agreement so as to render inadvisable
the consummation of the Mergers; (iii) no court or governmental or regulatory
authority having taken any action which prohibits the Mergers; (iv) the
Registration Statement being effective; (v) receipt by FUNC of a letter,
satisfactory to FUNC, from its independent certified public accountants that the
Corporate Merger will qualify for pooling of interests accounting treatment and
a letter from ABI's independent certified public accountants to the effect that
they are not aware of any facts or circumstances that might cause the Corporate
Merger not to qualify for pooling of interests accounting treatment; and (vi)
the FUNC Common Shares having been approved for listing on the NYSE, subject to
official notice of issuance.
Consummation of the Mergers is also subject to the satisfaction or waiver
of various other conditions specified in the Merger Agreement, including, among
others: (i) the delivery by ABI and FUNC, each to the other, of (a) opinions of
their respective counsel, and (b) certificates executed by certain of their
respective executive officers as to compliance with the Merger Agreement; (ii)
the accuracy of the representations and warranties, and compliance in all
material respects with the agreements and covenants of the parties to the Merger
Agreement; and (iii) the receipt by FUNC of a letter from ABI's independent
certified public accountants with respect to ABI's financial position.
The Merger Agreement provides that, whether before or after the Special
Meeting and notwithstanding the approval of the Merger Agreement and the related
Plan of Merger by the stockholders of ABI, the Merger Agreement may be
terminated and the Mergers abandoned at any time prior to the Effective Date:
(i) by mutual consent of the Boards of Directors of FUNC and ABI; or (ii) by
either the Board of Directors of FUNC or the Board of Directors of ABI (a) if
the stockholders of ABI fail to approve the Mergers, (b) in the event of a
breach by the other party of any representation, warranty, or covenant contained
in the Merger Agreement, which breach is not cured after 30 days' written notice
thereof is given to the party committing such breach, or (c) if the Corporate
Merger is not consummated on or before September 30, 1994.
The ABI Board may also terminate the Merger Agreement, at its sole option,
in the event of an FUNC Common Stock Decline unless FUNC elects, at its sole
option, to increase the Common Stock Exchange Ratio (and as a result the
Preferred Stock Exchange Ratio) as provided in the Merger Agreement. See
-- Possible Common Stock Exchange Ratio Adjustment.
WAIVER; AMENDMENT
Prior to the Effective Date, any provision of the Merger Agreement may be:
(i) waived by the party benefitted by the provision; or (ii) amended or modified
at any time (including the structure of the transaction) by an agreement in
writing
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among the parties thereto approved by their respective Boards of Directors and
executed in the same manner as the Merger Agreement, provided that after
approval by the stockholders of ABI, the consideration to be received by the
stockholders of ABI may not thereby be decreased. Pursuant to the Merger
Agreement, ABI caused a review of certain assets in its loan portfolio to be
undertaken, which, absent a waiver from FUNC, may have reduced the Common
Stock Exchange Ratio. FUNC has waived any such adjustment to the Common
Stock Exchange Ratio.
DISSENTERS' RIGHTS
Holders of ABI Common Stock and ABI Preferred Stock entitled to vote on
approval of the Merger Agreement and the related Plan of Merger will be entitled
to have the fair value of each such holder's shares of ABI Common Stock and ABI
Preferred Stock immediately prior to consummation of the Corporate Merger paid
to such holder in cash, together with interest, if any, by complying with the
provisions of Article 13 of the NCBCA (Article 13 ). Under Article 13, the
determination of the fair value of a dissenter's shares would exclude any
appreciation or depreciation in the value of such shares in anticipation of the
Corporate Merger, unless such exclusion would be inequitable.
A holder of ABI Common Stock or ABI Preferred Stock who desires to exercise
such holder's dissenters' rights must satisfy all of the following conditions. A
written notice of such holder's intent to demand payment for such holder's ABI
Common Stock or ABI Preferred Stock must be received by ABI before the taking of
the vote on approval of the Merger Agreement and the related Plan of Merger.
This written notice must be in addition to and separate from voting against,
abstaining from voting, or failing to vote on approval of the Merger Agreement
and the related Plan of Merger. Voting against, abstaining from voting or
failing to vote on approval of the Merger Agreement and the related Plan of
Merger will not constitute written notice of an intent to demand payment within
the meaning of Article 13.
A holder of ABI Common Stock or ABI Preferred Stock electing to exercise
such holder's dissenters' rights under Article 13 must not vote for approval of
the Merger Agreement and the related Plan of Merger. Voting for approval of the
Merger Agreement and the related Plan of Merger, or delivering a proxy in
connection with the Special Meeting (unless the proxy specifies a vote against,
or abstaining from voting on, approval of the Merger Agreement and the related
Plan of Merger), will constitute a waiver of such holder's dissenters' rights
and will nullify any written notice of an intent to demand payment submitted by
such holder.
A holder of record of ABI Common Stock or ABI Preferred Stock may assert
dissenters' rights as to less than all of the shares registered in such holder's
name only if such holder dissents with respect to all shares beneficially owned
by any one person and notifies ABI in writing of the name and address of each
person on whose behalf such holder is asserting dissenters' rights. The rights
of a partial dissenter under Article 13 are determined as if the shares as to
which the holder dissents and the holder's other shares were registered in the
names of different stockholders.
A beneficial holder of ABI Common Stock or ABI Preferred Stock may assert
dissenters' rights as to shares held on such holder's behalf only if such
holder: (i) submits to ABI the record holder's written consent to the dissent
not later than the time the beneficial holder asserts dissenters' rights; and
(ii) does so with respect to all shares of which such holder is the beneficial
holder.
If the Corporate Merger is consummated, FUNC will, within ten days after
the Effective Date, deliver a dissenters' notice to all holders who satisfied
the foregoing requirements, which will: (i) state where payment demand is to be
sent and where and when certificates for Dissenting Shares are to be deposited;
(ii) supply a form for demanding payment; (iii) set a date by which FUNC must
receive the payment demand, which date may not be less than 30 nor more than 60
days after the date the dissenters' notice is mailed; and (iv) be accompanied by
a copy of Article 13.
A stockholder sent a dissenters' notice must demand payment and deposit the
certificates representing such holder's Dissenting Shares in accordance with the
dissenters' notice. A stockholder who demands payment and deposits such holder's
shares as described in the dissenters' notice retains all other rights as a
holder of ABI Common Stock or ABI Preferred Stock, as applicable, except to the
extent such rights are cancelled or modified by the consummation of the
Corporate Merger. A stockholder who does not demand payment and deposit his
share certificates where required, each by the date set forth in the dissenters'
notice, is not entitled to payment for such holder's shares under Article 13.
As soon as the Corporate Merger is consummated, or upon receipt of a
payment demand, FUNC shall offer to pay each dissenter who complied with Article
13 the amount that FUNC estimates to be the fair value of the dissenter's
shares, plus accrued interest, and shall pay such amount to each dissenter who
agrees in writing to accept it in full satisfaction of such dissenter's demand.
The offer of payment by FUNC must be accompanied by: (i) FUNC's balance sheet as
of the end of a fiscal year ended not more than 16 months before the date of the
offer of payment, an income statement for that year, a
25
<PAGE>
statement of cash flows for that year and the latest available interim financial
statements, if any; (ii) a statement of FUNC's estimate of the fair value of the
Dissenting Shares; (iii) an explanation of how the interest was calculated; (iv)
a statement of the dissenter's right to demand payment as described below; and
(v) a copy of Article 13.
A dissenter may notify FUNC in writing of the dissenter's own estimate of
the fair value of the Dissenting Shares and the amount of interest due and
demand payment of such estimate, or reject FUNC's offer and demand payment of
the fair value of the Dissenting Shares and interest due, if (i) the dissenter
believes the amount offered by FUNC is less than the fair value of the
Dissenting Shares or that the interest due is incorrectly calculated, or (ii)
FUNC fails to make payment to a dissenter who accepts FUNC's offer within 30
days after such acceptance. A dissenter waives such right to demand payment, and
shall be deemed to have withdrawn his dissent and demand for payment, unless the
dissenter notifies FUNC of such demand under (i) above, within 30 days after
FUNC offers payment, or under (ii) above, within 30 days after FUNC fails to
perform timely.
If any such demand for payment remains unsettled, within 60 days after the
date of the payment demand, the dissenter may petition the court to determine
the fair value of the dissenting shares and any accrued interest. Upon service
on it of the petition filed with the court, FUNC shall pay the dissenter the
amount offered by FUNC. If the dissenter does not commence the proceeding within
the 60-day period, the dissenter will have an additional 30 days to either (i)
accept in writing the amount offered by FUNC, at which time FUNC will pay such
amount to the dissenter in full satisfaction of his demand, or (ii) withdraw his
demand for payment and resume the status of a nondissenting stockholder. A
dissenter who takes no action within such 30-day period shall be deemed to have
withdrawn his dissent and demand for payment. Each dissenter made a party to
such proceeding is entitled to a judgment for the amount, if any, by which the
court finds that the fair value of the Dissenting Shares, plus interest, exceeds
the amount paid by FUNC. The court will determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court, and assess the costs as it finds equitable.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF ABI
COMMON STOCK OR ABI PREFERRED STOCK. ANY HOLDER OF ABI COMMON STOCK OR ABI
PREFERRED STOCK WHO INTENDS TO DISSENT SHOULD CAREFULLY REVIEW THE TEXT OF THE
APPLICABLE PROVISIONS OF THE NCBCA SET FORTH IN ANNEX D TO THIS PROSPECTUS/PROXY
STATEMENT AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S ATTORNEY. THE FAILURE OF A
HOLDER OF ABI COMMON STOCK OR ABI PREFERRED STOCK TO FOLLOW PRECISELY THE
PROCEDURES SUMMARIZED ABOVE AND SET FORTH IN ANNEX D, MAY RESULT IN LOSS OF
DISSENTERS' RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO DISSENTERS'
RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF ABI
COMMON STOCK OR ABI PREFERRED STOCK, EXCEPT AS INDICATED ABOVE OR OTHERWISE
REQUIRED BY LAW.
In general, any dissenting stockholder who perfects such holder's right to
be paid the fair value of such holder's ABI Common Stock or ABI Preferred Stock
in cash will recognize taxable gain or loss for federal income tax purposes upon
receipt of such cash. See -- Certain Federal Income Tax Consequences.
ACCOUNTING TREATMENT
Consummation of the Mergers is conditioned upon the Corporate Merger being
accounted for on a pooling of interests accounting basis and the receipt by FUNC
of a letter from each of FUNC's and ABI's independent certified public
accountants with respect thereto. See -- Conditions to Consummation;
Termination. Under this accounting treatment, as of the Effective Date the
assets and liabilities of ABI would be added to those of FUNC at their recorded
book values and the stockholders' equity accounts of ABI and FUNC would be
combined on FUNC's consolidated balance sheet. On a pooling of interests
accounting basis, income and other financial statements of FUNC issued after
consummation of the Corporate Merger would normally be restated retroactively to
reflect the consolidated combined financial position and results of operations
of FUNC and ABI as if the Corporate Merger had taken place prior to the periods
covered by such financial statements; provided, however, because of the relative
immateriality of the Mergers to FUNC on a consolidated basis, such statements
will not be retroactively restated solely as a result of consummation of the
Corporate Merger.
The unaudited pro forma financial information contained in this
Prospectus/Proxy Statement has been prepared using the pooling of interests
accounting basis to account for the Corporate Merger. If the Corporate Merger is
required to be accounted for as a purchase, which would be required if the
holders of more than ten percent of the outstanding shares of ABI Common Stock
dissented from approval of the Merger Agreement and the related Plan of Merger
and were paid cash for their shares, or under certain other conditions, and FUNC
elected to consummate the Mergers, it is not expected that the pro forma
financial information presented herein would be materially different. See
SUMMARY.
26
<PAGE>
EXPENSES
All expenses incurred by or on behalf of the parties in connection with the
Merger Agreement and the transactions contemplated thereby shall be borne by the
party incurring the same, except that printing expenses for this
Prospectus/Proxy Statement, and under certain conditions certain other expenses,
will be shared equally by FUNC and ABI.
STOCK OPTION AGREEMENT
As a condition to FUNC's entering into the Merger Agreement and in
consideration thereof, ABI issued to FUNC the Option to purchase, under certain
conditions, up to 443,700 shares of ABI Common Stock at a Purchase Price of
$7.50 per share, subject to adjustment in certain circumstances. The Option was
granted to FUNC pursuant to the Stock Option Agreement. The Purchase Price
represents the closing asked price of ABI Common Stock in the over-the-counter
market pink sheets on November 16, 1993, the last business day prior to the date
on which execution of the Merger Agreement was publicly announced. The number of
shares of ABI Common Stock subject to the Option represents approximately 19.3
percent of the outstanding shares of ABI Common Stock, before giving effect to
the issuance of such shares. FUNC does not have any voting rights with respect
to the shares of ABI Common Stock subject to the Option prior to exercise of the
Option.
If FUNC is not in material breach of the Stock Option Agreement or the
Merger Agreement and no injunction against delivery of the shares covered by the
Option is in effect, FUNC may exercise the Option in whole or in part, at any
time and from time to time following the happening of certain events (each a
Purchase Event), including, among others:
(i) ABI taking certain actions (each an Acquisition Transaction),
including, among others, authorizing, recommending or entering into an
agreement with any third party to effect (a) a merger, consolidation or
similar transaction involving ABI or any of its subsidiaries, (b) the sale,
lease, exchange or other disposition of 15 percent or more of the
consolidated assets of ABI and its subsidiaries, or (c) the issuance, sale
or other disposition of 20 percent or more of the voting securities of ABI
or any of its subsidiaries; or
(ii) the acquisition or the right to acquire by any third party 20
percent or more of the outstanding shares of ABI Common Stock.
The Option will terminate upon the earliest of certain events, including:
(i) consummation of the Corporate Merger; (ii) termination of the Merger
Agreement by ABI (an ABI Termination) prior to the happening (subject to certain
limitations) of a Purchase Event or a Preliminary Purchase Event (as defined
below); (iii) 18 months after termination of the Merger Agreement by ABI other
than pursuant to an ABI Termination; or (iv) 12 months after termination of the
Merger Agreement by FUNC (subject to such period being extended under certain
conditions). A Preliminary Purchase Event is defined to include, among others:
(a) commencement by any third party of a tender or exchange offer to purchase 20
percent or more of the outstanding shares of ABI; (b) failure of the
stockholders of ABI to approve the Merger Agreement after public announcement
that a third party (x) proposes to engage in an Acquisition Transaction, or (y)
files an application under certain federal statutes relating to the regulation
of banks or their holding companies, to engage in an Acquisition Transaction; or
(c) any third party shall have proposed to ABI or its stockholders, publicly or
in any writing that becomes publicly disclosed, to engage in an Acquisition
Agreement.
At the request of FUNC at any time beginning on the first occurrence of a
Purchase Event and ending 180 days thereafter (subject to such period being
extended under certain conditions), ABI, will, subject to certain restrictions,
be required to repurchase from FUNC (i) the Option, and (ii) all shares of ABI
Common Stock purchased by FUNC pursuant to the Stock Option Agreement, at a
specified price.
The Stock Option Agreement and the Option are intended to increase the
likelihood that the Mergers will be consummated according to the terms set forth
in the Merger Agreement and may be expected to discourage competing offers to
acquire ABI from potential third party acquirors because the Option could
increase the cost of such an acquisition.
To the best of ABI's and FUNC's knowledge, no event giving rise to the
exercise of the Option has occurred as of the date of this Prospectus/Proxy
Statement.
A copy of the Stock Option Agreement is set forth in Exhibit A to the
Merger Agreement, which is set forth in ANNEX B to this Prospectus/Proxy
Statement, and reference is made thereto for the complete terms of the Stock
Option Agreement and the Option. The foregoing discussion is qualified in its
entirety by reference to the Stock Option Agreement.
27
<PAGE>
MARKET PRICES
The following table sets forth (i) the high and low last reported sale
prices per share of FUNC Common Stock on the NYSE Composite Transactions Tape,
with respect to each quarterly period since January 1, 1991, (ii) the high and
low closing asked prices of ABI Common Stock in the over-the-counter market pink
sheets, with respect to each quarterly period since January 1, 1993, (iii) the
equivalent pro forma market values per share of ABI Common Stock, based on the
0.211 Common Stock Exchange Ratio, and (iv) the equivalent pro forma market
values per share of ABI Preferred Stock, based on the Preferred Stock Exchange
Ratio. Prior to the formation of ABI in September 1992, American Bank's common
stock was traded privately at prices negotiated between the sellers and
purchasers. ABI Common Stock was traded in a similar fashion until it was listed
in the over-the-counter market pink sheets on January 26, 1993. To the knowledge
of ABI management, prior to January 1993, the common stock of American Bank and
subsequently ABI Common Stock traded at prices between $6.00 and $7.50 per
share.
<TABLE>
<CAPTION>
EQUIVALENT
PRO FORMA
PER ABI
COMMON
FUNC ABI SHARE (1)
HIGH LOW HIGH LOW HIGH
<S> <C> <C> <C> <C> <C>
1991
First quarter........................................... $ 22 1/8 13 3/4 -- -- 4 5/8
Second quarter.......................................... 23 1/4 19 1/4 -- -- 4 7/8
Third quarter........................................... 27 1/8 22 -- -- 5 5/8
Fourth quarter.......................................... 30 7/8 24 5/8 -- -- 6 1/2
1992
First quarter........................................... 38 1/4 29 1/2 -- -- 8
Second quarter.......................................... 39 3/4 34 3/4 -- -- 8 3/8
Third quarter........................................... 40 35 -- -- 8 3/8
Fourth quarter.......................................... 44 7/8 35 7/8 -- -- 9 3/8
1993
First quarter........................................... 50 7/8 42 1/4 7 5/8 5 10 5/8
Second quarter.......................................... 51 1/2 40 5 1/2 4 1/2 10 3/4
Third quarter........................................... 49 5/8 43 1/2 5 4 1/2 10 3/8
Fourth quarter.......................................... 48 1/8 37 7/8 7 1/2 5 10 1/8
1994
First quarter (through ).......................... $
<CAPTION>
EQUIVALENT PRO
FORMA PER
ABI PREFERRED
SHARE (2)
LOW HIGH LOW
<S> <C> <C> <C>
1991
First quarter........................................... 2 7/8 -- --
Second quarter.......................................... 4 -- --
Third quarter........................................... 4 5/8 -- --
Fourth quarter.......................................... 5 1/8 -- --
1992
First quarter........................................... 6 1/8 1,283 1/8 989 5/8
Second quarter.......................................... 7 1/4 1,333 1/2 1,165 3/4
Third quarter........................................... 7 3/8 1,341 7/8 1,174 1/8
Fourth quarter.......................................... 7 1/2 1,505 1/2 1,203 1/2
1993
First quarter........................................... 8 7/8 1,706 3/4 1,417 3/8
Second quarter.......................................... 8 3/8 1,727 3/4 1,341 7/8
Third quarter........................................... 9 1/8 1,664 3/4 1,459 3/8
Fourth quarter.......................................... 7 7/8 1,614 1/2 1,270 5/8
1994
First quarter (through )..........................
</TABLE>
(1) Equivalent pro forma market values per ABI common share amounts represent
the high and low last reported sales prices per share of FUNC Common Stock
multiplied by the 0.211 Common Stock Exchange Ratio, rounded down to the
nearest one-eighth. As discussed under -- Possible Common Stock Exchange
Ratio Adjustment, the Common Stock Exchange Ratio (and as a result the
Preferred Stock Exchange Ratio) is subject to possible adjustment under
certain circumstances. It is not expected that the pro forma information
presented would be materially different if the Common Stock Exchange Ratio
were so adjusted.
(2) Equivalent pro forma market values per share of ABI Preferred Stock
represent the high and low equivalent pro forma per share of ABI Common
Stock amount multiplied by the Preferred Stock Exchange Ratio.
On November 16, 1993, the last business day prior to public announcement of
the execution of the Merger Agreement, the last reported sale price per share of
FUNC Common Stock on the NYSE Composite Transactions Tape and the closing asked
price per share of ABI Common Stock in the over-the-counter market pink sheets
were $39.875 and $7.50, respectively. On , 1994, such prices were
$ and $ , respectively. There is no public trading market for ABI
Preferred Stock.
The Merger Agreement provides for the filing of a listing application with
the NYSE covering the FUNC Common Shares. It is a condition to consummation of
the Mergers that the FUNC Common Shares be authorized for listing on the NYSE
effective upon official notice of issuance. See -- Conditions to Consummation;
Termination.
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<PAGE>
DIVIDENDS
The following table sets forth the cash dividends paid or declared on FUNC
Common Stock and ABI Common Stock with respect to each calendar quarter since
January 1, 1991, and the equivalent pro forma cash dividends paid per share of
ABI Common Stock, based on the 0.211 Common Stock Exchange Ratio. Dividends paid
or declared on ABI Common Stock prior to September 14, 1992, represent dividends
paid or declared on American Bank common stock.
<TABLE>
<CAPTION>
EQUIVALENT PRO FORMA EQUIVALENT PRO FORMA
FUNC ABI (1) PER ABI COMMON SHARE (2) PER ABI PREFERRED SHARE (2)(3)
<S> <C> <C> <C> <C>
1991
First quarter................................. $.28 -- .06 --
Second quarter................................ .28 -- .06 --
Third quarter................................. .28 -- .06 --
Fourth quarter................................ .28 .05 .06 --
1992
First quarter................................. .31 -- .07 --
Second quarter................................ .31 -- .07 10.40
Third quarter................................. .31 -- .07 10.40
Fourth quarter................................ .35 -- .07 11.74
1993
First quarter................................. .35 .05 .07 11.74
Second quarter................................ .35 .05 .07 11.74
Third quarter................................. .40 -- .08 13.42
Fourth quarter................................ .40 -- .08 13.42
1994
First quarter................................. $.40 -- .08 13.42
</TABLE>
(1) Pursuant to a memorandum of understanding entered into by the directors of
American Bank with the FDIC, American Bank is prohibited from paying
dividends to ABI without prior written consent from the FDIC and the
Administrator. This restriction on American Bank's ability to pay dividends
to ABI effectively prohibits ABI from paying dividends on ABI Common Stock
or ABI Preferred Stock without prior written consent from the FDIC and the
Administrator. To date, the FDIC and the Administrator have approved payment
of the quarterly dividends on ABI Preferred Stock. See ABI AND AMERICAN
BANK -- Memorandum of Understanding and -- Dividend Policy.
(2) Equivalent pro forma cash dividends paid per ABI common and preferred share
amounts represent FUNC historical dividend rates per share multiplied by the
0.211 Common Stock Exchange Ratio and the Preferred Stock Exchange Ratio,
respectively, rounded to the nearest cent. The current annualized dividend
rate per share for FUNC Common Stock, based upon the most recently declared
quarterly dividend rate of $.40 per share payable on March 15, 1994, would
be $1.60. On an equivalent pro forma basis, such current annualized FUNC
dividend per ABI common share would be $.34, based on the 0.211 Common Stock
Exchange Ratio and per ABI preferred share, $53.68 based on the Preferred
Stock Exchange Ratio. Future FUNC and ABI dividends are dependent upon their
respective earnings and financial condition, government regulations and
policies and other factors. As discussed under -- Possible Common Stock
Exchange Ratio Adjustment, the Common Stock Exchange Ratio (and as a result
the Preferred Stock Exchange Ratio) is subject to possible adjustment under
certain circumstances. It is not expected that the pro forma information
presented would be materially different if the Common Stock Exchange Ratio
were so adjusted.
(3) Equivalent pro forma cash dividends paid per share of ABI Preferred Stock
amounts represent equivalent pro forma per share of ABI Common Stock amounts
multiplied by the Preferred Stock Exchange Ratio.
The ABI Preferred Stock was issued in exchange for American Bank convertible
preferred stock in connection with the reorganization of American Bank into
ABI in September 1992. Quarterly dividends of $23.75 per share were paid on
the shares of American Bank convertible preferred stock from the issuance of
such shares in the first quarter of 1992 until such shares were exchanged for
ABI Preferred Stock in September 1992. Quarterly dividends of $23.75 have been
paid on shares of ABI Preferred Stock since the formation of ABI.
See CERTAIN REGULATORY CONSIDERATIONS -- Payment of Dividends and
DESCRIPTION OF FUNC CAPITAL STOCK.
29
<PAGE>
ABI AND AMERICAN BANK
HISTORY
ABI
ABI is a North Carolina corporation organized by American Bank in January
1990 to become the parent holding company of American Bank. ABI conducted no
business until September 14, 1992, on which date the holding company
reorganization of American Bank was effected. To date, ABI's activities have
consisted solely of owning American Bank.
AMERICAN BANK
American Bank is a North Carolina-chartered stock savings bank
headquartered in Monroe, North Carolina. American Bank was incorporated as a
state-chartered mutual savings and loan association named Monroe Savings and
Loan Association in 1961 and converted to a state-chartered stock association in
May 1984. In June 1984, American Bank changed its name to American Commercial
Savings Bank, Inc. American Bank has been a member of the Federal Home Loan Bank
System (FHLB System), and its deposits have been insured up to the applicable
limits by the Federal Savings and Loan Insurance Corporation (FSLIC) since its
inception. Pursuant to enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA), effective August 9, 1989, American Bank's
deposits became insured by the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation (FDIC), as successor to the FSLIC, and
American Bank became subject to the regulatory oversight of the Office of Thrift
Supervision (OTS), successor to the Federal Home Loan Bank Board (FHLBB).
On March 28, 1992, American Bank acquired three branch offices with total
deposits of approximately $17,100,000 from Rock Hill National Bank of North
Carolina (RHNB). Deposits acquired from RHNB are insured by the Bank Insurance
Fund (BIF) of the FDIC.
On April 1, 1992, American Bank converted from a North Carolina-chartered
stock savings and loan association to a North Carolina-chartered stock savings
bank and changed its name to American Commercial Savings Bank, Inc., SSB. The
effect of the conversion caused American Bank to be subject to the regulatory
oversight of the FDIC rather than the OTS. American Bank is also subject to the
regulatory oversight of the Administrator. See CERTAIN REGULATORY
CONSIDERATIONS -- ABI and American Bank.
On September 14, 1992, American Bank was reorganized into a savings bank
holding company. The stockholders of American Bank received in exchange for
their shares of common and preferred stock of American Bank an identical number
of shares of common and preferred stock, respectively, of ABI. Simultaneously,
American Bank became a wholly-owned subsidiary of ABI.
American Bank has two wholly-owned nonbank subsidiaries, Leasing
Consultants of Charlotte, Inc. (Leasing Consultants), which originates and
finances vehicle and equipment leases, and Windsor Corporation, which is engaged
primarily in the origination of second mortgage and consumer loans to borrowers
living in low to moderate income areas.
ABI is attempting to sell Leasing Consultants prior to consummation of the
Mergers. Consummation of the Mergers is not conditioned upon the sale of Leasing
Consultants. Possible purchasers of Leasing Consultants include current
employees of ABI.
The main offices of ABI and American Bank are located at 201 Windsor
Street, Monroe, North Carolina. At December 31, 1993, ABI had eleven offices in
Mecklenburg and Union Counties of North Carolina.
MEMORANDUM OF UNDERSTANDING
Effective November 8, 1993, the directors of American Bank entered into a
Memorandum of Understanding with the FDIC and the Administrator (the
Memorandum). A memorandum of understanding is an informal agreement between a
financial institution and its regulator pursuant to which the institution agrees
to take specific corrective action in response to operational deficiencies
identified by the regulator. The Memorandum resulted from a report prepared by
the FDIC following a routine examination of American Bank in July 1993 (the FDIC
Report).
The Memorandum requires American Bank to effect a program of corrective
action consisting of (i) the preparation of a written assessment of management
and staffing requirements to be submitted to the FDIC and the Administrator for
review and comment; (ii) the maintenance of a tier 1 capital to total assets
ratio of not less than six percent; (iii) the elimination of any assets
classified as a loss in the FDIC Report through collection, charge-off, or other
appropriate bookkeeping entry;
30
<PAGE>
(iv) the submission of a specific plan to the FDIC and the Administrator to
effect the reduction and/or collection of extensions of credit of $100,000 or
more that were adversely classified in the FDIC Report; (v) the prohibition from
extending any additional credit to any borrower whose prior credit is classified
as a loss and which remains uncollected; (vi) the prohibition of the extension
of credit to any borrower whose prior extensions of credit aggregated $100,000
or more and were rated substandard unless approved by a majority of American
Bank's Board of Directors; (vii) the establishment and maintenance of an
adequate reserve for loan losses to be monitored quarterly by the Board of
Directors of American Bank; (viii) the review and revision of written loan
policies and systems of loan documentation, taking into consideration
deficiencies identified in the FDIC Report; (ix) the correction of any
violations of laws, rules and regulations cited in the FDIC Report and the
adoption and implementation of appropriate procedures to ensure future
compliance; (x) the implementation of an asset/liability management policy and
submission of the policy for review and comment by the FDIC and the
Administrator; (xi) the preparation of a comprehensive budget and earnings
forecast for the 1994 calendar year to be submitted to the FDIC and the
Administrator for review and comment; (xii) the adoption of a revised investment
policy that includes appropriate guidelines for securities trading and corrects
any internal control deficiencies identified in the FDIC Report; (xiii) the
prohibition of the payment of any cash dividends to its parent, ABI, without the
prior written consent of the FDIC and the Administrator; and (xiv) the
submission of quarterly progress reports to the FDIC and the Administrator
sufficient to gauge compliance with the various provisions of the Memorandum.
The management of American Bank believes it has complied with all elements of
the Memorandum.
LENDING ACTIVITIES
GENERAL
American Bank's principal investment activity has been, and continues to
be, the origination of loans secured by one-to four-family residences. In recent
years, in an effort to reduce its exposure to interest rate risk, American Bank
has adopted a policy of only offering the origination of adjustable rate
mortgages (ARMs) which increase the interest rate sensitivity and/or reduce the
maturity of American Bank's loan portfolio. American Bank will originate a
fixed-rate residential loan when the rate that it can charge on the loan and the
maturity of the loan can be favorably matched with a long-term liability,
usually in the form of either long-term borrowings from the FHLB of Atlanta or
certificates of deposit from institutional investors.
American Bank also offers a wide range of consumer loans, primarily secured
by automobiles, recreational vehicles and existing deposit accounts at American
Bank. On a less frequent basis, American Bank will make loans secured by a
second mortgage on a primary residence and may, if the creditworthiness of the
borrower permits, make an unsecured loan to an existing customer.
American Bank further diversifies its loan portfolio by engaging in
commercial lending including financing for the acquisition of commercial real
estate and accounts receivable. All such loans float with the prime rate as
determined by NationsBank of North Carolina, N. A. and are usually short-term
credits having a maturity of one year or less. Such commercial loans usually are
secured by the underlying real estate or an assignment of the receivables being
financed. Currently, it is American Bank's philosophy to originate commercial
real estate loans only to selected borrowers known to American Bank and on
properties in its local market area. American Bank's permanent commercial real
estate loans are secured by improved property such as churches, nursing homes,
office buildings, strip shopping centers and condominium projects.
American Bank also engages in the leasing of automobiles and to a lesser
extent the leasing of business equipment. Leasing is conducted through its
wholly-owned subsidiary, Leasing Consultants. Leasing Consultants' primary
business is leasing automobiles to corporate and non-corporate business
customers. American Bank also finances the lease receivables of certain
non-affiliated leasing companies and in doing so obtains an assignment of the
lease as well as a security interest in the underlying leased vehicle. See
-- History; AMERICAN BANK.
American Bank's primary lending area is Union and Mecklenburg Counties,
North Carolina. A majority of American Bank's loans are secured by property
located in these counties. American Bank assists builders in short-term interim
financing, as well as construction and/or permanent financing.
LOAN PORTFOLIO COMPOSITION
American Bank's consolidated net loan portfolio amounted to $184.2 million
at December 31, 1993, representing 78.3 percent of consolidated total assets.
American Bank's net loan portfolio was composed 18.2 of percent fixed rate
loans, and 81.8 percent of its net loan portfolio was composed of adjustable
rate loans. At December 31, 1993, $165.6 million, or 89.9
31
<PAGE>
percent, of American Bank's loan portfolio was composed of real estate mortgage
or construction loans. On such date, $18.6 million, or 10.1 percent, of American
Bank's net loan portfolio was composed of commercial loans, consumer loans and
lease financings.
The following table sets forth the composition of American Bank's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans
Conventional............... $149,899 81.36 % $163,906 84.12 % $169,480 85.61 % $168,870 84.91 % $159,947
Construction............... 24,646 13.38 15,263 7.83 8,326 4.20 12,480 6.27 15,239
Consumer loans............. 7,455 4.05 5,208 2.67 6,050 3.06 7,338 3.69 5,709
Commercial loans........... 4,774 2.59 9,404 4.83 8,597 4.34 6,974 3.51 7,093
Lease financings........... 7,832 4.25 7,782 4.00 10,862 5.49 7,635 3.84 6,724
Total loans and leases
before deductions.... $194,606 105.63 201,563 103.45 203,315 102.70 203,297 102.22 194,712
Less:
Undisbursed loans in
process.................. 7,052 3.83 4,511 2.32 2,601 1.32 2,953 1.49 4,721
Allowance for loss on
loans.................... 2,203 1.20 959 .49 597 .30 135 .07 102
Deferred loan origination
fees, net................ 55 .03 26 .01 77 .04 99 .05 19
Unearned direct finance
lease income............. 1,057 .57 1,223 .63 2,066 1.04 1,219 .61 1,004
$184,239 100.00 % $194,844 100.00 % $197,974 100.00 % $198,891 100.00 % $188,866
<CAPTION>
(DOLLARS IN THOUSANDS) PERCENT
<S> <C>
Real estate loans
Conventional............... 84.69 %
Construction............... 8.07
Consumer loans............. 3.02
Commercial loans........... 3.76
Lease financings........... 3.56
Total loans and leases
before deductions.... 103.10
Less:
Undisbursed loans in
process.................. 2.50
Allowance for loss on
loans.................... .06
Deferred loan origination
fees, net................ .01
Unearned direct finance
lease income............. .53
100.00 %
</TABLE>
ONE-TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. American Bank's primary
lending activity is the origination of first mortgage loans to enable borrowers
to purchase or refinance one-to four-family residential real property and
property improvement and second mortgage loans. On December 31, 1993, $71.9
million, or 39 percent of American Bank's net loan portfolio consisted of one-to
four-family residential mortgage loans. These include both loans secured by
detached single-family residences and condominiums and loans secured by
individually-owned residences in attached housing containing not more than four
separate dwelling units. Consistent with American Bank's emphasis on being a
community-oriented financial institution, it is and has been American Bank's
strategy to focus its lending efforts in Union and Mecklenburg Counties, North
Carolina. The one-to four-family residential mortgage loans originated by
American Bank generally have loan-to-value ratios of no more than 80 percent.
Substantially all such loans originated since 1983 have been ARMs. Interest
rates on ARMs are tied to various indices adjusted to a constant maturity plus a
margin. Rates generally adjust every one, three or five years. There are
generally caps which limit the amount of increases at one time and over the life
of the loan. The terms and conditions of American Bank's ARMs, including the
applicable index, margin and rate caps, may vary over time. ARMs are generally
considered to involve a greater degree of risk than fixed rate loans because
borrowers may have difficulty meeting their payment obligations if interest
rates and required payment amounts increase substantially.
While one-to four-family residential loans are normally originated with 15-
to 30-year terms, such loans customarily remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full upon sale of
the property pledged as security or upon refinancing the original loan. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates,
and the interest rates payable on outstanding loans. The thrift and mortgage
banking industries have generally used 12-year and seven-year average loan lives
in calculations calling for prepayment assumptions for 30-year residential loans
and 15-year residential loans, respectively. Management believes that American
Bank's recent loan prepayment experience has been shorter than these assumed
average loan lives due to recent periods of low interest rates and resulting
high rates of refinancing.
American Bank generally requires title insurance for its one-to four-family
residential loans. American Bank also generally requires that fire and extended
coverage casualty insurance and, if appropriate, flood insurance, be maintained
in an amount at least equal to the loan amount or replacement cost of the
improvements on the property securing loans, whichever is greater.
Property improvement loans and second mortgage loans are generally secured
by subordinate liens against residential dwellings. Most of these loans which
are secured by subordinate liens are secured by properties against which
American Bank holds the first lien. These loans have terms of up to 15 years and
interest rates which are adjustable based upon prime rates. Because these loans
may involve lines of credit which can be drawn over a period of time, American
Bank faces
32
<PAGE>
additional risks associated with changes in the borrower's financial condition.
Because these loans have adjustable rates with no rate caps, other than usury
limitations, increased delinquencies could occur if interest rate increases
occur and borrowers are unable to satisfy higher payment requirements. These
loans are generally limited so that the amount of such loans, along with any
senior indebtedness, does not exceed 80 percent of the value of the real estate
security. The loans are generally underwritten applying the same standards as
are applied to one-to four-family residential real estate loans.
COMMERCIAL REAL ESTATE LENDING. On December 31, 1993, American Bank had
$63.5 million in outstanding loans secured by commercial real estate, composing
34.5 percent of its net loan portfolio. These loans are secured by churches,
office buildings, retail establishments and other commercial real estate
properties. These loans generally have adjustable interest rates. The loans
generally do not exceed 80 percent of the appraised value of the real estate
security as determined by recent appraisals. Loans secured by commercial
properties generally are larger than one-to four-family residential loans and
involve a greater degree of risk. Payments on these loans depend to a large
degree on results of operations and management of the properties and may be
affected to a greater extent by adverse conditions in the real estate market or
the economy in general.
MULTI-FAMILY RESIDENTIAL REAL ESTATE LENDING. On December 31, 1993,
American Bank had $12.7 million in outstanding loans secured by multi-family
residential real estate, composing 6.9 percent of its net loan portfolio. These
loans are secured by apartment complexes and other multi-family residential
properties. These loans have adjustable interest rates. The loans generally do
not exceed 75 percent of the appraised value of the real estate security as
determined by recent appraisals. Loans secured by multi-family residential
properties generally are larger than one-to four-family residential loans and
involve a greater degree of risk. Payments on these loans depend to a large
degree on results of operations and management of the properties and may be
affected to a greater extent by adverse conditions in the real estate market or
the economy in general.
CONSTRUCTION LENDING. On December 31, 1993, American Bank had $17.5 million
in outstanding construction loans, representing 9.5 percent of American Bank's
net loan portfolio. Most of these loans involve single-family housing. These
loans generally provide for the payment of interest only during a construction
period. Construction loans are generally considered to involve a higher degree
of risk than long-term financing secured by real estate which is already
occupied. A lender's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at the
completion of construction and the estimated cost, including interest, of
construction. If the estimate of construction costs proves to be inaccurate, the
lender may be required to advance funds beyond the amount originally committed
in order to permit completion of construction. If the estimate of anticipated
value proves to be inaccurate, the lender may have security which has value
insufficient to assure full repayment. In addition, repayment of loans made to
investors to finance construction of properties is often dependent upon the
builder's ability to sell the property once construction is completed.
COMMERCIAL LENDING. On December 31, 1993, American Bank had $4.7 million in
outstanding commercial loans composing 2.6 percent of its net loan portfolio.
These loans are generally either well-secured, short-term working capital loans
to established businesses in the institution's market area or loans for and
secured by equipment that has a strong resale market. These loans will either
float with a commercial lending base rate or they will be subject to periodic
repricing in order to match interest sensitive liabilities. Commercial loans
generally have a greater degree of risk than consumer loans. Repayment of these
loans depends to a large degree on the results of operations and management of
the business enterprise and may be affected by local adverse economic
conditions.
CONSUMER LENDING. On December 31, 1993, American Bank had $7.3 million in
outstanding consumer loans composing 4.0 percent of its net loan portfolio.
These are generally loans secured by private automobiles, loans secured by
savings or time deposits, loans secured by readily marketable securities and/or
loans secured by the cash value of life insurance. On a less frequent basis,
American Bank will make an unsecured loan, to an existing customer, if the
creditworthiness of the borrower permits so. These loans, primarily short-term
in nature, will typically have a fixed rate of interest, favorably matched with
short-term liabilities. American Bank assumes some risk in every consumer loan
transaction and accepts moderate levels of risk while minimizing consumer loan
losses through careful investigation into the character of each borrower,
determining the source of repayment before closing each loan, collateralizing
most loans, exercising care in documentation procedures and administering an
aggressive loan collection program.
LEASE FINANCINGS. On December 31, 1993, American Bank had $6.6 million in
outstanding direct financing leases composing 3.6 percent of its net loan
portfolio. These leases are originated by Leasing Consultants. Leased property
generally includes automobiles and other vehicles, and to a lesser extent,
manufacturing and office equipment. Leases generally have fixed rates of
interest and terms of five years or less. Substantially all leases are to
corporate and non-corporate businesses, and consequently have risk factors
similar to other commercial lending. In addition, leases commonly finance the
full cost which may decline in value more rapidly than does the value of the
lease, creating exposure to collateral loss.
33
<PAGE>
LOAN SOLICITATION, PROCESSING AND UNDERWRITING. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
direct solicitations by American Bank's loan officers, present depositors and
borrowers, builders, attorneys, walk-in customers and in some instances, other
lenders.
During its loan approval process, American Bank places significant emphasis
on the value of the collateral which will secure the loan. American Bank also
assesses the applicant's ability to make principal and interest payments on the
loan. American Bank obtains detailed written loan applications to determine the
borrower's ability to repay and verifies responses on the loan application
through the use of credit reports, financial statements, and other
confirmations. Under current practice, the responsible officer of American Bank
analyzes the loan application and the property involved, and an appraiser
inspects and appraises the property. American Bank requires appraisals on all
real estate loans. Some appraisals are performed by employees of the institution
when permitted by applicable regulations. American Bank also obtains information
concerning the income, financial condition, employment and the credit history of
the applicant. Normally, upon approval of a residential loan application,
American Bank gives a commitment to the applicant that it will make the approved
loan at a stipulated rate at any time within a 60-day period from the date the
application is received. The loan is typically funded at a rate of interest and
on other terms which are based on market conditions existing as of the date of
the commitment. American Bank also has outstanding commitments on its line of
credit loans. As of December 31, 1993, American Bank's outstanding loan
commitments amounted to $9.2 million.
American Bank generally has not been a seller of either whole loans or loan
participations and continues to hold substantially all loans originated in its
portfolio.
INTEREST RATES, POINTS AND FEES. Interest rates and fees charged on
American Bank's loans are affected primarily by the market demand for loans,
competition, the supply of money available for lending purposes and American
Bank's cost of funds. These factors are affected by, among other things, general
economic conditions and the policies of the federal government, including the
Federal Reserve Board, tax policies and governmental budgetary matters.
In addition to earning interest on loans, American Bank receives fees in
connection with originating loans and making loan commitments. Fees for
prepayments of loans, loan modifications, late payments, loan assumptions and
other miscellaneous services in connection with loans are also charged by
American Bank.
LOAN MATURITY SCHEDULE. The following table indicates at December 31, 1993,
the amounts of loans, by category, maturing or repricing in the periods
presented. Demand loans and loans having no stated schedule of repayments and no
stated maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
REAL ESTATE REAL ESTATE
MORTGAGE CONSTRUCTION CONSUMER COMMERCIAL LEASE
(DOLLARS IN THOUSANDS) LOANS LOANS LOANS LOANS FINANCINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year.................................. $ 21,841 17,363 5,639 3,565 2,371 50,779
Due after 1 year through 5 years................... 23,890 231 1,776 1,205 4,403 31,505
Due after 5 years.................................. 104,112 -- 40 4 -- 104,156
Total......................................... $ 149,843 17,594 7,455 4,774 6,774 186,440
</TABLE>
The following table sets forth the dollar amount of all real estate loans
due after December 31, 1994, which have predetermined or fixed interest rates
and floating or adjustable interest rates.
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
INTEREST ADJUSTABLE
(DOLLARS IN THOUSANDS) RATES RATES TOTAL
<S> <C> <C> <C>
Real estate loans
Mortgage............................................................................. $ 8,367 119,635 128,002
Construction......................................................................... -- 231 231
Consumer loans......................................................................... 1,770 46 1,816
Commercial loans....................................................................... 1,142 67 1,209
Lease financings....................................................................... 4,403 -- 4,403
Total........................................................................... $15,682 119,979 135,661
</TABLE>
NONPERFORMING ASSETS AND ASSET CLASSIFICATION. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. In this event, the normal procedure
followed by American Bank is to make contact with the borrower at prescribed
intervals in an effort to bring the loan to a current status.
34
<PAGE>
In most cases, delinquencies are cured promptly. If a delinquency is not cured,
American Bank normally, subject to any required prior notice to the borrower,
commences foreclosure proceedings. If the loan is not reinstated within the time
permitted for reinstatement, or the property is not redeemed prior to sale, the
property may be sold at a foreclosure sale. In foreclosure sales, American Bank
may acquire title to the property through foreclosure, in which case the
property so acquired is offered for sale and may be financed by a loan
originated by American Bank. Any property acquired as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold or otherwise disposed of by American Bank to recover its
investment. Any real estate acquired in settlement of loans is initially
recorded at the lower of the loan balance plus unpaid accrued interest or the
estimated fair value at the time of acquisition and is subsequently reduced by
additional allowances which are charged to earnings if the estimated fair value
of the property declines below its initial value. Subsequent costs directly
relating to development and improvement of property are capitalized in an amount
not to exceed fair value, whereas costs relating to holding property are
expensed.
At December 31, 1993, American Bank owned $638,000 of real properties which
had been acquired by foreclosure or deed in lieu thereof. These properties
included rental houses upon which are being received regular monthly rentals at
market rates, and developed residential lots for which American Bank is
receiving fee income under a marketing contract with a former director. Because
of the level of income being received from these properties, management does not
currently consider them to be nonperforming. At December 31, 1993, American Bank
owned no other real properties acquired in settlement of loans.
Loans are reviewed on a regular basis and are placed on a nonaccrual status
when, in the opinion of management, the collection of additional interest is not
assured. Interest accrued and unpaid at the time a loan is placed on nonaccrual
status is charged against interest income.
Additional interest income relating to American Bank's nonaccrual loans for
the year ended December 31, 1993 of $170,000 would have been earned if the loans
had been current in accordance with its terms. Interest income of $61,000 has
been recorded and collected in 1993 on the loans which are classified as
nonaccrual at year-end.
Nonaccrual loans increased from $1,299,000 at December 31, 1992, to
$2,212,000 at December 31, 1993. The balance at the beginning of the year
included one commercial mortgage loan of $240,000 which was foreclosed during
1993 with the property subsequently sold during the year by American Bank
without any loss. Other nonaccrual loans at December 31, 1992, included
commercial business loans of $881,000 and lease financings of $158,000. All of
these loans and leases had been originated prior to 1992 by American Bank's
leasing subsidiary. During the first six months of 1993, $816,000 of the
commercial business loans were resolved with net charge-offs of $266,000,
representing 80 percent of net charge-offs of non-mortgage loans during 1993.
The remaining $65,000 is the balance remaining on a loan which was guaranteed by
a corporate officer of the borrower. The aforementioned officer has signed a
consent judgment for this amount which is collateralized by a first position in
a personal residence with a value in excess of $250,000. No additional loss is
anticipated. This loan composes the balance of nonaccrual commercial loans at
December 31, 1993. The nonaccrual lease financings of $158,000 at December 31,
1992, consist of a lease for three commercial vehicles to a single customer.
Because the customer has in recent years experienced business difficulties, and
because the balance of the lease exceeds the value of the vehicles, this lease
continues to be carried as nonaccrual. The lessee continues to make payments,
and at December 31, 1993, the balance of this lease had been paid down to
$116,000, representing the entire balance of nonaccrual lease financings at that
date.
In recent years, Leasing Consultants has had significant problems with
three large customers whose aggregate borrowings exceeded $500,000 per customer.
Substantially all of the equipment involved was non-vehicular in nature. As a
result of losses related to these customer relationships, management had taken
steps both to limit non-vehicular financings and to limit the aggregate amount
of credit that the leasing subsidiary can extend to a single customer. At
December 31, 1993, there were no leasing subsidiary customers with aggregate
financings in excess of $400,000, three customers with aggregate financings
exceeding $300,000 but less than $400,000, and four customers with aggregate
financings exceeding $200,000 but less than $300,000. All other leasing
subsidiary customers had aggregate financings under $200,000 at December 31,
1993.
At December 31, 1993, in addition to the nonaccrual commercial business
loan and lease financings of $65,000 and $116,000, respectively, the leasing
subsidiary had lease financings of $11,000 which were 90 days or more past due
and still accruing.
Nonaccrual real estate loans at December 31, 1993, include residential
mortgage loans of $1,303,000 and commercial mortgage loans of $728,000.
Nonaccrual mortgage loans of $2,031,000 consist of loans of $686,000 secured by
residential rental properties to one customer, and loans of $1,345,000 secured
by a combination of residential and commercial properties to a group of related
customers. As to the customer with loans of $686,000, American Bank is currently
managing the
35
<PAGE>
collateral properties, collecting all rents and offering the properties for
sale. As to the second customer group with loans aggregating $1,345,000, current
appraisals indicate that the value of each loan exceeds current loan balances.
The loans consist of two commercial real estate loans of $728,000 and three
residential real estate loans of $617,000 secured by personal residences. The
properties securing the commercial loans have for some time been offered for
sale. All of the loans to this group are classified as nonaccrual as no firm
purchase offers for the properties have been received. Management does not
anticipate that significant losses will result from the resolution of the
nonaccrual mortgage loans.
Accruing real estate mortgage loans which are more than 90 days past due at
December 31, 1993 were $4,793,000 and include $2,895,000 of residential mortgage
loans and $1,898,000 of commercial mortgage loans. Loans in this category
increased by $947,000 during 1993 from $3,846,000 at December 31, 1992. The
largest amount of loans in this category to a single customer is $1,570,000,
representing the balance due on a combination of loans secured by residential
and commercial rental properties. Loans outstanding to this customer, all of
which are classified as substandard and substantially all of which are
income-producing properties, aggregate $3,152,000. These loans were originated
prior to 1989 when more restrictive loans-to-one-borrower limitations were
enacted. This customer encountered financial difficulties when the majority of
his properties suffered extensive damage from Hurricane Hugo in 1989,
principally as a result of high deductibles in the casualty insurance policies
covering the damaged properties, which is common practice in the rental
business. This created a cash flow problem for this customer which was
exacerbated by reduced occupancy during the recent recession. While many of the
loans to this customer continue to be delinquent, the overall rate of occupancy
has improved significantly, with cash flow from the properties adequate to make
regular monthly payments throughout 1993.
Exclusive of the relationship described above, all customers with accruing
real estate loans more than 90 days past due have balances which, in the
aggregate for each such customer, are less than $400,000. Management monitors
each of these loans on an ongoing basis, and believes that such losses as may
ultimately result have been adequately provided for.
Applicable regulations require each insured savings institution to classify
its own assets on a regular basis. In addition, in connection with examinations
of savings institutions, regulatory examiners have authority to identify problem
assets and, if appropriate, classify them. Problem assets are classified as
substandard, doubtful or loss, depending on the presence of certain
characteristics as discussed below.
An asset is considered substandard if not adequately protected by the
current net worth and paying capacity of the obligor or the collateral pledged,
if any. Substandard assets include those characterized by the distinct
possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Assets classified as doubtful have all of the
weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a loss allowance is not warranted.
As of December 31, 1993, American Bank had $9.6 million of loans classified
as substandard, $23,000 of loans classified as doubtful, and no loans classified
as loss.
In connection with the filing of periodic reports with regulatory agencies,
American Bank reports any assets which possess credit deficiencies or potential
weaknesses deserving close attention by management. These assets may be
considered special mention assets and do not yet warrant adverse classification.
At December 31, 1993, American Bank had loans of $1.5 million in the special
mention category.
When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. These allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities and the risks associated with particular problem assets.
When an insured institution classifies problem assets as loss, it charges off
the balance of the asset. American Bank's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the FDIC and the Administrator which can order the establishment of additional
loss allowances.
ALLOWANCE FOR LOAN LOSSES. In originating loans, American Bank recognizes
that credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan as well as general economic conditions. It
is management's policy to maintain an adequate allowance for loan losses based
on, among other things, American Bank's historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and
36
<PAGE>
loan portfolio quality. Specific allowances are provided for individual loans
when ultimate collection is considered questionable by management after
reviewing the current status of loans which are contractually past due and
considering the net realizable value of the security for the loans.
During 1993, management significantly increased its allowance for loan
losses after reviewing general economic conditions characterized by the
continuing slow economic recovery, industry standards and allowances of
comparable institutions in its peer group. Management continues to actively
monitor American Bank's asset quality, to charge off loans against the allowance
for loan losses when appropriate and to provide specific loss allowances when
necessary. Although management believes it uses the best information available
to make determinations with respect to the allowance for loan losses, future
adjustments may be necessary if economic conditions differ substantially from
the economic conditions in the assumptions used in making the initial
determinations.
The following table sets forth an analysis of activity in the allowance for
loan losses of American Bank.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Balance, beginning of period........................................................... $ 959 597 135 102 83
Charge-offs:
Real estate mortgage................................................................. 631 326 57 443 47
Commercial and consumer.............................................................. 144 308 34 394 --
Lease financings..................................................................... 193 110 -- -- --
Recoveries:
Real estate mortgage................................................................. -- 4 23 50 1
Commercial and consumer.............................................................. 4 -- -- -- --
Lease financings..................................................................... -- -- -- -- --
Net charge-offs........................................................................ 964 740 68 787 46
Provisions for loan losses............................................................. 2,208 1,102 530 820 65
Balance, end of period................................................................. $2,203 959 597 135 102
Ratio of net charge-offs during the period to average loans and leases outstanding
during the period.................................................................... .50% .38 .03 .40 .02
</TABLE>
37
<PAGE>
The following table sets forth information with respect to American Bank's
nonperforming assets for the periods indicated. During the periods shown,
American Bank had no restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15.
<TABLE>
<CAPTION>
DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate:
Residential............................................................... $1,303 20 252 432 --
Commercial................................................................ 728 240 -- 667 --
Commercial business.......................................................... 65 881 412 116 --
Installment.................................................................. -- -- -- -- --
Lease financings............................................................. 116 158 -- -- --
Total................................................................... $2,212 1,299 664 1,215 --
Accruing loans which are contractually past due 90 days or more:
Real estate:
Residential............................................................... $2,895 3,140 1,441 429 --
Commercial................................................................ 1,898 706 218 -- --
Commercial business.......................................................... -- -- -- 37 7
Installment.................................................................. 14 25 19 21 --
Lease financings............................................................. 11 95 32 -- --
Total................................................................... $4,818 3,966 1,710 487 7
Total of nonaccrual and 90 days past due loans.......................... $7,030 5,265 2,374 1,702 7
Percentage of total loans and leases........................................... 3.82% 2.70 1.20 .86 .004
Other nonperforming assets (1)................................................. $ -- 479 847 738 156
Total nonperforming assets..................................................... $2,212 1,778 1,511 1,953 156
Nonaccrual and 90 days or more past due loans as a percentage of total loans
and leases, net.............................................................. 3.82% 2.70 1.20 .86 --
Nonaccrual and 90 days or more past due loans as a percentage of total
assets....................................................................... 2.99% 2.14 1.06 .77 --
Nonperforming assets as a percentage of total assets........................... .94% .72 .68 .89 .07
</TABLE>
(1) Other nonperforming assets include real estate acquired in settlement of
loans.
The following table presents an allocation of the allowance for loan losses
by the categories indicated and the percentage that loans in each category bear
to total loans.
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allocation of allowance for
loan losses
Real estate -- mortgage...... $1,781 80.38 % $567 84.1 % $341 85.6 % $-- 84.9 % $--
Real
estate -- construction..... 88 9.43 -- 5.5 -- 2.9 -- 4.8 --
Consumer..................... 112 4.00 60 4.3 73 2.7 73 2.5 57
Commercial................... 78 2.56 250 2.7 183 4.3 62 3.3 45
Lease financings............. 144 3.63 82 3.4 -- 4.5 -- 4.5 --
Total allowance for loan
losses................. $2,203 100.00 % $959 100.0 % $597 100.0 % $135 100.0 % $102
Percentage of allowance for
losses to loans receivable
before such allowance........ 1.18 % .49 % .30 % .07 %
<CAPTION>
(DOLLARS IN THOUSANDS) PERCENT
<S> <C>
Allocation of allowance for
loan losses
Real estate -- mortgage...... 84.6 %
Real
estate -- construction..... 5.6
Consumer..................... 3.2
Commercial................... 3.6
Lease financings............. 3.0
Total allowance for loan
losses................. 100.0 %
Percentage of allowance for
losses to loans receivable
before such allowance........ .05 %
</TABLE>
38
<PAGE>
Based upon American Bank's internal loan loss allowance policy, the
required total allowance for loan losses at December 31, 1993, is $1,490,000.
The actual balance of $2,203,000 exceeds this required amount by $713,000. This
excess has been allocated $573,000 to conventional mortgage loans, $28,000 to
commercial business loans, $38,000 to consumer loans and $74,000 to lease
financings.
INVESTMENT ACTIVITIES
Interest income from investment securities and from interest-bearing
deposits in other financial institutions generally provides the second largest
source of income to American Bank after interest on loans. At December 31, 1993,
American Bank had liquid assets equal to 15.6 percent of total assets.
Prior to its conversion in 1992 to a state chartered savings bank, American
Bank operated under a five percent liquidity requirement as a savings and loan
association. This liquidity requirement was generally met with overnight
deposits at the FHLB of Atlanta. During 1992, American Bank converted to a state
chartered savings bank, resulting in an increase in the liquidity requirement to
ten percent of total assets. Concurrent with its conversion to a state chartered
savings bank, American Bank acquired three branch offices from another financial
institution, providing an immediate increase of $14.5 million in liquid assets,
and permitting American Bank to comply with its increased liquidity requirement.
Because of the increased liquidity requirement arising from the conversion to a
state chartered savings bank, American Bank began in 1992 to diversify its
investment activities beyond interest-bearing deposits with the FHLB of Atlanta.
While American Bank has not purchased investments for trading purposes,
interest rates continued to decrease during the last half of 1992 and the first
half of 1993. During this time period American Bank engaged in sales of
investment securities, deriving gains of $653,000 in 1992 and $696,000 in 1993.
American Bank's investment portfolio has remained unchanged since the end of the
second quarter of 1993.
On December 31, 1993, American Bank's investment portfolio amounted to
$24.6 million, and included $22,744,000 of Federal National Mortgage Association
(FNMA) bonds, stock of $1,627,000 in the FHLB of Atlanta, and other investments
of $219,000.
As a member of the FHLB of Atlanta, American Bank is required to maintain
an investment in stock of the FHLB of Atlanta equal to the greater of one
percent of American Bank's outstanding home loans or five percent of its
outstanding advances from the FHLB of Atlanta. No ready market exists for such
stock, which is carried at cost. As of December 31, 1993, American Bank's
investment in stock of the FHLB of Atlanta was $1,627,000. Under FIRREA, the
regional FHLBs, including the FHLB of Atlanta, are required to assist in raising
funds to resolve problems of insolvent thrift institutions and to finance low
income housing. As a result, the amounts of dividends paid on stock of the FHLB
of Atlanta could be reduced in the future.
American Bank has adopted an investment policy which is implemented by
American Bank's investment committee, which meets at least monthly. American
Bank's investment strategy is intended, among other things, to provide and
maintain liquidity, maintain a balance of high quality investments, provide
collateral for pledging requirements, maximize returns, and manage interest rate
risk. In terms of priorities, safety is considered more important than liquidity
or return on investment. American Bank does not engage in hedging activities.
39
<PAGE>
The following table sets forth a comparative summary of the components of
American Bank's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
QUOTED
PRINCIPAL AMORTIZED MARKET
(DOLLARS IN THOUSANDS) AMOUNT COST VALUE
<S> <C> <C> <C>
December 31, 1993:
FNMA bonds:
Within 12 months....................................................................... $ 5,000 5,103 5,131
Beyond 12 months but within 5 years.................................................... $ 16,000 17,641 17,644
Mortgage-backed securities................................................................ $ 219 219 220
December 31, 1992:
U. S. Treasury Note:
Within 12 months....................................................................... $ 2,000 2,000 2,005
Mortgage-backed securities................................................................ $ 341 341 341
December 31, 1991:
Mortgage-backed securities................................................................ $ 417 417 420
</TABLE>
The following table sets forth the maturities of the components of American
Bank's investment securities at December 31, 1993 and the weighted-average
yields of such components.
<TABLE>
<CAPTION>
INVESTMENT MATURITIES AT DECEMBER 31, 1993
AFTER 1 BUT AFTER 5 BUT
1 YEAR OR LESS WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA bonds............................................. $5,103 3.50 % $17,641 4.81 % $-- -- % $-- -- %
Mortgage-backed securities............................. $ 9 7.80 % $ 44 7.80 % $ 78 7.80 % $ 88 7.80 %
</TABLE>
While all current investments were originally acquired with the intention
to hold to maturity, management recognizes that there is a reasonable likelihood
that some or all of the FNMA bonds held at year-end may be sold in the future to
provide liquidity or for other reasons. Accordingly, those securities are
currently being accounted for as available for sale and are carried at the lower
of amortized cost or market at December 31, 1993.
SOURCES OF FUNDS
GENERAL
Deposit accounts are the most important source of American Bank's funds for
use in lending and other general business purposes. In addition to deposits,
American Bank derives funds from loan principal repayments. Loan repayments are
a relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by market interest rates and economic conditions.
Borrowings are also an important part of American Bank's source of funds and its
strategic plan to reduce its exposure to interest rate fluctuations. American
Bank primarily borrows from the FHLB of Atlanta. At December 31, 1993, American
Bank had borrowings of $6,710,000 from the FHLB of Atlanta, $19,000 outstanding
from Citizens Fidelity Leasing Corporation (Citizens Fidelity) under a term
note secured by equipment, and $696,000 outstanding from Citizens Fidelity
under capitalized equipment leases.
DEPOSITS
American Bank is permitted to offer interest-earning deposit accounts.
Currently neither federal nor North Carolina law limits the rate of return
payable on a withdrawable account.
American Bank obtains retail deposits primarily from residents of Union and
Mecklenburg Counties. Currently, the principal methods used by American Bank to
attract retail deposit accounts include the offering of a wide variety of
services and accounts at competitive interest rates.
Additionally, American Bank attracts deposits of up to $100,000 on a
long-term basis from credit unions, pension funds, bond sinking funds, insurance
companies and other institutional investors (Jumbo Certificates). The average
maturities of Jumbo Certificates are much longer than the maturities which can
be obtained from retail deposits. American Bank utilizes these funds to reduce
the interest rate risk of longer-term loans by matching the rate and maturity of
the deposit to a real estate or commercial loan. Generally, American Bank pays a
rate of interest, including broker's fee, of not more than 50 basis
40
<PAGE>
points higher than the rate being paid for local certificates of similar amounts
and terms to maturity. American Bank has paid rates more than 50 basis points
higher than that being paid for local certificates, but these are for extended
maturities for which American Bank has no publicly quoted rate or local demand.
Maturities of Jumbo Certificates generally range from one to eight years. At
December 31, 1993, American Bank had a total of $38.4 million in Jumbo
Certificates to such institutional investors. In the opinion of management, such
deposits are a more stable source of funds than retail deposits that in recent
years have become more sensitive to interest rate fluctuations, and accordingly
are relatively short-term deposits capable of being shifted to alternative forms
of investment upon slight to moderate rate variations. Generally, the long-term
maturity of Jumbo Certificates means they are not as sensitive to interest rate
fluctuations as shorter-term deposits. Therefore, such deposits from
institutional investors are a major factor in American Bank's asset-liability
management. Jumbo Certificates may be withdrawn prior to maturity only with the
prior approval of American Bank and would subject the depositor to a forfeiture
in an amount equal to 90 days of interest earned on the deposit. Despite such
pre-approval and penalty, the early withdrawal of a significant dollar amount of
Jumbo Certificates could have the result of creating a liquidity imbalance
necessitating the procurement of additional funds if a sufficient amount of
liquid funds was not at hand. However, American Bank's experience to date with
Jumbo Certificates has been favorable in that virtually no such depositors have
sought premature withdrawal. This experience could change should interest rates
rise sharply during the term of any Jumbo Certificate. Beginning in 1990,
American Bank began de-emphasizing its attraction of Jumbo Certificates to
reduce interest cost and increase its interest margin. At December 31, 1993,
such deposits composed 18.3 percent of deposits as compared with 51.3 percent of
deposits at December 31, 1989.
Due to the rate conscious nature of the general public, the threat of
disintermediation, I.E., the flow of funds away from savings institutions into
direct investment vehicles such as government and corporate securities, is a
constant threat to a stable source of deposit funds. New types of accounts have
been more costly than traditional accounts during periods of high interest
rates. Customers have been much more rate conscious and willing to move funds
into high-yielding accounts during the recent past, thereby affecting American
Bank's ability to attract and maintain deposits.
The following table contains information pertaining to the average amount
of and the average rate paid on each of the indicated deposit categories.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991
(DOLLARS IN THOUSANDS) AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
DEPOSIT CATEGORY BALANCE RATE PAID BALANCE RATE PAID BALANCE RATE PAID
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits.................... $ 14,290 -- % $ 10,587 -- % $ 5,384 -- %
Interest-bearing demand deposits....................... 86,520 3.72 62,978 5.06 28,809 6.11
Certificate of deposit................................. 112,270 5.96 134,452 6.52 153,484 8.16
Total........................................... $213,080 4.65% $208,017 5.75% $187,677 7.61%
</TABLE>
The following table sets forth the amount and maturities of certificates of
deposit of $100,000 or more and other time deposits of $100,000 or more at
December 31, 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1993
<S> <C>
Maturing in 3 months or less.................................................................................... $ 7,047
Maturing after 3 but within 6 months............................................................................ 6,197
Maturing after 6 but within 12 months........................................................................... 7,590
Maturing after 12 months........................................................................................ 7,887
Total.................................................................................................... $ 28,721
</TABLE>
BORROWINGS
The FHLB, which functions as a central reserve bank providing credit for
savings and loan associations, savings banks and certain other member financial
institutions, including commercial banks, is another available source of
borrowings for American Bank. As a member of the FHLB of Atlanta, American Bank
is required to own capital stock in the FHLB of Atlanta and is authorized to
apply for advances on security of such stock and certain of its home mortgages
and other assets, principally securities which are obligations of, or guaranteed
by, the United States, provided certain standards related to creditworthiness
have been met. The FHLB of Atlanta makes advances pursuant to several different
programs. Each credit program has its own interest rate and range of maturities.
Depending on the program, limitations on the amount of advances
41
<PAGE>
are based either on a fixed percentage of an association's net worth or on the
FHLB of Atlanta's assessment of the association's creditworthiness. At December
31, 1993, American Bank had $6,710,000 outstanding in borrowings from the FHLB
of Atlanta.
American Bank also borrowed from American Bank for Savings and Loan
Associations, Chicago, Illinois, which ceased business in 1992, and has a term
note secured by equipment and certain capitalized equipment obligations with
Citizens Fidelity. At December 31, 1993, $715,000 was outstanding under the
Citizens Fidelity obligations.
The following tables set forth certain information regarding borrowings by
American Bank at the end of and during the periods indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992 1991
<S> <C> <C> <C>
Weighted Average Rate Paid On:
FHLB advances.............................................................................. 7.93% 7.87% 7.27%
Citizens Fidelity note..................................................................... 6.00 6.00 8.92%
Citizens Fidelity capitalized equipment leases............................................. 3.92% 4.29% N/A
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C>
Maximum Amount of Borrowings Outstanding at Any Month End:
FHLB advances.............................................................................. $17,210 $21,510 $23,260
Citizens Fidelity note..................................................................... 226 438 $ 543
Citizens Fidelity capitalized equipment leases............................................. $ 892 $ 892 N/A
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1992 1991
<S> <C> <C> <C>
Approximate Average Borrowings Outstanding:
FHLB advances.............................................................................. $ 9,487 $13,357 $19,206
Citizens Fidelity note..................................................................... 123 332 $ 490
Citizens Fidelity capitalized equipment leases............................................. $ 743 $ 382 N/A
Approximate Weighted Average Rate Paid On:
FHLB advances.............................................................................. 6.76% 6.83% 7.69%
Citizens Fidelity note..................................................................... 6.12 6.02 8.92%
Citizens Fidelity capitalized equipment leases............................................. 3.78% 3.93% N/A
</TABLE>
42
<PAGE>
PROPERTIES
American Bank owns the real property upon which its main office and six of
its branch offices are located and leases the real property upon which four of
its branch offices are located. American Bank believes its owned and leased
facilities are adequate for its current business needs. The following table sets
forth the location of American Bank's main office and its branch offices, as
well as certain information relating to these offices, as of December 31, 1993.
The net book value amounts include land, buildings, furniture, fixtures and
equipment.
<TABLE>
<CAPTION>
OFFICE LOCATION OWNED/LEASED DEPOSITS NET BOOK VALUE
<S> <C> <C> <C>
Main Office Owned $89,639,000 1,853,000
201 East Windsor Street
Monroe, North Carolina
Branch Offices
120 East Sunset Drive Leased 2,068,000 71,000
Monroe, North Carolina
11201 E. Independence Blvd. Leased 16,833,000 279,000
Matthews, North Carolina
6137 Hickory Grove Rd. Leased 6,396,000 881,000
Charlotte, North Carolina
4801 E. Independence Blvd. Leased 7,282,000 119,000
Charlotte, North Carolina
7530 Pineville-Matthews Rd. Owned 8,833,000 1,173,000
Charlotte, North Carolina
2594 West Roosevelt Blvd. Owned 15,666,000 339,000
Monroe, North Carolina
1000 East Boulevard Owned 23,285,000 590,000
Charlotte, North Carolina
7605 Matthews-Mint Hill Road Owned 15,999,000 538,000
Charlotte, North Carolina
6632 Fairview Road Leased 7,075,000 599,000
Charlotte, North Carolina
212 W. Marshville Boulevard Owned $17,312,000 481,000
Marshville, North Carolina
</TABLE>
See Note E to the financial statements of ABI included herein as ANNEX A
for a detailed description of American Bank's rent expense and lease
obligations.
In October 1988, American Bank purchased land near the University of North
Carolina at Charlotte as a possible site for a future branch. The book value of
the land at December 31, 1993, was $382,000.
Leasing Consultants operates out of the Pineville-Matthews Road building
owned by American Bank. At December 31, 1993, the net book value of Leasing
Consultants' furniture and equipment was $63,000.
American Bank's other wholly-owned subsidiary, Windsor Corporation, owns
the building it occupies in Monroe, North Carolina. Windsor Corporation
purchased the property in January 1988. At December 31, 1993, the net book value
of Windsor Corporation's property, including furniture and equipment, was
$145,000.
American Bank also owns various electronic bookkeeping and accounting
equipment. The net book value of American Bank's investment in all furniture,
fixtures and equipment amounted to $2,474,000 at December 31, 1993.
EMPLOYEES
At December 31, 1993, ABI had 106 employees. ABI provides its employees
with a comprehensive benefits program, including life, health, and disability
insurance, vacation and sick leave, and qualified defined benefit and
non-qualified pension plans. Employees are not represented by any union or
collective bargaining group. ABI considers its employee relations to be good.
43
<PAGE>
MARKET PRICE OF ABI COMMON STOCK AND ABI PREFERRED STOCK
Prior to the formation of ABI, American Bank's common stock was traded
privately a prices negotiated between purchasers and sellers. Limited trading
activity occurred from the time the predecessor to American Bank, Monroe Savings
and Loan Association, converted from the mutual to the stock form of ownership
in May 1984 and the formation of ABI in September 1992. Since January 1993, ABI
Common Stock has been quoted in the pink sheets of the over-the-counter market.
ABI acts as its own stock transfer agent. At December 31, 1993, there were 730
holders of ABI Common Stock. See THE MERGERS -- Market Prices and -- Dividends.
There is no active or established public trading market for ABI Preferred
Stock. To the knowledge of management, no trades of ABI Preferred Stock have
occurred since the formation of ABI. At December 31, 1993, there were 11 holders
of ABI Preferred Stock.
DIVIDEND POLICY
ABI is not subject to any direct legal or regulatory restrictions on the
payment of dividends other than the requirement under the NCBCA that a
distribution may not be made if after giving it effect the corporation would not
be able to pay its debts as they become due in the usual course of business or
the corporation's total assets would be less than its liabilities. The holders
of ABI Preferred Stock are entitled to receive noncumulative quarterly dividends
at an annual rate of $95.00 per share when and if declared by the ABI Board out
of funds legally available for distribution under the NCBCA. The holders of ABI
Common Stock are entitled to receive dividends when and if declared by the ABI
Board out of funds legally available for distribution under the NCBCA and
subject to the declaration and payment of dividends to the holders of ABI
Preferred Stock. The amount of funds legally available for the payment of
dividends by ABI depends primarily upon the earnings of American Bank and the
ability of American Bank to pay dividends to ABI. American Bank's ability to pay
dividends is subject to regulatory restrictions imposed by the Administrator and
the FDIC. Although ABI has historically paid periodic cash dividends on ABI
Preferred Stock and ABI Common Stock, effective November 8, 1993, the directors
of American Bank entered into the Memorandum which, among other matters,
prohibits American Bank from paying dividends without the prior written consent
of the FDIC and the Administrator. This restriction on American Bank's ability
to pay dividends to ABI effectively prohibits the ability of ABI to pay
dividends on ABI Preferred Stock and ABI Common Stock without prior written
consent from the FDIC and the Administrator. To date, the FDIC and the
Administrator have approved payment of the quarterly dividends on ABI Preferred
Stock and ABI is not aware of any circumstances that would prompt the
Administrator or the FDIC to prohibit the payment of future quarterly dividends
on ABI Preferred Stock. The Memorandum will remain effective until such time as
certain weaknesses in ABI's internal controls and lending policies are
corrected. See -- Memorandum of Understanding and THE MERGERS -- Dividends.
LEGAL PROCEEDINGS
Neither ABI nor American Bank were involved in any legal proceedings of a
material nature at December 31, 1993. From time to time American Bank is a party
to legal proceedings arising in the ordinary course of its business wherein it
seeks to enforce its security interest in assets collateralizing loans.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
GENERAL
The following management's discussion and analysis is intended to assist in
understanding the financial condition and results of operations of ABI and its
subsidiaries. The information contained in this section should be read in
conjunction with the consolidated financial statements and the accompanying
notes to consolidated financial statements contained in ANNEX A to this
Prospectus/Proxy Statement.
American Bank's results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. American Bank's
operations are also affected by noninterest income, such as customer deposit
account service charges, late charges on loans and other sources of income.
American Bank's principal operating expenses, aside from interest expense,
consist of compensation and employee benefits, federal deposit insurance
premiums, occupancy costs, and other noninterest expense.
INTEREST RATE RISK
American Bank's asset/liability management, or interest rate risk
management, is focused primarily on evaluating and managing the composition of
its assets and liabilities in view of various interest rate scenarios. Factors
beyond American
44
<PAGE>
Bank's control, such as market interest rates and competition, may also have an
impact on American Bank's interest income and interest expense.
In the absence of any other factors, the yield or return associated with
American Bank's earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market and interest
rates, American Bank can significantly influence its net interest income. As a
part of American Bank's interest rate risk management policy, American Bank
calculates an interest rate gap. Interest rate gap analysis is a common, though
imperfect, measure of interest rate risk, which measures the relative dollar
amounts of interest-earning assets and interest-bearing liabilities which
reprice within a specific time period, either through maturity or rate
adjustment. The gap is the difference between the amounts of such assets and
liabilities that are subject to such repricing. A negative gap for a given
period means that the amount of interest-bearing liabilities maturing or
otherwise repricing within that period exceeds the amount of interest-earning
assets maturing or otherwise repricing within the same period. Accordingly, in a
declining interest rate environment, an institution with a negative gap would
generally be expected, absent the effects of other factors, to experience a
lower decrease in yield on its assets relative to the cost of its liabilities
and its income should be positively affected. Conversely, the cost of funds for
an institution with a negative gap would generally be expected to increase more
quickly than the yield on its assets in a rising interest rate environment, and
such institution's net interest income could be adversely affected by rising
interest rates. Changes in interest rates generally have the opposite effect on
the institution with a positive gap. A static interest rate gap analysis may not
be an accurate indicator of how net interest income will react to changes in
interest rates. Income associated with interest-earning assets and costs
associated with interest-bearing liabilities may not react uniformly to changes
in interest rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Interest rates on certain types of assets and liabilities
typically fluctuate in advance of changes in general market interest rates,
while interest rates on other types may lag behind changes in general market
rates. In addition, certain assets, such as adjustable rate mortgage loans, have
features (generally referred to as interest rate caps) which limit changes in
interest rates on a short-term basis and over the life of the asset. In the
event of a change in interest rates, prepayment and early withdrawal levels
could also deviate significantly from those assumed in calculating the interest
rate gap. The ability of many borrowers to service their debt may also decrease
in the event of an interest rate increase.
The following tables set forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1993, which are
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown which reprice or
mature within a particular period were determined in accordance with the
contractual terms of the assets or liability. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Passbook
accounts, money market deposit accounts and negotiable order of withdrawal or
other transaction accounts are assumed to be subject to immediate repricing and
depositor availability and have been placed in the shortest period. Neither
assumptions regarding prepayment rates and deposit decay rates nor any other
prepayment assumptions have been used for any interest-earning assets or
interest-bearing liabilities. The table does reflect scheduled principal
payments which will be received throughout the lives of the loans. The interest
rate sensitivity of American Bank's assets and liabilities illustrated in the
following table would vary substantially if different assumptions were used or
if actual experience differs from that indicated by such assumptions.
45
<PAGE>
<TABLE>
<CAPTION>
TERMS TO REPRICING AT DECEMBER 31, 1993
MORE THAN MORE THAN
THREE 3 MONTHS 1 YEAR
MONTHS THROUGH THROUGH MORE THAN
(DOLLARS IN THOUSANDS) OR LESS 12 MONTHS 5 YEARS 5 YEARS TOTAL
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing bank balances............................... $ 6,114 -- -- -- 6,114
Investment securities........................................ 2 5,112 17,701 148 22,963
Loans and leases............................................. 37,726 69,265 72,681 7,567 187,239
Stock in FHLB of Atlanta..................................... -- -- -- 1,627 1,627
TOTAL INTEREST-EARNING ASSETS........................... $ 43,842 74,377 90,382 9,342 217,943
INTEREST-BEARING LIABILITIES
Deposits:
Demand deposits........................................... $ 88,574 -- -- -- 88,574
Certificates of deposit................................... 32,063 47,307 17,250 9,224 105,844
Borrowings................................................... 1,828 212 5,385 -- 7,425
TOTAL INTEREST-BEARING LIABILITIES...................... $122,465 47,519 22,635 9,224 201,843
INTEREST SENSITIVITY GAP PER PERIOD............................ $(78,623) 26,858 67,747 118 16,100
CUMULATIVE INTEREST SENSITIVITY GAP............................ $(78,623) (51,765) 15,982 16,100 16,100
CUMULATIVE GAP AS A PERCENTAGE OF TOTAL INTEREST-EARNING
ASSETS....................................................... (36.01)% (23.75) 7.33 7.39 7.39
CUMULATIVE INTEREST-EARNING ASSETS AS A PERCENTAGE OF
CUMULATIVE INTEREST-BEARING LIABILITIES...................... 35.78% 69.55 108.30 107.98 107.98
</TABLE>
Management does not view American Bank's present negative gap position to
be unacceptable in view of American Bank's historical results of operations.
Nevertheless, in order to minimize the effect of economic uncertainties
associated with volatile interest rates, and to decrease the interest rate risk
associated with the maturity mismatch of its interest-earning assets and
liabilities, American Bank has formulated an asset and liability management
policy, the principal elements of which are to increase the interest rate
sensitivity of American Bank's assets by emphasizing the origination of ARMs, to
maintain American Bank's investment portfolio with a relatively short-term to
maturity, and otherwise to shorten effective asset maturities. Additionally, the
policy objective is to lengthen the maturities of liabilities by seeking
longer-term deposits and matching maturities against long-term assets. American
Bank also has increased noninterest income. American Bank's asset/liability
management activities are directed by the ABI Board and by key members of
management who have responsibility for generating and managing assets and
liabilities. Despite such asset/liability management, American Bank's
liabilities continue to be more sensitive to changes in market rates than are
its assets. While management intends to make every effort to improve
profitability and reduce interest rate risk, American Bank's performance will,
to a large extent, continue to be influenced by market interest rates over which
it has no control.
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and the interest expense on interest-bearing
liabilities. Net interest income is affected by both the difference between the
rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities (interest rate spread) and the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth, for the periods indicated, information
regarding: (i) the total dollar amounts of interest income from interest-earning
assets and the resulting average yields; (ii) the total dollar amounts of
interest expense from interest-bearing liabilities and the resulting costs;
(iii) net interest income; (iv) interest rate spread; (v) net interest-earning
assets; (vi) the net yield earned on interest-earning assets; and (vii) the
ratio of average interest-earning assets to average interest-bearing
liabilities. Average balances have been calculated on a daily basis. Average
loan balances include nonaccrual loans. Interest collected on nonaccrual loans
has been included. Average customer deposit balances include noninterest-bearing
demand deposits.
46
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 1992 1991
INTEREST INTEREST INTEREST
INCOME OR AVERAGE YIELDS/ INCOME OR AVERAGE YIELDS/ INCOME OR AVERAGE
(DOLLARS IN THOUSANDS) EXPENSE BALANCE RATES EXPENSE BALANCE RATES EXPENSE BALANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Investments and interest-bearing
deposits......................... $ 1,285 29,895 4.30% $ 1,118 21,513 5.20% $ 702 13,560
Loans and leases, net............... 17,417 192,607 9.04 19,205 196,126 9.79 21,172 200,090
TOTAL INTEREST-EARNING ASSETS.... 18,702 222,502 8.40 20,323 217,639 9.34 21,874 213,650
NON-EARNING ASSETS
Other assets........................ 19,543 22,347 9,743
TOTAL ASSETS..................... $242,045 $239,986 $223,393
INTEREST-BEARING LIABILITIES
Deposit accounts.................... 9,913 $213,080 4.65 11,947 $208,017 5.74 14,282 $187,575
Long-term debt...................... 685 10,353 6.62 947 14,071 6.73 1,544 20,181
TOTAL INTEREST-BEARING
LIABILITIES.................... 10,598 223,433 4.74 12,894 222,088 5.81 15,826 207,756
OTHER LIABILITIES AND STOCKHOLDERS'
EQUITY
Other liabilities................... 2,167 2,457 1,952
Stockholders' equity................ 16,445 15,441 13,685
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........... $242,045 $239,986 $223,393
NET INTEREST INCOME AND NET INTEREST
SPREAD.............................. $ 8,104 3.66% $ 7,429 3.53% $ 6,048
NET YIELD ON INTEREST-EARNING
ASSETS.............................. 3.64% 3.41%
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING
LIABILITIES......................... 99.58% 98.00% 102.84%
<CAPTION>
YIELDS/
(DOLLARS IN THOUSANDS) RATES
<S> <C>
INTEREST-EARNING ASSETS
Investments and interest-bearing
deposits......................... 5.18%
Loans and leases, net............... 10.58
TOTAL INTEREST-EARNING ASSETS.... 10.24
NON-EARNING ASSETS
Other assets........................
TOTAL ASSETS.....................
INTEREST-BEARING LIABILITIES
Deposit accounts.................... 7.61
Long-term debt...................... 7.65
TOTAL INTEREST-BEARING
LIABILITIES.................... 7.62
OTHER LIABILITIES AND STOCKHOLDERS'
EQUITY
Other liabilities...................
Stockholders' equity................
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY...........
NET INTEREST INCOME AND NET INTEREST
SPREAD.............................. 2.62%
NET YIELD ON INTEREST-EARNING
ASSETS.............................. 2.83%
AVERAGE INTEREST-EARNING ASSETS TO
AVERAGE INTEREST-BEARING
LIABILITIES.........................
</TABLE>
VOLUME/RATE ANALYSIS
The following table analyzes changes in interest income and interest
expense in terms of: (i) changes in the volume of interest-earning assets and
interest-bearing liabilities, and (ii) changes in rates. The table reflects the
extent to which changes in American Bank's interest income and interest expense
are attributable to changes in volume (changes in volume multiplied by prior
year rate) and changes in rate multiplied by prior year volume. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to changes in volume and changes due to rate.
47
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1993 COMPARED TO 1992 1992 COMPARED TO 1991
(IN THOUSANDS) RATE VOLUME TOTAL RATE VOLUME TOTAL
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans and leases, net................................................. $(1,448) (340 ) (1,788) (1,554) (413) (1,967)
Investments and other interest-earning assets......................... (216) 383 167 3 413 416
TOTAL INTEREST INCOME.............................................. (1,664) 43 (1,621) (1,551) -- (1,551)
INTEREST EXPENSE
Deposit accounts...................................................... (2,319) 285 (2,034) (3,774) 1,439 (2,335)
Borrowings............................................................ (16) (246 ) (262) (170) (427) (597)
TOTAL INTEREST EXPENSE............................................. (2,335) 39 (2,296) (3,944) 1,012 (2,932)
NET CHANGE IN NET INTEREST INCOME................................ $ 671 4 675 2,393 (1,012) 1,381
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND DECEMBER 31, 1992
GENERAL. Net income for 1993 was $751,000, or $.28 per common share, as
compared with $1,258,000, or $.50 per common share for 1992, a decrease of 40
percent. Income before income taxes declined by $1,110,000, from $2,179,000 for
1992 to $1,069,000 for 1993, a decrease which is primarily attributable to an
increase of $1,106,000 in the provision for loan and lease losses to $2,208,000
for 1993 as compared with $1,102,000 for 1992.
During 1993, total assets decreased by $10.4 million from $245.8 million to
$235.4 million, a decrease of 4.2 percent. While the relative concentrations of
liquid assets changed during the year, total liquid assets did not change
significantly. The decrease in total assets was principally attributable to soft
loan demand as loans receivable decreased by $10.6 million. Because of the
softness in loan demand, it was not necessary to replace certain higher costing
customer deposits and borrowings that matured during 1993, with the result that
customer deposits decreased by $7.9 million while total borrowings decreased by
$1.9 million.
NET INTEREST INCOME. Net interest income for 1993 and 1992 was $8,104,000
and $7,429,000, respectively, an increase of $675,000. While the increase in
average interest-earning assets for 1993 exceeded by $3.5 million the increase
in average interest-bearing liabilities, this increase in the volume of net
interest-earning assets did not significantly affect net interest income because
of a much higher concentration in 1993 in lower yielding investments and
interest-bearing deposits. The decline in market interest rates during 1993 had
a more significant effect on interest-bearing liabilities because such
liabilities had shorter maturities and repriced more quickly in the declining
interest rate environment than did interest-earning assets. This allowed the net
yield on interest-earning assets to increase from 3.41 percent for 1992 to 3.64
percent for 1993. This increased net yield was the primary reason for the
increase in net interest income.
PROVISION FOR LOAN AND LEASE LOSSES. The provision for loan and lease
losses, which is charged to operations, and the resulting loan and lease loss
allowance are amounts which management believes will be adequate to absorb
losses on existing loans and leases that may become uncollectible. Loans are
charged off against the allowance when management believes that collectibility
is unlikely. The evaluation to determine the adequacy of the allowance for loan
and lease losses is based on factors such as changes in the nature and volume of
the loan portfolio, portfolio quality, current economic conditions and peer
averages and industry standards. American Bank has adopted policies which it
believes provide for prudent and adequate levels of loss allowances. Provisions
for loan and lease losses for 1993 and 1992 were $2,208,000 and $1,102,000,
respectively. During 1993, based upon management's evaluation of general
economic conditions, characterized by continuing slow economic recovery and the
level of the loan and lease loss allowance as compared to peer and industry
averages and based upon the level of loan charge-offs in recent years, it was
considered appropriate to increase the allowance for loan and lease losses.
Management continually monitors the loan and lease portfolio to identify
potential problems and to assess the potential for loss. Based upon all
information available at the end of 1993, management believes that the allowance
for loan and lease losses is adequate.
NONINTEREST EXPENSES. Noninterest expense for 1993 and 1992 was $6,646,000
and $5,942,000, respectively, an increase of $704,000. The primary components of
this overall increase are increases of $390,000 and $308,000, respectively, in
personnel and occupancy expenses. These increases relate principally to feeling
the full effects in 1993 of certain actions taken in 1992. During 1992, American
Bank acquired three new branches. Additionally, during 1992 American Bank
purchased a new computer system and moved in-house all data processing and back
room operations, certain of which had
48
<PAGE>
previously been provided by an outside service provider. In addition, American
Bank also replaced all of its automated teller machines during the latter part
of 1992. Additional personnel and increased depreciation expenses and other
costs associated with these changes were the primary causes of the increases in
noninterest expense described above.
INCOME TAXES. Effective income tax rates as a percentage of pretax income
were 29.8 percent for 1993 as compared with 42.3 percent for 1992. This decrease
results from the application in 1993 of a required new method of accounting for
income taxes. The primary reason for the decrease is that in 1993 the full
amount of the financial statement provision for loan losses has been reflected
as a deductible item in computing the deferred income tax liability at year-end,
while in 1992 the excess of the financial statement provision for loan losses
over the amount deductible for that year's returns was treated as nondeductible
in computing the 1992 provision for income taxes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1992 AND DECEMBER 31, 1991
GENERAL. Net income for 1992 was $1,258,000, or $.50 per common share, as
compared with $913,000, or $.39 per common share, for 1991, an overall increase
of 37.8 percent. During 1992, American Bank achieved significant increases in
both net interest income and noninterest income, offset to a degree by increases
in the provision for loan and lease losses and in noninterest expense.
During 1992 total assets increased by $22.4 million from $223.4 million to
$245.8 million, an increase of ten percent. Of this increase, $17.1 million is
directly attributable to the acquisition on March 28, 1992 of three full service
branch bank offices in Charlotte, N.C. from RHNB. In connection with this
acquisition, which increased total branch offices from eight to eleven and
substantially strengthened American Bank's branch network in the
Charlotte-Mecklenburg County metropolitan area, American Bank acquired customer
deposits of $17.1 million, premises and equipment of $2.4 million, liquid assets
of $14.5 million and loans receivable of $200,000.
On April 1, 1992, American Bank converted from a state-chartered stock
savings and loan association to a state-chartered stock savings bank. Among the
changes brought about by this conversion is a requirement that American Bank
maintain liquid assets of at least ten percent of total assets, more than twice
the level of liquidity required prior to the conversion. The increased liquidity
requirement was immediately satisfied with the liquid assets received in the
branch acquisition described in the preceding paragraph. Liquid assets at
December 31, 1992, aggregated $35.8 million, or 14.6 percent of total assets, as
compared with $14.3 million, or 6.4 percent of total assets at December 31,
1991. As a savings bank American Bank is also required to maintain certain
levels of vault cash and noninterest-bearing deposits with a Federal Reserve
Bank, resulting in a significant increase in the aggregate amount of cash and
balances due from other depository institutions during 1992.
Other notable changes in asset concentration during 1992 include a decrease
of $3.1 million in net loans and leases and an increase of $3.3 million in net
premises and equipment. The decrease in loans and leases is reflective of low
loan demand resulting from the generally soft economy during 1992. The increase
in premises and equipment resulted from the branch acquisition described above,
the construction of a new facility at a previously existing branch location, the
acquisition of new automated teller machines for most branches and the purchase
and installation of a new electronic data processing system.
Customer deposits increased by $33.8 million, or 18.3 percent, from $184.5
million at the beginning of 1992 to $218.3 million at the end of the year.
Noninterest-bearing deposits more than doubled during the year to $14.4 million.
The acquisition of three branches in Charlotte, N.C. accounted for slightly more
than half of the growth in total deposits ($17.1 million) and was principally
responsible for the increase in noninterest-bearing deposits. Exclusive of the
branch acquisition, deposits increased by $16.7 million, representing growth of
9.1 percent for the year. All deposit growth during 1992 was achieved in
American Bank's primary market as broker deposits remained constant at just
under $43 million. The growth in customer deposits enabled American Bank to
reduce long-term debt, consisting primarily of advances from the FHLB of
Atlanta, by $12.6 million, from $21.9 million down to $9.3 million.
NET INTEREST INCOME. Net interest income for 1992 was $7,429,000, an
increase of $1,381,000, or 22.8 percent, from $6,048,000 in 1991. This increase
is primarily attributable to the declining interest rate environment in 1992 as
compared with 1991. In periods of declining rates, American Bank's
interest-earning assets will generally reprice more slowly than will its
interest-bearing liabilities, with a resultant increase in net interest income
as was the case in 1992. The weighted average yield on interest-earning assets
for 1992 was 9.34 percent, a reduction of .90 percent from the 1991 yield of
10.24 percent. The weighted average rate paid on all interest-bearing
liabilities declined much more sharply in 1992 as compared with 1991, from 7.62
percent to 5.81 percent, or a reduction of 1.81 percent.
49
<PAGE>
Interest expense declined from $15,826,000 in 1991 to $12,894,000 in 1992
(a decrease of $2,932,000) while the aggregate average balance of customer
deposits and long-term debt actually increased by $14,332,000, or 6.9 percent.
Interest income declined by $1,551,000 as an increase of $3,989,000 in average
interest-earning assets was more than offset by the decrease in the weighted
average rate earned.
PROVISION FOR LOAN AND LEASE LOSSES. American Bank charged $1,102,000 to
current expenses as a provision for loan and lease losses during 1992, an
increase of $572,000 over the 1991 provision of $530,000. Net loan and lease
charge-offs during 1992 were $740,000, a significant increase over the 1991 net
charge-offs of $68,000. Of the 1992 net charge-offs, $411,000, or 55.5 percent,
related to leases and loans originated in prior years by American Bank's leasing
subsidiary to finance commercial equipment (principally non-vehicular
equipment), including a large charge-off of more than $300,000 relating to a
single customer which declared bankruptcy and was liquidated during the year. In
response to this loss experience, management has taken steps to limit all future
loans and leases originated by the leasing company to vehicle financings with
stringent limitations on the aggregate amount of credit that can be extended to
a single customer.
Other net charge-offs for 1992 were $329,000, reflecting the adverse impact
of recent economic conditions on real estate and the ability of certain
customers to generate adequate cash flow. In total the allowance for loan and
lease losses increased during 1992 from $597,000 at the beginning of the year to
$959,000 at year-end.
NONINTEREST INCOME. Noninterest income increased by $1,062,000 to
$1,795,000 for 1992 as compared with $733,000 for 1991. The components of this
increase were $114,000 for service charges on deposit accounts, $653,000 for
gains on sales of investment securities and $295,000 for other income. The
increase in service charges on deposit accounts resulted from the receipt in
1992 of a full year's income under a service charge which was implemented in May
of 1991. The gain on sale of investment securities resulted from the purchase
and sale during the year of two groups of U.S. Treasury securities. The increase
of $295,000 in other noninterest income was derived from a number of sources,
the largest of which was a gain of $115,000 on the sale of the leasing
subsidiary's office facility.
NONINTEREST EXPENSE. Noninterest expense for 1992 aggregated $5,942,000 as
compared with $4,571,000 for 1991. Noninterest expense for 1992 represents 2.47
percent of average total assets. The principal factor affecting the increase
from 1991 to 1992 was the acquisition on March 28, 1992 of three branches in
Charlotte, N.C., increasing the total number of full-service branch locations
from eight to eleven. The effects of this growth are most apparent in personnel
and occupancy expenses, which increased $847,000 and $227,000, respectively.
Other factors contributing to the increased level of noninterest expense in 1992
include increases in the costs of group health and other types of insurance
(including deposit insurance), the conversion to a state-chartered savings bank
and the installation and implementation of an in-house electronic data
processing (EDP) system where American Bank had previously used an outside
service provider. It is expected that the enhanced information and improved
customer service capability afforded by the new EDP system will more than offset
the increased cost.
INCOME TAXES. Effective income tax rates as a percentage of pretax income
were 42.3 percent and 45.7 percent for 1992 and 1991, respectively. The
effective tax rate for both years exceeds a composite of the maximum federal and
North Carolina income tax rates for corporations because the financial statement
provisions for loan and lease losses have been substantially in excess of the
amount deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to meet current and future obligations through the
liquidation or maturity of existing assets or the acquisition of additional
liabilities. American Bank manages both assets and liabilities to achieve
appropriate levels of liquidity. Current regulations require American Bank to
maintain liquid assets of no less than ten percent of total assets. At December
31, 1993, American Bank's liquidity ratio was 15.6 percent which exceeded the
ten percent requirement by approximately $13.1 million.
Although loan maturities are longer than stated deposit maturities,
American Bank, like the industry, generally renews deposit maturities at the
then market interest rate, thus negating any apparent maturity imbalance.
American Bank has had limited activity in the secondary mortgage market, and no
such activity is planned in the immediate future. However, American Bank may,
from time to time, use the secondary mortgage market as a source of liquidity
and for other purposes.
On December 31, 1993, American Bank had $7.1 million of loans in process
outstanding which represents loans closed but not yet funded, and $2.1 million
in outstanding loan commitments. Funding for loans in process, loan commitments,
and all new loan growth will be primarily provided by deposit growth, loan
principal repayments and, if needed, advances from the FHLB of Atlanta. American
Bank's primary funding source consists of deposits attracted from within
American Bank's
50
<PAGE>
primary service area. As a secondary source of funding, American Bank has used
deposits from institutional investors, or jumbo deposits, which amounted to
$38.4 million and $42.6 million at December 31, 1993 and 1992, respectively.
Generally, American Bank pays a rate of interest, including broker's fee, of not
more than 50 basis points higher than the rate being paid for local certificates
of similar amounts and terms to maturity. American Bank has paid rates more than
50 basis points higher than that being paid for local certificates, but these
are for extended maturities (for example, eight years) for which American Bank
has no publicly quoted rate or local demand. Maturities of such jumbo
certificates generally range from one to eight years.
Stockholders' equity was $16.2 million and $16.0 million at December 31,
1993 and 1992, respectively, representing a $269,000 increase during 1993.
Regulatory agencies have issued risk-based capital guidelines which became fully
effective December 31, 1992. These guidelines were established to more
appropriately consider the credit risk inherent in the assets and off-balance
sheet activities of a financial institution in the assessment of capital
adequacy. Under these guidelines, total capital has been redefined as core (tier
1) capital and supplementary (tier 2) capital. American Bank's tier 1 capital
consists primarily of stockholders' equity, while tier 2 capital consists of the
allowance for loan losses. The definition of assets has been modified to include
items on and off the balance sheet, with each item being assigned a risk-weight
for the determination of the ratio of capital to risk-adjusted assets.
As of December 31, 1993, the fully effective guidelines require that
American Bank's risk-based capital (tier 1 and tier 2) be equal to a minimum of
eight percent of total risk-adjusted assets. In addition, tier 1 capital must be
no less than six percent of total assets. As indicated in the following table,
ABI and American Bank are in compliance with regulatory capital requirements as
of December 31, 1993:
<TABLE>
<CAPTION>
REGULATORY AMERICAN
MINIMUMS BANK ABI
<S> <C> <C> <C>
Tier 1 capital to total assets........................................ 6.00% 6.54 6.54
Risk-based capital to total risk-adjusted assets...................... 8.00% 10.29 10.29
</TABLE>
INFLATION AND CHANGING PRICES
The financial statements, the notes thereto and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation.
Interest rates do not necessarily move in the same direction or at the same
rate as the price of goods and services since such prices are affected by
inflation. In the current interest rate environment, liquidity and the maturity
structure of American Bank's assets and liabilities are critical to the
maintenance of desired performance levels. However, noninterest expense does
reflect general levels of inflation.
RECENT ACCOUNTING STANDARDS
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. Statement of Financial
Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
(SFAS No. 114), was issued in May 1993. SFAS No. 114 will require that impaired
loans that are within the scope of SFAS No. 114 be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. The impact of
this new standard has not been fully determined, but in the opinion of
management the change will not have a significant impact on ABI's or American
Bank's financial position or results of operations. SFAS No. 114 is required to
be implemented for fiscal years beginning after December 15, 1994.
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES (SFAS No. 115), was issued in May 1993. SFAS No. 115
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. SFAS No. 115 expands the required use of fair value accounting for
investments in debt and equity securities, and allows debt securities to be
classified as held to maturity and reported in financial statements at amortized
cost only if the reporting entity has the positive intent and ability to hold
those securities to maturity. This is in contrast to the current rule that
allows the use of amortized cost accounting where there is the intent and
ability to hold securities for the foreseeable future. Furthermore, SFAS No. 115
makes clear that securities that might be sold in response to
51
<PAGE>
changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as held
to maturity. Debt and equity securities held for current resale are classified
as trading securities. Such securities are reported at fair value, and
unrealized gains and losses on such securities will be included in earnings.
Debt and equity securities not classified as either held to maturity or trading
securities are classified as securities available for sale. Such securities are
reported at fair value, and unrealized gains and losses on such securities are
excluded from earnings and reported as a net amount in a separate component of
stockholders' equity. The impact of this new standard has not been fully
determined, but in the opinion of management the change will not have a
significant impact on ABI's or American Bank's financial position or results of
operations. SFAS No. 115 is effective for fiscal years beginning after December
15, 1993.
The Omnibus Budget Reconciliation Act of 1993 (OBRA) was signed into law on
August 10, 1993. The provisions of OBRA are not expected to have a significant
effect on ABI's or American Bank's financial position or results of operations.
DIRECTORS AND EXECUTIVE OFFICERS
Listed below are the names of the current directors and executive officers
of ABI together with their ages and their principal occupations during the past
five years.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR AGE POSITION HELD SINCE
<S> <C> <C> <C>
Thomas J. Caldwell 48 Director 1989
H. Parks Helms 58 Director 1993
James C. Plyler, Sr. 74 Director, Chairman of 1961
the Board
Russell W. Pope 59 President and Chief 1986
Executive Officer
Bruce M. Simpson 71 Director, Vice Chairman 1961
John O. Summey, Jr. 57 Director, Chief 1992
Financial Officer and
Secretary
Neal O. Wylie 59 Director 1990
Marcus E. Yandle, Sr. 70 Director 1992
</TABLE>
Significant business experience for at least the last five years for each
director of ABI is described below.
THOMAS J. CALDWELL is an attorney in the law firm of Griffin, Caldwell,
Helder & Lee, P.A., Monroe, North Carolina.
H. PARKS HELMS is an attorney with and President of Helms, Cannon, Hamel &
Henderson, P.A., Charlotte, North Carolina.
JAMES C. PLYLER, SR. is President of Union Warehouse and Realty Company,
Monroe, North Carolina, a warehouse rental firm. He was formerly the Chairman of
the Board of USCO, Inc., a wholesale plumbing supplies distributor in Monroe,
North Carolina.
RUSSELL W. POPE joined American Bank in 1982 as Vice President and assumed
the offices of President and Chief Executive Officer in August 1985. Since the
formation of ABI in September 1992, Mr. Pope has served as President and Chief
Executive Officer of both ABI and American Bank.
BRUCE M. SIMPSON is a private investor and a commercial real estate
developer and manager.
JOHN O. SUMMEY, JR. joined American Bank in 1984 as Chief Financial
Officer. Since the formation of ABI in September 1992, Mr. Summey has served as
Chief Financial Officer of both ABI and American Bank.
NEAL O. WYLIE is retired and was formerly Chief Executive Officer of Atlas
Marketing Co., Inc., Charlotte, North Carolina, a wholesale distributor of food
items throughout the southeastern United States.
MARCUS E. YANDLE, SR. is chairman of the Board of Directors of
Yandle-Withers Supply Co., Charlotte, North Carolina, which sells wholesale
heating and air conditioning supplies.
In recognition of their contribution to American Bank since its inception
and recognizing the value of their experience to ABI, the savings industry, and
ABI's local market, the Board of Directors named E. D. Gaskins, Hugh C. Murrill,
and Frederick M. Wilson as Founding Directors Emeriti. The position is honorary
and carries no voting power.
52
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
As of December 31, 1993, excluding FUNC as the holder of the Option, no
person known to management of ABI beneficially owned more than five percent of
the ABI Common Stock.
The following table gives the number of shares and percentage of the
outstanding ABI Common Stock and ABI Preferred Stock beneficially owned as of
December 31, 1993, by each current director of ABI individually.
<TABLE>
<CAPTION>
ABI
PREFERRED
ABI COMMON STOCK STOCK
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT OF BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2) OWNERSHIP(1)
<S> <C> <C> <C>
Thomas J. Caldwell...................................................... 6,000(3) .26% --
H. Parks Helms.......................................................... 2,000(4) .09 10
James C. Plyler, Sr..................................................... 98,083(7) 4.26 100
Russell W. Pope......................................................... 69,224(5) 3.01 --
Bruce M. Simpson........................................................ 96,283(6) 4.19 200
John O. Summey, Jr...................................................... 30,446 1.32 --
Neal O. Wylie........................................................... 46,800(8) 2.03 500
Marcus E. Yandle, Sr.................................................... 1,000 .04% 25
<CAPTION>
PERCENT OF
NAME OF BENEFICIAL OWNER CLASS(2)
<S> <C>
Thomas J. Caldwell...................................................... -- %
H. Parks Helms.......................................................... 1.01
James C. Plyler, Sr..................................................... 10.12
Russell W. Pope......................................................... --
Bruce M. Simpson........................................................ 20.24
John O. Summey, Jr...................................................... --
Neal O. Wylie........................................................... 50.61
Marcus E. Yandle, Sr.................................................... 2.53%
</TABLE>
(1) Unless otherwise noted, the shares shown as beneficially owned are, to the
best of management's knowledge, owned of record by the persons named and
such persons exercise sole voting and investment power with respect to such
shares.
(2) The calculation of percentage of class is based on 2,299,854 outstanding
shares of ABI Common Stock and 988 outstanding shares of ABI Preferred
Stock, respectively.
(3) Thomas J. Caldwell has sole voting and investment power over 1,500 shares of
ABI Common Stock held individually of record and 4,500 shares of ABI Common
Stock held in an individual retirement account (IRA) in his name.
(4) H. Parks Helms has sole voting and investment power over 2,000 shares of ABI
Common Stock held in an IRA in his name.
(5) Russell W. Pope has sole voting and investment power over 43,493 shares of
ABI Common Stock held individually of record and 10, 050 shares of ABI
Common Stock held in an IRA in his name, and he is deemed to have shared
voting and investment power with respect to 5,640 shares of ABI Common Stock
held individually of record by his spouse and 10,041 shares of ABI Common
Stock in an IRA in his spouse's name.
(6) Bruce M. Simpson holds 96,283 shares of ABI Common Stock jointly with his
spouse and exercises shared voting and investment power with respect
thereto.
(7) James C. Plyler, Sr. has sole voting and investment power over 93,083 shares
of ABI Common Stock held individually of record and 5,000 shares of ABI
Common Stock held in an IRA in his name.
(8) Neal O. Wylie has sole voting and investment power over 31,300 shares of ABI
Common Stock held individually of record and 15,500 shares of ABI Common
Stock held in an IRA in his name.
53
<PAGE>
FUNC AND FUNB-NC
GENERAL
Financial and other information relating to FUNC, including information
relating to FUNC's directors and executive officers, is set forth in FUNC's 1993
Annual Report on Form 10-K and 1994 Annual Meeting Proxy Statement, copies of
which may be obtained from FUNC as indicated under AVAILABLE INFORMATION.
HISTORY AND BUSINESS
FUNC was incorporated under the laws of North Carolina in 1967 and is
registered as a bank holding company under the BHCA. Pursuant to a corporate
reorganization in 1968, FUNB-NC and First Union Mortgage Corporation, a mortgage
banking firm acquired by FUNB-NC in 1964, became subsidiaries of FUNC. FUNB-NC
was organized in 1908 as Union National Bank.
In addition to FUNB-NC, FUNC also operates banks in Florida, South
Carolina, Georgia, Tennessee, Virginia, Maryland and Washington, D.C. In
addition to providing a wide range of commercial and retail banking and trust
services through its banking subsidiaries, FUNC also provides various other
financial services, including mortgage banking, home equity lending, insurance
and securities brokerage services, through other subsidiaries.
Since the 1985 Supreme Court decision upholding regional interstate banking
legislation, FUNC has concentrated its efforts on building a large, regional
banking organization in what it perceives to be some of the better banking
markets in the southeastern United States. Since November 1985, FUNC has
completed 38 banking related acquisitions, including the more significant
completed acquisitions (in addition to the pending acquisitions) set forth in
the following table.
<TABLE>
<CAPTION>
ASSETS/ CONSIDERATION/
NAME HEADQUARTERS DEPOSITS(1) ACCOUNTING TREATMENT COMPLETION DATE
<S> <C> <C> <C> <C>
Atlantic Bancorporation....................... Florida $ 3.8 billion common stock/pooling November 1985
Northwestern Financial Corporation............ North Carolina 3.0 billion common stock/pooling December 1985
Southern Bancorporation, Inc.................. South Carolina 1.1 billion cash and notes/purchase March 1986
First Bankers Corporation of Florida.......... Florida 1.3 billion cash and notes/purchase May 1986
First Railroad & Banking Company of Georgia... Georgia 3.7 billion common stock/pooling November 1986
Florida Commercial Banks, Inc................. Florida 1.0 billion cash/purchase March 1988
Florida National Banks of Florida, Inc........ Florida 7.9 billion cash and preferred January 1990
stock/purchase
Southeast banks............................... Florida 9.9 billion cash, notes and preferred September 1991
stock/
purchase
RTC acquisitions.............................. Florida 4.7 billion cash/purchase 1991-1992
PSFS Thrift Holding Company................... Florida 1.2 billion cash/purchase December 1992
South Carolina Federal Corporation............ South Carolina .9 billion common stock/ January 1993
pooling
DFSoutheastern, Inc........................... Georgia 2.6 billion common stock/ January 1993
pooling
Dominion Bankshares Corporation............... Virginia 8.9 billion common stock and March 1993
preferred stock/pooling
Georgia Federal Bank, FSB..................... Georgia 4.0 billion cash/purchase June 1993
First American Metro Corp..................... Virginia 4.6 billion cash/purchase June 1993
Lieber & Company (Lieber)(1).................. New York 3.3 billion common stock/ 1994
pooling
BancFlorida Financial Corporation
(BancFlorida)(2)............................ Florida $ 1.5 billion common stock/purchase 1994
</TABLE>
(1) The dollar amounts indicated represent the assets of the related
organization as of the last reporting period prior to acquisition, except
for (i) the dollar amount relating to RTC acquisitions, which represents
savings and loan deposits acquired from the Resolution Trust Corporation,
(ii) the dollar amount relating to Southeast banks, which represent assets
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of the two banking subsidiaries of Southeast Banking Corporation acquired
from the FDIC, and (iii) the dollar amount relating to the pending
acquisition of Lieber, which represents assets under management by Lieber as
of December 31, 1993. Since such assets are not owned by Lieber they will
not be reflected on FUNC's balance sheet upon consummation of the
acquisition. Lieber serves as investment adviser to the Evergreen family of
mutual funds. The acquisition agreement provides for issuance of
approximately 3.1 million shares of FUNC Common Stock to acquire Lieber.
(2) On January 17, 1994, FUNC entered into an agreement to acquire BancFlorida,
which provides for the exchange of FUNC Common Stock for each share of
BancFlorida common stock and BancFlorida convertible preferred stock. The
exchange ratio will be based upon the average closing price of FUNC Common
Stock prior to consummation of the acquisition. Based on the closing price
of FUNC Common Stock on March 1, 1994 ($40.50), approximately 4.2 million
shares of FUNC Common Stock would be issued in connection with the
acquisition. FUNC currently expects to account for the acquisition as a
purchase and to purchase in the open market up to one-half of the shares of
FUNC Common Stock issued in the acquisition, depending on market conditions
and other factors.
Interstate banking legislation has greatly impacted the growth of FUNC and
it has also greatly impacted the banking industry in general. North Carolina's
interstate banking statute includes the states of Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Maryland, Mississippi, South Carolina, Tennessee,
Texas, Virginia and West Virginia and Washington, D.C., each of which has passed
interstate banking legislation, either on a regional or national basis. In
addition, various other states not named in the North Carolina legislation have
also adopted interstate banking legislation, which, under certain conditions,
would permit FUNC to acquire banks in such states.
FUNC is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore some dilution of FUNC's book value and net income
per common share may occur in connection with any future transactions.
CERTAIN REGULATORY CONSIDERATIONS
AS BANK HOLDING COMPANIES, FUNC AND ABI ARE SUBJECT TO REGULATION UNDER THE
BHCA AND TO ITS EXAMINATION AND REPORTING REQUIREMENTS. THE FOLLOWING DISCUSSION
SETS FORTH CERTAIN OF THE MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK
APPLICABLE TO BANK HOLDING COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN
SPECIFIC INFORMATION RELEVANT TO FUNC, ABI, AND THEIR RESPECTIVE SUBSIDIARIES.
TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND REGULATORY
PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTICULAR
STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN APPLICABLE REGULATION MAY HAVE
A MATERIAL EFFECT ON THE BUSINESS OF FUNC, ABI OR THEIR RESPECTIVE SUBSIDIARIES.
GENERAL
Each of FUNC and ABI is a bank holding company within the meaning of the
BHCA and is registered as such with the Federal Reserve Board. Under the BHCA,
bank holding companies may not directly or indirectly acquire the ownership or
control of more than five percent of the voting shares or substantially all of
the assets of any company, including a bank, without the prior approval of the
Federal Reserve Board. FUNC has applied to the Federal Reserve Board for
permission to acquire ABI and American Bank. See THE MERGERS -- Regulatory
Approvals. In addition, bank holding companies are generally prohibited under
the BHCA from engaging in nonbanking activities, subject to certain exceptions.
The earnings of FUNC and ABI are affected by general economic conditions,
management policies and the legislative and governmental actions of various
regulatory authorities, including the Federal Reserve Board and the OCC. In
addition, there are numerous governmental requirements and regulations which
affect the activities of FUNC and ABI.
PAYMENT OF DIVIDENDS
Each of FUNC and ABI is a legal entity separate and distinct from its
banking and other subsidiaries. A major portion of FUNC's revenues result from
amounts paid as dividends to FUNC by its national bank subsidiaries. The prior
approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year will exceed the sum of such bank's net
profits for that year and its retained net profits for the preceding two
calendar years, less any required transfers to surplus. Federal law also
prohibits any national bank from paying dividends which would be greater than
such bank's undivided profits after deducting statutory bad debt in excess of
such bank's allowance for loan losses. All of ABI's revenues
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<PAGE>
result from amounts paid as dividends to ABI by American Bank. ABI is not
subject to any direct legal or regulatory restrictions on the payment of
dividends other than the requirement under the NCBCA that a distribution may not
be made if after giving it effect the corporation would not be able to pay its
debts as they become due in the usual course of business or the corporation's
total assets would be less than its liabilities. The amount of funds legally
available for the payment of dividends by ABI depends primarily upon the
earnings of American Bank and the ability of American Bank to pay dividends to
ABI. See ABI AND AMERICAN BANK -- Memorandum of Understanding.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of FUNC's nonbanking subsidiaries, as of December 31,
1993, FUNC's subsidiaries, without obtaining affirmative governmental approvals,
could pay aggregate dividends of $510 million to FUNC. During 1993, FUNC's
subsidiaries paid $407 million in dividends to FUNC. As of December 31, 1993,
American Bank could pay aggregate dividends of $1.2 million to ABI during 1994,
assuming such dividends were approved by the FDIC and the Administrator under
the Memorandum. During 1993, American Bank paid $481,000 in dividends to ABI.
In addition, FUNC, ABI and their bank subsidiaries are subject to various
general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
national bank or bank holding company that the payment of dividends would be an
unsafe or unsound practice and to prohibit payment thereof. The OCC and the FDIC
have indicated that paying dividends that deplete a bank's capital base to an
inadequate level would be an unsound and unsafe banking practice. The OCC, the
FDIC and the Federal Reserve Board have each indicated that banking
organizations should generally pay dividends only out of current operating
earnings.
BORROWINGS
There are also various legal restrictions on the extent to which each of
FUNC and its nonbank subsidiaries or ABI and its nonbank subsidiaries can borrow
or otherwise obtain credit from its respective bank subsidiaries. In general,
these restrictions require that any such extensions of credit must be secured by
designated amounts of specified collateral and are limited, as to any one of
FUNC, ABI or such nonbank subsidiaries, to ten percent of the lending bank's
capital stock and surplus, and as to FUNC, ABI and all such nonbank subsidiaries
in the aggregate, to 20 percent of such lending bank's capital stock and
surplus.
CAPITAL
The minimum guidelines for the ratio of capital to risk-weighted assets
(including certain off-balance-sheet activities, such as standby letters of
credit) is eight percent. At least half of the total capital is to be composed
of common equity, retained earnings and a limited amount of qualifying perpetual
preferred stock, less certain intangibles (tier 1 capital and together with tier
2 capital total capital). The remainder may consist of subordinated debt,
qualifying preferred stock and a limited amount of the loan loss allowance (tier
2 capital). At December 31, 1993, FUNC's tier 1 and total capital ratios were
9.14 percent and 14.64 percent, respectively, and ABI's tier 1 and total capital
ratios were 9.04 percent and 10.29 percent, respectively. On an FUNC and ABI
combined basis, such ratios at December 31, 1993 would have been 9.14 percent
and 14.63 percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
(leverage ratio ) equal to three percent for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies will generally be required to maintain a leverage
ratio of from at least four to five percent. FUNC's leverage ratio at December
31, 1993 was 6.13 percent and ABI's leverage ratio at such date was 6.54
percent. On an FUNC and ABI combined basis, such ratio at December 31, 1993
would have been 6.14 percent. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
guidelines indicate that the Federal Reserve Board will continue to consider a
tangible tier 1 leverage ratio (deducting all intangibles) in evaluating
proposals for expansion or new activity. The Federal Reserve Board has not
advised FUNC or ABI of any specific minimum leverage ratio or tangible tier 1
leverage ratio applicable to it.
Each of FUNC's subsidiary national banks is subject to similar capital
requirements adopted by the OCC or other applicable federal regulatory agencies.
Each of FUNC's subsidiary banks had a leverage ratio in excess of 5.51 percent,
as of December 31, 1993. The OCC has not advised any of the subsidiary national
banks of any specific minimum leverage ratio applicable to it.
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<PAGE>
As of December 31, 1993, the capital ratios of FUNC's banking subsidiaries,
which consist of FUNB-NC, First Union National Bank of South Carolina (FUNB-SC),
First Union National Bank of Georgia (FUNB-GA), First Union National Bank of
Florida (FUNB-FL), First Union National Bank of Tennessee (FUNB-TN), First Union
National Bank of Virginia (FUNB-VA), First Union National Bank of Maryland
(FUNB-MD) and First Union National Bank of Washington, D.C. (FUNB-DC) were as
follows:
<TABLE>
<CAPTION>
Regulatory
Minimum FUNB-NC FUNB-SC FUNB-GA FUNB-FL FUNB-TN FUNB-VA FUNB-MD FUNB-DC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital ratio... 4% 8.24 7.55 9.58 9.13 12.43 10.77 15.78 14.23
Total capital ratio.... 8 11.35 11.82 12.62 10.83 13.69 13.08 17.07 15.52
Leverage ratio......... 3-5% 5.52 5.56 5.67 5.79 8.05 6.89 9.04 6.06
</TABLE>
American Bank is subject to similar capital requirements adopted by the
FDIC. American Bank had a leverage ratio of 6.54 percent as of December 31,
1993. The FDIC has advised American Bank that it must maintain tier 1
capital of not less than six percent of total assets. See ABI AND AMERICAN
BANK -- Memorandum of Understanding. As of December 31, 1993, American Bank
had a tier 1 capital ratio of 9.04 percent and a total capital ratio of
10.29 percent.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital guidelines.
See ABI AND AMERICAN BANK -- Management's Discussion and Analysis of
Results of Operations and Financial Condition; LIQUIDITY AND CAPITAL RESOURCES.
FIRREA
SUPPORT OF SUBSIDIARY BANKS
FIRREA, among other things, imposes liability on an institution the
deposits of which are insured by FDIC, such as FUNC's subsidiary national banks
and American Bank, for certain potential obligations to the FDIC incurred in
connection with other FDIC-insured institutions under common control with such
institution.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's stockholders, pro rata and, to the
extent necessary, if any such assessment is not paid by any stockholder after
three months notice, to sell the stock of such stockholder to make good the
deficiency. Under Federal Reserve Board policy, each of ABI and FUNC is expected
to act as a source of financial strength to each of its subsidiary banks and to
commit resources to support each of such subsidiaries. This support may be
required at times when, absent such Federal Reserve Board policy, FUNC or ABI,
as the case may be, would provide it.
Any capital loans by a bank holding company to any of its subsidiary banks
are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
INSURANCE OF ACCOUNTS
FIRREA abolished the FSLIC and transferred its federal deposit insurance
functions to the FDIC. Under FIRREA, the FDIC administers two separate deposit
insurance funds. The SAIF maintains a fund to insure the deposits of
institutions the deposits of which were insured by the FSLIC prior to the
enactment of FIRREA, and the BIF maintains a fund to insure the deposits of
institutions the deposits of which were insured by the FDIC prior to the
enactment of FIRREA. At December 31, 1993, all of American Bank's deposits were
insured by the SAIF.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) was enacted, which substantially revises the bank regulatory
and funding provisions of the Federal Deposit Insurance Act and makes revisions
to several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
prompt corrective action in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: well
capitalized; adequately capitalized; undercapitalized; significantly
undercapitalized; and critically undercapitalized. A
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<PAGE>
depository institution's capital tier will depend upon how its capital
levels compare to various relevant capital measures and certain other factors,
as established by regulation.
Each of the OCC and the FDIC has adopted substantially identical
regulations establishing relevant capital measures and relevant capital levels.
The relevant capital measures are the total capital ratio, tier 1 capital ratio
and the leverage ratio. Under the regulations, a regulated bank will be (i) well
capitalized if it has a total capital ratio of ten percent or greater, a tier 1
capital ratio of six percent or greater and a leverage ratio of five percent or
greater and is not subject to any order or written directive by the OCC or the
FDIC, as the case may be, to meet and maintain a specific capital level for any
capital measure; (ii) adequately capitalized if it has a total capital ratio of
eight percent or greater, a tier 1 capital ratio of four percent or greater and
a leverage ratio of four percent or greater (three percent in certain
circumstances) and is not well capitalized; (iii) undercapitalized if it has a
total capital ratio of less than eight percent, a tier 1 capital ratio of less
than four percent or a leverage ratio of less than four percent (three percent
in certain circumstances); (iv) significantly undercapitalized if it has a total
capital ratio of less than six percent, a tier 1 capital ratio of less than
three percent or a leverage ratio of less than three percent; and (v) critically
undercapitalized if its tangible equity is equal to or less than two percent of
average quarterly tangible assets. As of December 31, 1993, all of FUNC's
subsidiary banks had capital levels that qualify them as being well capitalized
under such regulations and American Bank had a capital level that qualifies it
as being well capitalized under such regulations. For a description of American
Bank's capital levels at December 31, 1993, see ABI AND AMERICAN BANK --
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of: (i) an amount equal to five percent of the depository
institution's total assets at the time it became undercapitalized; and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares and such other standards as the agency deems appropriate.
The ultimate effect of these standards cannot be ascertained until final
regulations are adopted.
FDICIA also contains a variety of other provisions that may affect the
operations of FUNC or ABI, including new reporting requirements, regulatory
standards for real estate lending, truth in savings provisions, the requirement
that a depository institution give 90 days' prior notice to customers and
regulatory authorities before closing any branch and a prohibition on the
acceptance or renewal of brokered deposits by depository institutions that are
not well capitalized or are adequately capitalized and have not received a
waiver from the FDIC. Under regulations relating to the brokered deposit
prohibition, all of FUNC's subsidiary banks and American Bank are well
capitalized and not subject to the prohibition.
FDIC INSURANCE ASSESSMENTS
FUNC's subsidiary banks and American Bank are subject to FDIC deposit
insurance assessments. The premiums range from $.23 to $.31 for every $100 of
deposits. Each financial institution will be assigned to one of three capital
groups -- well capitalized, adequately capitalized or undercapitalized -- and
further assigned to one of three subgroups within a capital group, on the
basis of supervisory evaluations by the institution's primary federal and,
if applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable
insurance fund. The
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<PAGE>
actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC. For the assessment
due on January 31, 1994, the rate for each of FUNC's subsidiary banks was $.23,
except for FUNB-VA, FUNB-MD and FUNB-DC, whose rate was $.26.
DEPOSITOR PREFERENCE STATUTE
Legislation has been enacted providing that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the liquidation or other resolution of such an institution by any receiver.
NORTH CAROLINA REGULATION
As a North Carolina-chartered savings bank, American Bank derives its
authority from, and is regulated by, the Administrator. The Administrator has
the right to promulgate rules and regulations necessary for the supervision and
regulation of state savings banks under his jurisdiction and for the protection
of the public investing in such institutions. The regulatory authority of the
Administrator includes, but is not limited to, the establishment of reserve
requirements; the regulation of the payment of dividends; the regulation of
incorporators, stockholders, directors, officers and employees; the
establishment of permitted types of withdrawable accounts and types of contracts
for savings programs, loans and investments; and the regulation of the conduct
and management of savings banks, chartering and branching of institutions,
mergers, conversions and conflicts of interest. North Carolina law requires that
American Bank maintain federal deposit insurance as a condition of doing
business.
The Administrator conducts regular examinations of American Bank as well as
other state-chartered savings institutions in North Carolina. The purpose of
such examinations is to assure that institutions are being operated in
compliance with applicable North Carolina law and regulations and in a safe and
sound manner. In addition, the Administrator is required to conduct an
examination of any institution when he has good reason to believe the standing
and responsibility of the institution is of doubtful character or when he
otherwise deems it prudent. The Administrator is empowered to order the
revocation of the license of an institution if he finds that it has violated or
is in violation of any North Carolina law or regulation and that revocation is
necessary in order to preserve the assets of the institution and protect the
interests of its depositors. The Administrator has the power to issue cease and
desist orders if any person or institution is engaging in, or has engaged in,
any unsafe or unsound practice or unfair or discriminatory practice in the
conduct of its business or in violation of any other law, rule or regulation.
A North Carolina-chartered savings bank must maintain net worth of at least
five percent of total assets and liquidity of at least ten percent of total
assets. Additionally, a North Carolina-chartered savings bank is required to
maintain general valuation allowances and specific loss reserves in the same
amounts as required by the federal regulators.
Subject to limitation by the Administrator, North Carolina-chartered
savings institutions may make any loan or investment or engage in any activity
which is permitted for federally chartered institutions. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or an FHLB; (v) savings accounts of any savings and loan
association as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.
As a result of ABI's ownership of American Bank, ABI is registered as a
savings bank holding company under the laws of North Carolina. Accordingly, ABI
is also subject to regulation and supervision by the Administrator.
THE FHLB
American Bank is a member of the FHLB system. The FHLB provides a central
credit facility for member institutions. As a member of the FHLB of Atlanta,
American Bank is required to own capital stock in the FHLB of Atlanta in an
amount
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<PAGE>
at least equal to the greater of one percent of the aggregate principal
amount of its unpaid residential mortgage loans, home purchase contracts and
similar obligations at the end of each calendar year, or five percent of its
outstanding borrowings from the FHLB of Atlanta. At December 31, l993, American
Bank's investment in FHLB of Atlanta stock in the amount of $1.6 million was in
compliance with this requirement.
LIQUIDITY REQUIREMENTS
Prior to its conversion to a North Carolina-chartered savings bank on April
1, 1992, American Bank was regulated by the OTS in addition to the FDIC and the
Administrator. Upon its conversion to a North Carolina-chartered savings bank,
American Bank ceased to be subject to OTS liquidity requirements and became
subject to the Administrator's requirement that its ratio of liquid assets to
total assets equal at least ten percent. The computation of liquidity under
North Carolina regulation allows the inclusion of mortgage-backed securities and
investments which, in the judgment of the Administrator, have a readily
marketable value, including investments with maturities in excess of five years.
At December 31, 1993, the liquidity ratio of American Bank under the
requirements of the Administrator was 15.6 percent, which exceeded the
applicable requirements.
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DESCRIPTION OF FUNC CAPITAL STOCK
THE DESCRIPTIVE INFORMATION SUPPLIED HEREIN OUTLINES CERTAIN PROVISIONS OF
THE ARTICLES OF INCORPORATION, AS AMENDED (THE ARTICLES), AND BYLAWS OF FUNC AND
THE NCBCA. THE INFORMATION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ALL RESPECTS BY REFERENCE TO THE PROVISIONS OF FUNC'S ARTICLES AND BYLAWS AND
THE NCBCA.
AUTHORIZED CAPITAL
The authorized capital stock of FUNC consists of 750,000,000 shares of FUNC
Common Stock, 10,000,000 shares of Preferred Stock, no-par value per share (FUNC
Preferred Stock), and 40,000,000 shares of FUNC Class A Preferred Stock, no-par
value per share (FUNC Class A Preferred Stock). As of December 31, 1993, there
were 170,337,619 shares of FUNC Common Stock, 6,318,350 shares of Series 1990
Cumulative Perpetual Adjustable Rate Preferred Stock (the FUNC Series 1990
Preferred Stock), constituting a single series of FUNC Preferred Stock, and no
shares of FUNC Class A Preferred Stock issued and outstanding. The FUNC
Preferred Stock and FUNC Class A Preferred Stock are each issuable in one or
more series and, with respect to any series, the Board of Directors of FUNC,
subject to certain limitations, is authorized to fix the numbers of shares,
dividend rates, liquidation prices, liquidation rights of holders, redemption,
conversion and voting rights and other terms of the series. Shares of FUNC Class
A Preferred Stock and FUNC Preferred Stock that are redeemed, repurchased or
otherwise acquired by FUNC have the status of authorized, unissued and
undesignated shares of FUNC Class A Preferred Stock and FUNC Preferred Stock,
respectively, and may be reissued.
FUNC COMMON STOCK
Subject to the prior rights of the holders of any FUNC Preferred Stock and
any FUNC Class A Preferred Stock then outstanding, holders of FUNC Common Stock
are entitled to receive such dividends as may be declared by the Board of
Directors out of funds legally available therefor and, in the event of
liquidation or dissolution, to receive the net assets of FUNC remaining after
payment of all liabilities and after payment to holders of all shares of FUNC
Preferred Stock and FUNC Class A Preferred Stock of the full preferential
amounts to which such holders are respectively entitled, in proportion to their
respective holdings.
See CERTAIN REGULATORY CONSIDERATIONS -- Payment of Dividends for
information relating to certain regulatory restrictions on the payment of
dividends by national banks, including FUNC's subsidiary national banks.
Subject to the rights of the holders of any FUNC Preferred Stock and any
FUNC Class A Preferred Stock then outstanding, all voting rights are vested in
the holders of the shares of FUNC Common Stock, each share being entitled to one
vote on all matters requiring stockholder action and in the election of
directors. Holders of FUNC Common Stock have no preemptive, subscription or
conversion rights. All of the outstanding shares of FUNC Common Stock are fully
paid and nonassessable, and the shares issuable to the stockholders of ABI upon
consummation of the Corporate Merger will, upon issuance, be fully paid and
nonassessable.
FUNC PREFERRED STOCK
All shares of each series of FUNC Preferred Stock must be of equal rank and
have the same powers, preferences and rights and are subject to the same
qualifications, limitations and restrictions, except with respect to dividend
rates, redemption prices, liquidation amounts, terms of conversion or exchange
and voting rights.
FUNC SERIES 1990 PREFERRED STOCK
The following summary of the FUNC Series 1990 Preferred Stock is qualified
in its entirety by reference to the Statement of Classification of Shares of
FUNC relating thereto, a copy of which is incorporated by reference as an
exhibit to the Registration Statement, and to the applicable provisions of the
NCBCA.
The FUNC Series 1990 Preferred Stock, the only series of FUNC Preferred
Stock currently outstanding, is entitled, in the event of involuntary
liquidation, dissolution or winding up of FUNC, to receive a distribution of
$5.00 per share, plus accrued and unpaid dividends (whether or not declared) to
the date of the final distribution (the Preferential Amount), if any, before any
payment or distribution shall be made or set apart for payment on the FUNC
Common Stock or any other class or series of stock ranking junior to the FUNC
Series 1990 Preferred Stock. If FUNC's assets are insufficient to pay the full
Preferential Amount, no distribution may be made to holders of any other series
of FUNC Preferred Stock or any series of stock ranking on a parity with the FUNC
Series 1990 Preferred Stock unless proportionate distributive amounts are paid
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ratably in proportion to the preferential sums that would be payable if all sums
payable in respect of all such stock were discharged in full.
The FUNC Series 1990 Preferred Stock is redeemable, at FUNC's option, at
$51.50 per share on any dividend payment date after January 29, 1995, and after
January 29, 2000, at $50.00 per share, in each case plus accrued and unpaid
dividends to the date fixed for redemption. The FUNC Series 1990 Preferred Stock
is not convertible.
The dividend rate on the FUNC Series 1990 Preferred Stock is calculated on
the basis of a price of $50.00 per share, payable quarterly, and is reset
quarterly at a rate of one percent per annum above the highest of: (i) a
three-month U.S. Treasury bill rate; (ii) a U.S. Treasury ten-year constant
maturity rate; and (iii) a U.S. Treasury 30-year constant maturity rate. In no
event will such rate be less than 6.75 percent per annum or more than 13.75
percent per annum. Dividends on the FUNC Series 1990 Preferred Stock are
cumulative.
The FUNC Series 1990 Preferred Stock has no voting rights except as set
forth below.
If the equivalent of six full quarterly dividends payable on the FUNC
Series 1990 Preferred Stock or any other series of FUNC Preferred Stock are in
arrears, holders of the FUNC Series 1990 Preferred Stock will have the right,
voting together as a single class with the holders of all other series of FUNC
Preferred Stock having like voting rights, to elect two additional directors of
FUNC until all dividends in arrears on the FUNC Series 1990 Preferred Stock and
any such other series of FUNC Preferred Stock have been fully paid or set apart
for payment.
The affirmative vote or consent of the holders of 66 2/3 percent, or in
some cases a majority, of the outstanding shares of the FUNC Series 1990
Preferred Stock and all other series of FUNC Preferred Stock then outstanding
having like voting rights, voting together as a single class, will be necessary
for the approval of certain matters affecting the rights of the series,
including the authorization, creation, establishment or increase in the amount
of shares of any series of stock ranking prior to FUNC Series 1990 Preferred
Stock, or any voluntary liquidation, dissolution or winding up of FUNC; provided
that a consolidation or merger of FUNC with or into any other corporation or
corporations or a sale, lease or other conveyance of all or substantially all of
the assets of FUNC will not be deemed to be a liquidation, dissolution or
winding up of FUNC.
FUNC CLASS A PREFERRED STOCK
Shares of FUNC Class A Preferred Stock rank prior or superior to FUNC
Common Stock and on a parity with or junior to (but not prior or superior to)
FUNC Preferred Stock or any series thereof, in respect of the right to receive
dividends and/or the right to receive payments out of the net assets of FUNC
upon any involuntary or voluntary liquidation, dissolution or winding up of
FUNC. However, shares of FUNC Class A Preferred Stock do not have the right to
vote with shares of FUNC Series 1990 Preferred Stock for purposes of electing
two directors in the event of dividend arrearages, as described under -- FUNC
Preferred Stock above. Subject to the foregoing and the terms of any particular
series of FUNC Class A Preferred Stock, series of FUNC Class A Preferred Stock
may vary as to priority.
RIGHTS PLAN
Each share of FUNC Common Stock has attached to it one right (a FUNC Right)
issued pursuant to a Shareholder Protection Rights Agreement (as amended, the
FUNC Rights Agreement). Each FUNC Right entitles its registered holder to
purchase one one-hundredth of a share of a junior participating series of FUNC
Class A Preferred Stock designed to have economic and voting terms similar to
those of one share of FUNC Common Stock, for $110.00 (the Rights Exercise
Price), subject to adjustment, after the earlier of: (i) the tenth business day
(subject to extension) after commencement of a tender or exchange offer which,
if consummated, would result in a person becoming the beneficial owner of 15
percent or more of the outstanding shares of FUNC Common Stock (an Acquiring
Person); and (ii) the tenth business day after the first date (the Flip-in Date)
of a public announcement that a person has become an Acquiring Person (in either
case, the Separation Time). The FUNC Rights will not trade separately from the
shares of FUNC Common Stock unless and until the Separation Time occurs.
The FUNC Rights will not be exercisable until the business day following
the Separation Time. The FUNC Rights will expire on the earliest of: (i) the
Exchange Time (as defined below); (ii) the close of business on December 28,
2000; and (iii) the date on which the FUNC Rights are redeemed or terminated as
described below (in any such case, the Expiration Time). The Rights Exercise
Price and the number of FUNC Rights outstanding, or in certain circumstances the
securities purchasable upon exercise of the FUNC Rights, are subject to
adjustment upon the occurrence of certain events.
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In the event that prior to the Expiration Time a Flip-in Date occurs, FUNC
will take such action as shall be necessary to ensure and provide that each FUNC
Right (other than FUNC Rights beneficially owned by an Acquiring Person or any
affiliate, associate or transferee thereof, which FUNC Rights shall become void)
shall constitute the right to purchase, from FUNC, shares of FUNC Common Stock
having an aggregate market price equal to twice the Rights Exercise Price for an
amount in cash equal to the then current Rights Exercise Price. In addition, the
Board of Directors of FUNC may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the beneficial owner of
more than 50 percent of the outstanding shares of FUNC Common Stock, elect to
exchange all of the then outstanding FUNC Rights for shares of FUNC Common
Stock, at an exchange ratio of two shares of FUNC Common Stock per FUNC Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the Separation Time (the Rights Exchange Rate).
Immediately upon such action by the Board of Directors (the Exchange Time), the
right to exercise the FUNC Rights will terminate and each FUNC Right will
thereafter represent only the right to receive a number of shares of FUNC Common
Stock equal to the Rights Exchange Rate. If FUNC becomes obligated to issue
shares of FUNC Common Stock upon exercise of or in exchange for FUNC Rights,
FUNC, at its option, may substitute therefor shares of junior participating FUNC
Class A Preferred Stock upon exercise of each FUNC Right at a rate of two
one-hundredths of a share of junior participating FUNC Class A Preferred Stock
upon the exchange of each FUNC Right.
The FUNC Rights are redeemable by FUNC at $0.01 per right, subject to
adjustment upon the occurrence of certain events, at any date prior to the date
on which they become exercisable and, in certain events, may be canceled and
terminated without any payment to the holders thereof. The FUNC Rights have no
voting rights and are not entitled to dividends.
The FUNC Rights will not prevent a takeover of FUNC. The FUNC Rights,
however, may cause substantial dilution to a person or group that acquires 15
percent or more of FUNC Common Stock unless the FUNC Rights are first redeemed
or terminated by the Board of Directors of FUNC. Nevertheless, the FUNC Rights
should not interfere with a transaction that is in the best interests of FUNC
and its stockholders because the FUNC Rights can be redeemed or terminated, as
hereinabove described, before the consummation of such transaction.
The complete terms of the FUNC Rights are set forth in the FUNC Rights
Agreement. The FUNC Rights Agreement is incorporated by reference as an exhibit
to the Registration Statement. A copy of the FUNC Rights Agreement can be
obtained upon written request to the Rights Agent, First Union National Bank of
North Carolina, Two First Union Center, Charlotte, North Carolina 28288-1154.
OTHER PROVISIONS
The Articles and Bylaws of FUNC contain a number of provisions which may be
deemed to have the effect of discouraging or delaying attempts to gain control
of FUNC, including provisions in the Articles: (i) classifying the Board of
Directors into three classes with each class to serve for three years with one
class being elected annually; (ii) authorizing the Board of Directors to fix the
size of the Board of Directors between nine and 30 directors; (iii) authorizing
directors to fill vacancies on the Board of Directors that occur between annual
meetings, except that vacancies resulting from a removal of a director by a
stockholder vote may only be filled by a stockholder vote; (iv) providing that
directors may be removed only for cause and only by affirmative vote of the
majority of stockholders entitled to vote in the election of directors, voting
as a single class; (v) authorizing only the Board of Directors, the Chairman of
the Board or the President to call a special meeting of stockholders (except for
special meetings called under specified circumstances for holders of classes or
series of stock ranking superior to the FUNC Common Stock); and (vi) requiring
an 80 percent vote of stockholders entitled to vote in the election of
directors, voting as a single class, to alter any of the foregoing provisions.
The Bylaws include provisions setting forth specific conditions under
which: (i) business may be transacted at an annual meeting of stockholders; and
(ii) persons may be nominated for election as directors of FUNC at an annual
meeting of stockholders.
Two North Carolina anti-takeover statutes adopted in 1990, The North
Carolina Shareholder Protection Act and The North Carolina Control Share
Acquisition Act, allowed North Carolina corporations to elect to either be
covered or not be covered by such statutes. FUNC elected not to be covered by
such statutes.
In addition to the foregoing, in certain instances the issuance of
authorized but unissued shares of FUNC Common Stock, FUNC Class A Preferred
Stock or FUNC Preferred Stock may have an anti-takeover effect.
See CERTAIN DIFFERENCES IN THE RIGHTS OF ABI AND FUNC STOCKHOLDERS.
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CERTAIN DIFFERENCES IN THE RIGHTS OF ABI AND FUNC STOCKHOLDERS
GENERAL
Each of ABI and FUNC is a North Carolina corporation subject to the
provisions of the NCBCA. Stockholders of ABI will, upon consummation of the
Corporate Merger, become stockholders of FUNC. The rights of such stockholders
as stockholders of FUNC will then be governed by the Articles and Bylaws of
FUNC, in addition to the NCBCA.
Except as set forth below, there are no material differences between the
rights of an ABI stockholder under ABI's Articles and Bylaws, on the one hand,
and the rights of an FUNC stockholder under the Articles and Bylaws of FUNC, on
the other hand. The following summary does not reflect any rules of the NYSE
that may apply to FUNC in connection with the matters discussed. THIS SUMMARY
DOES NOT PURPORT TO BE A COMPLETE DISCUSSION OF, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO, THE NCBCA AND THE ARTICLES OF INCORPORATION AND BYLAWS
OF EACH CORPORATION.
AUTHORIZED CAPITAL
ABI. ABI's Articles of Incorporation authorize the issuance of up to
25,000,000 shares of ABI Common Stock, par value $1.00 per share, of which
2,299,854 shares were issued and outstanding as of the Record Date, and up to
5,000,000 shares of preferred stock, par value $1.00 per share. ABI preferred
stock is issuable in series, each having such rights and preferences as the ABI
Board may fix and determine. As of the Record Date, there were issued and
outstanding 988 shares of ABI's Series A Convertible Preferred Stock (referred
to in this Prospectus/Proxy Statement as the ABI Preferred Stock), the only
series of ABI preferred stock issued and outstanding. Holders of ABI Preferred
Stock have no voting rights except as provided by the NCBCA. Holders of ABI
Preferred Stock are entitled to receive quarterly, noncumulative dividends
thereon at an annual rate of $95.00 per share. Upon the dissolution, liquidation
or insolvency of ABI, or sale of all of its assets, holders of ABI Preferred
Stock are entitled to receive an amount equal to their purchase price of each
share thereof prior to any distribution of ABI assets to holders of ABI Common
Stock. Shares of ABI Preferred Stock are convertible at any time into shares of
ABI Common Stock at a price equal to the sum of (i) $5.87, and (ii) one-half of
the increase, if any, in the per share book value of ABI Common Stock between
$5.87 and the per share book value of ABI Common Stock at the month-end
preceding the date of conversion, calculated in accordance with generally
accepted accounting principles.
FUNC. FUNC's authorized capital is set forth under DESCRIPTION OF FUNC
CAPITAL STOCK -- Authorized Capital.
AMENDMENT OF ARTICLES OF INCORPORATION OR BYLAWS
ABI. An amendment of the Articles of Incorporation or Bylaws of ABI is
subject to the same general provisions of North Carolina law as an amendment of
FUNC's Articles or Bylaws. In addition, any such amendment must be submitted to
the Administrator for approval prior to becoming effective.
FUNC. Under North Carolina law, an amendment to the Articles of FUNC
generally requires the recommendation of the Board of Directors of FUNC and the
approval of either a majority of all shares entitled to vote thereon or a
majority of the votes cast thereon, depending on the nature of the amendment. In
accordance with North Carolina law, the Board of Directors of FUNC may condition
its submission of the proposed amendment on any basis. An amendment to the
Bylaws of FUNC generally requires the approval of either the stockholders or the
Board of Directors of FUNC. The Board of Directors of FUNC generally may not
amend any Bylaw approved by the stockholders. Under certain circumstances, the
approval of the holders of at least two-thirds, or in some cases a majority, of
the outstanding shares of any series of FUNC Preferred Stock or FUNC Class A
Preferred Stock may be required to amend the FUNC Articles. In addition, certain
amendments to the Articles or Bylaws require the approval of not less than 80
percent of the outstanding shares of FUNC entitled to vote in the election of
directors, voting together as a single class. See DESCRIPTION OF FUNC CAPITAL
STOCK.
SIZE AND CLASSIFICATION OF BOARD OF DIRECTORS
ABI. The Articles of Incorporation of ABI provide for a nine member Board
of Directors to be elected at the annual meeting of stockholders. Those
individuals who receive the highest number of votes are elected. The
stockholders or the ABI Board from time to time may change the number of
directors by amending the Bylaws of ABI, but the ABI Board may not increase or
decrease the number of directors by more than 30 percent during any twelve-month
period. ABI currently has nine directors, all of whom were elected at the
substitute annual stockholders meeting held on June 10, 1993.
FUNC. The size of the Board of Directors of FUNC is determined by the
affirmative vote of a majority of the Board of Directors of FUNC, provided that
the FUNC Board of Directors may not set the number of directors at less than
nine nor more than 30, and provided further that no decrease in the number of
directors may shorten the term of any director then in
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office. The number of directors of FUNC is currently set at 26. For purposes of
the election of directors of FUNC at the Annual Meeting of Stockholders to be
held on April 19, 1994, the number of directors has been set at 25. The FUNC
Board of Directors is divided into three classes, each as nearly as possible
equal in number as the others, with one class being elected annually. See also
DESCRIPTION OF FUNC CAPITAL STOCK.
REMOVAL OF DIRECTORS
ABI. A director of ABI may be removed from office at any time with or
without cause by a vote of the stockholders whenever the number of votes cast in
favor of removal of the director exceeds the number of votes cast against such
removal. A director may not be removed by the stockholders at a meeting unless
the notice of the meeting states that the purpose, or one of the purposes, of
the meeting is removal of the director. If any directors are so removed, new
directors may be elected at the same meeting.
FUNC. Directors of FUNC may be removed only for cause and only by a vote of
the holders of a majority of the shares then entitled to vote in the election of
directors, voting together as a single class.
STOCKHOLDER MEETINGS
ABI. Special meetings of ABI's stockholders may be called at any time by
its President, Secretary, or the ABI Board and must be called by any of the
foregoing pursuant to the written request of the holders of not less than
one-tenth of all votes entitled to be cast on any issue proposed to be
considered at the special meeting. Stockholders entitled to vote as a separate
voting group may take action on a matter at a meeting of stockholders only if a
quorum of shares is present at the meeting. A majority of the votes entitled to
be cast on the matter by the voting group shall constitute a quorum of that
voting group for action on that matter. Action on a matter by a voting group is
approved if the votes cast within the voting group favoring the action exceed
the votes cast opposing the action, unless a greater vote is required by the
NCBCA. North Carolina law provides that such quorum and voting requirements may
be increased only with the approval of the stockholders of ABI.
FUNC. A special meeting of stockholders may be called for any purpose only
by the Board of Directors of FUNC, by the Chairman of FUNC's Board of Directors
or by FUNC's President (except for special meetings called under specified
circumstances for holders of any class or series of stock having a preference
over the FUNC Common Stock as to dividends or upon liquidation). A quorum for a
meeting of the stockholders of FUNC is a majority of the outstanding shares of
FUNC entitled to vote. Except as provided in FUNC's Articles or the NCBCA, a
majority of the votes cast is generally required for any action by the
stockholders of FUNC. North Carolina law provides that such quorum and voting
requirements may be increased only with the approval of the stockholders of
FUNC.
DIRECTOR NOMINATIONS
ABI. Neither ABI's Articles nor Bylaws establish any procedures that must
be followed for stockholders to nominate individuals for election to the ABI
Board.
FUNC. FUNC's Bylaws establish procedures that must be followed for
stockholders to nominate persons for election to FUNC's Board of Directors. Such
nominations must be made by delivering written notice to the Secretary of FUNC
not less than 60 or more than 90 days prior to the annual meeting at which
directors will be elected; provided, however, that if less than 70 days' notice
of the date of the meeting is given, such written notice by the stockholder must
be so delivered not later than the tenth day after the day on which such notice
of the date of the meeting was given. Notice will be deemed to have been given
more than 70 days prior to the meeting if the meeting is called on the third
Tuesday of April regardless as to when public disclosure is made. The nomination
notice must set forth certain information about the person to be nominated
similar to that required to be disclosed in the solicitation of proxies for
election of directors pursuant to Items 7(a) and 7(b) of Regulation 14A under
the Exchange Act, and such person's written consent to being nominated and to
serving as a director if elected. The nomination notice must also set forth
certain information about the person submitting the notice, including the name
and address of the stockholder and the class and number of shares of FUNC Common
Stock owned of record or beneficially by such stockholder. The Chairman of the
meeting will, if the facts warrant, determine that a nomination was not made in
accordance with the provisions prescribed by the Bylaws and the defective
nomination will be disregarded. The foregoing procedures do not apply to any
director who is nominated under specified circumstances by holders of any class
or series of stock having a preference over FUNC Common Stock as to dividends or
upon liquidation.
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STOCKHOLDER PROPOSALS
ABI. Neither ABI's Articles nor Bylaws contain requirements that must be
followed for a stockholder to submit a proposal to a vote of the stockholders of
ABI.
FUNC. FUNC's Bylaws establish procedures that must be followed for a
stockholder to submit a proposal to a vote of the stockholders of FUNC at an
annual meeting of stockholders. Such proposal must be made by the stockholder
delivering written notice to the Secretary of FUNC not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that if less than 70
days' notice of the date of the meeting is given, such written notice by the
stockholder must be so delivered not later than the tenth day after the day on
which such notice of the date of the meeting was given. Notice will be deemed to
have been given more than 70 days prior to the meeting if the meeting is called
on the third Tuesday of April. The stockholder proposal notice must set forth:
(i) a brief description of the proposal and the reasons for its submission; (ii)
the name and address of the stockholder, as they appear on FUNC's books; (iii)
the classes and number of shares of FUNC owned by the stockholder; and (iv) any
material interest of the stockholder in such proposal other than such holder's
interest as a stockholder of FUNC. The Chairman of the meeting will, if the
facts warrant, determine that any proposal was not properly submitted in
accordance with the provisions prescribed by the Bylaws and the defective
proposal will not be submitted to the meeting for a vote of the stockholders.
With respect to a plan of merger (such as the Plan of Merger), no vote of
the stockholders of FUNC would be required if FUNC were the surviving
corporation and: (i) FUNC's Articles would remain unchanged after the merger,
subject to certain exceptions; (ii) each stockholder of FUNC immediately before
the merger would hold an identical number of shares, with identical
designations, limitations, preferences and relative rights, after the merger;
(iii) the number of shares of FUNC stock entitled to vote unconditionally in the
election of directors to be issued in the merger (either by conversion of
securities issued in the merger or by the exercise of rights and warrants issued
in the merger) would not exceed 20 percent of the shares of FUNC stock entitled
to vote unconditionally in the election of directors outstanding immediately
before the merger; and (iv) the number of shares of FUNC stock entitling holders
to participate without limitation in distributions to be issued in the merger
(either by conversion of securities issued in the merger or by the exercise of
rights and warrants issued in the merger) would not exceed 20 percent of the
shares of FUNC stock entitling holders to participate without limitation in
distributions outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of all or
substantially all the assets of FUNC made upon the authority of the Board of
Directors, no vote of the stockholders of FUNC would be required if such
disposition were made in the usual and regular course of business or if such
disposition were made to a wholly-owned subsidiary of FUNC.
STOCKHOLDER PROTECTION RIGHTS PLAN
ABI. Neither ABI's Articles nor Bylaws contain provisions that would
generally be construed to constitute stockholder protection measures.
FUNC. FUNC has adopted the FUNC Rights Agreement. See DESCRIPTION OF FUNC
CAPITAL STOCK -- Rights Plan.
RESALE OF FUNC COMMON SHARES
The FUNC Common Shares have been registered under the Securities Act,
thereby allowing such shares to be traded freely and without restriction by
those holders of ABI Common Stock or ABI Preferred Stock who receive such shares
following consummation of the Corporate Merger and who are not deemed to be
affiliates (as defined under the Securities Act, but generally including
directors, certain executive officers and ten percent or more stockholders) of
ABI or FUNC. Each holder of ABI Common Stock or ABI Preferred Stock who is
deemed by ABI to be an affiliate will enter into an agreement with FUNC prior to
the Effective Date providing, among other things, that such affiliate will not
transfer any FUNC Common Shares received by such holder in the Corporate Merger
except in compliance with the Securities Act and will not sell or otherwise
transfer such shares until financial results of FUNC and its subsidiaries
(including ABI) for at least 30 days of combined operations are published. This
Prospectus/Proxy Statement does not cover any resales of FUNC Common Shares
received by affiliates of ABI.
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ADDITIONAL MATTERS
From time to time FUNB-NC and its affiliates have entered into transactions
with certain of the directors of ABI or their affiliates in the ordinary course
of business, including, without limitation, certain of the ABI directors or
their affiliates maintaining deposit accounts with FUNB-NC.
OPINIONS
The validity of the FUNC Common Shares being offered hereby is being passed
upon for FUNC by Marion A. Cowell, Jr., Esq., Executive Vice President,
Secretary and General Counsel of FUNC. Mr. Cowell is also a stockholder of FUNC
and holds options to purchase additional shares of FUNC Common Stock.
Sullivan & Cromwell, special counsel for FUNC, has delivered an opinion
concerning certain federal income tax consequences of the Corporate Merger. See
THE MERGERS -- Certain Federal Income Tax Consequences. Sullivan & Cromwell
regularly performs legal services for FUNC and its subsidiaries. Members of
Sullivan & Cromwell performing these legal services own shares of FUNC's Common
Stock.
Certain legal matters associated with the Mergers will be passed upon for
ABI by Ward and Smith, P.A., counsel for ABI.
ABI has relied upon an opinion prepared by Meritas as to the fairness of
the Common Stock Exchange Ratio to the ABI stockholders from a financial point
of view. Meritas has consented to the inclusion herein of a summary of its
opinion and the attachment of the Opinion hereto as ANNEX C.
EXPERTS
The consolidated balance sheets of ABI as of December 31, 1993 and 1992 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1993,
have been included herein as ANNEX A in reliance on the report of Dixon, Odom &
Co., L.L.P., independent certified public accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated balance sheets of FUNC as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1993, included in FUNC's 1993 Annual Report to Stockholders which
is incorporated by reference in FUNC's 1993 Annual Report on Form 10-K and
incorporated by reference, have been incorporated herein in reliance upon the
report of KPMG Peat Marwick, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
OTHER MATTERS
As of the date of this Prospectus/Proxy Statement, the ABI Board knows of
no matters which will be presented for consideration at the Special Meeting
other than as set forth in the Notice of Special Meeting accompanying this
Prospectus/Proxy Statement. However, if any other matters shall come before the
meeting or any adjournment or adjournments thereof and be voted upon, the
enclosed proxy shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
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ANNEX A
INDEX TO FINANCIAL STATEMENTS
<TABLE>
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PAGE
<S> <C>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
Financial Report..................................................................................................... A-2
Independent Auditors' Report......................................................................................... A-3
Consolidated Balance Sheets as of December 31, 1993 and 1992......................................................... A-4
Consolidated Statements of Income for the Three Years Ended December 31, 1993........................................ A-5
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 1993.......................... A-6
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1993.................................... A-7
Notes to Consolidated Financial Statements........................................................................... A-9
</TABLE>
A-1
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AMERICAN BANCSHARES, INC.
FINANCIAL REPORT
The financial statements and related information herein were prepared by
the Company and were based on generally accepted accounting principles
appropriate in the circumstances to reflect in all material respects the
financial condition of the Company at December 31, 1993 and 1992 and the results
of operations and cash flows for each of the years in the three year period
ended December 31, 1993. The financial statements reflect management's best
estimates and judgments. Financial information presented elsewhere in this
report has been prepared in a manner consistent with financial statement
disclosures.
Management is responsible for the reliability and integrity of these
financial statements. In meeting this responsibility, management maintains an
accounting system and related controls to provide reasonable assurance that the
financial records are reliable for preparing financial statements and
maintaining accountability for assets. The Company's systems and controls are
also designed to provide reasonable assurance that assets are safeguarded and
that transactions are executed in accordance with management's authorizations
and recorded properly. The systems and controls and compliance therewith are
reviewed periodically by internal auditors.
The Board of Directors has appointed an Audit Committee composed of
directors who are not officers or employees of the Company. The Committee meets
periodically with management, internal auditors and independent public
accountants.
Dixon, Odom & Co., L.L.P., independent certified public accountants, has
audited the financial statements in accordance with generally accepted auditing
standards and their report appears herein.
A-2
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
American Bancshares, Inc.
Monroe, North Carolina
We have audited the accompanying consolidated balance sheets of American
Bancshares, Inc. and subsidiaries as of December 31, 1993 and 1992 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Bancshares, Inc. and subsidiaries at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
High Point, North Carolina
February 11, 1994
A-3
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AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
Cash and due from depository institutions.................................................... $ 7,613,503 $ 6,999,131
Interest-bearing bank balances............................................................... 6,114,378 26,475,905
Investment securities (market value of $22,995,000 and $2,346,400 at December 31, 1993 and
1992, respectively)........................................................................ 22,963,163 2,340,890
Stock in Federal Home Loan Bank of Atlanta, at cost.......................................... 1,626,600 1,519,300
Loans and leases, net........................................................................ 184,238,736 194,844,069
Premises and equipment, net.................................................................. 7,513,681 7,662,468
Other assets................................................................................. 5,332,934 5,926,185
$235,402,995 $245,767,948
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest-bearing........................................................................... $194,417,863 $203,914,351
Other...................................................................................... 15,970,036 14,400,055
Total deposits.......................................................................... 210,387,899 218,314,406
Long-term debt............................................................................... 7,425,271 9,328,272
Other liabilities............................................................................ 1,346,284 2,150,896
TOTAL LIABILITIES..................................................................... 219,159,454 229,793,574
Commitments and contingent liabilities (Notes E and J)
Stockholders' equity
Convertible preferred stock, $95 noncumulative annual dividend, $1 par value, 5,000,000
shares authorized, 988 shares issued and outstanding, aggregate liquidation preference
of $988,000............................................................................. 988 988
Common stock, $1 par value, 25,000,000 shares authorized, 2,299,854 and 2,329,854 shares
issued and outstanding at December 31, 1993 and 1992, respectively...................... 2,299,854 2,329,854
Additional paid-in capital................................................................. 6,073,956 6,073,956
Retained earnings -- substantially restricted.............................................. 7,868,743 7,569,576
16,243,541 15,974,374
$235,402,995 $245,767,948
</TABLE>
See accompanying notes.
A-4
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases......................................... $17,417,376 $19,204,642 $21,171,946
Interest and dividends on investments......................................... 1,115,181 712,464 134,847
Other interest income......................................................... 169,671 406,303 567,387
TOTAL INTEREST INCOME.................................................... 18,702,228 20,323,409 21,874,180
INTEREST EXPENSE
Interest on deposit accounts.................................................. 9,913,605 11,946,965 14,281,457
Interest on borrowings........................................................ 684,779 947,447 1,544,326
TOTAL INTEREST EXPENSE................................................... 10,598,384 12,894,412 15,825,783
NET INTEREST INCOME...................................................... 8,103,844 7,428,997 6,048,397
PROVISION FOR LOAN AND LEASE LOSSES............................................. 2,208,314 1,102,025 530,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............ 5,895,530 6,326,972 5,518,397
NON-INTEREST INCOME
Service charges on deposit accounts........................................... 664,111 486,372 372,505
Gain on sale of investment securities......................................... 696,097 653,434 --
Other income.................................................................. 460,024 655,153 360,233
TOTAL NON-INTEREST INCOME................................................ 1,820,232 1,794,959 732,738
NON-INTEREST EXPENSES
Personnel expense............................................................. 3,195,465 2,805,392 1,958,800
Occupancy expense............................................................. 1,230,168 922,377 695,342
Federal deposit insurance premiums............................................ 543,684 482,136 437,593
Other expenses................................................................ 1,677,006 1,732,531 1,479,623
TOTAL NON-INTEREST EXPENSES.............................................. 6,646,323 5,942,436 4,571,358
INCOME BEFORE INCOME TAXES............................................... 1,069,439 2,179,495 1,679,777
PROVISION FOR INCOME TAXES...................................................... 318,927 921,000 767,000
NET INCOME............................................................... $ 750,512 $ 1,258,495 $ 912,777
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE............................... $ .28 $ .50 $ .39
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING................ 2,310,539 2,329,854 2,341,202
</TABLE>
See accompanying notes.
A-5
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
NUMBER NUMBER PAID-IN RETAINED STOCKHOLDERS'
OF SHARES ISSUED SUBSCRIBED OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1990.......... -- $ -- $ -- 2,326,854 $2,326,854 $5,084,887 $5,615,083 $ 13,026,824
Net income for 1991........ -- -- -- -- -- -- 912,777 912,777
Sale of 3,000 shares of
common stock............ -- -- -- 3,000 3,000 18,000 -- 21,000
Subscriptions for preferred
stock................... 920 -- 920 -- -- 903,137 -- 904,057
Cash dividends of $.05 per
common share declared... -- -- -- -- -- -- (116,493) (116,493)
BALANCE,
DECEMBER 31, 1991.......... 920 -- 920 2,329,854 2,329,854 6,006,024 6,411,367 14,748,165
Net income for 1992........ -- -- -- -- -- -- 1,258,495 1,258,495
Cash dividends on preferred
stock................... -- -- -- -- -- -- (100,286) (100,286)
Issuance of 988 shares of
preferred stock......... 68 988 (920) -- -- 67,932 -- 68,000
BALANCE,
DECEMBER 31, 1992.......... 988 988 -- 2,329,854 2,329,854 6,073,956 7,569,576 15,974,374
Net income for 1993........ -- -- -- -- -- -- 750,512 750,512
Cash dividends on preferred
stock................... -- -- -- -- -- -- (93,860) (93,860)
Cash dividends of $.10 per
common share............ -- -- -- -- -- -- (231,485) (231,485)
Shares redeemed for cash... -- -- -- (30,000) (30,000) -- (126,000) (156,000)
BALANCE,
DECEMBER 31, 1993.......... 988 $988 $ -- 2,299,854 $2,299,854 $6,073,956 $7,868,743 $ 16,243,541
</TABLE>
See accompanying notes.
A-6
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 750,512 $ 1,258,495 $ 912,777
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan and lease losses.................................... 2,208,314 1,102,025 530,000
Depreciation and amortization.......................................... 1,147,771 417,807 455,543
Deferred income taxes.................................................. (499,463) 19,000 242,307
Gain on sale of investments............................................ (696,097) (653,434) --
(Gain) loss on sale of office properties and equipment................. 5,441 (112,354) --
Loss on sale of foreclosed real estate................................. 86,074 -- --
Stock dividends from Federal Home Loan Bank............................ (107,300) (97,300) (103,400)
(Increase) decrease in other assets.................................... 92,469 228,231 (38,687)
Increase (decrease) in other liabilities............................... (305,149) 60,136 (146,148)
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... 2,682,572 2,222,606 1,852,392
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments..................................... 2,121,594 75,662 35,209
Proceeds from sales of investments.......................................... 62,988,185 39,682,412 --
Purchases of investments.................................................... (85,567,334) (41,124,876) --
Net (increase) decrease in loans and leases................................. 7,492,605 63,377 (843,393)
Proceeds from sales of office properties and equipment...................... 28,900 501,736 --
Purchases of office properties and equipment................................ (473,158) (660,108) (721,310)
Proceeds from sales of assets acquired in settlement of loans............... 1,323,334 2,191,740 1,035,594
Purchase of single premium life insurance policies.......................... -- (1,017,942) --
Costs capitalized in connection with real estate acquired in settlement of
loans.................................................................... (33,000) -- (34,967)
NET CASH USED BY INVESTING ACTIVITIES......................................... (12,118,874) (287,999) (528,867)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand accounts............................................. 5,482,609 44,824,524 24,850,959
Net decrease in certificate accounts........................................ (13,409,116) (13,415,763) (34,704,085)
Proceeds from borrowings.................................................... 20,000,000 1,250,000 15,500,000
Repayment of borrowings..................................................... (21,903,001) (14,835,290) (4,004,470)
Proceeds from sale of capital stock......................................... -- 68,000 925,057
Redemption of common stock.................................................. (156,000) -- --
Payment of cash dividends................................................... (325,345) (216,779) --
Settlement of liability assumed in connection with foreclosure of real
estate................................................................... -- -- (500,000)
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES..................................................... (10,310,853) 17,674,692 2,067,461
</TABLE>
See accompanying notes.
A-7
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... $(19,747,155) $19,609,299 $ 3,390,986
CASH AND CASH EQUIVALENTS, BEGINNING........................................... 33,475,036 13,865,737 10,474,751
CASH AND CASH EQUIVALENTS, ENDING.............................................. $ 13,727,881 $33,475,036 $13,865,737
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................................. $ 10,762,253 $13,027,305 $16,087,881
Income taxes.............................................................. 1,038,168 604,477 228,935
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Real estate acquired through foreclosure or deed in lieu thereof............. $ 875,626 $ 2,006,321 $ 1,072,755
Cash dividends declared, to be paid in following year........................ $ -- $ -- $ 116,493
Office properties and equipment received in exchange for assumption of
deposits in branch acquisition............................................ $ -- $ 2,378,423 $ --
Capital lease obligations incurred for the acquisition of office properties
and equipment............................................................. $ -- $ 965,229 $ --
</TABLE>
See accompanying notes.
A-8
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
American Bancshares, Inc. (the Company) is a North Carolina corporation
organized by American Commercial Savings Bank, Inc., SSB (American Commercial or
the Bank) in January 1991 to become the parent holding company of American
Commercial. The Company conducted no business until September 14, 1992 on which
date the holding company reorganization of American Commercial was effected. To
date, the activities of American Bancshares, Inc. have consisted solely of
owning American Commercial. American Commercial is a North Carolina-chartered
stock savings bank headquartered in Monroe, North Carolina. American
Commercial's main office and two branch offices are located in Monroe, Union
County, North Carolina, one branch office is located in Marshville, Union
County, North Carolina, and seven branch offices are located in Mecklenburg
County, North Carolina. American Commercial's business is conducted primarily in
Union and Mecklenburg Counties. American Commercial has two wholly-owned
subsidiaries, Leasing Consultants of Charlotte, Inc. (Leasing Consultants) and
Windsor Corporation of Monroe (Windsor).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, American Commercial, Leasing Consultants and
Windsor. All significant intercompany transactions and account balances have
been eliminated in consolidation.
Certain amounts in the 1992 and 1991 financial statements have been
reclassified to conform to the 1993 presentation. Such reclassifications had no
effect on net income or total assets as previously reported.
SECURITIES
Investment securities, for which the Company has both the intent and
ability to hold to maturity, are stated at cost, adjusted for amortization of
premiums and accretion of discounts, which are recognized as adjustments to
interest income. Other investment securities are stated at the lower of
aggregate cost or market. Cost of securities sold is determined on the basis of
specific identification.
LOANS AND LEASES
Loan interest is credited to income based upon the principal amount
outstanding. The net amount of non-refundable loan origination fees and costs
associated with the lending process are deferred and amortized to interest
income over the lives of the loans using a method which approximates the level
yield method. Interest accrual on loans is generally stopped if principal or
interest payments become ninety days past due or if management considers the
collectibility of interest to be in question.
Lease receivables consist primarily of direct financing leases on vehicles
and equipment. Lease receivables are stated at the total amount of lease
payments receivable plus guaranteed residual values, less unearned income.
Recognition of income over the lives of the lease contracts approximates the
level-yield method.
ALLOWANCE FOR LOSSES
The provision for loan and lease losses charged to operating expenses is
the estimated amount required to maintain the allowance for losses at a level
adequate to cover losses related to loans and leases currently outstanding. The
primary factors considered in determining the allowance are the distribution of
loans by risk class, the amount of the allowance specifically allocated to
nonperforming loans and other problem loans, prior years' loss experience,
economic conditions in the Company's subsidiaries' market areas and the growth
of the credit portfolio. Ultimate losses may vary from original estimates and
adjustments, as necessary, are made in the period in which these factors and
other relevant considerations indicate that loss levels may vary from those
previously estimated.
A-9
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- Continued
OTHER REAL ESTATE
Other real estate, which is included in other assets on the accompanying
balance sheets, consists of foreclosed properties, properties acquired by deed
in lieu of foreclosure and, when applicable, loans in which conditions indicate
that substantive repossession of the property has occurred. Such properties are
valued at the lower of the recorded investment in the loan or fair value. The
recorded investment is the sum of the outstanding loan principal balance, any
accrued interest which has not been received, and acquisition costs associated
with the loan. Any excess of the recorded investment over the fair value of the
property received is charged to the allowance for losses. Any subsequent
write-downs are charged to other non-interest expenses. Revenues and expenses
associated with operating or disposing of foreclosed properties are included in
the statement of income for the period in which they are incurred.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are carried at cost less accumulated
depreciation. Depreciation, including amortization of capitalized equipment
leases, is provided over the estimated useful lives of the related assets
principally on the straight-line method. Expenditures which materially increase
property lives are capitalized. The cost and accumulated depreciation applicable
to assets retired or otherwise disposed of are eliminated from the related
accounts and any gain or loss on disposition is reflected in income.
INCOME TAXES
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES (SFAS No. 109). Under SFAS No.
109, deferred income taxes or benefits are provided on temporary differences
between the financial statement carrying values and the tax bases of assets and
liabilities. The cumulative effect of this change in accounting principle is not
significant and is included in determining net income for 1993. Financial
statements for prior years have not been restated. Prior to 1993, the provision
for income taxes was based on income and expenses included in the consolidated
statements of income, with differences between taxes so computed and taxes
payable under applicable statutes and regulations classified as deferred taxes
arising from timing differences.
PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering all
employees who meet the eligibility requirements. To be eligible, an employee
must be twenty-one years of age and have completed six months of continuous
service. The plan provides benefits based on years of service and highest five
of the employee's last ten years' annual earnings. The Company's policy is to
fund amounts deductible for federal income tax purposes.
INTANGIBLES
The excess of the cost over the fair value of the net assets acquired in
the 1986 acquisition of Leasing Consultants of Charlotte, Inc. is being
amortized, using the straight-line method, over twenty-five years. The
unamortized balances of $683,157 and $722,129 at December 31, 1993 and 1992,
respectively, are included in other assets.
PER SHARE DATA
Net income per common and common equivalent share has been computed based
on the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares consist of common stock options and
convertible preferred stock.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash, overnight interest-bearing deposits and interest-bearing time deposits
with initial maturities of three months or less.
A-10
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- Continued
ACCOUNTING CHANGES PENDING IMPLEMENTATION
Statement of Financial Accounting Standards No. 114, ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN (SFAS No. 114), was issued in May 1993. This
Statement will require that impaired loans that are within the scope of this
Statement be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. The impact of this new standard has not been fully
determined, but in the opinion of management the change will not have a
significant impact on the Company's financial position or results of operations.
This Statement is required to be implemented for fiscal years beginning after
December 15, 1994.
Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS No. 115), was issued in May
1993. This Statement addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. SFAS No. 115 expands the required use of fair
value accounting for investments in debt and equity securities, and allows debt
securities to be classified as held to maturity and reported in financial
statements at amortized cost only if the reporting entity has the positive
intent and ability to hold those securities to maturity. This is in contrast to
the current rule that allows the use of amortized cost accounting where there is
the intent and ability to hold securities for the foreseeable future.
Furthermore, SFAS No. 115 makes clear that securities that might be sold in
response to changes in market interest rates, changes in the security's
prepayment risk, increases in loan demand, or other similar factors cannot be
classified as held to maturity. Debt and equity securities held for current
resale are classified as trading securities. Such securities are reported at
fair value, and unrealized gains and losses on such securities will be included
in earnings. Debt and equity securities not classified as either held to
maturity or trading securities are classified as securities available for sale.
Such securities are reported at fair value, and unrealized gains and losses on
such securities are excluded from earnings and reported as a net amount in a
separate component of stockholders' equity. In the opinion of management this
change will not have a significant impact on the Company's financial position or
results of operations. This Statement is effective for fiscal years beginning
after December 15, 1993.
NOTE B -- SECURITIES
The carrying amounts and approximate market values of securities at
December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
United States Treasury............................................. $ -- $ -- $2,000,000 $2,005,400
FNMA Bonds......................................................... 22,743,867 22,775,000 --
Mortgage-backed securities......................................... 219,296 220,000 340,890 341,000
Totals...................................................... $22,963,163 $22,995,000 $2,340,890 $2,346,400
</TABLE>
The gross unrealized gains and losses by major category at December 31 are
as follows:
<TABLE>
<CAPTION>
1993 1992
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
<S> <C> <C> <C> <C>
United States Treasury....................................................... $ -- $ -- $5,400 $ --
FNMA Bonds................................................................... 31,133 -- -- --
Mortgage-backed securities................................................... 704 -- 110 --
Totals................................................................ $ 31,837 $ -- $5,510 $ --
</TABLE>
A-11
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE B -- SECURITIES -- Continued
The carrying amounts and approximate market values of securities at
December 31, 1993, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
CARRYING MARKET
AMOUNT VALUE
<S> <C> <C>
Due in one year or less........................................................................ $ 5,103,150 $ 5,131,250
Due in one to five years....................................................................... 17,640,717 17,643,750
Mortgage-backed securities..................................................................... 219,296 220,000
$22,963,163 $22,995,000
</TABLE>
Proceeds from sales of investment securities were $62,988,185 and
$39,682,412 for the years ended December 31, 1993 and 1992, respectively. Gross
gains of $696,097 and $653,434 were realized on those sales for the years ended
December 31, 1993 and 1992, respectively.
In addition to the above investments, American Commercial is required, as a
member of the Federal Home Loan Bank System, to invest in the stock of the
Federal Home Loan Bank of Atlanta. No ready market exists for this stock and it
has no quoted market value.
NOTE C -- LOANS AND LEASES
Loans and leases at December 31 were composed of the following:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Real estate loans
Conventional............................................................................... $149,898,570 $163,905,608
Construction............................................................................... 24,645,875 15,262,963
Commercial loans............................................................................. 4,773,990 9,404,553
Consumer loans............................................................................... 7,455,882 5,207,771
Leases....................................................................................... 7,831,641 7,782,009
194,605,958 201,562,904
Less:
Undisbursed loans in process............................................................... 7,051,770 4,511,072
Net deferred origination fees.............................................................. 55,113 26,325
Unearned direct finance lease income....................................................... 1,057,524 1,222,589
Allowance for losses....................................................................... 2,202,815 958,849
$184,238,736 $194,844,069
</TABLE>
In the normal course of business, loans are made to directors and executive
officers of the Bank and its subsidiaries and their associates. These loans are
made on substantially the same terms, including interest rates and collateral,
as those prevailing for comparable transactions with others. Such loans do not
involve more than normal risk of collectibility, nor do they present other
unfavorable features. As of December 31, 1993 and 1992, $1,917,000 and
$1,588,000, respectively, of these loans were outstanding. During 1993,
$2,008,000 of new loans were made and repayments totaled $1,679,000.
The Bank has entered into a blanket floating lien agreement with the
Federal Home Loan Bank of Atlanta. The agreement requires a pledge of mortgage
loans equal to at least 165% of the Federal Home Loan Bank advances set forth in
Note H. The amount thus pledged was $11,072,000 and $13,547,000 at December 31,
1993 and 1992, respectively.
At December 31, 1993, approximately $2,212,000 of loans and leases were
classified as nonaccrual. Had income on these loans been recorded under original
terms, approximately $170,000 of additional interest on these loans would have
been recorded in 1993.
A-12
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- ALLOWANCE FOR LOSSES
Following is an analysis of changes in the allowance for losses for the
years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Balance at beginning of year.......................................................... $ 958,849 $ 597,268 $135,251
Provisions charged to operations.................................................... 2,208,314 1,102,025 530,000
Charge-offs......................................................................... (968,673) (744,406) (90,808)
Recoveries.......................................................................... 4,325 3,962 22,825
Balance at end of year................................................................ $2,202,815 $ 958,849 $597,268
</TABLE>
Transfers of loans to other real estate owned, a noncash investing
activity, amounted to $876,000 and $497,000 in 1993 and 1992, respectively.
Other real estate owned had a carrying value of $638,000 and $1,138,000 at
December 31, 1993 and 1992, respectively. There were no in-substance foreclosed
properties at December 31, 1993 and 1992.
NOTE E -- OFFICE PROPERTIES AND EQUIPMENT
The following is a summary of office properties and equipment at December
31:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Land and land improvements...................................................................... $ 1,430,121 $ 1,430,121
Buildings and improvements...................................................................... 4,034,777 3,728,406
Furniture and equipment......................................................................... 2,955,661 2,841,196
Capitalized equipment leases.................................................................... 965,229 965,229
9,385,788 8,964,952
Accumulated depreciation and amortization....................................................... (1,872,107) (1,302,484)
$ 7,513,681 $ 7,662,468
</TABLE>
Depreciation expense, including amortization on capitalized equipment
leases, was $588,000, $364,000 and $282,000 in 1993, 1992 and 1991,
respectively.
The Bank has noncancellable leases covering certain premises and equipment.
Total rent expense applicable to operating leases was $205,000, $173,000 and
$87,000 for 1993, 1992 and 1991, respectively. Future minimum lease payments for
operating and capitalized leases for years subsequent to 1993 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITALIZED
LEASES LEASES
<S> <C> <C>
Year Ending December 31,
1994........................................................................................ $ 128,000 $ 231,149
1995........................................................................................ 129,000 231,149
1996........................................................................................ 74,000 231,149
1997........................................................................................ 83,000 56,102
1998........................................................................................ 85,000 --
1999 and later years............................................................................. 3,740,000 --
Total minimum lease payments....................................................................... $4,239,000 749,549
Less amount representing interest.................................................................. 53,322
Present value of net minimum payments on capitalized leases (Note H)............................... $ 696,227
</TABLE>
NOTE F -- INCOME TAXES
During 1993, the Company adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
The cumulative effect of the change in accounting principle is included in
determining net income for 1993 and is not significant. Financial statements for
prior years have not been restated. Prior to 1993, the provision for income
taxes was based on income and expenses included in the
A-13
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- INCOME TAXES -- Continued
statements of income, with differences between taxes so computed and taxes
payable under applicable statutes and regulations classified as deferred taxes
arising from timing differences (the deferred method as required by the American
Institute of Certified Public Accountants Accounting Principles Board Opinion
No. 11). SFAS No. 109 requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of temporary differences,
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Temporary differences giving rise to
deferred taxes relate to property and equipment, deferred loan fees and costs,
direct financing leases which are treated as operating leases for income tax
purposes, FHLB of Atlanta stock dividends, deferred compensation, and bad debt
reserves.
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Current tax provision.................................................................... $ 818,390 $902,000 $524,693
Deferred tax provision................................................................... (499,463) 19,000 242,307
Total tax provision............................................................... $ 318,927 $921,000 $767,000
</TABLE>
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
taxes were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Income tax at statutory rate............................................................. $364,000 $741,000 $571,000
State income tax, net of federal tax benefit............................................. 16,000 85,000 76,000
Provision for loan loss.................................................................. -- 107,000 103,000
Charitable contribution of appreciated property.......................................... (33,000) -- --
Other.................................................................................... (28,073) (12,000) 17,000
$318,927 $921,000 $767,000
</TABLE>
Deferred tax assets and liabilities arising from temporary differences at
December 31, 1993 are summarized as follows:
<TABLE>
<S> <C>
Deferred tax assets relating to:
Bad debt reserves..................................................................... $ (631,165)
Loan fees and costs................................................................... (21,000)
Deferred compensation................................................................. (56,000)
Total deferred tax assets........................................................ (708,165)
Deferred tax liabilities relating to:
Direct financing leases............................................................... 654,000
Property and equipment................................................................ 377,000
FHLB stock dividends.................................................................. 254,000
Total deferred tax liabilities................................................... 1,285,000
Net deferred tax liability....................................................... $ 576,835
</TABLE>
A-14
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE F -- INCOME TAXES -- Continued
The components of deferred taxes resulting from timing differences in the
recognition of income and expenses for tax and financial reporting purposes for
the years ended December 31, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
Provision for loan losses............................................................................. $107,000 $(82,000)
Lease financing....................................................................................... (63,000) 315,000
Tax depreciation in excess of book depreciation....................................................... 20,000 7,000
Other, net............................................................................................ (45,000) 2,307
Total deferred income taxes.................................................................... $ 19,000 $242,307
</TABLE>
Retained earnings at December 31, 1993 include approximately $1.3 million
of bad debt reserves of American Commercial for which no provision for income
taxes has been made. If in the future this portion of retained earnings is used
for any purpose other than to absorb tax bad debt losses of American Commercial,
income taxes will be imposed at the then applicable rates. Since there is no
intention to use the reserves for purposes other than to absorb tax bad debt
losses, a deferred tax liability, which would otherwise be approximately
$500,000, has not been provided on such reserve.
The Omnibus Budget Reconciliation Act of 1993 was signed into law on August
10, 1993. The provisions of the Act are not expected to have a significant
impact on the Company's financial position or results of operations.
NOTE G -- DEPOSIT ACCOUNTS
A summary of deposit accounts at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Non-interest-bearing demand deposits................................... $ 15,970,036 --% $ 14,400,055 --%
Interest-bearing demand deposits....................................... 88,573,738 3.54 84,661,110 4.20
Certificates of deposit................................................ 105,844,125 5.28 119,253,241 6.04
$210,387,899 4.15% $218,314,406 4.93%
</TABLE>
A summary of certificate of deposit maturities as of December 31, 1993
follows:
<TABLE>
<S> <C>
Year Ending December 31,
1994........................................................................... $ 79,370,620
1995........................................................................... 12,077,523
1996........................................................................... 5,172,548
1997........................................................................... 1,191,589
1998........................................................................... 6,348,480
Thereafter....................................................................... 1,683,365
$105,844,125
</TABLE>
A summary of certificate of deposit maturities of $100,000 or more at
December 31, 1993 is as follows:
<TABLE>
<S> <C>
Maturing in three months or less....................................................... $ 7,047,351
Maturing in four through six months.................................................... 6,197,387
Maturing in seven through twelve months................................................ 7,589,619
Maturing after twelve months........................................................... 7,886,721
$28,721,078
</TABLE>
A-15
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE G -- DEPOSIT ACCOUNTS -- Continued
At December 31, 1993 and 1992, there were approximately $38,400,000 and
$42,600,000, respectively, in certificates of deposit placed through brokers by
investors outside the Bank's defined trade area. The rates paid to these
investors were not significantly higher than the prevailing local market rates
being paid for deposits of similar maturity terms.
Interest expense on deposit accounts is summarized below:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Demand accounts.................................................................. $3,219,039 $ 3,183,851 $ 1,759,016
Certificates of deposit.......................................................... 6,694,566 8,763,114 12,522,441
$9,913,605 $11,946,965 $14,281,457
</TABLE>
NOTE H -- LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<S> <C> <C>
Advances from the Federal Home Loan Bank of Atlanta, payable at various
dates, secured by pledged loans and stock in the Federal Home Loan Bank
of Atlanta, interest ranging from 6.7% to 9.9% at December 31, 1993..... $6,710,000 $8,210,000
Note payable to Citizens Fidelity Leasing Corporation in quarterly
installments of $61,157, including interest at an effective rate of
prime plus 1%, secured by equipment..................................... 19,044 225,828
Capitalized leases, varying maturities to 1997 with rates from prime minus
2% to prime minus 2.5%. This represents the present value of net minimum
lease payments (Note E)................................................. 696,227 892,444
$7,425,271 $9,328,272
</TABLE>
Scheduled maturities of long-term debt at December 31, 1993 are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1994............................................................................. $2,040,044
1995............................................................................. 2,463,467
1996............................................................................. 2,566,306
1997............................................................................. 355,454
$7,425,271
</TABLE>
NOTE I -- EMPLOYEE RETIREMENT BENEFITS
The following table sets forth the pension plan's funded status and amounts
recognized in the consolidated financial statements at December 31, 1993 and
1992, and for each of the three years ended December 31, 1993:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $564,894 in 1993 and $470,447 in
1992......................................................................................... $ 615,307 $ 512,329
Projected benefit obligation for service rendered to date......................................... $(1,161,991) $(908,954)
Plan assets at fair value......................................................................... 739,170 553,739
Projected benefit obligation in excess of plan assets............................................. (422,821) (355,215)
Unrecognized net loss from past experience different from that assumed............................ 174,322 105,970
Unrecognized prior service cost................................................................... 54,177 57,590
Unrecognized net transition liability............................................................. 135,257 140,858
Net pension liability............................................................................. $ (59,065) $ (50,797)
</TABLE>
A-16
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I -- EMPLOYEE RETIREMENT BENEFITS -- Continued
Net pension cost includes the following components:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Service cost -- benefits earned during the period........................................ $141,074 $118,070 $ 95,660
Interest cost on projected benefit obligation............................................ 75,871 54,106 45,014
Actual return on plan assets............................................................. (69,430) (56,595) (51,952)
Other components......................................................................... 29,239 28,037 29,405
Net periodic pension cost................................................................ $176,754 $143,618 $118,127
</TABLE>
The weighted average assumed discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations was 8% at December 31, 1993 and 1992. The expected
long-term weighted average rate of return on plan assets was 8% in 1993 and
1992. The plan is funded by the purchase of level premium life insurance
policies and an annual contribution to an auxiliary fund.
American Commercial also maintains a supplementary plan which supplements
the benefits payable to certain officers under the plan described above. This
plan is not qualified under the Internal Revenue Code. Although technically an
unfunded plan, insurance policies on the lives of the covered employees are
intended to be adequate to fund future benefits.
NOTE J -- OFF-BALANCE SHEET COMMITMENTS
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby and commercial
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby and commercial letters of credit is represented by the contract or
notional amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments. Generally, the Bank requires collateral, deposits or other security
to support financial instruments with credit or interest rate risk.
At December 31, 1993, the financial instruments whose contract amounts
represent credit risk and those whose notional or contract amounts exceed the
amount of on-balance sheet credit risk are as follows:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL
AMOUNT
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit......................................................... $ 9,232,000
Standby and commercial letters of credit............................................. 881,000
$10,113,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since certain of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby and commercial letters of credit are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. Of the letters of credit outstanding at December 31, 1993,
$819,000 expire in 1994 and $62,000 expire in 1995. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank holds various assets as collateral
supporting those commitments for which collateral is deemed necessary.
A-17
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE K -- PREFERRED STOCK
The preferred stock outstanding may be converted into shares of common
stock, with the number of common shares issued for each preferred share being
equal to $1,000 divided by the sum of the book value of common stock of American
Commercial at September 30, 1991 plus one-half of any increase in book value to
the month-end preceding the date of conversion. This conversion feature is
available at any time to all holders of the preferred stock. Holders of the
preferred stock are entitled to an annual dividend of $95 per share, payable
quarterly, subject to applicable regulations.
NOTE L -- ACQUISITION OF BRANCHES
On March 28, 1992, American Commercial purchased three branch offices in
the Charlotte-Mecklenburg County metropolitan area from RHNB National Bank of
North Carolina, acquiring customer deposits of approximately $17.1 million and
premises and equipment of approximately $2.4 million. No deposit premium was
paid in connection with this acquisition.
NOTE M -- REGULATORY MATTERS
American Bancshares, Inc. and American Commercial Savings Bank, Inc., SSB
are required by the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the North Carolina Savings Institutions Division to maintain
certain capital-to-asset ratios. At December 31, 1993, these ratios were above
the minimum prescribed for holding companies and savings banks.
American Commercial is required by the Federal Reserve Board to maintain
reserve balances based on certain percentages of deposit types. At December 31,
1993, these required reserves were satisfied by vault cash and
non-interest-bearing deposits with the Federal Reserve Bank.
Effective November 8, 1993, American Commercial entered into a Memorandum
of Understanding (the Memorandum) with the Federal Deposit Insurance Corporation
(FDIC) and the Administrator of the Savings Institutions Division of the North
Carolina Department of Economic and Community Development (the Administrator). A
memorandum of understanding is an informal agreement between a financial
institution and its regulator pursuant to which the institution agrees to take
specific corrective action in response to operational deficiencies identified by
the regulator. The Memorandum resulted from a report prepared by the FDIC
following a routine examination of American Commercial in July 1993 (the FDIC
Report).
The Memorandum requires American Commercial to effect a program of
corrective action consisting of (i) preparation of a written assessment of
management and staffing requirements to be submitted to the FDIC and the
Administrator for review and comment; (ii) maintenance of a Tier 1 capital to
total assets ratio of not less than 6%; (iii) elimination of any assets
classified as a loss in the FDIC Report through collection, charge-off, or other
appropriate bookkeeping entry; (iv) submission of a specific plan to the FDIC
and the Administrator to effect the reduction and/or collection of extensions of
credit of $100,000 or more that were adversely classified in the FDIC Report;
(v) prohibition from extending any additional credit to any borrower whose prior
credit is classified as a loss and which remains uncollected; (vi) prohibition
of the extension of credit to any borrower whose prior extensions of credit
aggregated $100,000 or more and were rated substandard unless approved by a
majority of American Commercial's Board of Directors; (vii) the establishment
and maintenance of an adequate reserve for loan losses to be monitored quarterly
by the Board of Directors of American Commercial; (viii) review and revision of
written loan policies and systems of loan documentation, taking into
consideration deficiencies identified in the FDIC Report; (ix) correction of any
violations of laws, rules, and regulations cited in the FDIC Report and the
adoption and implementation of appropriate procedures to ensure future
compliance; (x) implementation of an asset/liability management policy and
submission of the policy for review and comment by the FDIC and the
Administrator; (xi) preparation of a comprehensive budget and earnings forecast
for the 1994 calendar year to be submitted to the FDIC and the Administrator for
review and comment; (xii) adoption of a revised investment policy that includes
appropriate guidelines for securities trading and corrects any internal control
deficiencies identified in the FDIC Report; (xiii) prohibition of the payment of
any cash dividends to its parent, the Holding Company, without the prior written
consent of the FDIC and the Administrator; and (xiv) submission of quarterly
progress reports to the FDIC and the Administrator sufficient to gauge
compliance with the
A-18
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE M -- REGULATORY MATTERS -- Continued
various provisions of the Memorandum. The management of American Commercial
believes it has complied with all elements of the Memorandum.
NOTE N -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has implemented Statement of Financial Accounting Standards No.
107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107), which
requires disclosure of the estimated fair values of the Company's financial
instruments. Such instruments include cash, interest-bearing deposits,
investment securities, loans and leases, deposit accounts, long-term debt and
commitments. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no active market readily exists for a portion of
the Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND INTEREST-BEARING DEPOSITS
The carrying amounts for cash and interest-bearing deposits in other
banks approximate fair value because they mature in less than ninety days
and do not present unanticipated credit concerns.
INVESTMENT SECURITIES
Fair value for investment securities equals quoted market price if
such information is available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
LOANS AND LEASES
For certain homogenous categories of loans, such as residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the
same remaining maturities.
DEPOSIT LIABILITIES
The fair value of demand deposits is the amount payable on demand at
the reporting date. The fair value of certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
LONG-TERM DEBT
Rates currently available to the Bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT
The large majority of commitments to extend credit are at variable
rates and/or have relatively short terms to maturity. Therefore, the fair
value for these financial instruments is considered to approximate the
contract or notional amount.
A-19
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE N -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
The estimated fair values of the Company's financial instruments are as
follows at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Financial assets:
Cash and interest-bearing deposits....................... $ 13,727,881 $ 13,727,881 $ 33,475,036 $ 33,475,036
Investment securities.................................... 22,963,163 22,995,000 2,340,890 2,346,400
Loans and leases......................................... 184,238,736 185,634,000 194,844,069 197,739,000
Financial liabilities:
Deposits................................................. $210,387,899 $211,380,000 $218,314,406 $220,994,000
Long-term debt........................................... 7,425,271 7,740,000 9,328,272 9,986,000
</TABLE>
NOTE O -- CONCENTRATIONS OF CREDIT
Substantially all of the Bank's loans, leases, commitments and letters of
credit have been granted to depositors in the Bank's market area. The
concentrations of credit by type are set forth in Note C. The distribution of
commitments to extend credit are consistent with the distribution of loans and
leases outstanding. Commercial and standby letters of credit have been granted
primarily to commercial borrowers. The Bank's largest total of credits extended
to a single borrower is approximately $4.1 million at December 31, 1993. There
are two other borrowers whose aggregate outstanding loan and lease balances
exceed the current limitation on loans to one borrower of 15% of unimpaired
capital (approximately $2.3 million at December 31, 1993). Each of these credit
relationships was established prior to the enactment in 1989 of the Financial
Institutions Reform, Recovery and Enforcement Act which established the current
limitations on loans to one borrower, and therefore do not constitute
violations. The Bank, as a matter of policy, will not extend credit to any
borrower if doing so would create a violation of the Bank's legal lending limit.
NOTE P -- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1993
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net interest income.......................................................... $1,918 $2,126 $2,039 $2,021 $8,104
Provision for loan losses.................................................... 366 573 670 599 2,208
Non-interest income.......................................................... 742 455 302 321 1,820
Non-interest expense......................................................... 1,583 1,545 1,641 1,877 6,646
Income (loss) before income taxes....................................... 711 463 30 (134 ) 1,070
Provision for income taxes................................................... 323 104 (38 ) (70 ) 319
Net income (loss)....................................................... $ 388 $ 359 $ 68 $ (64 ) $ 751
Net income (loss) per common share...................................... $ .16 $ .14 $ .03 $ (.05 ) $ .28
</TABLE>
A-20
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE P -- SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- Continued
<TABLE>
<CAPTION>
1992
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net interest income.......................................................... $1,815 $2,077 $1,763 $1,774 $7,429
Provision for loan losses.................................................... 136 183 567 216 1,102
Non-interest income.......................................................... 263 146 1,125 261 1,795
Non-interest expense......................................................... 1,354 1,570 1,747 1,272 5,943
Income before income taxes.............................................. 588 470 574 547 2,179
Provision for income taxes................................................... 262 167 239 253 921
Net income.............................................................. $ 326 $ 303 $ 335 $ 294 $1,258
Net income per common share............................................. $ .13 $ .12 $ .13 $ .12 $ .50
</TABLE>
NOTE Q -- PARENT COMPANY FINANCIAL DATA
A summary of condensed financial statements for American Bancshares, Inc.
follows:
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Asset
Investment in subsidiaries................................................................... $16,243,951 $15,974,374
Stockholders' equity........................................................................... $16,243,951 $15,974,374
</TABLE>
STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
THE PERIOD FROM SEPTEMBER 14, 1992 THROUGH DECEMBER 31, 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Dividends received from subsidiaries........................................................... $ 481,345 $ 23,465
Equity in undistributed earnings of subsidiaries............................................... 269,167 271,705
NET INCOME................................................................................ $ 750,512 $ 295,170
</TABLE>
A-21
<PAGE>
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE Q -- PARENT COMPANY FINANCIAL DATA -- Continued
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
THE PERIOD FROM SEPTEMBER 14, 1992 THROUGH DECEMBER 31, 1992
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................... $ 750,512 $ 295,170
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries.......................................... (269,167) (271,705)
NET CASH PROVIDED BY OPERATING ACTIVITIES............................................... 481,345 23,465
Cash flows from financing activities:
Redemption of common stock................................................................... 156,000 --
Dividends paid............................................................................... 325,345 23,465
NET CASH USED BY FINANCING ACTIVITIES................................................... 481,345 23,465
NET INCREASE IN CASH AND CASH EQUIVALENTS............................................... -- --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................................. -- --
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ -- $ --
</TABLE>
NOTE R -- PROPOSED MERGER
On November 17, 1993, American Bancshares, Inc. (the Holding Company),
American Commercial Savings Bank, Inc., SSB (American Commercial or the Bank),
First Union Corporation (FUNC) and First Union National Bank of North Carolina
(FUNB-NC), a subsidiary of FUNC, entered into an Agreement and Plan of Mergers
(the Merger Agreement) whereby (i) the Holding Company would merge with and into
FUNC (the Corporate Merger), (ii) American Commercial would merge with and into
FUNB-NC (the Bank Merger); (iii) each outstanding share of Holding Company
common stock (excluding shares held by dissenting stockholders and certain
shares held by the Holding Company or FUNC) would be converted into the right to
receive 0.211 shares of FUNC common stock, subject to possible adjustment under
certain circumstances (the Exchange Ratio), with cash in lieu of the issuance of
any fractional share interest, and (iv) each outstanding share of Holding
Company convertible preferred stock (excluding any shares held by dissenting
stockholders) would be converted into the right to receive a number of shares of
FUNC common stock equal to the product of (a) the Exchange Ratio, and (b) 159,
the number of shares of Holding Company common stock into which a share of
Holding Company convertible preferred stock was convertible as of September 30,
1993, all according and subject to the terms and conditions contained in the
Merger Agreement.
The Corporate Merger is expected to take place in the second quarter of
1994. The Mergers are subject to receipt of all regulatory approvals and the
Corporate Merger is subject to the approval of the shareholders of the Holding
Company.
In connection with the proposed Corporate Merger, the Holding Company has
granted to FUNC an option to purchase 443,700 shares of the Holding Company's
common stock at $7.50 per share, exercisable under certain conditions involving
an opposing offer being made to acquire the Holding Company.
A-22
<PAGE>
ANNEX B
AGREEMENT AND PLAN OF MERGERS
AGREEMENT AND PLAN OF MERGERS, DATED AS OF THE 17TH DAY OF NOVEMBER, 1993
(THIS PLAN), BY AND AMONG AMERICAN BANCSHARES, INC. (ABI), AMERICAN COMMERCIAL
SAVINGS BANK, INC., SSB (AMERICAN BANK), FIRST UNION CORPORATION (FIRST UNION),
AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA (FUNB-NC). RECITALS:
(A) ABI. ABI is a corporation duly organized and existing in good standing
under the laws of the State of North Carolina, with its principal executive
offices located in Monroe, North Carolina. ABI is a registered savings bank
holding company under the BHC Act (as hereinafter defined) and is regulated
pursuant to Title 4, Chapter 16 of the North Carolina Administrative Code. As of
the date hereof, ABI has 25,000,000 authorized shares of common stock, each of
$1.00 par value (ABI Common Stock), and 5,000,000 authorized shares of Preferred
Stock, of which 5,000 shares are classified as Series A Preferred Stock, each of
$1.00 par value (ABI Preferred Stock) (no other class of capital stock being
authorized), of which 2,299,854 shares of ABI Common Stock and 988 shares of ABI
Preferred Stock, are issued and outstanding.
(B) AMERICAN BANK. American Bank is a stock savings bank duly organized and
existing in good standing under the laws of the State of North Carolina, with
its principal executive offices located in Monroe, North Carolina. As of the
date hereof, American Bank has 4,000,000 authorized shares of common stock, each
of $1.00 par value (American Bank Common Stock) and 1,000,000 authorized but
unissued shares of preferred stock, each of no par value (American Bank
Preferred Stock) (no other class of capital stock being authorized), of which
1,000 shares of American Bank Common Stock are issued and outstanding and owned
by ABI. As of September 30, 1993, American Bank had capital of $16,356,000,
divided into common stock of $1,000, surplus of $8,374,000 and undivided
profits, including capital reserves, of $7,981,000.
(C) FIRST UNION. First Union is a corporation duly organized and existing
in good standing under the laws of the State of North Carolina, with its
principal executive offices located in Charlotte, North Carolina. As of the date
hereof, First Union has 750,000,000 authorized shares of common stock, each of
$3.33 1/3 par value (together with the First Union Rights (as hereinafter
defined) attached thereto, First Union Common Stock), 40,000,000 authorized
shares of Class A Preferred Stock, no-par value (First Union Class A Preferred
Stock), and 10,000,000 authorized shares of Preferred Stock, no-par value (First
Union Preferred Stock) (no other class of capital stock being authorized), of
which 169,573,982 shares of First Union Common Stock, no shares of First Union
Class A Preferred Stock and 6,318,350 shares of Series 1990 Cumulative Perpetual
Adjustable Rate Preferred Stock, constituting a single series of First Union
Preferred Stock, were issued and outstanding as of September 30, 1993.
(D) FUNB-NC. FUNB-NC is a national banking association duly organized and
existing under the laws of the United States, with its principal executive
offices located in Charlotte, North Carolina. As of the date hereof, FUNB-NC has
7,500,000 authorized shares of common stock, each of $15.00 par value (FUNB-NC
Common Stock) (no other class of capital stock being authorized), of which
5,519,634 shares are issued and outstanding and owned by First Union (other than
directors' qualifying shares). As of September 30, 1993, FUNB-NC had capital of
$1,180,916,000 divided into common stock of $82,795,000, surplus of $234,203,000
and undivided profits, including capital reserves, of $863,918,000.
(E) STOCK OPTION AGREEMENT; VOTING AGREEMENT. As a condition and inducement
to First Union's and FUNB-NC's willingness to enter into this Plan, (i) ABI has
entered into a Stock Option Agreement with First Union (the Stock Option
Agreement) in the form attached hereto as Exhibit A, pursuant to which ABI has
granted to First Union an option to purchase, under certain circumstances,
shares of ABI Common Stock, and (ii) each of the directors of ABI has entered
into an agreement with First Union and FUNB-NC in the form attached hereto as
Exhibit B, pursuant to which such director has agreed to vote his shares of ABI
Preferred Stock at the Meeting (as hereinafter defined) in favor of the
transactions contemplated hereby.
(F) RIGHTS, ETC. There are no shares of ABI Common Stock, ABI Preferred
Stock, American Bank Common Stock or American Bank Preferred Stock authorized
and reserved for issuance, neither ABI nor American Bank has any Rights (as
defined below) issued or outstanding and neither ABI nor American Bank has any
commitment to authorize, issue or sell any such shares or any Rights, except (i)
pursuant to this Plan, (ii) the Stock Option Agreement, or (iii) upon conversion
of the ABI Preferred Stock outstanding at the date hereof. The terms Rights
means securities or obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire, or any options, calls or
commitments relating to, shares of capital stock.
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(G) APPROVALS. The Board of Directors of each of ABI, American Bank, First
Union and FUNB-NC has approved, at meetings of each of such Boards of Directors,
this Plan and (in the case of ABI and First Union) the Stock Option Agreement
and has authorized the execution hereof and thereof in counterparts.
In consideration of their mutual promises and obligations, the parties
hereto adopt and make this Plan and prescribe the terms and conditions thereof
and the manner and basis of carrying it into effect, which shall be as follows:
I. THE MERGERS.
1.01. THE CORPORATE MERGER. On the Effective Date (as hereinafter defined):
(A) THE CONTINUING CORPORATION. ABI shall merge into First Union (the
Corporate Merger), the separate existence of ABI shall cease and First Union
(the Continuing Corporation) shall survive and the name of the Continuing
Corporation shall be First Union Corporation.
(B) RIGHTS, ETC. The Continuing Corporation shall thereupon and thereafter
possess all of the rights, privileges, immunities and franchises, of a public as
well as of a private nature, of each of the merging corporations; and all
property, real, personal and mixed, and all debts due on whatever account, and
all other choses in action, and all and every other interest, of or belonging to
or due to each of the corporations so merged, shall be deemed to be vested in
the Continuing Corporation without further act or deed; and the title to any
real estate or any interest therein, vested in any of such corporations, shall
not revert or be in any way impaired by reason of the Corporate Merger as
provided by the laws of the State of North Carolina.
(C) LIABILITIES. The Continuing Corporation shall thenceforth be
responsible and liable for all the liabilities, obligations and penalties of
each of the corporations so merged.
(D) ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. The Articles of
Incorporation and Bylaws of the Continuing Corporation shall be those of First
Union, as in effect immediately prior to the Corporate Merger becoming
effective. The directors and officers of First Union in office immediately prior
to the Corporate Merger becoming effective shall be the directors and officers
of the Continuing Corporation, together with such additional directors and
officers as may thereafter be elected, who shall hold office until such time as
their successors are elected and qualified.
1.02. THE BANK MERGER. Immediately following consummation of the Corporate
Merger on the Effective Date or as soon thereafter as FUNB-NC may deem
appropriate:
(A) THE CONTINUING BANK. American Bank shall be merged with and into
FUNB-NC (the Bank Merger and together with the Corporate Merger, the Mergers),
the separate existence of American Bank shall cease and FUNB-NC (the Continuing
Bank) shall survive, the name of the Continuing Bank shall be First Union
National Bank of North Carolina and the Continuing Bank shall continue to
conduct the business of a national banking association at its main office in
Charlotte, North Carolina and at the legally established branches of American
Bank and FUNB-NC.
(B) RIGHTS, ETC. The Continuing Bank shall thereupon and thereafter possess
all the rights, privileges, immunities and franchises, of a public as well as of
a private nature, of each of the banks so merged; and all property, real
personal and mixed, and all debts due on whatever account, and all other choses
in action, and all and every other interest, of or belonging to or due to each
of the banks so merged, shall be taken and deemed to be transferred to and
vested in the Continuing Bank without further act or deed, including
appointments, designations and nominations and all other rights and interests in
any fiduciary capacity; and the title to any real estate or any interest
therein, vested in any of such banks, shall not revert or be in any way impaired
by reason of the Bank Merger.
(C) LIABILITIES, ETC. The Continuing Bank shall thenceforth be responsible
and liable for all the liabilities, obligations and penalties of the banks so
merged (including liabilities arising out of the operation of any trust
departments). All rights of creditors and obligors and all liens on the property
of each of American Bank and FUNB-NC shall be preserved unimpaired.
(D) CHARTER; BY-LAWS; DIRECTORS; OFFICERS. The Charter and By-Laws of the
Continuing Bank shall be those of FUNB-NC, as in effect immediately prior to the
Bank Merger becoming effective. The directors and officers of FUNB-NC in office
immediately prior to the Bank Merger becoming effective shall be the directors
and officers of the Continuing Bank, together with such additional directors and
officers as may thereafter be elected, who shall hold office until such time as
their successors are elected and qualified.
(E) OUTSTANDING STOCK OF FUNB-NC. The amount of the capital stock of
FUNB-NC shall be not less than $82,795,000 and shall consist of not less than
5,519,634 issued and outstanding shares of common stock, each of $15.00 par
value, and the
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issued and outstanding shares shall remain issued and outstanding as shares of
FUNB-NC, each of $15.00 par value, and the holders thereof shall retain their
rights therein.
(F) OUTSTANDING STOCK OF AMERICAN BANK. The Continuing Corporation shall
deliver all of the issued and outstanding shares of American Bank to the
Continuing Bank for cancellation.
1.03. EFFECTIVE DATE. Subject to the conditions to the obligations of the
parties to effect the Mergers as set forth in Article VI, the effective date
(the Effective Date) shall be such date as First Union shall notify ABI in
writing not less than five days prior thereto, which date shall not be more than
30 days after such conditions have been satisfied or waived. Prior to the
Effective Date, First Union shall execute and deliver to the North Carolina
Secretary of State, Articles of Merger containing a Plan of Merger in
substantially the form of Exhibit C hereto and such Articles of Merger shall
have become effective.
II. CONSIDERATION.
2.01. CORPORATE MERGER CONSIDERATION. Subject to the provisions of this
Plan, on the Effective Date:
(A) OUTSTANDING FIRST UNION COMMON STOCK. The shares of First Union Common
Stock (including the rights (First Union Rights) issued pursuant to a
Shareholder Protection Rights Agreement, dated December 18, 1990 (as amended,
the First Union Rights Agreement)), issued and outstanding immediately prior to
the Effective Date shall, on and after the Effective Date, remain as issued and
outstanding shares of First Union Common Stock.
(B) OUTSTANDING ABI COMMON STOCK. Each share (excluding shares held by
dissenting stockholders (Dissenters' Shares) or held by ABI or any of its
subsidiaries or by First Union or any of its subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted
Treasury Shares)) of ABI Common Stock issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Corporate Merger, automatically
and without any action on the part of the holder thereof, become and be
converted into the right to receive 0.211 shares of First Union Common Stock
(the Exchange Ratio), subject to possible adjustment as set forth in Sections
2.06, 5.17 and 7.05, and any references in this Plan to Exchange Ratio shall
thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to such
Sections, as applicable.
(C) OUTSTANDING ABI PREFERRED STOCK. Each share (excluding Dissenters'
Shares and Treasury Shares) of ABI Preferred Stock issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Corporate
Merger, automatically and without any action on the part of the holder thereof,
become and be converted into the right to receive a number of shares of First
Union Common Stock equal to the product of (i) the Exchange Ratio and (ii) the
number of shares of ABI Common Stock into which a share of ABI Preferred Stock
is convertible as of September 30, 1993, which number is 159.
2.02. STOCKHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, holders
of ABI Common Stock and ABI Preferred Stock shall cease to be, and shall have no
rights as, stockholders of ABI, other than to receive the consideration provided
under this Article II. After the Effective Date, there shall be no transfers on
the stock transfer books of ABI or the Continuing Corporation of the shares of
ABI Common Stock and ABI Preferred Stock which were issued and outstanding
immediately prior to the Effective Date.
2.03. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of First Union Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the
Corporate Merger; instead, First Union shall pay to each holder of ABI Common
Stock or ABI Preferred Stock who would otherwise be entitled to a fractional
share an amount in cash determined by multiplying such fraction by the last sale
price of First Union Common Stock on the last trading day prior to the Effective
Date, as reported by the New York Stock Exchange (the NYSE) Composite
Transactions reporting system (as reported in The Wall Street Journal).
2.04. EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, First Union shall send or cause to be sent to each former stockholder of
ABI of record immediately prior to the Effective Date transmittal materials for
use in exchanging such stockholder's certificates of ABI Common Stock and ABI
Preferred Stock for the consideration set forth in this Article II. The
certificates representing the shares of First Union Common Stock into which
shares of such stockholder's ABI Common Stock and ABI Preferred Stock are
converted on the Effective Date, any fractional share checks which such
stockholder shall be entitled to receive, and any dividends paid on such shares
of First Union Common Stock for which the record date for determination of
stockholders entitled to such dividends is on or after the Effective Date, will
be delivered to such stockholder only upon delivery to FUNB-NC (the Exchange
Agent) of the certificates representing all of such shares of ABI Common Stock
and ABI Preferred Stock (or indemnity satisfactory to First Union and the
Exchange Agent, in their judgment, if any of such certificates are lost, stolen
or destroyed). No interest will be paid on any such fractional share checks
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or dividends to which the holder of such shares shall be entitled to receive
upon such delivery. Certificates surrendered for exchange by any person
constituting an affiliate of ABI for purposes of Rule 145 of the Securities Act
(as hereinafter defined), shall not be exchanged for certificates representing
First Union Common Stock until First Union has received a written agreement from
such person as specified in Section 5.10.
2.05. DISSENTING STOCKHOLDERS. Any holder of shares of ABI Common Stock or
ABI Preferred Stock who perfects his dissenters' rights of appraisal in
accordance with and as contemplated by Article 13 of the North Carolina Business
Corporation Act shall be entitled to receive the value of such shares in cash as
determined pursuant to such provision of law; provided, however, that no such
payment shall be made to any dissenting stockholder unless and until such
dissenting stockholder has complied with the applicable provisions of the North
Carolina Business Corporation Act and duly surrendered the certificate or
certificates representing the shares for which payment is being made. In the
event that a dissenting stockholder of ABI fails to perfect, or effectively
withdraws or loses, his right to appraisal and of payment for his shares, after
the Effective Date, First Union shall issue and deliver the consideration to
which such holder of shares of ABI Common Stock or ABI Preferred Stock is
entitled under this Article II (without interest) upon surrender by such holder
of the certificate or certificates representing the shares of ABI Common Stock
or ABI Preferred Stock held by him.
2.06. ANTI-DILUTION PROVISIONS. In the event First Union changes the number
of shares of First Union Common Stock issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend, recapitalization or
similar transaction with respect to the outstanding First Union Common Stock and
the record date therefor shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately adjusted.
2.07. SHARES HELD BY ABI OR FIRST UNION. Each of the shares of ABI Common
Stock and ABI Preferred Stock held by ABI or any of its subsidiaries or by First
Union or any of its subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, shall be canceled and
retired at the effectiveness of the Corporate Merger and no consideration shall
be issued in exchange therefor.
2.08. RESERVATION OF RIGHT TO REVISE TRANSACTION. First Union may at any
time change the method of effecting the acquisition of ABI and American Bank by
First Union (including without limitation the provisions of this Article II) if
and to the extent it deems such change to be desirable; provided, however, that
no such change shall (i) alter or change the amount or kind of consideration to
be issued to holders of ABI Common Stock or ABI Preferred Stock as provided for
in this Plan, (ii) adversely affect the tax treatment to ABI stockholders as a
result of receiving such consideration, or (iii) materially impede or delay
receipt of any approval referred to in Section 6.02 or the consummation of the
transactions contemplated by this Plan.
III. ACTIONS PENDING CONSUMMATION.
Without the prior written consent of First Union, each of ABI and American
Bank shall conduct its business in the ordinary and usual course consistent with
past practice and shall use its best efforts to maintain and preserve its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees, and each of ABI and
American Bank will not, and will cause each of its subsidiaries not to and each
of ABI and American Bank will not agree and will cause each of its subsidiaries
not to agree to:
3.01. CAPITAL STOCK. Except for or as otherwise permitted in or
contemplated by this Plan or the Stock Option Agreement, issue, sell or
otherwise permit to become outstanding any additional shares of American Bank
Common Stock, American Bank Preferred Stock, ABI Common Stock, ABI Preferred
Stock, or any other capital stock of ABI or American Bank, any stock
appreciation rights, or any Rights with respect thereto, or enter into any
agreement with respect to the foregoing, or permit any additional shares of ABI
Common Stock to become subject to grants of employee stock options, stock
appreciation rights or similar stock based employee compensation rights.
3.02. DIVIDENDS, ETC. Make, declare or pay any dividend on or in respect of
(other than dividends on the ABI Preferred Stock in accordance with its terms
and dividends from subsidiaries to ABI or American Bank, as applicable), or
declare or make any distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock or,
other than as permitted under the Stock Option Agreement, authorize the creation
or issuance of, or issue, any additional shares of its capital stock or any
Rights.
3.03. INDEBTEDNESS; LIABILITIES; ETC. Other than in the ordinary course of
business consistent with past practice, incur any indebtedness for borrowed
money, assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual, corporation
or other entity.
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3.04. LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Except as may be
directed by any regulatory agency, (i) change its or its subsidiaries' lending,
investment, liability management and other material banking policies in any
material respect, except such changes as are in accordance and in an effort to
comply with Section 5.11 of this Plan, or (ii) incur or commit to incur any
capital expenditures other than in the ordinary course of business and not
exceeding $10,000 (which in no event shall include the establishment of new
branches and such other facilities or any other capital expenditures for any
other purpose).
3.05. LIENS AND ENCUMBRANCES. Impose or suffer the imposition, on any share
of stock held by it or by one of its subsidiaries, of any lien, charge or
encumbrance, or permit any such lien, charge or encumbrance to exist.
3.06. COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into or amend any
employment, severance or similar agreement or arrangement with any director,
officer or employee, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice.
3.07. BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or as provided in this Plan) any pension, retirement, stock
option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or other employees, including
without limitation taking any action that accelerates the vesting or exercise of
any benefits payable thereunder.
3.08. CONTINUANCE OF BUSINESS. Except for the sale of the stock of Leasing
Consultants of Charlotte, Inc. pursuant to Section 5.01 herein, dispose of or
discontinue any portion of its assets, business or properties, which is material
to ABI and its subsidiaries taken as a whole, or merge or consolidate with, or
acquire all or any portion of, the business or property of any other entity
which is material to ABI and its subsidiaries taken as a whole (except
foreclosures or acquisitions of control by American Bank in its fiduciary
capacity, in each case in the ordinary course of business consistent with past
practice).
3.09. AMENDMENTS. Amend its Articles of Incorporation, Charter or Bylaws.
IV. REPRESENTATIONS AND WARRANTIES.
4.01. ABI AND AMERICAN BANK REPRESENTATIONS AND WARRANTIES. Each of ABI and
American Bank hereby represents and warrants to First Union and FUNB-NC as
follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with respect
to it are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. It is duly qualified to do
business and is in good standing in the States of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be duly
qualified, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect (as hereinafter defined) on it. Each of ABI and American
Bank has in effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now conducted, the absence of which, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect on
it.
(C) SHARES. The outstanding shares of it are validly issued and
outstanding, fully paid and nonassessable, and subject to no preemptive rights.
Except as Previously Disclosed in Schedule 4.01(C) and except as provided under
the Stock Option Agreement, there are no shares of capital stock or other equity
securities of ABI or American Bank outstanding and no outstanding Rights with
respect thereto.
(D) ABI SUBSIDIARIES. ABI has Previously Disclosed in Schedule 4.01(D) a
list of all of the subsidiaries of ABI (each an ABI Subsidiary and,
collectively, the ABI Subsidiaries). Each of the ABI Subsidiaries that is a
savings bank is an insured depository institution as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder. No equity
securities of any of the ABI Subsidiaries are or may become required to be
issued (other than to ABI) by reason of any Rights with respect thereto. There
are no contracts, commitments, understandings or arrangements by which any of
the ABI Subsidiaries is or may be bound to sell or otherwise issue any shares of
its capital stock, and there are no contracts, commitments, understandings or
arrangements relating to the rights of ABI or American Bank, as applicable, to
vote or to dispose of such shares. All of the shares of capital stock of each
ABI Subsidiary held by ABI or an ABI Subsidiary are fully paid and nonassessable
and are owned by ABI or an ABI Subsidiary free and clear of any charge,
mortgage, pledge, security interest, restriction, claim, lien or encumbrance.
Each ABI Subsidiary is in good standing under the laws of the jurisdiction in
which it
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is incorporated or organized, and is duly qualified to do business and in good
standing in the jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and in which the failure
to be duly qualified is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on it. Except as Previously Disclosed in Schedule
4.01(D), ABI does not own beneficially, directly or indirectly, any shares of
any equity securities or similar interests of any corporation, bank, business
trust, association or other organization. The deposits of American Bank are
insured by the Savings Insurance Fund (the SAIF) or the Bank Insurance Fund (the
BIF) of the Federal Deposit Insurance Corporation (the FDIC). American Bank is a
member in good standing with the Federal Home Loan Bank (the FHL Bank). Neither
ABI nor any ABI Subsidiary holds any interest in a partnership or joint venture
of any kind.
(E) CORPORATE POWER. It and each of the ABI Subsidiaries has the corporate
power and authority to carry on its business as it is now being conducted and to
own all its material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of approval by
its stockholders referred to in Section 6.01, each of this Plan and, as to ABI,
the Stock Option Agreement, has been authorized by all necessary corporate
action of it and is a valid and binding agreement of it enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(G) NO DEFAULTS. Subject to the approval by its stockholders referred to in
Section 6.01, the required regulatory approvals referred to in Section 6.02
herein and, in the case of ABI, Sections 8 and 9 of the Stock Option Agreement,
and the required filings under federal and state securities laws, and except as
Previously Disclosed on Schedule 4.01(G), the execution, delivery and
performance of this Plan and, as to ABI, the Stock Option Agreement, and the
consummation of the transactions contemplated hereby and thereby by it, does not
and will not (i) constitute a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or of any of the ABI
Subsidiaries or to which it or any of the ABI Subsidiaries or its or their
properties is subject or bound, which breach, violation or default is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
it, (ii) constitute a breach or violation of, or a default under, its Articles
of Incorporation, Charter or Bylaws, or (iii) require any consent or approval
under any such law, rule, regulation, judgment, decree, order, governmental
permit or license or the consent or approval of any other party to any such
agreement, indenture or instrument.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule 4.01(H),
(i) as to ABI, its Annual Report on Form 10-K for the fiscal year ended December
31, 1992, and all other documents filed or to be filed subsequent to December
31, 1992 under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended (together with the rules and regulations thereunder, the
Exchange Act), in the form filed with the Securities and Exchange Commission
(the SEC) (in each such case, the ABI Financial Reports), and (ii) as to
American Bank, its 1992 and 1993 call reports (in each case, the American Bank
Financial Reports and together with the ABI Financial Reports, the ABI/American
Bank Financial Reports) did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets in or
incorporated by reference into the ABI/American Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in the ABI/American Financial Reports
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein, in each case in accordance with
generally accepted accounting principles consistently applied during the periods
involved, as to the ABI Financial Reports, and in accordance with regulatory
accounting principles consistently applied to savings banks, as to the American
Bank Financial Reports, except in each case as may be noted therein, subject to
normal and recurring year-end audit adjustments in the case of unaudited
statements.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. None of ABI or the ABI Subsidiaries
has any obligation or liability (contingent or otherwise) that, individually or
in the aggregate, is reasonably likely to have a Material Adverse Effect on it,
except (i) as reflected in the ABI Financial Statements prior to the date of
this Plan, and (ii) for commitments and obligations made, or liabilities
incurred, in the ordinary course of its business consistent with past practice
since December 31, 1992. Since December 31, 1992, none of ABI or the ABI
Subsidiaries has incurred or paid any obligation or liability (including any
obligation or liability incurred in connection with any acquisitions in which
any form of direct financial assistance of the federal government or any agency
thereof has been provided to any ABI Subsidiary) which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on it.
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(J) NO EVENTS. Since December 31, 1992, no event has occurred which,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it.
(K) PROPERTIES. Except as reserved against in the ABI Financial Statements,
ABI and the ABI Subsidiaries have good and marketable title, free and clear of
all liens, encumbrances, charges, defaults, or equities of any character, to all
of the material properties and assets, tangible and intangible, reflected in the
ABI Financial Statements as being owned by ABI or the ABI Subsidiaries as of the
dates thereof other than those that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it. All buildings and all
fixtures, equipment, and other property and assets which are material to its
business on a consolidated basis and are held under leases or subleases by any
of ABI or the ABI Subsidiaries are held under valid leases or subleases
enforceable in accordance with their respective terms, other than any such
exceptions to validity or enforceability that, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect on it. The policies
of fire, theft, liability, fidelity and other insurance maintained with respect
to the assets or businesses of ABI or the ABI Subsidiaries provide adequate
coverage against loss.
(L) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed in
Schedule 4.01(L), no litigation, proceeding or controversy before any court or
governmental agency is pending which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it or which alleges
claims under any fair lending law or other law relating to discrimination and,
to the best of its knowledge, no such litigation, proceeding or controversy has
been threatened; and except as Previously Disclosed in Schedule 4.01(L) neither
it nor any of the ABI Subsidiaries or any of its or their properties is a party
to or is subject to any order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or similar submission to, any
federal or state governmental agency or authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(together with any and all agencies or departments of federal, state or local
government (including the FHL Bank, the FDIC and any other federal or state
bank, insurance and securities regulatory authorities, the Regulatory
Authorities)) and neither it nor any of the ABI Subsidiaries has been advised by
any of such Regulatory Authorities that such authority is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum or understanding, commitment
letter or similar submission.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in Schedule
4.01(M), each of ABI and the ABI Subsidiaries:
(1) have all permits, licenses, authorizations, orders and approvals
of, and have made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit them to own
their businesses as presently conducted and that are material to the
business of ABI and the ABI Subsidiaries; all such permits, licenses,
certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of ABI are in full force and effect and,
to the best knowledge of ABI, no suspension or cancellation of any of them
is threatened; and all such filings, applications and registrations are
current;
(2) have received no notification or communication from any Regulatory
Authority or the staff thereof (i) asserting that any of ABI or the ABI
Subsidiaries is not in compliance with any of the statutes, regulations or
ordinances which such Regulatory Authority enforces, which, as a result of
such noncompliance in any such instance, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on it, (ii)
threatening to revoke any license, franchise, permit or governmental
authorization, which revocation, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it, or (iii)
requiring any of ABI or the ABI Subsidiaries (or any of their officers,
directors or controlling persons) to enter into a cease and desist order,
agreement or memorandum of understanding (or requiring the board of
directors thereof to adopt any resolution or policy); and
(3) neither ABI nor any ABI Subsidiary is required by Section 32 of
the Federal Deposit Insurance Act to give prior notice to any federal
banking agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive.
(N) MATERIAL CONTRACTS. Except as Previously Disclosed in Schedule 4.01(N),
none of ABI or the ABI Subsidiaries, nor any of their respective assets,
businesses or operations, is a party to, or is bound or affected by, or receives
benefits under, any contract or agreement or amendment thereto that in each case
would be required to be filed as an exhibit to a Form 10-K filed by ABI that has
not been filed as an exhibit to ABI's Form 10-K filed for the fiscal year ended
December 31, 1992. None of ABI or the ABI Subsidiaries is in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its respective assets, business or
operations may be bound or affected, or under which it or any of its respective
assets, business or operations receives benefits, which default, individually
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or in the aggregate, is reasonably likely to have a Material Adverse Effect on
it, and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default. Neither ABI nor any
ABI Subsidiary is subject to or bound by any contract containing covenants which
limit the ability of ABI or any ABI Subsidiary to compete in any line of
business or with any person or which involve any restriction of geographical
area in which, or method by which, ABI or any ABI Subsidiary may carry on its
business (other than as may be required by law or any applicable Regulatory
Authority).
(O) REPORTS. Since January 1, 1990, each of ABI and the ABI Subsidiaries
has filed all reports and statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the FDIC,
(ii) the Office of Thrift Supervision, the FHL Bank and the Federal Home Loan
Bank System, and (iii) any other applicable Regulatory Authorities (except, in
the case of state securities authorities, filings which are not material). As of
their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Plan with respect to reports and
documents filed before the date of this Plan), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the authority with which they were filed
and did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein in light of
the circumstances under which they were made not misleading.
(P) NO BROKERS. All negotiations relative to this Plan and the transactions
contemplated hereby have been carried on by it directly with the other parties
hereto and no action has been taken by it that would give rise to any valid
claim against any party hereto for a brokerage commission, finder's fee or other
like payment, excluding a fee in an amount Previously Disclosed on Schedule
4.01(P) to be paid to The Meritas Group, Inc.
(Q) EMPLOYEE BENEFIT PLANS.
(1) Schedule 4.01(Q) contains a complete list of all bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock and
stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable change of control or similar
provisions in any plan, contract or arrangement maintained or contributed
to by it or any of the ABI Subsidiaries for the benefit of employees,
former employees, directors, former directors or their beneficiaries (the
Compensation and Benefit Plans). True and complete copies of all
Compensation and Benefit Plans, including, but not limited to, any trust
instruments and/or insurance contracts, if any, forming a part thereof, and
all amendments thereto have been supplied to First Union.
(2) All employee benefit plans within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (ERISA),
other than multiemployer plans within the meaning of Section 3(37) of ERISA
(Multiemployer Plans), covering employees or former employees of it and the
ABI Subsidiaries (the Plans), to the extent subject to ERISA, are in
substantial compliance with ERISA. Each Plan which is an employee pension
benefit plan within the meaning of Section 3(2) of ERISA (Pension Plan) and
which is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986 (as amended, the Code) has received a favorable
determination letter from the Internal Revenue Service, and it is not aware
of any circumstances reasonably likely to result in the revocation or
denial of any such favorable determination letter. There is no material
pending or, to its knowledge, threatened litigation relating to the Plans.
Neither it nor any of the ABI Subsidiaries has engaged in a transaction
with respect to any Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject it or any of the
ABI Subsidiaries to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which would be material.
(3) No liability under Subtitle C or D of Title IV of ERISA has been
or is expected to be incurred by it or any of the ABI Subsidiaries with
respect to any ongoing, frozen or terminated single-employer plan, within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or the single-employer plan of any entity which
is considered one employer with it under Section 4001(a)(15) of ERISA or
Section 414 of the Code (an ERISA Affiliate). Neither it nor any of the ABI
Subsidiaries presently contributes to a Multiemployer Plan, nor have they
contributed to such a plan within the five calendar years preceding this
year. No notice of a reportable event, within the meaning of Section 4043
of ERISA for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan or by any ERISA
Affiliate within the 12-month period ending on the date hereof.
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(4) All contributions required to be made under the terms of any Plan
have been timely made. Neither any Pension Plan nor any single-employer
plan of an ERISA Affiliate has an accumulated funding deficiency (whether
or not waived) within the meaning of Section 412 of the Code or Section 302
of ERISA. Neither it nor any of the ABI Subsidiaries has provided, or is
required to provide, security to any Pension Plan or to any single-employer
plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer plan, as of the
last day of the most recent plan year ended prior to the date hereof, the
actuarially determined present value of all benefit liabilities, within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent actuarial
valuation) did not exceed the then current value of the assets of such
Plan, and there has been no material change in the financial condition of
such Plan since the last day of the most recent Plan Year.
(6) Neither it nor any of the ABI Subsidiaries has any obligations for
retiree health and life benefits under any plan, except as set forth on
Schedule 4.01(Q). There are no restrictions on the rights of it or any of
its subsidiaries to amend or terminate any such Plan without incurring any
liability thereunder.
(7) Neither the execution and delivery of this Plan nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director
or any employee of it or any of the ABI Subsidiaries under any Compensation
and Benefit Plan or otherwise from it or any of the ABI Subsidiaries, (ii)
increase any benefits otherwise payable under any Compensation and Benefit
Plan, or (iii) result in any acceleration of the time of payment or vesting
of any such benefit.
(R) NO KNOWLEDGE. It knows of no reason why the regulatory approvals
referred to in Section 6.02 should not be obtained without the imposition of any
condition of the type referred to in the proviso following such Section 6.02.
(S) LABOR AGREEMENTS. Neither it nor any of the ABI Subsidiaries is a party
to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
or any of the ABI Subsidiaries the subject of a proceeding asserting that it or
any such subsidiary has committed an unfair labor practice (within the meaning
of the National Labor Relations Act) or seeking to compel it or such subsidiary
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it or any of the ABI
Subsidiaries, pending or, to the best of its knowledge, threatened, nor is it
aware of any activity involving it or any of the ABI Subsidiaries' employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(T) ASSET CLASSIFICATION. It has Previously Disclosed in Schedule 4.01(T) a
list, accurate and complete in all material respects, of the aggregate amounts
of loans, extensions of credit or other assets of ABI and the ABI Subsidiaries
that have been classified as of September 30, 1993 by it (the Asset
Classification); and no amounts of loans, extensions of credit or other assets
that have been classified as of September 30, 1993 by any regulatory examiner as
Other Loans Specially Mentioned, Substandard, Doubtful, Loss, or words of
similar import are excluded from the amounts disclosed in the Asset
Classification, other than amounts of loans, extensions of credit or other
assets that were charged off by ABI or an ABI Subsidiary prior to September 30,
1993.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan
losses shown on the consolidated balance sheets of ABI included in the ABI
Financial Statements at September 30, 1993, was adequate to provide for possible
losses, net of recoveries relating to loans previously charged off, on loans
outstanding (including accrued interest receivable) as of the date thereof.
(V) INSURANCE. Each of ABI and the ABI Subsidiaries has taken all requisite
action (including without limitation the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance policy or
policies in order to preserve all rights thereunder with respect to all matters
(other than matters arising in connection with this Plan and the transactions
contemplated hereby) that are known to ABI, except for such matters which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect on it. Set forth on Schedule 4.01(V) is a list of all insurance
policies maintained by or for the benefit of ABI or the ABI Subsidiaries or
their directors, officers, employees or agents.
(W) AFFILIATES. Except as Previously Disclosed in Schedule 4.01(W), to the
best of its knowledge, there is no person who, as of the date of this Plan, may
be deemed to be an affiliate of ABI as that term is used in Rule 145 under the
Securities Act of 1933, as amended (together with the rules and regulations
thereunder, the Securities Act).
(X) STATE TAKEOVER LAWS. It has taken all necessary action to exempt this
Plan and, as to ABI, the Stock Option Agreement from, and the transactions
contemplated by this Plan and the Stock Option Agreement, and this Plan, the
Stock
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Option Agreement and the transactions contemplated hereby and thereby are exempt
from, any applicable state takeover laws in effect as of the date of this Plan,
including, without limitation, Articles 9 and 9A of the North Carolina Business
Corporation Act.
(Y) NO FURTHER ACTION. It has taken all action so that the entering into of
this Plan and, as to ABI, the Stock Option Agreement, and the consummation of
the transactions contemplated hereby and thereby (including without limitation
the Mergers and the exercise of the Option (as defined in the Stock Option
Agreement)) or any other action or combination of actions, or any other
transactions, contemplated hereby or thereby do not and will not (i) require a
vote of stockholders (other than as set forth in Section 6.01), or (ii) result
in the grant of any rights to any person under the Articles of Incorporation,
Charter or Bylaws of ABI or any ABI Subsidiary or under any agreement to which
ABI or any of the ABI Subsidiaries is a party, or (iii) restrict or impair in
any way the ability of First Union or FUNB-NC to exercise the rights granted
hereunder or, as to First Union, under the Stock Option Agreement.
(Z) ENVIRONMENTAL MATTERS.
(1) It and each of the ABI Subsidiaries, the Participation Facilities
and the Loan Properties (each as defined below) are, and have been, in
compliance with all Environmental Laws (as defined below), except for
instances of noncompliance which are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on it.
(2) There is no proceeding pending or, to its knowledge, threatened
before any court, governmental agency or board or other forum in which it
or any of the ABI Subsidiaries or any Participation Facility has been, or
with respect to threatened proceedings, reasonably would be expected to be,
named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law, or
(ii) relating to the release or threatened release into the environment of
any Hazardous Material (as defined below), whether or not occurring at or
on a site owned, leased or operated by it or any of the ABI Subsidiaries or
any Participation Facility, except for such proceedings pending or
threatened that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it or have been Previously
Disclosed in Schedule 4.01(Z)(2).
(3) There is no proceeding pending or, to its knowledge, threatened
before any court, governmental agency or board or other forum in which any
Loan Property (or it or any of the ABI Subsidiaries in respect of any Loan
Property) has been, or with respect to threatened proceedings, reasonably
would be expected to be, named as a defendant or potentially responsible
party (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law, or (ii) relating to the release or threatened release
into the environment of any Hazardous Material, whether or not occurring at
or on a Loan Property, except for such proceedings pending or threatened
that are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on it or have been Previously Disclosed in Schedule
4.01(Z)(3).
(4) To its knowledge, there is no reasonable basis for any proceeding
of a type described in subparagraphs (2) or (3) above, except as has been
Previously Disclosed in Schedule 4.01(Z)(4).
(5) During the period of (i) its or any of the ABI Subsidiaries'
ownership or operation of any of their respective current properties, (ii)
its or any of the ABI Subsidiaries' participation in the management of any
Participation Facility, or (iii) its or any of the ABI Subsidiaries'
holding of a security interest in a Loan Property, there have been no
releases of Hazardous Material in, on, under or affecting any such
property, Participation Facility or Loan Property, except for such releases
that are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on it or have been Previously Disclosed in Schedule
4.01(Z)(5).
(6) To its knowledge, prior to the period of (i) its or any of the ABI
Subsidiaries' ownership or operation of any of their respective current
properties, (ii) its or any of the ABI Subsidiaries' participation in the
management of any Participation Facility, or (iii) its or any of the ABI
Subsidiaries' holding of a security interest in a Loan Property, there were
no releases of Hazardous Material in, on, under or affecting any such
property, Participation Facility or Loan Property, except for such releases
that are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on it or have been Previously Disclosed in Schedule
4.01(Z)(6).
(7) The following definitions apply for purposes of this Section
4.01(Z): Loan Property means any property owned by it or any of the ABI
Subsidiaries or in which it or any of the ABI Subsidiaries holds a security
interest, and, where required by the context, includes any such property
where ABI or any of the ABI Subsidiaries constitutes the owner or operator
of such property, but only with respect to such property; Participation
Facility means any facility in which it or any of the ABI Subsidiaries
participates in the management and, where required by the context, includes
the
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owner or operator of such property, but only with respect to such property;
Environmental Law means (i) any federal, state and local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment, (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource), or to human health or safety, or (b) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Material, in each case as amended and as now in effect and
includes, without limitation, the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments
and Reauthorization Act, the Federal Water Pollution Control Act of 1972,
the federal Clean Air Act, the federal Clean Water Act, the federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the federal Solid Waste Disposal and the
federal Toxic Substances Control Act, and the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health
Act of 1970, each as amended and as now in effect, and (ii) any common law
or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Material; Hazardous Material means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or
quantity, and includes, without limitation, any oil or other petroleum
product, toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any derivative or
by-product thereof, radon, radioactive material, asbestos, asbestos
containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
(AA) OPTION SHARES. As to ABI, the Option Shares (as defined in the Stock
Option Agreement), when issued upon exercise of the Option, will be validly
issued, fully paid and nonassessable and subject to no preemptive rights.
(BB) TAX REPORTS. Except as Previously Disclosed in Schedule 4.01(BB), (i)
all reports and returns with respect to Taxes (as defined below) that are
required to be filed by or with respect to it or the ABI Subsidiaries, including
without limitation consolidated federal income tax returns of it and the ABI
Subsidiaries (collectively, the ABI Tax Returns), have been duly filed, or
requests for extensions have been timely filed and have not expired, for periods
ended on or prior to December 31, 1992, and on or prior to the date of the most
recent fiscal year end immediately preceding the Effective Date, except to the
extent all such failures to file, taken together, are not reasonably likely to
have a Material Adverse Effect on it, and such ABI Tax Returns were true,
complete and accurate in all material respects, (ii) all taxes (which shall mean
federal, state, local or foreign income, gross receipts, windfall profits,
severance, property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes imposed on the income, properties or
operations of it or the ABI Subsidiaries, together with any interest, additions,
or penalties with respect thereto and any interest in respect of such additions
or penalties, collectively the Taxes) shown to be due on the ABI Tax Returns
have been paid in full, (iii) the ABI Tax Returns have been examined by the
Internal Revenue Service or the appropriate state, local or foreign taxing
authority or the period for assessment of the Taxes in respect of which such ABI
Tax Returns were required to be filed has expired, (iv) all Taxes due with
respect to completed and settled examinations have been paid in full, (v) no
issues have been raised by the relevant taxing authority in connection with the
examination of any of the ABI Tax Returns which are reasonably likely to result
in a determination that would have a Material Adverse Effect on it, except as
reserved against in the ABI Financial Reports, and (vi) no waivers of statutes
of limitations (excluding such statutes that relate to years currently under
examination by the Internal Revenue Service) have been given by or requested
with respect to any Taxes of it or the ABI Subsidiaries.
(CC) POOLING. It has not taken any action or failed to take any action that
would cause the Corporate Merger to fail to qualify for pooling of interests
accounting treatment.
(DD) ACCURACY OF INFORMATION. The statements contained in this Plan, the
Schedules and any other written documents executed and delivered by or on behalf
of ABI or American Bank pursuant to the terms of this Plan are true and correct
in all material respects, and such statements and documents do not omit any
material fact necessary to make the statements contained therein not misleading.
(EE) CONVERSION OF ABI PREFERRED STOCK. The conversion of each outstanding
share of ABI Preferred Stock set forth in Section 2.01(C)(ii) of this Plan into
159 shares of ABI Common Stock has been calculated in accordance with (i) the
Articles of Incorporation of ABI, (ii) any and all conversions of such shares
into shares of ABI Common Stock, and (iii) any and all documents distributed to
any holders of ABI Preferred Stock.
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(FF) EMPLOYEE STOCK PURCHASE PLAN. The ABI Employee Stock Purchase Plan, a
true, complete and correct copy of which is Previously Disclosed on Schedule
4.01(FF) (the Stock Plan) (i) complies with all applicable ERISA laws, (ii) has
been validly terminated in accordance with its terms as of November 1, 1993, and
(iii) does not obligate ABI to issue any additional shares of ABI Common Stock
to any employee or former employee of ABI or American Bank.
4.02. FIRST UNION AND FUNB-NC REPRESENTATIONS AND WARRANTIES. Each of First
Union and FUNB-NC hereby represents and warrants to ABI and American Bank, as
follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with respect
to it are true and correct.
(B) CORPORATE AUTHORITY. Subject to the required regulatory approvals
referred to in Section 6.02, each of this Plan and, in the case of First Union,
the Stock Option Agreement, has been authorized by all necessary corporate
action of it and is a valid and binding agreement of it enforceable against it
in accordance with its terms, subject to bankruptcy, insolvency and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(C) NO DEFAULTS. Subject to the required regulatory approvals referred to
in Section 6.02 herein, in the case of First Union, Section 3 of the Stock
Option Agreement, and the required filings under federal and state securities'
laws, the execution, delivery and performance of this Plan and (in the case of
First Union) the Stock Option Agreement, and the consummation of the
transactions contemplated hereby and thereby by it, do not and will not (i)
constitute a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of it or of any of its subsidiaries or to
which it or any of its subsidiaries or properties is subject or bound, which
breach, violation or default is reasonably likely to have a Material Adverse
Effect on it, (ii) constitute a breach or violation of, or a default under, its
Articles of Incorporation, Charter or Bylaws, or (iii) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, or the consent or approval of any other party to
any such agreement, indenture or instrument.
(D) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule 4.02(D),
in the case of First Union, its Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and all other documents filed or to be filed subsequent
to December 31, 1992 under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, in the form filed with the SEC (in each such case, the First Union
Financial Reports), did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets in or
incorporated by reference into the First Union Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in the First Union Financial Reports
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth therein, in each case in accordance with
generally accepted accounting principles consistently applied to banks and bank
holding companies during the periods involved, except as may be noted therein,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements.
(E) NO EVENTS. Except as Previously Disclosed in Schedule 4.02(E), since
September 30, 1993, no event has occurred which is reasonably likely to have a
Material Adverse Effect on it.
(F) NO BROKERS. All negotiations relative to this Plan and the transactions
contemplated hereby have been carried on by it directly with the other parties
hereto and no action has been taken by it that would give rise to any valid
claim against any party hereto for a brokerage commission, finder's fee or other
like payment.
(G) NO KNOWLEDGE. It knows of no reason why the regulatory approvals
referred to in Section 6.02 should not be obtained without the imposition of any
condition of the type referred to in the proviso following such Section 6.02.
(H) SHARES AUTHORIZED. In the case of First Union, the shares of First
Union Common Stock to be issued in exchange for shares of ABI Common Stock and
ABI Preferred Stock upon consummation of the Corporate Merger in accordance with
Article II of this Plan will have been duly authorized and, when issued in
accordance with the terms of this Plan, will be validly issued, fully paid and
nonassessable and subject to no preemptive rights.
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V. COVENANTS.
Each of ABI and American Bank hereby covenants to First Union and FUNB-NC,
and each of First Union and FUNB-NC hereby covenants to ABI and American Bank,
that:
5.01. BEST EFFORTS. Subject to the terms and conditions of this Plan, it
shall use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Mergers on the Effective Date and to otherwise enable consummation of the
transactions contemplated hereby and (in the case of ABI and First Union) by the
Stock Option Agreement and shall cooperate fully with the other parties hereto
to that end (it being understood that any amendments to the Registration
Statement (as hereinafter defined) or a resolicitation of proxies as a
consequence of an acquisition agreement by First Union or any of its
subsidiaries shall not violate this covenant). It is understood that American
Bank shall use its best efforts in good faith to sell the stock of its
wholly-owned subsidiary, Leasing Consultants of Charlotte, Inc., on or prior to
the Effective Date at a price and terms acceptable to First Union; provided,
however, that American Bank is under no obligation to so sell the stock of
Leasing Consultants of Charlotte, Inc., the sale of Leasing Consultants of
Charlotte, Inc. is not a condition precedent to the consummation of the Mergers
and the Exchange Ratio shall not be adjusted as a result of the sale or failure
to sell the stock of Leasing Consultants of Charlotte, Inc. by American Bank.
5.02. ABI PROXY. In the case of ABI, it shall promptly prepare a proxy
statement (the Proxy Statement) to be mailed to the holders of ABI Common Stock
and ABI Preferred Stock in connection with the transactions contemplated hereby
and to be filed by First Union in a registration statement (the Registration
Statement) with the SEC, which shall conform to all applicable legal
requirements and it shall call a special meeting (the Meeting) of the holders of
ABI Common Stock and ABI Preferred Stock to be held as soon as practicable for
purposes of voting upon the transactions contemplated hereby and ABI shall use
its best efforts to solicit and obtain votes of the holders of ABI Common Stock
and ABI Preferred Stock in favor of the transactions contemplated hereby and the
board of directors of ABI, subject to the exercise of fiduciary duties by such
directors, shall recommend approval of such transactions by such holders;
provided, however, any failure by the board of directors of ABI to recommend
such approval shall be based on the reasonable written opinion of outside
counsel, and in the event the board of directors of ABI does not recommend such
approval and such transactions are not approved by the holders of ABI Common
Stock or ABI Preferred Stock, ABI agrees to reimburse First Union and FUNB-NC
for all out-of-pocket expenses incurred by them in connection with the
transactions contemplated by this Plan, including, without limitation,
attorneys' and accountants' fees.
5.03. REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness, up to
and including the date of the Meeting, such Registration Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by or on behalf of ABI relating to ABI or
the ABI Subsidiaries and by or on behalf of First Union relating to First Union
or its subsidiaries, (i) will comply in all material respects with the
provisions of the Securities Act and any other applicable statutory or
regulatory requirements, and (ii) will 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 not misleading; provided,
however, in no event shall any party hereto be liable for any untrue statement
of a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another party furnished by or on behalf of such other party
specifically for use in the Registration Statement.
5.04. REGISTRATION STATEMENT EFFECTIVENESS. First Union will advise ABI,
promptly after First Union receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, of the issuance of any stop order or the suspension of the
qualification of the First Union Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
5.05. PRESS RELEASES. ABI and American Bank will not, without the prior
approval of First Union, issue any press release or written statement for
general circulation relating to the transactions contemplated hereby, except as
otherwise required by law.
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<PAGE>
5.06. ACCESS; INFORMATION.
(A) Upon reasonable notice, ABI and American Bank shall afford
First Union and its officers, employees, counsel, accountants and other
authorized representatives, access, during normal business hours
throughout the period prior to the Effective Date, to all of its
properties, books, contracts, commitments and records and, during such
period, ABI and American Bank shall furnish promptly to First Union (i)
a copy of each material report, schedule and other document filed by ABI
and American Bank pursuant to the requirements of federal or state
securities or banking laws, and (ii) all other information concerning
the business, properties and personnel of ABI and American Bank as First
Union may reasonably request, provided that no investigation pursuant to
this Section 5.06 shall affect or be deemed to modify or waive any
representation or warranty made by ABI or American Bank or the
conditions to the obligations of ABI and American Bank to consummate the
transactions contemplated by this Plan.
(B) First Union will not use any information obtained pursuant to
this Section 5.06 for any purpose unrelated to the consummation of the
transactions contemplated by this Plan and, if this Plan is terminated,
will hold all information and documents obtained pursuant to this
paragraph in confidence (as provided in Section 8.06) unless and until
such time as such information or documents become publicly available
other than by reason of any action or failure to act by First Union or
as it is advised by counsel that any such information or document is
required by law or applicable stock exchange rule to be disclosed, and
in the event of the termination of this Plan, First Union will, upon
request by ABI, deliver to ABI all documents so obtained by First Union
or destroy such documents.
5.07. ACQUISITION PROPOSALS. In the case of ABI, it shall not, and it shall
cause the ABI Subsidiaries not to, solicit or encourage inquiries or proposals
with respect to, or, except as required by the fiduciary duties of the board of
directors of ABI (as advised in writing by its outside counsel), furnish any
nonpublic 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, ABI or any of the
ABI Subsidiaries or any merger or other business combination with ABI or any of
the ABI Subsidiaries other than as contemplated by this Plan; it shall instruct
its and the ABI Subsidiaries' officers, directors, agents, advisors and
affiliates to refrain from doing any of the foregoing; and it shall notify First
Union immediately if any such inquiries or proposals are received by, or any
such negotiations or discussions are sought to be initiated with, ABI or any of
the ABI Subsidiaries.
5.08. REGISTRATION STATEMENT PREPARATION. In the case of First Union, it
shall, as promptly as practicable following the date of this Plan, prepare and
file the Registration Statement with the SEC and First Union shall use its best
efforts to cause the Registration Statement to be declared effective as soon as
practicable after the filing thereof.
5.09. BLUE-SKY FILINGS. In the case of First Union, it shall use its best
efforts to obtain, prior to the effective date of the Registration Statement,
all necessary state securities laws or blue sky permits and approvals, provided
that First Union shall not be required by virtue thereof to submit to general
jurisdiction in any state.
5.10. AFFILIATE AGREEMENTS. In the case of ABI, it will cause each person
who may be deemed to be an affiliate of ABI for purposes of Rule 145 under the
Securities Act to execute and deliver to First Union on or before the mailing of
the Proxy Statement for the Meeting an agreement in the form attached hereto as
Exhibit D restricting the disposition of such affiliate's shares of ABI Common
Stock and ABI Preferred Stock and the shares of First Union Common Stock to be
received by such person in exchange for such person's shares of ABI Common Stock
and ABI Preferred Stock.
5.11. CERTAIN POLICIES OF ABI AND AMERICAN BANK. In the case of ABI and
American Bank, it shall use its best efforts to modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) prior to the Effective Date so as to be
consistent on a mutually satisfactory basis with those of First Union and
generally accepted accounting principles. ABI's and American Bank's
representations, warranties and covenants contained in this Plan shall not be
deemed to be untrue or breached in any respect for any purpose as a consequence
of any modifications or changes undertaken solely on account of this Section
5.11.
5.12. STATE TAKEOVER LAW. In the case of ABI, ABI shall not take any action
that would cause the transactions contemplated by this Plan and/or the Stock
Option Agreement to be subject to any applicable state takeover statute in
effect as of the date of this Plan and ABI shall take all necessary steps to
exempt (or ensure the continued exemption of) the transactions contemplated by
this Plan and the Stock Option Agreement from, or, if necessary, challenge the
validity or applicability of, any applicable state takeover law, as now or
hereafter in effect, including, without limitation, Articles 9 and 9A of the
North Carolina Business Corporation Act.
B-14
<PAGE>
5.13. NO RIGHTS TRIGGERED. In the case of ABI, ABI shall take all necessary
steps to ensure that the entering into of this Plan and the Stock Option
Agreement and the consummation of the transactions contemplated hereby and
thereby (including without limitation the Mergers and the exercise of the
Option) and any other action or combination of actions, or any other
transactions contemplated hereby or thereby do not and will not (i) result in
the grant of any rights to any person under the Articles of Incorporation or
Bylaws of ABI or under any agreement to which ABI or any of the ABI Subsidiaries
is a party, or (ii) restrict or impair in any way the ability of First Union or
FUNB-NC to exercise the rights granted hereunder or, as to First Union, under
the Stock Option Agreement.
5.14. SHARES LISTED. In the case of First Union, it shall use its best
efforts to list, prior to the Effective Date, on the NYSE, upon official notice
of issuance, the shares of First Union Common Stock to be issued to the holders
of ABI Common Stock and ABI Preferred Stock pursuant to this Plan.
5.15. MERGER; POOLING. It undertakes and agrees to use its best efforts to
cause the Mergers to be effected and to take no action which would cause the
Corporate Merger to fail to qualify for pooling of interests accounting
treatment.
5.16. REGULATORY APPLICATIONS. In the case of First Union and FUNB-NC, (i)
it shall promptly prepare and submit applications to the appropriate Regulatory
Authorities for approval of the Mergers, and (ii) promptly make all other
appropriate filings to secure all other approvals, consents and rulings which
are necessary for the consummation of the Mergers by First Union and FUNB-NC.
5.17. ARM AUDIT. ABI and American Bank agree to cause an independent audit
of the adjustable rate mortgage (ARM) portfolio of American Bank and its
subsidiaries to be performed as promptly as practicable (the Audit). The Audit
is to be performed by an audit firm acceptable to First Union and be under the
direction of First Union, and shall be completed before the Proxy Statement is
mailed to the ABI stockholders. ABI agrees that if the cost of the Audit, plus
the estimated cost, as determined in the absolute discretion of such audit firm,
to satisfy any liabilities of American Bank and its subsidiaries that are
discovered by the Audit, exceeds $100,000 (the Audit Excess) then the Exchange
Ratio shall be adjusted by (i) dividing (x) the Base Purchase Price (as defined
below) minus the Audit Excess by (y) the Base Purchase Price, and (ii)
multiplying the result of (i) above by the Exchange Ratio then in effect. Base
Purchase Price means 2,457,430 (representing the number of shares of ABI Common
Stock outstanding on the date hereof, assuming all of the outstanding shares of
ABI Preferred Stock are converted into shares of ABI Common Stock in accordance
with the terms of the ABI Preferred Stock), times the Exchange Ratio times
$40.50.
5.18. ENVIRONMENTAL STUDY. ABI and American Bank agree to cause a Phase II
environmental study to be conducted as promptly as practicable by an independent
third party acceptable to First Union on properties serving as collateral for
selected loans made by American Bank and its subsidiaries identified by First
Union on Exhibit 5.18 (the Study). The Study will be conducted under the
direction of First Union, and shall be completed before the Proxy Statement is
mailed to the ABI stockholders.
5.19. DIRECTOR AND OFFICER INSURANCE. First Union shall, or shall cause the
Continuing Corporation to, use its reasonable best efforts to maintain ABI's
existing directors' and officers' liability policy (or First Union's existing
policy) covering persons who are currently covered by such policy for a period
of six months after the Effective Date; provided that neither First Union nor
the Continuing Corporation shall be obligated to make annual premium payments in
respect of such policy (or First Union's policy) which exceed, for the portion
related to ABI's directors and officers, the annual premium payments on ABI's
current policy in effect as of the date of this Plan.
5.20. EMPLOYEE STOCK PURCHASE PLAN. ABI and its Board of Directors
undertake and agree to take or cause to be taken any corporate action by it, not
inconsistent with its Articles of Incorporation, Bylaws or applicable law,
requested to be taken by First Union, in the exercise of the sole discretion and
judgment of First Union, relating to or in connection with the Stock Plan,
including, but not limited to, corporate actions (i) to ratify the issuances of
ABI Common Stock pursuant to the Stock Plan, (ii) to confirm the termination of
the Stock Plan, in accordance with its terms, to be effective as of November 1,
1993, (iii) to confirm that no additional ABI Common Stock is issued, or any
obligation to so issue be incurred, by ABI to any employee or former employee of
ABI or American Bank pursuant to the Stock Plan, or (iv) to cause the stock
certificates issued pursuant to the Stock Plan to be legended with the
restrictions on transfer or exchange set forth in Exhibit 5.20 hereof.
B-15
<PAGE>
VI. CONDITIONS TO CONSUMMATION OF THE MERGERS.
Consummation of the Mergers is conditioned upon:
6.01. SHAREHOLDER VOTE. Approval of the transactions contemplated hereby by
the requisite vote of the stockholders of ABI, as may be required.
6.02. REGULATORY APPROVALS. Procurement by First Union and FUNB-NC of
regulatory consents and approvals by the appropriate Regulatory Authorities and
the expiration of the statutory waiting period relating thereto; provided,
however, that no approval or consent in Section 6.02 shall have imposed any
condition or requirement which, in the opinion of First Union would so
materially adversely impact the economic or business benefits to First Union of
the transactions contemplated by this Plan so as to render inadvisable the
consummation of the Mergers.
6.03. NO INJUNCTION. There shall not be in effect any order, decree or
injunction of any court or agency of competent jurisdiction that enjoins or
prohibits consummation of any of the transactions contemplated hereby or under
the Stock Option Agreement.
6.04. DIXON, ODOM & CO., L.L.P. LETTERS. First Union shall have received
from Dixon, Odom & Co., L.L.P. letters, dated the date of or shortly prior to
(i) the mailing of the Proxy Statement, and (ii) the Effective Date, in form and
substance satisfactory to First Union, with respect to ABI's consolidated
financial position and results of operations, which letters shall be based upon
customary specified procedures undertaken by such firm, and First Union shall
have received from Dixon, Odom & Co., L.L.P. a letter, dated as of the Effective
Date in form and substance satisfactory to First Union, to the effect that
Dixon, Odom & Co., L.L.P. are not aware of any facts or circumstances that might
cause the Corporate Merger not to qualify for pooling of interests accounting
treatment.
6.05. LEGAL OPINION. ABI and American Bank shall have received an opinion,
dated the Effective Date, of Marion A. Cowell, Jr., counsel for First Union and
FUNB-NC, in form reasonably satisfactory to ABI and American Bank, which shall
cover the matters contained in Exhibit E hereto.
6.06. LEGAL OPINION. First Union shall have received an opinion, dated the
Effective Date, of Ward and Smith, P.A., in form reasonably satisfactory to
First Union, which shall cover the matters contained in Exhibit F hereto.
6.07. OFFICERS' CERTIFICATE. (i) Each of the representations and warranties
contained herein of First Union and FUNB-NC shall be true and correct as of the
date of this Plan and upon the Effective Date with the same effect as though all
such representations and warranties had been made on the Effective Date, except
for any such representations and warranties made as of a specified date, which
shall be true and correct as of such date, and (ii) each and all of the
agreements and covenants of First Union and FUNB-NC to be performed and complied
with pursuant to this Plan on or prior to the Effective Date shall have been
duly performed and complied with in all material respects, and ABI and American
Bank shall have received a certificate signed by an executive officer of each of
First Union and FUNB-NC dated the Effective Date, to such effect.
6.08. OFFICERS' CERTIFICATE. (i) Each of the representations and warranties
contained herein of ABI and American Bank shall be true and correct as of the
date of this Plan and upon the Effective Date with the same effect as though all
such representations and warranties had been made on the Effective Date, except
for any such representations and warranties made as of a specified date, which
shall be true and correct as of such date, and (ii) each and all of the
agreements and covenants of ABI and American Bank to be performed and complied
with pursuant to this Plan on or prior to the Effective Date shall have been
duly performed and complied with in all material respects, and First Union and
FUNB-NC shall have received a certificate signed by the Chief Executive Officers
and the Chief Financial Officers of ABI and American Bank dated the Effective
Date, to such effect.
6.09. EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
have become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Regulatory Authority.
6.10. BLUE-SKY PERMITS. First Union shall have received all state
securities laws and blue sky permits necessary to consummate the Corporate
Merger.
6.11. TAX OPINION. First Union and ABI shall have received an opinion from
Sullivan & Cromwell to the effect that (i) the Corporate Merger constitutes a
reorganization under Section 368 of the Code, and (ii) no gain or loss will be
recognized by stockholders of ABI who receive shares of First Union Common Stock
in exchange for their shares of ABI Common Stock and ABI Preferred Stock, except
that gain or loss may be recognized as to cash received in lieu of fractional
share
B-16
<PAGE>
interests and, in rendering their opinion, Sullivan & Cromwell may require and
rely upon representations contained in certificates of officers of First Union,
ABI and others.
6.12. NYSE LISTING. The shares of First Union Common Stock issuable
pursuant to this Plan shall have been approved for listing on the NYSE, subject
to official notice of issuance.
6.13. POOLING LETTER. First Union shall have received a letter, dated as of
the Effective Date, in form and substance acceptable to First Union, from KPMG
Peat Marwick to the effect that the Corporate Merger will qualify for pooling of
interests accounting treatment.
6.14. RECEIPT OF AFFILIATE AGREEMENTS. First Union shall have received from
each affiliate of ABI the agreement referred to in Section 5.10; provided,
however, that a failure to satisfy any of the conditions set forth in the
proviso following Section 6.02 or in Section 6.04, 6.06, 6.08, 6.13 or 6.14
shall only constitute conditions if asserted by First Union, and a failure to
satisfy any of the conditions set forth in Section 6.05 or 6.07 shall only
constitute conditions if asserted by ABI.
VII. TERMINATION.
This Plan may be terminated prior to the Effective Date, either before or
after receipt of required stockholder approvals:
7.01. MUTUAL CONSENT. By the mutual consent of First Union and ABI, if the
Board of Directors of each so determines by vote of a majority of the members of
its entire Board.
7.02. BREACH. By First Union or ABI, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of (i) a breach by the other party of any representation or warranty
contained herein, which breach cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching party of such
breach, or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching party of
such breach.
7.03. DELAY. By First Union or ABI, if its Board of Directors so determines
by vote of a majority of the members of its entire Board, in the event that the
Corporate Merger is not consummated by September 30, 1994.
7.04. NO STOCKHOLDER APPROVAL. By ABI or First Union, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, in the event that any stockholder approval contemplated by Section 6.01
herein is not obtained at a meeting or meetings called for the purpose of
obtaining such approval.
7.05. POSSIBLE ADJUSTMENT. By ABI, if its Board of Directors so determines
by a vote of a majority of the members of its entire Board, at any time during
the fifteen-day period commencing with the Determination Date, if both of the
following conditions are satisfied:
(1) the Average Closing Price on the Determination Date of shares of
First Union Common Stock shall be less than $32.50 per share; and
(2) (i) the number obtained by dividing the Average Closing Price on
such Determination Date by $40.50 (such number being referred to herein as
the First Union Ratio) shall be less than (ii) the number obtained by
dividing the Index Price on the Determination Date by the Index Price on
the Starting Date and subtracting 0.20 from the quotient in this clause (2)
(ii) (such number being referred to herein as the Index Ratio); subject,
however, to the following three sentences. If ABI elects to exercise its
termination right pursuant to the above clause of this Section 7.05, it
shall give prompt written notice to First Union (provided that such notice
of election to terminate may be withdrawn at any time within the
aforementioned fifteen-day period). During the seven-day period commencing
with its receipt of such notice, First Union shall have the option, in the
case of a failure to fulfill any condition in the above clause of this
Section 7.05, of adjusting the Exchange Ratio to equal the lesser of (i) a
number equal to a quotient, the numerator of which is $40.50 multiplied by
the Exchange Ratio and the denominator of which is the Average Closing
Price, and (ii) a number equal to a quotient, the numerator of which is the
Index Ratio multiplied by the Exchange Ratio and the denominator of which
is the First Union Ratio. If First Union makes an election contemplated by
the preceding sentence, within such seven-day period, it shall give prompt
written notice to ABI of such election and the revised Exchange Ratio,
whereupon no termination shall have occurred pursuant to this Section 7.05
and this Plan shall remain in effect in accordance with its terms (except
as the Exchange Ratio shall have been so modified).
For purposes of this Section 7.05, the following terms shall have the
meanings indicated:
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<PAGE>
Average Closing Price means the average of the daily closing sales prices
of First Union Common Stock as reported on the NYSE Composite Transactions
reporting system (as reported by The Wall Street Journal or, if not reported
thereby, another authoritative source as chosen by First Union) for the 20
consecutive full trading days in which such shares are traded on the NYSE ending
at the close of trading on the Determination Date.
Determination Date means the date on which the approval of the Office of
the Comptroller of the Currency (OCC) required for consummation of the Bank
Merger shall be received. Index Group means the 16 bank holding companies listed
below, the common stock of all of which shall be publicly traded and as to which
there shall not have been a publicly announced proposal since the Starting Date
and before the Determination Date for any such company to be acquired. In the
event that the common stock of any such company ceases to be publicly traded or
a proposal to acquire any such company is announced after the Starting Date and
before Determination Date, such company will be removed from the Index Group,
and the weights (which have been determined based on the number of outstanding
shares of common stock) redistributed proportionately for purposes of
determining the Index Price. The 16 bank holding companies and the weights
attributed to them are as follows:
<TABLE>
<S> <C>
Bank Holding Company Weighting
Bank One Corp. (ONE)......................................................................... 16.36%
Norwest Corporation (NOB).................................................................... 9.30
SunTrust Banks, Inc. (STI)................................................................... 6.75
Key/Society Corp. (KEY)...................................................................... 8.28
Fleet Financial Group, Inc. (FLT)............................................................ 5.36
NBD Bancorp, Inc. (NBD)...................................................................... 6.25
PNC Financial Corp (PNC)..................................................................... 8.24
U.S. Bancorp (USBC).......................................................................... 3.11
Wachovia Corporation (WB).................................................................... 7.96
First Bank System, Inc. (FBS)................................................................ 4.40
First Fidelity Bancorporation (FFB).......................................................... 3.76
Barnett Banks, Inc. (BBI).................................................................... 4.90
National City Corporation (NCC).............................................................. 5.06
CoreStates Financial Corp. (CSFN)............................................................ 4.20
Mellon Bank Corporation (MEL)................................................................ 4.29
Boatmen's Bancshares, Inc. (BOAT)............................................................ 1.78
100.00%
</TABLE>
Index Price on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices of the companies
composing the Index Group.
Starting Date means the first NYSE trading day immediately following the
date of the first public announcement of entry into this Plan.
If any company belonging to the Index Group or First Union declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting Date
and the Determination Date, the prices for the common stock of such company or
First Union shall be appropriately adjusted for the purposes of applying this
Section 7.05.
7.06. ENVIRONMENTAL EXCESS. By First Union, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in the
event the cost of the Study plus the Estimated Cost (as defined below) exceeds
$500,000. Estimated Cost means the cost, as determined in the absolute
discretion of the third party conducting the Study, to American Bank and its
subsidiaries to remedy any environmental damage discovered by the Study;
provided, however, in the event the Estimated Cost is expressed by the third
party conducting the Study as a range of possible costs, the Estimated Cost
shall be the average of the high and low numbers of such range.
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<PAGE>
VIII. OTHER MATTERS.
8.01. SURVIVAL. If the Effective Date occurs, all representations,
warranties, agreements and covenants contained in this Plan shall not survive
the Effective Date. If this Plan is terminated prior to the Effective Date, the
agreements and representations of the parties in Sections 4.01(P), 4.01(AA), and
4.02(F), the agreements following the proviso in Section 5.02, Sections 5.03,
5.06(B), 5.12 and 5.13, and Sections 8.01, 8.03, 8.04, 8.05, 8.06, 8.07, 8.09
and 8.11 shall survive such termination.
8.02. WAIVER; AMENDMENT. Prior to the Effective Date, any provision of this
Plan may be (i) waived by the party benefitted by the provision, or (ii) amended
or modified at any time (including the structure of the transactions
contemplated hereby), by an agreement in writing among the parties hereto
approved by their respective Boards of Directors and executed in the same manner
as this Plan, except that, after the vote by the stockholders of ABI, the
consideration to be received by the stockholders of ABI for each share of ABI
Common Stock and ABI Preferred Stock shall not thereby be decreased.
8.03. COUNTERPARTS. This Plan may be executed in one or more counterparts,
each of which shall be deemed to constitute an original. This Plan shall become
effective when one counterpart has been signed by each party hereto.
8.04. GOVERNING LAW. This Plan shall be governed by, and interpreted in
accordance with, the laws of the State of North Carolina, except as federal law
may be applicable.
8.05. EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Plan and the transactions contemplated hereby, except
printing expenses which shall be shared equally between ABI and First Union. In
the event the transactions contemplated by this Plan are not consummated, ABI
and First Union shall equally pay the fees charged by the audit firm with
respect to the Audit and the fees charged by the third party with respect to the
Study; provided, however, ABI shall bear all such fees in the event the
transactions contemplated by this Plan are not consummated as a result of
termination by First Union pursuant to Section 7.02 herein.
8.06. CONFIDENTIALITY. Except as otherwise provided in Section 5.06(B),
each of the parties hereto and their respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
8.07. NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or telex (confirmed in writing) to such party at its
address set forth below or such other address as such party may specify by
notice to the parties hereto.
<TABLE>
<S> <C>
If to First Union or FUNB-NC, to: First Union Corporation
One First Union Center
Charlotte, N.C. 28288-0013
Attn: Chief Executive Officer
Copy to: Marion A. Cowell, Jr., Esq.
First Union Corporation
One First Union Center
Charlotte, N.C. 28288-0013
If to ABI or American Bank, to: American Bancshares, Inc.
201 East Windsor Street
Monroe, North Carolina 28112
Attn: Chief Executive Officer
Copy to: Anthony Gaeta, Jr., Esq.
Ward and Smith, P.A.
Suite 2400
Two Hannover Square
Fayetteville Street Mall
Raleigh, N.C. 27601
</TABLE>
8.08. DEFINITIONS. Any term defined anywhere in this Plan shall have the
meaning ascribed to it for all purposes of this Plan (unless expressly noted to
the contrary). In addition:
(1) the term Material Adverse Effect, when applied to a party, shall mean
an event, occurrence or circumstance (including without limitation (i) the
making of any provisions for possible loan and lease losses, write-downs of
other real estate and taxes, and (ii) any breach of a representation or warranty
by such party) which (a) has or is reasonably likely to
B-19
<PAGE>
have a material adverse effect on the financial condition, results of
operations, business or prospects of the party and its subsidiaries, taken as a
whole, or (b) would materially impair the party's ability to perform its
obligations under this Plan or the Stock Option Agreement or the consummation of
any of the transactions contemplated hereby or thereby; and
(2) the term Previously Disclosed by a party shall mean information set
forth in a Schedule that is delivered by that party to the other party
contemporaneously with the execution of this Plan and specifically designated as
information Previously Disclosed pursuant to this Plan.
8.09. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan and the
Stock Option Agreement together represent the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
thereby and supersede any and all other oral or written agreements heretofore
made. Nothing in this Plan, expressed or implied, is intended to confer upon any
person, other than the parties hereto or their respective successors, any
rights, remedies, obligations or liabilities under or by reason of this Plan.
8.10. BENEFIT PLANS. Upon consummation of the Corporate Merger, except as
Previously Disclosed in Schedule 8.10, as soon as administratively practicable,
employees of ABI and the ABI Subsidiaries shall be generally entitled to
participate in the pension, severance, benefit and similar plans on
substantially the same terms and conditions as employees of First Union and its
subsidiaries. For the purpose of determining eligibility to participate in such
plans and the vesting of benefits under such plans (but not for the accrual of
benefits under such plans), First Union shall give effect to years of service
with ABI or the ABI Subsidiaries, as the case may be, as if such service were
with First Union or its subsidiaries.
8.11. HEADINGS. The headings contained in this Plan are for reference
purposes only and are not part of this Plan.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ JAMES K. BUCHANAN
NAME: JAMES K. BUCHANAN
TITLE: EXECUTIVE VICE PRESIDENT
AMERICAN BANCSHARES, INC.
By: /s/ RUSSELL W. POPE
NAME: RUSSELL W. POPE
TITLE: PRESIDENT
AMERICAN COMMERCIAL SAVINGS BANK, INC.,
SSB
By: /s/ RUSSELL W. POPE
NAME: RUSSELL W. POPE
TITLE: PRESIDENT
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ALL OF THE DIRECTORS
AMERICAN COMMERCIAL SAVINGS BANK, INC., SSB
<TABLE>
<S> <C>
/s/ THOMAS J. CALDWELL /s/ BRUCE M. SIMPSON
THOMAS J. CALDWELL BRUCE M. SIMPSON
/s/ H. PARKS HELMS /s/ JOHN O. SUMMEY, JR.
H. PARKS HELMS JOHN O. SUMMEY, JR.
/s/ ROBERT V. MCLEMORE /s/ NEAL O. WYLIE
ROBERT V. MCLEMORE NEAL O. WYLIE
/s/ JAMES C. PLYLER /s/ MARCUS E. YANDLE, SR.
JAMES C. PLYLER, SR. MARCUS E. YANDLE, SR.
/s/ RUSSELL W. POPE
RUSSELL W. POPE
</TABLE>
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BOARD OF DIRECTORS
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
<TABLE>
<S> <C>
/s/ E. MAYO BODDIE /s/ JAMES E. S. HYNES
E. MAYO BODDIE JAMES E. S. HYNES
/s/ RAYMOND A. BRYAN, JR. /s/ DANIEL W. MATHIS
RAYMOND A. BRYAN, JR. DANIEL W. MATHIS
/s/ JOHN F.A.V. CECIL /s/ EARL N. PHILLIPS, JR.
JOHN F.A.V. CECIL EARL N. PHILLIPS, JR.
/s/ JOHN W. COPELAND /s/ J. G. POOLE, JR.
JOHN W. COPELAND J. G. POOLE, JR.
/s/ JOHN CROSLAND, JR. /s/ JOHN P. ROSTAN, III
JOHN CROSLAND, JR. JOHN P. ROSTAN, III
/s/ J. WILLIAM DISHER /s/ NELSON SCHWAB, III
J. WILLIAM DISHER NELSON SCHWAB, III
/s/ FRANK H. DUNN, JR. /s/ CHARLES M. SHELTON, SR.
FRANK H. DUNN, JR. CHARLES M. SHELTON, SR.
/s/ MALCOLM P. EVERETT, III /s/ GEORGE SHINN
MALCOLM P. EVERETT, III GEORGE SHINN
/s/ JAMES F. GOODMON /s/ HARLEY F. SHUFORD, JR.
JAMES F. GOODMON HARLEY F. SHUFORD, JR.
/s/ SHELTON GORELICK /s/ CHARLES L. GRACE
SHELTON GORELICK CHARLES L. GRACE
</TABLE>
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EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 17, 1993 (the Agreement), by
and between American Bancshares, Inc., a North Carolina corporation (Issuer),
and First Union Corporation, a North Carolina corporation (Grantee).
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Mergers dated as of November 17, 1993 (the Plan), providing for, among other
things, the merger of Issuer with and into Grantee, with Grantee as the
surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Plan,
Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Plan.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the Option) to purchase
up to 443,700 shares (as adjusted as set forth herein) (the Option Shares, which
shall include the Option Shares before and after any transfer of such Option
Shares) of Common Stock, par value $1.00 per share (Issuer Common Stock), of
Issuer at a purchase price per Option Share (the Purchase Price) equal to $7.50.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder, as applicable, shall not be in
material breach of the agreements or covenants contained in this Agreement or
the Plan, and (ii) no preliminary or permanent injunction or other order against
the delivery of shares covered by the Option issued by any court of competent
jurisdiction in the United States shall be in effect, the Holder may exercise
the Option, in whole or in part, at any time and from time to time following the
occurrence of a Purchase Event; provided that the Option shall terminate and be
of no further force and effect upon the earliest to occur of (A) the Effective
Date, (B) termination of the Plan by Issuer in accordance with the terms thereof
prior to the occurrence of a Purchase Event or a Preliminary Purchase Event
unless the Issuer has, after the date hereof, engaged in discussions with any
third party regarding an Acquisition Transaction (as hereinafter defined) (an
Issuer Termination), (C) 18 months after the termination of the Plan by Issuer
in accordance with the terms thereof other than pursuant to an Issuer
Termination, and (D) 12 months after the termination of the Plan by Grantee in
accordance with the terms thereof (provided, however, that if a Preliminary
Purchase Event occurs before such termination, such period shall be 18 (and not
12) months, and provided further that if no Purchase Event or Preliminary
Purchase Event occurs before such termination but if within 12 months after such
termination a Purchase Event or a Preliminary Purchase Event shall occur, then
notwithstanding anything to the contrary contained herein, this Option shall
terminate 18 months after the first occurrence of such an event); and provided,
further, that any purchase of shares upon exercise of the Option shall be
subject to compliance with applicable law, including, without limitation, the
Bank Holding Company Act of 1956, as amended (the BHC Act). The rights set forth
in Section 8 shall terminate when the right to exercise the Option terminates
(other than as a result of a complete exercise of the Option) as set forth
herein. The term Holder shall mean the holder or holders of the Option from time
to time, and which initially is Grantee.
(b) As used herein, a Purchase Event means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
an Acquisition Transaction. As used herein, the term Acquisition
Transaction shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its subsidiaries, (B) the disposition, by sale,
lease, exchange or otherwise, of assets of Issuer or any of its
subsidiaries representing in either case 15% or more of the consolidated
assets of Issuer and its subsidiaries or (C) the issuance, sale or other
disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 20% or more of the
voting power of Issuer or any of its subsidiaries; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act of or the right to acquire
beneficial ownership of, or any group (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 20% or more of the then
outstanding shares of Issuer Common Stock.
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(c) As used herein, a Preliminary Purchase Event means any of the following
events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act) or shall have filed a registration statement under the Securities Act,
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 20% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a Tender Offer or
an Exchange Offer, respectively); or
(ii) the holders of Issuer Common Stock shall not have approved the
Plan at the meeting of such stockholders held for the purpose of voting on
the Plan, such meeting shall not have been held or shall have been canceled
prior to termination of the Plan or Issuer's Board of Directors shall have
withdrawn or modified in a manner adverse to Grantee the recommendation of
Issuer's Board of Directors with respect to the Plan, in each case after it
shall have been publicly announced that any person (other than Grantee or
any subsidiary of Grantee) shall have (A) made, or disclosed an intention
to make, a proposal to engage in an Acquisition Transaction, (B) commenced
a Tender Offer or filed a registration statement under the Securities Act
with respect to an Exchange Offer or (C) filed an application (or given a
notice), whether in draft or final form, under the BHC Act, the Bank Merger
Act or the Change in Bank Control Act of 1978, for approval to engage in an
Acquisition Transaction; or
(iii) any person, other than Grantee or any subsidiary of the Grantee,
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject
of public disclosure to engage in an Acquisition Transaction; or
(iv) after a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Plan and such breach
would entitle Grantee to terminate the Plan under Section 7.02 of Article
VII thereof (without regard to the cure period provided for therein unless
such cure is promptly effected without jeopardizing consummation of the
Mergers pursuant to the terms of the Plan); or
(v) any person, other than Grantee or any subsidiary of the Grantee,
other than in connection with a transaction to which Grantee has given its
prior written consent, shall have filed an application or notice with the
Board of Governors of the Federal Reserve System (the Federal Reserve
Board), or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
As used in this Agreement, person shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event (in either case, a Triggering
Event), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
Notice Date) specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the Closing) of such purchase (the Closing Date). If prior notification
to or approval of the Federal Reserve Board or any other regulatory authority is
required in connection with such purchase, Issuer shall cooperate with the
Holder in the filing of the required notice of application for approval and the
obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods). Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, the Holder shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer specified in subsection (f)
of this Section 14 hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (a) of
this Section 4, (i) Issuer shall deliver to the Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no pre-emptive rights, and
(B) if the Option is exercised in part
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only, an executed new agreement with the same terms as this Agreement evidencing
the right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (ii) the Holder shall deliver to Issuer a letter
agreeing that the Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 17, 1993. A COPY
OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if the Holder shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Issuer and
its counsel, to the effect that such legend is not required for purposes of the
Securities Act.
(d) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under Section 3(e), the tender of the
applicable purchase price in immediately available funds and the tender of a
copy of this Agreement to Issuer, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Issuer Common Stock shall not then
be actually delivered to the Holder. Issuer shall pay all expenses, and any and
all United States federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issue, and delivery of stock
certificates under this Section in the name of the Holder or its assignee,
transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities, and other rights to purchase Issuer Common
Stock, (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution, or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations, or conditions to be observed or performed hereunder by
Issuer, (iii) promptly to take all action as may from time to time be required
(including (A) complying with all premerger notification, reporting, and waiting
period requirements specified in 15 U.S.C. (section mark) 18a and regulations
promulgated thereunder and (B) in the event, under the BHC Act, or the Change in
Bank Control Act of 1978, as amended, or a state banking law, prior approval of
or notice to the Federal Reserve Board or to any state regulatory authority is
necessary before the Option may be exercised, cooperating fully with the Holder
in preparing such applications or notices and providing such information to the
Federal Reserve Board or such state regulatory authority as they may require) in
order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of the Issuer Common Stock pursuant hereto, and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
(f) This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase
in the aggregate the same number of shares of Issuer Common Stock purchasable
hereunder. The terms Agreement and Option as used herein include any Stock
Option Agreements and related Options for which this Agreement (and the Option
granted hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Agreement, and (in the case of loss, theft, or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer whether or not the
Agreement is lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER.
Issuer hereby represents and warrants to Grantee (and Holder, if different
than Grantee) as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this
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Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Issuer. This
Agreement has been duly executed and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Holder to exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to Section 7 upon
exercise of the Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer Common Stock
or other securities which may be issuable pursuant to Section 7, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and nonassessable,
and shall be delivered free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever, including any preemptive rights
of any stockholder of Issuer.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE.
Grantee hereby represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being, and any Option
Shares or other securities acquired by Grantee upon exercise of the Option will
not be, acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that the Holder shall receive, upon exercise of the Option,
the number and class of shares or other securities or property that the Holder
would have received in respect of Issuer Common Stock if the Option had been
exercised immediately prior to such event, or the record date therefor, as
applicable. If any additional shares of Issuer Common Stock are issued after the
date of this Agreement (other than pursuant to an event described in the first
sentence of this subsection (a)), the number of shares of Issuer Common Stock
subject to the Option shall be adjusted so that, after such issuance, it,
together with any shares of Issuer Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued
and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. The preceding sentence shall not be deemed to affect or
change any of the covenants or representations in the Plan.
(b) In the event that Issuer shall enter in an agreement: (i) to
consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the Substitute Option),
at the election of the Holder, of either (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation, or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as the Substitute Option Issuer).
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(c) The Substitute Option shall have the same terms as the Option,
provided, that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The Substitute Option Issuer shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement, which shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of the Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the Substitute Option Price)
shall then be equal to the Option Price multiplied by a fraction in which the
numerator is the number of shares of Issuer Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares of the
Substitute Common Stock for which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(1) Acquiring Corporation shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all of
Issuer's assets (or a substantial part of the assets of its subsidiaries
taken as a whole).
(2) Substitute Common Stock shall mean the common stock issued by the
Substitute Option Issuer upon exercise of the Substitute Option.
(3) Assigned Value shall mean the market/offer price (as defined in
Section 8).
(4) Average Price shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger, or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger, or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by Issuer, the person
merging into Issuer or by any company which controls such person, as the
Holder may elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this subsection (f), the
Substitute Option Issuer shall make a cash payment to the Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in the first sentence of this subsection (f) over (ii) the value of
the Substitute Option after giving effect to the limitation in the first
sentence of this subsection (f). This difference in value shall be determined by
a nationally-recognized investment banking firm selected by the Holder.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the holders of the other
shares of common stock issued by the Substitute Option Issuer are not entitled
to exercise any rights by reason of the issuance or exercise of the Substitute
Option and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value than other shares of common
stock issued by the Substitute Option Issuer).
(h) Issuer shall not enter into any agreement of the type described in
subsection (b) of this Section 7 unless the other party thereto commits to
provide the funding required for Issuer to pay either the Option Repurchase
Price or the Option Share Repurchase Price and otherwise to be bound by the
terms hereof.
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) Upon the occurrence of a Purchase Event that occurs prior to
termination of this Agreement, (i) at the request of the Holder, delivered
within 180 days of such occurrence (or such later period as provided in Section
10), Issuer shall repurchase the Option from the Holder at a price (the Option
Repurchase Price) equal to the amount by which (A) the sum of the market/offer
price (as hereinafter defined) and if such Holder is the Grantee, the Grantee's
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated by the Plan, including, without limitation, legal, accounting, and
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investment banking fees, exceeds (B) the Option Price, multiplied by the number
of shares for which this Option may then be exercised and (ii) at the request of
the owner or owners of Option Shares from time to time (the Owner), delivered
within 180 days of such occurrence (or such later period as provided in Section
10), Issuer shall repurchase such number of the Option Shares from the Owner as
the Owner shall designate at a price per share (the Option Share Repurchase
Price) equal to the sum of the market/offer price plus if such Owner is the
Grantee, the Grantee's reasonable out-of-pocket expenses incurred in connection
with the transactions contemplated by the Plan, including, without limitation,
legal, accounting, and investment banking fees. The term market/offer price
shall mean the highest of (x) the price per share of Issuer Common Stock at
which a tender offer or exchange offer therefor has been made, (y) the price per
share of Issuer Common Stock to be paid by any third party pursuant to an
agreement with Issuer, and (z) the highest closing price for shares of Issuer
Common Stock within the six-month period immediately preceding the date the
Holder gives notice of the required repurchase of this Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be. In the
event that a Tender Offer or an Exchange Offer is made for Issuer Common Stock
or an agreement is entered into for a merger or consolidation involving
consideration other than cash, the value of the securities or other property
issuable or deliverable in exchange for Issuer Common Stock shall be determined
by a nationally recognized investment banking firm selected by the Holder or
Owner, as the case may be. Notwithstanding the foregoing, if the same person who
has participated in a Triggering Event has entered, or after such Triggering
Event has occurred enters, into any agreement or understanding with Grantee (or
the Holder or Owner, if different from Grantee) relating to Grantee's, Owner's
or Holder's, as the case may be, rights under this Option or with respect to the
Option Shares or directly or indirectly relating to Issuer, Grantee, Owner
and/or Holder shall, notwithstanding the terms of such agreement or
understanding, at any time upon the occurrence of a Purchase Event of the type
set forth in clause (i) of subsection (b) of Section 3 without obtaining
Issuer's approval, recommendation, or consent, promptly request that Issuer
repurchase the Option and any Option Shares held by Grantee (or Owner or Holder,
if different from Grantee) as provided in this Section 8, and Issuer shall do
so.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 8 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 8. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 8 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to receive all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares, whereupon Issuer shall promptly
(i) deliver to the Holder a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of the Common Stock obtained by
multiplying the number of shares of the Common Stock for which the surrendered
Stock Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, and (ii) deliver to the Owner a
certificate for the Option Shares it is then so prohibited from repurchasing,
and Issuer shall have no further obligation to purchase such Option or Option
Shares.
9. REPURCHASE OF SUBSTITUTE OPTION UPON REQUEST OF HOLDER.
(a) At the request of the holder of the Substitute Option (the Substitute
Option Holder), the issuer of the Substitute Option (the Substitute Option
Issuer) shall repurchase the Substitute Option from the Substitute Option Holder
at a price (the Substitute Option Repurchase Price) equal to the amount by which
(i) the sum of the Highest Closing Price (as hereinafter defined) and if such
Substitute Option Holder is the Grantee, the Grantee's reasonable out-of-pocket
expenses incurred
B-28
<PAGE>
in connection with the transactions contemplated by the Plan, including, without
limitation, legal, accounting, and investment banking fees, exceeds (ii) the
exercise price of the Substitute Option, multiplied by the number of shares of
the Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the Substitute Share Owner) of
shares of the Substitute Common Stock (the Substitute Shares), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price per share (the
Substitute Share Repurchase Price) equal to the sum of the Highest Closing Price
and, if such Substitute Share Owner is the Grantee, the Grantee's reasonable
out-of-pocket expenses incurred in connection with the transactions contemplated
by the Plan, including, without limitation, legal, accounting, and investment
banking fees. The term Highest Closing Price shall mean the highest closing
price for shares of the Substitute Common Stock within the six-month period
immediately preceding the date the Substitute Option Holder gives notice of the
required repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in full, the
Substitute Option Issuer shall immediately so notify the Substitute Option
Holder and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price or Substitute Share Repurchase Price, respectively, which it is
no longer prohibited from delivering, within five business days after the date
on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delviery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares,
whereupon the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and (ii) deliver to the
Substitute Share Owner a certificate for the Substitute Option Shares it is then
so prohibited from repurchasing, and the Substitute Option Issuer shall have no
further obligation to purchase such Substitute Option or Substitute Shares.
10. EXTENSION PERIODS. The 180-day periods for exercise of certain rights
under subsection (a) of Section 8 shall be extended in each such case (i) to the
extent necessary to obtain all regulatory approvals for the exercise of such
rights and for the expiration of all statutory waiting periods and (ii) to the
extent necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise.
11. REGISTRATION RIGHTS.
(a) Demand Registration Rights. Issuer shall, subject to the conditions of
subparagraph (c) below, if requested by any Holder or Owner, as applicable,
including Grantee and any permitted transferee (the Selling Shareholder), as
expeditiously as possible prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by
B-29
<PAGE>
or are issuable to the Selling Shareholder upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by the
Selling Shareholder in such request, including without limitation a shelf
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use its best efforts to qualify such shares or other
securities for sale under any applicable state securities laws.
(b) Additional Registration Rights. If Issuer at any time after the
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to the
Selling Shareholder of its intention to do so and, upon the written request of
the Selling Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of Issuer Common Stock
intended to be included in such underwritten public offering by the Selling
Shareholder), Issuer will cause all such shares for which the Selling
Shareholder requests participation in such registration, to be so registered and
included in such underwritten public offering; provided, however, that Issuer
may elect to not cause any such shares to be so registered (i) if the
underwriters in good faith object for valid business reasons, or (ii) in the
case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4; provided, further, however, that such election
pursuant to (i) may only be made one time. If some but not all the shares of
Issuer Common Stock, with respect to which Issuer shall have received requests
for registration pursuant to this subsection (b), shall be excluded from such
registration, Issuer shall make appropriate allocation of shares to be
registered among the Selling Shareholders desiring to register their shares pro
rata in the proportion that the number of shares requested to be registered by
each such Selling Shareholder bears to the total number of shares requested to
be registered by all such Selling Shareholders then desiring to have Issuer
Common Stock registered for sale.
(c) Conditions to Required Registration. Issuer shall use all reasonable
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
provided, however, that Issuer may delay any registration of Option Shares
required pursuant to subparagraph (a) above for a period not exceeding 90 days
provided Issuer shall in good faith determine that any such registration would
adversely affect an offering or contemplated offering of other securities by
Issuer, and Issuer shall not be required to register Option Shares under the
Securities Act pursuant to subsection (a) above:
(i) prior to the earliest of (a) termination of the Plan pursuant to
Article VII thereof, (b) failure to obtain the requisite stockholder
approval pursuant to Section 6.01 of Article VI of the Plan, and (c) a
Purchase Event or a Preliminary Purchase Event;
(ii) on more than two occasions;
(iii) more than once during any calendar year;
(iv) within 90 days after the effective date of a registration
referred to in subsection (b) above pursuant to which the Selling
Shareholder or Selling Shareholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested; and
(v) unless a request therefor is made to Issuer by Selling
Shareholders that hold at least 25% or more of the aggregate number of
Option Shares (including shares of Issuer Common Stock issuable upon
exercise of the Option) then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares, provided, however, that Issuer shall not
be required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments,
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or cold comfort letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subsection (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subsection (a) or (b)
above.
B-30
<PAGE>
(e) Indemnification. In connection with any registration under subparagraph
(a) or (b) above Issuer hereby indemnifies the Selling Shareholders, and each
underwriter thereof, including each person, if any, who controls such holder or
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to Issuer by such indemnified party expressly for use therein, and
Issuer and each officer, director and controlling person of Issuer shall be
indemnified by such Selling Shareholders, or by such underwriter, as the case
may be, for all such expenses, losses, claims, damages and liabilities caused by
any untrue, or alleged untrue, statement, that was included by Issuer in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder or
such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this subsection (e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subsection (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action, but
the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subsection (e). In case notice of commencement of any such action shall be given
to the indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subsection (e) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the indemnifying
party, in lieu of indemnifying such party otherwise entitled to be indemnified,
shall contribute to the amount paid or payable by such party to be indemnified
as a result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the Selling Shareholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling Shareholders and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; provided, however, that in no case shall any Selling Shareholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to subsection (a) or (b)
above, Issuer and each Selling Shareholder (other than Grantee) shall enter into
an agreement containing the indemnification provisions of this subsection (e).
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholder
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144A. Issuer shall at its expense provide the Selling Shareholder with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the rules of
any stock exchange.
B-31
<PAGE>
(g) Issuer Taxes. Issuer will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
12. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired upon exercise to the Option are then authorized for quotation or
trading or listing on the NASDAQ/NMS or any securities exchange, Issuer, upon
the request of the Holder, will promptly file an application, if required, to
authorize for quotation or trading or listing the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the Option on the NASDAQ/NMS
or such other securities exchange and will use its best efforts to obtain
approval, if required, of such quotation or listing as soon as practicable.
13. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms Agreement and Option as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
14. MISCELLANEOUS.
(a) Expenses. Except as otherwise provided in Sections 8 and 9, 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) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiary; Severability. This
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between Grantee and Issuer (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
(other than any transferees of the Option Shares or any permitted transferee of
this Agreement pursuant to subsection (h) of this Section 14) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this 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
does not permit the Holder or Owner to acquire, or does not require Issuer to
repurchase, the full number of shares of Issuer Common Stock as provided in
Sections 3 and 8 (as adjusted pursuant to Section 7), it is the express
intention of Issuer to allow the Holder or Owner to acquire or to require Issuer
to repurchase such lesser number of shares as may be permissible without any
amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
B-32
<PAGE>
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
<TABLE>
<S> <C>
If to Issuer to: American Bancshares, Inc.
201 East Windsor Street
Monroe, North Carolina 28112
Telecopy Number: (704) 283-2940
Attention: Russell W. Pope, Chief Executive Officer
with a copy to: Ward and Smith, P.A.
Suite 2400, Two Hannover Square
Fayetteville Street Mall
Raleigh, North Carolina 27601
Telecopy Number: (919) 836-1507
Attention: Anthony Gaeta, Jr., Esq.
If to Grantee to: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telecopy Number: (704) 374-3425
Attention: Edward E. Crutchfield, Jr.
Chairman and Chief Executive Officer
with a copy to: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telecopy Number: (704) 374-3425
Attention: Marion A. Cowell, Jr., Esq.,
General Counsel
</TABLE>
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that the Holder may assign this
Agreement to a wholly owned subsidiary of the Holder and the Holder may assign
its rights hereunder in whole or in part after the occurrence of a Purchase
Event. Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by the
Holder, Issuer and the Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
AMERICAN BANCSHARES, INC.
/s/ Russell W. Pope
Name: Russell W. Pope
Title: President
FIRST UNION CORPORATION
By: /s/ Kenneth R. Stancliff
Name: Kenneth R. Stancliff
Title: Senior Vice President
B-34
<PAGE>
EXHIBIT B
DIRECTORS' AGREEMENT
November 17, 1993
First Union Corporation and
First Union National Bank of North Carolina
One First Union Center
Charlotte, North Carolina 28288-0013
Dear Sirs:
In order to induce you to enter into an Agreement and Plan of Mergers (the
Plan) dated of even date herewith among American Bancshares, Inc. (ABI),
American Commercial Savings Bank, Inc., SSB (American Bank), all of the
directors of American Bank, First Union Corporation (First Union) and First
Union National Bank of North Carolina (FUNB-NC), each of the undersigned, for
himself, his heirs and legal representatives, hereby agrees, represents,
warrants and covenants with and to First Union and FUNB-NC as follows:
1. Such undersigned beneficially owns the shares of ABI Series A Preferred
Stock set forth below opposite such undersigned's name and no others. Such
shares are so owned free and clear of any lien, right or encumbrance whatsoever
and no proxy has been granted with respect thereto and such undersigned has full
capacity, power and authority to vote such shares without the consent or
approval of any other party.
2. Such undersigned hereby agrees to vote such shares in favor of approval
of the transactions contemplated by the Plan and, as a shareholder, agrees to
take all necessary action to consummate the Mergers (as defined in the Plan) as
expeditiously as possible.
3. Each of the undersigned has executed this letter, which has been duly
and validly executed and delivered and represents a valid and legally binding
obligation of each of the undersigned, enforceable against them in accordance
with the terms hereof.
Very truly yours,
<TABLE>
<CAPTION>
Number of Shares
<C> <S>
/s/ Thomas J. Caldwell (L.S.)
-0- Thomas J. Caldwell
/s/ H. Parks Helms (L.S.)
10 H. Parks Helms
/s/ Robert V. McLemore (L.S.)
-0- Robert V. McLemore
/s/ James C. Plyler, Sr. (L.S.)
100 James C. Plyler, Sr.
/s/ Russell W. Pope (L.S.)
-0- Russell W. Pope
/s/ Bruce M. Simpson (L.S.)
200 Bruce M. Simpson
/s/ John O. Summey, Sr. (L.S.)
-0- John O. Summey, Sr.
/s/ Neal O. Wylie (L.S.)
500 Neal O. Wylie
/s/ Marcus E. Yandle, Sr. (L.S.)
25 Marcus E. Yandle, Sr.
</TABLE>
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<PAGE>
EXHIBIT C
PLAN OF MERGER
I. Corporations Participating in Merger.
American Bancshares, Inc. (ABI) will merge (the Merger) into First Union
Corporation (First Union), which will be the surviving corporation (the
Continuing Corporation).
II. Name of Continuing Corporation.
After the Merger, the Continuing Corporation will have the name First Union
Corporation.
III. Merger.
The Merger of ABI into First Union will be effected pursuant to the terms
and conditions of this Plan. Upon the Merger's becoming effective, the corporate
existence of ABI will cease, and the corporate existence of First Union will
continue. The date and time when the Merger becomes effective is hereinafter
referred to as the Effective Date.
IV. Conversion and Exchange of Shares.
On the Effective Date, the outstanding shares of the corporations
participating in the Merger will be converted and exchanged as follows:
(A) OUTSTANDING FIRST UNION COMMON STOCK. The shares of First Union
common stock, $3.33 1/3 par value (including the rights attached thereto,
the First Union Common Stock), issued and outstanding immediately prior to
the Effective Date shall, on and after the Effective Date, remain as issued
and outstanding shares of First Union Common Stock.
(B) OUTSTANDING ABI COMMON STOCK. Each share (excluding shares held by
dissenting stockholders (Dissenters' Shares) or held by ABI or any of its
subsidiaries or by First Union or any of its subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted (Treasury Shares)) of ABI common stock, $1.00 par value (the ABI
Common Stock), issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Merger, automatically and without any action
on the part of the holder thereof, become and be converted into the right
to receive 0.211 shares of First Union Common Stock (the Exchange Ratio),
subject to possible adjustment as set forth in Sections (H), (K) and (L),
and any references in this Plan to Exchange Ratio shall thereafter be
deemed to refer to the Exchange Ratio as adjusted pursuant to such
Sections, as applicable.
(C) OUTSTANDING ABI PREFERRED STOCK. Each share (excluding Dissenters'
Shares and Treasury Shares) of ABI Series A Convertible Preferred Stock,
$1.00 par value (the ABI Preferred Stock), issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Merger,
automatically and without any action on the part of the holder thereof,
become and be converted into the right to receive a number of shares of
First Union Common Stock equal to the product of (i) the Exchange Ratio and
(ii) the number of shares of ABI Common Stock into which a share of ABI
Preferred Stock is convertible as of September 30, 1993, which number is
159.
(D) STOCKHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date,
holders of ABI Common Stock and ABI Preferred Stock shall cease to be, and
shall have no rights as, stockholders of ABI, other than to receive the
consideration provided under this Plan. After the Effective Date, there
shall be no transfers on the stock transfer books of ABI or the Continuing
Corporation of the shares of ABI Common Stock and ABI Preferred Stock which
were issued and outstanding immediately prior to the Effective Date.
(E) FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of First Union Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, First Union shall pay to each holder of ABI Common Stock
or ABI Preferred Stock who would otherwise be entitled to a fractional
share an amount in cash determined by multiplying such fraction by the last
sale price of First Union Common Stock on the last trading day prior to the
Effective Date, as reported by the New York Stock Exchange (the NYSE)
Composite Transactions reporting system (as reported in The Wall Street
Journal).
(F) EXCHANGE PROCEDURES. As promptly as practicable after the
Effective Date, First Union shall send or cause to be sent to each former
stockholder of ABI of record immediately prior to the Effective Date
transmittal materials for use in exchanging such stockholder's certificates
of ABI Common Stock and ABI Preferred Stock for the consideration set forth
in this Plan. The certificates representing the shares of First Union
Common Stock into which shares of such
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<PAGE>
stockholder's ABI Common Stock and ABI Preferred Stock are converted on the
Effective Date, any fractional share checks which such stockholder shall be
entitled to receive, and any dividends paid on such shares of First Union
Common Stock for which the record date for determination of stockholders
entitled to such dividends is on or after the Effective Date, will be
delivered to such stockholder only upon delivery to First Union National
Bank of North Carolina (the Exchange Agent) of the certificates
representing all of such shares of ABI Common Stock and ABI Preferred Stock
(or indemnity satisfactory to First Union and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such fractional share checks or dividends to
which the holder of such shares shall be entitled to receive upon such
delivery.
(G) DISSENTING STOCKHOLDERS. Any holder of shares of ABI Common Stock
or ABI Preferred Stock who perfects his dissenters' rights of appraisal in
accordance with and as contemplated by Article 13 of the North Carolina
Business Corporation Act shall be entitled to receive the value of such
shares in cash as determined pursuant to such provision of law; PROVIDED,
HOWEVER, that no such payment shall be made to any dissenting stockholder
unless and until such dissenting stockholder has complied with the
applicable provisions of the North Carolina Business Corporation Act and
duly surrendered the certificate or certificates representing the shares
for which payment is being made. In the event that a dissenting stockholder
of ABI fails to perfect, or effectively withdraws or loses, his right to
appraisal and of payment for his shares, after the Effective Date, First
Union shall issue and deliver the consideration to which such holder of
shares of ABI Common Stock or ABI Preferred Stock is entitled under this
Plan (without interest) upon surrender by such holder of the certificate or
certificates representing the shares of ABI Common Stock or ABI Preferred
Stock held by him.
(H) ANTI-DILUTION PROVISIONS. In the event First Union changes the
number of shares of First Union Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding
First Union Common Stock and the record date therefor shall be prior to the
Effective Date, the Exchange Ratio shall be proportionately adjusted.
(I) SHARES HELD BY ABI OR FIRST UNION. Each of the shares of ABI
Common Stock and ABI Preferred Stock held by ABI or any of its subsidiaries
or by First Union or any of its subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, shall be
cancelled and retired at the effectiveness of the Merger and no
consideration shall be issued in exchange therefor.
(J) RESERVATION OF RIGHT TO REVISE TRANSACTION. First Union may at any
time change the method of effecting the acquisition of ABI by First Union
if and to the extent it deems such change to be desirable; provided,
however, that no such change shall (i) alter or change the amount or kind
of consideration to be issued to holders of ABI Common Stock or ABI
Preferred Stock as provided for in this Plan, (ii) adversely affect the tax
treatment to ABI stockholders as a result of receiving such consideration,
or (iii) materially impede or delay receipt of any required regulatory
approval of the Merger.
(K) ARM AUDIT. ABI and its subsidiary, American Commercial Savings
Bank, Inc., SSB (American Bank) agree to cause an independent audit of the
adjustable rate mortgage (ARM) portfolio of American Bank and its
subsidiaries to be performed as promptly as practicable (the Audit). The
Audit is to be performed by an audit firm acceptable to First Union and be
under the direction of First Union, and shall be completed before the proxy
statement to be mailed to the stockholders of ABI for approval of the
Merger (the Proxy Statement) is mailed to the ABI stockholders. ABI agrees
that if the cost of the Audit, plus the estimated cost, as determined in
the absolute discretion of such audit firm, to satisfy any liabilities of
American Bank and its subsidiaries that are discovered by the Audit,
exceeds $100,000 (the Audit Excess) then the Exchange Ratio shall be
adjusted by (i) dividing (x) the Base Purchase Price (as defined below)
minus the Audit Excess by (y) the Base Purchase Price, and (ii) multiplying
the result of (i) above by the Exchange Ratio then in effect.
Base Purchase Price means 2,457,430 (representing the number of shares
of ABI Common Stock outstanding on the date hereof, assuming all of the
outstanding shares of ABI Preferred Stock are converted into shares of ABI
Common Stock in accordance with the terms of the ABI Preferred Stock),
times the Exchange Ratio times $40.50.
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(L) POSSIBLE ADJUSTMENT. The Plan may be terminated by ABI, if its
Board of Directors so determines by a vote of a majority of the members of
its entire Board, at any time during the fifteen-day period commencing with
the Determination Date, if both of the following conditions are satisfied:
(1) the Average Closing Price on the Determination Date of shares of First
Union Common Stock shall be less than $32.50 per share; and
(2) (i) the number obtained by dividing the Average Closing Price on such
Determination Date by $40.50 (such number being referred to herein
as the First Union Ratio) shall be less than (ii) the number
obtained by dividing the Index Price on the Determination Date by
the Index Price on the Starting Date and subtracting 0.20 from the
quotient in this clause (2) (ii) (such number being referred to
herein as the Index Ratio);
SUBJECT, HOWEVER, to the following three sentences. If ABI elects to
exercise its termination right pursuant to the above clause of this Section
(L), it shall give prompt written notice to First Union (provided that such
notice of election to terminate may be withdrawn at any time within the
aforementioned fifteen-day period). During the seven-day period commencing
with its receipt of such notice, First Union shall have the option, in the
case of a failure to fulfill any condition in the above clause of this
Section (L), of adjusting the Exchange Ratio to equal the lesser of (i) a
number equal to a quotient, the numerator of which is $40.50 multiplied by
the Exchange Ratio and the denominator of which is the Average Closing
Price, and (ii) a number equal to a quotient, the numerator of which is the
Index Ratio multiplied by the Exchange Ratio and the denominator of which
is the First Union Ratio. If First Union makes an election contemplated by
the preceding sentence, within such seven-day period, it shall give prompt
written notice to ABI of such election and the revised Exchange Ratio,
whereupon no termination shall have occurred pursuant to this Section (L)
and this Plan shall remain in effect in accordance with its terms (except
as the Exchange Ratio shall have been so modified).
For purposes of this Section (L), the following terms shall have the
meanings indicated:
Average Closing Price means the average of the daily closing sales
prices of First Union Common Stock as reported on the NYSE Composite
Transactions reporting system (as reported by The Wall Street Journal or,
if not reported thereby, another authoritative source as chosen by First
Union) for the 20 consecutive full trading days in which such shares are
traded on the NYSE ending at the close of trading on the Determination
Date.
Determination Date means the date on which the approval of the Office
of the Comptroller of the Currency required for consummation of the merger
of American Commercial Savings Bank, Inc., SSB into First Union National
Bank of North Carolina shall be received.
Index Group means the 16 bank holding companies listed below, the
common stock of all of which shall be publicly traded and as to which there
shall not have been a publicly announced proposal since the Starting Date
and before the Determination Date for any such company to be acquired. In
the event that the common stock of any such company ceases to be publicly
traded or a proposal to acquire any such company is announced after the
Starting Date and before Determination Date, such company will be removed
from the Index Group, and the weights (which have been determined based on
the number of outstanding shares of common stock) redistributed
proportionately for purposes of determining the Index Price. The 16 bank
holding companies and the weights attributed to them are as follows:
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<TABLE>
<CAPTION>
BANK HOLDING COMPANY WEIGHTING
<S> <C>
Banc One Corp. (ONE)................................................................................... 16.36%
Norwest Corporation (NOB).............................................................................. 9.30
SunTrust Banks, Inc. (STI)............................................................................. 6.75
Key/Society Corp. (KEY)................................................................................ 8.28
Fleet Financial Group, Inc. (FLT)...................................................................... 5.36
NBD Bancorp, Inc. (NBD)................................................................................ 6.25
PNC Financial Corp (PNC)............................................................................... 8.24
U.S. Bancorp (USBC).................................................................................... 3.11
Wachovia Corporation (WB).............................................................................. 7.96
First Bank System, Inc. (FBS).......................................................................... 4.40
First Fidelity Bancorporation (FFB).................................................................... 3.76
Barnett Banks, Inc. (BBI).............................................................................. 4.90
National City Corporation (NCC)........................................................................ 5.06
CoreStates Financial Corp. (CSFN)...................................................................... 4.20
Mellon Bank Corporation (MEL).......................................................................... 4.29
Boatmen's Bancshares, Inc. (BOAT)...................................................................... 1.78
100.00%
</TABLE>
Index Price on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices of the
companies composing the Index Group.
Starting Date means the first NYSE trading day immediately following
the date of the first public announcement of entry into this Plan.
If any company belonging to the Index Group or First Union declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the Determination Date, the prices for the common stock of such
company or First Union shall be appropriately adjusted for the purposes of
applying this Section (L).
(M) ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS; OFFICERS. The
Articles of Incorporation and Bylaws of the Continuing Corporation shall be
those of First Union, as in effect immediately prior to the Merger becoming
effective. The directors and officers of First Union in office immediately
prior to the Merger becoming effective shall be the directors and officers
of the Continuing Corporation, together with such additional directors and
officers as may thereafter be elected, who shall hold office until such
time as their successors are elected and qualified.
(N) NO THIRD PARTY BENEFICIARIES. Nothing in this Plan, expressed or
implied, is intended to confer upon any person, other than the parties
hereto or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Plan.
(O) WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Plan may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time (including the structure of the
transactions contemplated hereby), by an agreement in writing among the
parties hereto approved by their respective Boards of Directors, except
that, after the vote by the stockholders of ABI, the consideration to be
received by the stockholders of ABI for each share of ABI Common Stock and
ABI Preferred Stock shall not thereby be decreased.
(P) TERMINATION. In addition to the termination set forth in Section
(L), this Plan shall terminate and the Merger abandoned at any time prior
to the Effective Date if the Agreement and Plan of Mergers dated November
17, 1993, by and among First Union, First Union National Bank of North
Carolina, ABI and American Bank is terminated in accordance with its terms.
B-39
<PAGE>
ANNEX C
, 1994
Board of Directors
American Bancshares, Inc.
201 East Windsor Street
Monroe, North Carolina 28112
Members of the Board:
American Bancshares, Inc. (American Bancshares) and First Union Corporation
(First Union) have entered into a Agreement and Plan of Mergers, dated as of
November 17, 1993 (the Merger Agreement), pursuant to which First Union will
acquire American Bancshares by means of a merger (the Merger) of American
Bancshares into First Union and the exchange by First Union of 0.211 shares of
First Union common stock for each of the outstanding $1.00 par value shares of
common stock, after conversion of the convertible preferred stock, of American
Bancshares.
The Meritas Group, Inc., as a customary part of its financial advisory
consulting business, is engaged in the valuation of commercial banking and
thrift institutions and their securities in connection with mergers and
acquisitions, conversions from mutual to stock form, private placements and
valuations for corporate and other purposes.
You have requested our opinion as to the fairness, from a financial point
of view, to American Bancshares and its shareholders of the proposed exchange of
each share of common stock of American Bancshares for 0.211 shares of First
Union common stock pursuant to the terms of the Merger Agreement.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed American Bancshares' Annual Reports to Stockholders and
related financial information for the three fiscal years ended December 31,
1992 and American Bancshares' audited financial information for the year
ended December 31, 1993;
(2) Compared the results of operations of American Bancshares with
those of certain financial institutions which we deemed to be reasonably
similar to American Bancshares;
(3) Conducted discussions with members of senior management of
American Bancshares concerning the current business and prospects;
(4) Reviewed the historical market prices and trading activity for the
shares of First Union common stock and compared them with that of certain
publicly-related bank holding companies which we deemed to be reasonably
similar to First Union;
(5) Reviewed First Union's Annual Reports to Stockholders, Annual
Reports on Form 10-K and related financial information for the three fiscal
years ended December 31, 1992 and First Union's Quarterly Reports to
Stockholders for the fiscal quarters ended March 31, 1993, June 30, 1993
and September 30, 1993;
(6) Reviewed the Merger Agreement;
(7) Compared the proposed financial terms of the transaction
contemplated by the Merger Agreement with the financial terms of certain
other mergers and acquisitions which we deemed to be relevant, and;
(8) Reviewed other financial data, including data regarding First
Union's financial ratios and stock trading data, compared such information
to similar information for certain other companies and performed such other
investigations and took into account such other matters as we deemed
necessary.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by American
Bancshares and First Union, including the representations and warranties of such
parties included in the Merger Agreement, and we have not independently verified
such information or undertaken an independent appraisal of the assets of
American Bancshares.
It should be noted that this opinion is based on market conditions and
other circumstances existing on the date hereof.
Consummation of the Merger is subject to the receipt of all regulatory
approvals and approval of the stockholders of American Bancshares.
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<PAGE>
It is understood that this opinion may be included in its entirety in any
communication by American Bancshares or its Board of Directors to the
stockholders of American Bancshares. This opinion may, not, however, be
summarized, excerpted from or otherwise publicly referred to without our prior
written consent.
On the basis of, and subject to the foregoing, we are of the opinion that
as of the date hereof, the terms of the Merger Agreement are fair, from a
financial point of view, to the holders of American Bancshares common stock
including shares resulting from the conversion of the American Bancshares
convertible preferred stock.
THE MERITAS GROUP, INC.
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ANNEX D
ARTICLE 13 OF THE NORTH CAROLINA
BUSINESS CORPORATION ACT --
RELATING TO DISSENTERS' RIGHTS
(Section Mark)55-13-01. DEFINITIONS.
In this Article:
(1) Corporation means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) Dissenter means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) Fair value with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be
inequitable.
(4) Interest means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.
(5) Record shareholder means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) Beneficial shareholder means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) Shareholder means the record shareholder or the beneficial
shareholder.
(Section Mark)55-13-02. RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit corporation
or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
D-1
<PAGE>
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(Section Mark)55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
(Section Mark)55-13-20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
(Section Mark)55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
(Section Mark)55-13-22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
D-2
<PAGE>
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
(Section Mark)55-13-23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
(Section Mark)55-13-24. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(Section Mark)55-13-25. OFFER OF PAYMENT.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with G.S. 55-13-23 the amount the corporation estimates to be the fair value of
his shares, plus interest accrued to the date of payment, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
offer of payment, an income statement for that year, a statement of cash
flows for that year, and the latest available interim financial statements,
if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
(Section Mark)55-13-26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
(Section Mark)55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
CORPORATION'S OFFER OR FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under G.S. 55-13-25
is less than the fair value of his shares or that the interest due is
incorrectly calculated;
D-3
<PAGE>
(2) The corporation fails to make payment to a dissenter who accepts
the corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation offered payment for his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
(Section Mark)55-13-30. COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the date of his payment
demand under G.S. 55-13-28 and petition the court to determine the fair value of
the shares and accrued interest. Upon service upon it of the petition filed with
the court, the corporation shall pay to the dissenter the amount offered by the
corporation under G.S. 55-13-25.
(a1) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
(Section Mark)55-13-31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
D-4
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the NCBCA contain specific provisions
relating to indemnification of directors and officers of North Carolina
corporations. In general, the statute provides that (i) a corporation must
indemnify a director or officer who is wholly successful in his defense of a
proceeding to which he is a party because of his status as such, unless limited
by the articles of incorporation, and (ii) a corporation may indemnify a
director or officer if he is not wholly successful in such defense, if it is
determined as provided in the statute that the director or officer meets a
certain standard of conduct, provided when a director or officer is liable to
the corporation, the corporation may not indemnify him. The statute also permits
a director or officer of a corporation who is a party to a proceeding to apply
to the courts for indemnification, unless the articles of incorporation provide
otherwise, and the court may order indemnification under certain circumstances
set forth in the statute. The statute further provides that a corporation may in
its articles of incorporation or bylaws or by contract or resolution provide
indemnification in addition to that provided by the statute, subject to certain
conditions set forth in the statute.
FUNC's Bylaws provide for the indemnification of FUNC's directors and
executive officers by FUNC against liabilities arising out of his status as
such, excluding any liability relating to activities which were at the time
taken known or believed by such person to be clearly in conflict with the best
interests of FUNC.
FUNC's Articles provide for the elimination of the personal liability of
each director of FUNC to the fullest extent permitted by the provisions of the
NCBCA, as the same may from time to time be in effect.
FUNC maintains directors and officers liability insurance, which provides
coverage of up to $80,000,000, subject to certain deductible amounts. In
general, the policy insures (i) FUNC's directors and officers against loss by
reason of any of their wrongful acts, and/or (ii) FUNC against loss arising from
claims against the directors and officers by reason of their wrongful acts, all
subject to the terms and conditions contained in the policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(2) The Merger Agreement, including the related Plan of Merger and the Stock Option Agreement. (Incorporated by
reference to ANNEX B to the Prospectus/Proxy Statement included in this Registration Statement.)*
(3)(i) Articles of Incorporation of FUNC, as amended. (Incorporated by reference to Exhibit (4) to FUNC's 1990 First
Quarter Report on Form 10-Q and to Exhibit (99)(a) to FUNC's 1993 First Quarter Report on Form 10-Q.)
(3)(ii) By-laws of FUNC, as amended. (Incorporated by reference to Exhibit (4)(b) to FUNC's Form 8-K dated September 20,
1991.)
(4)(a) Statement of Classification of Shares creating the FUNC Series 1990 Preferred Stock. (Incorporated by reference to
Exhibit (3)(c) to FUNC's Registration Statement No. 33-42865.)
(4)(b) Shareholder Protection Rights Agreement, as amended. (Incorporated by reference to Exhibits (4)(b) to FUNC's Forms
8-K dated December 18, 1990 and October 20, 1992.)
(4)(c) All instruments defining the rights of holders of long-term debt of FUNC and its subsidiaries. (Not filed pursuant
to (4)(iii) of Item 601(b) of Regulation S-K; to be furnished upon request of the Commission.)
(5) Opinion of Marion A. Cowell, Jr., Esq.
(8) Tax opinion of Sullivan & Cromwell.
(12) Computation of Ratio of Earnings to Fixed Charges. (Incorporated by reference to Exhibit (12)(a) to FUNC's 1993
Annual Report on Form 10-K.)
(23)(a) Consent of KPMG Peat Marwick.
(23)(b) Consent of Dixon, Odom & Co., L.L.P.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. (Included in Exhibit (5).)
(23)(d) Consent of Sullivan & Cromwell. (Included in Exhibit (8).)
(23)(e) Consent of The Meritas Group, Inc.
(24) Power of Attorney.
(99) Forms of proxy for the Special Meeting of Stockholders of ABI.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (as amended, 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, the Exchange Act) (and, where applicable, each filing of an employee
benefit's plan 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.
(2) 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)
promulgated pursuant to the Securities Act, 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.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) 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 promulgated
pursuant to the Securities Act, 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.
(4) 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 foregoing provisions of this Item 22, or otherwise
(other than insurance), 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 Securities 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) 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) 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Charlotte, State of North Carolina, on March 10, 1994.
FIRST UNION CORPORATION
By: MARION A. COWELL, JR.
MARION A. COWELL, JR.
EXECUTIVE VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
EDWARD E. CRUTCHFIELD, JR.* Chairman and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD, JR.
ROBERT T. ATWOOD* Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH* Senior Vice President and Corporate Controller (Principal Accounting
Officer)
JAMES H. HATCH
G. ALEX BERNHARDT* Director
G ALEX BERNHARDT
W. WALDO BRADLEY* Director
W. WALDO BRADLEY
ROBERT J. BROWN* Director
ROBERT J. BROWN
Director
WARNER N. DALHOUSE
ROBERT D. DAVIS* Director
ROBERT D. DAVIS
R. STUART DICKSON* Director
R. STUART DICKSON
B. F. DOLAN* Director
B. F. DOLAN
RODDEY DOWD, SR.* Director
RODDEY DOWD, SR.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
JOHN R. GEORGIUS* Director
JOHN R. GEORGIUS
WILLIAM N. GOODWIN, JR.* Director
WILLIAM N. GOODWIN, JR.
BRENTON S. HALSEY* Director
BRENTON S. HALSEY
HOWARD H. HAWORTH* Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR.* Director
TORRENCE E. HEMBY, JR.
LEONARD G. HERRING* Director
LEONARD G. HERRING
Director
JACK A. LAUGHERY
MAX LENNON* Director
MAX LENNON
RADFORD D. LOVETT* Director
RADFORD D. LOVETT
HENRY D. PERRY, JR.* Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS* Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW* Director
RUTH G. SHAW
LANTY L. SMITH* Director
LANTY L. SMITH
Director
DEWEY L. TROGDON
JOHN D. UIBLE* Director
JOHN D. UIBLE
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
B. J. WALKER* Director
B. J. WALKER
KENNETH G. YOUNGER* Director
KENNETH G. YOUNGER
</TABLE>
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
MARION A. COWELL, JR.
Date: March 10, 1994
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(2) The Merger Agreement, including the related Plan of Incorporated by reference to ANNEX B to the
Merger and the Stock Option Agreement. Prospectus/Proxy Statement included in this Registration
Statement.*
(3)(i) Articles of Incorporation of FUNC, as amended. Incorporated by reference to Exhibit (4) to FUNC's 1990
First Quarter Report on Form 10-Q and to Exhibit (99)(a)
to FUNC's 1993 First Quarter Report on Form 10-Q.
(3)(ii) By-laws of FUNC, as amended. Incorporated by reference to Exhibit (4)(b) to FUNC's
Form 8-K dated September 20, 1991.
(4)(a) Statement of Classification of Shares creating the FUNC Incorporated by reference to Exhibit (3)(c) to FUNC's
Series 1990 Preferred Stock. Registration Statement No. 33-42865.
(4)(b) Shareholder Protection Rights Agreement, as amended. Incorporated by reference to Exhibits (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20, 1992.
(4)(c) All instruments defining the rights of holders of Not filed pursuant to (4)(iii) of Item 601(b) of
long-term debt of FUNC and its subsidiaries. Regulation S-K; to be furnished upon request of the
Commission.
(5) Opinion of Marion A. Cowell, Jr., Esq.
(8) Tax opinion of Sullivan & Cromwell.
(12) Computation of Ratio of Earnings to Fixed Charges. Incorporated by reference to Exhibit (12)(a) to FUNC's
1993 Annual Report on Form 10-K.
(23)(a) Consent of KPMG Peat Marwick.
(23)(b) Consent of Dixon, Odom & Co., L.L.P.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. Included in Exhibit (5).
(23)(d) Consent of Sullivan & Cromwell. Included in Exhibit (8).
(23)(e) Consent of The Meritas Group, Inc.
(24) Power of Attorney.
(99) Forms of proxy for the Special Meeting of Stockholders
of ABI.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
*****************************************************************************
APPENDIX
On Exhibit (5) a First Union logo appears where noted.
On Exhibit (5) there is a manually-signed signature of Marion A. Cowell, Jr.
On Exhibit (23)(a) there is a manually-signed signature of KPMG Peat Marwick.
On Exhibit (23)(b) there is a manually-signed signature of Dixon, Odom
& Co., L.L.P.
On Exhibit(23)(e) there is a manually-signed signature of The
Meritas Group, Inc.
On Page 4 of Exhibit (8) the signature of Sullivan & Cromwell
appears where indicated.
<PAGE>
EXHIBIT (5)
<TABLE>
<S> <C> <C>
FIRST UNION CORPORATION ONE FIRST UNION CENTER (0013) 225 WATER STREET (0585)
LEGAL DIVISION CHARLOTTE, NORTH CAROLINA 28288 JACKSONVILLE, FLORIDA 32202
MARION A. COWELL, JR. 704 374-6828 904 361-3518
EXECUTIVE VICE PRESIDENT FAX: 704 374-3425 FAX: 904 361-3144
GENERAL COUNSEL AND
SECRETARY
REPLY TO CHARLOTTE OFFICE
</TABLE>
(First Union logo)
March 10, 1994
Board of Directors
First Union Corporation
Charlotte, North Carolina 28288
Gentlemen:
I have acted as counsel for First Union Corporation (the Corporation) in
connection with the registration on Form S-4 (the Registration Statement) of
600,000 shares of the Corporation's Common Stock, $3.33 1/3 par value per share
(together with the rights attached thereto, the First Union Common Shares),
which are issuable under the terms of an Agreement and Plan of Mergers (the
Plan), dated as of November 17, 1993, by and among the Corporation, First Union
National Bank of North Carolina, American Bancshares, Inc., and American
Commercial Savings Bank, Inc., SSB.
On the basis of such investigation as I deemed necessary, I am of the
opinion that:
(1) the Corporation has been duly incorporated and is validly existing
under the laws of the State of North Carolina; and
(2) the First Union Common Shares have been duly authorized and, when
issued in accordance with the terms and conditions set forth in the Plan, will
be validly issued, fully paid and nonassessable.
I hereby consent to the use of my name under the heading Legal Opinions in
the Prospectus/Proxy Statement included in the Registration Statement and to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
(Signature of Marion A. Cowell, Jr.)
MARION A. COWELL, JR.
Exhibit (8)
<TABLE>
<S> <C>
SULLIVAN & CROMWELL
NEW YORK TELEPHONE (212) 558-4000
TELEX 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 BROAD STREET)
(212) 558-9782 (250 PARK AVENUE) 125 Broad Street, New York 10004-2498
250 PARK AVENUE, NEW YORK 10177-0021
1701 PENNSYLVANIA AVE., N.W., WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 80071-2801
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 91 IRONMONGER LANE, LONDON ECZV BEY
101 COLLINS STREET, MELBOURNE 3000
2-1. MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
GLOUCESTER TOWER, 11 PEDDER STREET, HONG KONG
</TABLE>
March 10, 1994
First Union Corporation,
One First Union Center,
Charlotte, North Carolina 28288-0013.
American Bancshares, Inc.,
201 East Windsor Street,
Monroe, North Carolina 28112.
Ladies and Gentlemen:
We have acted as special counsel to First Union Corporation, a corporation
organized under the laws of North Carolina ("FUNC"), in connection with the
planned mergers (the "Mergers") of American Bancshares, Inc., a corporation
organized under the laws of North Carolina ("ABI"), with and into FUNC
(the "Corporate Merger") and of American Commercial Savings Bank, Inc., SSB,
a corporation organized under the laws of North Carolina and wholly owned
by ABI ("American Bank"), with and into First Union National Bank of North
Carolina, a national banking association organized under the laws of
the United States and wholly owned by FUNC ("FUNC-NB"), (the "Bank Merger")
pursuant to the Agreement and Plan of Mergers, dated as of the 17th day of
November, 1993, by and between ABI, American Bank, FUNC and FUNB-NB (the
"Agreement"). Capitalized terms used but not defined herein shall have the
meanings specified in the Agreement.
<PAGE>
-2-
We have assumed with your consent that:
(a) the Mergers will be effected in accordance with the Agreement, and
(b) the representations contained in the letters of representation from
ABI and FUNC to us dated March 8, 1994, and March 7, 1994, respectively, will
be true at the Effective Time.
On the basis of the foregoing, and our consideration of such other matters
of fact and law as we have considered necessary or appropriate, it is our
opinion that, under presently applicable Federal income tax law,
(i) no gain or loss will be recognized for federal income tax purposes
by ABI stockholders upon the exchange in the Corporate Merger of shares of
ABI Common Stock or ABI Preferred Stock solely for FUNC Common Shares
(except with respect to cash received in lieu of a fractional share
interest in FUNC Common Shares);
(ii) the basis of FUNC Common Shares received in the Corporate
Merger by ABI stockholders (including the basis of any fractional
share interest in FUNC Common Shares) will be the same as the basis of
the shares of ABI Common Stock or ABI Preferred Stock surrendered in
exchange therefor;
(iii) the holding period of the FUNC Common Shares received in the
Corporate Merger by an ABI stockholder (including the holding period of
any fractional share interest in FUNC Common Shares)
<PAGE>
-3-
will include the holding period during which the shares of ABI Common
Stock or ABI Preferred Stock surrendered in exchange therefor were held
by the ABI stockholder, provided such shares of ABI Common Stock or ABI
Preferred Stock were held as capital assets; and
(iv) cash received by a holder of ABI Common Stock or ABI Preferred
Stock in lieu of a fractional share interest in FUNC Common Shares will
be treated as received in exchange for such fractional share interest
and, provided the fractional share would have constituted a capital
asset in the hands of such holder, the holder should in general recognize
capital gain or loss in an amount equal to the difference between the
amount of cash received and the portion of the adjusted tax basis in the
ABI Common Stock or ABI Preferred Stock allocable to the fractional share
interest.
The tax consequences described above may not be applicable to a shareholder
of ABI who acquired the stock of ABI pursuant to the exercise of an employee
stock option or right or otherwise as compensation or to an ABI stockholder
that is an insurance company, security dealer, financial institution or
foreign person.
We hereby consent to the reference to us under the heading "The Mergers--
Certain Federal Income Tax Consequences" in the Proxy Statement-Prospectus
pertaining to the Mergers and to the filing of this opinion as an exhibit
to the related Registration Statement on Form S-4 filed with the
<PAGE>
-4-
Securities and Exchange Commission. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
(Signature of Sullivan & Cromwell)
Sullivan & Cromwell
<PAGE>
EXHIBIT (23)(A)
CONSENT OF KPMG PEAT MARWICK
BOARD OF DIRECTORS
FIRST UNION CORPORATION
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of First Union Corporation of our report on the consolidated
financial statements included in the 1993 Annual Report to Stockholders which is
incorporated by reference in the 1993 Form 10-K of First Union Corporation and
to the reference to our firm under the heading Experts in the Prospectus.
(Signature of KPMG Peat Marwick)
KPMG PEAT MARWICK
Charlotte, North Carolina
March 10, 1994
<PAGE>
EXHIBIT (23)(B)
CONSENT OF DIXON, ODOM & CO., L.L.P.
BOARD OF DIRECTORS
AMERICAN BANCSHARES, INC.
We consent to the use of our report on the consolidated balance sheets
statements of American Bancshares, Inc. and subsidiaries as of December 31, 1993
and 1992 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three year period ended December 31,
1993, included in the Registration Statement on Form S-4 of First Union
Corporation and to the reference to our firm under the heading Experts in the
Prospectus.
(Signature of Dixon, Odom & Co., L.L.P.)
DIXON, ODOM & CO., L.L.P.
High Point, North Carolina
March 10, 1994
<PAGE>
EXHIBIT (23)(E)
CONSENT OF THE MERITAS GROUP
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement (Form S-4), Prospectus -- Proxy Statement, and any
amendments thereto (Amendments) regarding our opinion with regard to fairness
from a financial point of view (Fairness Opinion) in connection with the
acquisition of American Bancshares, Inc. (American
Bancshares) by First Union Corporation. We further consent to the filing of our
Fairness Opinion as an Exhibit in the Form S-4 for filing with the Securities
and Exchange Commission.
Very truly yours,
(Signature of The Meritas Group, Inc.)
The Meritas Group, Inc.
Chapel Hill, North Carolina
March 10, 1994
<PAGE>
EXHIBIT (24)
FIRST UNION CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of FIRST UNION CORPORATION (the Corporation) hereby constitute and appoint
Marion A. Cowell, Jr. and Kent S. Hathaway, and each of them severally, the true
and lawful agents and attorneys-in-fact of the undersigned with full power and
authority in said agents and attorneys-in-fact, and in any one of them, to sign
for the undersigned and in their respective names as directors and officers of
the Corporation, a Registration Statement on Form S-4 to be filed with the
Securities and Exchange Commission (the SEC) under the Securities Act of 1933,
as amended (the Act), including any and all amendments to such Registration
Statement, relating to the shares of the Corporation's Common Stock (including
the rights attached thereto) issuable to the stockholders of American
Bancshares, Inc. (ABI) upon consummation of the merger of ABI with and into the
Corporation (the Merger).
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
EDWARD E. CRUTCHFIELD, JR. Chairman, and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD, JR.
ROBERT T. ATWOOD Executive Vice President and Chief Financial Officer
ROBERT T. ATWOOD
JAMES H. HATCH Senior Vice President and Corporate Controller (Principal Accounting
Officer)
JAMES H. HATCH
G. ALEX BERNHARDT Director
G. ALEX BERNHARDT
W. WALDO BRADLEY Director
W. WALDO BRADLEY
ROBERT J. BROWN Director
ROBERT J. BROWN
Director
WARNER N. DALHOUSE
ROBERT D. DAVIS Director
ROBERT D. DAVIS
R. STUART DICKSON Director
R. STUART DICKSON
B. F. DOLAN Director
B. F. DOLAN
RODDEY DOWD, SR. Director
RODDEY DOWD, SR.
JOHN R. GEORGIUS Director
JOHN R. GEORGIUS
</TABLE>
<PAGE>
<PAGE>
SIGNATURE CAPACITY
WILLIAM N. GOODWIN, JR. Director
WILLIAM N. GOODWIN, JR.
BRENTON S. HALSEY Director
BRENTON S. HALSEY
HOWARD H. HAWORTH Director
HOWARD H. HAWORTH
TORRENCE E. HEMBY, JR. Director
TORRENCE E. HEMBY, JR.
LEONARD G. HERRING Director
LEONARD G. HERRING
Director
JACK A. LAUGHERY
MAX LENNON Director
MAX LENNON
RADFORD D. LOVETT Director
RADFORD D. LOVETT
Director
JAMES D. MCCOMAS
HENRY D. PERRY, JR. Director
HENRY D. PERRY, JR.
RANDOLPH N. REYNOLDS Director
RANDOLPH N. REYNOLDS
RUTH G. SHAW Director
RUTH G. SHAW
LANTY L. SMITH Director
LANTY L. SMITH
Director
DEWEY L. TROGDON
JOHN D. UIBLE Director
JOHN D. UIBLE
B. J. WALKER Director
B. J. WALKER
<PAGE>
<PAGE>
SIGNATURE CAPACITY
KENNETH G. YOUNGER Director
KENNETH G. YOUNGER
February 15, 1994
Charlotte, North Carolina
<PAGE>
EXHIBIT (99)
AMERICAN BANCSHARES, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned holder of shares of common stock of American Bancshares,
Inc. (ABI) hereby constitutes and appoints , or any of them, the true and lawful
attorneys and proxies of the undersigned, each with full power of substitution,
for and on behalf of the undersigned, to act and vote as specified below, all of
the shares of ABI common stock held of record by the undersigned on ,
1994, at the Special Meeting of Stockholders of ABI to be held on
, 1994, at a.m., Monroe time, in the Union County Chamber of
Commerce Building, 903 Skyway Drive, Monroe, North Carolina, and at any
adjournment or adjourments thereof:
1. FOR ( ) AGAINST ( ) ABSTAIN ( )
Approval of an Agreement and Plan of Mergers, dated as of November 17,
1993 (the Merger Agreement), among ABI, American Commercial Savings Bank,
Inc., SSB (American Bank ), First Union Corporation (FUNC) and First
Union National Bank of North Carolina (FUNB-NC), a subsidiary of FUNC,
and the related Plan of Merger, pursuant to which Merger Agreement and
Plan of Merger (i) ABI would merge with and into FUNC (the Corporate
Merger), (ii) each outstanding share of ABI common stock (excluding any
shares held by dissenting stockholders and certain shares held by ABI or
FUNC) would be converted into the right to receive 0.211 shares of FUNC
common stock, subject to possible adjustment under certain circumstances
(the Exchange Ratio), and (iii) each outstanding share of ABI convertible
preferred stock (excluding any shares held by dissenting stockholders)
would be converted into the right to receive a number of shares of FUNC
common stock equal to the product of (a) the Exchange Ratio, and (b) 159,
the number of shares of ABI common stock into which a share of ABI
convertible preferred stock was convertible as of September 30, 1993, and
pursuant to which Merger Agreement, American Bank would merge with and
into FUNB-NC, all on and subject to the terms and conditions contained
therein.
(CONTINUED, AND TO BE SIGNED, ON OTHER SIDE)
<PAGE>
<PAGE>
2. In their discretion, to act and vote upon such other business as may come
before the meeting or any adjournment or adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 SET FORTH ABOVE.
The undersigned hereby acknowledges receipt of the combined Notice of
Special Meeting of Stockholders and Prospectus/Proxy Statement that accompanied
this Proxy and ratifies all lawful action taken by the above-named attorneys and
proxies.
<TABLE>
<S> <C>
Date: , 1994
(SEAL)
(SEAL)
NOTE: Signatures(s) should agree with name(s) on ABI stock
certificate(s). Executors, administrators, trustees and
other fiduciaries, and persons signing on behalf of
corporations or partnerships, should so indicate when
signing.
</TABLE>
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EXHIBIT (99) (CONTINUED)
AMERICAN BANCSHARES, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned holder of shares of ABI convertible preferred stock of
American Bancshares, Inc. (ABI) hereby constitutes and appoints
, or any of them, the true and lawful attorneys
and proxies of the undersigned, each with full power of substitution, for and on
behalf of the undersigned, to act and vote, as specified below, all of the
shares of ABI convertible preferred stock held of record by the undersigned on
, 1994, at the Special Meeting of Stockholders of ABI to be held on ,
1994, at a.m., Monroe time, in the Union County Chamber of Commerce
Building, 903 Skyway Drive, Monroe, North Carolina, and at any adjournment or
adjourments thereof:
1. FOR () AGAINST ( ) ABSTAIN ( )
Approval of an Agreement and Plan of Mergers, dated as of November 17,
1993 (the Merger Agreement), among ABI, American Commercial Savings Bank,
Inc., SSB (American Bank ), First Union Corporation (FUNC) and First
Union National Bank of North Carolina (FUNB-NC), a subsidiary of FUNC,
and the related Plan of Merger, pursuant to which Merger Agreement and
Plan of Merger (i) ABI would merge with and into FUNC (the Corporate
Merger), (ii) each outstanding share of ABI common stock (excluding any
shares held by dissenting stockholders and certain shares held by ABI or
FUNC) would be converted into the right to receive 0.211 shares of FUNC
common stock, subject to possible adjustment under certain circumstances
(the Exchange Ratio), and (iii) each outstanding share of ABI convertible
preferred stock (excluding any shares held by dissenting stockholders)
would be converted into the right to receive a number of shares of FUNC
common stock equal to the product of (a) the Exchange Ratio, and (b) 159,
the number of shares of ABI common stock into which a share of ABI
convertible preferred stock was convertible as of September 30, 1993, and
pursuant to which Merger Agreement, American Bank would merge with and
into FUNB-NC, all on and subject to the terms and conditions contained
therein.
(CONTINUED, AND TO BE SIGNED, ON OTHER SIDE)
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2. In their discretion, to act and vote upon such other business as may come
before the meeting or any adjournment or adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED ABOVE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 SET FORTH ABOVE.
The undersigned hereby acknowledges receipt of the combined Notice of
Special Meeting of Stockholders and Prospectus/Proxy Statement that accompanied
this Proxy and ratifies all lawful action taken by the above-named attorneys and
proxies.
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<S> <C>
Date: , 1994
(SEAL)
(SEAL)
NOTE: Signatures(s) should agree with name(s) on ABI stock
certificate(s). Executors, administrators, trustees and
other fiduciaries, and persons signing on behalf of
corporations or partnerships, should so indicate when
signing.
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