<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1995
REGISTRATION NO. 33-60835
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST UNION CORPORATION
(Exact name of registrant as specified in its charter)
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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:
JOHN F. BREYER, JR., ESQ.
PAUL M. AGUGGIA, ESQ.
BREYER & AGUGGIA
601 13TH STREET, N.W.
WASHINGTON, D.C. 20005
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. [ ]
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.
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FORM S-4 ITEM
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1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus....
2. Inside Front and Outside Back Cover Pages of Prospectus..........................
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information...........
4. Terms of the Transaction.........................................................
5. Pro Forma Financial Information..................................................
6. Material Contacts with the Company Being Acquired................................
7. Additional Information Required for Reoffering by Persons and Parties Deemed to
Be Underwriters..................................................................
8. Interests of Named Experts and Counsel...........................................
9. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities......................................................................
10. Information with Respect to S-3 Registrants......................................
11. Incorporation of Certain Information by Reference................................
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....................................................................
18. Information if Proxies, Consents or Authorizations are to be
Solicited........................................................................
19. Information if Proxies, Consents or Authorizations are not to be Solicited, or in
an Exchange Offer................................................................
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LOCATION IN PROSPECTUS
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1. Outside front cover page; facing page
2. AVAILABLE INFORMATION; TABLE OF CONTENTS
3. SUMMARY; THE MERGERS; PRO FORMA FINANCIAL
INFORMATION; ANNEX D
4. SUMMARY; GENERAL INFORMATION; THE MERGERS;
DESCRIPTION OF FUNC CAPITAL STOCK; CERTAIN
DIFFERENCES IN THE RIGHTS OF UFC AND FUNC
STOCKHOLDERS; ANNEX B; ANNEX C
5. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; PRO FORMA FINANCIAL INFORMATION
6. THE MERGERS; ADDITIONAL MATTERS
7.
*
8. LEGAL OPINIONS; EXPERTS
9.
*
10. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; SUMMARY; RECENT DEVELOPMENTS; PRO
FORMA FINANCIAL INFORMATION; FUNC
11. INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
12. *
13. *
14.
*
15. *
16. SUMMARY; INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE; UFC; ANNEX A
17.
*
18.
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE; SUMMARY; GENERAL INFORMATION; THE
MERGERS; ANNEX D
19.
*
</TABLE>
* Not applicable.
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
425 MAIN STREET
GREENWOOD, SOUTH CAROLINA 29646
(803) 223-8686
August , 1995
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 United Financial
Corporation of South Carolina, Inc. ("UFC"). The meeting will be held at 11:00
a.m., Greenwood time, on September , 1995, at The Inn on the Square, 104 Court
St., Greenwood, South Carolina.
The purpose of the meeting is to vote on a proposal to approve the
Agreement and Plan of Mergers, dated as of February 21, 1995 (the "Merger
Agreement"), among UFC, United Savings Bank, FSB ("United"), Home Federal
Savings Bank of South Carolina ("Home Federal" and together with United, the
"Banks"), First Union Corporation ("FUNC"), First Union Corporation of South
Carolina ("FUNC-SC") and First Union National Bank of South Carolina
("FUNB-SC"), pursuant to which UFC would merge with and into FUNC-SC (the
"Corporate Merger") and the Banks would merge with and into FUNB-SC (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 of $83.1
billion at June 30, 1995.
On June 19, 1995, FUNC announced that it had entered into an agreement to
acquire First Fidelity Bancorporation, a bank holding company based in Newark,
New Jersey and Philadelphia, Pennsylvania. Certain information relating to this
transaction is set forth in the accompanying Prospectus/Proxy Statement under
"SUMMARY", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION".
Upon consummation of the Corporate Merger each outstanding share of UFC
common stock (excluding any dissenting shares and certain shares held by UFC or
FUNC) would be converted into the right to receive a number of shares of FUNC
common stock equal to (i) 0.458 shares if the average closing price of FUNC
common stock on the New York Stock Exchange (the "NYSE") Composite Transactions
Tape ("NYSE Tape") for the ten trading days immediately prior to the effective
date of the Corporate Merger is greater than $42.75 and less than $46.75, (ii)
the result obtained by dividing $19.58 by such price if such price is $42.75 or
less, or (iii) the result obtained by dividing $21.41 by such price if such
price is $46.75 or greater, in a transaction that is generally tax-free for
federal income tax purposes, all as more fully discussed in the accompanying
Prospectus/Proxy Statement. Within these limits, upon consummation of the
Corporate Merger, each UFC share would be converted into FUNC common stock
having a value (based on such ten-day average price) ranging from $19.58 to
$21.41, depending on the closing prices of FUNC common stock during the ten
trading day measurement period. The common stock of FUNC is actively traded and
is listed on the NYSE. The last reported sale price of FUNC common stock on the
NYSE Tape on August , 1995 was $ per share.
Consummation of the Mergers is subject to certain conditions, including
approval of the Merger Agreement by UFC stockholders and approval of the Mergers
by various regulatory agencies. Approval of the Merger Agreement requires the
affirmative vote of at least two-thirds of the votes entitled to be cast at the
meeting by the holders of UFC common stock.
The accompanying Notice of Special Meeting and Prospectus/Proxy Statement
contain information about the Mergers. I urge you to review carefully such
information and the information in FUNC's 1994 Annual Report on Form 10-K, 1995
First and Second Quarter Reports on Form 10-Q, 1995 Annual Meeting Proxy
Statement and 1995 Current Reports on Form 8-K, copies of which are available as
indicated in the accompanying Prospectus/Proxy Statement under "AVAILABLE
INFORMATION".
THE BOARD OF DIRECTORS OF UFC HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT
AND RECOMMENDS THAT THE STOCKHOLDERS OF UFC APPROVE THE MERGER AGREEMENT. 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. EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE
COMPLETE THE ENCLOSED PROXY, SIGN, DATE AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID, RETURN ADDRESSED ENVELOPE.
Yours very truly,
(Signature of Lynn W. Hodge)
LYNN W. HODGE
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
425 MAIN STREET
GREENWOOD, SOUTH CAROLINA 29646
(803) 223-8686
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER , 1995
August , 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of United
Financial Corporation of South Carolina, Inc. ("UFC") will be held at 11:00
a.m., Greenwood time, on September , 1995, at The Inn on the Square, 104 Court
Street, Greenwood, South Carolina, for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Mergers, dated as of February 21, 1995 (the "Merger Agreement"), among UFC,
United Savings Bank, FSB ("United"), Home Federal Savings Bank of South
Carolina ("Home Federal" and, together with United, the "Banks"), First
Union Corporation ("FUNC"), First Union Corporation of South Carolina
("FUNC-SC") and First Union National Bank of South Carolina ("FUNB-SC"),
pursuant to which (i) UFC would merge with and into FUNC-SC (the "Corporate
Merger") and the Banks would merge with and into FUNB-SC, and (ii) each
outstanding share of UFC common stock (excluding any dissenting shares and
certain shares held by UFC or FUNC) would be converted into the right to
receive a number of shares of FUNC common stock equal to (a) 0.458 shares if
the average closing price of FUNC common stock on the New York Stock
Exchange Composite Transactions Tape for the ten trading days immediately
prior to the effective date of the Corporate Merger is greater than $42.75
and less than $46.75, (b) the result obtained by dividing $19.58 by such
price if such price is $42.75 or less, or (c) the result obtained by
dividing $21.41 by such price if such price is $46.75 or greater, all on and
subject to the terms and conditions contained therein.
A copy of the Merger Agreement is set forth in ANNEX B to the accompanying
Prospectus/Proxy Statement.
The Board of Directors of UFC has fixed , 1995, 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 UFC common 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 requires the affirmative vote of at least
two-thirds of the votes entitled to be cast at the meeting by the holders of UFC
common stock.
Holders of UFC common stock who give written demand for appraisal of their
UFC common stock before the taking of the vote on the Merger Agreement, do not
vote in favor of approval of the Merger Agreement and comply with the further
provisions of applicable South Carolina statutory law, will be entitled to
receive, if the Corporate Merger is consummated, the "fair value" of their UFC
common stock in cash. A vote against approval of the Merger Agreement will not
constitute a demand for appraisal rights; nor will a failure to vote against
approval of the Merger Agreement constitute a waiver of appraisal rights. A copy
of the applicable South Carolina statutory provisions referred to above is set
forth in ANNEX D to the accompanying Prospectus/Proxy Statement and a summary of
such provisions is set forth under "THE MERGERS -- Dissenters' Rights".
THE BOARD OF DIRECTORS OF UFC UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors of
UNITED FINANCIAL CORPORATION OF SOUTH
CAROLINA, INC.
(Signature of James E. McDonald)
JAMES E. MCDONALD
CHAIRMAN OF THE BOARD
BECAUSE THE AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS OF THE VOTES ENTITLED TO BE
CAST IS REQUIRED TO APPROVE THE MERGER AGREEMENT, STOCKHOLDERS ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. 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. YOUR PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS
EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROSPECTUS/PROXY STATEMENT. ANY
STOCKHOLDER PRESENT AT THE MEETING, INCLUDING ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF, MAY REVOKE HIS OR HER PROXY AND VOTE IN PERSON ON EACH MATTER PROPERLY
BROUGHT BEFORE THE MEETING. 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.
<PAGE>
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PROSPECTUS PROXY STATEMENT
FIRST UNION CORPORATION UNITED FINANCIAL CORPORATION
OF SOUTH CAROLINA, INC.
</TABLE>
This Prospectus/Proxy Statement is being furnished by United Financial
Corporation of South Carolina, Inc., a South Carolina corporation ("UFC"), to
the holders of UFC common stock, par value $0.10 per share ("UFC Common Stock"),
as a proxy statement in connection with the solicitation of proxies by the Board
of Directors of UFC (the "UFC Board") for use at a special meeting of
stockholders of UFC to be held at 11:00 a.m., Greenwood time, on September ,
1995, at The Inn on the Square, 104 Court Street, Greenwood, South Carolina (the
"Special Meeting"), and at any adjournments or postponements thereof.
This Prospectus/Proxy Statement, the accompanying Notice of Special Meeting
and form of proxy are first being mailed to the stockholders of UFC on or about
August , 1995.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Agreement and Plan of Mergers, dated as of February 21, 1995 (the
"Merger Agreement"), among UFC, United Savings Bank, FSB ("United"), Home
Federal Savings Bank of South Carolina ("Home Federal" and together with United,
the "Banks"), First Union Corporation, a North Carolina corporation ("FUNC"),
First Union Corporation of South Carolina, a South Carolina corporation
("FUNC-SC") and First Union National Bank of South Carolina, a national banking
association ("FUNB-SC"), pursuant to which UFC would merge with and into FUNC-SC
(the "Corporate Merger") and the Banks would merge with and into FUNB-SC (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 each outstanding share of UFC
Common Stock (excluding any shares with respect to which dissenters' rights have
been perfected and certain shares held by UFC or FUNC) would be converted into
the right to receive a number of 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"), equal to (i) 0.458 shares if the average
closing price (the "Average Closing Price") of FUNC Common Stock on the NYSE
Tape (as hereinafter defined) for the ten trading days immediately prior to the
Effective Date (as hereinafter defined) is greater than $42.75 and less than
$46.75, (ii) the result obtained by dividing $19.58 by the Average Closing Price
if the Average Closing Price is $42.75 or less, or (iii) the result obtained by
dividing $21.41 by the Average Closing Price if the Average Closing Price is
$46.75 or greater (the "Exchange Ratio").
This document also constitutes a prospectus of FUNC relating to the shares
(the "FUNC Common Shares") of FUNC Common Stock that are issuable upon
consummation of the Corporate Merger. See "DESCRIPTION OF FUNC CAPITAL STOCK"
and "CERTAIN DIFFERENCES IN THE RIGHTS OF UFC AND FUNC STOCKHOLDERS".
Based on the (i) shares of UFC Common Stock outstanding on the
Record Date (as hereinafter defined), (ii) shares of UFC Common Stock
issuable upon the exercise of all outstanding employee and director stock
options to purchase such shares on such date (assuming all such options are so
exercisable), and (iii) an Exchange Ratio equal to 0.4381, based on the $48.875
last reported sale price per share of FUNC Common Stock on the NYSE Tape on July
31, 1995, as if such price were the Average Closing Price, approximately
FUNC Common Shares would be issuable upon consummation of the
Corporate Merger. The actual Exchange Ratio and the actual number of FUNC Common
Shares to be issued will depend on the Average Closing Price (which will not be
known until shortly before the Effective Date). As a result, the actual Exchange
Ratio may be higher or lower than 0.4381.
On June 19, 1995, FUNC announced that it had entered into an agreement to
acquire First Fidelity Bancorporation ("FFB"), a bank holding company based in
Newark, New Jersey and Philadelphia, Pennsylvania. In addition, since January 1,
1994, FUNC has completed, or currently has pending, a total of ten acquisitions
that have been or will be accounted for on a purchase accounting basis
(including UFC, the "Purchase Acquisitions"), which are reflected in certain of
the pro forma financial information presented herein, including
acquisitions to acquire American Savings Bank of Florida, FSB ("American
Savings"), Virginia-based Columbia First Bank, a Federal Savings Bank
("Columbia"), North Carolina-based RS Financial Corp. ("RS Financial"), and
Tennessee-based Brentwood National Bank ("Brentwood"), which were pending at
June 30, 1995, or announced between July 1, 1995 and August 14, 1995.
See SUMMARY -- Comparison of Certain Unaudited Per Share Data" and " --
Selected Financial Data", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL
INFORMATION".
FUNC Common Stock is listed and traded on the New York Stock Exchange
("NYSE") and UFC Common Stock is listed and traded on the Nasdaq National
Market. On February 21, 1995, 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 (the "NYSE Tape")
and the last sale price of UFC Common Stock on the Nasdaq National Market were
$44.25 and $15.50, respectively. On August , 1995, such prices were $ and
$ , respectively.
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 DATE OF THIS PROSPECTUS/PROXY STATEMENT IS AUGUST , 1995
<PAGE>
AVAILABLE INFORMATION
FUNC, FFB and UFC 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, FFB and UFC 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 (7 World Trade
Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60621) 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. Since the
FUNC Common Stock and FFB common stock are listed on the NYSE, reports, proxy
statements and other information relating to FUNC and FFB 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 (No. 33-60835), 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 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 THIS PROSPECTUS/PROXY STATEMENT
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: FIRST UNION CORPORATION, INVESTOR
RELATIONS, TWO FIRST UNION CENTER, CHARLOTTE, NORTH CAROLINA 28288-0206
(TELEPHONE NUMBER (704) 374-6782) AS TO FUNC DOCUMENTS; AND TO: UNITED FINANCIAL
CORPORATION OF SOUTH CAROLINA, INC., MIRIAM C. BAGWELL, SECRETARY, 425 MAIN
STREET, GREENWOOD, SOUTH CAROLINA 29646 (TELEPHONE NUMBER (803) 223-8686) AS TO
UFC DOCUMENTS. IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY SUCH
REQUEST SHOULD BE MADE BY SEPTEMBER , 1995.
All information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to FUNC and FFB was supplied by FUNC,
and all information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to UFC was supplied by UFC.
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 UFC. Neither the delivery of this
Prospectus/Proxy Statement nor any distribution of FUNC Common Shares shall,
under any circumstances, create any implication that there has been no change in
the affairs of FUNC, FFB or UFC 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 FUNC Common Shares 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 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 Commissioner of Insurance of the State of North Carolina (the
"Commissioner") 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 documents filed with the Commission by FUNC (File No.
1-10000) and by UFC (File No. 0-17090) under Section 13(a) or 15(d) of the
Exchange Act are hereby incorporated by reference in this Prospectus/Proxy
Statement:
FUNC documents:
(i) FUNC's Annual Report on Form 10-K for the year ended December 31,
1994;
(ii) FUNC's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1995 (as amended by Form 10-Q/A Amendment No. 1 dated
May 16, 1995), and June 30, 1995; and
(iii) FUNC's Current Reports on Form 8-K dated June 19, 1995, June 20,
1995, June 21, 1995 and June 30, 1995.
UFC documents:
(i) UFC's Annual Report on Form 10-K for the year ended March 31,
1995; and
(ii) UFC's Quarterly Report on Form 10-Q for the period ended June
30, 1995.
All documents filed by FUNC or UFC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the earlier
of the Effective Date (as hereinafter defined) or the termination of the Merger
Agreement 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.
Certain financial and other information relating to UFC is contained in
this Prospectus/Proxy Statement, including ANNEX A.
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>
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PAGE
<S> <C>
AVAILABLE INFORMATION................................................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................... 3
SUMMARY............................................................................................................... 6
RECENT DEVELOPMENTS................................................................................................... 20
FFB Merger.......................................................................................................... 20
1995 and 1996 Earnings Estimates.................................................................................... 20
GENERAL INFORMATION................................................................................................... 21
General............................................................................................................. 21
Record Date; Vote Required.......................................................................................... 22
THE MERGERS........................................................................................................... 22
General; Exchange Ratio............................................................................................. 22
Effective Date...................................................................................................... 23
Exchange of UFC Certificates........................................................................................ 23
Background and Reasons.............................................................................................. 24
Opinion of Financial Advisor........................................................................................ 26
Interests of Certain Persons........................................................................................ 29
Certain Federal Income Tax Consequences............................................................................. 30
Business Pending Consummation....................................................................................... 31
Regulatory Approvals................................................................................................ 31
Conditions to Consummation; Termination............................................................................. 32
Waiver; Amendment................................................................................................... 32
Accounting Treatment................................................................................................ 32
Expenses; Termination Fee........................................................................................... 33
Stock Option Agreement.............................................................................................. 33
Dissenters' Rights.................................................................................................. 34
Market Prices....................................................................................................... 36
Dividends........................................................................................................... 37
PRO FORMA FINANCIAL INFORMATION....................................................................................... 38
UFC................................................................................................................... 43
FUNC.................................................................................................................. 44
General............................................................................................................. 44
History and Business................................................................................................ 44
Certain Regulatory Considerations................................................................................... 45
DESCRIPTION OF FUNC CAPITAL STOCK..................................................................................... 48
Authorized Capital.................................................................................................. 48
FUNC Common Stock................................................................................................... 48
FUNC Preferred Stock................................................................................................ 49
FUNC Class A Preferred Stock........................................................................................ 49
Rights Plan......................................................................................................... 50
Other Provisions.................................................................................................... 51
CERTAIN DIFFERENCES IN THE RIGHTS OF UFC AND FUNC STOCKHOLDERS........................................................ 52
General............................................................................................................. 52
Authorized Capital.................................................................................................. 52
Amendment to Articles of Incorporation or Bylaws.................................................................... 52
Size and Classification of Board of Directors....................................................................... 53
Removal of Directors................................................................................................ 53
Director Exculpation................................................................................................ 53
Director Conflict of Interest Transactions.......................................................................... 53
Stockholder Meetings................................................................................................ 54
Director Nominations................................................................................................ 54
</TABLE>
4
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<TABLE>
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PAGE
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Stockholder Proposals............................................................................................... 55
Stockholder Protection Rights Plan; Limitations on Acquisitions of Capital Stock.................................... 55
Stockholder Inspection Rights; Stockholder Lists.................................................................... 55
Required Stockholder Vote for Certain Actions....................................................................... 56
Anti-Takeover Provisions............................................................................................ 57
Dissenters' Rights.................................................................................................. 58
Dividends and Other Distributions................................................................................... 58
Voluntary Dissolution............................................................................................... 58
RESALE OF FUNC COMMON SHARES.......................................................................................... 58
ADDITIONAL MATTERS.................................................................................................... 59
LEGAL OPINIONS........................................................................................................ 59
EXPERTS............................................................................................................... 59
STOCKHOLDER PROPOSALS TO BE PRESENTED AT 1995 ANNUAL MEETING OF UFC STOCKHOLDERS...................................... 59
ANNEX A -- INFORMATION FOR UFC
Certain Financial and Other Information for the Year Ended March 31, 1995............................. A-2
Certain Financial and Other Information for the Quarter Ended June 30, 1995........................... A-39
ANNEX B -- AGREEMENT AND PLAN OF MERGERS, INCLUDING THE STOCK OPTION AGREEMENT........................................ B-1
ANNEX C -- OPINION OF WHEAT FIRST SECURITIES INC. .................................................................... C-1
ANNEX D -- SELECTED SECTIONS OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT RELATING TO DISSENTING STOCKHOLDERS....... D-1
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY OF CERTAIN INFORMATION RELATING TO THE MERGERS IS NOT
INTENDED TO BE A SUMMARY OF ALL MATERIAL INFORMATION RELATING TO THE MERGERS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE 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)) 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 THIS ENTIRE
PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO. AS USED IN THIS
PROSPECTUS/PROXY STATEMENT, THE TERMS "FUNC", "FUNC-SC", "FUNB-SC", "FFB",
"UFC", "UNITED", "HOME FEDERAL" AND THE "THE BANKS" REFER TO SUCH ORGANIZATIONS,
RESPECTIVELY, AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, TO THEIR RESPECTIVE
CONSOLIDATED 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, and the rules and regulations
thereunder ("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,
leasing, investment banking, insurance and securities brokerage services,
through other subsidiaries. As of June 30, 1995, and for the six months then
ended, FUNC reported assets of $83.1 billion, net loans of $60.0 billion,
deposits of $58.8 billion, stockholders' equity of $5.7 billion and net income
applicable to common stockholders of $479 million, and as of such date FUNC
operated through approximately 1,500 offices in 37 states and three foreign
countries. FUNC is the ninth largest bank holding company in the United States,
based on total assets at June 30, 1995. 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.
On June 18, 1995, FUNC entered into an Agreement and Plan of Merger (the
"FFB Merger Agreement"), pursuant to which FUNC would acquire FFB by means of a
merger (the "FFB Merger") of FFB with and into a wholly-owned subsidiary of
FUNC. As of June 30, 1995, FFB had assets of $35.4 billion. The FFB Merger will
be accounted for as a pooling of interests. In addition, since January 1, 1994,
FUNC has completed, or currently has pending, the Purchase Acquisitions,
which are reflected in certain of the pro forma financial
information presented herein, including acquisitions to acquire UFC, American
Savings, Columbia, RS Financial and Brentwood, which were pending at June 30,
1995, or announced between July 1, 1995 and August 14, 1995. As of June 30,
1995, UFC, American Savings, Columbia, RS Financial and Brentwood had
aggregate assets of $8.0 billion.
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.
See " -- Comparison of Certain Unaudited Per Share Data", " -- Selected
Financial Data", "RECENT DEVELOPMENTS", "PRO FORMA FINANCIAL INFORMATION" and
"FUNC -- History and Business".
FUNC-SC AND FUNB-SC
FUNC-SC is the parent corporation of FUNB-SC, a national banking
association that provides a wide range of commercial and retail banking services
and trust services in South Carolina. As of June 30, 1995, and for the six
months then ended, FUNB-SC's call report reflected assets of $2.4 billion, net
loans of $1.8 billion, deposits of $2.0 billion, stockholder's equity of $149
million and net income of $20 million, and as of such date FUNB-SC operated
through 63 banking offices in South Carolina.
UFC AND THE BANKS
UFC is a savings and loan holding company registered under the Home Owners'
Loan Act of 1933, as amended ("HOLA"). UFC's principal assets are the stock of
the Banks, which provide commercial and retail banking services in upstate South
Carolina. As of June 30, 1995, and for the six months then ended, UFC had assets
of $781 million, net loans of $630 million, deposits of $541 million,
stockholders' equity of $66 million and net income of $4 million, and as of such
date
6
<PAGE>
UFC operated through 14 offices in South Carolina. The principal executive
offices of UFC are located at 425 Main Street, Greenwood, South Carolina 29646,
and its telephone number is (803) 223-8686. See "UFC" and ANNEX A.
SPECIAL MEETING; RECORD DATE
The Special Meeting will be held on September , 1995, at 11:00 a.m.,
Greenwood time, at The Inn on the Square, 104 Court Street, Greenwood, South
Carolina, for the purpose of stockholders considering and voting upon a proposal
to approve the Merger Agreement.
The UFC Board has fixed , 1995, as the record date for
determining stockholders entitled to notice of and to vote at the Special
Meeting (the "Record Date"). As of such date, there were shares of UFC
Common Stock outstanding and entitled to be voted at the Special Meeting.
See "GENERAL INFORMATION".
THE MERGERS; EXCHANGE RATIO
Under the terms of the Merger Agreement, UFC would merge with and into
FUNC-SC and the Banks would merge with and into FUNB-SC. Upon consummation of
the Corporate Merger each outstanding share of UFC Common Stock (excluding any
shares held by stockholders who perfect their dissenters' rights of appraisal
("Dissenting Shares") and any shares of stock held by FUNC or UFC, other than in
a fiduciary capacity or in satisfaction of a debt previously contracted
(together with the Dissenting Shares, "Excluded Shares")) would be converted
into the right to receive a number of shares of FUNC Common Stock, equal to (i)
0.458 shares if the Average Closing Price is greater than $42.75 and less than
$46.75, (ii) the result obtained by dividing $19.58 by the Average Closing Price
if the Average Closing Price is $42.75 or less, or (iii) the result obtained by
dividing $21.41 by the Average Closing Price if the Average Closing Price is
$46.75 or greater. See "THE MERGERS -- General; Exchange Ratio",
" -- Dissenters' Rights", "DESCRIPTION OF FUNC CAPITAL STOCK" and "CERTAIN
DIFFERENCES IN THE RIGHTS OF UFC AND FUNC STOCKHOLDERS".
The Exchange Ratio was negotiated on an arms' length basis between
representatives of FUNC and UFC. As indicated under "THE MERGER -- Background
and Reasons; UFC", prior to execution of the Merger Agreement, FUNC proposed an
exchange ratio of $20.50 in value of FUNC Common Stock for each share of UFC
Common Stock. At the time of such proposal, the recent price per share of FUNC
Common Stock was $44.75. The 0.458 Exchange Ratio described in (i) in the
preceding paragraph was arrived at by dividing $20.50 by $44.75, which is midway
between the $42.75 and $46.75 prices. The $19.58 and $21.41 amounts indicated in
(ii) and (iii) in the preceding paragraph, were arrived at by multiplying the
$42.75 and $46.75 prices, respectively, by the 0.458 Exchange Ratio.
On the day following the Effective Date, or as soon thereafter as FUNB-SC
may deem appropriate, the Bank Merger will be consummated.
VOTE REQUIRED
Approval of the Merger Agreement requires the affirmative vote of at least
two-thirds of the votes entitled to be cast at the Special Meeting by the
holders of UFC Common Stock.
The directors and executive officers of UFC (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting, shares of UFC Common Stock, which
represents percent of the outstanding shares of UFC Common Stock entitled to
be voted at the Special Meeting. Assuming that the directors and executive
officers of UFC vote their shares of UFC Common Stock in favor of approval of
the Merger Agreement, approval of the Merger Agreement will require the
affirmative vote of the holders of an additional percent of the outstanding
shares of UFC Common Stock entitled to be voted at the Special Meeting.
See "GENERAL INFORMATION -- Record Date; Vote 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.
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Mergers, the Corporate Merger will become effective on such date (the "Effective
Date") as FUNC notifies UFC in writing not less than five days prior thereto,
provided
7
<PAGE>
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 third quarter of 1995. If the Corporate Merger is
consummated in such quarter, or in any other quarter, UFC 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. See "THE MERGERS -- Exchange of UFC
Certificates" and " -- Conditions to Consummation; Termination".
RECOMMENDATION OF THE UFC BOARD
THE UFC BOARD HAS ADOPTED THE MERGER AGREEMENT BY UNANIMOUS VOTE, BELIEVES
IT IS IN THE BEST INTERESTS OF UFC AND ITS STOCKHOLDERS AND RECOMMENDS ITS
APPROVAL BY UFC STOCKHOLDERS. SEE "THE MERGERS -- BACKGROUND AND REASONS; UFC".
OPINION OF FINANCIAL ADVISOR
Wheat First Securities Inc. ("Wheat First") has advised the UFC Board that,
in its opinion, the Exchange Ratio is fair, from a financial point of view, to
the holders of UFC Common Stock. The full text of the Wheat First opinion, dated
as of the date of this Prospectus/Proxy Statement, 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 UFC
stockholders. See "THE MERGERS -- Opinion of Financial Advisor".
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of UFC's management and the UFC Board may be deemed to have
interests in the Mergers in addition to their interests as stockholders of UFC
generally. These include, among other things, provisions in the Merger Agreement
relating to indemnification, directors' and officers' liability insurance, and
certain other benefits.
The directors and executive officers of UFC, together with certain of their
related interests, beneficially owned as of the Record Date, 999,774 shares of
UFC Common Stock, including 489,040 shares subject to unexercised options held
by such persons. As described below, the Corporate Merger may result in the
cashing out of options to purchase shares of UFC Common Stock and will require
severance payments under certain employment agreements between UFC and certain
of the executive officers of UFC. In addition, Lynn W. Hodge, President, Chief
Executive Officer and a director of UFC and United, Herman H. Honeycutt,
President and Chief Executive Officer of Home Federal, and Clifford W. Stumbo,
Vice President and Treasurer of UFC and Executive Vice President of United, have
entered into employment agreements with FUNB-SC to become effective at the
Effective Date. The aggregate value of the payments which may be paid to the
directors and executive officers of UFC, including amounts paid pursuant to such
employment agreements, is currently estimated to be approximately $9.3 million,
including $4.7 million to Mr. Hodge, $2.0 million to Mr. Stumbo, $1.3 million to
Mr. Honeycutt and $1.1 million to James E. McDonald, Chairman of the Board and a
director of UFC.
Pursuant to the terms of the Merger Agreement, all validly issued and
outstanding stock options under UFC's stock option plans will be assumed by
FUNC. Alternatively, holders of such options may elect to receive a cash payment
in an amount equal to the excess of the Average Closing Price over the exercise
price per share of such options multiplied by the number of shares of UFC Common
Stock subject to such options times the Exchange Ratio. As of the Record Date,
the directors and executive officers of UFC and the Banks held options to
purchase an aggregate of 489,040 shares of UFC Common Stock at a weighted
average exercise price of $4.80. If all directors and executive officers elect
to receive cash payments in exchange for their options, such directors and
officers would receive estimated cash payments of approximately $7.6 million.
The employment agreements with UFC provide for severance payments and other
benefits in the event of involuntary termination of employment or a change in
the capacity or circumstances in which the individual is employed in connection
with any change in control of his employer. The severance payments would equal
2.99 times the executive's average base compensation during the preceding five
years, which are currently estimated to result in a severance payment to Mr.
Hodge of approximately $592,000, to Mr. Stumbo of approximately $340,000 and to
Mr. Honeycutt of approximately $303,000, upon consummation of the Corporate
Merger.
The employment agreements between FUNB-SC and Mr. Honeycutt and Mr. Stumbo
primarily relate to the ability of Mr. Honeycutt and Mr. Stumbo to receive the
severance payments due under their employment agreements with UFC over a period
not to exceed five years.
8
<PAGE>
The employment agreements between FUNB-SC and Mr. Hodge provide, among
other things, for the ability of Mr. Hodge to receive the severance payments due
under his employment agreement with UFC over a period not to exceed five years
and for the employment of Mr. Hodge as Executive Vice President of FUNB-SC for a
two-year period commencing on the Effective Date at an annual salary of
$125,000.
In addition to the foregoing, Mr. Hodge, Mr. McDonald and William M. Hull,
Jr., who is currently a director of UFC and United, will be elected directors of
FUNB-SC as of the Effective Date.
See "THE MERGERS -- Interests of Certain Persons".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Mergers is conditioned, among other things, on receipt
by FUNC and UFC 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 UFC who receive
FUNC Common Shares in exchange for their shares of UFC Common Stock, other than
with respect to cash received in lieu of fractional share interests, or, in the
case of any holders of UFC Common Stock who perfect their dissenters' rights,
cash received upon exercise of such rights. See "THE MERGERS -- Certain Federal
Income Tax Consequences" and " -- Dissenters' Rights".
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH UFC STOCKHOLDER, IT IS RECOMMENDED THAT UFC STOCKHOLDERS
CONSULT THEIR TAX ADVISERS CONCERNING THE FEDERAL (AND ANY STATE AND LOCAL) TAX
CONSEQUENCES OF THE CORPORATE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
DISSENTERS' RIGHTS
Pursuant to Chapter 13 of the South Carolina Business Corporation Act (the
"SCBCA"), holders of UFC Common Stock have the right to dissent from approval of
the Merger Agreement and to demand payment of the fair value of each such
holder's shares of UFC Common Stock in the event the Corporate Merger is
consummated. Holders of UFC Common Stock who wish to assert their dissenters'
rights must (i) deliver to UFC, before the vote on the Merger Agreement is
taken, written notice of their intent to demand payment for their shares in the
event the Corporate Merger is consummated, (ii) not vote such shares in favor of
approval of the Merger Agreement, and (iii) comply with the further provisions
of the SCBCA. A vote against approval of the Merger Agreement 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. Any
deviation from the procedures set forth in the Chapter 13 of the SCBCA (the
"South Carolina Dissenters' Rights Statute") may result in the forfeiture of
dissenters' rights. Accordingly, holders of UFC Common Stock wishing to dissent
from approval of the Merger Agreement are urged to read carefully "THE
MERGERS -- Dissenters' Rights" and the copy of the South Carolina Dissenters'
Rights Statute set forth in ANNEX D to this Prospectus/Proxy Statement, and to
consult with their own legal advisors.
BUSINESS PENDING CONSUMMATION
Each of UFC and the Banks has agreed in the Merger Agreement not to take
certain actions relating to the operations of each of them 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 payable on UFC Common Stock at a
quarterly rate not to exceed $0.05 per share, or redeeming or otherwise
acquiring any shares of its capital stock, or issuing any additional shares of
its capital stock (other than upon exercise of outstanding options) or giving
any person the right to acquire any such shares; (ii) incurring any indebtedness
for borrowed money or becoming liable for the obligations of any other entity
other than in the ordinary course of business; (iii) increasing the rate of
compensation (other than in the ordinary course of business) or paying any bonus
to any of its directors, officers or employees; (iv) entering into or modifying
any employment agreements or employee benefit plans; (v) disposing of any
material portion of its assets or acquiring any material portion of the business
or property of any other entity; (vi) changing its lending, investment,
liability management or other material banking policies in any material request;
(vii) settling any claim, action or proceeding involving material money damages
or restrictions upon the operations of UFC; (viii) taking any other action not
in the ordinary course of business; or (ix) entering into, terminating or
materially changing any material contract, agreement or lease. FUNC has
consented to the payment by UFC of a special one-time cash dividend of $.12 per
share payable on September 13, 1995, to holders of record of UFC Common Stock on
August 25, 1995.
9
<PAGE>
Each of UFC and the Banks also has agreed that it will use its best efforts
to modify its loan, litigation and other reserve 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,
provided certain conditions are met.
See "THE MERGERS -- Business Pending Consummation".
REGULATORY APPROVALS
The Mergers are subject to the receipt of certain prior approvals from the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
the Comptroller of the Currency (the "OCC") and the Office of Thrift Supervision
(the "OTS"), as applicable. Applications have been filed with each of such
regulatory authorities for such approvals. The OCC approved the application for
the Bank Merger on June 12, 1995, the Federal Reserve Board approved the
application for the Corporate Merger on May 23, 1995, and the OTS approved the
application for the Bank Merger on May 18, 1995. See "THE MERGERS -- Regulatory
Approvals".
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Mergers is subject, among other things, to: (i)
approval of the Merger Agreement by the requisite vote of the stockholders of
UFC; (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) receipt by FUNC and UFC of the opinion of
Sullivan & Cromwell, dated as of the Effective Date, as to certain federal
income tax consequences of the Corporate Merger; (v) receipt by FUNC of a letter
from UFC's independent auditors, dated as of or shortly prior to the Effective
Date, with respect to UFC's consolidated financial position and results of
operations; 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 UFC. The Merger Agreement may also be terminated by the
Board of Directors of either FUNC or UFC if the Corporate Merger does not occur
on or before December 31, 1995, or if certain conditions set forth in the Merger
Agreement are not met.
See "THE MERGERS -- Conditions to Consummation; Termination" and
" -- Expenses; Termination Fee".
STOCK OPTION AGREEMENT
As a condition to FUNC's willingness to enter into the Merger Agreement and
in consideration thereof, UFC entered into a Stock Option Agreement with FUNC,
dated as of February 22, 1995 (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, UFC granted to FUNC an irrevocable option (the "Option"), exercisable
only under certain limited and specifically defined circumstances, none of
which, to the best of FUNC's and UFC's knowledge, has occurred as of the date
hereof, to purchase up to 1,100,000 authorized but unissued shares of UFC Common
Stock for a purchase price of $19.50 per share (the "Purchase Price"), subject
to adjustment in certain circumstances. The number of shares of UFC Common Stock
subject to the Option represents approximately 19. percent of the outstanding
shares of UFC Common Stock as of the Record Date, before giving effect to the
issuance of such shares. FUNC does not have any voting rights with respect to
the shares of UFC Common Stock subject to the Option prior to exercise of the
Option.
The Stock Option Agreement and the Option are intended to make it more
difficult for another party to acquire UFC, thereby increasing the likelihood
that the Mergers will occur. See "THE MERGERS -- Stock Option Agreement".
ACCOUNTING TREATMENT
It is intended that the Corporate Merger and the other pending Purchase
Acquisitions will be accounted for as purchases under generally accepted
accounting principles, and that the FFB Merger will be accounted for as a
pooling of interests under generally accepted accounting principles. See "THE
MERGER -- Accounting Treatment" and "PRO FORMA FINANCIAL INFORMATION".
CERTAIN DIFFERENCES IN THE RIGHTS OF UFC AND FUNC STOCKHOLDERS
The rights of stockholders of UFC are currently determined by reference to
the SCBCA, UFC's Articles of Incorporation (as amended, the "UFC Articles") and
Bylaws. On the Effective Date, stockholders of UFC will become stockholders of
10
<PAGE>
FUNC, and their rights as stockholders of FUNC will be determined by reference
to the North Carolina Business Corporation Act (the "NCBCA") and by FUNC's
Articles of Incorporation (as amended, the "FUNC Articles") and Bylaws. See
"DESCRIPTION OF FUNC CAPITAL STOCK" and "CERTAIN DIFFERENCES IN THE RIGHTS OF
UFC AND FUNC STOCKHOLDERS".
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 UFC or FUNC under applicable federal securities
laws. See "RESALE OF FUNC COMMON SHARES".
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 share data
related to book value, cash dividends paid, income and market value: (i) on a
historical basis for FUNC and UFC; (ii) on a pro forma combined basis per share
of FUNC Common Stock reflecting consummation of (a) the Corporate Merger, (b)
the Purchase Acquisitions (including the Corporate Merger), and (c) the Purchase
Acquisitions (including the Corporate Merger) and the FFB Merger; and (iii) on
an equivalent pro forma basis per share of UFC Common Stock reflecting
consummation of (x) the Corporate Merger, (y) the Purchase Acquisitions
(including the Corporate Merger), and (z) the Purchase Acquisitions (including
the Corporate Merger) and the FFB Merger. Such pro forma information has been
prepared (1) assuming a 0.4381 Exchange Ratio, (2) giving effect to the
Corporate Merger and the other Purchase Acquisitions on a purchase accounting
basis, and (3) giving effect to the FFB Merger on a pooling of interests
accounting basis. See "THE MERGERS -- Accounting Treatment". UFC's fiscal
year-end is March 31 of each year; however, all per share financial information
set forth below related to UFC as of and for periods ended December 31 has been
adjusted herein to reflect the results of operations on a calendar year-end
basis, as appropriate.
The 0.4381 Exchange Ratio used in the pro forma information is based on the
last reported sale price of FUNC Common Stock on the NYSE Tape on July 31, 1995,
which was $48.875 per share. The actual Exchange Ratio will depend on the
Average Closing Price (which will not be known until shortly before the
Effective Date) and may be higher or lower than 0.4381. The pro forma
information would be different if the Average Closing Price results in an
Exchange Ratio different from 0.4381. Under the Merger Agreement, the Exchange
Ratio would be (i) 0.458 if the Average Closing Price were less than $46.75 but
greater than $42.75, (ii) the result obtained by dividing $19.42 by the Average
Closing Price if the Average Closing Price is $42.75 or less, and (iii) the
result obtained by dividing $21.41 by the Average Closing Price if the Average
Closing Price is $46.75 or greater. Set forth on the cover page of this
Prospectus/Proxy Statement is the last reported sale price per share of FUNC
Common Stock on the NYSE Tape on the most recent practicable date before the
mailing hereof. Stockholders are urged to obtain current quotations of the
market price of FUNC Common Stock.
Pro forma financial information for the Purchase Acquisitions (including
the Corporate Merger) assumes such acquisitions were consummated on January 1,
1994, and, except as otherwise indicated, reflects information from such date to
their respective consummation dates (or to June 30, 1995, with respect to the
Purchase Acquisitions (including the Corporate Merger) pending as of June 30,
1995, or announced between July 1, 1995 and August 14, 1995). Pro forma
financial information with respect to the FFB Merger assumes such merger was
consummated as of the beginning of each of the periods indicated.
Since purchase accounting does not require restatement of results for prior
periods following consummation of the Corporate Merger or any of the other
Purchase Acquisitions, consummation of the Corporate Merger or any of the other
Purchase Acquisitions will not affect FUNC's historical results for the periods
indicated. Pro forma financial information is intended to show how the Purchase
Acquisitions (including the Corporate Merger) and the FFB Merger might have
affected historical financial statements if the Purchase Acquisitions (including
the Corporate Merger) and the FFB Merger had been consummated at an earlier
time. The pro forma combined selected financial information does not purport to
be indicative of the results that actually would have been realized had the
Purchase Acquisitions (including the Corporate Merger) and the FFB Merger taken
place at the beginning of the applicable periods indicated, nor is it indicative
of the combined financial position or results of operations for future periods.
11
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The information shown below should be read in conjunction with the
historical financial statements of FUNC, FFB and UFC, including the respective
notes thereto, the unaudited pro forma financial information appearing elsewhere
in this Prospectus/Proxy Statement, including the notes thereto, and the
documents incorporated herein by reference. See "AVAILABLE INFORMATION",
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "PRO FORMA FINANCIAL
INFORMATION" and ANNEX A.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
BOOK VALUE PER SHARE:
Historical per share of:
FUNC Common Stock............................................................................... $33.39 30.66
UFC Common Stock................................................................................ 11.33 10.49
Pro forma combined per share of FUNC Common Stock (1):
FUNC and UFC.................................................................................... 33.63 30.73
FUNC and the Purchase Acquisitions (including the Corporate Merger)............................. 33.91 30.49
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB........................ 30.82 28.11
Equivalent pro forma per share of UFC Common Stock (2):
FUNC and UFC.................................................................................... 14.73 13.46
FUNC and the Purchase Acquisitions (including the Corporate Merger)............................. 14.86 13.36
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB........................ $13.50 12.31
</TABLE>
(1) The pro forma combined book value per share of FUNC Common Stock amounts
represent the sum of the pro forma combined stockholders' equity amounts,
divided by the pro forma combined period-end number of shares outstanding.
(2) The equivalent pro forma book value per share of UFC Common Stock amounts
represent the pro forma combined book value per share of FUNC Common Stock
amounts, multiplied by a 0.4381 Exchange Ratio.
<TABLE>
<CAPTION>
YEARS ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1995 1994 1993 1992
<S> <C> <C> <C> <C>
CASH DIVIDENDS PAID PER SHARE:
Historical per share of:
FUNC Common Stock................................................................. $ .92 1.72 1.50 1.28
UFC Common Stock.................................................................. .10* .17 .13 .10
Pro forma combined per share of FUNC Common Stock (3):
FUNC and UFC...................................................................... .91 1.73 -- --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and
FFB............................................................................. .84 1.56 1.30 1.00
Equivalent pro forma per share of UFC Common Stock (4):
FUNC and UFC...................................................................... $ .40 .76 -- --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and
FFB............................................................................. .37 .68 .57 .44
</TABLE>
* Does not include a special one-time cash dividend of $.12 per share payable
on September 13, 1995, to holders of record of UFC Common Stock on August 25,
1995.
(3) The pro forma combined cash dividends paid per share of FUNC Common Stock
amounts represent pro forma combined cash dividends paid on common stock
outstanding, divided by pro forma combined average number of common shares
outstanding, rounded to the nearest cent.
(4) The equivalent pro forma cash dividends paid per share of UFC Common Stock
amounts represent the pro forma combined per share of FUNC Common Stock
amounts multiplied by a 0.4381 Exchange Ratio, rounded up 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 $.52 per
share payable on September 15, 1995, would be $2.08. On an equivalent pro
forma basis, such current annualized FUNC dividend per share of UFC Common
Stock would be $.92, based on a 0.4381 Exchange Ratio, rounded up to the
nearest cent. Future FUNC and UFC dividends are dependent upon their
respective earnings and financial conditions, government regulations and
policies and other factors. See "THE MERGERS -- Exchange of UFC
Certificates", " -- Business Pending Consummation" and " -- Dividends".
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
NET INCOME PER SHARE APPLICABLE TO COMMON STOCKHOLDERS (AFTER FUNC REDEMPTION PREMIUM PER
SHARE):
Historical per share of:
FUNC Common Stock.................................................................... $ 2.77 4.98 4.73
UFC Common Stock..................................................................... .58 1.03 1.23
Pro forma combined per share of FUNC Common Stock (5):
FUNC and UFC......................................................................... 2.73 4.96 --
FUNC and the Purchase Acquisitions (including the Corporate Merger).................. 2.32 4.82 --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB............. 2.22 4.48 4.30
Equivalent pro forma per share of UFC Common Stock (6):
FUNC and UFC......................................................................... 1.20 2.17 --
FUNC and the Purchase Acquisitions (including the Corporate Merger).................. 1.02 2.11 --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB............. $ .97 1.96 1.88
<CAPTION>
1992
<S> <C>
NET INCOME PER SHARE APPLICABLE TO COMMON STOCKHOLDERS (AFTER FUNC REDEMPTION PREMIUM PER
SHARE):
Historical per share of:
FUNC Common Stock.................................................................... 2.23
UFC Common Stock..................................................................... .83
Pro forma combined per share of FUNC Common Stock (5):
FUNC and UFC......................................................................... --
FUNC and the Purchase Acquisitions (including the Corporate Merger).................. --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB............. 2.53
Equivalent pro forma per share of UFC Common Stock (6):
FUNC and UFC......................................................................... --
FUNC and the Purchase Acquisitions (including the Corporate Merger).................. --
FUNC, the Purchase Acquisitions (including the Corporate Merger) and FFB............. 1.11
</TABLE>
(5) The pro forma combined income per share of FUNC Common Stock amounts
represent the pro forma combined net income (after redemption premium on
preferred stock) applicable to holders of FUNC Common Stock, divided by the
pro forma combined average number of shares of FUNC Common Stock
outstanding.
(6) The equivalent pro forma income per share of UFC Common Stock amounts
represent the pro forma combined income per share of FUNC Common Stock
amounts, multiplied by a 0.4381 Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT PRO FORMA
HISTORICAL PER SHARE OF
FUNC COMMON STOCK UFC COMMON STOCK UFC COMMON STOCK (7)
<S> <C> <C> <C>
MARKET VALUE PER SHARE:
February 21, 1995....................................... $ 44.25 15.50 20.25
August , 1995......................................... $
</TABLE>
(7) Equivalent pro forma market values per share of UFC Common Stock represent
the historical market values per share of FUNC Common Stock multiplied by a
0.4381 Exchange Ratio, rounded down to the nearest one-eighth. The FUNC and
UFC historical market values per share represent the last reported sale
prices per share of FUNC Common Stock and UFC Common Stock on the NYSE Tape
and the Nasdaq National Market, respectively: (i) on February 21, 1995, the
last business day preceding public announcement of the execution of the
Merger Agreement; and (ii) on August , 1995. For additional market prices
of FUNC Common Stock and UFC Common Stock, see "THE MERGERS -- Market
Prices".
Because the market price of FUNC Common Stock is subject to fluctuation,
the market value of the shares of FUNC Common Shares that holders of UFC Common
Stock would receive upon consummation of the Corporate Merger may increase or
decrease prior to and after the receipt of such shares. UFC stockholders are
urged to obtain current market quotations for FUNC Common Stock.
SELECTED FINANCIAL DATA
The following tables set forth certain unaudited historical consolidated
selected financial information for FUNC and UFC and certain unaudited pro forma
combined selected financial data, reflecting consummation of (i) the Corporate
Merger, (ii) the Purchase Acquisitions (including the Corporate Merger), and
(iii) the Purchase Acquisitions (including the Corporate Merger) and the FFB
Merger. Such pro forma information has been prepared (a) assuming a 0.4381
Exchange Ratio, (b) giving effect to the Corporate Merger and the other Purchase
Acquisitions on a purchase accounting basis, and (c) giving effect to the FFB
Merger 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, FFB and UFC, including the respective
notes thereto, the unaudited pro forma financial information appearing elsewhere
in this Prospectus/Proxy Statement, including the notes thereto, and the other
documents incorporated herein by reference. See "AVAILABLE INFORMATION",
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE", "PRO FORMA FINANCIAL
INFORMATION" and ANNEX A. UFC's fiscal year-end is March 31 of each year;
however, all financial information related to UFC as of and for the periods
ended December 31 has
13
<PAGE>
been adjusted herein to reflect the results of operations on a calendar year-end
basis, as appropriate. Interim unaudited historical data of FUNC and UFC
reflect, in the respective opinions of FUNC's and UFC's management, all
adjustments (consisting only of normal recurring adjustments) necessary to a
fair presentation of such data.
The 0.4381 Exchange Ratio used in the pro forma information is based on the
last reported sale price on the NYSE Tape of FUNC Common Stock on July 31, 1995,
which was $48.875 per share. The actual Exchange Ratio will depend on the
Average Closing Price (which will not be known until shortly before the
Effective Date) and may be higher or lower than 0.4381. The pro forma
information would be different if the Average Closing Price results in an
Exchange Ratio different from 0.4381. Under the Merger Agreement, the Exchange
Ratio would be (i) 0.458 if the Average Closing Price were less than $46.75 but
greater than $42.75, (ii) the result obtained by dividing $19.42 by the Average
Closing Price if the Average Closing Price is $42.75 or less, and (iii) the
result obtained by dividing $21.41 by the Average Closing Price if the Average
Closing Price is $46.75 or greater. Set forth on the cover page of this
Prospectus/Proxy Statement is the last reported sale price per share of FUNC
Common Stock on the NYSE Tape on the most recent practicable date before the
mailing hereof. Stockholders are urged to obtain current quotations of the
market price of FUNC Common Stock.
Pro forma financial information for the Purchase Acquisitions (including
the Corporate Merger) assumes such acquisitions were consummated on January 1,
1994, and, except as otherwise indicated, reflects information from such date to
their respective consummation dates (or to June 30, 1995, with respect to the
Purchase Acquisitions (including the Corporate Merger) pending as of June 30,
1995, or announced between July 1, 1995 and August 14, 1995). Pro forma
financial information with respect to the FFB Merger assumes such merger was
consummated as of the beginning of each of the periods indicated.
Since purchase accounting does not require restatement of results for prior
periods following consummation of the Corporate Merger or any of the other
Purchase Acquisitions, consummation of the Corporate Merger or any of the other
Purchase Acquisitions will not affect FUNC's historical results for the periods
indicated. Pro forma financial information is intended to show how the Purchase
Acquisitions (including the Corporate Merger) and the FFB Merger might have
affected historical financial statements if the Purchase Acquisitions (including
the Corporate Merger) and the FFB Merger had been consummated at an earlier
time. The pro forma combined selected financial information does not purport to
be indicative of the results that actually would have been realized had the
Purchase Acquisitions (including the Corporate Merger) and the FFB Merger taken
place at the beginning of the applicable periods indicated, nor is it indicative
of the combined financial position or results of operations for future periods.
14
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1995 1994 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands except per share data)
Interest income..................................... $ 3,000,417 2,397,814 5,094,661 4,556,332 4,479,385 4,647,440
Interest expense.................................... 1,406,547 919,916 2,060,946 1,790,439 2,020,968 2,742,996
Net interest income................................. 1,593,870 1,477,898 3,033,715 2,765,893 2,458,417 1,904,444
Provision for loan losses........................... 76,500 50,000 100,000 221,753 414,708 648,284
Net interest income after provision for loan
losses............................................ 1,517,370 1,427,898 2,933,715 2,544,140 2,043,709 1,256,160
Securities available for sale transactions.......... 4,878 1,365 (11,507) 25,767 34,402 --
Investment security transactions.................... 1,450 1,309 4,006 7,435 (2,881) 155,048
Noninterest income.................................. 628,042 551,792 1,166,470 1,165,086 1,032,651 914,511
Noninterest expense................................. 1,399,441 1,291,061 2,677,228 2,521,647 2,526,678 1,905,918
Income before income taxes.......................... 752,299 691,303 1,415,456 1,220,781 581,203 419,801
Income taxes........................................ 266,254 239,224 490,076 403,260 196,152 71,070
Net income.......................................... 486,045 452,079 925,380 817,521 385,051 348,731
Dividends on preferred stock........................ 7,029 11,927 25,353 24,900 31,979 34,570
Net income applicable to common stockholders before
redemption premium................................ 479,016 440,152 900,027 792,621 353,072 314,161
Redemption premium on preferred stock............... -- -- 41,355 -- -- --
Net income applicable to common stockholders after
redemption premium................................ $ 479,016 440,152 858,672 792,621 353,072 314,161
PER COMMON SHARE DATA
Net income before redemption premium................ $ 2.77 2.59 5.22 4.73 2.23 2.24
Net income after redemption premium................. 2.77 2.59 4.98 4.73 2.23 2.24
Cash dividends...................................... .92 .80 1.72 1.50 1.28 1.12
Book value.......................................... 33.39 29.54 30.66 28.90 25.25 23.23
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands)...................................... 158,418 135,520 297,902 243,845 167,601 126,029
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.............................................. 83,101,612 72,604,401 77,313,505 70,786,969 63,828,031 59,273,177
Loans, net of unearned income....................... 60,020,507 48,925,495 54,029,752 46,876,177 41,923,767 41,383,580
Deposits............................................ 58,842,024 53,772,260 58,958,273 53,742,411 49,150,965 47,176,223
Long-term debt...................................... 5,376,283 3,129,444 3,428,514 3,061,944 3,151,260 2,630,930
Preferred stockholders' equity...................... -- 284,041 -- 284,041 297,215 397,356
Common stockholders' equity......................... 5,736,847 5,104,540 5,397,517 4,923,584 4,161,948 3,463,441
Total stockholders' equity.......................... $ 5,736,847 5,388,581 5,397,517 5,207,625 4,459,163 3,860,797
Preferred shares outstanding........................ -- 6,318 -- 6,318 6,846 10,851
Common shares outstanding........................... 171,837 172,797 176,034 170,338 164,849 149,112
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets.............................................. $78,881,692 71,088,849 72,670,694 68,101,222 61,145,974 55,095,439
Loans, net of unearned income....................... 56,153,699 46,775,003 49,055,215 43,631,410 41,270,991 37,314,358
Deposits............................................ 57,464,423 52,147,743 53,244,751 50,248,848 47,173,706 40,482,433
Long-term debt...................................... 4,264,879 3,143,570 3,213,607 3,006,560 2,789,653 2,187,595
Common stockholders' equity*........................ 5,611,065 5,062,377 5,282,412 4,550,048 3,889,256 3,131,716
Total stockholders' equity*......................... $ 5,611,065 5,346,417 5,554,390 4,839,397 4,213,896 3,467,437
Common shares outstanding........................... 172,745 169,689 172,543 167,692 158,683 140,003
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before
redemption premium to average common stockholders'
equity............................................ 17.22%** 17.53** 17.04 17.42 9.08 10.03
Net income applicable to common stockholders after
redemption premium to average common stockholders'
equity............................................ 17.22** 17.53** 16.26 17.42 9.08 10.03
Net income to:
Average total stockholders' equity................ 17.47** 17.05** 16.66 16.89 9.14 10.06
Average assets.................................... 1.24** 1.28** 1.27 1.20 .63 .63
Average stockholders' equity to average assets...... 6.96 7.01 7.52 7.11 6.89 6.29
Allowance for loan losses to:
Net loans......................................... 1.61 2.06 1.81 2.18 2.24 2.06
Nonaccrual and restructured loans................. 222 192 245 147 96 72
Nonperforming assets.............................. 170 152 175 111 70 50
Net charge-offs to average net loans................ .38** .27** .33 .58 .86 1.48
Nonperforming assets to loans, net and foreclosed
properties........................................ .95 1.35 1.03 1.95 3.19 4.10
Capital ratios:***
Tier 1 capital.................................... 6.86 9.30 7.76 9.14 9.22 7.56
Total capital..................................... 11.58 14.68 12.94 14.64 14.31 11.76
Leverage.......................................... 5.74 6.67 6.12 6.13 6.55 5.31
Net interest margin................................. 4.61%** 4.78** 4.77 4.78 4.77 4.08
<CAPTION>
1990
<S> <C>
FUNC (HISTORICAL)
CONSOLIDATED SUMMARIES OF INCOME
(In thousands except per share data)
Interest income..................................... 4,829,520
Interest expense.................................... 3,094,334
Net interest income................................. 1,735,186
Provision for loan losses........................... 425,409
Net interest income after provision for loan
losses............................................ 1,309,777
Securities available for sale transactions.......... --
Investment security transactions.................... 7,884
Noninterest income.................................. 690,672
Noninterest expense................................. 1,680,973
Income before income taxes.......................... 327,360
Income taxes........................................ 64,993
Net income.......................................... 262,367
Dividends on preferred stock........................ 33,868
Net income applicable to common stockholders before
redemption premium................................ 228,499
Redemption premium on preferred stock............... --
Net income applicable to common stockholders after
redemption premium................................ 228,499
PER COMMON SHARE DATA
Net income before redemption premium................ 1.68
Net income after redemption premium................. 1.68
Cash dividends...................................... 1.08
Book value.......................................... 21.81
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands)...................................... 116,696
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets.............................................. 54,588,410
Loans, net of unearned income....................... 36,050,719
Deposits............................................ 38,194,268
Long-term debt...................................... 1,850,860
Preferred stockholders' equity...................... 317,011
Common stockholders' equity......................... 2,983,361
Total stockholders' equity.......................... 3,300,372
Preferred shares outstanding........................ 7,293
Common shares outstanding........................... 136,777
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets.............................................. 52,124,595
Loans, net of unearned income....................... 35,877,585
Deposits............................................ 36,209,083
Long-term debt...................................... 1,587,497
Common stockholders' equity*........................ 2,937,441
Total stockholders' equity*......................... 3,244,473
Common shares outstanding........................... 135,622
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before
redemption premium to average common stockholders'
equity............................................ 7.78
Net income applicable to common stockholders after
redemption premium to average common stockholders'
equity............................................ 7.78
Net income to:
Average total stockholders' equity................ 8.09
Average assets.................................... .50
Average stockholders' equity to average assets...... 6.22
Allowance for loan losses to:
Net loans......................................... 1.95
Nonaccrual and restructured loans................. 77
Nonperforming assets.............................. 56
Net charge-offs to average net loans................ .68
Nonperforming assets to loans, net and foreclosed
properties........................................ 3.42
Capital ratios:***
Tier 1 capital.................................... 6.53
Total capital..................................... 10.83
Leverage.......................................... 4.90
Net interest margin................................. 3.99
</TABLE>
* Average common stockholders' equity and total stockholders' equity exclude
net unrealized losses on debt and equity securities in 1995 and 1994.
** Annualized.
*** The 1990-1992 capital ratios are not restated for pooling of interests
acquisitions. The capital ratios for FUNC and for UFC are based on
risk-weighted assets pursuant to the requirements of their respective
primary federal regulators, which requirements differ in certain respects.
15
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
UFC (HISTORICAL)
CONSOLIDATED SUMMARIES OF OPERATIONS
(In thousands)
Interest income........................................................ $ 28,827 50,493 46,989 49,234 49,117
Interest expense....................................................... 17,892 28,202 26,097 28,711 32,208
Net interest income.................................................... 10,935 22,291 20,892 20,523 16,909
Provision for loan losses.............................................. 267 864 1,768 2,456 1,266
Net interest income after provision for loan
losses............................................................... 10,668 21,427 19,124 18,067 15,643
Security and loan transactions......................................... -- 138 1,532 1,327 660
Noninterest income..................................................... 2,693 3,291 1,256 1,491 1,878
Noninterest expense.................................................... 7,521 14,827 12,769 11,774 10,488
Income before income taxes and cumulative effect of accounting
change............................................................... 5,840 10,029 9,143 9,111 7,693
Income taxes........................................................... 2,192 3,663 2,927 4,151 2,944
Net income before cumulative effect of accounting change............... 3,648 6,366 6,216 4,960 4,749
Cumulative effect of accounting change................................. -- -- 1,210 -- --
Net income applicable to common stockholders........................... $ 3,648 6,366 7,426 4,960 4,749
PER COMMON SHARE DATA
Net income............................................................. $ .58 1.03 1.23 .83 .79
Cash dividends......................................................... .10 .17 .13 .10 .07
Book value............................................................. 11.33 10.49 10.01 8.86 8.07
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands)......................................................... 580 984 773 577 397
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets................................................................. 781,372 758,783 671,069 622,497 566,558
Loans, net of unearned income.......................................... 629,865 611,408 518,542 497,925 443,558
Deposits............................................................... 540,918 558,507 534,734 499,806 478,493
Stockholders' equity................................................... $ 65,620 60,749 57,839 51,169 47,115
Common shares outstanding.............................................. 5,797 5,793 5,776 5,773 5,839
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets................................................................. $ 774,065 717,560 642,007 597,751 527,066
Loans, net of unearned income.......................................... 623,088 551,140 496,059 466,645 422,568
Deposits............................................................... 551,288 548,966 513,388 488,973 447,107
Stockholders' equity................................................... $ 62,985 59,104 54,537 49,032 45,741
Common shares outstanding.............................................. 6,254 6,181 6,037 5,976 6,011
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders to average common
stockholders' equity................................................. 11.58%* 10.77 13.62 10.12 10.38
Net income to:
Average stockholders' equity......................................... 11.58* 10.77 13.62 10.12 10.38
Average assets....................................................... .94* .89 1.16 .83 .90
Average stockholders' equity to average assets......................... 8.14 8.24 8.49 8.20 8.68
Allowance for loan losses to:
Net loans............................................................ .81 .81 .85 .88 .58
Nonaccrual and restructured loans.................................... 95 107 77 68 25
Nonperforming assets................................................. 67 62 34 33 13
Net charge-offs to average net loans................................... .05* .05 .34 .09 .28
Nonperforming assets to loans, net and foreclosed properties........... 1.21 1.31 2.49 2.66 4.24
Capital ratios:**
Tangible capital..................................................... 8.31 7.73 8.32 7.82 7.66
Core capital......................................................... 8.31 7.73 8.32 7.82 7.66
Risk-based capital................................................... 15.09% 14.27 14.44 13.47 13.16
<CAPTION>
1990
<S> <C>
UFC (HISTORICAL)
CONSOLIDATED SUMMARIES OF OPERATIONS
(In thousands)
Interest income........................................................ 38,736
Interest expense....................................................... 26,067
Net interest income.................................................... 12,669
Provision for loan losses.............................................. 1,193
Net interest income after provision for loan
losses............................................................... 11,476
Security and loan transactions......................................... 224
Noninterest income..................................................... 3,051
Noninterest expense.................................................... 7,725
Income before income taxes and cumulative effect of accounting
change............................................................... 7,026
Income taxes........................................................... 1,897
Net income before cumulative effect of accounting change............... 5,129
Cumulative effect of accounting change................................. --
Net income applicable to common stockholders........................... 5,129
PER COMMON SHARE DATA
Net income............................................................. .84
Cash dividends......................................................... --
Book value............................................................. 7.14
CASH DIVIDENDS PAID ON COMMON STOCK
(In thousands)......................................................... --
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets................................................................. 502,238
Loans, net of unearned income.......................................... 416,038
Deposits............................................................... 430,058
Stockholders' equity................................................... 43,913
Common shares outstanding.............................................. 6,151
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
(In thousands)
Assets................................................................. 407,230
Loans, net of unearned income.......................................... 403,585
Deposits............................................................... 373,039
Stockholders' equity................................................... 40,918
Common shares outstanding.............................................. 6,106
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders to average common
stockholders' equity................................................. 12.53
Net income to:
Average stockholders' equity......................................... 12.53
Average assets....................................................... 1.26
Average stockholders' equity to average assets......................... 10.05
Allowance for loan losses to:
Net loans............................................................ .59
Nonaccrual and restructured loans.................................... 27
Nonperforming assets................................................. 16
Net charge-offs to average net loans................................... .33
Nonperforming assets to loans, net and foreclosed properties........... 3.73
Capital ratios:**
Tangible capital..................................................... 9.04
Core capital......................................................... 9.04
Risk-based capital................................................... 16.15
</TABLE>
* Annualized.
** The capital ratios for UFC and for FUNC are based on risk-weighted assets
pursuant to the requirements of their respective primary federal regulators,
which requirements differ in certain respects.
16
<PAGE>
FUNC AND UFC
PRO FORMA COMBINED SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
<S> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income....................................................................... $ 3,028,616 5,138,493
Interest expense...................................................................... 1,424,439 2,089,148
Net interest income................................................................... 1,604,177 3,049,345
Provision for loan losses............................................................. 76,767 100,864
Net interest income after provision for loan losses................................... 1,527,410 2,948,481
Securities available for sale transactions............................................ 4,909 (11,369)
Investment security transactions...................................................... 1,450 4,006
Noninterest income.................................................................... 630,704 1,169,761
Noninterest expense................................................................... 1,409,588 2,697,485
Income before income taxes............................................................ 754,885 1,413,394
Income taxes.......................................................................... 267,866 490,703
Net income............................................................................ 487,019 922,691
Dividends on preferred stock.......................................................... 7,029 25,353
Net income applicable to common stockholders before redemption premium................ 479,990 897,338
Redemption premium on preferred stock................................................. -- 41,355
Net income applicable to common stockholders after redemption premium................. $ 479,990 855,983
PER COMMON SHARE DATA
Net income applicable to common stockholders before redemption premium................ $ 2.73 5.20
Net income applicable to common stockholders after redemption premium................. 2.73 4.96
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets................................................................................ 83,956,743 78,023,390
Loans, net of unearned income......................................................... 60,650,372 54,641,160
Deposits.............................................................................. 59,382,942 59,516,780
Long-term debt........................................................................ 5,376,283 3,428,514
Stockholders' equity.................................................................. $ 5,874,349 5,408,754
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans.......................................................................... 1.61% 1.80
Nonperforming assets............................................................... 169 174
Net charge-offs to average net loans.................................................. .38** .33
Nonperforming assets to loans, net and foreclosed properties.......................... .95% 1.03
</TABLE>
* See "PRO FORMA FINANCIAL INFORMATION".
** Annualized.
17
<PAGE>
FUNC AND THE PURCHASE ACQUISITIONS (INCLUDING THE CORPORATE MERGER)
PRO FORMA COMBINED SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
<S> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
(In thousands)
Interest income....................................................................... $ 3,337,895 5,800,981
Interest expense...................................................................... 1,647,243 2,514,910
Net interest income................................................................... 1,690,652 3,286,071
Provision for loan losses............................................................. 80,630 101,643
Net interest income after provision for loan losses................................... 1,610,022 3,184,428
Securities available for sale transactions............................................ 1,199 (8,860)
Investment security transactions...................................................... 1,450 4,006
Noninterest income.................................................................... 657,381 1,221,488
Noninterest expense................................................................... 1,598,868 3,000,398
Income before income taxes............................................................ 671,184 1,400,664
Income taxes.......................................................................... 247,535 487,660
Net income............................................................................ 423,649 913,004
Dividends on preferred stock.......................................................... 7,029 25,353
Net income applicable to common stockholders before redemption premium................ 416,620 887,651
Redemption premium on preferred stock................................................. -- 41,355
Net income applicable to common stockholders after redemption premium................. $ 416,620 846,296
PER COMMON SHARE DATA
Net income applicable to common stockholders before redemption premium................ $ 2.32 5.06
Net income applicable to common stockholders after redemption premium................. 2.32 4.82
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
(In thousands)
Assets................................................................................ 90,879,217 88,423,716
Loans, net of unearned income......................................................... 65,589,948 62,217,003
Deposits.............................................................................. 64,166,837 67,055,831
Long-term debt........................................................................ 5,624,112 4,524,214
Stockholders' equity.................................................................. $ 6,050,144 5,458,336
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans.......................................................................... 1.55% 1.68
Nonperforming assets............................................................... 153 140
Net charge-offs to average net loans.................................................. .36** .30
Nonperforming assets to loans, net and foreclosed properties.......................... 1.01% 1.20
</TABLE>
* See "PRO FORMA FINANCIAL INFORMATION".
** Annualized.
18
<PAGE>
FUNC, THE PURCHASE ACQUISITIONS (INCLUDING THE CORPORATE MERGER) AND FFB
PRO FORMA COMBINED SELECTED FINANCIAL DATA*
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(DOLLARS IN THOUSANDS, JUNE 30, YEARS ENDED DECEMBER 31,
EXCEPT PER SHARE DATA) 1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.................... $ 4,493,006 3,434,281 7,937,133 6,601,528 6,608,666 7,031,400 7,549,088
Interest expense................... 2,112,573 1,254,749 3,246,946 2,481,952 2,941,680 4,070,885 4,806,471
Net interest income................ 2,380,433 2,179,532 4,690,187 4,119,576 3,666,986 2,960,515 2,742,617
Provision for loan losses.......... 100,630 94,000 180,643 369,753 642,708 946,284 923,409
Net interest income after provision
for loan losses.................. 2,279,803 2,085,532 4,509,544 3,749,823 3,024,278 2,014,231 1,819,208
Securities available for sale
transactions..................... 15,242 10,173 8,860 25,767 34,402 -- --
Investment security transactions... 1,450 1,309 4,006 14,452 1,944 208,614 32,271
Noninterest income................. 864,592 738,949 1,620,712 1,541,569 1,360,202 1,254,635 1,028,755
Noninterest expense................ 2,135,961 1,816,102 4,070,027 3,536,346 3,443,524 2,777,665 2,564,124
Income before income taxes......... 1,025,126 1,019,861 2,073,095 1,795,265 977,302 699,815 316,110
Income taxes....................... 373,284 347,323 709,028 578,912 278,514 129,843 59,868
Net income......................... 651,842 672,538 1,364,067 1,216,353 698,788 569,972 256,242
Dividends on preferred stock....... 17,350 22,204 46,020 45,553 53,040 51,746 47,151
Net income applicable to common
stockholders before redemption
premium.......................... 634,492 650,334 1,318,047 1,170,800 645,748 518,226 209,091
Redemption premium on preferred
stock............................ -- -- 41,355 -- -- -- --
Net income applicable to common
stockholders after redemption
premium.......................... $ 634,492 650,334 1,276,692 1,170,800 645,748 518,226 209,091
PRO FORMA PER COMMON SHARE DATA:
Net income applicable to common
stockholders before redemption
premium........................ $ 2.22 2.32 4.63 4.30 2.53 2.34 .97
Net income applicable to common
stockholders after redemption
premium........................ 2.22 2.32 4.48 4.30 2.53 2.34 .97
CONSOLIDATED PERIOD-END BALANCE
SHEET ITEMS
(In thousands)
Assets........................... 126,240,998 106,512,707 124,639,412 104,549,554 95,308,328 89,488,406 83,698,754
Loans, net of unearned income.... 89,589,095 70,533,561 86,018,244 68,263,088 60,301,462 58,725,097 54,581,023
Deposits......................... 92,985,760 81,214,406 95,962,683 81,885,433 76,155,800 72,394,773 61,274,378
Long-term debt................... 6,300,862 3,942,321 5,337,837 3,675,002 3,732,768 3,549,815 2,967,847
Stockholders' equity............. $ 8,989,461 8,208,885 8,335,311 7,946,053 6,716,813 5,805,579 4,782,825
CONSOLIDATED PERCENTAGES
Allowance for loan losses to:
Net loans...................... 1.76% 2.27 1.91 2.38 2.57 2.49 2.31
Nonperforming assets........... 168 147 153 115 76 55 58
Net charge-offs to average net
loans.......................... .39** .36** .37 .78 1.03 1.53 1.05
Nonperforming assets to loans,
net and foreclosed
properties..................... 1.05% 1.53 1.25 2.06 3.36 4.45 3.91
</TABLE>
* See "PRO FORMA FINANCIAL INFORMATION".
** Annualized.
19
<PAGE>
RECENT DEVELOPMENTS
FFB MERGER
On June 18, 1995, FUNC entered into the FFB Merger Agreement, which
provides, among other things, for (i) the merger of FFB with and into a
wholly-owned subsidiary of FUNC, (ii) the exchange of each outstanding share of
FFB common stock for 1.35 shares of FUNC Common Stock, subject to possible
increase in certain circumstances, and (iii) the exchange of each share of the
three outstanding series of FFB preferred stock for one share of one of three
corresponding new series of FUNC's Class A Preferred Stock having substantially
identical terms as the relevant series of FFB preferred stock, all subject to
the terms and conditions contained in the the FFB Merger Agreement.
In connection with the execution of the FFB Merger Agreement, FFB granted
an option to FUNC to purchase, under certain circumstances, up to 19.9 percent
of the outstanding shares of FFB common stock at a per share exercise price
equal to $59.00, and FUNC granted an option to FFB to purchase, under certain
circumstances, up to 19.9 percent of the outstanding shares of FUNC Common Stock
at a per share exercise price equal to $45.625.
Also, in connection with the execution of the FFB Merger Agreement, Banco
Santander, S.A. ("Santander"), the owner of approximately 30 percent of the
outstanding shares of FFB common stock, agreed, among other things, to vote the
FFB shares held by it in favor of the FFB Merger Agreement. Following
consummation of the FFB Merger, Santander is expected to own approximately 11
percent of the outstanding shares of FUNC Common Stock.
The FFB Merger, which will be accounted for as a pooling of interests, is
expected to be consummated by January 1, 1996, subject to the receipt of
regulatory approvals, FFB and FUNC stockholder approvals, and other conditions
set forth in the FFB Merger Agreement. No assurance can be given that the FFB
Merger will be consummated or as to the timing of such consummation.
Based on the $47.625 closing price of FUNC Common Stock on the NYSE Tape on
June 16, 1995, the transaction would be valued at approximately $5.4 billion and
represent a purchase price of $64.29 for each share of FFB common stock.
Prior to consummation of the FFB Merger, FFB and FUNC may purchase up to
5.5 million shares of FFB common stock or 7.4 million shares of FUNC Common
Stock, or some combination of the two. Approximately 105 million shares of FUNC
Common Stock are expected to be issued in the FFB Merger (net of the foregoing
purchases).
Following consummation of the FFB Merger, the current Chairman and Chief
Executive Officer of FFB, Anthony P. Terracciano, will join Edward E.
Crutchfield and John R. Georgius in an "Office of the Chairman" of FUNC. Mr.
Crutchfield will continue to serve as Chairman and Chief Executive Officer, Mr.
Georgius, the current President of FUNC, will serve as Vice Chairman and Mr.
Terracciano will serve as President of FUNC. Additionally, six FFB directors,
including Mr. Terracciano and a representative of Santander, will join the FUNC
Board of Directors following consummation of the FFB Merger.
See "PRO FORMA FINANCIAL INFORMATION".
1995 AND 1996 EARNINGS ESTIMATES
FUNC estimates stand-alone earnings for 1995 and 1996 of approximately
$5.75 and $6.55 in net income per share of FUNC Common Stock, respectively.
These estimates are based on several assumptions, including FUNC management's
expectations for its existing markets and for the Purchase Acquisitions
(including the Corporate Merger), in addition to certain other purchase
accounting acquisitions that were completed in 1994. See Note (4) to "PRO FORMA
FINANCIAL INFORMATION".
FUNC also estimates post-FFB Merger net income per share of FUNC Common
Stock of approximately $5.29 for 1995, excluding a currently estimated after-tax
FFB Merger-related charge of approximately $270 million, or $.97 per share of
FUNC Common Stock, and approximately $6.31 for 1996. The FUNC estimates of
post-FFB Merger earnings for 1995 and 1996 are based, in part, on estimated
stand-alone earnings for FFB for 1995 and 1996 of approximately $5.45 and $5.90,
respectively, in fully-diluted net income per share of FFB common stock. As is
the case with the FUNC stand-alone estimates, the estimates for FFB are based on
several assumptions, including expectations for its existing markets. The FUNC
post- FFB Merger estimates are based on several assumptions in addition to the
assumptions referred to above with respect to the stand-alone earnings estimates
for FUNC and FFB, including, without limitation, the following:
(Bullet) The FFB Merger will be consummated by January 1, 1996.
20
<PAGE>
(Bullet) FUNC will have average shares of FUNC Common Stock outstanding of
approximately 279 million in 1995 and 284 million in 1996,
including an estimated 105 million shares to be issued in the FFB
Merger (net of the purchases referred to above under " -- FFB
Merger").
(Bullet) Before-tax expense savings relating to the FFB Merger of
approximately $16 million in 1995 and $106 million in 1996, or
approximately $10 million and $64 million, respectively, after
tax. These estimates assume that approximately five percent of
combined FUNC/FFB's pre-FFB Merger annual expenses, are eliminated
within 18 months of the effective date of the FFB Merger.
(Bullet) Before-tax revenue enhancements relating to the FFB Merger of
approximately $79 million in 1996, or approximately $48 million
after tax. These estimates are primarily based on an analysis of
fee income generating products currently offered by FUNC which
either are not offered by FFB or are offered on a more limited
basis by FFB.
(Bullet) Before-tax earnings resulting from excess capital generated by the
FFB Merger of approximately $25 million in 1996, or approximately
$15 million after tax. These estimates assume that all tangible
common equity generated by the FFB Merger in excess of 5.50
percent is converted into assets which earn a 100 basis points
before-tax spread, or a 60 basis points after-tax spread.
The estimated $270 million FFB Merger-related charge is summarized below:
<TABLE>
<S> <C>
(IN MILLIONS, AFTER TAX)
Severance and change in control related obligations........................................... $ 105
Fixed asset write-downs and vacant space accrual.............................................. 40
Accelerated disposition of owned real estate.................................................. 30
Service contract terminations................................................................. 30
Professional fees............................................................................. 30
Other......................................................................................... 35
Total......................................................................................... $ 270
</TABLE>
The FFB Merger-related charge includes approximately $65 million in
non-cash charges. Cash payments included in the FFB Merger-related charge are
expected to be completed by the end of the second quarter of 1996. The "Other"
category includes FFB Merger-related amounts, none of which exceeds $8 million.
Like all estimates of the type indicated above, there are many factors,
such as changes in economic or competitive conditions, changes in legislation or
regulation, or the failure of any of the underlying assumptions to be correct,
that are beyond FUNC's and FFB's control. These factors could affect actual
results. As a result, and because of the subjective aspect of any estimate,
there are likely to be differences between such estimates and the actual
results, which could be material. These estimates are necessarily speculative in
nature and no assurance can be given that these estimates will be realized.
The amounts included in the $270 million FFB Merger-related charge are subject
to change prior to the consummation date for the FFB Merger. The estimates
include assumptions about the timing and number of employees that will be
voluntarily or involuntarily terminated. Changes in those assumptions could
result in a change in the FFB Merger-related charge.
GENERAL INFORMATION
GENERAL
This Prospectus/Proxy Statement is being furnished by UFC to its
stockholders as a proxy statement in connection with the solicitation of proxies
by the UFC Board for use at the Special Meeting to be held on September ,
1995, and any adjournments or postponements thereof, to consider and vote upon:
(i) a proposal to approve the Merger Agreement; and (ii) such other business as
may come before the Special Meeting or any adjournments or postponements
thereof.
This document is also being furnished by FUNC to the holders of UFC Common
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 UFC; (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, and otherwise in the
discretion of the proxyholders in accordance with their best judgment as to any
other matters which may come before the Special Meeting, including, among other
things, a motion to adjourn or postpone the Special Meeting to another time
and/or place for the purpose of soliciting additional proxies or otherwise;
PROVIDED, HOWEVER, that no proxy which is voted against the proposal to adopt
the
21
<PAGE>
Merger Agreement will be voted in favor of any such adjournment or postponement.
If no specification is made, such shares will be voted in favor of approval of
the Merger Agreement.
Directors, officers and employees of FUNC and UFC may solicit proxies from
UFC stockholders, either personally or by telephone, telegraph or other form of
communication. Such persons will receive no additional compensation for such
services. UFC retains Corporate Communications, Inc. on a regular basis to
assist in soliciting proxies and to send proxy materials to brokerage houses and
other custodians, nominees and fiduciaries for transmittal to their principals.
The cost of such services in connection with the transactions contemplated
hereby is included in a monthly retainer fee in the amount of $1,500, plus
out-of-pocket expenses. 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 UFC.
THE UFC BOARD HAS UNANIMOUSLY ADOPTED THE MERGER AGREEMENT, BELIEVES THE
MERGER AGREEMENT IS IN THE BEST INTERESTS OF UFC AND ITS STOCKHOLDERS AND IS
FAIR TO THE STOCKHOLDERS, AND RECOMMENDS APPROVAL OF THE MERGER AGREEMENT BY UFC
STOCKHOLDERS. SEE "THE MERGER -- BACKGROUND AND REASONS; UFC".
RECORD DATE; VOTE REQUIRED
The UFC Board has fixed , 1995, as the Record Date for
determining stockholders entitled to notice of and to vote at the Special
Meeting, and accordingly, only holders of UFC Common 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 UFC Common Stock outstanding on the
Record Date was , each of such shares being entitled to one vote.
Approval of the Merger Agreement requires the affirmative vote of at least
two-thirds of the votes entitled to be cast at the Special Meeting by the
holders of UFC Common Stock.
The directors and executive officers of UFC (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting, shares of UFC Common Stock, which
represents percent of the outstanding shares of UFC Common Stock. Assuming
that the directors and executive officers of UFC vote their shares of UFC Common
Stock in favor of approval of the Merger Agreement, approval of the Merger
Agreement will require the affirmative vote of the holders of an additional
percent of the outstanding shares of UFC Common Stock entitled to be voted at
the Special Meeting.
If at least two-thirds of the votes eligible to be cast do not vote in
favor of the Merger Agreement, UFC will continue to act as a separate entity and
a going concern and will take action to provide notice of, and to hold, its 1995
Annual Meeting of Stockholders.
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.
THE MERGERS
THE FOLLOWING INFORMATION RELATING TO THE MERGERS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE 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) 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 UFC ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
GENERAL; EXCHANGE RATIO
Under the terms of the Merger Agreement, UFC would merge with and into
FUNC-SC and the Banks would merge with and into FUNB-SC. Upon consummation of
the Corporate Merger each outstanding share of UFC Common Stock (excluding any
Excluded 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 (i) 0.458
shares if the Average Closing Price is greater than $42.75 and less than $46.75,
(ii) the result obtained by dividing $19.58 by the Average Closing Price if the
Average Closing Price is $42.75 or less, or (iii) the result obtained by
dividing $21.41 by the Average Closing Price if the Average Closing Price is
$46.75 or greater. Each holder of UFC Common 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 (a) the last reported sale price
per share of FUNC Common Stock on the NYSE Tape on the last trading day prior to
the Effective Date by (b) the fraction of a share of FUNC Common Stock to which
such holder would otherwise be entitled.
22
<PAGE>
The Exchange Ratio was negotiated on an arms' length basis between
representatives of FUNC and UFC. As indicated under " -- Background and Reasons;
UFC", prior to execution of the Merger Agreement, FUNC proposed an exchange
ratio of $20.50 in value of FUNC Common Stock for each share of UFC Common
Stock. At the time of such proposal, the recent price per share of FUNC Common
Stock was $44.75. The 0.458 Exchange Ratio described in (i) in the preceding
paragraph was arrived at by dividing $20.50 by $44.75, which is midway between
the $42.75 and $46.75 prices. The $19.58 and $21.41 amounts indicated in (ii)
and (iii) in the preceding paragraph, were arrived at by multiplying the $42.75
and $46.75 prices, respectively, by the 0.458 Exchange Ratio.
On the day following the Effective Date, or as soon thereafter as FUNB-SC
may deem appropriate, the Bank Merger will be consummated.
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 UFC 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 third quarter of 1995. If the Corporate Merger is consummated in such
quarter, or in any other quarter, UFC 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 UFC may terminate the Merger
Agreement if the Effective Date does not occur on or before December 31, 1995.
See " -- Exchange of UFC Certificates" and " -- Conditions to Consummation;
Termination".
EXCHANGE OF UFC CERTIFICATES
As promptly as practicable after the Effective Date, FUNC will send or
cause to be sent to each holder of record of UFC Common Stock transmittal
materials for use in exchanging all of such holder's certificates representing
UFC Common Stock for a certificate or certificates representing the FUNC Common
Shares 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.
UFC 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 UFC Common Stock 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 for any fractional share interest (in each
case, without interest).
All FUNC Common Shares issued to the holders of UFC Common Stock pursuant
to the Corporate Merger will be deemed issued as of the Effective Date. After
the Effective Date, former holders of record of UFC Common Stock will be
entitled to vote at any meeting of holders of FUNC Common Stock the number of
FUNC Common Shares into which their UFC shares have been converted, regardless
of whether they have surrendered their UFC Common 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
UFC Common 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 for
any fractional share interest, 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 UFC will be closed, and
there will be no transfers on the transfer books of UFC of the shares of UFC
Common Stock that were outstanding immediately prior to the Effective Date.
23
<PAGE>
BACKGROUND AND REASONS
UFC
UFC's major initiatives in recent years have focused on leveraging its
strong capital position, strengthening loan loss reserves, increasing the
liquidity of its balance sheet, managing its credit risk, controlling its
expenses and expanding its franchise in attractive market areas through, in
particular, the acquisition of Home Federal in 1990. Management of UFC also
determined that developing its franchise in growing markets in South Carolina
was the most effective means of improving long-term stockholder value. Because
of the cost of developing on a de novo basis additional branch facilities and
the likely dilution to be incurred through an acquisition, the UFC Board
concluded in early 1992 that a merger of UFC with a banking institution of
generally comparable size, business mix, and strategic philosophy potentially
would be the best means for UFC to achieve its strategic objectives of enhancing
its competitive position, reducing expenses and increasing its earnings.
Accordingly, the Chief Executive Officers of UFC and American Federal Bank
FSB, Greenville, South Carolina ("American Federal") had general conversations
on several occasions during the period from May 1992 to April 1994. On April 11,
1994, the Boards of Directors of UFC and American Federal approved a "merger of
equals" transaction.
Following the announcement of the transaction, certain large stockholders
of UFC expressed to UFC management their disapproval of the merger with American
Federal and indicated their unwillingness to support the transaction. By late
August 1994, it became clear to the managements of UFC and American Federal that
UFC stockholder approval of the transaction was highly unlikely, and
consequently, on September 28, 1994, the parties agreed to terminate the
proposed transaction.
In November 1994, certain executives of FUNC and UFC met to discuss the
possibility of a combination of the two companies.
On November 22, 1994, the Executive Committee of UFC received a report of
the meeting and appointed a Merger and Acquisition Committee consisting of Lynn
W. Hodge, James E. McDonald, Dr. Jerry H. Padgett and John W. Davis. This
Committee reviewed ongoing communications with FUNC, including a non-binding
preliminary indication of interest letter. General discussions continued until
mid-December, when UFC agreed to permit FUNC to conduct a preliminary due
diligence examination of UFC and the Banks pursuant to a confidentiality
agreement.
Pursuant to a letter dated December 19, 1994, UFC retained Wheat First to
perform financial analyses in connection with a possible transaction, to assist
in the determination of appropriate and desirable values to be realized in an
acquisition of UFC, and, in the event UFC determined to proceed with a
transaction, to assist with negotiations.
On January 9, 1995, the UFC Board met to review with Wheat First the merger
and acquisition environment generally and valuation and other issues facing UFC
specifically. The UFC Board's stated purpose was to consider all transactions
and strategies in order to enhance or maximize stockholder value in light of
recent developments relating to market activity for banks and thrifts and the
termination of the proposed "merger of equals" transaction with American
Federal, as well as the non-binding preliminary indication of interest letter
and other contacts made by FUNC. Wheat First's presentation included a
discussion of recent transactions and an analysis of potential acquirors of UFC.
At such meeting, the UFC Board authorized Mr. Hodge to work with Wheat First to
determine, by way of informal telephonic or personal contact, what level of
interest might exist among other financial institutions within and outside of
South Carolina to engage in a transaction with UFC. The purpose of authorizing
such action was (i) to evaluate better the UFC Board's intention to remain an
independent institution, and (ii) to assess more fully any expressions of
interest or offers of acquisition that might be presented to the UFC Board,
including a possible FUNC offer.
General discussions between FUNC and UFC continued through January 1995. By
letter dated January 31, 1995, FUNC proposed an acquisition of UFC in which each
share of UFC Common Stock would be exchanged for $20.00 of FUNC Common Stock.
Such proposal was conditioned upon satisfactory completion of FUNC's due
diligence review and the execution of a mutually acceptable merger agreement.
Preliminary contacts with other potential Southeastern acquirors did not lead
the Merger and Acquisition Committee to believe that a better offer could be
obtained and convinced the Merger and Acquisition Committee that pursuing a
transaction with FUNC was in the best interests of UFC stockholders. In making
this determination, the Merger and Acquisition Committee considered such issues
as timing, the stock values of other potential acquirors, the willingness and
ability of other potential acquirors to offer and consummate a better
transaction for UFC stockholders and the ability of UFC, as an independent
company, to provide a better return to its stockholders than FUNC. During this
time, FUNC also indicated its willingness to increase the consideration from
$20.00 to $20.50 of FUNC Common Stock for each share of UFC Common Stock.
24
<PAGE>
The UFC Board agreed to go forward on the terms proposed by FUNC and
permitted FUNC to conduct a more detailed examination of the assets, business
and financial condition of UFC and the Banks. During the following week,
representatives of FUNC and UFC, their counsel and financial advisors engaged in
numerous discussions and participated in several meetings in order to perform
due diligence, consider organizational issues and negotiate terms of a
definitive merger agreement and related documents.
On February 20, 1995, the UFC Board, along with Wheat First and UFC's
special legal counsel, Breyer & Aguggia, reviewed the contents of the Merger
Agreement together with the exhibits thereto. The Board specifically reviewed
the Stock Option Agreement in light of the fact that FUNC conditioned the
transaction on the signing of the Stock Option Agreement. The UFC Board met
again on February 21, 1995, to discuss further the Merger Agreement and to
consider the potential benefits of a transaction with FUNC, financial and
valuation analyses of the transaction and the terms of the Merger Agreement. The
UFC Board also reviewed Wheat First's written opinion, dated as of such date,
that the Exchange Ratio was fair to holders of UFC Common Stock from a financial
point of view. Thereafter, the UFC Board unanimously approved the Merger
Agreement.
UFC engaged Wheat First to assist in the negotiation of the Merger
Agreement and to act as a financial advisor in connection therewith. As part of
its duties, Wheat First, before the execution of the Merger Agreement, made a
detailed financial presentation and market analysis to the UFC Board. At the
February 21, 1995 meeting, Wheat First delivered to the UFC Board a written
opinion that the Exchange Ratio was fair to UFC's stockholders from a financial
point of view.
The UFC Board believes that the terms of the Merger Agreement, which are
the product of arms' length negotiations between representatives of the parties,
are fair and are in the best interests of UFC and its stockholders. In the
course of reaching its determination, the UFC Board consulted with legal counsel
with respect to its legal duties, the terms of the Merger Agreement and the
issues related thereto; with its financial advisor with respect to the financial
aspects and fairness of the transaction; and with senior management regarding,
among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the UFC
Board considered all factors it deemed material, which are the following:
(a) The UFC Board analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects of UFC. In
this regard, the UFC Board analyzed the options of selling UFC or continuing on
a stand-alone basis. The range of values on a sale of control basis were
determined to generally exceed the present value of UFC on a stand-alone basis
under business strategies which could reasonably be implemented by UFC.
(b) The UFC Board considered the written opinion of Wheat First that, as of
February 21, 1995, the Exchange Ratio was fair to UFC stockholders from a
financial point of view. See " -- Opinion of Financial Advisor".
(c) The UFC Board considered the current operating environment, including,
but not limited to, the continued consolidation and increasing competition in
the banking and financial services industries, the prospect for further changes
in these industries, the controversy pertaining to the deposit insurance premium
differential between bank and thrift institutions and federal regulatory agency
consolidation and the importance of being able to capitalize on developing
opportunities in these industries. This information had been periodically
reviewed by the UFC Board at its regular meetings and had also been discussed
with UFC's various advisors.
(d) The UFC Board considered the other terms of the Merger Agreement and
exhibits, including the tax-free nature of the transaction, as well as the fact
that FUNC required execution of the Stock Option Agreement for any transaction
to occur.
(e) The UFC Board considered the detailed financial analyses, pro forma and
other information with respect to UFC and FUNC discussed by Wheat First, as well
as the UFC Board's own knowledge of UFC, FUNC and their respective businesses.
(f) The UFC Board considered the effect on UFC stockholders' value of UFC
continuing as a stand-alone entity compared to the effect of its combining with
FUNC in light of the factors summarized above and the current economic and
financial environment, including, but not limited to, other possible strategic
alternatives, the results of the contacts and discussions between UFC and its
financial advisor and various third parties and the belief of the UFC Board and
management that the Mergers offered the best opportunity available to UFC and
its stockholders.
(g) The UFC Board considered the likelihood of the Mergers being approved
by the appropriate regulatory authorities, including factors such as market
share analysis and FUNC's Community Reinvestment Act rating. See " -- Regulatory
Approvals".
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The foregoing discussion of the information and factors considered by the
UFC Board is not intended to be exhaustive, but is believed to include the
material factors considered by the UFC Board. In reaching its determination to
approve and recommend the Merger Agreement, the UFC Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have weighed factors differently. After deliberating with respect to the
Mergers and the other transactions contemplated by the Merger Agreement,
considering, among other things, the matters discussed above and the opinion of
Wheat First referred to above, the UFC Board unanimously approved and adopted
the Merger Agreement and the transactions contemplated thereby as being in the
best interests of UFC and its stockholders.
FOR THE REASONS SET FORTH ABOVE, THE UFC BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF UFC AND UFC
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF UFC VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
FUNC
FUNC believes that it is advantageous to build a multi-state banking
organization. The economies of banking favor such an organization as a way of
gaining efficiency and spreading costs over a large base, as well as providing
diversification. To further its objective to build a multi-state banking
organization, FUNC has heretofore concentrated its efforts on what it perceives
to be some of the better banking markets in the eastern region of the United
States and on advantageous ways of entering or expanding its presence in those
markets. FUNC believes that joining with UFC is an excellent way to
significantly expand FUNC's presence in the South Carolina market.
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. See
"RECENT DEVELOPMENTS", "PRO FORMA FINANCIAL INFORMATION" and "FUNC -- History
and Business".
OPINION OF FINANCIAL ADVISOR
UFC retained Wheat First to act as its financial advisor in connection with
the Mergers and to render a written opinion to the UFC Board as to the fairness,
from a financial point of view, to the holders of UFC Common Stock of the
Exchange Ratio. Wheat First is a nationally recognized investment banking firm
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. The UFC
Board selected Wheat First to serve as its financial advisor in connection with
the Mergers on the basis of such firm's expertise.
Representatives of Wheat First attended the meeting of the UFC Board on
February 21, 1995, at which the Merger Agreement was considered and approved. At
the meeting, Wheat First delivered its written opinion that, as of such date,
the Exchange Ratio was fair, from a financial point of view, to the holders of
UFC Common Stock. A written opinion dated as of the date of this
Prospectus/Proxy Statement has been delivered to the UFC Board to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to the holders of UFC Common Stock.
THE FULL TEXT OF WHEAT FIRST'S OPINION AS OF THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IS ATTACHED AS ANNEX C TO
THIS PROSPECTUS/PROXY STATEMENT, IS INCORPORATED HEREIN BY REFERENCE, AND SHOULD
BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROSPECTUS/PROXY STATEMENT. THE
SUMMARY OF THE OPINION OF WHEAT FIRST SET FORTH IN THIS PROSPECTUS/PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. WHEAT
FIRST'S OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO THE HOLDERS OF UFC COMMON STOCK AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF UFC AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE ON THE MERGER AGREEMENT.
In arriving at its written opinion, Wheat First reviewed certain publicly
available business and financial information relating to UFC and FUNC and
certain other information provided to it, including, among other things the
following: (i) UFC's Annual Reports to Stockholders, Annual Reports on Form 10-K
and related financial information for the three fiscal years ended March 31,
1995; (ii) UFC's Quarterly Report on Form 10-Q and related financial information
for the three months ended June 30, 1995; (iii) FUNC's Annual Reports to
Stockholders, Annual Reports on Form 10-K and related financial information for
the three fiscal years ended December 31, 1994; (iv) FUNC's Quarterly Reports on
Form 10-Q and
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related financial information for the three months ended March 31, 1995 and for
the six months ended June 30, 1995; (v) certain publicly available information
with respect to historical market prices and trading activity for UFC Common
Stock and FUNC Common Stock and for certain publicly traded financial
institutions which Wheat First deemed relevant; (vi) certain publicly available
information with respect to banking companies and the financial terms of certain
other mergers and acquisitions which Wheat First deemed relevant; (vii) the
Merger Agreement; (viii) the Registration Statement on Form S-4 of FUNC,
including this Prospectus/Proxy Statement; (ix) other financial information
concerning the businesses and operations of UFC and FUNC, including certain
audited financial information and certain internal financial analyses and
forecasts for UFC prepared by senior management; and (x) such financial studies,
analyses, inquiries and other matters as Wheat First deemed necessary. In
addition, Wheat First met with members of senior management of UFC and FUNC to
discuss the business and prospects of each company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including representations and warranties of UFC and FUNC
included in the Merger Agreement, and Wheat First has not assumed any
responsibility for independent verification of such information. Wheat First
relied upon the management of UFC as to the reasonableness and achievability of
its financial and operational forecasts and projections, and the assumptions and
bases therefor, provided to it, and assumed that such forecasts and projections
reflect the best currently available estimates and judgments of such management
and that such forecasts and projections will be realized in the amounts and in
the time periods currently estimated by such management. Such forecasts and
projections had previously been reviewed by the UFC Board and found to be
reasonable. Wheat First also assumed, without independent verification, that the
aggregate allowances for loan losses and other contingencies for UFC and FUNC
are adequate to cover such losses. Wheat First did not review any individual
credit files of UFC or FUNC, nor did it make an independent evaluation or
appraisal of the assets or liabilities of UFC or FUNC.
Additionally, Wheat First considered certain financial and stock market
data of UFC and FUNC and compared that data with similar data for certain
publicly-held financial institutions and considered the financial terms of
certain other comparable transactions that recently have been announced or
effected, as further discussed below. Wheat First also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as it deemed relevant.
In connection with rendering its opinion dated as of the date of this
Prospectus/Proxy Statement, Wheat First performed a variety of financial
analyses. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of the fairness of the Exchange Ratio,
from a financial point of view, to holders of UFC Common Stock was to some
extent a subjective one based on the experience and judgment of Wheat First and
not merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Wheat First 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. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Wheat First's view of the
actual value of UFC or FUNC.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of UFC or FUNC. The analyses
performed by Wheat First are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In rendering its opinion, Wheat First assumed that, in the
course of obtaining the necessary regulatory approvals for the Mergers, no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Mergers, on a pro forma basis, to UFC.
Wheat First's opinion is just one of the many factors taken into
consideration by the UFC Board in determining to approve the Merger Agreement.
Wheat First's opinion does not address the relative merits of the Mergers as
compared to any alternative business strategies that might exist for UFC, nor
does it address the effect of any other business combination in which UFC might
engage.
The following is a summary of all of the analyses performed by Wheat First
in connection with its opinion delivered to the UFC Board on February 17, 1995:
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COMPARISON OF SELECTED COMPANIES. Wheat First compared the financial
performance and market trading information of FUNC to that of a group of
super-regional bank holding companies (the "Group"). The Group included Banc One
Corporation, Bank of Boston Corporation, The Bank of New York Company, Inc.,
Barnett Banks, Inc., First Chicago Corporation, First Fidelity Bancorporation,
First Interstate Bancorp, Fleet Financial Group, Inc., KeyCorp, Mellon Bank
Corporation, NationsBank Corporation, NBD Bancorp, Inc., Norwest Corporation,
PNC Bank Corporation, Republic New York Corporation, SunTrust Banks, Inc.,
Wachovia Corporation, and Wells Fargo & Company.
Based on financial data as of and for the year ended December 31, 1994,
FUNC had (i) equity to assets of 6.98 percent compared to an average of 7.48
percent for the Group; (ii) nonperforming assets to loans and real estate owned
of 1.03 percent compared to an average of 1.06 percent for the Group; (iii)
reserves for loan losses to nonperforming assets of 175 percent compared to an
average of 264 percent for the Group; (iv) a return on average assets before
extraordinary items of 1.27 percent compared to an average of 1.25 percent for
the Group; and (v) a return on average equity before extraordinary items of
16.93 percent compared to an average of 16.26 percent for the Group.
Based on the market values as of February 17, 1995, and financial data as
of December 31, 1994, FUNC had (i) a stock price to book value multiple of 145
percent compared to an average of 157 percent for the Group; (ii) a stock price
to 1994 earnings per share before extraordinary items multiple of 8.5x compared
to an average of 9.8x for the Group; (iii) a stock price of "First Call" (as
hereinafter defined) 1995 estimated earnings per share multiple of 7.8x compared
to an average of 8.4x for the Group; and (iv) an indicated dividend yield of
4.15 percent compared to an average of 4.04 percent for the Group. "First Call"
is a data service that monitors and publishes a complication of earnings
estimates produced by selected research analysts regarding companies of interest
to institutions investors.
ANALYSIS OF SELECTED TRANSACTIONS. Wheat First performed an analysis of
premiums paid in 19 selected pending or recently completed acquisitions of
thrifts or thrift holding companies headquartered in the Southeast and
Mid-Atlantic and announced between December 31, 1993, and February 1, 1995 (the
"Selected Transactions"). Multiples of book value, tangible book value, trailing
12 months earnings and annualized latest quarter earnings, as well as deposit
premiums paid in the Selected Transactions were compared to the multiples and
premiums implied by the consideration offered by FUNC in the Merger Agreement.
The Selected Transactions included the following pending transactions: Valley
National Bancorp, Inc./Lakeland First Financial Group, Inc.; UJB Financial
Corporation/Bancorp New Jersey, Inc.; FUNC/Coral Gables Fedcorp, Inc.; Fifth
Third Bancorp/Falls Financial, Inc.; Centura Banks, Inc./First Southern Bancorp,
Inc.; FUNC/American Savings of Florida, F.S.B.; First National Bancorp/FF
Bancorp, Inc.; and Bank South Corporation/Gwinnett Bancshares, Inc. The Selected
Transactions also included the following completed transactions: Sovereign
Bancorp, Inc./Charter FSB Bancorp, Inc.; CoreStates Financial
Corporation/Germantown Savings Bank; Signet Banking Corporation/Pioneer
Financial Corporation; The Summit Bancorporation/Crestmont Financial
Corporation; Union Planters Corporation/BNF Bancorp, Inc.; FUNC/BancFlorida
Financial Corporation; and Fifth Third Bancorp/Cumberland Federal
Bancorporation, Inc.
Based on the average market value of FUNC Common Stock for the five-day
period ended February 17, 1995, and financial data as of December 31, 1994, the
analysis yielded ratios of the implied consideration to be paid by FUNC to UFC
(i) to book value of 195.4 percent compared to an average of 158.4 percent for
the Selected Transactions; (ii) to tangible book value of 195.4 percent compared
to an average of 164.2 percent for the Selected Transactions; (iii) to trailing
12 months earnings of 19.9x compared to an average of 14.9x for the Selected
Transactions; and (iv) to latest quarter earnings annualized of 17.7x compared
to an average of 15.9x for the Selected Transactions. Additionally, Wheat First
examined the implied consideration less tangible equity as a function of total
deposits, yielding a ratio of 11.9 percent compared to an average of 7.8 percent
for the Selected Transactions.
DISCOUNTED DIVIDEND ANALYSIS. Using discounted dividend analysis, Wheat
First estimated the present value of the future stream of dividends that UFC
could produce through 1999, under various circumstances, assuming the company
performed in accordance with the earnings forecasts of management and an assumed
level of expense savings were achieved. Wheat First then estimated the terminal
value for UFC Common Stock at the end of the period by applying multiples
ranging from 9.00x to 11.00x projected 1999 earnings. The dividend streams and
terminal values were then discounted to present values using different discount
rates (ranging from 10.00 percent to 15.00 percent) chosen to reflect different
assumptions regarding the required rates of return to holders or prospective
buyers of UFC Common Stock. This discounted dividend analysis indicated
reference ranges of between $14.35 and $19.82 per share for UFC Common Stock.
These values compare to the implied consideration to be offered by FUNC to UFC
in the Merger Agreement of $20.50 based on the average market value of FUNC
Common Stock for the five-day period ended February 17, 1995.
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In connection with its opinion as of the date hereof, Wheat First confirmed
the appropriateness of its reliance on the analyses used to render its February
21, 1995 opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith.
No company or transaction used as a comparison in the above analysis is
identical to UFC, FUNC or the Mergers. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies used for comparison in the above analysis.
The opinion is dated the date of this Prospectus/Proxy Statement and is
based solely upon the information available to Wheat First and the economic,
market and other circumstances as they exist as of such date. Events occurring
after that date could materially affect the assumptions and conclusions
contained in Wheat First's opinion. Wheat First has not undertaken to reaffirm
or revise its opinion or otherwise comment on any events occurring after the
date of its opinion.
UFC has agreed to pay Wheat First $325,000 in fees as compensation for
Wheat First's rendering of its fairness opinion and for its financial advisory
services. Of those fees, $75,000 was paid upon approval of the Merger Agreement
by the UFC Board and $250,000 was paid upon the issuance of Wheat First's
written opinion. UFC has agreed to reimburse Wheat First for its out-of-pocket
expenses incurred in connection with the activities contemplated by its
engagement, regardless of whether the Mergers are consummated. UFC has further
agreed to indemnify Wheat First against certain liabilities, including certain
liabilities under federal securities laws. The payment of the above fees was not
contingent upon Wheat First rendering a favorable opinion with respect to the
Merger Agreement.
INTERESTS OF CERTAIN PERSONS
Certain members of UFC's management and the UFC Board may be deemed to have
interests in the Mergers in addition to their interest as stockholders of UFC
generally. These include, among other things, provisions in the Merger Agreement
relating to indemnification, directors' and officers' liability insurance, and
certain other benefits.
The Merger Agreement provides that for the six-year period following the
Effective Date, FUNC will indemnify the directors, officers and employees of UFC
holding such positions on or prior to the date of the Merger Agreement against
certain liabilities to the extent such persons were indemnified under the SCBCA
and the UFC Articles and Bylaws as in effect on the date of the Merger
Agreement.
In addition, FUNC agreed in the Merger Agreement to use its reasonable best
efforts to maintain UFC's existing directors' and officers' liability insurance
policy for persons who were covered by such insurance maintained by UFC on the
date of the Merger Agreement for a period of three years after the Effective
Date at an annual cost not to exceed 150 percent of UFC's annual premium payment
under UFC's current policy.
The directors and executive officers of UFC, together with certain of their
related interests, beneficially owned as of the Record Date, 999,774 shares of
UFC Common Stock, including 489,040 shares subject to unexercised options held
by such persons. As described below, the Corporate Merger may result in the
cashing out of options to purchase shares of UFC Common Stock and will require
severance payments under certain employment agreements between UFC and certain
of the executive officers of UFC. In addition, Lynn W. Hodge, President, Chief
Executive Officer and a director of UFC and United, Herman H. Honeycutt,
President and Chief Executive Officer of Home Federal, and Clifford W. Stumbo,
Vice President and Treasurer of UFC and Executive Vice President of United, have
entered into employment agreements with FUNB-SC to become effective at the
Effective Date. The aggregate value of the payments which may be paid to the
directors and executive officers of UFC, including amounts paid pursuant to such
employment agreements, is currently estimated to be approximately $9.3 million,
including $4.7 million to Mr. Hodge, $2.0 million to Mr. Stumbo, $1.3 million to
Mr. Honeycutt and $1.1 million to James E. McDonald, Chairman of the Board and a
director of UFC.
Pursuant to the terms of the Merger Agreement, all validly issued and
outstanding stock options under UFC's stock option plans will be assumed by
FUNC. Alternatively, holders of such options may elect to receive a cash payment
in an amount equal to the excess of the Average Closing Price over the exercise
price per share of such options multiplied by the number of shares of UFC Common
Stock subject to such options times the Exchange Ratio. As of the Record Date,
the directors and executive officers of UFC and the Banks held options to
purchase an aggregate of 489,040 shares of UFC Common Stock at a weighted
average exercise price of $4.80. If all directors and executive officers elect
to receive cash payments in exchange for their options, such directors and
officers would receive estimated cash payments of approximately $7.6 million.
The employment agreements with UFC provide for severance payments and other
benefits in the event of involuntary termination of employment or a change in
the capacity or circumstances in which the individual is employed in connection
with any change in control of his employer. The severance payments would equal
2.99 times the executive's average base compensation during the preceding five
years, which are currently estimated to result in a severance payment to Mr.
Hodge of approximately $592,000, to Mr. Stumbo of approximately $340,000 and to
Mr. Honeycutt of approximately $303,000, upon consummation of the Corporate
Merger.
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The employment agreements between FUNB-SC and Mr. Honeycutt and Mr. Stumbo
primarily relate to the ability of Mr. Honeycutt and Mr. Stumbo to receive the
severance payments due under their employment agreements with UFC over a period
not to exceed five years.
The employment agreements between FUNB-SC and Mr. Hodge provide, among
other things, for the ability of Mr. Hodge to receive the severance payments due
under his employment agreement with UFC over a period not to exceed five years
and for the employment of Mr. Hodge as Executive Vice President of FUNB-SC for a
two-year period commencing on the Effective Date at an annual salary of
$125,000.
In addition to the foregoing, Mr. Hodge, Mr. McDonald and William M. Hull,
Jr., who is currently a director of UFC and United, will be elected directors of
FUNB-SC, as of the Effective Date.
FUNC agreed in the Merger Agreement that as soon as administratively
practicable following the Effective Date, employees of UFC will generally be
entitled to participate in FUNC's pension, 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 UFC 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 MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH
AS UFC STOCKHOLDERS, IF ANY, WHO RECEIVED THEIR UFC COMMON STOCK UPON THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, THAT HOLD THEIR
UFC COMMON STOCK AS PART OF A "STRADDLE" OR "CONVERSION TRANSACTION", OR THAT
ARE INSURANCE COMPANIES, SECURITIES DEALERS, FINANCIAL INSTITUTIONS OR FOREIGN
PERSONS.
Sullivan & Cromwell, special counsel for FUNC, has advised FUNC and UFC
that, in its opinion:
(i) No gain or loss will be recognized for federal income tax
purposes by UFC stockholders upon the exchange in the Corporate Merger of
shares of UFC Common Stock solely for FUNC Common Shares (except with
respect to cash received in lieu of a fractional share interest in FUNC
Common Stock).
(ii) The basis of FUNC Common Shares received in the Corporate Merger
by UFC stockholders (including the basis of any fractional share interest
in FUNC Common Stock) will be the same as the basis of the shares of UFC
Common Stock surrendered in exchange therefor.
(iii) The holding period of the FUNC Common Shares received in the
Corporate Merger by a UFC stockholder (including the holding period of any
fractional share interest in FUNC Common Stock) will include the holding
period during which the shares of UFC Common Stock surrendered in exchange
therefor were held by the UFC stockholder, provided such shares of UFC
Common Stock were held as capital assets.
(iv) Cash received by a holder of UFC Common Stock in lieu of a
fractional share interest in FUNC Common Stock 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 UFC Common Stock allocable to the
fractional share interest.
(v) UFC stockholders that dissent from the Corporate Merger and
receive cash in exchange for their UFC Common Stock should in general
recognize capital gain or loss in an amount equal to the difference
between the amount of cash received (less any amount constituting
interest) and the UFC stockholder's basis in the UFC Common Stock
surrendered therefor. Special rules may apply to dissenting UFC
stockholders that actually or constructively (pursuant to Section
318 of the Internal Revenue Code of 1986, as amended (the "Code")) own
either shares of UFC as to which dissenters' rights are not being
exercised or shares of FUNC. Any amount constituting interest would be
taxable as ordinary income.
In contrast to the treatment described above in (i), (ii) and (iii), UFC
stockholders that hold their shares of UFC Common Stock as a capital asset and
that dispose of such shares prior to the Effective Date will generally recognize
capital gain or loss in an amount equal to the difference between the amount
realized upon the disposition and the basis in such shares. Such capital gain or
loss will generally be long-term capital gain or loss if the UFC stockholder is
deemed to have held such shares for more than one year, and otherwise will be
short-term capital gain or loss.
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In addition, consummation of the Mergers is conditioned, among other
things, on receipt by FUNC and UFC 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 Code, and (ii) no gain or
loss will be recognized by UFC stockholders who receive FUNC Common Shares in
exchange for their shares of UFC Common Stock, except that gain or loss may be
recognized as to cash received in lieu of fractional share interests. The tax
opinions of Sullivan & Cromwell summarized above are or will be based, among
other things, on representations relating to certain facts and circumstances of,
and the intentions of the parties to, the Corporate Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE CORPORATE MERGER MAY VARY DEPENDING
UPON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER AND OTHER FACTORS, EACH
STOCKHOLDER OF UFC 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
Each of UFC and the Banks has agreed in the Merger Agreement not to take
certain actions relating to the operation of each of them 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 UFC Common Stock at a
quarterly rate not to exceed $0.05 per share, 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
(other than upon the exercise of outstanding options); (ii) incurring any
indebtedness for borrowed money or becoming liable for the obligations of any
other entity other than in the ordinary course of business; (iii) increasing the
rate of compensation (other than in the ordinary course of business) or paying
any bonus to any of its directors, officers or employees; (iv) entering into or
modifying any employment agreements or employee benefit plans; (v) disposing of
any material portion of its assets or acquiring any material portion of the
business or property of any other entity; (vi) changing its lending, investment,
liability management or other material banking policies in any material respect;
(vii) settling any claims involving any liability for material money damages;
(viii) entering into, terminating or changing any material agreements, except
for those agreements that are terminated by UFC without penalty upon not more
than 60 days' prior written notice; or (ix) taking any other action not in the
ordinary course of business. FUNC has consented to the payment by UFC of a
special one-time cash dividend of $.12 per share payable on September 13, 1995,
to holders of record of UFC Common Stock on August 25, 1995.
The Merger Agreement also provides that, consistent with generally accepted
accounting principles, each of UFC and the Banks will use its best efforts to
modify its loan, litigation, and other reserve and real estate valuation
policies and practices (including loan classifications and levels of reserves)
so as to be consistent on a mutually satisfactory basis with those of FUNC,
provided that UFC and the Banks shall not be obligated to any such action until
all regulatory approvals described below under " -- Regulatory Approvals" have
been obtained and UFC and the Banks are reasonably satisfied that the Mergers
will be promptly consummated in accordance with the Merger Agreement.
REGULATORY APPROVALS
The Corporate Merger is subject to receipt of the prior approval by the OTS
under the HOLA and by the Federal Reserve Board under the BHCA. The Bank Merger
is subject to the prior approval by the OCC under both the federal Bank Merger
Act ("BMA") and the Federal Deposit Insurance Act ("FDI Act") and by the OTS
under various OTS regulations. The HOLA 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 HOLA 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 such transaction 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 the effect of such transaction 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. Under the BHCA, the Federal Reserve Board considers whether the
proposed transaction can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interests, or unsound banking practices. The relevant regulatory
agency has the authority to deny an application if it concludes that the
combined organization would have an inadequate
31
<PAGE>
capital position or if the acquiring organization does not meet the
requirements of the Community Reinvestment Act of 1977. Under the BMA and
the FDI Act, the Bank Merger may not be consummated until the 15th day
following the dates of each of the requisite approvals, during which periods
the United States Department of Justice may comment adversely on the
transaction (which has the effect of extending the waiting period to the 30th
day following approval) or 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.
The OCC informed FUNC on June 12, 1995, that the OCC had approved the
application previously submitted in connection with the Bank Merger. The Federal
Reserve Board informed FUNC on May 23, 1995, that the Federal Reserve Board had
approved the application previously submitted in connection with the Corporate
Merger. The OTS informed FUNC on May 18, 1995, that the OTS had no objection to
the application previously submitted in connection with the Bank Merger.
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Mergers is subject, among other things, to: (i)
approval of the Merger Agreement by the requisite vote of the stockholders of
UFC; (ii) receipt of the regulatory approvals referred to above without any
restrictions or conditions which, in the opinion of FUNC, 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 enjoins or prohibits the Mergers; (iv)
receipt by FUNC and UFC of the opinion of Sullivan & Cromwell, dated as of the
Effective date, as to certain federal income tax consequences of the Corporate
Merger; and (v) 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 FUNC and UFC, 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; (iii) the receipt by FUNC of a letter from UFC's independent
certified public accountants, dated as of or shortly prior to the Effective
Date, with respect to UFC's financial position and results of operations, and
(iv) the receipt by FUNC of an agreement from each "affiliate" of UFC
restricting the sale of FUNC Common Shares received by such affiliate in the
Corporate Merger. See "RESALE OF FUNC COMMON SHARES".
The Merger Agreement provides that, whether before or after the Special
Meeting and notwithstanding the approval of the Merger Agreement by the
stockholders of UFC, the Merger Agreement may be terminated and the Mergers
abandoned at any time prior to the Effective Date: (i) by mutual consent of FUNC
and UFC; or (ii) by either the Board of Directors of FUNC or the Board of
Directors of UFC (a) if the stockholders of UFC fail to approve the Merger
Agreement, (b) in the event of a material 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 December 31, 1995. See " -- Expenses; Termination Fee".
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 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 UFC, the consideration to be received by
the stockholders of UFC may not thereby be decreased.
ACCOUNTING TREATMENT
It is expected that the purchase method of accounting will be used to
reflect the Corporate Merger and the other Purchase Acquisitions upon
consummation. As required by generally accepted accounting principles, under
purchase accounting, the assets and liabilities of the acquired company as of
the effective date of the acquisition will be recorded at their respective
fair market values and added to those of FUNC. Financial statements of FUNC
issued after consummation of the Corporate Merger and the other Purchase
Acquisitions would reflect such values. Financial statements of FUNC issued
before consummation of the Corporate Merger and the other Purchase Acquisitions
would not be restated retroactively to reflect UFC's historical financial
position or results of operations. The unaudited pro forma financial information
contained in this Prospectus/Proxy Statement has been prepared using the
purchase accounting basis to account for the Corporate Merger and the other
Purchase Acquisitions.
32
<PAGE>
It is expected that the pooling of interests method of accounting will be
used to reflect the FFB Merger. As required by generally accepted accounting
principles, under pooling of intersts accounting, as of the effective date of
the FFB Merger, the assets and liabilities of FFB would be added to those of
FUNC at their recorded book values and the stockholders' equity accounts of FUNC
and FFB 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 FFB Merger would be restated retroactively to reflect
the consolidated combined financial position and results of operations of FUNC
and FFB as if the FFB Merger had taken place prior to the periods covered by
such financial statements. 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 FFB Merger.
See "PRO FORMA FINANCIAL INFORMATION".
EXPENSES; TERMINATION FEE
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 will be shared equally
by FUNC and UFC.
UFC shall be entitled to a fee of $2.5 million if it terminates the Merger
Agreement as the result of a willful breach by FUNC of a representation,
warranty or covenant contained in the Merger Agreement and the Mergers are not
consummated.
STOCK OPTION AGREEMENT
As a condition to FUNC's willingness to enter into the Merger Agreement,
and in consideration thereof, UFC issued to FUNC the Option to purchase, under
certain conditions, up to 1,100,000 shares of UFC Common Stock at a Purchase
Price of $19.50 per share, subject to adjustment in certain circumstances. The
Option was granted to FUNC pursuant to the Stock Option Agreement. The last sale
price of UFC Common Stock on the Nasdaq National Market on February 21, 1995,
the last business day prior to the date on which execution of the Merger
Agreement was publicly announced, was $15.50. The number of shares of UFC Common
Stock subject to the Option represents approximately 19. percent of the
outstanding shares of UFC Common Stock as of the Record Date, before giving
effect to the issuance of such shares. FUNC does not have any voting rights with
respect to the shares of UFC 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) UFC 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 UFC or any of its significant subsidiaries,
(b) the sale, lease, exchange or other disposition of 20 percent or more of
the consolidated assets or deposits of UFC and its subsidiaries, or (c) the
issuance, sale or other disposition of 20 percent or more of the voting
power of UFC or any of its significant subsidiaries (other than the
issuance of UFC Common Stock upon exercise of options outstanding under the
UFC Option Plans); or
(ii) the acquisition or the right to acquire by any third party of 20
percent or more (or, if such party beneficially owned more than 20 percent
on the date of the Merger Agreement, such party acquires an additional five
percent or more) of the voting power of UFC or any of its significant
subsidiaries.
The Option will terminate upon the earliest of certain events, including:
(i) consummation of the Corporate Merger; (ii) termination of the Merger
Agreement by UFC (a "UFC 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 UFC
other than pursuant to an UFC Termination; or (iv) 18 months after termination
of the Merger Agreement by FUNC. 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 UFC
Common Stock (a "Tender or Exchange Offer"); (b) failure of the holders of UFC
Common Stock to approve the Merger Agreement after public announcement that a
third party (x) proposes to engage in an Acquisition Transaction, (y) commences
or files a registration statement under the Securities Act with respect to a
Tender or Exchange Offer, or (z) files an application under certain federal
statutes relating to the regulation of banks or their holding companies, to
engage in an Acquisition Transaction; (c) any third party shall have proposed
to UFC or its stockholders, publicly or in any writing that becomes publicly
disclosed, to engage in an Acquisition Transaction; (d) after a proposal is
made by a third party to UFC or its stockholders to
33
<PAGE>
engage in an Acquisition Transaction, UFC breaches any covenant or obligation
in the Merger Agreement (subject to certain limitations set forth in the Stock
Option Agreement); or (e) any third party files an application with any
federal or state bank regulatory authority for approval to engage in an
Acquisition Transaction.
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 UFC from potential third party acquirors because the Option could
increase the cost of such an acquisition.
To FUNC's and UFC's knowledge, no event which would permit 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 A 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.
DISSENTERS' RIGHTS
Pursuant to the South Carolina Dissenters' Rights Statute, the holders of
shares of UFC Common Stock are entitled to dissent from approval of the Merger
Agreement and receive payment of the fair value of their shares in the event the
Corporate Merger is consummated. Any holder of shares of UFC Common Stock who
intends to assert dissenters' rights must comply with the South Carolina
Dissenters' Rights Statute. At any time prior to the Effective Date, any UFC
stockholder who intends to assert dissenters' rights may sell his shares of UFC
Common Stock in the open market for the then current market price in lieu of
asserting such dissenters' rights.
Under South Carolina law, only stockholders of UFC who are entitled to vote
on the Corporate Merger have the right to dissent from the Corporate Merger and
obtain payment of the fair value of such holder's shares of UFC Common Stock,
provided that the stockholder complies with the provisions of the South Carolina
Dissenters' Rights Statute. The South Carolina Dissenters' Rights Statute
contains detailed information as to a dissenting stockholder's right to payment
and the procedural steps to be followed by a dissenting stockholder. The
following description is only a summary of these provisions and is qualified in
its entirety by reference to the South Carolina Dissenters' Rights Statute, a
copy of which is attached to this Proxy Statement/Prospectus as ANNEX D and is
incorporated herein by reference.
A vote cast in favor of approval of the Merger Agreement pursuant to the
proxy solicited hereby, however, will not constitute a waiver of a stockholder's
right to dissent, provided such stockholder complies with the other requirements
of the South Carolina Dissenters' Rights Statute.
If the Merger Agreement is approved by the required vote of UFC's
stockholders and is not terminated, each holder of shares of UFC Common Stock
who votes against the Merger Agreement or who fails to vote and who follows the
procedures set forth in the South Carolina Dissenters' Rights Statute is
entitled to demand payment of the fair value of such holder's shares.
A stockholder electing to exercise such holder's dissenters' rights must
give notice to UFC before the vote on the Merger Agreement at the Special
Meeting of such holder's intent to demand payment for such holder's shares if
the Corporate Merger is effectuated. All notices of intent to demand payment
should be addressed to: Secretary, United Financial Corporation of South
Carolina, Inc., 425 Main Street, Greenwood, South Carolina 29646. A beneficial
stockholder may assert dissenters' rights as to shares held on such holder's
behalf by a nominee only if such holder dissents with respect to all shares of
which such holder is the beneficial owner or over which such holder has the
power to vote and such holder notifies UFC in writing of the name and address of
the record holder of the shares, if known. A record stockholder may assert
dissenters' rights as to fewer than all 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 UFC in writing of the name and address of each
person on whose behalf such holder asserts dissenters' rights. A dissenting
stockholder need not vote against the Merger Agreement in order to preserve such
holder's dissenters' rights after filing such holder's notice of dissent.
If the Corporate Merger is consummated, within ten days thereafter FUNC-SC
will deliver a written notice to all former UFC stockholders who notified UFC in
compliance with the South Carolina Dissenters' Rights Statute that they intend
to demand payment for their shares. Such notice will: (i) state where the
payment demand must be sent and where certificates representing shares of UFC
Common Stock must be deposited; (ii) supply a form for demanding payment that
includes the date of the first announcement to news media or to stockholders of
the terms of the Corporate Merger and requires that the person asserting
dissenters' rights certify whether or not such holder acquired beneficial
ownership before that date; (iii) set a
34
<PAGE>
date by which FUNC-SC must receive payment demand; and (iv) be accompanied
by a copy of the South Carolina Dissenters' Rights Statute.
A stockholder sent the notice described above must demand payment, certify
whether such holder acquired beneficial ownership of the shares before the date
set forth in the notice, and deposit his shares in accordance with the terms of
the notice. A stockholder who does not comply substantially with the
requirements that such holder demand payment and deposit such holder's shares
where required by the appropriate date is not entitled to payment for such
holder's shares.
After consummation of the Corporate Merger, or upon receipt of a payment
demand, FUNC-SC will pay each such dissenter the amount that FUNC-SC estimates
to be the fair value of such holder's shares, plus accrued interest. Such
payment will be accompanied by certain financial information regarding UFC, an
explanation of how the fair value and interest were calculated, a statement of
the dissenter's right to demand additional payment under the South Carolina
Dissenters' Rights Statute and a copy of the South Carolina Dissenters' Rights
Statute.
If a dissenter believes that the amount paid for such holder's shares is
less than the fair value of such holder's shares or that the interest due is
calculated incorrectly or if FUNC-SC fails to make or offer payment within 60
days after the date set for demanding payment, the dissenter may notify FUNC-SC
in writing of such holder's own estimate of the fair value of such holder's
shares and amount of interest due and demand payment of such holder's estimate
(less any payment already received). A stockholder waives the right to demand
additional payment unless such demand is made in writing within 30 days after
FUNC-SC has made or offered payment for such holder's shares. If FUNC-SC and the
dissenter do not settle a demand for additional payment within 60 days after
receiving the demand, FUNC-SC must commence a proceeding for judicial appraisal
of the shares or pay the amount demanded. The costs of a court-appointed
appraiser will be borne by FUNC-SC, unless the court finds that the dissenter
acted arbitrarily, vexatiously, or not in good faith in demanding additional
payment for their shares. The court also may assess the fees and expenses of
counsel and experts for one party against another under certain circumstances.
Because of the detailed provisions and requirements of the South Carolina
Dissenters' Rights Statute, each dissenting stockholder should consult with such
holder's own legal counsel concerning the procedures and remedies available to
such holder. Any failure to follow the detailed procedures set forth in the
South Carolina Dissenters' Rights Statute may result in a stockholder's losing
his right to claim fair value as described herein.
35
<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 Tape (trading symbol, FTU) and
of UFC Common Stock on the Nasdaq National Market (trading symbol, UNSA), with
respect to each quarterly period since January 1, 1993, and (ii) the equivalent
pro forma market values per share of UFC Common Stock, based on a 0.4381
Exchange Ratio. The actual Exchange Ratio will depend on the Average Closing
Price (which will not be known until shortly prior to the Effective Date) and
may be greater or less than 0.4381. The pro forma information presented would be
different if the Average Closing Price results in an Exchange Ratio different
from 0.4381.
<TABLE>
<CAPTION>
FUNC COMMON STOCK UFC COMMON STOCK
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
1993
First quarter........................................................ $ 50 7/8 42 1/4 8.67 7.17
Second quarter....................................................... 51 1/2 40 8.33 7.50
Third quarter........................................................ 49 5/8 43 1/2 10.00 8.06
Fourth quarter....................................................... 48 1/8 37 7/8 9.88 8.56
1994
First quarter........................................................ 43 3/4 39 3/4 11.31 9.00
Second quarter....................................................... 47 5/8 41 1/4 13.50 9.88
Third quarter........................................................ 47 1/4 43 1/4 15.25 12.50
Fourth quarter....................................................... 45 1/4 39 3/8 16.50 12.25
1995
First quarter........................................................ 45 1/8 41 3/8 19.50 13.50
Second quarter....................................................... 49 3/4 42 7/8 20.50 18.88
Third quarter (through August , 1995).............................. $ 50 3/4 45 1/4
<CAPTION>
EQUIVALENT PRO FORMA PER
SHARE OF
UFC COMMON
STOCK (1)
HIGH LOW
<S> <C<C> <C>
1993
First quarter........................................................ 22 1/4 18 1/2
Second quarter....................................................... 22 1/2 17 1/2
Third quarter........................................................ 21 5/8 19
Fourth quarter....................................................... 21 16 1/2
1994
First quarter........................................................ 19 1/8 17 3/8
Second quarter....................................................... 20 3/4 18
Third quarter........................................................ 20 5/8 18 7/8
Fourth quarter....................................................... 19 3/4 17 1/4
1995
First quarter........................................................ 19 3/4 18 1/8
Second quarter....................................................... 21 3/4 18 3/4
Third quarter (through August , 1995).............................. 22 1/8 19 3/4
</TABLE>
(1) Equivalent pro forma market values per share of UFC Common Stock amounts
represent the high and low last reported sales prices per share of FUNC
Common Stock multiplied by a 0.4381 Exchange Ratio, rounded down to the
nearest one-eighth.
On February 21, 1995, the last business day prior to public announcement of
the execution of the Merger Agreement, the last reported sale prices per share
of FUNC Common Stock on the NYSE Tape and of UFC Common Stock on the Nasdaq
National Market were $44.25 and $15.50, respectively. On August , 1995, such
prices were $ and $ , respectively.
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 Corporate Merger that the FUNC Common Shares be authorized for listing on
the NYSE effective upon official notice of issuance. See " -- Conditions to
Consummation; Termination".
36
<PAGE>
DIVIDENDS
The following table sets forth the cash dividends paid on shares of FUNC
Common Stock and UFC Common Stock with respect to each calendar quarter since
January 1, 1993, and the equivalent pro forma cash dividends paid per share of
UFC Common Stock, based on a 0.4381 Exchange Ratio. The actual Exchange Ratio
will depend on the Average Closing Price (which wil not be known until shortly
prior to the Effective Date) and may be greater or less than 0.4381. The pro
forma information presented would be different if the Average Closing Price
results in an Exchange Ratio different from 0.4381.
<TABLE>
<CAPTION>
EQUIVALENT PRO FORMA
FUNC UFC PER SHARE OF
COMMON STOCK COMMON STOCK UFC COMMON STOCK (1)
<S> <C> <C> <C>
1993
First quarter............................................. $.35 .0267 .15
Second quarter............................................ .35 .0267 .15
Third quarter............................................. .40 .04 .18
Fourth quarter............................................ .40 .04 .18
1994
First quarter............................................. .40 .04 .18
Second quarter............................................ .40 .04 .18
Third quarter............................................. .46 .04 .20
Fourth quarter............................................ .46 .05 .20
1995
First quarter............................................. .46 .05 .20
Second quarter............................................ .46 .05 .20
Third quarter............................................. $.52 .05(2) .23
</TABLE>
(1) Equivalent pro forma cash dividends paid per share of UFC Common Stock
amounts represent FUNC historical dividend rates per share multiplied by a
0.4381 Exchange Ratio, rounded up to the nearest cent. The current
annualized dividend rate per share for FUNC Common Stock, based upon the
most recently declared quarterly dividend of $.52 per share payable on
September 15, 1995, would be $2.08. On an equivalent pro forma basis, such
current annualized FUNC dividend per share of UFC Common Stock would be
$.92, based on a 0.4381 Exchange Ratio, rounded up to the nearest cent.
Future FUNC and UFC dividends are dependent upon their respective earnings
and financial condition, government regulations and policies and other
factors.
(2) Does not include a special one-time cash dividend of $.12 per share payable
on September 13, 1995, to holders of record of UFC Common Stock on August
25, 1995.
See "FUNC -- Certain Regulatory Considerations; PAYMENT OF DIVIDENDS" and
"DESCRIPTION OF FUNC CAPITAL STOCK".
37
<PAGE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(FUNC, THE PURCHASE ACQUISITIONS (INCLUDING THE CORPORATE MERGER) AND FFB)
JUNE 30, 1995
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of FUNC, the companies involved in
certain of the Purchase Acquisitions (including UFC) and FFB, assuming the
companies had been combined as of June 30, 1995, on a purchase accounting basis
with respect to the Purchase Acquisitions (including the Corporate Merger)
pending at June 30, 1995, or announced between July 1, 1995 and August 14, 1995,
and on a pooling of interests accounting basis with respect to the FFB Merger.
<TABLE>
<CAPTION>
PURCHASE PRO FORMA PRO FORMA PRO FORMA
(IN THOUSANDS) FUNC ACQUISITIONS ADJUSTMENTS COMBINED FFB ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................... $ 3,191,431 84,413 (595,981) 2,679,863 1,750,833 --
Interest-bearing balances................... 446,712 67,273 -- 513,985 455,033 --
Federal funds sold and securities purchased
under resale agreements................... 2,052,236 8,275 -- 2,060,511 703,375 --
Total cash and cash equivalents........... 5,690,379 159,961 (595,981) 5,254,359 2,909,241 --
Trading account assets...................... 1,559,021 -- -- 1,559,021 100,529 --
Securities available for sale............... 7,353,926 381,101 -- 7,735,027 2,409,976 --
Investment securities....................... 3,583,906 1,577,325 (28,790) 5,132,441 3,877,896 --
Loans, net of unearned income............... 60,020,507 5,575,914 (6,473) 65,589,948 23,999,147 --
Allowance for loan losses................. (969,122) (45,706) -- (1,014,828) (565,450) --
Loans, net................................ 59,051,385 5,530,208 (6,473) 64,575,120 23,433,697 --
Premises and equipment...................... 1,881,947 59,022 (14,645) 1,926,324 428,328 --
Due from customers on acceptances........... 383,289 -- -- 383,289 161,355 --
Mortgage servicing rights................... 101,024 12,694 8,792 122,510 47,101 --
Credit card premium......................... 51,005 -- -- 51,005 -- --
Other intangible assets..................... 1,395,368 70,814 412,390 1,878,572 808,540 --
Other assets................................ 2,050,362 210,032 1,155 2,261,549 1,185,118 --
Total assets.............................. $83,101,612 8,001,157 (223,552) 90,879,217 35,361,781 --
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................... 10,854,459 115,570 -- 10,970,029 5,195,045 --
Interest-bearing.......................... 47,987,565 5,209,243 -- 53,196,808 23,623,878 --
Total deposits.......................... 58,842,024 5,324,813 -- 64,166,837 28,818,923 --
Short-term borrowings....................... 11,012,715 1,750,452 -- 12,763,167 2,020,966 --
Bank acceptances outstanding................ 383,289 -- -- 383,289 161,355 --
Other liabilities........................... 1,750,454 144,846 (3,632) 1,891,668 744,470 --
Long-term debt.............................. 5,376,283 247,829 -- 5,624,112 676,750 --
Total liabilities....................... 77,364,765 7,467,940 (3,632) 84,829,073 32,422,464 --
STOCKHOLDERS' EQUITY
Preferred stock............................. -- -- -- -- 219,219 --
Common stock................................ 572,790 16,907 4,973 594,670 81,999 271,939
Paid-in capital............................. 1,260,261 390,804 (99,387) 1,551,678 1,255,143 (437,293)
Retained earnings........................... 3,912,179 128,674 (128,674) 3,912,179 1,556,804 --
Less: Treasury stock........................ -- (3,329) 3,329 -- (165,354) 165,354
Unrealized gain (loss) on debt and equity
securities................................ (8,383) 161 (161) (8,383) (8,494) --
Total stockholders' equity.............. 5,736,847 533,217 (219,920) 6,050,144 2,939,317 --
Total liabilities and stockholders'
equity................................ $83,101,612 8,001,157 (223,552) 90,879,217 35,361,781 --
<CAPTION>
PRO FORMA
(IN THOUSANDS) COMBINED
<S> <C>
ASSETS
Cash and due from banks..................... 4,430,696
Interest-bearing balances................... 969,018
Federal funds sold and securities purchased
under resale agreements................... 2,763,886
Total cash and cash equivalents........... 8,163,600
Trading account assets...................... 1,659,550
Securities available for sale............... 10,145,003
Investment securities....................... 9,010,337
Loans, net of unearned income............... 89,589,095
Allowance for loan losses................. (1,580,278)
Loans, net................................ 88,008,817
Premises and equipment...................... 2,354,652
Due from customers on acceptances........... 544,644
Mortgage servicing rights................... 169,611
Credit card premium......................... 51,005
Other intangible assets..................... 2,687,112
Other assets................................ 3,446,667
Total assets.............................. 126,240,998
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing....................... 16,165,074
Interest-bearing.......................... 76,820,686
Total deposits.......................... 92,985,760
Short-term borrowings....................... 14,784,133
Bank acceptances outstanding................ 544,644
Other liabilities........................... 2,636,138
Long-term debt.............................. 6,300,862
Total liabilities....................... 117,251,537
STOCKHOLDERS' EQUITY
Preferred stock............................. 219,219
Common stock................................ 948,608
Paid-in capital............................. 2,369,528
Retained earnings........................... 5,468,983
Less: Treasury stock........................ --
Unrealized gain (loss) on debt and equity
securities................................ (16,877)
Total stockholders' equity.............. 8,989,461
Total liabilities and stockholders'
equity................................ 126,240,998
</TABLE>
See accompanying notes to pro forma financial information.
38
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(FUNC AND THE PURCHASE ACQUISITIONS (INCLUDING THE CORPORATE MERGER))
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of FUNC and the companies involved in
the Purchase Acquisitions (including UFC) assuming the companies had been
combined for each period presented on a purchase accounting basis (effective as
of January 1, 1994).
<TABLE>
<CAPTION>
PURCHASE PRO FORMA PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) FUNC ACQUISITIONS ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1995
Interest income.......................................................... $3,000,417 377,671 (40,193) 3,337,895
Interest expense......................................................... 1,406,547 240,696 -- 1,647,243
Net interest income...................................................... 1,593,870 136,975 (40,193) 1,690,652
Provision for loan losses................................................ 76,500 4,130 -- 80,630
Net interest income after provision for loan losses...................... 1,517,370 132,845 (40,193) 1,610,022
Securities available for sale transactions............................... 4,878 (3,679) -- 1,199
Investment security transactions......................................... 1,450 -- -- 1,450
Noninterest income....................................................... 628,042 29,339 -- 657,381
Noninterest expense...................................................... 1,399,441 179,316 20,111 1,598,868
Income before income taxes............................................... 752,299 (20,811) (60,304) 671,184
Income taxes............................................................. 266,254 990 (19,709) 247,535
Net income............................................................... 486,045 (21,801) (40,595) 423,649
Dividends on preferred stock............................................. 7,029 -- -- 7,029
Net income applicable to common stockholders............................. 479,016 (21,801) (40,595) 416,620
Pro forma per common share data
Net income available to common stockholders............................ $ 2.77 2.32
Average common shares (in thousands)................................... 172,745 179,310
<CAPTION>
PURCHASE PRO FORMA PRO FORMA
(IN THOUSANDS EXCEPT PER SHARE DATA) FUNC ACQUISITIONS ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Interest income.......................................................... $5,094,661 786,606 (80,286) 5,800,981
Interest expense......................................................... 2,060,946 453,964 -- 2,514,910
Net interest income...................................................... 3,033,715 332,642 (80,286) 3,286,071
Provision for loan losses................................................ 100,000 1,643 -- 101,643
Net interest income after provision for loan losses...................... 2,933,715 330,999 (80,286) 3,184,428
Securities available for sale transactions............................... (11,507) 2,647 -- (8,860 )
Investment security transactions......................................... 4,006 -- -- 4,006
Noninterest income....................................................... 1,166,470 55,018 -- 1,221,488
Noninterest expense...................................................... 2,677,228 270,493 52,677 3,000,398
Income before income taxes............................................... 1,415,456 118,171 (132,963) 1,400,664
Income taxes............................................................. 490,076 38,119 (40,535) 487,660
Net income............................................................... 925,380 80,052 (92,428) 913,004
Dividends on preferred stock............................................. 25,353 -- -- 25,353
Net income applicable to common stockholders before redemption
premium................................................................ 900,027 80,052 (92,428) 887,651
Redemption premium on preferred stock.................................... 41,355 -- -- 41,355
Net income applicable to common stockholders after redemption premium.... $ 858,672 80,052 (92,428) 846,296
Pro forma per common share data
Net income available to common stockholders before redemption
premium.............................................................. $ 5.22 5.06
Net income available to common stockholders after redemption premium... $ 4.98 4.82
Average common shares (in thousands)................................... 172,543 175,554
</TABLE>
See accompanying notes to pro forma financial information.
39
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(FUNC, THE PURCHASE ACQUISITIONS (INCLUDING THE CORPORATE MERGER) AND FFB)
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of FUNC, the companies involved in the
Purchase Acquisitions (including UFC) and FFB, assuming the companies had been
combined for each period presented on a purchase accounting basis with respect
to the Purchase Acquisitions (including the Corporate Merger) (for the six
months ended June 30, 1995, and the year ended December 31, 1994, only) and on a
pooling of interests accounting basis with respect to the FFB Merger.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(DOLLARS IN THOUSANDS, JUNE 30, YEARS ENDED DECEMBER 31,
EXCEPT PER SHARE DATA) 1995 1994 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............................... $4,493,006 3,434,281 7,937,133 6,601,528 6,608,666 7,031,400 7,549,088
Interest expense.............................. 2,112,573 1,254,749 3,246,946 2,481,952 2,941,680 4,070,885 4,806,471
Net interest income........................... 2,380,433 2,179,532 4,690,187 4,119,576 3,666,986 2,960,515 2,742,617
Provision for loan losses..................... 100,630 94,000 180,643 369,753 642,708 946,284 923,409
Net interest income after provision for loan
losses...................................... 2,279,803 2,085,532 4,509,544 3,749,823 3,024,278 2,014,231 1,819,208
Securities available for sale transactions.... 15,242 10,173 8,860 25,767 34,402 -- --
Investment security transactions.............. 1,450 1,309 4,006 14,452 1,944 208,614 32,271
Noninterest income............................ 864,592 738,949 1,620,712 1,541,569 1,360,202 1,254,635 1,028,755
Noninterest expense........................... 2,135,961 1,816,102 4,070,027 3,536,346 3,443,524 2,777,665 2,564,124
Income before income taxes.................... 1,025,126 1,019,861 2,073,095 1,795,265 977,302 699,815 316,110
Income taxes.................................. 373,284 347,323 709,028 578,912 278,514 129,843 59,868
Net income.................................... 651,842 672,538 1,364,067 1,216,353 698,788 569,972 256,242
Dividends on preferred stock.................. 17,350 22,204 46,020 45,553 53,040 51,746 47,151
Net income applicable to common stockholders
before redemption premium................... 634,492 650,334 1,318,047 1,170,800 645,748 518,226 209,091
Redemption premium on preferred stock......... -- -- 41,355 -- -- -- --
Net income applicable to common stockholders
after redemption premium.................... $ 634,492 650,334 1,276,692 1,170,800 645,748 518,226 209,091
Pro forma per common share data:
Net income applicable to common stockholders
before redemption premium................. $ 2.22 2.32 4.63 4.30 2.53 2.34 .97
Net income applicable to common stockholders
after redemption premium.................. $ 2.22 2.32 4.48 4.30 2.53 2.34 .97
Average common shares (in thousands).......... 285,492 280,153 284,673 272,439 255,384 221,469 215,529
FUNC historical per common
share data:
Net income applicable to
common stockholders before
redemption premium...................... $ 2.77 2.59 5.22 4.73 2.23 2.24 1.68
Net income applicable to common
stockholders after redemption premium... $ 2.77 2.59 4.98 4.73 2.23 2.24 1.68
Average common shares (in thousands).......... 172,745 169,689 172,543 167,692 158,683 140,003 135,622
</TABLE>
See accompanying notes to pro forma financial information.
40
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Purchase Acquisitions (including the Corporate Merger) and
the FFB Merger been consummated at the beginning of the applicable periods
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined entities.
Consummation of the FFB Merger or any of the pending Purchase Acquisitions
(including the Corporate Merger) is not contingent upon consummation of any
other of such acquisitions. Consummation of one or all of the pending
Purchase Acquisitions (including the Corporate Merger) prior to consummation
of the FFB Merger would not materially impact the results of operations of
FUNC. Pro forma financial information for the Purchase Acquisitions
(including the Corporate Merger) assumes such acquisitions were consummated
on January 1, 1994, and, except as otherwise indicated, reflects information
from such date to their respective consummation dates (or to June 30, 1995,
with respect to the Purchase Acquisitions (including the Corporate Merger)
pending as of June 30, 1995, or announced between July 1, 1995 and August
14, 1995). Pro forma financial information with respect to the FFB Merger
assumes such merger was consummated as of the beginning of each of the
periods indicated.
(2) In addition to the pro forma assumptions indicated below with respect to the
Purchase Acquisitions (including the Corporate Merger), pro forma
assumptions related to the Corporate Merger include (i) a 0.4381 Exchange
Ratio based on a July 31, 1995, FUNC Common Stock closing price of $48.875;
(ii) the issuance of 2.8 million shares of FUNC Common Stock; (iii) the
repurchase of such shares in the open market at a cost of $125 million; and
(iv) an increase in goodwill and deposit base premium of $84 million and $8
million, respectively. The actual Exchange Ratio will depend on the Average
Closing Price (which will not be known until shortly before the Effective
Date) and may be higher or lower than 0.4381. The pro forma information
would be different if the Average Closing Price results in an Exchange Ratio
different from 0.4381. Under the Merger Agreement, the Exchange Ratio would
be (a) 0.458 if the Average Closing Price were less than $46.75 but greater
than $42.75, (b) the result obtained by dividing $19.42 by the Average
Closing Price if the Average Closing Price is $42.75 or less, and (c) the
result obtained by dividing $21.41 by the Average Closing Price if the
Average Closing Price is $46.75 or greater. Set forth on the cover page of
this Prospectus/Proxy Statement is the last reported sale price per share of
FUNC Common Stock on the NYSE Tape on the most recent practicable date
before the mailing hereof. Stockholders are urged to obtain current
quotations of the market price of FUNC Common Stock.
(3) It is assumed that the FFB Merger will be accounted for on a pooling of
interests accounting basis, and accordingly, the related pro forma
adjustments herein reflect, where applicable, an exchange ratio of (i) 1.35
shares of FUNC Common Stock for each of the 81,998,930 shares of FFB common
stock (less 3,345,884 treasury shares) which were outstanding at June 30,
1995; and (ii) one share of one of three corresponding new series of FUNC
Class A Preferred Stock for each share of the related three series of FFB
preferred stock outstanding at June 30, 1995, one series of which includes
4,368,848 shares of convertible preferred stock, which were then convertible
into 3,408,138 shares of FFB common stock. The three new series of FUNC
Class A Preferred Stock will have substantially identical terms as the
related series of FFB preferred stock to be exchanged therefor. The 1.35
exchange ratio is subject to possible increase under certain
circumstances.
As a result, information was adjusted for the FFB Merger by the (i) addition
of 106,181,612 shares of FUNC Common Stock amounting to $353,938,000; (ii)
elimination of 81,998,930 shares of FFB common stock amounting to
$81,999,000; (iii) cancellation of 3,345,884 treasury shares of FFB at a
cost of $165,354,000; and (iv) recordation of the remaining net amount of
$437,293,000 as a reduction in paid-in capital at June 30, 1995.
The pro forma financial information presented herein does not give effect to
the possible purchase by FUNC and/or FFB of up to 5.5 million shares of FFB
common stock or 7.4 million shares of FUNC Common Stock, or some combination
of the two (the "FFB Acquisition Shares"), prior to consummation of the FFB
Merger. As of August , 1995, FUNC had purchased 2.9 million shares of
FFB common stock at a cost of $181 million, and 250,000 shares of FFB
convertible preferred stock at a cost of $12 million.
As of June 30, 1995, FUNC and FFB had 14,441,144 and 6,788,278 shares of
common stock reserved for issuance, respectively, (excluding, as to FUNC,
shares reserved for issuance in connection with the FFB Merger, the Purchase
Acquisitions then pending (including the Corporate Merger), or upon exercise
of the rights attached to shares of FUNC Common Stock), which are not
included in the pro forma financial information presented herein.
For the six months ended June 30, 1995, FFB had net income applicable to
common stockholders of $217,872,000.
(4) During the period from January 1, 1994 through August 14, 1995, FUNC
completed or had pending at August 14, 1995, the following Purchase
Acquisitions: (i) the acquisition of BancFlorida Financial Corporation
(completed in August 1994) with assets of $1.6 billion for 3.6 million
shares of FUNC Common Stock valued at $161 million, (ii) the acquisitions of
First Florida Savings Bank, FSB (completed in April 1995), Ameribanc
Investors Group (completed in April
41
<PAGE>
1995), Coral Gables Fedcorp, Inc. (completed in May 1995), and Home Federal
Savings Bank of Rome, Georgia (completed in August 1995), at an aggregate
cost of $623 million in cash, and (iii) the acquisitions of American Savings
(completed in July 1995) and UFC, Columbia, RS Financial and Brentwood (each
of which was pending at August 14, 1995) for an estimated 16.5 million
shares of FUNC Common Stock valued at an estimated $785 million.
In addition to the foregoing Purchase Acquisitions, during 1994, FUNC
completed the following purchase accounting acquisitions: (i) the December
1994 purchase of a DE MINIMUS amount of loans, and the purchase of deposits
from Chase Manhattan Bank of Florida, N.A. ("Chase") and Great Western
Federal Savings Bank ("Great Western"), which in the aggregate amounted to
$1.8 billion, at an aggregate cost of approximately $137 million, and (ii)
the purchase of deposits of Jacksonville Federal Savings Association,
Citizens Federal Savings Association, Cobb Federal Savings Association and
Hollywood Federal Savings Association from the Resolution Trust Corporation
("RTC") in the aggregate amount of $640 million, at an aggregate cost of $68
million. Purchases of deposits from Chase, Great Western and the RTC do not
constitute a sufficient continuity of operations, and moreover, additional
financial data is not available to develop meaningful and reliable pro forma
income statement information with respect to such acquisitions. Accordingly,
the pro forma financial information presented herein includes such
acquisitions at their recorded costs and does not include any pro forma
adjustments related thereto.
Goodwill and deposit base premium of approximately $701 million and $378
million, respectively, are currently expected to result from the Purchase
Acquisitions (including the Corporate Merger).
In connection with the Purchase Acquisitions (including the Corporate
Merger) in which the consideration involved or will involve the issuance of
FUNC Common Stock, the pro forma financial information presented herein
includes actual and estimated repurchases of FUNC Common Stock that in the
aggregate are estimated to amount to 20.5 million shares at an estimated
cost of $932 million.
In April 1995, the FUNC Board of Directors authorized the purchase of up to
15 million shares of FUNC Common Stock, which is in addition to the possible
purchase of the FFB Acquisition Shares. As of August , 1995, FUNC had
remaining authority to purchase up to 4.0 million shares of FUNC Common
Stock, in addition to the FFB Acquisition Shares.
(5) The pro forma adjustment amounts related to the unaudited pro forma combined
condensed statements of income reflect a 5.84 percent and 4.08 percent cost
of funds for the six months ended June 30, 1995 and the year ended December
31, 1994, respectively, a six-to-ten year straight-line life related to
investment securities, a nine-year straight-line life related to loans, a
10-year straight-line life related to premises and equipment and mortgage
servicing rights, a 10-year sum-of-the-years digits method related to
deposit base premium, and a 25-year straight-line life related to goodwill.
For the six months ended June 30, 1995 and the year ended December 31, 1994,
these adjustments resulted in: reductions in interest income, net interest
income and net interest income after provision for loan losses of
$40,193,000 and $80,286,000, respectively; increases in noninterest expense
of $20,111,000 and $52,677,000, respectively; reductions in income before
income taxes of $60,304,000 and $132,963,000, respectively; reductions in
income taxes of $19,709,000 and $40,535,000, respectively; and reductions in
net income applicable to common stockholders of $40,595,000 and $92,428,000,
respectively.
The components of the pro forma adjustments related to interest income and
noninterest expense for the six months ended June 30, 1995, and the year
ended December 31, 1994, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
(IN THOUSANDS) JUNE 30, 1995 DECEMBER 31, 1994
<S> <C> <C>
Interest income
Interest and fees on loans........................................................ $ (2,237) 350
Interest and dividends on investment securities................................... (2,578) (19,999)
Interest-bearing bank balances.................................................... (35,378) (60,637)
Total interest income........................................................ (40,193) (80,286)
Noninterest expense
Equipment rentals, depreciation and maintenance................................... (1,125) (3,190)
Mortgage servicing amortization................................................... 2,088 5,437
Other amortization
Goodwill....................................................................... 10,585 27,225
Deposit base premium........................................................... 8,563 23,205
Total noninterest expense.................................................... 20,111 52,677
Income before income taxes.......................................................... $(60,304) (132,963)
</TABLE>
42
<PAGE>
(6) Income per share data has been computed based on the combined historical net
income applicable to common stockholders of FUNC, FFB and the companies
involved in the Purchase Acquisitions (including the Corporate Merger) using
the historical weighted average shares outstanding of FUNC Common Stock and
the weighted average outstanding shares, adjusted to equivalent shares of
FUNC Common Stock, as of the earliest applicable period presented.
(7) Certain insignificant reclassifications have been included herein to conform
statement presentations. Transactions conducted in the ordinary course of
business between the companies are immaterial, and accordingly, have not
been eliminated.
(8) The unaudited pro forma financial information does not include any FFB
Merger-related expenses or any material expenses related to the Purchase
Acquisitions (including the Corporate Merger). A currently estimated
after-tax FFB Merger-related charge of approximately $270 million, or $.97
per share of FUNC Common Stock, is expected to be taken in the fourth
quarter of 1995. See "RECENT DEVELOPMENTS-1995 and 1996 Earnings Estimates".
(9) As indicated by the foregoing unaudited pro forma financial information and
based solely on the foregoing assumptions, consummation of the FFB Merger
and the Purchase Acquisitions (including the Corporate Merger) would have
diluted FUNC's historical net income per common share (after redemption
premium) for the six months ended June 30, 1995 and the year ended December
31, 1994, by 20 percent and 10 percent, respectively. It should not
necessarily be assumed, however, that the foregoing data will represent
actual dilution with respect to the FFB Merger or the Purchase Acquisitions
(including the Corporate Merger).
UFC
UFC, a South Carolina corporation, was formed at the direction of United to
acquire and hold all of the outstanding capital stock of United. The
reorganization into the holding company structure became effective on July 18,
1988. The only activity of UFC is the ownership of United and Home Federal.
United was formed as a South Carolina-chartered mutual savings and loan
association on October 22, 1984, as a result of the merger of Mutual Savings and
Loan Association ("Mutual Savings") into Greenwood Savings and Loan Association
("Greenwood Savings"), both of which had their home offices in Greenwood, South
Carolina. Greenwood Savings and Mutual Savings were chartered by the State of
South Carolina in 1921 and 1924, respectively. On April 2, 1987, United
converted to a capital stock savings and loan association through the sale and
issuance of 2,034,285 shares of common stock. On November 29, 1988, United
converted to a South Carolina-chartered stock savings bank, and on September 28,
1990, United converted to a federally chartered stock savings bank, taking its
current name.
On July 3, 1990, UFC consummated the acquisition of Home Federal upon the
conversion of Home Federal from a federal mutual to a federal stock savings
bank, resulting in Home Federal being held as a wholly-owned subsidiary of UFC
("Conversion/Acquisition"). The Conversion/Acquisition was accomplished through
the sale by UFC of newly-issued shares of UFC Common Stock in a subscription and
community offering. A total of 206,659 shares of UFC Common Stock were sold at a
price of $9.50 per share in the Conversion/Acquisition. UFC accounted for the
Conversion/Acquisition under the purchase method of accounting. The application
of the purchase method of accounting resulted in the adjustment of the assets
and liabilities of Home Federal based upon their fair values at the close of the
Conversion/Acquisition.
The Banks are members of the Federal Home Loan Bank ("FHLB") System, and
their savings deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC"). The Banks are subject to comprehensive
regulation, examination and supervision by the OTS and the FDIC.
The business of the Banks historically consisted of attracting savings
deposits from the general public and originating fixed-rate residential mortgage
loans. Since 1982 and 1984, United and Home Federal, respectively, have
emphasized the origination of adjustable-rate residential mortgage loans,
adjustable-rate commercial real estate loans, residential construction loans and
consumer loans. Through its subsidiaries, United is also engaged in limited real
estate development activities and retail-brokerage activities emphasizing
stocks, bonds, mutual funds and insurance products. Financial and other
information relating to UFC is set forth in ANNEX A to this Prospectus/Proxy
Statement and in UFC's 1995 Annual Report on Form 10-K and 1995 First Quarter
Report on Form 10-Q, copies of which may be obtained from UFC as indicated under
"AVAILABLE INFORMATION".
43
<PAGE>
FUNC
GENERAL
Financial and other information relating to FUNC, including information
relating to FUNC's directors and executive officers, is set forth in FUNC's 1994
Annual Report on Form 10-K, 1995 First and Second Quarter Reports on Form 10-Q,
1995 Annual Meeting Proxy Statement and 1995 Current Reports on Form 8-K, 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, First Union National Bank of North Carolina ("FUNB-NC")
and First Union Mortgage Corporation, a mortgage banking firm acquired by
FUNB-NC in 1964, became subsidiaries of FUNC.
In addition to South Carolina and North Carolina, FUNC also operates banks
in Florida, 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, capital markets services,
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 eastern region of the United States. Since November 1985, FUNC
has completed 57 banking-related acquisitions and currently has pending five
banking-related acquisitions, including the more significant acquisitions (I.E.,
involving the acquisition of $3.0 billion or more of assets or deposits) set
forth in the following table.
<TABLE>
<CAPTION>
ASSETS/ CONSIDERATION/
NAME HEADQUARTERS DEPOSITS(1)(2) 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
First Railroad & Banking Company of
Georgia.................................... Georgia 3.7 billion common stock/pooling November 1986
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
Resolution Trust Company ("RTC") 5.3 billion cash/purchase 1991-1994
acquisitions............................... Florida,
Georgia,
Virginia
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
American Savings............................. Florida 3.5 billion common stock/purchase July 1995
FFB.......................................... New Jersey,
Pennsylvania $ 35.4 billion common stock and
preferred stock/pooling
</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 RTC and (ii) the dollar amount
relating to Southeast banks, which represent assets of the two banking
subsidiaries of Southeast Banking Corporation acquired from the FDIC.
(2) In addition, FUNC purchased Lieber & Company ("Lieber"), a mutual fund
advisory company with approximately $3.4 billion in assets under management,
in June 1994. Since such assets are not owned by Lieber, they are not
reflected on FUNC's balance sheet.
44
<PAGE>
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. See "PRO
FORMA FINANCIAL INFORMATION" and " -- Certain Regulatory Considerations;
INTERSTATE BANKING AND BRANCHING LEGISLATION".
CERTAIN REGULATORY CONSIDERATIONS
AS A BANK HOLDING COMPANY, FUNC IS 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. 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 STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF FUNC.
GENERAL
FUNC 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. See "THE MERGER -- 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 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.
PAYMENT OF DIVIDENDS
FUNC 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.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of FUNC's nonbanking subsidiaries, as of June 30, 1995,
FUNC's subsidiaries, without obtaining affirmative governmental approvals, could
pay aggregate dividends of $153 million to FUNC. During the first six months of
1995, FUNC's subsidiaries paid $394 million in cash dividends to FUNC.
In addition, FUNC and its national 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 can borrow or otherwise obtain credit from its
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 or such nonbank subsidiaries,
to ten percent of the lending bank's capital stock and surplus, and as to FUNC
and all such nonbank subsidiaries in the aggregate, to 20 percent of such
lending bank's capital stock and surplus.
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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 June 30, 1995, FUNC's tier 1 and total capital ratios
were 6.86 percent and 11.58 percent, respectively. On an FUNC and UFC combined
basis, such ratios at June 30, 1995, would have been 6.49 percent and 11.20
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 June 30,
1995, was 5.74 percent. On an FUNC and UFC combined basis, such ratio at June
30, 1995, would have been 5.22 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 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. Each of FUNC's subsidiary banks had a leverage
ratio in excess of 5.14 percent, as of June 30, 1995. The OCC has not advised
any of the subsidiary national banks of any specific minimum leverage ratio
applicable to it.
As of June 30, 1995, the capital ratios of FUNC's banking subsidiaries,
which consist of FUNB-NC, FUNB-SC, First Union National Bank of Georgia
("FUNB-GA"), First Union National Bank of Florida ("FUNB-FL"), First Union
National Bank of Washington, D.C. ("FUNB-DC"), First Union National Bank of
Maryland ("FUNB-MD"), First Union National Bank of Tennessee ("FUNB-TN"), First
Union National Bank of Virginia ("FUNB-VA") and First Union Home Equity Bank,
N.A. ("FUHEB") were as follows:
<TABLE>
<CAPTION>
REGULATORY
MINIMUM FUNB-NC FUNB-SC FUNB-GA FUNB-FL FUNB-DC FUNB-MD FUNB-TN FUNB-VA FUHEB
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital ratio......... 4% 6.65 7.86 8.72 6.55 17.46 20.14 11.62 6.81 5.28
Total capital ratio.......... 8 10.32 11.79 11.52 10.01 18.74 21.42 12.88 10.39 8.28
Leverage ratio............... 3-5% 5.81 5.94 6.40 5.15 7.70 13.08 7.71 5.28 5.53
</TABLE>
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.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, imposes liability on an institution the deposits
of which are insured by the FDIC, such as FUNC's subsidiary national banks, 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, 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 may not find itself
willing or able to 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 banks. 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.
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FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (as
amended, "FDICIA"), among other things, requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements. The FDICIA establishes five capital
tiers: "well capitalized"; "adequately capitalized"; "undercapitalized";
"significantly undercapitalized"; and "critically undercapitalized". A
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.
The OCC has adopted 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
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 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 June 30, 1995, all
of FUNC's deposit-taking subsidiary banks had capital levels that qualify them
as being "well capitalized" under such regulations. FUHEB is not a
deposit-taking bank.
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 the cessation of receiving deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
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.
INTERSTATE BANKING AND BRANCHING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorizes interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, beginning June 1, 1997, a bank may merge with a bank in another state
as long as neither of the states has opted out of interstate branching between
the date of enactment of the IBBEA and May 31, 1997. The IBBEA further provides
that states may enact laws permitting interstate merger transactions prior to
June 1, 1997. A bank may establish and operate a DE NOVO branch in a state in
which the bank does not maintain a branch if that state expressly permits DE
NOVO branching. Once a bank has established branches in a state through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the state where any bank involved in the interstate
merger transaction could have established or acquired branches under applicable
federal or state law. A bank that has established a branch in a state through DE
NOVO
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branching may establish and acquire additional branches in such state in the
same manner and to the same extent as a bank having a branch in such state as a
result of an interstate merger. If a state opts out of interstate branching
within the specified time period, no bank in any other state may establish a
branch in the opting out state, whether through an acquisition or DE NOVO.
FDIC INSURANCE ASSESSMENTS
On August 8, 1995, the FDIC amended its regulations on insurance
assessments to establish a new assessment rate schedule of 4 to 31 cents per
$100 of deposits in replacement of the existing schedule of 23 to 31 cents per
$100 of deposits for institutions whose deposits are subject to assessment by
the Bank Insurance Fund ("BIF"). The FDIC has maintained the current assessment
rate schedule of 23 to 31 cents per $100 of deposits for institutions whose
deposits are subject to assessment by the Savings Association Insurance Fund
("SAIF"). The new BIF schedule will become effective on the first day of the
month after the month in which the BIF reaches its "designated reserve ratio" of
1.25 percent which the FDIC has estimated occurred sometime in the second
quarter of 1995. Assessments collected at the previous assessment schedule that
exceed the amount due under the new schedule will be refunded, with interest,
from the effective date of the new schedule. As of March 31, 1995, FUNC had a
BIF deposit assessment base of $40.5 billion and a SAIF deposit assessment base
of $14.7 billion. Various legislative proposals regarding the future of the BIF
and the SAIF have been reported recently. Several of these proposals include a
one-time special assessment for SAIF deposits and a subsequent comparable and
reduced level of annual premiums for SAIF and BIF deposits. FUNC does not know
when and if any such proposal or any other related proposal may be adopted.
BHCA LEGISLATION
Various bills have been introduced into the United States Congress that
would repeal in some respects the provisions of the Glass-Steagall Act
prohibiting certain banking organizations from engaging in certain securities
activities and the provisions of the BHCA prohibiting affiliations between
banking organizations and nonbanking organizations. FUNC cannot predict if and
when any such legislation or any similar legislation may be enacted.
DESCRIPTION OF FUNC CAPITAL STOCK
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 June 30, 1995,
there were 171,837,122 shares of FUNC Common Stock, and no shares of FUNC
Preferred Stock or 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. On March 31, 1995, FUNC redeemed a series of
FUNC Preferred Stock at an aggregate redemption price of $325 million.
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 "FUNC -- Certain Regulatory Considerations; PAYMENT OF
DIVIDENDS".
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
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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 UFC 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 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. 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.
In the FFB Merger Agreement, upon consummation of the FFB Merger, FUNC
agreed to issue three corresponding new series of FUNC Class A Preferred Stock
with terms substantially identical to those of the three outstanding series of
FFB preferred stock to be exchanged therefor. The following is a brief
description of certain terms of the three outstanding series of FFB preferred
stock, based on information filed by FFB with, and publicly available from, the
Commission and the NYSE.
FFB SERIES B PREFERRED STOCK
The FFB Series B Convertible Preferred Stock (the "FFB Series B Preferred
Stock") bears a cumulative annual dividend of $2.15 per share, has a liquidation
preference of $25.00 per share, is redeemable in whole or in part at the option
of FFB at $25.00 per share plus accrued but unpaid dividends to the the
redemption date, and is currently convertible at the option of the holder
thereof into .7801 of a share of FFB common stock per share, subject to
adjustment in certain events. Upon consummation of the FFB Merger, such
conversion ratio would be adjusted in accordance with the FFB Merger exchange
ratio. Holders of FFB Series B Preferred Stock are entitled to vote on all
matters on which the holders of FFB common stock vote, together with FFB common
stock as a single class, and in such circumstances each holder of FFB Series B
Preferred Stock is entitled to such number of votes as is equal to one-half of
the number of shares of FFB common stock into which such holder's shares of FFB
Series B Preferred stock are then convertible. Holders of FFB Series B Preferred
Stock are also entitled to vote as a separate class (with other similarly
situated holders of preferred stock) (i) to elect directors in the event of
extended dividend arrearages, (ii) with respect to any amendment of the FFB
Certificate of Incorporation which adversely affects the rights of holders of
FFB Series B Preferred Stock, (iii) for FFB to redeem fewer than all shares of
FFB Series B Preferred Stock at any time when any dividends thereon have not
been paid for past periods, and (iv) in certain circumstances with respect to
the authorization or creation of more than ten million shares of any FFB
preferred stock or the authorization or creation of any securities ranking prior
to FFB Series B Preferred Stock.
FFB SERIES D PREFERRED STOCK
The FFB Series D Adjustable Rate Cumulative Preferred Stock (the "FFB
Series D Preferred Stock") is non-voting, subject to certain limited exceptions,
has a liquidation preference of $100.00 per share and is redeemable in whole or
in part at the option of FFB at a redemption price of $100.00 per share plus
accrued but unpaid dividends to the redemption date. FFB Series D Preferred
Stock cannot be converted into any other class of capital stock of FFB. FFB
Series D Preferred Stock bears cumulative dividends at an annual rate (the
"applicable rate") equal to .75 percent less than the highest of the three-month
U.S. Treasury Bill rate, the U.S. Treasury 10-year constant maturity rate or the
U.S. Treasury 20-year constant maturity rate, adjusted quarterly; however, in no
event may the applicable rate be less than 6.25 percent or more than 12.75
percent per annum. Holders of FFB Series D Preferred Stock are also entitled to
vote as a separate class (with other similarly situated holders of FFB preferred
stock) (i) to elect directors in the event of extended dividend arrearages, (ii)
with respect to any amendment of the FFB Certificate of Incorporation which
adversely affects the rights of holders of FFB Series D Preferred Stock, and
(iii) with respect to the authorization or creation of any securities ranking
prior to FFB Series D Preferred Stock.
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FFB SERIES F PREFERRED STOCK
The FFB Series F 10.64% Preferred Stock (the "FFB Series F Preferred
Stock") bears a cumulative annual dividend rate of 10.64 percent, is non-voting,
subject to certain limited exceptions, has a liquidation preference of $1,000.00
per share and is redeemable in whole or in part at the option of FFB on or after
July 1, 1996, at $1,000.00 per share plus accrued and unpaid dividends to the
redemption date. FFB Series F Preferred Stock cannot be converted into any other
class of capital stock of FFB. The shares of FFB Series F Preferred Stock are
represented by depositary shares, with each depositary share representing a
1/40th interest in a share of FFB Series F Preferred Stock. Holders of the
depositary shares are entitled to all rights and preferences of FFB Series F
Preferred Stock proportionate to the ownership interest represented by the
number of depositary shares owned by them. Holders of FFB Series F Preferred
Stock are also entitled to vote as a separate class (with other similarly
situated holders of FFB preferred stock) (i) to elect directors in the event of
extended dividend arrearages, (ii) with respect to any amendment of the FFB
Certificate of Incorporation which adversely affects the rights of holders of
FFB Series F Preferred Stock, and (iii) with respect to the authorization or
creation of any securities ranking prior to FFB Series F Preferred Stock.
RIGHTS PLAN
Each outstanding share of FUNC Common Stock currently has attached to it
one right (a "FUNC Right") issued pursuant to a Shareholder Protection Rights
Agreement (as amended, the "FUNC Rights Agreement") Accordingly, in the
Corporate Merger, holders of UFC Common Stock would receive one FUNC Right with
respect to each share of FUNC Common Stock they receive, which FUNC Right will
be attached to the related shares of FUNC Common Stock, unless the Separation
Time (as defined below) has occurred, in which case holders of UFC Common Stock
would receive separate certificates with respect to such FUNC Rights. Each FUNC
Right entitles its registered holder to purchase 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, subject to adjustment (the "Rights Exercise Price"), but only after
the earlier to occur (the "Separation Time") of: (i) the tenth business day
(subject to extension) after any person (an "Acquiring Person") (x) commences a
tender or exchange offer, which, if consummated, would result in such person
becoming the beneficial owner of 15 percent or more of the outstanding shares of
FUNC Common Stock, or (y) is determined by the Federal Reserve Board to
"control" FUNC within the meaning of the BHCA (see " -- Other Provisions"
below), subject to certain exceptions; 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. The FUNC Rights will not trade separately from the
shares of FUNC Common Stock unless and until the Separation Time occurs.
The FUNC Rights Agreement provides that a person will not become an
Acquiring Person under the BHCA control test described above if either (i) the
Federal Reserve Board's control determination would not have been made but for
such person's failure to make certain customary passivity commitments, or such
person's violation of such commitments made, to the Federal Reserve Board, so
long as the Federal Reserve Board determines that such person no longer controls
FUNC within 30 days (or 60 days in certain circumstances), or (ii) the Federal
Reserve Board's control determination was not based on such a failure or
violation and such person (x) obtains a noncontrol determination within three
years, and (y) is using its best efforts to allow FUNC to make any acquisition
or engage in any legally permissible activity notwithstanding such person's
being deemed to control FUNC for purposes of the BHCA.
The Third Amendment to the FUNC Rights Agreement, effective as of June 18,
1995, exempts the grant by FUNC to FFB of an option to purchase up to 19.9
percent of the outstanding shares of FUNC Common Stock (the "FUNC Option"), and
the purchase of shares of such common stock pursuant to the FUNC Option, from
causing the holder of the FUNC Option or such shares from becoming an Acquiring
Person as a result thereof.
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.
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
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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 (or that acquires "control" of FUNC
within the meaning of the BHCA) 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 foregoing description of the FUNC Rights and the FUNC Rights
Agreement is qualified in its entirety by reference to such document. 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 FUNC Articles and Bylaws 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 FUNC 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 shares entitled to be voted 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 FUNC 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.
The foregoing provisions could impede a change of control of FUNC. In
particular, classification of the FUNC Board has the effect of decreasing the
number of directors that could be elected in a single year by any person who
seeks to elect its designees to a majority of the seats on the FUNC Board.
The Change in Bank Control Act prohibits a person or group of persons from
acquiring "control" of a bank holding company unless the Federal Reserve Board
has been given 60 days' prior written notice of such proposed acquisition and
within that time period the Federal Reserve Board has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued, or unless the acquisition
is subject to Federal Reserve Board approval under the BHCA. An acquisition may
be made prior to the expiration of the disapproval period if the Federal Reserve
Board issues written notice of its intent not to disapprove the action. Under a
rebuttable presumption established by the Federal Reserve Board, the acquisition
of more than ten percent of a class of voting stock of a
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bank holding company with a class of securities registered under Section 12 of
the Exchange Act, such as FUNC, would, under the circumstances set forth in the
presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the BHCA before acquiring 25 percent (five percent
in the case of an acquiror that is a bank holding company) or more of the
outstanding shares of FUNC Common Stock, or otherwise obtaining "control" over
FUNC. Under the BHCA, "control" generally means (i) the ownership or control of
25 percent or more of any class of voting securities of the bank holding
company, (ii) the ability to elect a majority of the bank holding company's
directors, or (iii) the ability otherwise to exercise a controlling influence
over the management and policies of the bank holding company. See "THE
MERGER -- Regulatory Approvals" for a description of the standards applicable to
the Corporate Merger under the BHCA.
Two North Carolina "anti-takeover" statutes adopted in 1987, 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. The authority of
the FUNC Board to issue FUNC Preferred Stock or FUNC Class A Preferred Stock
with rights and privileges, including voting rights, as it may deem appropriate,
may enable the FUNC Board to prevent a change of control despite a shift in
ownership of FUNC Common Stock. In addition, the FUNC Board's authority to issue
additional shares of FUNC Common Stock may help deter or delay a change of
control by increasing the number of shares needed to gain control.
CERTAIN DIFFERENCES IN THE RIGHTS OF UFC AND FUNC STOCKHOLDERS
GENERAL
FUNC is a North Carolina corporation subject to the provisions of the
NCBCA. UFC is a South Carolina corporation subject to the provisions of the
SCBCA. Stockholders of UFC will, upon consummation of the Corporate Merger,
become stockholders of FUNC (unless they have perfected dissenters' rights with
respect to their shares of UFC Common Stock as described in "THE
MERGERS -- Dissenters' Rights"). 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.
Set forth below are the material differences between the rights of a UFC
stockholder under the UFC Articles and Bylaws and under the SCBCA, on the one
hand, and the rights of an FUNC stockholder under the FUNC Articles and Bylaws
and under the NCBCA, on the other hand. THIS SUMMARY DOES NOT PURPORT TO BE A
COMPLETE DISCUSSION OF, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE
GOVERNING LAW AND THE ARTICLES OF INCORPORATION AND BYLAWS OF EACH CORPORATION.
AUTHORIZED CAPITAL
UFC. The authorized capital stock of UFC consists of 8,000,000 shares of
UFC Common Stock, $.10 par value per share, and 2,000,000 shares of serial
preferred stock, par value $.10 per share. As of June 30, 1995, there were
5,797,328 shares of UFC Common Stock and no shares of preferred stock
outstanding.
FUNC. FUNC's authorized capital is set forth under "DESCRIPTION OF FUNC
CAPITAL STOCK -- Authorized Capital".
AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS
UFC. The UFC Articles may be amended by the vote of the holders of a
majority of the outstanding shares of UFC Common Stock, except for Articles VI,
VII, VIII, IX, X, XI, XII, XIV, XV and XVI, which require the affirmative vote
of two-thirds of the outstanding shares of UFC Common Stock in order to be
amended, and Article XIII (regarding business combinations with a Related
Person, as defined therein), which requires the affirmative vote of two-thirds
of the outstanding shares entitled to vote, and two-thirds of such shares,
excluding shares deemed beneficially owned by a Related Person. The Bylaws of
UFC may be repealed, altered, amended or rescinded by a vote of two-thirds of
the UFC Board or by the holders of at least two-thirds of the outstanding shares
of capital stock of UFC entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose (provided that notice of such proposed repeal,
alteration, amendment or recision is included in the notice of such meeting).
FUNC. Under North Carolina law, an amendment to the FUNC Articles generally
requires the recommendation of the Board of Directors 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
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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 FUNC 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
UFC. The UFC Articles provide that the UFC Board shall consist of not less
than five nor more than 20 members, as set forth in its Bylaws. The Bylaws of
UFC presently set the number of directors at nine persons. The Bylaws of UFC
also provide that the UFC Board may appoint one or more Directors Emeriti. The
UFC Board is divided into three classes, each as nearly as possible equal in
number to the others, with one class being elected annually.
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 office. The number of
directors of FUNC is currently 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
UFC. The UFC Articles provide that no director may be removed except for
cause and then only by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of capital stock entitled to vote generally
in the election of directors at a meeting of the stockholders called for that
purpose. Whenever the holders of any one or more series of preferred stock of
UFC shall have the right, voting separately as a class, to elect one or more
directors, the preceding provision does not apply with respect to the director
or directors elected by such preferred stock.
FUNC. Except for directors elected under specified circumstances by holders
of any class or series of stock having a preference over the FUNC Common Stock
as to dividends or upon liquidation, 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.
DIRECTOR EXCULPATION
UFC. The UFC Articles provide for the elimination of personal liability of
each director of UFC for monetary damages for breach of fiduciary duty as a
director, other than liability for (i) breach of the director's duty of loyalty,
(ii) for acts or omissions not in good faith or which involve gross negligence,
intentional misconduct or a knowing violation of law, (iii) unlawful
distributions, or (iv) any transaction in which the director derived an improper
personal benefit. If the SCBCA is amended to further eliminate the personal
liability of directors, the liability of a director of UFC will be eliminated to
the fullest extent permitted by the SCBCA.
FUNC. The FUNC Articles provide for the elimination of personal liability
of each director of FUNC to the fullest extent permitted by the provisions of
the NCBCA, as the same may be in effect from time to time. The NCBCA does not
permit the elimination of such liability with respect to (i) acts or omissions
the director knew or believed were clearly in conflict with the best interests
of FUNC, (ii) any liability under the NCBCA for unlawful distributions by FUNC,
or (iii) any transaction from which the director derived an improper personal
benefit.
DIRECTOR CONFLICT OF INTEREST TRANSACTIONS
UFC. South Carolina law generally permits transactions involving a South
Carolina corporation and an interested director of that corporation if: (i) the
material facts of the transaction and the director's interest are disclosed and
a majority of disinterested shares entitled to vote thereon authorizes, approves
or ratifies the transaction; (ii) the material facts are disclosed and a
majority of disinterested directors or a committee of the board of directors
authorizes, approves or ratifies the transaction; or (iii) the transaction is
fair to the corporation. South Carolina law prohibits loans to directors or the
guaranteeing of their obligations by a South Carolina corporation unless
approved by a majority vote of disinterested stockholders or unless
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the corporation's board of directors determines that the loan or guarantee
benefits the corporation and either approves the specific loan or guarantee or a
general plan of loans and guarantees by the corporation.
FUNC. North Carolina law generally permits transactions involving a North
Carolina corporation and an interested director of that corporation if: (i) the
material facts of the transaction and the director's interest are disclosed and
a majority of disinterested shares entitled to vote thereon authorizes, approves
or ratifies the transaction; (ii) the material facts are disclosed and a
majority of disinterested directors or a committee of the board of directors
authorizes, approves or ratifies the transaction; or (iii) the transaction is
fair to the corporation. North Carolina law prohibits loans to directors or the
guaranteeing of their obligations by a North Carolina corporation unless
approved by a majority vote of disinterested stockholders or unless the
corporation's board of directors determines that the loan or guarantee benefits
the corporation and either approves the specific loan or guarantee or a general
plan of loans and guarantees by the corporation.
STOCKHOLDER MEETINGS
UFC. The UFC Articles provide that special meetings of the stockholders of
UFC may be called by the Chairman of the Board, the President or a majority of
the UFC Board or as otherwise required by law. The SCBCA provides that a special
meeting may be called upon the written request of the holders of at least
one-tenth of all the votes entitled to be cast on an issue to be considered at
the meeting. A quorum for a meeting of the stockholders of UFC is a majority of
the outstanding shares of UFC entitled to vote. Except as provided in the UFC
Articles or the SCBCA, a majority of the votes cast is generally required for
any action by the stockholders of UFC.
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 the FUNC 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
UFC. The UFC Articles establish procedures that must be followed for
stockholders to nominate persons for election to the UFC Board. Such nominations
must be made by delivering written notice to the Secretary of UFC not less than
30 nor more than 90 days prior to the annual meeting at which directors will be
elected. However, if less than than 45 days' notice of the date of the meeting
is given, such written notice by the stockholder must be so delivered not later
than the 15th day after the day on which such notice of the date of the meeting
was given. 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 UFC beneficially owned 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 UFC Articles and the
defective nomination will be disregarded.
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 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
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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.
STOCKHOLDER PROPOSALS
UFC. The UFC Articles establish procedures that must be followed for a
stockholder to submit a proposal to a vote of the stockholders of UFC at an
annual meeting of stockholders. Such proposal must be made by the stockholder
delivering written notice to the Secretary of UFC not less than 30 days nor more
than 90 days prior to the meeting. However, if less than 45 days' notice of the
date of the meeting is given, such written notice by the stockholder must be so
delivered not later than the 15th day after the day on which such notice of the
date of the meeting was given. The stockholder proposal 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 UFC's books; (iii) the
classes and number of shares of UFC stock beneficially owned by the stockholder;
and (iv) any material interest of the stockholder in such proposal. 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 UFC's
Articles and the defective proposal will not be submitted to the meeting for a
vote of the stockholders.
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 stock 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.
STOCKHOLDER PROTECTION RIGHTS PLAN; LIMITATIONS ON ACQUISITIONS OF CAPITAL STOCK
UFC. UFC has not adopted a stockholder rights plan. The UFC Articles
prohibit any person, company or group acting in concert from acquiring
beneficial ownership of ten percent or more of UFC Common Stock without the
prior approval of all necessary regulatory authorities and prohibit such
acquisitions of 15 percent of more of UFC Common Stock unless previously
approved by the vote of the holders of at least two-thirds of the outstanding
shares of UFC Common Stock at a stockholders' meeting called for such purpose by
the vote of at least two-thirds of the directors at a UFC Board meeting called
for such purpose. In addition, offers to acquire beneficial ownership of ten
percent or more of UFC Common Stock are prohibited unless such an offer has been
approved by the vote of at least two-thirds of the UFC Board or the offeror has
obtained all necessary regulatory approvals and has furnished to the UFC Board
copies of all regulatory filings made in connection with obtaining such
approvals. These provisions would not apply to a purchase of UFC Common Stock by
an underwriter in connection with a public offering of such stock or by certain
employee stock benefit plans.
FUNC. FUNC has adopted the FUNC Rights Agreement. See "DESCRIPTION OF FUNC
CAPITAL STOCK -- FUNC Rights Plan". The FUNC Articles have no similar
limitations on the acquisitions of its capital stock.
STOCKHOLDER INSPECTION RIGHTS; STOCKHOLDER LISTS
UFC. Under the SCBCA, stockholders have the right to inspect and copy
certain records of UFC if their demand is made in good faith and for a proper
purpose. Such right of inspection requires that the stockholder give UFC at
least five business days' written notice of the demand, describing with
reasonable particularity his purpose and the records he desires to inspect. The
records must be directly connected with the stockholder's purpose. A
stockholder's agent or attorney has the same inspection and copying rights as
the stockholder he represents.
In addition, after fixing a record date for a stockholders' meeting, UFC is
required to prepare a stockholder list with respect to such stockholders'
meeting and to make such list available at UFC's principal office or at a place
identified in the meeting notice to any stockholder beginning on date on which
notice of such meeting is given and continuing through the meeting. Subject to
the applicable provisions of the SCBCA, a stockholder or his agent or attorney
upon written demand at his own expense during regular business hours is entitled
to copy such list.
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FUNC. Under the NCBCA, qualified stockholders have the right to inspect and
copy certain records of FUNC if their demand is made in good faith and for a
proper purpose. Such right of inspection requires that the stockholder give FUNC
at least five business days' written notice of the demand, describing with
reasonable particularity his purpose and the requested records. The records must
be directly connected with the stockholder's purpose. The rights of inspection
and copying extend not only to stockholders of record but also to beneficial
owners whose beneficial ownership is certified to FUNC by the stockholder of
record. However, FUNC is under no duty to provide any accounting records or any
records with respect to any matter that FUNC determines in good faith may, if
disclosed, adversely affect FUNC in the conduct of its business or may
constitute material non-public information, and the rights of inspection and
copying are limited to stockholders who either have been stockholders for at
least six months or who hold at least five percent of the outstanding shares of
any class of stock of FUNC. A stockholder's agent or attorney has the same
inspection and copying rights as the stockholder he represents.
In addition, after fixing a record date for a stockholders' meeting, FUNC
is required to prepare a stockholder list with respect to such stockholders'
meeting and to make such list available at FUNC's principal office or at a place
identified in the meeting notice to any stockholder beginning two business days
after notice of such meeting is given and continuing through such meeting and
any adjournment thereof. Subject to the applicable provisions of the NCBCA, a
stockholder or his agent or attorney upon written demand at his own expense
during regular business hours is entitled to copy such list. Such list must be
available at the stockholders' meeting, and any stockholder, his agent or
attorney, may inspect such list at any time during the meeting or any
adjournment thereof.
REQUIRED STOCKHOLDER VOTE FOR CERTAIN ACTIONS
UFC. Under South Carolina law, except as otherwise provided below or in the
SCBCA, any plan of merger or share exchange involving UFC would require adoption
by the UFC Board, who would generally be required to recommend its approval to
the stockholders, who in turn would be required to approve the plan by a vote of
two-thirds of the outstanding shares. Except as otherwise provided below or in
the SCBCA, any sale, lease, exchange or other disposition of all or
substantially all of UFC's assets not made in the usual and regular course of
business would generally require that the UFC Board recommend the proposed
transaction to the stockholders who would be required to approve the transaction
by a vote of two-thirds of the outstanding shares. In accordance with South
Carolina law, the submission by the UFC Board of any such action may be
conditioned on any basis, including, without limitation, conditions regarding a
supermajority voting requirement or that no more than a certain number of shares
indicate that they will seek dissenters' rights.
In addition to the requirements imposed by the SCBCA, the UFC Articles
require the approval of the holders of (i) at least two-thirds of UFC's
outstanding shares of voting stock, and (ii) at least two-thirds of UFC's
outstanding shares of voting stock, not including shares held by a "Related
Person" to approve certain "Business Combinations," except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the UFC Board who were directors prior to the time when the Related Person
became a Related Person. In the event the requisite approval of the UFC Board
were given, the normal vote requirement of applicable South Carolina law as
described above would apply, or, for certain transactions, no stockholder vote
would be necessary. The term "Related Person" is defined to include any
individual, corporation, partnership or other entity which owns beneficially or
controls, directly or indirectly, ten percent or more of the outstanding shares
of voting stock of UFC. The provisions of Article XV apply to any "Business
Combination" which is defined to include among other things: (i) any merger or
consolidation of UFC with or into any Related Person; (ii) any sale, lease,
exchange, mortgage, transfer, or other disposition of all or a substantial part
of the assets of UFC or any of its subsidiaries to any Related Person (the term
"substantial part" is defined to include more than 25 percent of the
subsidiaries' total assets); (iii) any sale, lease, exchange, or other transfer
by any Related Person to UFC of a substantial part of the assets of the Related
Person; (iv) the issuance by UFC to a Related Person of any equity security
having a market value of five percent or more of the total market value of the
outstanding shares of UFC; (v) the acquisition by UFC of any securities of the
Related Person; (vi) any reclassification of the common stock of UFC; and (vii)
any agreement, contract or other arrangement providing for any of the
transactions described above.
With respect to a plan of merger, no vote of the stockholders of UFC is
required if UFC is the surviving corporation and (i) the UFC Articles would
remain unchanged after the merger, subject to certain exceptions; (ii) each
stockholder of UFC immediately before the merger would remain unchanged after
the merger, subject to certain exceptions; (iii) each stockholder of UFC
immediately before the merger would hold an identical number of shares, with
identical designations, limitations, preferences and relative rights, after the
merger; (iv) the number of voting shares of UFC stock to be issued in the merger
(either by the 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
voting shares of UFC stock immediately before the merger; and (v) the number of
shares of UFC stock entitling holders to participate without limitation in
distributions to be issued in the merger (either by the
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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 UFC
stock entitling holders to participate without limitation in distributions
outstanding immediately before the merger.
FUNC. Under North Carolina law, except as otherwise provided below or in
the NCBCA, any plan of merger or share exchange to which FUNC is a party, would
require adoption by the Board of Directors, who would generally be required to
recommend its approval to the stockholders, who in turn would be required to
approve the plan by a vote of a simple majority of the outstanding shares.
Except as otherwise provided below or in the NCBCA, any sale, lease, exchange or
other disposition of all or substantially all of FUNC's assets not made in the
usual and regular course of business would generally require that the Board of
Directors recommend the proposed transaction to the stockholders who would be
required to approve the transaction by a vote of a simple majority of the
outstanding shares. In accordance with North Carolina law, the submission by the
Board of Directors of any such action may be conditioned on any basis,
including, without limitation, conditions regarding a supermajority voting
requirement or that no more than a certain number of shares indicate that they
will seek dissenters' rights.
With respect to a plan of merger to which FUNC is a party, no vote of the
stockholders of FUNC is required if FUNC is the surviving corporation and: (i)
the FUNC 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 the 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 the 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.
In addition, no vote of the stockholders of FUNC would be required to merge
a subsidiary of which FUNC owns at least 90 percent of the outstanding shares of
each class of subsidiary shares, into FUNC, as long as no amendment is made to
the FUNC Articles that could not be made without approval of FUNC's
stockholders.
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 is made in the usual and regular course of business or if such
disposition is made to a wholly-owned subsidiary of FUNC.
ANTI-TAKEOVER PROVISIONS
UFC. South Carolina has two anti-takeover statutes in force. South
Carolina's "fair price" statute restricts certain business combinations (E.G.,
mergers and dispositions of assets of a corporation or any subsidiary having an
aggregate market value of ten percent or more of the total market value of the
corporation's outstanding stock) between a corporation and an interested
stockholder (E.G., a beneficial owner of ten percent or more of the voting power
of the outstanding shares of a corporation). The fair price statute generally
precludes a corporation from engaging in any business combination with an
interested stockholder within two years after the acquisition pursuant to which
the stockholder became an interested stockholder, unless either (i) the business
combination or the acquisition pursuant to which the interested stockholder
became interested was approved by the board of directors before the acquisition,
(ii) the business combination is approved by the affirmative vote of the holders
of a majority of the outstanding shares not beneficially owned by the interested
stockholder or his affiliates or associates at a meeting called for that purpose
at least two years after the acquisition pursuant to which the interested
stockholder became interested, or (iii) certain minimum price criteria are
satisfied.
South Carolina's "control share acquisition" statute precludes any person
who acquires voting shares in a corporation in excess of specified thresholds of
the voting power in the corporation (I.E., 20 percent, 33 1/3 percent, and over
50 percent) from voting the shares held in excess of the applicable threshold,
except to the extent voting rights for such shares are granted by resolution
approved by the corporation's stockholders. The resolution must be approved by
(i) each voting group entitled to vote separately, (ii) a majority of all votes
entitled to be cast by that group, and (iii) a majority of all votes entitled to
be cast by that group excluding all interested shares. Interested shares include
those shares over which the acquiring person, any officer of the corporation,
and any employee of the corporation who is also a director may exercise or
direct the power to vote.
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FUNC. North Carolina has two anti-takeover statutes in force, The North
Carolina Shareholder Protection Act and The North Carolina Control Share
Acquisition Act. These statutes restrict business combinations with, and the
accumulation of shares of voting stock of, certain North Carolina corporations.
In accordance with the provisions of these statutes, FUNC elected not to be
covered by the restrictions imposed by these statutes. As a result, such
statutes do not apply to FUNC. In addition, North Carolina has a Tender Offer
Disclosure Act, which contains certain prohibitions against deceptive practices
in connection with making a tender offer and also contains a filing requirement
with the North Carolina Secretary of State that has been held unenforceable as
to its 30-day waiting period.
DISSENTERS' RIGHTS
UFC. The SCBCA generally provides dissenters' rights for mergers and
certain share exchanges that would requires stockholder approval, sales or
exchanges of all or substantially all of the assets (other than sales that are
in the usual and regular course of business and certain liquidations and
court-ordered sales), certain amendments to the articles of incorporation and
any corporate action taken pursuant to a stockholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
entitles stockholders to dissent. Stockholders of UFC have dissenters' rights in
connection with the Corporate Merger. See "THE MERGERS -- Dissenters' Rights".
FUNC. North Carolina law generally provides dissenters' rights for mergers
and certain share exchanges that would require stockholder approval, sales of
all or substantially all of the assets (other than sales that are in the usual
and regular course of business and certain liquidations and court-ordered
sales), certain amendments to the articles of incorporation and any corporate
action taken pursuant to a stockholder vote to the extent the articles of
incorporation, bylaws or a resolution of the board of directors entitles
stockholders to dissent.
DIVIDENDS AND OTHER DISTRIBUTIONS
UFC. Under South Carolina law, UFC generally may pay dividends or make
other distributions to its stockholders unless (i) UFC would not be able to pay
its debts as they become due in the usual course of business, or (ii) UFC's
assets would be less than the sum of its liabilities plus the amount that would
be needed to satisfy the preferential dissolution rights of stockholders whose
preferential rights are superior to those receiving the distribution.
FUNC. Under North Carolina law, FUNC generally may pay dividends or make
other distributions to its stockholders unless after the distribution either:
(i) FUNC would not be able to pay its debts as they become due in the usual
course of business, or (ii) FUNC's assets would be less than the sum of its
liabilities plus the amount that would be needed to satisfy the preferential
dissolution rights of stockholders whose preferential rights are superior to
those receiving the distribution. See "FUNC -- Certain Regulatory
Considerations; PAYMENT OF DIVIDENDS" and "DESCRIPTION OF FUNC CAPITAL STOCK".
VOLUNTARY DISSOLUTION
UFC. South Carolina law provides that UFC may be dissolved if the UFC Board
proposes dissolution and two-thirds of the shares of UFC entitled to vote
thereon approves. In accordance with South Carolina law, the UFC Board may
condition its submission of a proposal for dissolution on any basis.
FUNC. North Carolina law provides that FUNC may be dissolved if the Board
of Directors of FUNC proposes dissolution and a majority of the shares of FUNC
entitled to vote thereon approves. In accordance with North Carolina law, the
Board of Directors of FUNC may condition its submission of a proposal for
dissolution on any basis.
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 UFC Common 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 UFC or FUNC. It is a condition
to consummation of the Mergers that each holder of UFC Common Stock who is
deemed by UFC 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 affiliate in the Corporate
Merger except in compliance with the Securities Act. This Prospectus/Proxy
Statement does not cover any resales of FUNC Common Shares received by
affiliates of UFC.
58
<PAGE>
ADDITIONAL MATTERS
From time to time FUNB-SC has entered into transactions with certain of the
directors of UFC and their affiliates in the ordinary course of business,
including, without limitation, maintaining deposit and lending relationships.
LEGAL 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 Common
Stock.
Certain legal matters associated with the Mergers will be passed upon by
Breyer & Aguggia, counsel for UFC.
EXPERTS
The consolidated balance sheet of UFC as of March 31, 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended, included in ANNEX A herein and incorporated by reference in
UFC's Annual Report on Form 10-K for the year ended March 31, 1995, have been
included herein and incorporated by reference herein in reliance on the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of UFC as of March 31, 1994 and for
each of the two years in the period ended March 31, 1994 included and
incorporated by reference in this Prospectus/Proxy Statement have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is included and incorporated by reference herein (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to a change
in the method of accounting for income taxes and certain investments in debt and
equity securities to conform with Statements of Financial Accounting Standards
No. 109 and No. 115, respectively), and has been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated balance sheets of FUNC as of December 31, 1994 and 1993,
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, 1994, included in FUNC's 1994 Annual Report to Stockholders which
is incorporated by reference in FUNC's 1994 Annual Report on Form 10-K and
incorporated by reference herein, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The aforementioned report of KPMG
Peat Marwick LLP covering FUNC's consolidated financial statements refers to a
change in the method of accounting for investments in 1994.
The consolidated statements of condition of FFB as of December 31, 1994 and
1993, 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, 1994, included in FFB's 1994 Annual Report on Form
10-K and incorporated by reference herein, have been incorporated by reference
herein in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The aforementioned
report of KPMG Peat Marwick LLP covering FFB's consolidated financial statements
refers to changes in the methods of accounting for income taxes, postretirement
benefits other than pensions, postemployment benefits, and investments in 1993.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT
1995 ANNUAL MEETING OF UFC STOCKHOLDERS
In the event that the Merger Agreement is not approved or the Corporate
Merger is not consummated, any proposal intended to be presented by a
stockholder at the 1995 Annual Meeting of UFC stockholders must have been
received by UFC not later than February 23, 1995, to be considered for inclusion
in the proxy statement for that meeting. Any such proposal should be mailed to
the Secretary of UFC at UFC's main office, 425 Main Street, Greenwood, South
Carolina 29646. Inclusion of a stockholder's proposal in that proxy statement is
subject to the stockholder's eligibility and compliance with other requirements
under the Commission's proxy rules as well as the SCBCA.
59
<PAGE>
INFORMATION FOR UFC
ANNEX A
<TABLE>
<S> <C>
Certain Financial and Other Information for the Year Ended March 31, 1995............................................. A-2
Certain Financial and Other Information for the Quarter Ended June 30, 1995........................................... A-39
</TABLE>
A-1
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CERTAIN FINANCIAL AND OTHER INFORMATION FOR THE YEAR ENDED MARCH 31, 1995
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
(IN THOUSANDS)OF
DOLLARS
ASSETS
Cash and amounts due from depository institutions..................................................... $ 7,649 $ 8,853
Short-term interest-bearing deposits.................................................................. 4,659 6,968
Total cash and cash equivalents.................................................................. 12,308 15,821
INVESTMENT AND MORTGAGE-BACKED SECURITIES:
Available for sale -- at fair value (amortized cost 1995 -- $50,333; 1994 -- $63,341)............... 47,516 62,086
Held to maturity -- at amortized cost (fair value 1995 -- $65,678; 1994 -- $82,355)................. 68,395 83,795
Total investment and mortgage-backed securities.................................................. 115,911 145,881
LOANS RECEIVABLE, NET:
Held for sale....................................................................................... 5,756 19,319
Held for investment -- at cost (less allowance for losses -- $4,961 at March 31, 1995 and $4,504 at
March 31, 1994).................................................................................. 622,177 484,294
Total loans receivable, net...................................................................... 627,933 503,613
Real estate, net...................................................................................... 2,311 5,917
Accrued interest receivable........................................................................... 4,591 3,614
Federal Home Loan Bank stock -- at cost............................................................... 9,227 6,094
Office properties and equipment, net.................................................................. 4,705 4,931
Deferred income tax benefit........................................................................... 573 733
Other assets.......................................................................................... 4,394 4,622
Total assets..................................................................................... $781,953 $691,226
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposit accounts.................................................................................... $556,302 $550,509
Advances from the Federal Home Loan Bank............................................................ 152,232 73,602
Advances from borrowers for taxes and insurance..................................................... 2,711 1,812
Accrued interest on deposit accounts................................................................ 1,547 938
Other liabilities................................................................................... 5,846 5,955
Total liabilities................................................................................ 718,638 632,816
Commitments and contingencies (note 14)
STOCKHOLDERS' EQUITY:
Serial preferred stock; shares authorized -- 2,000,000; none outstanding.
Common stock ($.10 par value; shares authorized -- 8,000,000; shares issued 1995 -- 6,722,630;
1994 -- 6,722,630)............................................................................... 672 672
Additional paid-in capital.......................................................................... 17,490 17,489
Net unrealized loss on investment and mortgage-backed securities available for sale................. (1,747) (778)
Retained income -- substantially restricted......................................................... 50,246 44,375
Total............................................................................................ 66,661 61,758
Less treasury stock, at cost (1995 -- 930,102 shares; 1994 -- 930,702 shares)......................... (3,346) (3,348)
Total stockholders' equity....................................................................... 63,315 58,410
Total liabilities and stockholders' equity....................................................... $781,953 $691,226
</TABLE>
See notes to consolidated financial statements.
A-2
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT
SHARE
AND PER SHARE AMOUNTS)
INTEREST INCOME:
Loans................................................................................ $ 44,669 $ 39,652 $ 41,363
Mortgage-backed securities........................................................... 5,727 5,013 4,961
Investment securities................................................................ 2,417 1,847 1,550
Other investments.................................................................... 242 335 575
Total interest income............................................................. 53,055 46,847 48,449
INTEREST EXPENSE:
Deposits............................................................................. 23,943 22,726 24,781
Borrowed money....................................................................... 6,286 3,336 2,948
Total interest expense............................................................ 30,229 26,062 27,729
Net interest income.................................................................... 22,826 20,785 20,720
Provision for loan losses.............................................................. 735 1,275 2,585
Net interest income after provision for loan losses............................... 22,091 19,510 18,135
OTHER INCOME (EXPENSE):
Loan-servicing fees.................................................................. 826 655 579
Service fees on deposits............................................................. 1,386 1,115 920
Fees for other financial services provided........................................... 1,583 1,475 1,016
Real estate operations, net.......................................................... 494 (1,213) (1,193)
Gain on sale of investment and mortgage-backed securities and loans.................. 244 1,300 1,228
Total other income, net........................................................... 4,533 3,332 2,550
GENERAL AND ADMINISTRATIVE EXPENSES:
Salaries and employee benefits....................................................... 7,888 6,263 5,659
Occupancy and equipment expense...................................................... 2,299 2,177 1,958
Deposit insurance premiums........................................................... 1,243 1,103 1,029
Advertising and business promotion................................................... 382 379 359
Other general and administrative expenses............................................ 3,760 2,962 2,973
Total general and administrative expenses......................................... 15,572 12,884 11,978
Income before income taxes and cumulative effect of a change in accounting principle... 11,052 9,958 8,707
Income tax expense..................................................................... 4,139 3,638 3,196
Net income before cumulative effect of a change in accounting principle................ 6,913 6,320 5,511
Cumulative effect of a change in accounting principle.................................. -- 1,210 --
Net income............................................................................. $ 6,913 $ 7,530 $ 5,511
Earnings per common and common equivalent share (1)
Income before cumulative effect of a change in accounting principle.................. $ 1.11 $ 1.04 $ .92
Cumulative effect of a change in accounting principle................................ -- .20 --
Net income per share................................................................... $ 1.11 $ 1.24 $ .92
Weighted average number of common and common equivalent shares
outstanding (1)...................................................................... 6,210,311 6,095,743 5,988,952
</TABLE>
(1) Adjusted to reflect the three-for-two common stock split distributed on July
2, 1993, and the two-for-one common stock split distributed on May 31, 1994.
See notes to consolidated financial statements.
A-3
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
LOSS ON
INVESTMENTS AND
MORTGAGE-BACKED
ADDITIONAL SECURITIES
COMMON STOCK ISSUED PAID-IN AVAILABLE RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL FOR SALE INCOME SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
BALANCE AT MARCH 31, 1992............... 2,240,944 $224 $ 17,941 $ -- $ 32,915 321,271 $(3,487)
Net income............................ -- -- -- -- 5,511 -- --
Treasury stock sold................... -- -- -- -- -- (3,750) 60
Exercise of stock options............. -- -- -- -- -- (1,000) 11
Cash dividends paid ($.13 per share)
(1)................................ -- -- -- -- (731) -- --
Three-for-two common stock
split.............................. 1,120,371 112 (112) -- -- 158,260 --
BALANCE AT MARCH 31, 1993............... 3,361,315 336 17,829 -- 37,695 474,781 (3,416)
Net income............................ -- -- -- -- 7,530 -- --
Net unrealized loss on
investments and mortgage-
backed securities
available-for-sale................. -- -- -- (778) -- -- --
Exercise of stock options............. -- -- (4) -- -- (9,430) 68
Cash dividends paid
($.15 per share) (1)............... -- -- -- -- (850) -- --
Two-for-one common stock
split.............................. 3,361,315 336 (336) -- -- 465,351 --
BALANCE AT MARCH 31, 1994............... 6,722,630 672 17,489 (778) 44,375 930,702 (3,348)
Net income............................ -- -- -- -- 6,913 -- --
Net unrealized loss on
investments and mortgage-
backed securities
available-for-sale................. -- -- -- (969) -- -- --
Exercise of stock options............. -- -- 1 -- -- (600) 2
Cash dividends paid
($.18 per share)................... -- -- -- -- (1,042) -- --
BALANCE AT MARCH 31, 1995............... 6,722,630 $672 $ 17,490 $(1,747) $ 50,246 930,102 $(3,346)
</TABLE>
(1) Adjusted to reflect the three-for-two common stock split distributed on July
2, 1993, and the two-for-one common stock split distributed on May 31, 1994.
See notes to consolidated financial statements.
A-4
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES:
Net income................................................................................ $ 6,913 $ 7,530 $ 5,511
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Cumulative effect of a change in accounting principle................................... -- (1,210) --
Increase (decrease) in deferred loan fees............................................... (244) 79 208
Provision for losses on loans and real estate owned..................................... 697 2,360 3,645
Unrealized (gain) loss on loans held for sale........................................... (76) 154 --
(Gain) loss on sale of:
Investments and mortgage-backed securities and loans, net............................. (168) (1,300) (1,228)
Real estate owned, net................................................................ (546) (140) (45)
Office properties and equipment, net.................................................. (2) 3 (8)
Depreciation and amortization........................................................... 1,046 945 1,220
Loans held for sale:
Originations.......................................................................... (35,074) (125,152) (82,486)
Purchases............................................................................. (27,228) (53,262) --
Sales................................................................................. 76,118 170,731 82,164
Decrease (increase) in other assets..................................................... 2 (3,589) 740
Increase (decrease) in accrued and other liabilities.................................... 1,399 2,651 (2,098)
Net cash provided by (used in) operating activities................................... 22,837 (200) 7,623
INVESTING ACTIVITIES:
Proceeds from maturities of investments available for sale................................ 31 -- --
Proceeds from maturities of investments held to maturity.................................. 6,757 5,897 14,850
Proceeds from sale of investments available for sale...................................... 5,395 -- --
Proceeds from sale of investments held to maturity........................................ -- 5,117 1,946
Proceeds from sale of mortgage-backed securities available for sale....................... 8,907 -- 14,133
Proceeds from sale of mortgage-backed securities held to maturity......................... -- 10,024 2,645
Purchase of investments available for sale................................................ (7,243) -- --
Purchase of investments held to maturity.................................................. (2,034) (18,522) (24,579)
Principal repayments on mortgage-backed securities available for sale..................... 5,767 -- --
Principal repayments on mortgage-backed securities held to maturity....................... 10,303 24,862 28,563
Purchases of mortgage-backed securities................................................... -- (84,822) (14,227)
Principal repayments on loans held for investment......................................... 115,775 199,251 131,964
Loan originations......................................................................... (198,510) (213,158) (169,351)
Loan purchases............................................................................ (56,371) (6,403) --
Purchases of Federal Home Loan Bank stock................................................. (3,133) (885) (324)
Disposal of assets, principally real estate owned......................................... 4,931 4,773 2,905
Acquisition of office properties and equipment, net....................................... (309) (1,208) (913)
Net cash used in investing activities................................................... (109,734) (75,074) (12,388)
FINANCING ACTIVITIES:
Net increase in deposits.................................................................. 5,793 39,770 22,771
Proceeds from FHLB advances............................................................... 434,783 129,900 46,100
Repayment of FHLB advances................................................................ (356,153) (107,722) (46,806)
Proceeds from reverse repurchase agreements............................................... 5,570 -- --
Repayment of reverse repurchase agreements................................................ (5,570) -- --
Dividends paid............................................................................ (1,042) (850) (731)
Treasury stock transactions............................................................... 3 64 71
Net cash provided by financing activities............................................... 83,384 61,162 21,405
Net increase (decrease) in cash and cash equivalents........................................ (3,513) (14,112) 16,640
Cash and cash equivalents at beginning of year.............................................. 15,821 29,933 13,293
Cash and cash equivalents at end of year.................................................... $ 12,308 $ 15,821 $ 29,933
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest................................................................................ $ 29,620 25,987 28,216
Income taxes............................................................................ 2,209 3,461 3,700
Loans foreclosed or in-substance foreclosed............................................... 734 3,105 5,908
Loans securitized into mortgage-backed securities......................................... 45,569 168,642 83,917
</TABLE>
See notes to consolidated financial statements.
A-5
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
United Financial Corporation of South Carolina, Inc. ("Corporation") is a
multiple savings bank holding company whose subsidiaries are primarily engaged
in the business of accepting savings and demand deposits insured by the Federal
Deposit Insurance Corporation, and providing mortgage, consumer, and commercial
loans to the general public. The following is a description of the more
significant accounting policies which the Corporation follows in preparing and
presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Corporation and its wholly-owned
subsidiaries, United Savings Bank, FSB, and Home Federal Savings Bank, FSB,
(collectively, "the Banks") and the Banks' subsidiaries. Significant
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include cash and due
from banks, interest-bearing balances in other banks and federal funds sold.
RESTRICTIONS ON CASH -- The Corporation is required by regulation to
maintain a varying cash reserve balance with the Federal Reserve System. The
daily average calculated cash reserve required as of March 31, 1995 and 1994, is
$1,022,000 and $976,000, respectively, all of which was satisfied by vault cash.
SECURITIES -- The Corporation adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES," effective March 31, 1994. Under the Statement, debt
securities that the Corporation has the positive intent and ability to hold to
maturity are classified as "held-to-maturity" securities and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling in the near term are classified as "trading"
securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either
held-to-maturity or trading securities are classified as "available-for-sale"
securities and reported at fair value with unrealized gains and losses net of
income taxes excluded from earnings and reported as a separate component of
stockholders' equity. Transfers of securities between classifications will be
accounted for at fair value. Concurrent with the adoption of the Statement,
management reevaluated its intent with respect to its portfolio and,
accordingly, reclassified certain investments and mortgage-backed securities to
available-for-sale securities which resulted in a decrease in stockholders'
equity of $778,000 (net of $477,000 deferred tax effects). No securities have
been classified as trading securities.
Prior to adoption of SFAS 115, securities were classified as held for
investment when future events that could be reasonably foreseen, and would lead
to a sale, were considered to be unlikely. Debt securities classified as
held-for-sale and equity securities were recorded at the lower of aggregate cost
or market value. Unrealized valuation losses for debt securities held for sale
or recovery of previously recorded unrealized valuation losses were recorded in
the statement of income in the period incurred. Unrealized valuation losses for
equity securities, if any, were excluded from income and reported as adjustments
to stockholders' equity. Transfers of securities between classifications were
recorded at the lower of cost or market.
Premiums and discounts on debt securities are amortized or accreted as
adjustments to income over the estimated life of the security using a method
approximating the level yield method. Gain or loss on the sale of securities is
based on the specific identification method. The fair value of securities is
based on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
LOANS -- Loans held for investment are recorded at cost. Mortgage loans
consist principally of conventional 1-4 family residential loans and interim and
permanent financing of non-residential loans that are secured by real estate.
Commercial loans are made primarily on the strength of the borrower's general
credit standing, the ability to generate repayment from income sources and the
collateral securing such loans. Consumer loans generally consist of home equity
loans, second mortgage loans, automobile and other personal loans.
In many lending transactions, collateral is taken to provide an additional
measure of security. Generally, the cash flow or earning power of the borrower
represents the primary source of repayment and collateral liquidation a
secondary source of
A-6
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
repayment. The Corporation determines the need for collateral on a case-by-case
or product-by-product basis. Factors considered include the current and
prospective creditworthiness of the customer, terms of the instrument and
economic conditions.
Mortgage loans held for sale are valued at the aggregate lower of cost or
market as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis.
INTEREST INCOME ON LOANS -- Interest on loans is accrued monthly based on
the principal amount outstanding. The Corporation places loans on non-accrual
status when they became greater than ninety days delinquent. When a loan is
placed in non-accrual status, all accrued interest receivable is reversed as a
charge against income. When interest is received it is recognized as a principal
reduction or interest income based upon management's determination of the loans'
ultimate collectibility. Loans are returned to accrual status only when the loan
is reinstated and ultimate collectibility of future interest is no longer in
doubt.
LOAN FEES AND DISCOUNTS. The net of loan origination fees received and
certain direct costs incurred in the origination of loans is deferred and
amortized to interest income over the contractual life of the loans adjusted for
actual principal prepayments using a method approximating the interest method.
LOAN COMMITMENT FEES. Loan commitment fees received to originate or
purchase loans are offset against the direct costs incurred to make such
commitments. The net amount is deferred and if the commitment is exercised, is
recognized over the life of the related loan as a yield adjustment. If the
commitment expires unexercised, the deferred amount is recognized upon
expiration of the commitment.
LOAN SALES. The Corporation sells certain whole and participating interests
in real estate loans and retains servicing thereon when the loans do not meet
the Corporation's portfolio criteria. The Corporation does not recognize gains
or losses on loan sales if the loans sold have the same approximate average
interest rate, adjusted for normal servicing costs, as the contractual yield to
the purchaser. However, gains or losses are recognized if at the time of sale
the average interest rate on the loans sold, adjusted for normal servicing
costs, differs from the agreed yield to the purchaser. Gains or losses on such
loan sales are determined based on the present value of the difference between
estimated future receipts and expected normal servicing fees. The carrying value
of the resulting asset (in the case of a gain) is reviewed periodically and, if
necessary, adjustments are charged to income to reflect changes in the
repayments of the serviced loans. Such adjustments, if any, are determined on a
disaggregated basis using the discount rate inherent in the original present
value calculation. Such assets are amortized over the estimated lives of the
serviced loans using the level yield method.
ALLOWANCE FOR LOAN LOSSES -- The Corporation provides for loan losses on
the allowance method. Accordingly, all loan losses are charged to the related
allowance and all recoveries are credited to the allowance. Additions to the
allowance for possible loan losses are provided by charges to operations based
on various factors which, in management's judgment, deserve current recognition
in estimating possible losses. Such factors considered by management include the
market value of the underlying collateral, the borrowers' ability to repay from
other economic resources, growth and composition of the loan portfolios, the
relationship of the allowance for loan losses to outstanding loans, loss
experience, delinquency trends and economic conditions. Management evaluates the
carrying value of loans periodically, and the allowance is adjusted accordingly.
While management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if economic conditions differ
substantially from the assumptions used in making the evaluations. Allowances
for loan losses are subject to periodic review by various regulatory authorities
and may be adjusted upon their examination.
The Financial Accounting Standards Board recently issued Statement No. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN (SFAS 114), which addresses the
accounting by creditors for impairment of certain loans. It requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
matter, at the loan's observable market value or fair value of the collateral if
the loan is collateral dependent. SFAS 114 applies to financial statements for
fiscal years beginning after December 15, 1994. Management determined that SFAS
114 will not be applied early; implementation of SFAS 114 is not expected to
have any material impact on the financial condition or results of operations.
A-7
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
REAL ESTATE -- Real estate acquired in settlement of loans represents real
estate acquired through foreclosure and is initially recorded at the lower of
cost (principal balance of the former mortgage loan less any specific valuation
allowances) or estimated fair value less costs to sell. Subsequent improvements
are capitalized. Costs of holding real estate, such as property taxes,
insurance, maintenance and interest expense, less related revenues during the
holding period, are expensed as period costs. Market values of real estate
acquired in settlement of loans are reviewed regularly, and allowances for
possible losses are established when the carrying values of real estate acquired
in settlement of loans exceeds fair values less estimated costs to sell.
The Corporation records loans as insubstance foreclosures if the borrower
has little or no equity in the collateral based upon its current fair value,
proceeds for repayment of the loan can be expected to be generated only through
the operation or sale of the collateral, and the borrower has effectively
abandoned control of the collateral or has continued to retain control of the
collateral but because of the current financial status of the borrower, it is
doubtful the borrower will be able to repay the loan in the foreseeable future.
Gains on the sale of real estate are recorded at the time of sale provided
certain criteria relating to property type, cash down payment, loan terms and
other factors are met. If these criteria are not met at the date of sale, the
gain is deferred and recognized using the installment or cost recovery method
until they are satisfied, at which time the remaining deferred gain is recorded
as income. If the Corporation's continuing investment does not meet the criteria
for recording a sale, then the purchaser's payments are recorded using the
deposit method.
PREMISES AND EQUIPMENT -- Premises and equipment are presented at cost, net
of accumulated depreciation and amortization. Depreciation and amortization of
premises and equipment are provided principally on a straight-line basis over
the estimated useful lives of the related assets. Estimated lives are
twenty-five to forty years for buildings and improvements and generally three to
ten years for furniture, fixtures and equipment.
The cost of maintenance and repairs is charged to expense as incurred and
improvements, and other expenditures which materially increase property lives
are capitalized. The costs and accumulated depreciation applicable to premises
and equipment retired or otherwise disposed of are eliminated from the related
accounts, and any resulting gains or losses are credited or charged to income.
PURCHASED MORTGAGE SERVICING RIGHTS -- Mortgage servicing rights acquired
in connection with mortgage banking activities are capitalized (included in
other assets on the balance sheet) and amortized over the estimated life of the
loans serviced using the level yield method. The carrying value of the asset is
reviewed periodically for recoverability based on discounted estimated cash
flows and, if necessary, adjustments are charged to income to reflect changes in
estimated loan prepayments.
INCOME TAXES -- The Corporation and its subsidiaries file a consolidated
federal income tax return. Separate state income tax returns must be filed for
each subsidiary.
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 109, ACCOUNTING FOR INCOME TAXES, effective April 1, 1993. The adoption of
SFAS 109 required a change from the deferred method to the asset and liability
method of accounting for income taxes. The cumulative effect of adopting SFAS
No. 109 on the Corporation's financial statements was to increase income by
$1,210,000 ($.20 per share) for the year ended March 31, 1994. The net deferred
tax asset at April 1, 1993 determined in accordance with SFAS No. 109 ($965,000)
included deferred tax liabilities totaling $365,000 resulting from adjustments
of assets and liabilities of a business previously acquired from net-of-tax to
pretax amounts. Accordingly, this amount is not included in the cumulative
effect reported in the 1994 statement of income. The adoption of SFAS 109 did
not materially impact income before income taxes or the components of income tax
expense for the year ended March 31, 1994. Prior years' financial statements
have not been restated to apply the provisions of SFAS 109.
Under SFAS 109, deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss carryforwards. A valuation allowance is established for
deferred tax assets that may not be realized. Also, SFAS 109 eliminates, on a
prospective basis, the exception from the requirement to record deferred taxes
on tax basis bad
A-8
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
debt reserves in excess of the base year amounts. The tax basis bad debt reserve
that arose prior to the fiscal year that begins after December 31, 1987 (the
base year amount) is frozen, and the book reserves at that date and all
subsequent changes in book and tax basis reserves are included in the
determination of deferred taxes. Under the deferred method, for years ended
prior to April 1, 1993, deferred taxes were recognized for income and expenses
reported in different periods for financial statement and income tax purposes
and no deferred taxes were provided for changes in book or tax basis bad debt
reserves.
PENSION COSTS -- The Corporation determines periodic pension cost of the
defined benefit pension plan to include the cost of benefits earned during the
current period and an interest cost on the projected benefit obligation, reduced
by the earnings on assets held by the retirement plan and amortization of the
plan's unrecognized net transition cost over 21 years. The projected unit credit
method is used for the actuarial determination of pension expense.
COMMON STOCK SPLITS -- On May 18, 1993, the Corporation's Board of
Directors approved a three-for-two common stock split and on April 11, 1994,
approved a two-for-one stock split. All share and per share information
presented throughout the financial statements have been restated to reflect the
effect of the stock splits.
EARNINGS PER SHARE -- Earnings per share is based on the weighted average
number of common shares outstanding, plus for the years ended March 31, 1995,
1994 and 1993, the shares that would be outstanding assuming exercise of
dilutive stock options, which are considered to be common stock equivalents (See
Note 14). All earnings per share data has been restated to reflect the common
stock splits described above.
RECLASSIFICATIONS -- Certain amounts, previously reported, which had no
effect on stockholders' equity or net income, have been reclassified to state
all periods on a comparable basis.
NOTE 2 -- INVESTMENT AND MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE -- The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities available for sale consisted of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Marketable equity securities........................... $ 9,144 $ 16 $ 144 $ 9,016
U.S. Treasury obligations.............................. 952 6 -- 958
U.S. agency obligations................................ 5,039 2 36 5,005
Mortgage-backed securities:
FNMA securities...................................... 4,386 -- 362 4,024
Collateralized mortgage obligations.................... 30,812 -- 2,299 28,513
Total.................................................. $50,333 $ 24 $2,841 $47,516
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 1994 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Marketable equity securities........................... $13,325 $116 $ 97 $13,344
Mortgage-backed securities:
FNMA securities...................................... 4,697 -- 319 4,378
Collateralized mortgage obligations.................... 45,319 114 1,069 44,364
Total.................................................. $63,341 $230 $1,485 $62,086
</TABLE>
A-9
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Continued
HELD TO MATURITY -- The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities held to maturity consisted of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury obligations............................ $ 2,522 $ -- $ 41 $ 2,481
U.S. agency obligations.............................. 13,840 -- 582 13,258
Total investment securities............................ 16,362 -- 623 15,739
Mortgage-backed securities:
FNMA securities...................................... 26,508 32 1,102 25,438
FHLMC securities..................................... 24,643 44 1,021 23,666
GNMA securities...................................... 882 -- 47 835
Total mortgage-backed securities....................... 52,033 76 2,170 49,939
Total.................................................. $68,395 $ 76 $2,793 $65,678
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
MARCH 31, 1994 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury obligations............................ $ 3,036 $ 1 $ 15 $ 3,022
U.S. agency obligations.............................. 14,045 31 386 13,690
Corporate debt....................................... 3,854 186 -- 4,040
Total investment securities............................ 20,935 218 401 20,752
Mortgage-backed securities:
FNMA securities...................................... 30,929 157 763 30,323
FHLMC securities..................................... 30,875 138 757 30,256
GNMA securities...................................... 1,056 -- 32 1,024
Total mortgage-backed securities....................... 62,860 295 1,552 61,603
Total.................................................. $83,795 $513 $1,953 $82,355
</TABLE>
The amortized cost and fair value of securities at March 31, 1995, by
contractual maturity, follow (in thousands of dollars):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less................................. $ 1,949 $ 1,957 $ 3,000 $ 2,960
Due after one year...................................... 4,042 4,006 13,362 12,779
Marketable equity securities............................ 9,144 9,016 -- --
Total investment securities............................. 15,135 14,979 16,362 15,739
Mortgage-backed securities.............................. 4,386 4,024 52,033 49,939
Collateralized mortgage obligations..................... 30,812 28,513 -- --
Total................................................... $50,333 $47,516 $68,395 $65,678
</TABLE>
Expected maturities differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without prepayment
penalties.
A-10
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Continued
The mortgage-backed securities held at March 31, 1995 mature between five
and 30 years. The actual lives of these securities may be shorter as a result of
prepayments.
Proceeds from sales of investments available for sale for the year ended
March 31, 1995, were $5,395,000 resulting in a gross realized loss of $9,000.
Proceeds from sales of mortgage-backed securities available for sale were
$8,907,000 resulting in gross realized gains of $14,000 and gross realized
losses of $14,000.
There were no sales of investment or mortgage-backed securities held to
maturity for the year ended March 31, 1995. Proceeds from sales of investment
securities held to maturity were $5,117,000 and $1,946,000 resulting in gains of
$22,000 and $16,000 for fiscal 1994 and 1993, respectively. Proceeds from sales
of mortgage-backed securities held for long-term investment for the years ended
March 31, 1994 and 1993, were $10,024,000 and $2,645,000, respectively,
resulting in gains of $206,000 and $17,000, respectively. No material losses
were incurred. All other mortgage-backed securities sold during such periods
represented loans held for sale in connection with mortgage banking activities
that were securitized prior to sale.
The Corporation's investments in mortgage-backed securities include (1)
principal and interest amortizing pass-through securities issued or guaranteed
by FHLMC, FNMA or GNMA and (2) collateralized mortgage obligations (CMOs). The
Corporation invests in CMOs as a part of its efforts to manage interest rate
risk. The Corporation does not invest in CMO residuals, interest only
securities, principal only securities or zero coupon bonds. CMOs are subject to
greater regulatory scrutiny. Regulatory examiners could seek orderly divestiture
of high-risk CMOs, as defined by the Office of Thrift Supervision (OTS). The
Corporation has classified all CMO securities as available for sale. All of the
Corporation's CMO securities were non high-risk securities, as defined by OTS,
at the time of purchase and all CMO securities were non high-risk securities at
March 31, 1995, with the exception of one security, the book value and fair
market value of which were $2,833,000 and $2,490,000, respectively. Interest
will be accrued on this security during the coming year at an effective yield of
6.75%. At March 31, 1995, the book value and fair market value of non-high-risk
CMO securities were $27,979,000 and $26,023,000, respectively.
Investment and mortgage-back securities totaling approximately $30.1
million ($29.4 million market value) at March 31, 1995, were pledged as
collateral for certain deposit accounts.
The unrealized holding loss net of related income tax effects on available
for sale securities included in stockholders' equity increased from $778,000 at
March 31, 1994, to $1,747,000 at March 31, 1995.
A-11
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- LOANS RECEIVABLE, NET
Loans receivable held for investment consisted of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Type of loan:
Mortgage loans:
Fixed-rate residential....................................... $ 80,428 $ 67,972
Fixed-rate commercial........................................ 18,044 20,813
Adjustable-rate residential.................................. 388,542 287,165
Adjustable-rate commercial................................... 42,800 36,407
Interim construction loans................................... 51,176 36,215
Total real estate loans.................................... 580,990 448,572
Consumer and commercial loans:
Consumer loans.................................................. 44,334 32,573
Commercial loans................................................ 714 74
Lines of credit................................................. 27,868 25,280
Total consumer and commercial loans........................ 72,917 57,927
Total...................................................... 653,907 506,499
Add (less):
Undisbursed portion of interim construction loans............... (26,682) (17,417)
Allowance for loan losses....................................... (4,961) (4,504)
Deferred loan origination fees, net............................. (87) (284)
Total............................................................. $622,177 $484,294
Weighted-average interest rate of loans........................... 7.82% 7.52%
</TABLE>
First mortgage loans are net of whole loans and participation loans
serviced for others which totaled approximately $315,923,000, $271,960,000, and
$179,433,000 at March 31, 1995, 1994, and 1993, respectively. Generally, the
Banks sell loans in the secondary market without recourse. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
received from investors as well as certain charges collected from borrowers,
such as late payment fees. In connection with these loans serviced for others,
the Banks held borrowers' escrow balances of $1,810,000, $1,537,000, and
$830,000 at March 31, 1995, 1994, and 1993, respectively.
Adjustable rate mortgage loans totaled $431,342,000 and $323,572,000 at
March 31, 1995 and 1994, respectively. At March 31, 1995, $181,207,000 of such
loans are subject to rate adjustment within one year with the remaining loans
scheduled for rate adjustment within five years. Rates are indexed principally
to Treasury security rates that coincide with the rate adjustment frequency plus
a minimum of 275 basis points. There are no established interest rate ceilings
or floors associated with such loans; however, the maximum that rates can be
adjusted is generally 200 basis points (100 basis points for loans with rate
adjustments every three or five years) to a maximum of 600 basis points from the
original lending rate.
The Corporation originates commercial and non-residential real estate loans
which totaled $61,558,000 and $57,294,000 at March 31, 1995 and 1994,
respectively. These loans are considered by management to be of somewhat greater
risk of uncollectibility due to the dependency on income production or future
development and sale of the real estate. At March 31, 1995, commercial real
estate loans consisted of $18,618,000 collateralized by multi-family residential
property, $8,973,000 collateralized by undeveloped land, $21,959,000
collateralized by business property and $10,298,000 collateralized by other
commercial property.
Commercial real estate loans include loans which generally are used by the
borrower for acquisition, development and construction purposes. Often the loan
arrangements require the Corporation to provide, from the loan proceeds, amounts
sufficient for payment of loan fees and anticipated costs during acquisition,
development or construction, including interest.
A-12
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- LOANS RECEIVABLE, NET -- Continued
The Corporation does not participate in ownership or profits of any real estate
activities that it finances. This type of lending is considered by management to
have unusually high risks because the borrower may have little or no equity
investment in the acquisition, development or construction project. Such loans
totaled $6,769,000 and $4,212,000 at March 31, 1995 and 1994, respectively,
which amounted to approximately 1.04% and 0.83% respectively, of the
Corporation's gross loan portfolio.
At March 31, 1995, 1994, and 1993, loans which were accounted for on a
non-accrual basis or were contractually past due 90 days or more totaled
approximately $2,032,000, $2,511,000 and $4,535,000, respectively. The amount
the Corporation will ultimately realize from these loans could differ materially
from their carrying value because of future developments affecting the
underlying collateral or the borrower's ability to repay the loans. During the
years ended March 31, 1995, 1994, and 1993, the Corporation recognized interest
income on loans past due 90 days or more totaling, $78,000, $120,000 and
$228,000, respectively. Under the original terms of these loans, the Corporation
would have recognized interest income of approximately, $203,000, $236,000 and
$441,000, respectively.
The changes in the allowance for loan losses consisted of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year............................................... $4,504 $3,780 $2,858
Charge-offs during the year, net of recoveries........................... (279) (551) (1,663)
Provision for losses..................................................... 736 1,275 2,585
Balance, end of year..................................................... $4,961 $4,504 $3,780
</TABLE>
Directors and officers of the Corporation and the Banks are customers of
the Corporation in the ordinary course of business. Deposits and loans of
directors and officers have terms consistent with those offered to other
customers except that prior to December 1990, reduced interest rates were
provided and origination fees were waived for officers. As a result of
regulatory changes during 1990, reduced interest rates and fees are no longer
available to directors and officers. Loans at March 31, 1995, 1994 and 1993,
respectively, to officers and directors of the Corporation and the Banks are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year............................................... $2,237 $2,437 $2,622
New loans................................................................ 424 878 769
Repayments............................................................... (245) (1,078) (954)
Balance, end of year..................................................... $2,416 $2,237 $2,437
</TABLE>
Under the present regulations, the Banks may not, after August 9, 1989,
make loans to one borrower in excess of 15% of unimpaired capital. At March 31,
1995, the Banks were in compliance with this regulation.
A-13
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- REAL ESTATE
Real estate is summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Loans in-substance foreclosed...................................................... $1,440 $3,252
Real estate acquired through foreclosure........................................... 1,212 3,239
Real estate held for sale.......................................................... 521 630
Total.............................................................................. 3,174 7,121
Less allowance for losses.......................................................... (863) (1,204)
Total.............................................................................. $2,311 $5,917
</TABLE>
The following is a summary of income and expenses of real estate operations
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Income from disposition and rental of real estate acquired through
foreclosure, net....................................................... $662 $ 171 $ 118
Provision for loss on real estate........................................ 38 (1,085) (1,060)
Expenses of holding real estate acquired through foreclosure............. (206) (299) (251)
Income over (under) expenses............................................. $494 $(1,213) $(1,193)
</TABLE>
The changes in the allowance for losses on real estate consisted of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Allowance, beginning of year............................................ $1,204 $ 905 $ 1,450
Provision for losses charged (credited) to operations................... (38) 1,085 1,060
Charge-offs during year, net............................................ (303) (786) (1,605)
Allowance, end of year.................................................. $ 863 $1,204 $ 905
</TABLE>
NOTE 5 -- ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Loans receivable................................................................... $3,510 $2,525
Mortgage-backed securities......................................................... 619 753
Investments........................................................................ 462 336
Total accrued interest receivable.................................................. $4,591 $3,614
</TABLE>
A-14
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Land and land improvements......................................................... $1,067 $1,067
Office buildings................................................................... 5,678 5,554
Furniture, fixtures and equipment.................................................. 4,092 4,071
Total.............................................................................. 10,837 10,692
Accumulated depreciation........................................................... (6,132) (5,761)
Office properties and equipment, net............................................... $4,705 $4,931
</TABLE>
NOTE 7 -- OTHER ASSETS
Other assets consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Excess servicing fees.............................................................. $1,584 $1,625
Purchased mortgage servicing rights................................................ 761 581
Other.............................................................................. 2,049 2,416
Total.............................................................................. $4,394 $4,622
</TABLE>
For the years ended March 31, 1995, 1994 and 1993, the Banks capitalized
$445,000, $1,330,000, and $818,000, respectively, in excess servicing fees.
Amortization of $486,000 and $102,000 was recorded for fiscal 1995 and 1993,
respectively. For fiscal 1994, amortization and other adjustments were $690,000,
including a $313,000 adjustment to income as a result of a review of the
carrying value of excess servicing fees to reflect the effect of accelerated
loan repayments. The Corporation acquired mortgage servicing rights in
conjunction with its mortgage banking activities for the years ended March 31,
1995 and 1994. The Banks capitalized $301,000 and $610,000, respectively, of
these rights and recorded amortization of $121,000 and $29,000, respectively.
These excess servicing fees and rights are being amortized over the expected
lives of the underlying loans.
A-15
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- DEPOSIT ACCOUNTS
Deposit accounts are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
Account type:
NOW accounts.......................................... $ 35,797 1.71% $ 25,340 1.77%
Money market deposit accounts......................... 37,942 3.36 62,773 3.32
Passbook accounts..................................... 31,425 2.53 36,716 2.61
Non-interest bearing demand deposits.................. 9,281 -- 18,702 --
Total transaction and passbook accounts................. 114,444 2.36 143,531 2.09
Savings certificates:
Jumbo (over $100,000)................................. 63,247 5.91 46,193 4.16
Fixed-rate............................................ 310,687 5.20 267,204 4.32
Variable-rate......................................... 67,924 6.89 93,581 6.72
Total savings certificates.............................. 441,858 5.56 406,978 4.86
Total................................................... $556,302 4.90% $550,509 4.13%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Maturity date of savings certificates:
Within one year............................................................. $276,360 $277,011
After one but within two years.............................................. 90,419 55,108
After two but within three years............................................ 37,778 26,526
Thereafter.................................................................. 37,301 48,333
Total certificate account..................................................... $441,858 $406,978
</TABLE>
Interest expense on deposits consisted of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Account type:
NOW accounts and money market deposit accounts..................... $ 1,977 $ 2,070 $ 2,102
Passbook accounts.................................................. 823 860 882
Certificate accounts............................................... 21,143 19,796 21,797
Total interest expense on deposits................................... $23,943 $22,726 $24,781
</TABLE>
A-16
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank (FHLB) consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Contractual Maturity
Within one year -- Fixed rate.................................................. $121,135 $26,900
-- Adjustable rate............................................ 17,600 16,000
Two years -- Fixed rate........................................................ 6,500 16,100
Three years -- Fixed rate...................................................... -- 6,500
More than five years -- Fixed rate............................................. 6,997 8,102
Total.......................................................................... $152,232 $73,602
Weighted average rate.......................................................... 6.16% 4.72%
</TABLE>
The Banks pledge as collateral for these borrowings their Federal Home Loan
Bank Stock and have entered into blanket collateral agreements with the Federal
Home Loan Bank whereby the Banks maintain free of other encumbrances, qualifying
mortgages (as defined) with a book value of at least 155% of total advances.
NOTE 10 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
During the year ended March 31, 1995, the Corporation had reverse
repurchase agreements outstanding from December 1994, through March 1995. The
securities underlying the agreements were held by the dealer who arranged the
transaction. The average balance of such agreements during this period was $2.8
million. There were no outstanding agreements at March 31, 1995 or 1994.
Interest expense on reverse repurchase agreement was $70,000 for the year ended
March 31, 1995.
NOTE 11 -- INCOME TAXES
The Corporation adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES,
effective April 1, 1993 (see Note 1). Income tax expense (benefit) is summarized
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Current.................................................................. $3,386 $2,929 $3,244
Deferred................................................................. 753 709 (48)
Total income taxes....................................................... $4,139 $3,638 $3,196
</TABLE>
Income taxes differed from amounts computed by applying the statutory
federal rate (34%) to income before income taxes and cumulative effect of a
change in accounting principle as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Tax at federal income tax rate........................................... $3,758 $3,386 $2,960
Increase (decrease) resulting from:
Provision for loan losses over (under) bad debt deduction.............. -- -- (93)
Non-taxable income..................................................... -- -- (39)
State income tax expense, net of federal tax benefit................... 372 351 318
Other, net............................................................. 9 (99) 50
Total.................................................................... $4,139 $3,638 $3,196
</TABLE>
A-17
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- INCOME TAXES -- Continued
The tax affects of significant items comprising the Corporation's net
deferred tax asset as of March 31, 1995 and 1994 are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Deferred tax assets:
Differences between book and tax basis property.................................. $ 133 $ 317
Differences between book and tax basis bad debt reserves......................... 1,046 1,322
Deferred loan fees on books...................................................... -- 102
State operating loss carryforwards............................................... 221 252
Unrealized losses on securities.................................................. 309 --
Other............................................................................ 128 136
Total deferred tax assets.......................................................... 1,837 2,129
Less valuation allowance........................................................... (236) (250)
Total deferred tax assets less valuation allowance................................. 1,601 1,879
Deferred tax liabilities:
Differences between book and tax basis of
Federal Home Loan Bank Stock.................................................. (983) (983)
Unrealized gains on securities................................................... -- (153)
Other............................................................................ (45) (10)
Total deferred tax liabilities..................................................... 1,028 1,146
Net deferred tax asset............................................................. $ 573 $ 733
Decrease in valuation allowance during the year as a result of utilization of state
net operating loss carryforwards................................................. $ 14 $ 20
</TABLE>
During the year ended March 31, 1995 and 1994, tax benefits of $593,000 and
$477,000, respectively, were allocated to stockholders' equity for the tax
effects of unrealized losses on assets available for sale. Included in the
unrealized losses on securities in the deferred tax asset table above are
$1,070,000 and $477,000 at March 31, 1995 and 1994, respectively, for the
deferred tax assets related to SFAS 115. The difference between these amounts
and the amounts disclosed above is due to realized tax losses and the associated
deferred tax liabilities.
The Banks are permitted a special bad debt deduction in determining federal
taxable income, subject to certain limitations. If the amounts that qualify as
bad debt deductions for federal income tax purposes are later used for purposes
other than for bad debt losses, they will be subject to federal income tax at
the then current statutory rate. As permitted under SFAS No. 109, no deferred
tax liability is provided for approximately $14.4 million ($5.5 million
approximate tax effect) of such tax basis bad debt reserves that arose prior to
the Banks 1988 fiscal years. Circumstances that would require an accrual of a
portion or all of this unrecorded tax liability are a reduction in qualifying
loan levels relative to the end of 1987, failure to meet the tax definition of a
savings institution, dividend payments in excess of current year or accumulated
tax earnings and profits, or other distributions in dissolution, liquidation, or
redemption of the Banks' stock.
At March 31, 1995, Home Federal had state operating loss carryforwards for
tax purposes of approximately $9,113,000. For the years ended March 31, 1995,
1994 and 1993, state operating loss carryforwards of $621,000 were utilized to
reduce state income tax expense. Amounts up to $621,000 annually will be
available for utilization in future periods. These carryforwards expire in the
years 1997 to 2004.
A-18
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- OTHER GENERAL AND ADMINISTRATIVE EXPENSES
Other general and administrative expenses are summarized as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Printing, stationery and supplies........................................ $ 277 $ 306 $ 228
Legal and other professional fees........................................ 493 415 403
Postage.................................................................. 304 231 237
Other.................................................................... 2,686 2,010 2,105
Total.................................................................... $3,760 $2,962 $2,973
</TABLE>
NOTE 13 -- PENSION AND PROFIT-SHARING PLANS
United Savings has a defined benefit pension plan covering substantially
all full-time employees over the age of twenty and one-half who have completed
six months of continuous employment at the anniversary date of the Plan. Pension
costs are computed by an independent actuarial consultant.
The following table sets forth the funded status of this plan and amounts
recognized in the consolidated balance sheet (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Projected benefit obligation................................................... $(1,002) $(1,307)
Plan assets at fair values (savings accounts and insurance contracts).......... 879 929
Funded status of plan............................................................ (123) (378)
Unrecognized prior service cost.................................................. (49) (53)
Unrecognized net (gain) loss..................................................... (254) (2)
Unrecognized net transition asset being amortized over 21 years.................. 116 125
Accrued pension costs............................................................ $ (310) $ (308)
</TABLE>
Net pension cost for 1995, 1994 and 1993 included the following components
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during the year.................................. $106 $169 $142
Interest cost on projected benefit obligation................................. 73 76 67
Return on plan assets......................................................... (55) (57) (48)
Amortization of transition liability.......................................... 9 9 9
Amortization of prior service cost............................................ (3) (3) (3)
Recognition of (gain) loss.................................................... (9) -- --
Net pension cost.............................................................. $121 $194 $167
</TABLE>
A comparison of accumulated plan benefits for this plan is presented below
(in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested.............................................................................. $719 $731
Nonvested........................................................................... 27 14
Total................................................................................. $746 $745
Net assets available for plan benefits................................................ $879 $929
</TABLE>
A-19
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- PENSION AND PROFIT-SHARING PLANS -- Continued
The assumptions used in computing pension benefits and costs data includes
a weighted average discount rate of 8%, a long-term rate of return on plan
assets of 6.5% and a compensation increase rate of 3%.
Each Bank also has a contributory profit-sharing plan for employees.
Eligible participants in the Plans include all full-time employees over the age
of eighteen having completed one year of continuous employment with United
Savings and six months of continuous employment with Home Federal at the
anniversary date of each Plan. Employees participating in United Savings' Plan
contribute 5% of their annual salary. Home Federal's Plan, which was established
under Internal Revenue Code Section 401(k), allows participating employees to
contribute up to 10% of their annual salary. The Banks, at their option and
subject to a percentage of earnings limitation imposed by the Internal Revenue
Code, contribute to trusts created by the separate Plans. Consolidated
profit-sharing expense for the years ended March 31, 1995, 1994, and 1993 was
approximately $452,000, $320,000, and $367,000, respectively.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK -- In the normal course
of business, the Banks enter into financial instrument transactions to satisfy
the financial needs of their customers and to manage the Banks' exposure to
credit and market risks. Many of these financial instruments typically have
off-balance sheet risk resulting from their nature including the terms of
settlement. These instruments can be categorized as commitments and forward
security contracts.
Market risk arises from the possibility that market changes, including
interest rate movements, may make financial instruments less valuable. Credit
risk results from the possibility that a loss may occur from the failure of
another party to perform according to the terms of a contract. The Banks have
control procedures regarding the extent of transactions with specific
counterparties, the manner in which transactions are settled and the ongoing
assessment of counterparty creditworthiness.
The contract or notional (face) amounts disclosed below provide a measure
of the Banks' involvement in such instruments but are not indicative of
potential loss. Management does not anticipate any material adverse effect on
its financial position resulting from its involvement in these instruments. In
some cases, these financial instruments serve to reduce, rather than increase,
market risk.
FORWARD SECURITY CONTRACTS -- The Banks enter into forward security
contracts to securitize and sell loans held for resale. At March 31, 1995, the
Banks had forward security contracts outstanding of approximately $9 million.
The sales prices of these commitments approximate cost, and the Banks have the
ability to meet the terms of these contracts.
COMMITMENTS TO SELL LOANS -- The Banks had outstanding commitments to sell
fixed rate loans of $3.2 million at March 31, 1995. This commitment will be met
with loans held for sale and loans in the process of being originated.
LOAN COMMITMENTS -- 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 extend over periods of time with the majority of such
commitments disbursed within a 30-day period. Commitments generally have fixed
expiration dates of other termination clauses and may require the commitment
holder to pay a fee to the Banks. The Banks evaluate customers' credit
worthiness on a case-by-case basis. The type and amount of collateral obtained
varies and is based on management's credit evaluation of the potential borrower.
A-20
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 14 -- COMMITMENTS AND CONTINGENCIES -- Continued
The Corporation had loan commitments as follows (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
<S> <C> <C>
Commitments to extend credit:
Variable interest rate........................................................ $ 4,412 $ 8,687
Fixed interest rate........................................................... 3,884 8,155
Total loan commitments..................................................... 8,296 16,842
Undisbursed portions of interim financial construction.......................... 26,682 17,417
Unused portion of credit lines (principally variable-rate consumer lines secured
by real estate)............................................................... 32,537 28,775
Loans sold with recourse........................................................ 7,861 9,931
Total........................................................................... $75,376 $72,965
</TABLE>
LOANS SOLD SUBJECT TO RECOURSE -- At March 31, 1995, approximately $7.9
million of loans serviced for others had been sold with recourse. Loans sold
with recourse generally are older or seasoned loans with low loan-to-value
ratios which do not present a significant risk to the Corporation and have been
considered in the Corporation's determination of the allowance for loan losses.
CONCENTRATION OF CREDIT RISK -- Most of the Banks' business activity is
with customers located in South Carolina. As of March 31, 1995, except for
residential loans to customers in the Banks' market area, the Corporation had no
significant concentrations of credit risk in its loan portfolio.
POTENTIAL IMPACT OF CHANGE IN INTEREST RATES -- The Corporation's
profitability depends to a large extent on its net interest income, which is the
difference between interest income from loans and investments and interest
expense on deposits and borrowings. Like most financial institutions, the
Corporation's interest income and interest expense are significantly affected by
changes in market interest rates and other economic factors beyond its control.
The Corporation's interest earning assets consist primarily of mortgage loans
and investments which adjust more slowly to changes in interest rates than its
interest-bearing liabilities which are primarily term deposits and advances.
Accordingly, the Corporation's earnings would be adversely affected during
periods of rising interest rates.
LEASES -- The Banks lease certain facilities under noncancellable operating
leases. Rent expenses were approximately $280,000, $250,000, and $158,000 for
the years ended March 31, 1995, 1994 and 1993, respectively. Future minimum
payments under noncancellable leases with terms of one year or more are
approximately $316,000, $236,000, $194,000, $195,000, $187,000 and $220,000 for
fiscal years 1996, 1997, 1998, 1999, 2000 and thereafter, respectively.
NOTE 15 -- STOCK OPTION AND OWNERSHIP PLANS
All share and per share information in this note has been restated to
reflect the three-for-two common stock split distributed on July 2, 1993, and
the two-for-one common stock split distributed on May 31, 1994. (See Note 1).
A-21
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 15 -- STOCK OPTION AND OWNERSHIP PLANS -- Continued
The Corporation has an Incentive Stock Option Plan (Plan) for the benefit
of certain directors, officers, and employees. Under the plan 1,210,286 shares
of authorized common stock had been reserved for issuance pursuant to grants
issued by the Board of Directors, including 450,000 shares restricted for
directors, officers and employees in connection with the acquisition of other
financial services institutions. The remaining shares are unrestricted. The
options have a maximum duration of ten years and may not be exercised at less
than the market value of the Corporation's common stock on the date of grant of
the option. At March 31, 1995, the Corporation had the following options
outstanding:
<TABLE>
<CAPTION>
EXPIRATION
GRANT DATE EXERCISABLE PER SHARE DATE
<S> <C> <C> <C>
April 2, 1987................................................................. $ 109,840 $ 2.92 April 2, 1997
March 15, 1988................................................................ 45,000 $ 3.63 March 15, 1998
May 16, 1989.................................................................. 45,000 $ 4.46 May 16, 1998
April 17, 1990................................................................ 52,500 $ 3.58 April 17, 2000
May 15, 1990.................................................................. 63,000 $ 3.42 May 15, 2000
May 16, 1991.................................................................. 105,000 $ 3.54 May 16, 2001
June 23, 1992................................................................. 75,000 $ 6.29 June 23, 2002
July 21, 1992................................................................. 49,200 $ 6.75 July 21, 2002
July 20, 1993................................................................. 74,700 $ 8.56 July 20, 2003
September 27, 1994............................................................ 6,000 $ 14.13 September 27, 2004
Total......................................................................... $ 625,240
</TABLE>
During fiscal 1995, 1994 and 1993, options to purchase 600, 18,860 and
3,000 shares, respectively, were exercised. Proceeds from these transactions
totaled approximately $4,050, $63,738 and $11,000, respectively. At March 31,
1995, 87,086 unrestricted shares and 450,000 restricted shares remain available
for future grants. No expense has been recorded relative to stock options.
The Plan also provides for the granting of Stock Appreciation Rights (SARS)
at any time. SARS grant to the recipient the right to receive the excess of the
market value of the shares represented by the SARS on the date exercised over
the exercised price. At March 31, 1995, no SARS had been granted.
Each Bank sponsors an Employee Stock Ownership Plan (ESOP) to enable
employees who are not participants in the Incentive Stock Option Plan to
participate in ownership of the Corporation's common stock. The contribution by
the Banks is to be determined annually by the Board of Directors but not in
excess of the maximum amount deductible under the Internal Revenue Code. For the
years ended March 31, 1995, 1994, and 1993, contributions were made to the ESOPs
of approximately $104,000, $173,000, and $131,000, respectively.
A-22
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
On March 27, 1987, United Savings converted from a mutual to a stock-owned
savings institution. Gross proceeds from the sale of common stock were $17.7
million. Costs related to the conversion were approximately $830,000, with net
proceeds to the Bank of approximately $16.9 million. At the time of conversion,
the Bank established a liquidation account in an amount equal to United Savings'
net worth at September 30, 1986, of $12.7 million. On June 30, 1990, Home
Federal converted from a federally chartered mutual to a stock-owned savings and
loan association. At the time of conversion, Home Federal established a
liquidation account in an amount equal to Home Federal's net worth at June 30,
1990, of $2.0 million. The liquidation accounts are maintained for the benefit
of eligible account holders who maintain their savings accounts in the Banks
after conversion. In the event of a complete liquidation of the Bank (and only
in such event), each eligible account holder will be entitled to receive a
distribution from the liquidation account before any liquidation distributions
may be made to holders of common stock. Except for repurchase of stock and
payment of dividends by the Banks, the existence of the liquidation account will
not restrict the use or application of stockholders' equity.
The Corporation and the Banks are prohibited from declaring cash dividends
and repurchasing its capital stock if it would cause a reduction in the Banks'
regulatory capital below either the amount of the liquidation account or the
minimum regulatory capital requirements. Dividends and stock repurchases of the
Corporation are subject to the provisions of South Carolina law. Furthermore,
regulations allow each of the Banks to make capital distributions during a
calendar year up to 100% of their net income to date plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year, provided that the capital distributions are not made from the liquidation
account. Any distributions in excess of that amount require prior regulatory
approval. All distributions require prior regulatory notice, with the
opportunity for the regulators to object to the distribution. At March 31, 1995,
under the most restricted of these requirements, the Corporation had
approximately $15.7 million of unrestricted retained earnings available for
dividends which could be funded by distributions from the Banks.
NOTE 17 -- UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC. FINANCIAL
STATEMENTS
(PARENT COMPANY ONLY)
Condensed financial statements for the Corporation are presented as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31,
CONDENSED BALANCE SHEETS 1995 1994
<S> <C> <C>
Assets:
Cash and cash equivalents..................................................... $ 269 $ 1,116
Investment securities......................................................... 233 258
Investment in subsidiaries.................................................... 61,915 57,319
Other assets.................................................................. 986 66
Total........................................................................... $63,403 $58,759
Liabilities and Stockholders' Equity:
Liabilities................................................................... $ 88 $ 349
Stockholders' equity.......................................................... 63,315 58,410
Total........................................................................... $63,403 $58,759
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
<S> <C> <C> <C>
Equity in undistributed earnings of subsidiary banks.................. $ 7,048 $ 7,519 $ 5,625
Other income (expense), net........................................... (135) 11 (114)
Net income............................................................ $ 6,913 $ 7,530 $ 5,511
</TABLE>
A-23
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 17 -- UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC. FINANCIAL
STATEMENTS
(PARENT COMPANY ONLY) -- Continued
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income.......................................................... $ 6,913 $ 7,530 $ 5,511
Adjustment to reconcile net income to net cash provided (used) by
operating activities:
Equity in undistributed earnings of subsidiaries................. (7,048) (7,519) (5,625)
Increase in other assets......................................... (912) (30) (1)
Increase (decrease) in liabilities............................... (261) 136 139
Net cash provided (used) by operating activities...................... (1,308) 117 24
Investing activities:
Purchase of investment securities................................... -- (1,950) (7,299)
Proceeds from maturities of investment securities................... -- 3,391 7,600
Net cash provided by investing activities............................. -- 1,441 301
Financing activities:
Dividends declared.................................................. (1,042) (850) (731)
Dividends received from subsidiary.................................. 1,500 -- --
Other treasury stock transactions................................... 3 64 71
Net cash provided by (used in) financing activities................... 461 (786) (660)
Net increase (decrease) in cash and cash equivalents.................. (847) 772 (335)
Cash and cash equivalents at beginning of year........................ 1,116 344 679
Cash and cash equivalents at end of year.............................. $ 269 $ 1,116 $ 344
</TABLE>
NOTE 18 -- FINANCIAL INSTRUMENTS
The stated and fair value amounts of financial instruments as of March 31,
1995 and 1994, are summarized below:
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1994
STATED ESTIMATED STATED ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Cash and cash equivalents.................................................... $ 12,308 $ 12,308 $ 15,821 $ 15,821
Investment securities and mortgage-backed securities......................... 115,911 113,194 145,881 144,441
Loan receivable, net......................................................... 627,933 620,264 503,613 501,934
Federal Home Loan Bank Stock................................................. 9,227 9,227 6,093 6,094
Other assets................................................................. 6,936 10,656 5,820 7,857
$772,315 $ 765,649 $677,228 $ 676,147
Deposits:
Demand accounts............................................................ $114,444 $ 114,816 $143,531 $ 143,531
Certificate accounts....................................................... 441,858 441,912 406,978 413,789
Advances from Federal Home Loan Bank......................................... 152,232 152,699 73,602 72,995
Other liabilities............................................................ 4,258 4,258 2,750 2,750
$712,792 $ 713,685 $626,861 $ 633,065
</TABLE>
A-24
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- FINANCIAL INSTRUMENTS -- Continued
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS (FASB 107), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The following
methods and assumptions were used by the Corporation in estimating its fair
value disclosure for financial instruments:
The Corporation had off-balance sheet financial commitments, which include
$67.5 million and $63.0 million at March 31, 1995 and 1994, respectively, of
commitments to originate loans and unused consumer lines of credit, and $9
million and $25.8 million, respectively, of forward securities sales contracts
(see Note 13). Since the loan commitments are at interest rates that approximate
current market rates or rates inherent in applicable forward securities sales
contracts, the estimated fair value of the loan commitments is zero. The forward
securities sales contracts will be met by delivery of loans held for sale and
certain loan commitments. Settlements of such contracts are not expected to
result in any significant gains or losses, accordingly, the estimated fair value
of these contracts is zero.
CASH AND CASH EQUIVALENTS -- Both cash and cash equivalents have maturities
of three months or less, and accordingly, the stated amount of such instruments
is deemed to be a reasonable estimate of fair value.
INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Fair values for investment and
mortgage-backed securities are based on quoted market prices. If a quoted market
price is not available, fair value is estimated using market prices of similar
securities.
LOANS -- Fair values of loans held for investment are estimated by
segregating the portfolio by type of loan and discounting scheduled cash flows
using interest rates currently being offered for loans with similar terms,
reduced by an estimate of credit losses inherent in the portfolio. A prepayment
assumption is used as an estimate of the portion of loans that will be repaid
prior to their scheduled maturity. Loans held for sale are valued at the lower
of cost or market as determined by outstanding commitments from investors or
current investor yield requirements calculated on the aggregate loan basis.
FEDERAL HOME LOAN BANK STOCK -- Investment in stock of the FHLB is required
by law for every Federally-insured savings institution. No ready market exists
for this stock, and it has no quoted market value. However, redemption of this
stock has historically been at par value. Accordingly, the stated amount is
deemed to be a reasonable estimate of fair value.
DEPOSITS -- The fair values disclosed for demand deposits are, as required
by FASB 107, equal to the amounts payable on demand at the reporting date (i.e.,
their stated amounts). The fair value of certificates of deposit are estimated
by discounting the amounts payable at the certificate rate using the rates
currently offered for deposits of similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK -- The estimated fair value of
advances from the FHLB is based on discounting amounts payable at contractual
rates using current market rates for advances with similar maturities.
OTHER ASSETS AND OTHER LIABILITIES -- Other assets represent accrued
interest receivable, excess servicing fees and purchased mortgage servicing
rights. Other liabilities represent advances from borrowers for taxes and
insurance and accrued interest payable.
Fair values for excess servicing fees and purchased mortgage servicing
rights are determined based upon discounted cash flow analyses or quoted market
prices as appropriate.
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 the Corporation's entire holdings of a particular financial
instrument. Because no active market exists for a significant portion of the
Corporation's financial instruments fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, current
interest rates and prepayment trends, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in any of these assumptions used in
calculating fair value also would affect significantly the estimates. Further,
the fair value estimates were calculated as of March 31, 1995 and 1994. Changes
in market interest rates and prepayment assumptions could change significantly
the fair value.
A-25
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- FINANCIAL INSTRUMENTS -- Continued
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For example, the Corporation has significant assets and
liabilities that are not considered financial assets or liabilities including
deposit franchise value, loan servicing portfolio, real estate, deferred tax
liabilities, and premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any
of these estimates.
NOTE 19 -- QUARTERLY RESULTS (UNAUDITED)
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
1995
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Results of operations:
Interest income......................................... $14,167 $13,673 $13,012 $12,203
Interest expense........................................ 8,551 7,779 7,262 6,637
Net interest income.................................. 5,616 5,894 5,750 5,566
Provision for loan losses................................. 102 202 169 262
Net interest income after provision for loan losses..... 5,514 5,692 5,581 5,304
Other income.............................................. 1,814 1,028 840 851
General and administrative expenses....................... 4,009 3,819 4,068 3,676
Income before income taxes.............................. 3,319 2,901 2,353 2,479
Income tax expense........................................ 1,239 1,106 863 931
Net income................................................ $ 2,080 $ 1,795 $ 1,490 $ 1,548
Net income per common and common
equivalent share........................................ $ .33 $ .29 $ .24 $ .25
Weighted average number of common shares outstanding
(000s) (1).............................................. 6,236 6,214 6,210 6,168
</TABLE>
(1) Adjusted to reflect the three-for-two common stock split distributed on July
2, 1993, and the two-for-one common stock split distributed on May 31, 1994.
A-26
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 19 -- QUARTERLY RESULTS (UNAUDITED) -- Continued
<TABLE>
<CAPTION>
1994
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Results of operations:
Interest income......................................... $11,605 $11,676 $11,799 $11,767
Interest expense........................................ 6,524 6,558 6,504 6,476
Net interest income.................................. 5,081 5,118 5,295 5,291
Provision for loan losses................................. 231 329 256 459
Net interest income after provision for loan losses..... 4,850 4,789 5,039 4,832
Other income.............................................. 710 923 1,259 440
General and administrative expenses....................... 3,264 3,139 3,343 3,138
Income before income taxes and cumulative effect
of a change in accounting principle.................. 2,296 2,573 2,955 2,134
Income tax expense........................................ 763 940 1,115 820
Income before cumulative effect of a change in
accounting principle................................. 1,533 1,633 1,840 1,314
Cumulative effect of a change in accounting
principle............................................... -- -- -- 1,210
Net income................................................ $ 1,533 $ 1,633 $ 1,840 $ 2,524
Earning per common and common equivalent share:
Income before cumulative effect of a change in accounting
principle............................................... $ .25 $ .27 $ .30 $ .22
Cumulative effect of a change in accounting
principle............................................... -- -- -- .20
Net income................................................ $ .25 $ .27 $ .30 $ .42
Weighted average number of common and common equivalent
shares outstanding (000s) (1)........................... 6,120 6,082 6,080 6,054
</TABLE>
NOTE 20 -- MERGER
In the fourth quarter, United Financial and First Union National Bank of
South Carolina, Inc. announced a merger agreement in which First Union would
acquire United Financial and its subsidiary banks. The transaction is expected
to close in the third calendar quarter of 1995.
A-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Financial Corporation of South Carolina, Inc.
We have audited the consolidated balance sheet of United Financial
Corporation of South Carolina, Inc. and its subsidiaries (the "Corporation") as
of March 31, 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Corporation at March 31,
1995, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Greenville, South Carolina
April 27, 1995
A-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
United Financial Corporation of South Carolina, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of United
Financial Corporation of South Carolina, Inc. and its subsidiaries (the
Corporation) as of March 31, 1994 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1994. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation at March 31,
1994, and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in the
year ended March 31, 1994, the Corporation changed its method of accounting for
income taxes and certain investments in debt and equity securities to conform
with Statements of Financial Accounting Standards No. 109 and No. 115,
respectively.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
May 16, 1994
A-29
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
1995 ANNUAL REPORT TO SHAREHOLDERS
For a more comprehensive understanding of the Corporation's financial
condition and results of operations the following discussion should be read in
conjunction with the Consolidated Financial Statements and accompanying notes
thereto.
OVERVIEW
United Financial Corporation of South Carolina, Inc. ("United Financial" or
the "Corporation"), headquartered in Greenwood, South Carolina, is a multiple
savings and loan holding company with two operating subsidiaries, United Savings
Bank, FSB, ("United Savings") and Home Federal Savings Bank, FSB, ("Home
Federal") (together, the "Banks").
United Financial recorded net income of $6.9 million for the year ended
March 31, 1995, or net income per share of $1.11, compared with $6.3 million, or
$1.04 per share, before the cumulative effect of a change in accounting
principle for the year ended March 31, 1994. Net income for fiscal 1994 included
a $1.2 million or $0.20 per share, cumulative effect of a change in accounting
principle as a result of the adoption of Statement of Financial Accounting
Standards (SFAS) 109, "Accounting for Income Taxes." Net income for the year
ended March 31, 1993, was $5.5 million, or $0.92 per share.
Key factors affecting United Financial's earnings performance during fiscal
1995 were:
(Bullet) Sharp increases in market interest rates
(Bullet) A $3.8 million reduction in nonperforming assets from the prior
year
(Bullet) A net gain of $494,000 on real estate operations as opposed to a
$1.2 million loss in fiscal 1994
(Bullet) A $540,000 reduction in the provision for loan losses from the
prior year provision
(Bullet) An increase in average earnings assets of 13.8%
(Bullet) An increase in average interest-bearing liabilities of 13.4%,
principally in Federal Home Loan Bank advances
(Bullet) A 20.9% increase in general and administrative expenses
The Federal Funds rate, which is the rate at which financial institutions
borrow or lend money to other financial institutions, rose over 200 basis points
by the end of fiscal 1995 over the level at the beginning of the fiscal year as
a result of the Federal Reserve Board's initiative to slow the rate of economic
growth and contain inflation. These increases by the Federal Reserve Board and
similar increases in other key rates resulted in a 14 basis point decrease in
the Corporation's interest rate spread and a 12 basis point decrease in the net
yield on earning assets from the prior year. Management continually monitors
changes in market interest rates and adjusts pricing of its products to manage
interest rate risks.
Nonperforming assets decreased 34.3% from the prior year as a result the
sale of certain real estate owned. This property included the water and sewer
system near Fort Mill, South Carolina, which was sold to York County, and
developed lots in that same area. The sale of these properties occurred in the
fourth quarter and resulted in approximately $750,000 of income from the sale of
real estate owned.
Short-term advances from the Federal Home Loan Bank were the principal
source of funds to finance the $124.3 million increase in net loans receivable
over the prior year balance. Additional funds were generated by reductions in
cash and cash equivalents and investment and mortgage-backed securities.
In the fourth quarter, United Financial and First Union National Bank of
South Carolina, Inc. announced a merger agreement in which First Union would
acquire United Financial and its subsidiary banks. The transaction is expected
to close in the third calendar quarter of 1995.
FINANCIAL CONDITION
Total assets at March 31, 1995, were $782 million, an increase of $90.8
million over March 31, 1994. This increase was primarily the result of a 24.7%,
or $124.3 million increase in net loans receivable. Average assets during the
fiscal year were $738 million, an $83 million increase from the prior year
average.
A-30
<PAGE>
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Total investments and mortgage-backed securities decreased $30 million from
$145.8 million at March 31, 1994, to $115.9 million at March 31, 1995, as a
result of sales, maturities and principal repayments. These proceeds were used
in the funding of the growth in mortgage loans and in maintaining adequate
liquidity levels. Additionally, market values of available for sale securities
decreased $1.6 million during the year.
ASSET QUALITY
The Banks routinely review asset quality through monthly analyses of
delinquencies, nonperforming loans, real estate owned and other repossessed
assets. Loans are classified as non-accrual for purposes of income recognition
at the time the collection of the principal becomes uncertain or when
foreclosure action is commenced. A loan remains in non-accrual status until the
factors which indicate doubtful collectibility no longer exist or until the loan
is determined to be uncollectible and is charged off against the allowance for
loan losses.
United Financial's nonperforming assets as of March 31 are shown in the
following table:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Loans over 90 days delinquent still accruing.................................................. $ 424 $ 320 $ 39
Loans on non-accrual status:
Mortgage.................................................................................... 1,436 1,934 3,112
Commercial.................................................................................. -- -- --
Consumer.................................................................................... 172 257 1,384
Total loans on non-accrual............................................................... 1,608 2,191 4,496
Troubled debt restructurings.................................................................. 2,853 2,778 1,665
Total nonperforming loans................................................................ 4,885 5,289 6,200
Real estate owned and other nonperforming assets.............................................. 2,437 5,585 6,906
Total nonperforming assets............................................................... $7,322 $11,144 $13,106
Nonperforming assets as a percentage of total assets.......................................... .94% 1.61% 2.11%
Percentage of nonperforming loans and other nonperforming assets to loans held for investment
and real estate, net........................................................................ 1.17% 2.28% 2.76%
Allowance for loan losses as a percentage of nonperforming assets............................. 67.75% 40.42% 28.84%
</TABLE>
As a result of its disciplined evaluation of loan originations coupled with
strong credit analysis and collection procedures, the Corporation has
significantly reduced non-accrual loans over the past three fiscal years from
$4.5 million at March 31, 1993, to $1.6 million at March 31, 1995. Other
nonperforming assets declined $3.1 million from March 31, 1994 to March 31,
1995, primarily as a result of the sale in the fourth quarter of real estate
owned by Home Federal. Included in these sales were the water and sewer system
and real estate lots located near Fort Mill, South Carolina. Proceeds from the
sale of real estate owned for the Corporation were $4.9 million for the fiscal
year ended March 31, 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level sufficient to
provide for estimated losses in the loan portfolio. Management reviews the
adequacy of the allowance on a routine basis. Conditions which influence the
level of the allowance for loan losses are current economic conditions, the
composition of the loan portfolio, and previous loss experience. The ratio of
the allowance for loan losses to nonperforming assets improved from 40.42% at
March 31, 1994, to 67.75% at March 31, 1995. Additionally, the allowance for
loan losses as a percentage of gross loans decreased from .92% at March 31,
1994, to .89% at March 31, 1995, and net chargeoffs declined $272,000 during
fiscal 1995, indicating improved asset quality.
DEPOSITS
Deposits are a source of funds for the Bank's lending purposes and provide
a customer base for sales of additional financial services. The Corporation's
total deposits increased $5.8 million to $556.3 million at March 31, 1995, from
$550.5 million at March 31, 1994. The average cost of deposits increased to
4.87% at March 31, 1995, from 4.13% at March 31, 1994.
A-31
<PAGE>
STOCKHOLDERS' EQUITY
Stockholders' equity increased $4.9 million from $58.4 million at March 31,
1994, to $63.3 million at March 31, 1995. The components of this increase were
$6.9 million in net income reduced by $1.0 million of dividends paid, and a $1.0
million decline in the net adjustment to equity for unrealized losses on
investments and mortgage-backed securities available for sale. The ratio of
equity to total assets decreased from 8.45% at March 31, 1994, to 8.10% at March
31, 1995.
On April 11, 1994, the Board of Directors approved a two-for-one common
stock split effected in the form of a 100% stock dividend. The additional shares
were distributed on May 31, 1994. The Board also increased the regular quarterly
dividend to $0.05 per share in the third quarter. Cash dividends paid were
$0.18, $0.15 and $0.13 per share for the fiscal years ended March 31, 1995, 1994
and 1993, respectively. The Corporation's dividend payout ratio increased from
12.10% at March 31, 1994, to 15.07% at March 31, 1995.
REGULATORY CAPITAL
The Banks are required to meet the regulatory capital requirements of the
Office of Thrift Supervision ("OTS") which include three measures of capital: a
leverage or core capital requirement of 3.0% of assets, a tangible capital
requirement of 1.5% of assets and a risk-based capital requirement of 8.0% of
risk weighted assets. At March 31, 1995, United Savings Bank's ratios were 7.9%
for core capital and tangible capital, and 14.61% for risk-based capital. Home
Federal's ratios were 8.3% and 15.4%, respectively.
At March 31, 1995, the Banks were in compliance with these regulatory
capital requirements as follows (in thousands of dollars):
<TABLE>
<CAPTION>
RISK-
TANGIBLE CORE BASED
UNITED SAVINGS CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
Actual capital of the Bank................................................................... $37,644 $37,644 $37,644
Regulatory adjustments....................................................................... 1,177 1,177 3,731
Total adjusted capital..................................................................... 38,821 38,821 41,375
Less -- minimum capital requirement.......................................................... 7,315 14,630 22,662
Regulatory capital excess.................................................................... $31,506 $24,191 $18,713
<CAPTION>
RISK-
TANGIBLE CORE BASED
HOME FEDERAL CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
Actual capital of the Bank................................................................... $24,262 $24,262 $24,262
Regulatory adjustments....................................................................... 241 241 2,355
Total adjusted capital..................................................................... 24,503 24,503 26,617
Less -- minimum capital requirement.......................................................... 4,430 8,861 13,852
Regulatory capital excess.................................................................... $20,073 $15,642 $12,765
</TABLE>
Management does not anticipate any difficulties in meeting capital
requirements in the foreseeable future.
On September 29, 1992, the OTS issued final rules implementing the prompt
corrective action section of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). The final rule separates all supervised
financial institutions into one of five capital categories: "well capitalized,
adequately capitalized, under capitalized, significantly under capitalized and
critically undercapitalized." A depository institution's capital tier depends
upon where its capital levels are in relation to various relevant capital
measures, which include a risk-based capital measure and a leverage capital
measure, and certain other factors. This regulation specifies what actions the
OTS and other banking regulators will take regarding institutions in the lowest
capital categories. Under OTS regulations implementing the provisions of FDICIA,
the Banks currently meet the capital requirements of the "well capitalized"
category.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of long-term funds for lending operations
during the year were additional advances from the Federal Home Loan Bank of
Atlanta and sales of investments and mortgage-backed securities. Additionally,
growth in deposits, proceeds from loan sales and income from operations are
other sources of funds for the Banks. Loan repayments and deposit inflows and
outflows vary widely and are influenced by various interest rates and market
conditions.
A-32
<PAGE>
The Banks' eligible liquidity was approximately $39.4 million at March 31,
1995. Eligible liquidity is measured by the ratio of cash, cash equivalents (not
committed, pledged or required to liquidate specific liabilities) and investment
securities to the sum of total deposits plus borrowings payable within one year
less loans secured by savings deposits. The Banks are required under applicable
federal regulations to maintain specified levels of "liquidity" investments in
qualifying types of United States Treasury, federal agency and other similar
investment securities having maturities of five years or less. The required
level of such liquidity investments is currently 5% of certain of the Banks'
liabilities as defined by the OTS. This requirement is changed from time to time
by the OTS to reflect economic conditions. Such investments are intended to
provide a source of relatively liquid funds upon which banks may rely if
necessary to fund deposit withdrawals and for other short-term needs. The
liquidity ratios at March 31, 1995, for United Savings and Home Federal were
5.41% and 6.53%, respectively.
At March 31, 1995, commitments to originate mortgage loans totaled $8.3
million, of which $4.4 million were variable-rate loans and $3.9 million were
fixed-rate loans. The Corporation had an outstanding commitment to sell $3.2
million of fixed-rate mortgage loans and $9 million in outstanding forward
security contracts. These commitments will be met with loans held for sale and
loans in the process of being originated. In addition, the Corporation has
outstanding unused consumer equity lines of credit to customers totaling $32.5
million, and $26.7 million undisbursed construction lines of credit.
At March 31, 1995, $139 million or 91% of the Bank's FHLB advances had
maturities less than one year, while 63% of the $442 million of certificates of
deposits were scheduled to mature within one year. Historically, a substantial
portion of these certificates renew.
Each of the Banks has been rated by the OTS as a Tier 1 institution which
is defined as an institution that has capital equal to or greater than the OTS
fully phased-in capital requirement and has not been deemed by the OTS to be "in
need of more than normal supervision."
Dividends paid to shareholders by the Corporation may be restricted by
limitations on the subsidiary banks. The OTS regulations limit the level of
dividends paid by subsidiary banks to levels of operating income and by
restrictions to maintain regulatory compliance with the various OTS capital
standards. (See Note 16 of The Consolidated Financial Statements).
The capital distribution regulations allow a Tier 1 institution to make
capital distributions during a calendar year up to 100% of its net income to
date plus the amount that would reduce by one-half its surplus capital ratio at
the beginning of the calendar year, provided that the capital distributions are
not made from the liquidation account established at the time of the Banks'
conversion to stock form. Any distributions in excess of that amount require
prior OTS notice with the opportunity for the OTS to object to the distribution.
Pursuant to regulations governing savings and loan holding companies, United
Savings and Home Federal are required to give the OTS 30 days advance notice of
any proposed declaration of dividends.
ASSET AND LIABILITY MANAGEMENT
United Financial and the Banks maintain a program of asset and liability
management designed to manage vulnerability to significant and prolonged changes
in interest rates.
Asset and liability management policies are currently directed toward the
objectives of minimizing the interest rate sensitivity by shortening the
maturities of assets and extending the maturities of interest-bearing
liabilities.
The Banks originated $233.6 million of residential and commercial mortgage
loans and non-mortgage loans during the year ended March 31, 1995. The Banks'
policy is to retain for portfolio substantially all loans originated with
maturities no greater than fifteen years or with adjustable rate features and to
sell substantially all other fixed-rate mortgage loans in the secondary market.
The Banks sold $76.1 million of mortgage loans held for sale during the year
ended March 31, 1995.
Liability products (core deposits) are solicited principally in the Banks'
local markets which results in a stable source of lendable funds for investment.
The Banks, through various marketing strategies were able to increase the
balance of deposits by $5.8 million to $556.3 million at March 31, 1995, from
$550.5 million at March 31, 1994.
OTS has proposed regulations which, if adopted, will incorporate an
interest rate risk component into the risk-based capital rule applicable to the
Banks. The interest rate risk component is intended to ensure that savings
institutions maintain adequate capital based upon their level of interest rate
risk exposure. Under the proposed regulations, the methodology used to measure
an institution's exposure to interest rate risk will determine the change in an
institution's Market Value of Portfolio Equity (MVPE) assuming a parallel yield
curve shift of plus 200 basis points and minus 200 basis points. An interest
rate risk component will be added to an institution's risk-based capital if the
change in MVPE exceeds 2% of the market value of
A-33
<PAGE>
assets under the flat-rate scenario. If interest rates were to increase or
decrease 2% from the current interest rate environment, the Corporation and its
subsidiaries would continue to exceed capital requirements.
In evaluating the Corporation's exposure to interest rate risk, certain
factors inherent in this method of analysis must be considered. For example,
although certain assets and liabilities may have similar repricing
characteristics, they may react in different degrees to changes in market
interest rates. Additionally, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind in market rates. Furthermore,
certain assets, such as adjustable-rate mortgages, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
The Corporation considers the anticipated effects of those various factors in
implementing its asset/liability management objectives.
RESULTS OF OPERATIONS
Income for fiscal 1995 was 9.4% higher than income before the cumulative
effect of a change in accounting principle for fiscal 1994. This was principally
a result of a favorable interest rate environment, strong loan demand,
controlled overhead costs and reduced levels of nonperforming assets. The
performance represents a continuing favorable trend in core earnings. The
following discussion provides further analysis of earnings for the years ended
March 31, 1995, 1994 and 1993.
NET INTEREST INCOME
Net interest income is the principal source of the Corporation's earnings.
It represents the amount of income generated by interest-earning assets
(primarily loans, mortgage-backed securities and investment securities) less the
interest expense incurred on interest-bearing liabilities (principally deposits
and advances from the Federal Home Loan Bank of Atlanta) to fund them. The
following table presents the components of net interest income and the average
account balances generating net interest income for the past three years.
Average loan balances include nonaccrual loans and exclude loans in-substance
foreclosed.
<TABLE>
<CAPTION>
AT YEARS ENDED MARCH 31,
MARCH 31,
1995 1995 1994 1993
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
RATE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans....................... 7.82% $575,851 $44,669 7.76% $498,081 $39,652 7.96% $476,417 $41,363
Mortgage-backed
securities................ 6.89 93,996 5,727 6.09 82,704 5,013 6.06 73,318 4,961
Investments and short-term
securities................ 5.90 43,315 2,659 6.14 45,847 2,182 4.76 35,614 2,125
Total interest-earning
assets.................. 7.60% 713,162 $53,055 7.44% 626,632 $46,847 7.48% 585,349 $48,449
Non-earning assets............ 25,117 28,207 24,437
Total average assets...... $738,279 $654,839 $609,786
Interest-bearing liabilities:
Deposits.................... 4.90% $553,409 $23,943 4.33% $522,149 $22,726 4.35% $495,665 $24,781
Borrowings.................. 6.16 116,095 6,286 5.41 67,994 3,336 4.91 56,592 2,948
Total interest-bearing
liabilities............. 5.17% $669,504 $30,229 4.52% $590,143 $26,062 4.42% $552,257 $27,729
Non-interest bearing
liabilities................. 9,254 8,578 7,397
Total liabilities......... 678,758 598,721 559,654
Stockholders' equity........ 59,521 56,118 50,132
Total average liabilities
and stockholders'
equity.................. $738,279 $654,839 $609,786
Excess of interest-earnings
assets over interest-bearing
liabilities................. $ 43,658 $ 36,489 $ 33,092
Net interest income........... $ 22,826 $ 20,785 $ 20,720
Interest rate spread.......... 2.43% 2.92% 3.06%
Net yield on earning assets... 3.20% 3.32%
<CAPTION>
YIELD/
RATE
<S> <C>
Interest-earning assets:
Loans....................... 8.68%
Mortgage-backed
securities................ 6.77
Investments and short-term
securities................ 5.97
Total interest-earning
assets.................. 8.28%
Non-earning assets............
Total average assets......
Interest-bearing liabilities:
Deposits.................... 5.00%
Borrowings.................. 5.21
Total interest-bearing
liabilities............. 5.02%
Non-interest bearing
liabilities.................
Total liabilities.........
Stockholders' equity........
Total average liabilities
and stockholders'
equity..................
Excess of interest-earnings
assets over interest-bearing
liabilities.................
Net interest income...........
Interest rate spread.......... 3.26%
Net yield on earning assets... 3.54%
</TABLE>
A-34
<PAGE>
The following table provides an analysis indicating the change in net
interest income attributable to (1) changes in volume (changes in volume
multiplied by the old rate), (2) changes in rate (changes in rate multiplied by
the old volume), and (3) change in rate-volume (change in rate multiplied by the
change in volume).
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Change in interest income:
Loans....................................... $6,192 $(1,016) $(159 ) $5,017 $1,891 $(3,446) $(156 ) $(1,711)
Mortgage-backed securities.................. 684 26 4 714 669 (547) (70 ) 52
Investments and other....................... (121) 634 (36 ) 477 623 (440) (126 ) 57
Total.................................... 6,755 (356) (191 ) 6,208 3,183 (4,433) (352 ) (1,602)
Change in interest expense:
Deposits.................................... 1,361 (135) (9 ) 1,217 1,323 (3,207) (171 ) (2,055)
Borrowings.................................. 2,360 346 244 2,950 595 (172) (35 ) 388
Total.................................... 3,721 211 235 4,167 1,918 (3,379) (206 ) (1,667)
Change in interest income in excess of
interest expense............................ $3,034 $ (567) $(426 ) $2,041 $1,265 $(1,054) $(146 ) $ 65
</TABLE>
COMPARISON OF THE YEARS ENDED MARCH 31, 1995 AND 1994
NET INTEREST INCOME
Net interest income increased 9.8% during fiscal year 1995, from $20.8
million for the year ended March 31, 1994, to $22.8 million for the year ended
March 31, 1995. The impact of higher short-term market interest rates resulted
in a 14 basis points decrease in the interest rate spread, to 2.92% for 1995
compared with 3.06% for 1994. The decreased spread resulted from a decrease in
the yield on average-earning assets (4 basis points) and an increase in the cost
of average interest-bearing liabilities (10 basis points).
For the year ended March 31, 1995, the net yield on earning assets
decreased 12 basis points to 3.20%, or 2 basis points less than the decrease in
the interest rate spread. This resulted from an increase in the ratio of
interest-earning assets to interest-bearing liabilities of 34 basis points. For
the year ended March 31, 1995, this ratio was 106.52% compared with 106.18% for
the year ended March 31, 1994.
INTEREST INCOME
Interest income for the year ended March 31, 1995 was $53.1 million, an
increase of $6.2 million from interest income of $46.8 million earned in the
year ended March 31, 1994. This increase resulted principally from the increase
in average interest-earning assets of $86.5 million. The increase was partially
offset by a 4 basis point decrease in the yield on interest-earning assets from
7.48% for the year ended March 31, 1994, to 7.44% for the year ended March 31,
1995.
INTEREST EXPENSE
During fiscal 1995, interest expense increased $4.1 million from fiscal
1994. This increase was attributable to an increase in the level and interest
rates of short-term borrowings and an increase in the level of deposits. The
average rate paid on deposits during fiscal 1995 was 4.33% as compared to 4.35%
during fiscal 1994. Borrowings showed a significant increase as a result of
funding the increased demand for adjustable rate loans which the Corporation
prefers to retain in its portfolio. Also, the average rate paid on borrowings
for the year ended March 31, 1995 increased to 5.41% from 4.91% for the year
ended March 31, 1994. The average levels of borrowings were $116.1 million and
$68.0 million during the years ended March 31, 1995 and 1994, respectively.
PROVISIONS FOR LOAN LOSSES
For the year ended March 31, 1995, the provision for loan losses was
$735,000, a $540,000 decrease from the provision for the year ended March 31,
1994. Net loan charge-offs decreased $272,000 from $551,000 during fiscal 1994
to $279,000
A-35
<PAGE>
in fiscal 1995. As a result of the significant increase in net loans receivable
of $124.3 million or 24.7%, allowances for loan losses as a percentage of gross
loans decreased 10 basis points from 0.89% at March 31, 1994 to 0.79% at March
31, 1995. Coupled with the decrease in the level of non-performing assets of
approximately $3.8 million, from $11.1 million at March 31, 1994 to $7.3 million
at March 31, 1995, allowances for loan losses as a percentage of non-performing
assets increased from 40.42% at March 31, 1994 to 67.75% at March 31, 1995.
OTHER INCOME
Other income increased $1.2 million in fiscal 1995 compared to fiscal 1994.
Included in fiscal 1995 were loan servicing fees, service fees on deposits and
fees for financial services provided of $3.8 million, an increase of
approximately $600,000 from fiscal 1994 fees of $3.2 million. Also included in
other income was a gain on real estate operations of $494,000 during fiscal 1995
as compared to losses of $1.2 million during fiscal 1994. The net gain was
principally the result of the sale of the water and sewer facility and developed
lots near Fort Mill, South Carolina which generated gains of $751,000.
Gains from sales of investments and mortgage-backed securities and loans
decreased by $1.1 million to $244,000 for the year ended March 31, 1995, as a
result of less sales in fiscal 1995 and a less favorable interest rate
environment.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $2.7 million during fiscal
1995, from $12.9 million for the year ended March 31, 1994 to $15.6 million for
the year ended March 31, 1995. Salaries and employee benefits increased $1.6
million due principally to general salary increases, expansion of operations,
and the significant decrease in SFAS 91 cost deferrals of $357,000 as a result
of decreased loan originations. Contributing to the $798,000 increase in other
general and administrative expenses were $248,000 in expenses related to the
terminated merger with American Federal Bank, FSB.
INCOME TAX EXPENSE
Income tax expense increased $500,000 in fiscal 1995 compared to fiscal
1994 as the result of an increase of $1.1 million in income before income taxes.
COMPARISON OF THE YEARS ENDED MARCH 31, 1994 AND 1993
NET INTEREST INCOME
Net interest income increased .3% during fiscal year 1994, from $20.7
million for the year ended March 31, 1993, to $20.8 million for the year ended
March 31, 1994. The impact of lower market interest rates resulted in a 20 basis
points decrease in the interest rate spread, to 3.06% for 1994 compared with
3.26% for 1993. The decreased spread resulted from a larger decrease in the
yield on average-earning assets (80 basis points) than the decrease in cost of
average interest-bearing liabilities (60 basis points).
For the year ended March 31, 1994, the net yield on earning assets
decreased 22 basis points to 3.32%, or 2 basis points more than the decrease in
the interest rate spread. This resulted from an increase in the ratio of
interest-earning assets to interest-bearing liabilities. For the year ended
March 31, 1994, this ratio was 106.18% compared with 105.99% for the year ended
March 31, 1993. The higher ratio resulted primarily from a decrease in real
estate, non-earning assets, and an increase in earning assets.
INTEREST INCOME
Interest income for the year ended March 31, 1994 was $46.8 million, a
decrease of $1.6 million from interest income of $48.4 million earned in the
year ended March 31, 1993. This decline resulted primarily from the decrease in
rates of interest-earning assets of 80 basis points partly offset by an increase
of $41.3 million or 7.1% in the level of average-earning assets, from $585.3
million for the year ended March 31, 1993, to $626.6 million for the year ended
March 31, 1994. The 80 basis point decrease in rate of interest-earning assets
results from the high level of fixed rate loans that refinanced and lower yields
on adjustable rate loans.
INTEREST EXPENSE
During fiscal 1994, interest expense decreased $1.7 million from fiscal
1993. This reduction was attributable to the decline in market rates affecting
the entire industry. The average rate paid on deposits during fiscal 1994 was
4.35% as compared to 5.00% during fiscal 1993. This 65 basis point decrease was
partially offset by a $26.4 million increase in
A-36
<PAGE>
average deposit levels, from $495.7 million during the prior fiscal year to
$522.1 million during the current fiscal year. Borrowings showed a similar
pattern during fiscal 1994, as average rates decreased 30 basis points over the
comparable periods and were offset by increases in average balances of $11.4
million. The average rate paid on borrowings for the year ended March 31, 1994
was 4.91% as compared to 5.21% for the year ended March 31, 1993. The average
levels of borrowings were $68.0 million and $56.6 million during the years ended
March 31, 1994 and 1993, respectively.
PROVISIONS FOR LOAN LOSSES
For the year ended March 31, 1994, the provision for loan losses was $1.3
million, a $1.3 million decrease from the $2.6 million provision for the year
ended March 31, 1993. Net charge-offs decreased $1.1 million over the comparable
periods, from $1.7 million during fiscal 1993 to $.6 million in fiscal 1994. As
a result, allowances for loan losses as a percentage of gross loans increased 10
basis points from 0.79% at March 31, 1993, to 0.89% at March 31, 1994. Coupled
with the decrease in the level of nonperforming assets of approximately $2.0
million, from $13.1 million at March 31, 1993, to $11.1 million at March 31,
1994, allowances for loan losses as a percentage of nonperforming assets
increased from 28.84% at March 31, 1993 to 40.42% at March 31, 1994.
OTHER INCOME
Other income increased $782,000 or 30.7% in fiscal 1994 compared to fiscal
1993. Included in fiscal 1994 were service fees on deposits and fees for
financial services, other than loan-servicing fees of $2.6 million, an increase
of $654,000, or 33.8% from fiscal 1993 fees of $1.9 million. This significant
increase resulted primarily from increased lending fees and appraisal fees from
higher mortgage activity, coupled with deposit growth. Included in other expense
were losses on real estate operations of $1.2 million during both fiscal 1994
and 1993. Included in real estate operation losses were provisions for losses on
real estate owned of $1.1 million for both the years ended March 31, 1994 and
1993.
Gains from sales of investments, mortgage-backed securities and loans
increased by $72,000 to $1.3 million for the year ended March 31, 1994. The
increase in the sale of fixed-rate loans coupled with a decreasing rate
environment were the primary causes for the additional gains. The declining
interest rate environment caused an increased demand for fixed-rate loans by
borrowers. As a result of the Corporation's policy to reduce interest rate risk,
proceeds from sales of fixed-rate loans and mortgage-backed securities held for
sale and investment increased by $81.9 million, from $98.9 million during fiscal
1993 to $180.8 million in fiscal 1994.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $906,000, or 7.6%, during
fiscal 1994, from $12.0 million for the year ended March 31, 1993, to $12.9
million for the year ended March 31, 1994. Salaries and employee benefits
increased $604,000, or 10.7%, due principally to a 22.1% increase in personnel,
from 181 employees at March 31, 1993, to 221 employees at March 31, 1994. All
other general and administrative expenses increased only $302,000, or 4.8%. A
significant portion of the increase in number of employees and in all other
general and administrative expenses resulted from the expansion of the
Charleston, South Carolina branch in September of 1993 and the expansion of the
Bank's wholesale loan desk operations.
INCOME TAX EXPENSE
Income tax expense increased $442,000 in fiscal 1994 from $3.2 million for
fiscal 1993 to $3.6 million for the year ended March 31, 1994. The increase
resulted primarily from higher pretax earnings.
ACCOUNTING AND REPORTING CHANGES
The adoption of SFAS 109 Accounting for Income Taxes on April 1, 1993
resulted in the Corporation realizing an addition to net income of $1.2 million
in the first quarter of fiscal 1994. The Corporation previously accounted for
income taxes under SFAS 96 which was superseded by SFAS 109. Like SFAS 96, SFAS
109 has a balance sheet approach for calculating taxes. Deferred taxes are
provided for differences in financial reporting bases for assets and liabilities
as compared with their tax bases. Basically, a current tax liability or asset is
established for taxes presently payable or refundable, and a deferred tax
liability or asset is established for future taxable items. A valuation
allowance, if applicable, must be established for deferred tax assets that may
not be realized. The new statement also eliminated the tax benefit associated
with the thrift bad debt reserves on a prospective basis. Tax bad debt reserves
in excess of the base year amount (established as taxable years ending December
31, 1987 or later), would create a tax liability.
A-37
<PAGE>
The Financial Accounting Standards Board (FASB) issued on May 25, 1995,
SFAS 122, "Accounting for Mortgage Servicing Rights and Excess Servicing
Receivables and for Securitization of Mortgage Loans." This statement requires
an entity to recognize as separate assets the rights to service mortgage loans
for others, regardless of how servicing rights are acquired. An entity that
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans and sells those loans with servicing rights retained would
allocate some of the cost of the loans to the mortgage servicing rights. This
statement also requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables be assessed for impairment. Impairment
would be measured based on fair value. This statement would be applied
prospectively in fiscal years beginning after December 15, 1995. Retroactive
application would be prohibited. The Corporation has not presently determined
the impact of the adoption of SFAS 122 on the financial statements of the
Corporation.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan". The statement is applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases and debt securities. It also applies to all loans that are
restructured in a troubled debt restructuring involving a modification of terms.
In October, 1994, the FASB issued SFAS 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures." This statement
amends SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans and eliminates the income recognition
provisions in SFAS 114. SFAS 118 also requires disclosure of certain information
about the recorded investment in impaired loans and how the creditor recognizes
interest income related to impaired loans.
SFAS 114 requires that impaired loans that are within its scope be measured
based on the present value of expected 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. SFAS 114 and SFAS 118 are effective for financial
statements issued for fiscal years beginning after December 15, 1994. The
Corporation is currently evaluating the impact of the statements on its results
of operations and financial position. Initial adoption will be required to be
reflected prospectively. Management does not believe the adoption of this
statement will have a material adverse effect on the Corporation.
The adoption of SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities" on April 1, 1993 resulted in an after tax decrease in
stockholders' equity at March 31, 1994 of $778,000 related to unrealized loss on
securities. The statement expanded 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. Furthermore, the statement makes it clear
that securities which 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" and must be
classified as "available for sale." Securities available for sale must be
accounted for at market value and the unrealized gain or loss net of tax
recorded as a component of equity.
EFFECT OF INFLATION, CHANGING PRICES AND OTHER
The Corporation's Consolidated Financial Statements 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
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 in the same magnitude as the prices of goods and services. However,
non-interest expenses do reflect general levels of inflation.
A-38
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CERTAIN FINANCIAL AND OTHER INFORMATION FOR THE QUARTER ENDED JUNE 30, 1995
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
<S> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE
DATA)
(UNAUDITED)
ASSETS
Cash and amounts due from depository institutions........................................ $ 10,078 $ 7,649
Short-term interest-bearing deposits..................................................... 5,190 4,659
Total cash and cash equivalents........................................................ 15,268 12,308
Investment and mortgage-backed securities:
Available for sale-at fair value....................................................... 41,345 47,516
Held to maturity-at amortized cost..................................................... 66,098 68,395
Loans receivable, net
Loans held for sale.................................................................... 9,523 5,756
Loans held for investment-at cost...................................................... 624,788 622,177
Real estate, net......................................................................... 2,027 2,311
Accrued interest receivable.............................................................. 4,683 4,591
Federal Home Loan Bank stock-at cost..................................................... 9,040 9,227
Office properties and equipment, net..................................................... 4,575 4,705
Deferred income taxes.................................................................... 380 573
Other assets............................................................................. 3,646 4,394
Total assets............................................................................. $ 781,372 $781,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts......................................................................... $ 540,918 $556,302
Advances from the Federal Home Loan Bank................................................. 163,497 152,232
Advances from borrowers for taxes and insurance.......................................... 3,479 2,711
Accrued interest on deposit accounts..................................................... 1,444 1,547
Other liabilities........................................................................ 6,414 5,846
Total liabilities........................................................................ 715,752 718,638
Stockholders' Equity:
Serial Preferred Stock; authorized 2,000,000 shares;
none outstanding
Common stock, $.10 par value; authorized 8,000,000
shares; issued 6,722,630............................................................... 672 672
Additional paid-in capital............................................................... 17,508 17,490
Net unrealized loss on investments and
mortgage-backed securities available for sale.......................................... (755) (1,747)
Retained income-substantially restricted................................................. 51,524 50,246
Total............................................................................... 68,949 66,661
Less treasury stock, at cost; 925,302 shares............................................. 3,329 3,346
Total stockholders' equity.......................................................... 65,620 63,315
Total liabilities and stockholders' equity............................................... $ 781,372 $781,953
Stockholders' equity per share........................................................... $ 11.33 $ 10.93
</TABLE>
See notes to consolidated financial statements.
A-39
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
<S> <C> <C>
1995 1994
<CAPTION>
(IN THOUSANDS OF DOLLARS
EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans..................................................................................... $12,653 $ 9,918
Mortgage-backed securities................................................................ 1,309 1,551
Investment securities..................................................................... 613 682
Other investments......................................................................... 85 52
Total interest income.................................................................. 14,660 12,203
Interest expense:
Deposits.................................................................................. 6,888 5,675
Borrowed money............................................................................ 2,453 962
Total interest expense................................................................. 9,341 6,637
Net interest income......................................................................... 5,319 5,566
Less-provision for loan losses.............................................................. 165 262
Net interest income after provision for loan losses.................................... 5,154 5,304
Other income (expense):
Loan servicing fees....................................................................... 298 162
Service fees on deposits.................................................................. 360 285
Fees for other financial services provided................................................ 245 413
Real estate operations, net............................................................... (55) (167)
Gain on sale of investment securities, net................................................ 31 158
Total other income..................................................................... 879 851
General and administrative expenses:
Salaries and employee benefits............................................................ 1,876 1,868
Occupancy and equipment expense........................................................... 606 619
Deposit insurance premiums................................................................ 319 299
Advertising and business promotion........................................................ 61 116
Other expense............................................................................. 650 774
Total general and administrative expenses.............................................. 3,512 3,676
Income before provision for income taxes and
cumulative effect of a change in accounting principle..................................... 2,521 2,479
Provision for income taxes.................................................................. 953 931
Net income.................................................................................. $ 1,568 $ 1,548
Earnings per common and common equivalent share
(Based on weighted average shares outstanding)
Net income per share...................................................................... $ .25 $ .25
Weighted average number of shares outstanding (1)........................................... 6,306 6,168
</TABLE>
(1) Adjusted to reflect the two-for-one common stock split approved on April 11,
1994.
See notes to consolidated financial statements.
A-40
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS ENDED
<S> <C> <C>
JUNE 30, JUNE 30,
1995 1994
<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net income...................................................................................... $ 1,568 $ 1,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Recognition of deferred income............................................................. (69) (326)
Deferral of fee income (net of cost)....................................................... 17 196
Provision for losses on loans and real estate owned........................................ 72 332
Unrealized loss on loans held for sale..................................................... -- 54
Gain on sale of investment and mortgage-backed
securities and loans..................................................................... (16) (108)
Gain on sale of other assets and real estate............................................... -- (3)
Provision for depreciation and amortization................................................ 287 247
Loans Held for Sale:
Originations.......................................................................... (19,051) (11,305)
Purchases............................................................................. (1,258) (10,791)
Sales................................................................................. 16,558 26,437
Decrease in other assets................................................................... 849 1,116
Increase in accrued liabilities............................................................ 690 1,660
Net cash provided by (used in) operating activities............................................. (353) 9,057
Investing Activities:
Proceeds from maturities of investment securities............................................... 3 5,664
Proceeds from sale of:
Investments................................................................................ 6,000 --
Mortgage-backed securities................................................................. 1,324 --
Purchases of investment securities.............................................................. (62) (3,156)
Purchases of mortgage-backed securities......................................................... -- --
Purchases of Federal Home Loan Bank stock....................................................... 187 (756)
Principal repayments on mortgage-backed securities.............................................. 2,591 7,524
Principal repayment on mortgage and consumer loans.............................................. 37,376 38,809
Loan originations............................................................................... (37,263) (63,384)
Loan purchases.................................................................................. (2,746) (20,836)
Disposal of other assets, net, principally real estate owned.................................... 291 336
(Acquisition) disposal of office properties and equipment, net.................................. (14) (96)
Net cash provided by (used in) investing activities............................................. 7,687 (35,895)
Financing Activities:
Net decrease in deposits........................................................................ (15,384) (7,146)
Proceeds from Federal Home Loan Bank advances................................................... 106,500 60,500
Repayment of Federal Home Loan Bank advances.................................................... (95,235) (29,500)
Proceeds from exercise of stock options......................................................... 35 --
Dividends paid (per common share: 1995-$.05; 1994-$.04)......................................... (290) (269)
Net cash provided by (used in) financing activities............................................. (4,374) 23,585
Net increase (decrease) in cash and cash equivalents............................................ 2,960 (3,253)
Cash and cash equivalents at beginning of period................................................ 12,308 15,821
Cash and cash equivalents at end of period...................................................... $ 15,268 $ 12,568
</TABLE>
See notes to consolidated financial statements.
A-41
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared
in accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments which are, in the opinion of
management, necessary for a fair presentation of the interim financial
statements have been included. All such adjustments are of a normal recurring
nature. Certain amounts for prior periods have been reclassified in the
accompanying consolidated financial statements to conform with the June 30,
1995, presentation; however, such reclassifications had no effect on net income.
The results of operations for the three-month period ended June 30, 1995, are
not necessarily indicative of the results which may be expected for the entire
fiscal year.
The unaudited consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto,
included in the United Financial Corporation Annual Report on Form 10-K for the
year ended March 31, 1995.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Corporation and its wholly-owned subsidiaries, United Savings and Home
Federal (collectively, "the Banks"), and the Banks' subsidiaries. Significant
intercompany balances and transactions have been eliminated in consolidation.
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES
AVAILABLE FOR SALE: The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities available for sale consisted of
the following (in thousands of dollars):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AT JUNE 30, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Marketable equity securities................................................... $ 9,237 $ -- $ 51 $ 9,186
Mortgage-backed securities:
FNMA Securities.............................................................. 7,611 264 7,347
FHLMC Securities............................................................. 3,973 134 3,839
Collateralized mortgage obligations............................................ 21,742 33 802 20,973
Total.......................................................................... $42,563 $ 33 $1,251 $41,345
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AT MARCH 31, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Marketable equity securities................................................... $ 9,144 $ 16 $ 144 $ 9,016
U.S. Treasury obligations...................................................... 952 6 -- 958
U.S. agency obligations........................................................ 5,039 2 36 5,005
Mortgage-backed securities:
FNMA Securities.............................................................. 4,386 -- 362 4,024
Collateralized mortgage obligations............................................ 30,812 -- 2,299 28,513
Total.......................................................................... $50,333 $ 24 $2,841 $47,516
</TABLE>
The unrealized holding loss net of related income tax effects on available
for sales securities included in stockholders' equity decreased from $1,747,000
at March 31, 1995 to $755,000 at June 30, 1995.
HELD TO MATURITY: The amortized cost, gross unrealized gains, gross
unrealized losses and fair values of securities held to maturity consisted of
the following (in thousands of dollars):
A-42
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Continued
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
JUNE 30, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury obligations.................................................... $ 2,519 $ -- $ 17 $ 2,502
U.S. agency obligations...................................................... 13,840 44 472 13,412
Total investment securities............................................... 16,359 44 489 15,915
Mortgage-backed securities:
FNMA securities.............................................................. 25,310 124 446 24,988
FHLMC securities............................................................. 23,572 76 578 23,070
GNMA securities.............................................................. 857 -- 19 838
Total mortgage-backed securities.......................................... 49,739 200 1,043 48,896
Total.......................................................................... $66,098 $244 $1,531 $64,811
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
MARCH 31, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury obligations.................................................... $ 2,522 $ -- $ 41 $ 2,481
U.S. agency obligations...................................................... 13,840 -- 582 13,258
Total investment securities............................................... 16,362 -- 623 15,739
Mortgage-backed securities:
FNMA securities.............................................................. 26,508 32 1,102 25,438
FHLMC securities............................................................. 24,643 44 1,021 23,666
GNMA securities.............................................................. 882 -- 47 835
Total mortgage-backed securities.......................................... 52,033 76 2,170 49,939
Total.......................................................................... $68,395 $ 76 $2,793 $65,678
</TABLE>
The amortized cost and fair value of securities at June 30, 1995, by
contractual maturity, follow (in thousands of dollars):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
<S> <C> <C> <C> <C>
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
Due in one year or less...................................................... $ -- $ -- $ 1,000 $ 995
Due after one year through five years........................................ -- -- 15,359 14,920
Marketable equity securities................................................. 9,237 9,186 -- --
Total investment securities............................................. 9,237 9,186 16,359 15,915
Mortgage-backed securities................................................... 11,584 11,186 49,739 48,896
Collateralized mortgage obligations.......................................... 21,742 20,973 -- --
Total........................................................................ $42,563 $41,345 $66,098 $64,811
</TABLE>
The Corporation's investments in mortgage-backed securities include (1)
principal and interest amortizing pass-through securities issued or guaranteed
by FHLMC, FNMA or GNMA and (2) collateralized mortgage obligations (CMOs). The
Corporation invests in CMOs as a part of its efforts to manage interest rate
risk. The Corporation does not invest in CMO residuals, interest only
securities, principal only securities or zero coupon bonds. CMOs are subject to
greater regulatory scrutiny. Regulatory examiners could seek orderly divestiture
of high-risk CMOs, as defined by the Office of Thrift Supervision (OTS). The
Corporation has classified all CMO securities that had been purchased prior to
March 31, 1994, as held for
A-43
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
(3) INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Continued
sale. All of the Corporation's CMO securities were non high-risk securities, as
defined by OTS, at the time of purchase and all CMO securities were non
high-risk securities at June 30, 1995, with the exception of two securities, the
book value and fair market value of which were $3,780,000 and $3,518,000,
respectively. At June 30, 1995, the book value and fair market value of
non-high-risk CMO securities were $17,962,000 and $17,456,000, respectively.
(4) LOANS RECEIVABLE, NET
Loans receivable held for investment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
<S> <C> <C>
Type of loan
Mortgage loans:
Fixed rate -- residential........................................................... $ 75,577 $ 80,428
-- commercial............................................................ 18,751 18,044
Adjustable rate -- residential...................................................... 389,541 388,542
-- commercial....................................................... 47,936 42,800
Interim construction................................................................ 46,042 51,176
Total real estate loans.................................................................. 577,847 580,990
Consumer and commercial loans:
Consumer loans......................................................................... 43,225 44,334
Commercial loans....................................................................... 1,372 714
Lines of credit........................................................................ 28,856 27,868
Total non-real estate loans.............................................................. 73,453 72,917
Total.................................................................................... 651,300 653,907
Less --
Undisbursed portion of construction loans........................................... (21,340) (26,682)
Allowance for loan losses........................................................... (5,077) (4,961)
Deferred loan origination fees...................................................... (95) (87)
Total.................................................................................... $ 624,788 $622,177
Weighted-average interest rate of loans.................................................. 7.97% 7.82%
</TABLE>
The following is an analysis of the allowance for loan losses for the three
months ended June 30, 1995, (in thousands of dollars).
<TABLE>
<S> <C>
Balance -- March 31, 1995........................................... $4,961
Charge-offs......................................................... (72)
Recoveries.......................................................... 23
Provision for loan losses........................................... 165
Balance -- June 30, 1995............................................ $5,077
</TABLE>
A-44
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
(5) REAL ESTATE OWNED
Real estate owned is summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1995
<S> <C> <C>
Loans foreclosed in-substance................................................................. $1,245 $ 1,440
Real estate acquired through foreclosure...................................................... 1,217 1,212
Commercial real estate held for sale.......................................................... 427 521
2,889 3,174
Less allowance for losses..................................................................... (862) (863)
Real estate owned, net................................................................... $2,027 $ 2,311
</TABLE>
The following is a summary of the income and expenses of real estate
operations (in thousands of dollars):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
<S> <C> <C>
1995 1994
Income from disposition and rental of real estate owned.......................................... $ 6 $ (3)
Provision for loss on real estate................................................................ (25) (118)
Expenses of holding real estate owned............................................................ (36) (46)
Total....................................................................................... $(55) $(167)
</TABLE>
(6) DEPOSIT ACCOUNTS
Deposit accounts are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1995
<S> <C> <C> <C> <C>
AMOUNT RATE AMOUNT RATE
Account Type:
NOW accounts................................................................... $ 35,706 1.08% $ 35,797 1.71%
Money market deposit accounts.................................................. 34,016 3.40 37,942 3.36
Passbook accounts.............................................................. 30,352 2.53 31,425 2.53
Non-interest bearing demand deposits........................................... 11,666 -- 9,281 --
Total transaction and passbook accounts............................................. 111,739 2.13 114,444 2.36
Savings Certificates:
Jumbo (over $100,000).......................................................... 84,459 6.15 63,247 5.91
Fixed-rate..................................................................... 275,267 5.85 310,687 5.20
Variable-rate.................................................................. 69,453 7.03 67,924 6.89
Total savings certificates.......................................................... 429,179 6.10 441,858 5.56
Total............................................................................... $540,918 5.28% $556,302 4.90%
</TABLE>
A-45
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
(6) DEPOSIT ACCOUNTS -- Continued
<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1995
<S> <C> <C>
Maturity Date of Savings Certificates:
Within one year........................................................................... $ 241,320 $276,360
After one but within two years............................................................ 109,433 90,419
After two but within three years.......................................................... 43,339 37,778
Thereafter................................................................................ 35,087 37,301
Total certificate accounts..................................................................... $ 429,179 $441,858
</TABLE>
Interest expense on deposits consisted of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1995
<S> <C>
Account Type:
NOW accounts and money market deposit accounts...................................................... $ 413
Passbook accounts................................................................................... 193
Certificate accounts................................................................................ 6,282
Total interest expense on deposits....................................................................... $6,888
</TABLE>
(7) REGULATORY CAPITAL
At June 30, 1995, the Banks were in compliance with regulatory capital
requirements as follows (in thousands):
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK BASED CAPITAL
<S> <C> <C> <C> <C> <C> <C>
UNITED SAVINGS BANK AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
Actual capital of the Bank................................. $39,280 8.27% $39,280 8.27% $39,280 13.96%
Regulatory adjustments................................... 356 .07 356 .07 3,024 1.08
Total adjusted capital..................................... 39,636 8.34 39,636 8.34 42,304 15.04
Less -- Minimum capital requirement........................ 7,124 1.50 14,249 3.00 22,507 8.00
Regulatory capital excess.................................. $32,512 6.84% $25,387 5.34% $19,797 7.04%
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK BASED CAPITAL
HOME FEDERAL SAVINGS BANK AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Actual capital of the Bank................................. $25,199 8.23% $25,199 8.23% $25,199 13.95%
Regulatory adjustments................................... 75 .03 75 .03 2,229 1.23
Total adjusted capital..................................... 25,274 8.26 25,199 8.26 27,428 15.18
Less -- Minimum capital requirement........................ 4,591 1.50 9,182 3.00 14,459 8.00
Regulatory capital excess.................................. $20,683 6.76% $16,092 5.26% $12,969 7.18%
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK BASED CAPITAL
COMBINED BANKS AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
Actual capital of the Bank................................. $64,479 8.25% $64,479 8.25% $64,479 13.95%
Regulatory adjustments................................... 431 .06 431 .06 5,253 1.14
Total adjusted capital..................................... 64,910 8.31 64,910 8.31 69,732 15.09
Less -- Minimum capital requirement........................ 11,715 1.50 23,431 3.00 36,966 8.00
Regulatory capital excess.................................. $53,195 6.81% $41,479 5.31% $32,766 7.09%
</TABLE>
A-46
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES
Forward Security Contracts -- The Banks enter into forward security
contracts to securitize and sell loans held for resale. At June 30, 1995, the
Banks had forward security contracts outstanding of $2 million. The sales prices
of these commitments approximate cost, and the Banks have the ability to meet
the terms of these contracts.
Loan Commitments -- 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 extend over periods of time with the majority of such
commitments disbursed within a 30-day period. Commitments generally have fixed
expiration dates or other termination clauses and may require the commitment
holder to pay a fee to the Banks. The Banks evaluate customers' credit
worthiness on a case-by-case basis. The type and amount of collateral obtained
varies and is based on management's credit evaluation of the potential borrower.
At June 30, 1995, total loan commitments excluding undisbursed portions of
interim construction loans, the unused portion of credit lines, and loans sold
with recourse were $6.3 million.
(9) PROPOSED MERGER WITH FIRST UNION
On February 21, 1995, United Financial and the Savings Banks entered into a
definitive merger agreement with First Union Corporation, First Union
Corporation of South Carolina and First Union National Bank of South Carolina,
pursuant to which United Financial will be merged into First Union Corporation
of South Carolina and, thereafter, the Savings Banks will be merged into First
Union National Bank of South Carolina. The agreement provides that United
Financial's common stock will be exchanged for shares of First Union common
stock pursuant to a specified exchange ratio. The aggregate value of the
consideration is approximately $130.5 million, subject to certain adjustments.
In connection with the agreement, pursuant to a Stock Option Agreement
dated February 22, 1995, United Financial granted First Union Corporation an
option to purchase up to 1,100,000 shares of United Financial's common stock
under certain conditions, including the acquisition by a third party of
securities representing 20% or more of the voting shares of United Financial or
the agreement between United Financial and a third party to engage in a merger
or consolidation.
Consummation of the merger is subject to various conditions, including
receipt of the approval of the merger by the stockholders of United Financial.
All regulatory approvals have been received.
A-47
<PAGE>
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation's assets at June 30, 1995, totaled $781.4 million compared
with $782.0 million at March 31, 1995. Loan originations totaled $56.3 million
for the three months ended June 30, 1995. In addition, loans of $4.0 million
were purchased during the quarter. Principal repayments on loans and loan sales
totaled approximately $37.4 million and $16.6 million, respectively, for the
three months ended June 30, 1995.
The Corporation invests in collateralized mortgage obligations (CMOs) as a
part of its efforts to manage interest rate risk. The Corporation does not
invest in CMO residuals, interest only securities, principal only securities or
zero coupon bonds. CMOs may exhibit greater price volatility than pass through
securities due to a thinner secondary market and changing market interest rates.
The Corporation's CMO portfolio exhibits minimal risk of loss of principal or
reduced yield similar to pass through securities (see Note 3 to consolidated
financial statements).
In addition to the loan principal repayments referred to above, the other
primary sources of funds for lending operations were net advances from the
Federal Home Loan Bank of $11.3 million for the three months ended June 30,
1995. Advances from the Federal Home Loan Bank represent a reliable source of
funds to the Corporation's subsidiary banks. Deposit levels decreased $15.4
million during the quarter, while the liquidity ratio decreased .22% from 5.83%
at March 31, 1995, to 5.61% at June 30, 1995. Eligible liquidity is measured by
the ratio of cash, cash equivalents and investment securities to the sum of
total deposits plus borrowings payable within one year less loans secured by
savings deposits. The Banks are required under regulations to currently maintain
5% of certain of the Banks' liabilities, as defined by the OTS, in qualifying
types of United States Treasury, federal agency and other similar investment
securities having maturities of five years or less. The Banks' liquid assets
exceeded the OTS liquidity requirement.
The Corporation's investment policy to manage liquidity and interest rate
risk includes the classification of fixed-rate loans and certain mortgage-backed
securities and collateralized mortgage obligations as available for sale.
Proceeds from sales of fixed rate loans, long-term adjustable rate loans and
securities available for sale were $23.9 million for the quarter ended June 30,
1995.
Stockholders' equity at June 30, 1995, was $65.6 million, or approximately
8.4% of total assets. At June 30, 1995, the Banks and the Corporation were in
compliance with regulatory capital requirements. Under the present regulations,
each of the Banks must have core capital (leverage requirement) equal to 3.0% of
assets, of which 1.5% must be tangible capital, excluding goodwill. The Banks
must also maintain risk-based regulatory capital at least equal to 8.0% of
risk-weighted assets. In measuring compliance with regulatory capital standards,
certain adjustments must be made to capital and total assets.
RESULTS OF OPERATIONS -- FIRST FISCAL QUARTER ENDED JUNE 30, 1995 COMPARED TO
THE
FIRST FISCAL QUARTER ENDED JUNE 30, 1994
NET INTEREST INCOME
Net interest income is the principal source of the Corporation's earnings
and results from income generated by interest earning assets (primarily loans,
mortgage-backed securities, and investment securities) less the interest cost
incurred on interest bearing liabilities (deposits and advances from the Federal
Home Loan Bank) to fund them. The following table presents the components of net
interest income and the average account balances generating net interest income
for the quarters ended June 30, 1995 and 1994, respectively. Average loan
balances include non-accrual loans and exclude loans in-substance foreclosed.
A-48
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
<S> <C> <C> <C> <C> <C> <C>
1995 1994
<CAPTION>
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans..................................................... $ 632,527 $ 12,738 8.06% $ 521,758 $ 9,918 7.60%
Mortgage-backed securities................................ 82,667 1,309 6.33 106,665 1,551 5.82
Investments............................................... 42,694 613 5.74 46,112 734 6.37
Total interest-earning assets............................... $ 757,888 $ 14,660 7.73% $ 674,535 $ 12,203 7.24%
Interest-bearing liabilities:
Deposits............................................... $ 547,414 $ 6,889 5.03% $ 549,100 $ 5,675 4.13%
Borrowings............................................. 160,719 2,452 6.10 84,302 962 4.56
Total interest-bearing liabilities.......................... $ 708,132 $ 9,341 5.28% $ 633,402 $ 6,637 4.19%
Excess of interest-earning assets over interest-bearing
liabilities............................................... $ 49,756 $ 41,133
Net interest income......................................... $ 5,319 $ 5,566
Interest rate spread........................................ 2.45% 3.05%
Net yield on earning assets................................. 2.81% 3.30%
</TABLE>
The following table provides an analysis indicating the change in net
interest income attributable to (1) changes in volume (changes in volume
multiplied by the old rate), and (2) changes in rate (changes in rate multiplied
by the old volume), and (3) change in rate-volume (change in rate multiplied by
the change in volume).
<TABLE>
<CAPTION>
1995 VS. 1994
INCREASE (DECREASE)
DUE TO
<S> <C> <C> <C> <C>
VOLUME/
THREE MONTHS ENDED JUNE 30, VOLUME RATE RATE TOTAL
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Changes in interest income:
Loans................................................................................ $2,106 $ 589 $ 125 $2,820
Mortgage-backed securities........................................................... (349) 138 (31) (242)
Investments and other................................................................ (54) (72) 4 (122)
Total............................................................................. 1,703 655 98 2,456
Changes in interest expense:
Deposits............................................................................. (17) 1,235 (5) 1,213
Borrowings........................................................................... 872 324 294 1,490
Total............................................................................. 855 1,559 289 2,703
Change in interest income in excess of interest expense................................ $ 848 $ (904) $(191) $ (247)
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
NET INTEREST INCOME
Net interest income decreased 4.44% from $5,566,000 for the three months
ended June 30, 1994, to $5,319,000 for the three months ended June 30, 1995. The
excess of average interest-earning assets over average interest-bearing
liabilities increased over the respective periods, from $41,133,000 for the
prior-year quarter to $49,756,000 for the current year quarter. This increase
occurred primarily because of an increase in stockholders' equity and a decrease
in non-earning assets such as real estate owned. The net yield on earning assets
decreased from 3.30% for the quarter ended June 30, 1994, to 2.81% for the
quarter ended June 30, 1995. The change in net interest income attributable to
an increase in volume is $848,000, whereas the change attributable to a increase
in rate and a decrease in the combined volume/rate is $(904,000) and $(191,000),
respectively.
A-49
<PAGE>
INTEREST INCOME
Interest income increased $2,457,000 from the quarter ended June 30, 1994,
to the quarter ended June 30, 1995. This increase resulted principally from the
increase in the level of average interest-earning assets from $674,535,000 for
the prior year quarter to $757,888,000 for the current year quarter. In addition
to this volume increase, yields earned increased from 7.24% for the three months
ended June 30, 1994, to 7.73% for the three months ended June 30, 1995. The
Corporation expects that its yield on loans will increase as its adjustable rate
loans reprice with the higher level of general interest rates.
INTEREST EXPENSE
Interest expense increased $2,704,000 from the quarter ended June 30, 1994,
to the quarter ended June 30, 1995. This increase was caused principally by the
increased level of average interest-bearing liabilities of approximately $74.7
million. Additionally, there was an increase in the Corporation's cost of funds,
from 4.19% for the three months ended June 30, 1994, to 5.28% for the three
months ended June 30, 1995. The Corporation expects that its cost of funds will
increase due to the general increase in market interest rates. The Corporation
may experience a decline in interest margin if the Corporation's certificates of
deposit reprice more rapidly than adjustable rate loans.
NONPERFORMING ASSETS AND PROVISION FOR LOAN LOSSES
For the Corporation, total nonperforming assets increased $237,000 during
the quarter to $7,559,000 at June 30, 1995. The primary area of increase was in
non-accrual loans which increased $354,000 during the quarter.
Loan loss reserves as a percentage of total loans increased from .76% at
March 31, 1995, to .78% at June 30, 1995. This increase resulted from a slow
down in the growth of loans and lower charge offs thereby increasing the
Corporation's allowance ratio. Provisions for loan losses decreased by $97,000
from the prior year quarter to the quarter ended June 30, 1995. Nonperforming
loans to total loans increased from .75% at March 31, 1995, to .82% at June 30,
1995. The allowance for loan losses to nonperforming loans decreased from 102%
at March 31, 1995, to 95% at June 30, 1995. Annualized net charge-offs to
average net loans increased from .02% net charge-off for the quarter ended June
30, 1994, to .03% net charge-off, for the period ended June 30, 1995.
The following table sets forth information with respect to nonperforming
assets for the Corporation as of June 30, 1995, and March 31, 1995 (in thousands
of dollars):
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1995
<S> <C> <C>
Loans over 90 days delinquent still accruing: $ 521 $ 424
Loans on non-accrual status:
Mortgage, net...................................................................................... 1,243 1,436
Commercial......................................................................................... 410 --
Consumer........................................................................................... 309 172
Total loans on non-accrual....................................................................... 1,962 1,608
Troubled debt restructurings............................................................................ 2,838 2,853
Total nonperforming loans........................................................................ 5,321 4,885
Other nonperforming assets.............................................................................. 2,238 2,437
Total nonperforming assets.............................................................................. $7,559 $ 7,322
Percentage of total assets.............................................................................. .97% .94%
Percentage of nonperforming loans and other nonperforming assets to loans held for investment and real
estate, net........................................................................................... 1.21% 1.17%
</TABLE>
OTHER INCOME (EXPENSE)
Other income (expense) increased by $28,000, from $851,000 to $879,000,
when comparing the quarters ended June 30, 1994 and 1995, respectively. Real
estate operations showed a $55,000 loss compared to the prior year quarter loss
of $167,000. Service fees on deposits increased $75,000, and loan servicing fees
showed an improvement of $136,000, reflecting increases in the Corporation's
investor loan servicing portfolio and slower prepayment speeds on investor
pools. Additionally there was an decrease of $169,000 from quarter to quarter in
fees for other financial services. Gains on sale of
A-50
<PAGE>
investment and mortgage-backed securities and loans decreased $127,000 from
prior year quarterly results. In both quarters, these gains resulted from sales
of loans and securitized loans originated by the banks.
GENERAL AND ADMINISTRATIVE EXPENSES
Total general and administrative expenses decreased by $165,000, or 4.49%,
from the prior year quarter to the current quarter. The planned merger with
First Union caused a slow down in head count growth and other activities of the
subsidiary banks.
INCOME TAXES
Income tax expense increased $23,000 from the prior year quarter to the
current year quarter, or approximately 2.47%. This increase was caused
principally by a similar increase in income before provision for income taxes.
ACCOUNTING AND REPORTING CHANGES
The Financial Accounting Standards Board (FASB) issued on May 25, 1995,
SFAS 122, "Accounting for Mortgage Servicing Rights and Excess Servicing
Receivables and for Securitization of Mortgage Loans". This statement requires
an entity to recognize as separate assets the rights to service mortgage loans
for others, regardless of how servicing rights are acquired. An entity that
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans and sells those loans with servicing rights retained would
allocate some of the cost of the loans to the mortgage servicing rights. This
statement also requires that capitalized mortgage servicing rights and
capitalized excess servicing receivables be assessed for impairment. Impairment
is measured based on fair value. This statement is applied prospectively in
fiscal years beginning after December 15, 1995. Retroactive application is
prohibited. The Corporation has not presently determined the impact of the
adoption of SFAS 122 on the financial statements of the Corporation.
In May 1993, the FASB issued SFAS 114, "Accounting by Creditors for
Impairment of a Loan". The statement is applicable to all creditors and to all
loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment, loans that are measured at fair value or at the lower of cost or
fair value, leases and debt securities. It also applies to all loans that are
restructured in a troubled debt restructuring involving a modification of terms.
In October, 1994, the FASB issued SFAS 118, "Accounting by Creditors for
Impairment of a Loan -- Income Recognition and Disclosures". This statement
amends SFAS 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans and eliminates the income recognition
provisions in SFAS 114. SFAS 118 also requires disclosure of certain information
about the recorded investment in impaired loans and how the creditor recognizes
interest income related to impaired loans.
SFAS 114 requires that impaired loans that are within its scope be measured
based on the present value of expected 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. SFAS 114 and SFAS 118 are effective for financial
statements issued for fiscal years beginning after December 15, 1994. The
Corporation does not anticipate any significant change from its present
accounting practices related to problem assets upon adoption of SFAS 114 and
SFAS 118. The Corporation has evaluated the impact of the statements on its
results of operations and financial position. The adoption of this statement has
not had a material adverse effect on the Corporation.
EFFECTS OF INFLATION, CHANGING PRICES AND OTHER
The Corporation's Consolidated Financial Statements, related notes, and
other financial information 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 relative purchasing power over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than does the effect of inflation.
A-51
<PAGE>
ANNEX B
AGREEMENT AND PLAN OF MERGERS
AGREEMENT AND PLAN OF MERGERS, dated as of the 21st day of February, 1995
(this "Plan"), by and among UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
(the "Company"), UNITED SAVINGS BANK, FSB ("United"), HOME FEDERAL SAVINGS BANK
OF SOUTH CAROLINA ("Home Federal" and together with United, jointly and
severally, the "Banks"), FIRST UNION CORPORATION ("First Union"), FIRST UNION
CORPORATION OF SOUTH CAROLINA ("FUNC-SC") and FIRST UNION NATIONAL BANK OF SOUTH
CAROLINA ("FUNB-SC").
RECITALS:
(A) THE COMPANY. The Company is a corporation duly organized and existing
in good standing under the laws of the State of South Carolina, with its
principal executive offices located in Greenwood, South Carolina. The Company is
a registered savings and loan holding company under the Home Owners' Loan Act of
1933, as amended ("HOLA"). As of the date hereof, the Company has 8,000,000
authorized shares of common stock, each of $0.10 par value ("Company Common
Stock"), and 2,000,000 authorized shares of preferred stock ("Company Preferred
Stock") (no other class of capital stock being authorized), of which 5,792,528
shares of Company Common Stock (excluding 930,102 treasury shares) and no shares
of Company Preferred Stock, are issued and outstanding.
(B) UNITED. United is a federal stock savings bank duly organized and
existing in good standing under the laws of the United States, with its
principal executive offices located in Greenwood, South Carolina. As of the date
hereof, United has 40,000,000 authorized shares of common stock, each of $1.00
par value ("United Common Stock"), and 10,000,000 authorized shares of serial
preferred stock ("United Preferred Stock") (no other class of capital stock
being authorized), of which 2,034,285 shares of United Common Stock and no
shares of United Preferred Stock are issued and outstanding. All of the issued
and outstanding shares of United Common Stock are owned by the Company. As of
December 31, 1994, United had capital of $36,154,743, divided into common stock
of $2,034,285, surplus of $14,833,095 and undivided profits, including capital
reserves, of $19,287,363, and net unrealized gain (loss) on investment
securities of $(2,114,304).
(C) HOME FEDERAL. Home Federal is a federal stock savings bank duly
organized and existing in good standing under the laws of the United States,
with its principal executive offices located in Rock Hill, South Carolina. As of
the date hereof, Home Federal has 40,000,000 authorized shares of common stock,
each of $1.00 par value ("Home Federal Common Stock"), and 10,000,000 authorized
shares of serial preferred stock ("Home Federal Preferred Stock") (no other
class of capital stock being authorized), of which 206,659 shares of Home
Federal Common Stock and no shares of Home Federal Preferred Stock are issued
and outstanding. All of the issued and outstanding shares of Home Federal Common
Stock are owned by the Company. As of December 31, 1994, Home Federal had
capital of $22,909,931, divided into common stock of $206,659, surplus of
$8,433,341 and undivided profits, including capital reserves, of $14,269,931 and
net unrealized, gain (loss) on investment securities of $(395,302).
(D) 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. First Union is
a registered bank holding company under the Bank Holding Company Act of 1956, as
amended. 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 rights ("First
Union Rights") issued pursuant to a Shareholder Protection Rights Agreement,
dated December 18, 1990 (as amended, the "First Union Rights Agreement"))
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
173,902,909 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 which has been called for redemption on March 31, 1995, were
issued and outstanding as of January 31, 1995.
(E) FUNC-SC. FUNC-SC is a corporation duly organized and existing in good
standing under the laws of the State of South Carolina, with its principal
executive offices located in Greenville, South Carolina. As of the date hereof,
FUNC-SC has 100,000 authorized shares of common stock, each of $1.00 par value
("FUNC-SC Common Stock") (no other class of capital stock being authorized), of
which 100 shares of FUNC-SC Common Stock are issued and outstanding and owned by
First Union.
B-1
<PAGE>
(F) FUNB-SC. FUNB-SC is a national banking association duly organized and
existing under the laws of the United States, with its principal executive
offices located in Greenville, South Carolina. As of the date hereof, FUNB-SC
has 2,500,000 authorized shares of common stock, each of $5.00 par value
("FUNB-SC Common Stock") (no other class of capital stock being authorized), of
which 915,000 shares are issued and outstanding and owned by FUNC-SC (other than
directors' qualifying shares). As of December 31, 1994, FUNB-SC had capital of
$127,990,000, divided into common stock of $4,575,000, surplus of $73,795,000,
undivided profits, including capital reserves, of $54,674,000, and net
unrealized holding gains (losses) on available for sale securities of
($5,054,000).
(G) STOCK OPTION AGREEMENT. The Company agrees, prior to 8:00 a.m. on the
day following the execution and delivery of this Plan, as a condition and
inducement to First Union's, FUNC-SC's and FUNB-SC's willingness to enter into
this Plan, to enter into a Stock Option Agreement (the "Stock Option Agreement")
with First Union in the form attached hereto as EXHIBIT A, pursuant to which the
Company will grant to First Union an option to purchase, under certain
circumstances, shares of Company Common Stock.
(H) RIGHTS, ETC. Except as Previously Disclosed (as hereinafter defined) in
SCHEDULE 4.01(C), there are no shares of capital stock of the Company or the
Banks authorized and reserved for issuance, neither the Company nor either Bank
has any Rights (as defined below) issued or outstanding and neither the Company
nor either Bank has any commitment to authorize, issue or sell any such shares
or any Rights, except (i) pursuant to this Plan, or (ii) the Stock Option
Agreement. 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 (and
shall include stock appreciation rights). There are no preemptive rights in
respect of the Company Common Stock.
(I) APPROVALS. The Board of Directors of each of the Company, United, Home
Federal, First Union, FUNC-SC and FUNB-SC has approved, at meetings of each of
such Boards of Directors, this Plan and (in the case of the Company and First
Union) the Stock Option Agreement and has authorized the execution hereof and
thereof in counterparts.
(J) OTHER. It is the intention of the parties to this Plan that the Mergers
(as hereinafter defined) shall include the right of FUNC-SC to acquire the
assets and assume the liabilities of the Company Subsidiaries (as hereinafter
defined) and to assign such right to any corporation which FUNC-SC controls.
Pursuant to the foregoing and under the authority of Revenue Rulings 64-73 and
70-224, FUNC-SC may assign its right to acquire the assets and assume the
liabilities of the Company Subsidiaries to FUNB-SC, and may also direct each
such Company Subsidiary to transfer all of its assets and liabilities to FUNB-SC
on the day following the Effective Date (as hereinafter defined), or at any time
thereafter, including by means of a statutory merger.
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:
(A) THE CONTINUING CORPORATION. The Company shall merge with and into
FUNC-SC (the "Corporate Merger"), the separate existence of the Company shall
cease and FUNC-SC (the "Continuing Corporation") shall survive and the name of
the Continuing Corporation shall be "First Union Corporation of South Carolina."
(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 each of such corporations, shall
not revert or be in any way impaired by reason of the Corporate Merger.
(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, in accordance with applicable law.
(D) ARTICLES OF INCORPORATION; BY-LAWS; DIRECTORS; OFFICERS. The Articles
of Incorporation and By-laws of the Continuing Corporation shall be those of
FUNC-SC, as in effect immediately prior to the Corporate Merger becoming
effective. The directors and officers of FUNC-SC in office immediately prior to
the Corporate Merger becoming effective shall be the
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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 MERGERS. On the day following the Effective Date or as soon
thereafter as FUNB-SC may deem appropriate:
(A) THE CONTINUING BANK. The Banks shall be merged with and into FUNB-SC
(the "Bank Mergers" and together with the Corporate Merger, the "Mergers"), the
separate existence of the Banks shall cease and FUNB-SC (the "Continuing Bank")
shall survive; the name of the Continuing Bank shall be "First Union National
Bank of South Carolina"; and the Continuing Bank shall continue to conduct the
business of a national banking association at Home Federal's main office in Rock
Hill, South Carolina and at the legally established branches of the Banks and
FUNB-SC.
(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 each of such banks, shall not revert or be in any way
impaired by reason of the Bank Mergers.
(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 the Banks and FUNB-SC shall be preserved unimpaired.
(D) CHARTER; BY-LAWS; DIRECTORS; OFFICERS. The Charter and By-Laws of the
Continuing Bank shall be those of FUNB-SC, as in effect immediately prior to the
Bank Mergers becoming effective. The directors and officers of FUNB-SC in office
immediately prior to the Bank Mergers 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. The directors of the Company
Previously Disclosed on SCHEDULE 8.10 and the officers of the Banks who shall be
elected as directors and officers of the Continuing Bank shall be elected as
such, effective as of the Effective Date.
(E) OUTSTANDING STOCK OF THE CONTINUING BANK. The amount of the capital
stock of the Continuing Bank shall be not less than $4,575,000 and shall consist
of not less than 915,000 issued and outstanding shares of common stock, each of
$5.00 par value, and the issued and outstanding shares shall remain issued and
outstanding as shares of FUNB-SC, each of $5.00 par value, and the holders
thereof shall retain their rights therein.
(F) OUTSTANDING STOCK OF THE BANKS. Promptly after the Bank Mergers
becoming effective, the Continuing Corporation shall deliver all of the issued
and outstanding shares of the capital stock of the Banks 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 the
Company 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 in
writing. Prior to the Effective Date, FUNC-SC and the Company shall execute and
deliver to the Secretary of State of the State of South Carolina, Articles of
Merger in accordance with applicable law. The time on the Effective Date at
which the Corporate Merger becomes effective is referred to as the "Effective
Time."
II. CONSIDERATION.
2.01. CORPORATE MERGER CONSIDERATION. Subject to the provisions of this
Plan, on the Effective Date:
(A) OUTSTANDING FUNC-SC COMMON STOCK. The shares of FUNC-SC 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 FUNC-SC
Common Stock.
(B) OUTSTANDING COMPANY COMMON STOCK. Each share (excluding (i) shares
("Dissenters' Shares") that have not been voted in favor of approval of this
Plan and with respect to which dissenters' rights have been perfected in
accordance with Chapter 13 of the South Carolina Business Corporation Act (the
"SCBCA") or (ii) shares held by the Company 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 ("Excluded Shares")) of
Company Common Stock issued and outstanding immediately prior to the
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Effective Time 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 the number of shares of First Union Common Stock equal
to the Exchange Ratio (as hereinafter defined). The "Exchange Ratio" shall be
equal (rounded to the nearest one one-thousandth) to: (i) 0.458 if the First
Union Price (as defined below) is greater than $42.75 and less than $46.75, (ii)
the result obtained by dividing $19.58 by the First Union Price if the First
Union Price is $42.75 or less; or (iii) the result obtained by dividing $21.41
by the First Union Price if the First Union Price is $46.75 or greater. The
First Union Price shall be equal to the average of the last reported sale prices
per share of First Union Common Stock on the New York Stock Exchange ("NYSE")
Composite Transactions reporting system for the ten trading days ending with the
trading day immediately prior to the Effective Date (as reported in THE WALL
STREET JOURNAL), subject to possible adjustment as set forth in SECTION 2.05,
and upon any such adjustment any reference in this Plan to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant
to such Section.
2.02. STOCKHOLDER RIGHTS; STOCK TRANSFERS. At the Effective Time, holders
of Company Common Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive the consideration provided
under this ARTICLE II, without interest. After the Effective Time, there shall
be no transfers on the stock transfer books of the Company or the Continuing
Corporation of the shares of Company Common Stock which were issued and
outstanding immediately prior to the Effective Time.
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 Company
Common 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 NYSE Composite Transactions reporting system (as reported in THE
WALL STREET JOURNAL).
2.04. EXCHANGE PROCEDURES. First Union will use its best efforts to send or
cause to be sent within ten days after the Effective Time, to each former
stockholder of the Company of record immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's certificates for
Company Common 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 Company Common Stock are converted on the Effective
Date, any fractional share check 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
Company Common 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. Certificates surrendered for exchange by any person constituting
an Affiliate of the Company (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. 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 Time, the Exchange
Ratio shall be proportionately adjusted.
2.06. EXCLUDED SHARES; DISSENTERS' SHARES. Each of the Excluded Shares
shall be canceled and retired at the Effective Time, and no consideration shall
be issued in exchange therefor. Dissenters' Shares shall be purchased and paid
for in accordance with Chapter 13 of the SCBCA. If requested by FUNC-SC, to the
Effective Time the Company will establish and fund an escrow sufficient to pay
for such Dissenters' Shares.
2.07. RESERVATION OF RIGHT TO REVISE TRANSACTION. First Union may at any
time change the method of effecting the acquisition of the Company and the Banks
(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 Company Common Stock as provided for in this Plan, (ii)
adversely affect the intended tax-free treatment to the Company's 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.
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2.08. OPTIONS. (A) From and after the Effective Time, but subject to
SECTION 2.08 (B), all employee and director stock options to purchase shares of
Company Common Stock ("Options"), which are then outstanding and unexercised,
shall be converted into and become options with respect to First Union Common
Stock, and First Union shall assume each such Option in accordance with the
terms of the plan and agreement by which it is evidenced; PROVIDED, HOWEVER,
that from and after the Effective Time, (i) each such Option assumed by First
Union may be exercised solely for shares of First Union Common Stock, (ii) the
number of shares of First Union Common Stock subject to such Option shall be
equal to the number of shares of Company Common Stock subject to such Option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounding down to the nearest whole share, with cash being paid for any
fractional share interest, and (iii) the per share exercise price under each
such Option shall be adjusted by dividing the per share exercise price of each
such Option by the Exchange Ratio, and rounding up to the nearest cent. The
Company represents and warrants that the number of shares of Company Common
Stock which are issuable upon exercise of Options as of the date hereof are
Previously Disclosed in SCHEDULE 2.08. The terms of each Option shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction with respect to First Union Common Stock subsequent to the Effective
Time. It is intended that the foregoing assumption shall be effected in a manner
which is consistent with the requirements of Section 424 of the Code (as
hereinafter defined), as to any Option that is an "incentive stock option"(as
defined in Section 422 of the Code).
(B) The holders of any Options with an exercise price per share immediately
prior to the Effective Time that is less than the First Union Price, may, in
lieu of having such Options converted pursuant to SECTION 2.08(A) elect (by
giving written notice of such election to the Company on or prior to the
Effective Date) to receive, in settlement thereof, solely a cash payment in an
amount equal to the excess of (i) the First Union Price over the exercise price
per share of Company Common Stock covered by the Option, multiplied by (ii) the
total number of shares of Company Common Stock covered by the Option multiplied
by the Exchange Ratio, without interest. Each Option the holder of which has
made such election shall at the Effective Time represent solely the
nontransferable right to receive the foregoing cash payment.
III. ACTIONS PENDING CONSUMMATION.
Without the prior written consent of First Union, each of the Company and
the Banks shall conduct its and each of the Company Subsidiaries' business in
the ordinary and usual course consistent with past practice and shall use its
best efforts to maintain and preserve its and each of the Company Subsidiaries'
business organization, employees and advantageous business relationships and
retain the services of its and each of the Company Subsidiaries' officers and
key employees, and each of the Company and the Banks will not, and will cause
each of the Company Subsidiaries not to, agree to:
3.01. CAPITAL STOCK. Except for or as otherwise expressly permitted in or
contemplated by this Plan or the Stock Option Agreement or as Previously
Disclosed in SCHEDULE 4.01(C), issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of the Company or the Company
Subsidiaries, or any Rights with respect thereto, or enter into any agreement
with respect to the foregoing, or permit any additional shares of Company 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 payable on Company Common Stock at a quarterly rate not to
exceed $0.05 per share, and dividends from Company Subsidiaries to the Company
or the Banks, as applicable), or declare or make any distribution on, or
directly or indirectly combine, split, redeem, reclassify, purchase or otherwise
acquire, any shares of its capital stock or, other than as permitted in or
contemplated by this Plan or the Stock Option Agreement, authorize the creation
or issuance of, or issue, any additional shares of its capital stock or any
Rights with respect thereto.
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 liable
for the obligations of any other individual, corporation or other entity.
3.04. LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Except as may be
directed by any regulatory agency, (i) change its lending, investment, liability
management or 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,
or (ii) commit to incur any further capital expenditures beyond those Previously
Disclosed in SCHEDULE 3.04 other than in the ordinary course of business and not
exceeding $100,000 individually or $500,000 in the aggregate.
3.05. LIENS. Impose, or suffer the imposition, on any shares of capital
stock of any of the Company Subsidiaries, or on any of its or the Company
Subsidiaries' other assets, any Liens (as hereinafter defined), other than Liens
on such other assets
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that, individually or in the aggregate, do not and are not reasonably likely to
have a Material Adverse Effect (as hereinafter defined) on the Company, or
permit any such Lien to exist.
3.06. COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Except as Previously
Disclosed in SCHEDULE 3.06 or SCHEDULE 8.10, enter into or amend (except as
required by law or applicable regulations and after notice to First Union) any
employment, severance or similar agreement or arrangement with any of its
directors, officers or employees, or grant any salary or wage increase, amend
the terms of any Option or increase any employee benefit (including incentive or
bonus payments), except normal individual increases in regular compensation to
employees in the ordinary course of business consistent with past practice.
3.07. BENEFIT PLANS. Except as Previously Disclosed in SCHEDULE 3.07, enter
into or modify (except as may be required by applicable law) 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. Dispose of or discontinue any portion of its
assets, business or properties, which is material to the Company and the Company
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 the Company and the Company Subsidiaries taken as a whole (except
foreclosures or acquisitions by the Bank in a fiduciary capacity, in each case
in the ordinary course of business consistent with past practice).
3.09. AMENDMENTS. Except as required by law or applicable regulations with
respect to the Banks and after notice to First Union, amend its Articles of
Incorporation, Charter or By-laws.
3.10. CLAIMS. Settle any claim, action or proceeding involving any
liability for material money damages or restrictions upon the operations of the
Company or any Company Subsidiary.
3.11. CONTRACTS. Except as Previously Disclosed on SCHEDULE 3.11, enter
into, terminate or make any material change in any material contract, agreement
or lease, except in the ordinary course of business consistent with past
practice with respect to contracts, agreements and leases that are terminable by
it without penalty on not more than 60 days prior written notice.
IV. REPRESENTATIONS AND WARRANTIES.
4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BANKS. Each of
the Company and the Banks hereby represents and warrants to First Union, FUNC-SC
and FUNB-SC as follows:
(A) RECITALS. The facts set forth in the Recitals (A), (B), (C), (G), (H)
and (I) 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 the failure to be duly qualified, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company. Each of the Company and the Company Subsidiaries 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 the Company.
(C) SHARES. The outstanding shares of it are validly issued and
outstanding, fully paid and nonassessable, and subject to no preemptive rights.
Except as described in Recitals (A), (B) and (C) of this Plan and 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
the Company or the Banks outstanding and no outstanding Rights with respect
thereto.
(D) COMPANY SUBSIDIARIES. The Company has Previously Disclosed in SCHEDULE
4.01(D) a list of all the Company Subsidiaries. Each of the Company 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 Company Subsidiaries are or may become required to be
issued (other than to the Company or a wholly-owned Company Subsidiary) by
reason of any Rights with respect thereto. There are no contracts, commitments,
understandings or arrangements by which any of the Company 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 the Company or the Banks, as applicable, to vote or to dispose of
such shares. All of the shares of capital stock of each Company Subsidiary held
by the Company or a Company
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Subsidiary are fully paid and nonassessable and are owned by the Company or a
Company Subsidiary free and clear of any Liens. Each Company Subsidiary is in
good standing under the laws of the jurisdiction in which it is incorporated or
organized, and is duly qualified to do business and in good standing in the
jurisdictions where the failure to be duly qualified is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company. Except as Previously Disclosed in SCHEDULE 4.01(D), the Company does
not own beneficially, directly or indirectly, any shares of any equity
securities or similar interests of any corporation, bank, partnership, joint
venture, business trust, association or other organization (a "Business
Entity"). The deposits of the Banks are insured by the Savings Association
Insurance Fund (the "SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC"). The Banks are members of the Federal Home Loan Bank of Atlanta (the
"FHL Bank"). The term "Company Subsidiary" means any Business Entity (including
the Banks), five percent or more of the equity interests of which are owned
directly or indirectly by the Company.
(E) CORPORATE POWER. It and each of the Company Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own or lease 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 the
Company, 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 as to enforcement to
bankruptcy, insolvency and other similar 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, and
the required filings under federal and state securities laws, and except as
Previously Disclosed in SCHEDULE 4.01(G), the execution, delivery and
performance of this Plan and, as to the Company, the Stock Option Agreement, and
the consummation by it of the transactions contemplated hereby and thereby, 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 Company
Subsidiaries or to which it or any of the Company 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
the Company, (ii) constitute a breach or violation of, or a default under, its
Articles of Incorporation, Charter or By-laws, 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, other than any such consent or
approval, which if not obtained, would not be reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on the Company.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in SCHEDULE 4.01(H),
(i) as to the Company, its Annual Report on Form 10-K for the fiscal year ended
March 31, 1994, and all other documents filed or to be filed subsequent to March
31, 1994 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 "Company Financial Reports"), and (ii) as to
each of the Banks, its Thrift Financial Report for the fiscal year ended March
31, 1994, and all other Thrift Financial Reports filed or to be filed subsequent
to March 31, 1994, in the form filed with the Office of Thrift Supervision (the
"OTS") (in each case as to each of the Banks, the "Bank Financial Reports" and
together with the Company Financial Reports, the "Company/Bank Financial
Reports") did not and will not as of their respective dates contain any untrue
statement of a material fact or, as to the Company Financial Reports, 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 Company/Bank 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 Company/Bank Financial Reports (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in stockholders' equity and 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, 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 the Company or the Company
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 the Company, except as reflected in the Company Financial
Reports prior to the date of this Plan.
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(J) NO EVENTS. Except as Previously Disclosed on SCHEDULE 4.01(J), no
events have occurred, or circumstances have arisen, since September 30, 1994,
which, individually or in the aggregate, have had or are reasonably likely to
have a Material Adverse Effect on the Company.
(K) PROPERTIES. Except as reserved against in the Company Financial Reports
and except for those properties and assets that have been sold or otherwise
disposed of in the ordinary course of business, the Company and the Company
Subsidiaries have good and marketable title, free and clear of all liens,
encumbrances, charges, security interests, restrictions (including restrictions
on voting rights or rights of disposition), defaults or equities of any
character or claims or third party rights of whatever nature (collectively
"Liens"), to all of the properties and assets, tangible and intangible,
reflected in the Company Financial Reports as being owned by the Company or the
Company Subsidiaries as of the dates thereof, other than those Liens that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect on the Company. All buildings and all material fixtures,
equipment, and other property and assets which are held under leases or
subleases by any of the Company or the Company 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
the Company.
(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 the Company or which
alleges claims under any fair lending law or other law relating to
discrimination, including, without limitation, the Truth in Lending Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Housing
Act, the Community Reinvestment Act and the Home Mortgage Disclosure Act, 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 Company Subsidiaries or any of its or their material
properties or their officers, directors or controlling persons 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, without limitation, the OTS, the FHL Bank, the Federal
Reserve Board, the FDIC and any other federal or state bank, thrift or other
financial institution, insurance or securities regulatory authorities (including
the SEC), the "Regulatory Authorities")) and neither it nor any of the Company
Subsidiaries has been advised by any of the Regulatory Authorities that any 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 the Company and the Company Subsidiaries:
(1) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit it to conduct
its business as presently conducted and that are material to the business
of the Company and the Company Subsidiaries taken as a whole; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and all such filings,
applications and registrations are current;
(2) has received no notification or communication from any Regulatory
Authority or the staff thereof (i) asserting that any of the Company or the
Company 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
the Company, (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 the
Company, or (iii) requiring any of the Company or the Company 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 material resolution
or policy);
(3) is "well capitalized" as defined in 12 CFR (section mark)564.4 and
is not in "troubled condition" as defined in 12 CFR (section mark)574.9;
and
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(4) is in compliance in all material respects with the Truth in
Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, the Fair Housing Act, the Community Reinvestment Act and the Home
Mortgage Disclosure Act and similar federal and state laws and regulations.
(N) MATERIAL CONTRACTS. Except as Previously Disclosed in SCHEDULE 4.01(N),
none of the Company or the Company Subsidiaries, nor any of its 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 is required to be filed as an exhibit to a Form 10-K filed by the
Company that has not been filed as an exhibit to the Company's Form 10-K filed
for the fiscal year ended March 31, 1994, or which provides for annual payments
of $75,000 or more. True and correct copies of such contracts or agreements or
amendments thereto have been supplied to First Union. None of the Company or the
Company 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 or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the Company, and there
has not occurred any event that, with the lapse of time or the giving of notice
or both, would constitute such a default. Except as Previously Disclosed in
SCHEDULE 4.01(N), neither the Company nor any Company Subsidiary is subject to
or bound by any contract containing covenants which limit the ability of the
Company or any Company 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, the Company or any Company Subsidiary may carry on its business (other
than as may be required by law or any applicable Regulatory Authority).
(O) REPORTS. Since January 1, 1992, each of the Company and the Company
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 SEC, (ii) the FDIC, the OTS, the FHL Bank and the FHL Bank System, and (iii)
any other applicable Regulatory Authorities. 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 Regulatory
Authority with which they were filed and did not contain any untrue statement of
a material fact or, as to reports and statements filed with the SEC, 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 previously disclosed to First Union to be paid to
Wheat First Securities.
(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 Company 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 Company Subsidiaries (the "ERISA Plans"), to the extent subject to
ERISA, are in substantial compliance with ERISA. Except as Previously
Disclosed in SCHEDULE 4.01(Q) each ERISA 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 or the inability to
receive such a favorable determination letter. There is no material pending
or, to its knowledge, threatened litigation relating to the ERISA Plans.
Neither it nor any of the Company Subsidiaries has engaged in a transaction
with respect to any ERISA Plan that would subject it or any of the Company
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.
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(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 Company 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
Company Subsidiaries presently contributes to a Multiemployer Plan, nor
have they contributed to such a plan within the past five calendar years.
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 past 12-month period.
(4) All contributions required to be made under the terms of any ERISA
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 Company
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, 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 Company Subsidiaries has any obligations
for retiree health and life benefits under any plan, except as set forth in
SCHEDULE 4.01(Q). There are no restrictions on the rights of it or any of
the Company Subsidiaries to amend or terminate any such plan without
incurring any liability thereunder.
(7) Except as Previously Disclosed in SCHEDULE 4.01(Q), 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 Company Subsidiaries under any Compensation and Benefit Plan or
otherwise from it or any of the Company 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.
(S) LABOR AGREEMENTS. Neither it nor any of the Company 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 Company 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 Company Subsidiaries, pending or, to the best of its knowledge,
threatened, nor is it aware of any activity involving its or any of the Company
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 the Company and the Company
Subsidiaries that have been classified by it as of January 31, 1995 (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been classified as of January 31, 1995 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 the Company or a Company Subsidiary prior to
January 31, 1995.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan
losses shown on the consolidated balance sheets of the Company included in the
December 31, 1994 Company Financial Reports was, and the allowance for possible
loan losses to be shown on subsequent Company Financial Reports, will be,
adequate, in the opinion of the Board of Directors and management of the
Company, determined in accordance with generally accepted accounting principles,
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.
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(V) INSURANCE. Each of Company and the Company 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 it, except for such matters
which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect on the Company. Set forth in SCHEDULE 4.01(V) is a list
of all insurance policies maintained by or for the benefit of the Company or the
Company Subsidiaries or their directors, officers, employees or agents.
(W) AFFILIATES. Except as Previously Disclosed in SCHEDULE 4.01(W), there
is no person who, as of the date of this Plan, may be deemed to be an
"affiliate" of the Company 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; ARTICLES OF INCORPORATION. It has taken all
necessary action (including the adoption of an amendment to the Bylaws) to
exempt this Plan and, as to the Company, the Stock Option Agreement, and the
transactions contemplated hereby and thereby from, and this Plan, the Stock
Option Agreement and the transactions contemplated hereby and thereby are exempt
from, (i) any applicable state takeover laws, including, without limitation, the
South Carolina Business Control Share Acquisitions Law (South Carolina Code
(section mark) 35-2-104 ET SEQ.) and the South Carolina Business Combination Law
(South Carolina Code (section mark)(section mark)35-2-201 ET SEQ.) and (ii) any
supermajority provisions, or other provisions imposing special conditions on
business combinations contained in the Company's Articles of Incorporation and
Bylaws.
(Y) NO FURTHER ACTION. It has taken all action so that the entering into of
this Plan and, as to the Company, 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 a vote of the holders of two-thirds
of the outstanding shares of Company Common Stock and the approval of the
Company in its capacity as sole stockholder of each of the Banks, which approval
has been given), or (ii) result in the grant of any rights to any person under
the Articles of Incorporation, Charter or By-laws of the Company or any Company
Subsidiary or under any agreement to which the Company or any of the Company
Subsidiaries is a party, or (iii) restrict or impair in any way the ability of
First Union, FUNC-SC or FUNB-SC to exercise the rights granted hereunder or, as
to First Union, under the Stock Option Agreement.
(Z) ENVIRONMENTAL MATTERS.
(1) To its knowledge, it and each of the Company Subsidiaries, the
Participation Facilities and the Loan/Fiduciary 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 the Company.
(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 Company 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 Company
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 the Company or have
been Previously Disclosed in SCHEDULE 4.01(Z).
(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/Fiduciary Property (or it or any of the Company Subsidiaries in
respect of any Loan/Fiduciary 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/Fiduciary 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 the Company or have been Previously Disclosed in SCHEDULE 4.01(Z).
(4) To its knowledge, during the period of (i) its or any of the
Company Subsidiaries' ownership or operation of any of their respective
current properties, (ii) its or any of the Company Subsidiaries'
participation in the management of any Participation Facility, or (iii) its
or any of the Company Subsidiaries' holding of a security or other interest
in a
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Loan/Fiduciary Property, there have been no releases of Hazardous Material
in, on, under or affecting any such property, Participation Facility or
Loan/Fiduciary Property, except for such releases that are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on the Company or have been Previously Disclosed in SCHEDULE 4.01(Z).
(5) To its knowledge, prior to the period of (i) its or any of the
Company Subsidiaries' ownership or operation of any of their respective
current properties, (ii) its or any of the Company Subsidiaries'
participation in the management of any Participation Facility, or (iii) its
or any of the Company Subsidiaries' holding of a security or other interest
in a Loan/Fiduciary Property, there were no releases of Hazardous Material
in, on, under or affecting any such property, Participation Facility or
Loan/Fiduciary Property, except for such releases that are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on the Company or have been Previously Disclosed in SCHEDULE 4.01(Z).
(6) The following definitions apply for purposes of this SECTION
4.01(Z): "Loan/Fiduciary Property" means any property owned or controlled
by it or any of the Company Subsidiaries or in which it or any of the
Company Subsidiaries holds a security or other interest, and, where
required by the context, includes any such property where Company or any of
the Company 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 Company Subsidiaries
participates in the management and, where required by the context, includes
the owner or operator or 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, approval,
order, judgment, decree, injunction, 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.
(7) For purposes of this SECTION 4.01(Z), the term "knowledge" means
that of the directors and officers of the Company and the Company
Subsidiaries and includes their actual knowledge as well as that which
could have been obtained by a reasonable person in the exercise of
reasonable inquiry; PROVIDED, HOWEVER, this shall not be construed to
require a Phase I environmental study.
(AA) OPTION SHARES. As to the Company, the Option Shares (as defined in the
Stock Option Agreement), when issued upon exercise of the Option in accordance
with the terms thereof, will be validly issued, fully paid and nonassessable and
subject to no preemptive rights.
(BB) TAXES. Except as Previously Disclosed in SCHEDULE 4.01(BB), (i) all
reports and returns with respect to Taxes (as defined below) and tax related
information reporting requirements that are required to be filed by or with
respect to it or the Company Subsidiaries, including without limitation
consolidated federal income tax returns of it and the Company Subsidiaries
(collectively, the "Company Tax Returns"), have been duly filed, or requests for
extensions have been timely filed and have not expired, except to the extent all
such failures to file, taken together, are not reasonably likely to have a
Material Adverse Effect on the Company, and such Company 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,
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production, sales, use, license, excise, franchise, employment, premium,
recording, documentary, transfer, back-up withholding or similar taxes, together
with any interest, additions, or penalties with respect thereto imposed on the
income, properties or operations of it or the Company Subsidiaries, together
with any interest in respect of such additions or penalties, collectively the
"Taxes") shown to be due on the Company Tax Returns or otherwise imposed on the
income, properties or operations of the Company or Company Subsidiaries have
been paid in full, (iii) the Company 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
Company 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 Company Tax Returns which are reasonably likely,
individually or in the aggregate, to result in a determination that would have a
Material Adverse Effect on the Company, except as reserved against in the
Company Financial Reports filed prior to the date of this Plan, and (vi) no
waivers of statutes of limitations (excluding such statutes that relate to years
under examination by the Internal Revenue Service) have been given by or
requested with respect to any Taxes of it or the Company Subsidiaries.
(CC) ACCURACY OF INFORMATION. The statements with respect to the Company
and the Company Subsidiaries contained in this Plan, the Stock Option Agreement,
the Schedules and any other written documents executed and delivered by or on
behalf of it 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, in light of the
circumstances under which they were made, not misleading.
(DD) DERIVATIVES CONTRACTS; STRUCTURAL NOTES; ETC. None of the Company or
the Company Subsidiaries is a party to or has agreed to enter into an
exchange-traded or over-the-counter swap, forward, future, option, cap, floor or
collar financial contract or any other contract not included on the balance
sheet which is a derivative contract (including various combinations thereof)
(each a "Derivatives Contract") or owns securities that are referred to as
"structured notes", "high risk mortgage derivatives", "capped floating rate
notes," or "capped floating rate mortgage derivatives," except for those
Derivatives Contracts and other instruments legally purchased or entered into in
the ordinary course of business and Previously Disclosed in SCHEDULE 4.01(DD),
including a list, as applicable, of any Company or Company Subsidiary assets
pledged as security for each such instrument.
(EE) ACCOUNTING CONTROLS. Each of the Company and the Company Subsidiaries
has devised and maintained systems of internal accounting controls sufficient to
provide reasonable assurances, in the judgment of the Board of Directors of the
Company, that (i) all material transactions are executed in accordance with
management's general or specific authorization; (ii) all material transactions
are recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles consistently applied
with respect to thrift or any other criteria applicable to such statements,
(iii) access to the material property and assets of the Company and the Company
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for items is
compared with the actual levels at reasonable intervals and appropriate action
is taken with respect to any differences.
(FF) COMMITMENTS AND CONTRACTS. Neither the Company nor any Company
Subsidiary is a party or subject to any of the following (whether written or
oral, express or implied):
(1) except as Previously Disclosed in SCHEDULE 4.01(FF), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or
fringe benefits) with any present or former officer, director or employee
(other than those which are terminable at will by the Company or such
Company Subsidiary without any obligation on the part of the Company or
such Company Subsidiary to make any payment in connection with such
termination);
(2) except as Previously Disclosed in SCHEDULE 4.01(FF), any real
property lease with annual rental payments aggregating $50,000 or more; or
(3) except as Previously Disclosed in SCHEDULE 4.01(FF), any material
contract with any Affiliate.
4.02. FIRST UNION, FUNC-SC AND FUNB-SC REPRESENTATIONS AND WARRANTIES. Each
of First Union, FUNC-SC and FUNB-SC hereby represents and warrants to the
Company and the Banks, as follows:
(A) RECITALS. The facts set forth in the Recitals (D), (E), (F), (G) and
(I) 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
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valid and binding agreement of it enforceable against it in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency and other similar
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, and, 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 First Union,
(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 other than such consent or approval, which if not
obtained, would not be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect.
(D) FINANCIAL REPORTS. In the case of First Union, its Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and all other documents
filed or to be filed subsequent to December 31, 1993 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 as of
their respective dates 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. No events have occurred, or circumstances have arisen, since
September 30, 1994, which, individually or in the aggregate, have had or are
reasonably likely to have a Material Adverse Effect on First Union.
(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 (i) in exchange for shares of Company Common
Stock upon consummation of the Corporate Merger in accordance with ARTICLE II of
this Plan, and (ii) upon exercise of outstanding Options pursuant to SECTION
2.08, 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.
(I) 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 the failure to be duly qualified, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on First
Union. Each of First Union and its subsidiaries 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 First Union.
(J) CORPORATE POWER. First Union, FUNC-SC and FUNB-SC each has the
corporate power and authority to carry on its business as it is now being
conducted and to own or lease all its material properties and assets.
(K) ACCURACY OF INFORMATION. The statements with respect to First Union,
FUNC-SC and FUNB-SC contained in this Plan, the Stock Option Agreement, the
Schedules and any other written documents executed and delivered by or on behalf
of
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First Union, FUNC-SC or FUNB-SC 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, in light
of the circumstances under which they were made, not misleading.
(L) LITIGATION; REGULATORY ACTION. Neither First Union nor any of its
subsidiaries as a party to any 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 First Union and, to
the best of its knowledge, no such litigation, proceeding or controversy has
been threatened; and neither it nor any of its subsidiaries or any of its or
their material properties or their officers, directors or controlling persons is
a party to or is the subject of any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, any Regulatory Authorities, which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on First
Union and neither it nor any of its subsidiaries has been advised by any
Regulatory Authorities that any 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.
V. COVENANTS.
Each of the Company and the Banks hereby covenants to First Union, FUNC-SC
and FUNB-SC, and each of First Union, FUNC-SC and FUNB-SC hereby covenants to
the Company and the Banks, that:
5.01. BEST EFFORTS. Subject to the terms and conditions of this Plan and to
the exercise by its Board of Directors, as applicable, of such Board's fiduciary
duties established under applicable law, it shall use its reasonable 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 the Company 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).
5.02. COMPANY PROXY. In the case of the Company, it shall promptly prepare
a proxy statement (the "Proxy Statement") to be mailed to the holders of Company
Common 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 as provided in SECTION 5.08, which shall conform to all applicable
legal requirements and it shall call a special meeting (the "Meeting") of the
holders of Company Common Stock to be held as soon as practicable for purposes
of voting upon the approval of this Plan and the Company shall use its best
efforts to solicit and obtain votes of the holders of Company Common Stock in
favor of the approval of this Plan, and, subject to the exercise of its
fiduciary duties under applicable law (based upon the written advice of outside
counsel), the Board of Directors of the Company shall recommend approval of this
Plan by such holders.
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 the Company relating to
the Company or the Company 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 the
Company, 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. Neither the Company nor the Banks will, without the
prior approval of First Union (which approval shall not be unreasonably withheld
or delayed), and neither First Union, FUNC-SC nor FUNB-SC will, without the
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prior approval of the Company (which approval shall not be unreasonably withheld
or delayed), issue any press release or written statement for general
circulation relating to the transactions contemplated hereby, except as
otherwise required by law, in the opinion of its Board of Directors based upon
advice of outside counsel.
5.06. ACCESS; INFORMATION. (1) Upon reasonable notice, the Company and the
Banks 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 and the Company
Subsidiaries' properties, books, contracts, data processing system files,
commitments and records and, during such period, the Company and the Banks shall
furnish promptly to First Union (i) a copy of each material report, schedule and
other document filed by the Company and the Company Subsidiaries with any
Regulatory Authority, and (ii) all other information concerning the business,
properties and personnel of the Company and the Company Subsidiaries 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 the Company or the Banks or the conditions to the obligations
of the Company and the Banks to consummate the transactions contemplated by this
Plan; and (2) 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 in writing that any
such information or document is required by law or applicable published stock
exchange rule to be disclosed, and in the event of the termination of this Plan,
First Union will, upon request by the Company, deliver to the Company all
documents so obtained by First Union or destroy such documents and, in the case
of destruction, will certify such fact to the Company.
5.07. ACQUISITION PROPOSALS. In the case of the Company, without the prior
written consent of First Union, it shall not, and it shall cause the Company
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
the Company under applicable law (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, the Company or
any of the Company Subsidiaries or any merger or other business combination with
the Company or any of the Company Subsidiaries other than as contemplated by
this Plan; it shall instruct its and the Company 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, the Company or any of the Company 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 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 the Company, it will cause each
person who is an "affiliate" of the Company for purposes of Rule 145 under the
Securities Act (each an "Affiliate") 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 B restricting the disposition of the shares of
First Union Common Stock to be received by such person in exchange for such
person's shares of Company Common Stock. Previously Disclosed on SCHEDULE 5.10
is a list of Affiliates as of the date hereof.
5.11. CERTAIN POLICIES OF THE COMPANY AND THE BANKS. In the case of each of
the Company and the Banks, it shall use its best efforts to (i) modify and
change its loan, litigation and other reserve and real estate valuation policies
and practices (including loan classifications and levels of reserves), and (ii)
generally conform its operating, lending and compliance policies and procedures,
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 and
applicable law; PROVIDED, HOWEVER, the Company and the Banks shall not be
required to take any such action set forth in (i) above until all required
regulatory approvals set forth in SECTION 6.02 shall have been obtained and the
Company and the Banks shall be reasonably satisfied that the Mergers will be
promptly consummated in accordance with this Plan. The Company's and the Banks'
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.
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5.12. STATE TAKEOVER LAW. In the case of the Company, it shall not take any
action that would cause the transactions contemplated by this Plan or the Stock
Option Agreement to be subject to any applicable state takeover statute and the
Company 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 any applicable state takeover law, as now or hereafter in effect.
In the case of First Union, it shall not intentionally take any action that
could cause the transactions contemplated by this Plan or the Stock Option
Agreement to be subject to any applicable state takeover statutes.
5.13. NO RIGHTS TRIGGERED. In the case of the Company, it 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, except as
Previously Disclosed on SCHEDULE 5.13, (i) result in the grant of any rights to
any person under the Articles of Incorporation or Bylaws of the Company or under
any agreement to which the Company or any of the Company Subsidiaries is a
party, or (ii) restrict or impair in any way the ability of First Union, FUNC-SC
or FUNB-SC 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 Company Common Stock and the outstanding Options referred to in SECTION 2.08,
pursuant to this Plan.
5.15. REGULATORY APPLICATIONS. In the case of First Union, FUNC-SC and
FUNB-SC, (i) it shall promptly prepare, and will use its best efforts to submit
within 15 days after receipt of all necessary information from the Company and
the Banks, applications to the OCC and the Federal Reserve Board and all other
appropriate Regulatory Authorities for approval of the Mergers (after having
submitted drafts of such applications to counsel for the Company), 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, FUNC-SC and FUNB-SC (after having advised counsel to the Company as
to the nature of such filings).
5.16 REGULATORY DIVESTITURES. In the case of the Company, effective on or
before the Effective Date (to the extent required by any Regulatory Authority),
the Company and the Company Subsidiaries shall cease engaging in such activities
as First Union shall advise the Company in writing are not permitted to be
engaged in by First Union under applicable law following the Effective Date and,
to the extent required by any Regulatory Authority as a conditional approval of
the transactions contemplated by this Plan, the Company shall divest any Company
Subsidiary engaged in activities or holding assets that are impermissible for a
bank holding company, on terms and conditions agreed to by First Union.
5.17 INDEMNIFICATION.
(A) For six years after the Effective Date, First Union shall, and shall
cause the Continuing Corporation to, indemnify, defend and hold harmless the
present and former directors, officers and employees of the Company and the
Company Subsidiaries (each, an "Indemnified Party") against all liabilities
arising out of actions or omissions occurring at or prior to the Effective Date
(including, without limitation, the transactions contemplated by this Plan and
the Stock Option Agreement) to the extent such persons are indemnified under the
SCBCA and the Company's Articles of Incorporation and Bylaws as in effect on the
date hereof, including provisions relating to advances of expenses incurred in
the defense of any litigation.
(B) First Union shall use its reasonable best efforts to maintain the
Company's existing directors' and officers' liability insurance policy (or a
policy, including First Union's existing policy, providing comparable coverage
amount on terms no less favorable) covering persons who are currently covered by
such insurance for a period of three years after the Effective Date; provided,
that First Union shall not be obligated to make a premium payment in respect of
such policy (or replacement policy) which exceeds, for the portion related to
the Company's directors and officers, 150% of the annual premium payment on the
Company's current policy in effect as of the date of this Plan; provided,
further, that if such coverage can only be obtained upon the payment of a
premium in excess of 150% of the annual premium payment of the Company's current
policy, First Union shall obtain such coverage as can reasonably be obtained by
paying a premium of 150% of the annual premium payment of the Company's current
policy in effect as of the date of this Plan.
(C) Any Indemnified Party wishing to claim indemnification under subsection
(A) of this SECTION 5.17, upon learning of such claim, action, suit, proceeding
or investigation, shall promptly notify First Union thereof; provided, that the
failure so to notify shall not affect the obligations of First Union and the
Continuing Corporation under subsection (A) of this SECTION 5.17 (unless such
failure materially increases First Union's liability under such subsection (A)).
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Date), (i) First Union or the
Continuing
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Corporation shall have the right to assume the defense thereof, if it so elects,
and First Union or the Continuing Corporation shall pay all reasonable fees and
expenses of counsel for the Indemnified Parties promptly as statements therefor
are received; PROVIDED, HOWEVER, that First Union shall be obligated pursuant to
this subsection (C) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction for any single action, suit or proceeding or any
group of actions, suits or proceedings arising out of or related to a common
body of facts, (ii) the Indemnified Parties will cooperate in the defense of any
such matter, and (iii) First Union shall not be liable for any settlement
effected without its prior written consent.
(D) If First Union or the Continuing Corporation or any of its successors
or assigns shall consolidate with or merge into any other entity and shall not
be the continuing or surviving entity of such consolidation or merger or shall
transfer all or substantially all of its assets to any entity, then and in each
case, proper provision shall be made so that the successors and assigns of First
Union or the Continuing Corporation shall assume the obligations set forth in
this SECTION 5.17.
(E) First Union shall pay, or cause the Continuing Corporation to pay, all
reasonable expenses, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided for
in this SECTION 5.17. The rights of each Indemnified Party hereunder shall be in
addition to any other rights such Indemnified Party may have under the Articles
of Incorporation or By-laws of the Company, under the SCBCA or otherwise.
5.18 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective Date,
each of the Company, the Banks and First Union shall, and shall cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(B) The Company and the Banks shall promptly notify First Union of (i) any
material change in the business or operations of the Company or any Company
Subsidiary, (ii) any material complaints, investigations or hearings (or
communications indicating that the same may be contemplated) of any Regulatory
Authority relating to the Company or any Company Subsidiary, (iii) the
institution or the threat of material litigation involving or relating to the
Company or any Company Subsidiary, or (iv) any event or condition that might be
reasonably expected to cause any of the Company's or the Banks' representations
or warranties set forth herein not to be true and correct in all as of the
Effective Time (except to the extent contemplated by SECTION 6.08) or prevent
the Company or the Banks from fulfilling its or their obligations hereunder; and
in each case shall keep FUNB-SC informed with respect thereto.
(C) First Union shall (i) promptly notify the Company of any event or
condition that might reasonably be expected to cause any of First Union's,
FUNC-SC's or FUNB-SC's representations or warranties set forth herein not to be
true and correct as of the Effective Date (except to the extent contemplated by
SECTION 6.07), and (ii) notify the Company immediately of any denial of any
application filed by First Union, FUNC-SC or FUNB-SC with any Regulatory
Authority with respect to this Plan, and in each case shall keep the Company and
the Banks informed with respect thereto.
VI. CONDITIONS TO CONSUMMATION OF THE MERGERS.
Consummation of the Mergers is conditioned upon:
6.01. SHAREHOLDER VOTE. Approval of this Plan by the requisite vote of the
stockholders of the Company.
6.02. REGULATORY APPROVALS. Procurement by First Union, FUNC-SC and
FUNB-SC, as applicable, of all required regulatory consents and approvals by the
appropriate Regulatory Authorities and the expiration of the statutory waiting
period relating thereto; PROVIDED, HOWEVER, that no such approval or consent
shall have imposed any condition or requirement which, in the reasonable opinion
of First Union, would so materially and 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; and PROVIDED,
FURTHER, that no condition or requirement which does no more than subject
FUNB-SC or First Union to legal requirements generally applicable to a bank
holding company under the BHC Act or savings and loan holding company under HOLA
as a matter of law shall be deemed to affect materially and adversely the
economic or business benefits of the transactions contemplated by this Plan;
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.
6.04. ACCOUNTANTS' LETTERS. The Company shall cause KPMG Peat Marwick LLP
to deliver to First Union, FUNC-SC and FUNB-SC 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 the
Company's consolidated financial position and results
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of operations, which letters shall be based upon "agreed upon procedures"
undertaken by such firm in accordance with the Statement on Financial Accounting
Standards No. 72.
6.05. LEGAL OPINION. The Company and the Banks shall have received an
opinion, dated the Effective Date, of Marion A. Cowell, Jr., counsel for First
Union, FUNC-SC and FUNB-SC in form reasonably satisfactory to the Company and
the Banks, which shall cover the matters contained in EXHIBIT C hereto.
6.06. LEGAL OPINION. First Union, FUNC-SC and FUNB-SC shall have received
an opinion, dated the Effective Date, of Breyer & Aguggia, special counsel for
the Company and the Banks, and South Carolina counsel for the Company and the
Banks reasonably acceptable to First Union, each in form reasonably satisfactory
to First Union, FUNC-SC and FUNB-SC which together shall cover the matters
contained in EXHIBIT D hereto.
6.07. OFFICERS' CERTIFICATE. (i) Each of the representations and warranties
contained herein of First Union, FUNC-SC and FUNB-SC 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, FUNC-SC and FUNB-SC 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 the
Company and the Banks shall have received a certificate signed by an executive
officer of each of First Union, FUNC-SC and FUNB-SC, dated the Effective Date,
to such effect.
6.08. OFFICERS' CERTIFICATE. (i) Each of the representations and warranties
contained herein of the Company and the Banks 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 except as otherwise provided
in SECTION 5.11, and (ii) each and all of the agreements and covenants of the
Company and the Banks 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, FUNC-SC and FUNB-SC shall have
received a certificate signed by the Chief Executive Officers and the Chief
Financial Officers of the Company and each of the Banks, dated the Effective
Date, to such effect.
6.09. EFFECTIVE REGISTRATION STATEMENT. The Registration Statement shall
have become effective and no stop or other 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 the Company 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 the Company who receive shares of
First Union Common Stock in exchange for their shares of Company Common Stock,
except that gain or loss may be recognized as to cash received in lieu of
fractional share interests, and, in rendering their opinion, Sullivan & Cromwell
may require and rely upon representations and agreements contained in documents
executed by officers of First Union, the Company 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. RECEIPT OF AFFILIATE AGREEMENTS. First Union shall have received from
each affiliate of the Company 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 SECTIONS 6.04, 6.06, 6.08 OR
6.13 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 the Company.
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 the Company.
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7.02. BREACH. By First Union or the Company, 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 material 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 material
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 the Company, 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 December 31, 1995.
7.04. NO STOCKHOLDER OR REGULATORY APPROVAL. By the Company 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 is not obtained at the Meeting, including any adjournment or
adjournments thereof, or in the event that written notice is received which
states that any required regulatory approval contemplated by SECTION 6.02 has
not been approved or has been denied.
7.05. STOCK OPTION AGREEMENT. By First Union, if the Stock Option Agreement
is not executed by the Company and delivered to First Union at or before 8:00
a.m. on the day following the execution and delivery of this Plan.
7.06. TERMINATION FEE. In the event that First Union wilfully breaches a
representation, warranty or covenant contained herein and, as a result thereof
(i) the Company exercises its right to terminate this Plan under SECTION 7.02 at
a time when First Union was not entitled to terminate this Plan under SECTION
7.02, 7.03 OR 7.04 and (ii) the Mergers are not consummated, then First Union
agrees to pay to the Company a fee of $2.5 million within five business days of
First Union's receipt of written demand therefor.
VIII. OTHER MATTERS.
8.01. SURVIVAL. If the Effective Date occurs, all representations,
warranties, agreements and covenants contained in this Plan, except for SECTION
5.17, 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), SECTIONS 5.03, 5.06(2), 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 in writing by the party benefitting 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 the
Company, the consideration to be received by the stockholders of the Company for
each share of Company Common 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 the Company and First
Union.
8.06. CONFIDENTIALITY. Except as otherwise provided in SECTION 5.06(2),
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.
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<PAGE>
8.07. 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 First Union,
FUNC-SC or FUNB-SC, to: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telecopy Number: (704)374-3425.
Attention: Edward E. Crutchfield
Chairman and Chief Executive Officer
Copy to: First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
Telecopy Number: (704)374-3425
Attention: Marion A. Cowell, Jr.
General Counsel
If to the Company
or the Banks, to: United Financial Corporation of South Carolina, Inc.
425 Main Street
P.O. Box 3029
Greenwood, South Carolina 29648
Telecopy Number: (803)942-8247
Attention: Lynn W. Hodge
President
Copy to: Breyer & Aguggia
601 13th Street, N.W.
Suite 1120 South
Washington, D.C. 20005
Telecopy Number:(202)737-7979
Attention: John F. Breyer, Jr., Esquire
Paul M. Aguggia, Esquire
</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,
any breach of a representation or warranty contained herein by such party)
which (a) has a material adverse effect on the financial condition, results
of operations, business or prospects of such party and its subsidiaries,
taken as a whole, or (b) would materially impair such party's, or any
affiliated party's (which includes, as to the Company, the Banks and as to
First Union, FUNC-SC and FUNB-SC), ability to timely perform its
obligations under this Plan or the Stock Option Agreement or the
consummation of any of the transactions contemplated hereby or thereby;
PROVIDED, that a Material Adverse Effect shall not include effects
resulting from general economic conditions, or changes in the Company's or
Banks' financial condition as a result of changes in accounting practices
or changes to statutes, regulations or regulatory policies that have not
resulted in materially more severe adverse changes than that experienced by
similarly situated financial institutions;
(2) the term "individually or in the aggregate" as used in ARTICLE IV
of this Plan includes all events, occurrences and circumstances described
in any paragraph of ARTICLE IV, and is not linked to any specific
paragraph; and
(3) the term "Previously Disclosed" by a party shall mean information
set forth in a Schedule that is delivered by such party to the other party
contemporaneously with the execution of this Plan and specifically
designated as information "Previously Disclosed" pursuant to this Plan.
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<PAGE>
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. Except for SECTION 5.17, nothing in this Plan or the Stock Option
Agreement, 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 or the Stock Option
Agreement.
8.10. BENEFIT PLANS. As soon as administratively practicable after the
Effective Time, except as Previously Disclosed in SCHEDULE 8.10, employees of
the Company and the Company Subsidiaries shall be generally entitled to
participate in the pension, 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 the Company or
the Company Subsidiaries, as the case may be, as if such service had been 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 CORPORATION OF SOUTH
CAROLINA
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
FIRST UNION NATIONAL BANK OF SOUTH
CAROLINA
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
UNITED FINANCIAL CORPORATION OF SOUTH
CAROLINA, INC.
By: /s/ LYNN W. HODGE
NAME: LYNN W. HODGE
TITLE: PRESIDENT
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<PAGE>
UNITED SAVINGS BANK, FSB
By: /s/ CLIFFORD W. STUMBO
NAME: CLIFFORD W. STUMBO
TITLE: EXECUTIVE VICE PRESIDENT
HOME FEDERAL SAVINGS BANK OF SOUTH
CAROLINA
By: /s/ HERMAN E. HONEYCUTT
NAME: HERMAN E. HONEYCUTT
TITLE: PRESIDENT
B-23
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of February 22, 1995 (the "Agreement"), by
and between United Financial Corporation of South Carolina, Inc., a South
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 February 21, 1995 (the "Plan"), providing for, among other
things, the merger of Issuer with and into First Union Corporation of South
Carolina ("FUNC-SC"), a wholly-owned subsidiary of Grantee, with FUNC-SC 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 1,100,000 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 $0.10 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
equal to the greater of (i) the greater of the closing prices per share of
Issuer common stock on February 22nd and 23rd, 1995, as reported on the NASDAQ
Stock Market, and (ii) $18.25.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as defined below), 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 (as hereinafter
defined) or a Preliminary Purchase Event unless the Issuer has, prior to such
termination, engaged in discussions with any third party regarding an
Acquisition Transaction (as hereinafter defined) (an "Issuer Termination"), (C)
18 months after termination of the Plan by Issuer in accordance with the terms
thereof other than pursuant to an Issuer Termination, and (D) 18 months after
termination of the Plan by Grantee in accordance with the terms thereof;
PROVIDED, HOWEVER, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law, including, without limitation, the
Home Owners' Loan Act, as amended (the "HOLA"). 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
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 significant subsidiaries, (B) the disposition, by
sale, lease, exchange or otherwise, of assets or deposits of Issuer or any
of its significant subsidiaries representing in either case 20% or more of
the consolidated assets or deposits 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
significant subsidiaries other than the issuance of Issuer Common Stock
upon the exercise of outstanding options; 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
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<PAGE>
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 voting power of Issuer or any of its
significant subsidiaries.
(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, the 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 subsid-
iary of Grantee) shall have (A) made 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
HOLA, the Bank Holding Company Act of 1956, as amended (the "BHC Act"), the
Bank Merger Act, as amended (the "BMA") or the Change in Bank Control Act
of 1978, as amended (the "CBCA"), for approval to engage in an Acquisition
Transaction; or
(iii) any person (other than Grantee or any subsidiary of 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 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 Office
of Thrift Supervision, or other Regulatory Authority, 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 Holder to exercise the Option.
(e) In the event 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 Office of Thrift Supervision 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, 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 SECTION 11(F) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in SECTION 4(A), (i)
Issuer shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be
B-25
<PAGE>
purchased at such Closing, which Option Shares shall be free and clear of all
Liens and subject to no preemptive rights, and (B) if the Option is exercised in
part 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) Holder shall deliver to Issuer a letter
agreeing that 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 FEBRUARY 22, 1995. 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 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 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 this Agreement
to Issuer, Holder shall be deemed to be the holder of record of the shares of
Issuer 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
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, issuance and delivery of stock certificates under this Section
in the name of 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 HOLA, or the CBCA, or a
state banking law, prior approval of or notice to the Office of Thrift
Supervision or to any Regulatory Authority is necessary before the Option may be
exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to the Office of Thrift Supervision or
such Regulatory Authority as they may require) in order to permit 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 Holder against dilution.
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 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 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
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<PAGE>
pursuant hereto, shall be duly and validly issued, fully paid and nonassessable,
and shall be delivered free and clear of all Liens, including, but not limited
to, 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 Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that 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), upon exercise of any option to purchase Issuer Common Stock
outstanding on the date hereof or upon conversion into Issuer Common Stock of
any convertible security of Issuer outstanding on the date hereof), 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. No provision of this SECTION
7 shall be deemed to affect or change, or constitute authorization for any
violation of, any of the covenants or representations in the Plan.
(b) In the event that Issuer shall enter into 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 or deposits 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 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 "Substitute Option Issuer").
(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 Holder. Substitute Option Issuer shall also enter
into an agreement with Holder 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
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of 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.
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<PAGE>
(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 shares of capital stock
(or similar equity interest) with the greatest voting power in respect of
the election of directors (or persons similarly responsible for the
direction of the business and affairs) of the Substitute Option Issuer.
(3) "Assigned Value" shall mean the highest of (w) the price per share
of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made, (x) the price per share of Issuer Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (y) the
highest closing price for shares of Issuer Common Stock within the
six-month period immediately preceding the consolidation, merger, or sale
in question and (z) in the event of a sale of all or substantially all of
Issuer's assets or deposits an amount equal to (i) the sum of the price
paid in such sale for such assets (and/or deposits) and the current market
value of the remaining assets of Issuer, as determined by a nationally
recognized investment banking firm selected by Holder or Owner, as the case
may be, divided by (ii) the number of shares of Issuer Common Stock
outstanding at such time. 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 Holder or Owner, as the case may be
(and if there are both a Holder and an Owner, the Holder).
(4) "Average Price" shall mean the average closing price of a share of
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 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 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 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), Substitute
Option Issuer shall make a cash payment to 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 Holder.
(g) Issuer shall not enter into any transaction described in SECTION 7(B)
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 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 (other than any diminution in value resulting from the fact that
the Substitute Common Stock are restricted securities, as defined in Rule 144
under the Securities Act or any successor provision) than other shares of common
stock issued by Substitute Option Issuer).
8. REGISTRATION RIGHTS.
(A) DEMAND REGISTRATION RIGHTS. Issuer shall, subject to the conditions of
SECTION 8(C) below, if requested by any Holder or Owner, as applicable,
including Grantee and any permitted transferee ("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 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.
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<PAGE>
(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 Shareholders of its intention to do so and, upon the written request of
any 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 a 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
of the Securities Act or any successor Form; PROVIDED, FURTHER, HOWEVER, that
such election pursuant to (i) may only be made two times. 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 SECTION 8(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 SECTION 8(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 SECTION 8(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 one occasion during any calendar year;
(iii) within 90 days after the effective date of a registration
referred to in SECTION 8(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
(iv) 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 SECTION 8(A) or 8(B) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to SECTION 8(A) or 8(B)
above.
(E) INDEMNIFICATION. In connection with any registration under SECTION 8(A)
or 8(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
B-29
<PAGE>
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 avail-
able 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 SECTION 8(A) or 8(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 Shareholders 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 Shareholders 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.
(G) ISSUE 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.
B-30
<PAGE>
9. QUOTATION; LISTING. If Issuer Common Stock or any other securities to be
acquired in connection with the exercise of the Option are then authorized for
quotation or trading or listing on the NASDAQ/NMS or any securities exchange,
Issuer, upon the request of 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.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of 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.
11. MISCELLANEOUS.
(A) EXPENSES. 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 (i) 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 (ii) 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 SECTION 11(H)) 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 Holder or Owner to acquire, or does not require Issuer to repurchase, the
full number of shares of Issuer Common Stock as provided in SECTION 3 (as may be
adjusted herein), it is the express intention of Issuer to allow 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-31
<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: United Financial Corporation of South Carolina, Inc.
425 Main Street
P.O. Box 3029
Greenwood, South Carolina 29648
Telecopy Number: (803)942-8247
Attention: Lynn W. Hodge
President
with a copy to: Breyer & Aguggia
601 13th Street, N.W.
Suite 1120 South
Washington, D.C. 20005
Telecopy Number: (202)737-7979
Attention: John F. Breyer, Jr., Esquire
Paul M. Aguggia, Esquire
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
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.
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 Holder may assign this Agreement
to a wholly-owned subsidiary of Holder and 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.
B-32
<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.
UNITED FINANCIAL CORPORATION OF SOUTH
CAROLINA, INC.
By: /s/ LYNN W. HODGE
NAME: LYNN W. HODGE
TITLE: PRESIDENT
FIRST UNION CORPORATION
By: /s/ KENNETH R. STANCLIFF
NAME: KENNETH R. STANCLIFF
TITLE: SENIOR VICE PRESIDENT
B-33
<PAGE>
ANNEX C
OPINION OF WHEAT FIRST SECURITIES INC.
August , 1995
Board of Directors
United Financial Corporation of South Carolina, Inc.
425 Main Street
Greenwood, South Carolina 29648
Members of the Board:
United Financial Corporation of South Carolina, Inc. ("United") and First
Union Corporation ("First Union") have entered into an Agreement and Plan of
Merger, dated as of February 21, 1995 (the "Agreement"), pursuant to which
United will combine with First Union by means of the merger (the "Merger") of
United with and into a wholly-owned subsidiary of First Union. Upon consummation
of the Merger, each of the outstanding shares of the $0.10 par value common
stock of United ("United Common Stock") will be converted into .458 of a share
of the $3.33 1/3 par value common stock of First Union ("First Union Common
Stock"). The exchange ratio of .458 of a share of First Union Common Stock for
each share of United Common Stock, as adjusted in accordance with the terms of
the Agreement in the event the average trading price of First Union Common Stock
during a specified period is less than $42.75 or greater than $46.75, is
referred to herein as the "Exchange Ratio."
Wheat, First Securities, Inc. ("Wheat") as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of United or First Union for our own account or for the
accounts of our customers. Wheat will also receive a fee from United for
rendering this opinion.
You have asked us whether, in our opinion, the Exchange Ratio is fair, from
a financial point of view, to the holders of United Common Stock.
In arriving at the opinion set forth below, we have conducted discussions
with members of senior management of United and First Union concerning their
businesses and prospects and have reviewed certain publicly available business
and financial information and certain other information prepared or provided to
us in connection with the Merger, including, among other things, the following:
(1) United's Annual Reports to Stockholders, Annual Reports on Form
10-K and related financial information for the three fiscal years
ended March 31, 1995;
(2) United's Quarterly Reports on Form 10-Q and related financial
information for the three months ended June 30, 1995;
(3) 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, 1994;
(4) First Union's Quarterly Reports on Form 10-Q and related
financial information for the three months ended March 31, 1995,
and for the six months ended June 30, 1995;
(5) Certain publicly available information with respect to historical
market prices and trading activity for United Common Stock and
First Union Common Stock and for certain publicly traded
financial institutions which Wheat deemed relevant:
(6) Certainly publicly available information with respect to banking
companies and the financial terms of certain other mergers and
acquisitions which Wheat deemed relevant;
(7) The Agreement;
(8) The Registration Statement on Form S-4 of First Union, including
the Proxy Statement/Prospectus;
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<PAGE>
(9) Other financial information concerning the businesses and
operations of United and First Union, including certain audited
financial information and certain internal financial analyses and
forecasts for United prepared by senior management; and
(10) Such financial studies, analyses, inquiries and other matters as
we deemed necessary.
In preparing our opinion, we have relied on and assumed the accuracy and
completeness of all information provided to us or publicly available, including
the representations and warranties of United and First Union included in the
Agreement, and we have not assumed any responsibility for independent
verification of such information. We have relied upon the management of United
as to the reasonableness and achievability of its financial and operational
forecasts and projections, and the assumptions and bases therefor, provided to
us, and we have assumed that such forecasts and projections reflect the best
currently available estimates and judgments of such management and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such management. We also assumed, without
independent verification, that the aggregate allowances for loan losses and
other contingencies for United and First Union are adequate to cover such
losses. Wheat did not review any individual credit files of United or First
Union, nor did it make an independent evaluation or appraisal of the assets or
liabilities of United or First Union. We also assumed that, in the course of
obtaining the necessary regulatory approvals for the Merger, no conditions will
be imposed that will have a material adverse effect on the contemplated benefits
of the Merger, on a pro forma basis, to United. Our opinion is necessarily based
upon market, economic and other conditions as they exist and can be evaluated on
the date hereof and the information made available to us through the date
hereof. Events occurring after that date could materially affect the assumptions
and conclusions contained in our opinion. We have not undertaken to reaffirm or
revise this opinion or otherwise comment on any events occurring after the date
hereof. Wheat's opinion is directed only to the fairness, from a financial point
of view, of the Exchange Ratio to the shareholders of United Common Stock and
does not address any other aspect of the Merger or constitute a recommendation
to any shareholder of United as to how each shareholder should vote with respect
to the Merger. Wheat's opinion does not address the relative merits of the
Merger as compared to any alternative business strategies that might exist for
United, nor does it address the effect of any other business combination in
which United might engage.
It is understood that this opinion may be included in its entirety in the
Proxy Statement/Prospectus. 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 Exchange Ratio is fair, from a financial point of view,
to the holders of United Common Stock.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
C-2
<PAGE>
ANNEX D
CHAPTER 13
DISSENTERS' RIGHTS
ARTICLE 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(SECTION MARK)33-13-101. DEFINITIONS.
In this chapter:
(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 Section 33-13-102 and who exercises that right when and
in the manner required by Sections 33-13-200 through 33-13-280.
(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 to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. The value of the shares is to be determined by
techniques that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(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 by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(SECTION MARK)33-13-102. RIGHT TO DISSENT.
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 is a party
(i) if shareholder approval is required for the merger by Section 33-11-103 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is a parent that is
merged with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares are to be acquired, if the shareholder is
entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale must be distributed 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;
D-1
<PAGE>
(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, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(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 Section 33-6-104; or
(5) the approval of a control share acquisition under Article 1 of Chapter
2 of Title 35;
(6) any corporate action 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.
(SECTION MARK)33-13-103. 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 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 he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
(SECTION MARK)33-13-200. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
(SECTION MARK)33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must give to the corporation 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. A vote in favor of the proposed action cast by the holder
of a proxy solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this chapter.
(SECTION MARK)33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where certificates for
certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares is to be restricted after the payment demand is received;
D-2
<PAGE>
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or, if he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial shareholder acquired
beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment demand,
which may not be fewer than thirty nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by which certificates for
certificated shares must be deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
(SECTION MARK)33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his 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 canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and 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 chapter.
(SECTION MARK)33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section
33-13-260.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(SECTION MARK)33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity 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 and an explanation of how the fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment under
Section 33-13-280; and
(5) a copy of this chapter.
(SECTION MARK)33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, 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 Section 33-13-220 and repeat the payment demand
procedure.
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<PAGE>
(SECTION MARK)33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Section
33-13-250 from a dissenter as to any shares of which he (or the beneficial owner
on whose behalf he is asserting dissenters' rights) was not the beneficial owner
on the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The coprporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
(SECTION MARK)33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.
(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 (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section 33-13-250 or
offered under Section 33-13-270 is less than the fair value of his shares or
that the interest due is calcualted incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or to offer
payment under Section 33-13-270 within sixty days after the date set for
demanding payment; or
(3) corporation, having failed to take the proposed action, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within sixty days after the date set for demanding
payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE 3
JUDICIAL APPRAISAL OF SHARES
(SECTION MARK)33-13-300. COURT ACTION.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall 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 persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(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.
D-4
<PAGE>
(SECTION MARK)33-13-310. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.
(b) The court also may 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 comply substantially with the
requirements of Section 33-13-200 through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of 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 chapter.
(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) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
D-5
<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 By-laws 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)(a) The Merger Agreement, including the related Stock Option Agreement. (Incorporated by reference to ANNEX B to the
Prospectus/Proxy Statement included in this Registration Statement.)*
(2)(b) The FFB Merger Agreement, including the exhibits thereto. (Incorporated by reference to Exhibit (99) to FUNC's
Form 8-K dated June 21, 1995.)
(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) Shareholder Protection Rights Agreement, as amended. (Incorporated by reference to Exhibit (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20, 1992, and to Exhibit (99) to FUNC's Forms 8-K dated June 20,
1995 and June 21, 1995.)
(4)(b) 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.
(10) Employment Agreement between FUNC and John R. Georgius.
(12)(a) Computations of Consolidated Ratios of Earnings to Fixed Charges. (Incorporated by reference to Exhibit (12) to
FUNC's 1995 Second Quarter Report on Form 10-Q.)
(12)(b) Pro Forma Computations of Consolidated Ratios of Earnings to Fixed Charges and Pro Forma Computations of
Consolidated Ratios of Earnings to Fixed Charges and Preferred Stock Dividends. (Incorporated by reference to
Exhibit (99)(b) to FUNC's 1995 Second Quarter Report on Form 10-Q.)
(23)(a) Consent of KPMG Peat Marwick LLP.
(23)(b) Consent of Deloitte & Touche LLP.
(23)(c) Consent of KPMG Peat Marwick LLP.
(23)(d) Consent of KPMG Peat Marwick LLP.
(23)(e) Consent of Marion A. Cowell, Jr., Esq. (Included in Exhibit (5).)
(23)(f) Consent of Sullivan & Cromwell. (Included in Exhibit (8).)
(23)(g) Consent of Wheat First Securities Inc.**
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(24) Power of Attorney.**
(27) FUNC's Financial Data Schedule. (Incorporated by reference to Exhibit (27) to FUNC's 1995 Second Quarter Report
on Form 10-Q.)
(99) Form of proxy for the Special Meeting of Stockholders of UFC.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
** Previously filed.
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 and the
rules and regulations thereunder, 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 and the rules and regulations
thereunder, the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(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.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
II-2
<PAGE>
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
PROVIDED HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to 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 August 28,
1995.
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, as amended,
this Amendment No. 1 to 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 Chairman, and Chief Executive Officer and Director
EDWARD E. CRUTCHFIELD
*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
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-4
<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
*JACK A. LAUGHERY 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
*DEWEY L. TROGDON Director
DEWEY L. TROGDON
*JOHN D. UIBLE Director
JOHN D. UIBLE
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
*B. J. WALKER Director
B. J. WALKER
*KENNETH G. YOUNGER Director
KENNETH G. YOUNGER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
MARION A. COWELL, JR.
</TABLE>
Date: August 28, 1995
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
<S> <C> <C>
(2)(a) The Merger Agreement, including the related Stock Incorporated by reference to ANNEX B to the
Option Agreement. Prospectus/Proxy Statement included in this
Registration Statement.*
(2)(b) The FFB Merger Agreement, including the exhibits Incorporated by reference to Exhibit (99) to FUNC's
thereto. Form 8-K dated June 21, 1995.
(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) Shareholder Protection Rights Agreement, as amended. Incorporated by reference to Exhibit (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20,
1992, and to Exhibit (99) to FUNC's Forms 8-K dated
June 20, 1995 and June 21, 1995.
(4)(b) 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. Filed herewith.
(10) Employment Agreement between FUNC and John R. Filed herewith.
Georgius.
(12)(a) Computations of Consolidated Ratios of Earnings to Incorporated by reference to Exhibit (12) to FUNC's
Fixed Charges. 1995 Second Quarter Report on
Form 10-Q.
(12)(b) Pro Forma Computations of Consolidated Ratios of Incorporated by reference to Exhibit (99)(b) to FUNC's
Earnings to Fixed Charges and Pro Forma Computations 1995 Second Quarter Report on
of Consolidated Ratios of Earnings to Fixed Charges Form 10-Q.
and Preferred Stock Dividends.
(23)(a) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(b) Consent of Deloitte & Touche LLP. Filed herewith.
(23)(c) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(d) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(e) Consent of Marion A. Cowell, Jr., Esq. Included in Exhibit (5).
(23)(f) Consent of Sullivan & Cromwell. Included in Exhibit (8).
(23)(g) Consent of Wheat First Securities Inc. **
(24) Power of Attorney. **
(27) FUNC's Financial Data Schedule. Incorporated by reference to Exhibit (27) to FUNC's
1995 Second Quarter Report on
Form 10-Q.
(99) Form of proxy for the Special Meeting of Stockholders Filed herewith.
of UFC.
</TABLE>
* Omitted exhibits to be furnished upon request of the Commission.
** Previously filed.
<PAGE>
EXHIBIT (8)
August 28, 1995
First Union Corporation
One First Union Center
Charlotte, North Carolina 28288-0013
United Financial Corporation of South Carolina, Inc.
425 Main Street
Greenwood, South Carolina 29646
Ladies and Gentlemen:
We have acted as special counsel to First Union Corporation, a corporation
organized under the laws of North Carolina ("First Union"), in connection with
the planned merger (the "Corporate Merger") of United Financial Corporation of
South Carolina, Inc., a corporation organized under the laws of South Carolina
("UFC"), with and into First Union Corporation of South Carolina, a corporation
organized under the laws of South Carolina ("FUNC-SC"), pursuant to the
Agreement and Plan of Merger, dated as of the 21st day of February, 1995, by and
between First Union, FUNC-SC, UFC and others (the "Merger Agreement").
Capitalized terms used but not defined herein shall have the meanings
specified in the Proxy Statement-Prospectus pertaining to the Corporate Merger.
We have assumed with your consent that:
(a) the Corporate Merger will be effected in accordance with the Merger
Agreement, and
(b) the representations contained in the letters of representation from UFC
and First Union to us dated August 18, 1995 and August 17, 1995, respectively,
will be true on the Effective Date.
On the basis of the foregoing, and our consideration of such other matters
of fact and law as we have deemed necessary or appropriate, it is our opinion,
under presently applicable federal income tax law, that the Corporate Merger
will constitute a reorganization under Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and that:
(i) no gain or loss will be recognized for federal income tax purposes
by UFC stockholders upon the exchange in the Corporate Merger of shares of
UFC Common Stock solely for FUNC Common Stock (except with respect to cash
received in lieu of a fractional share interest in FUNC Common Stock);
(ii) the basis of FUNC Common Stock received in the Corporate Merger
by UFC stockholders (including the basis of any fractional share interest
in FUNC Common Stock) will be the same as the basis of the shares of UFC
Common Stock surrendered in exchange therefor;
(iii) the holding period of FUNC Common Stock received in the
Corporate Merger by a UFC stockholder (including the holding period of any
fractional share interest in FUNC Common Stock) will include the holding
period during which the shares of UFC Common Stock surrendered in exchange
therefor were held by the UFC stockholder, provided such shares of UFC
Common Stock were held as capital assets;
(iv) cash received by a holder of UFC Common Stock in lieu of a
fractional share interest in FUNC Common Stock 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 UFC Common Stock allocable to the
fractional share interest; and
(v) UFC stockholders that dissent from the Corporate Merger and
receive cash in exchange for their UFC Common Stock should in general
recognize capital gain or loss in an amount equal to the difference between
the amount of cash received (less any amount constituting interest) and the
UFC stockholder's basis in the UFC Common Stock surrendered therefor.
Special rules may apply to dissenting UFC stockholders that actually or
constructively (pursuant to Section 318
<PAGE>
The tax consequences described above may not be applicable to a UFC stockholders
that acquired the UFC Common Stock pursuant to the exercise of an employee stock
option or right or otherwise as compensation, that hold UFC Common Stock as
part of a "straddle" or "conversion transaction" or that are an insurance
company, securities dealers, financial institution or foreign person.
We hereby consent to the reference to us under the heading "THE
MERGER -- Certain Federal Income Tax Consequences" in the Proxy
Statement-Prospectus pertaining to the Corporate Merger and to the filing of
this opinion as an exhibit to the related Registration Statement on Form S-4
filed with the 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,
SULLIVAN & CROMWELL
<PAGE>
EXHIBIT (10)
AGREEMENT
AGREEMENT, dated as of September 1, 1995, by and between FIRST UNION
CORPORATION, a North Carolina corporation (hereinafter referred to as
"Employer") and JOHN R. GEORGIUS, an individual (hereinafter referred to as
"Employee").
IN CONSIDERATION OF the mutual covenants herein contained, and other good
and valuable consideration, the parties hereto agree as follows:
1. EMPLOYMENT.
(a) Employer hereby agrees to employ Employee, and Employee agrees to serve
as an employee of Employer and as an employee of one or more of its
subsidiaries, during the Period of Employment, as defined in Section 2, in such
executive capacity as is set forth herein. During the Period of Employment,
Employee also agrees to serve as a Director on the Board of Directors of
Employer, as well as a member of any committee of the Board of Directors of the
Employer to which Employee may be elected or appointed. Effective as of the date
hereof, Employee shall serve as Vice Chairman of the Board of Directors and a
member of the office of the Chairman of Employer.
(b) If at any time during the Period of Employment, without Employee's
consent, Employee is not elected or re-elected to the offices specified in
paragraph (a) of this Section, or Employee is removed from such offices, or if
at any time during the Period of Employment, Employee shall fail to be vested
with the power and authority of such offices or Employee shall lose any
significant duties or responsibilities attending such offices, Employee shall
have the right by written notice to Employer to terminate his services
hereunder, effective as of the last day of the month of receipt of such notice,
in which event the Period of Employment, as hereinafter defined, shall so
terminate on such last day of the month; such termination under such
circumstances shall be deemed to be pursuant to paragraph (a) of Section 6
hereof as a termination by Employer other than for Cause with all of the
consequences which flow from such termination.
2. PERIOD OF EMPLOYMENT.
The "Period of Employment" shall be the period commencing September 1, 1995
and ending on December 31, 1998 and the period of any extensions thereof in
accordance with the further provisions of this Section. The Period of Employment
shall be extended automatically without further action by either party as of
January 1, 1997 and each succeeding January 1, for the one-year period beginning
on January 1, 1999 and each succeeding January 1 thereafter, unless either party
shall have served written notice in accordance with the provisions of Section 9
hereof upon the other party prior to December 31 of any year during the Period
of Employment, as the case may be, of its or his intention that the Period of
Employment under this Agreement shall terminate ten days after such notice is
served.
3. DUTIES DURING THE PERIOD OF EMPLOYMENT.
Employee shall devote his full business time, attention and best efforts to
the affairs of Employer and its subsidiaries during the Period of Employment;
provided, however, that Employee may engage in other activities, such as
activities involving charitable, educational, religious and similar types of
organizations, speaking engagements, membership on the board of directors of
other organizations, and similar type activities to the extent that such other
activities do not prohibit the performance of his duties under this Agreement,
or inhibit or conflict in any material way with the business of Employer and its
subsidiaries.
4. CURRENT CASH COMPENSATION.
(A) BASE ANNUAL SALARY.
Employer will pay to Employee during the Period of Employment a base annual
salary payable in substantially equal semi-monthly installments, at an annual
rate at least equal to the aggregate annual base salary payable to Employee by
Employer and any of its affiliated or subsidiary companies as of September 1,
1995, during each calendar year, or portion thereof, of the Period of
Employment; provided, however, it is agreed between the parties that the
Employer shall review annually, and in light of such review may, in the
discretion of the Board of Directors of Employer and in accordance with
Employer's compensation procedures and guidelines, increase such base annual
salary taking into account Employee's then responsibilities, increase in the
cost of living, increases in compensation of other executives of Employer and
its subsidiaries, increases in salaries of executives of other corporations,
performance by Employee and Employer, or other pertinent factors.
<PAGE>
(B) INCENTIVE COMPENSATION.
During the Period of Employment, Employer, in its sole discretion, will
award Employee annual incentive compensation based on his performance and other
factors; provided, however, that while not being legally required to pay any
incentive compensation Employer agrees to take into account, in determining the
amount of any such annual incentive compensation, the factors described in
paragraph (a) of this Section. A cash award made to Employee under Employer's
Long and Short-Term Management Incentive Plans shall be considered to be
incentive compensation for purposes of this paragraph.
5. OTHER EMPLOYEE BENEFITS.
(A) VACATION AND SICK LEAVE.
Employee shall be entitled to reasonable paid annual vacation periods and
to reasonable sick leave.
(B) REGULAR REIMBURSED BUSINESS EXPENSES.
Employer shall reimburse Employee for all expenses and disbursements
reasonably incurred by Employee in the performance of his duties during the
Period of Employment and such other facilities or services as Employer and
Employee may, from time to time, agree are reimbursable.
(C) EMPLOYEE'S BENEFIT PLANS OR ARRANGEMENTS.
In addition to the cash compensation provided for in Section 4 hereof,
Employee, subject to meeting eligibility provisions and to the provisions of
this Agreement, shall be entitled to participate in all employee benefit plans
of Employer, as in effect on September 1, 1995 or as they may be modified or
added to by the Employer from time to time, including, without limitation, plans
providing retirement benefits, medical insurance, life insurance, disability
insurance, and accidental death or dismemberment insurance.
(D) EMPLOYER'S EXECUTIVE COMPENSATION PLANS.
In addition to the cash compensation provided for in Section 4 hereof and
the employee benefits of Employer provided for in paragraph (c) of this Section,
Employee, subject to meeting eligibility provisions and to the provisions of
this Agreement, shall be entitled to participate in all executive compensation
plans of Employer, as in effect on September 1, 1995 or as they may be modified
or added to by the Employer from time to time, including, without limitation,
management incentive plans, deferred compensation plans, supplemental retirement
plans and stock option plans.
(E) PERMANENT DISABILITY.
If, during the Period of Employment, Employee shall become permanently
disabled, Employer shall pay Employee (I) that amount payable to Employee under
any long-term disability plan and supplements thereto maintained by Employer
providing for disability benefits, and (ii) an annual amount equal to 15% of the
average of Employee's base annual salary (pursuant to paragraph (a) of Section
4) and incentive compensation (pursuant to paragraph (b) of Section 4) during
the three calendar years immediately preceding the date Employee becomes
disabled. Amounts payable to Employee pursuant to this paragraph shall be paid
in substantially equal monthly installments.
For the purposes of this paragraph (e) and this Agreement, "permanently
disabled" shall have the same meaning, be adjudicated, and impact or affect
other Employer benefit plans as provided in such long-term disability plan
maintained by Employer which provides disability benefits to employees.
6. TERMINATION.
(A) TERMINATION BY EMPLOYER OTHER THAN FOR CAUSE; CERTAIN VOLUNTARY
TERMINATION.
If Employer should terminate the Period of Employment for other than Cause,
as herein defined, or if Employee should voluntarily terminate the Period of
Employment pursuant to paragraph (b) of Section 1, Employer shall forthwith pay
to Employee an amount equal to the sum of (a) the result of multiplying (I) the
base annual salary payable to Employee pursuant to paragraph (a) of Section 4 as
of the date of termination of the Period of Employment by (ii) the number of
years (and fractions thereof) then remaining in the Period of Employment and (b)
the result of multiplying (I) the average of the cash incentive compensation
payable to Employee pursuant to paragraph (b) of Section 4 or otherwise during
the three calendar years immediately preceding the date of termination of the
Period of Employment by (ii) the numbers of years (and fractions thereof) then
remaining in the Period of Employment.
2
<PAGE>
"Cause" shall mean willful misconduct in following the legitimate
directions of the Board of Directors of Employer; conviction of a felony or
conviction for dishonesty; excessive absenteeism not related to illness, sick
leave or vacations, but only after notice from the Board of Directors followed
by a repetition of such excessive absenteeism; or continuous conflicts of
interest after notice in writing from the Board of Directors.
(B) TERMINATION BY EMPLOYER FOR CAUSE.
If Employer should terminate the Period of Employment for Cause, as herein
defined, Employee will be entitled to be paid the base annual salary otherwise
payable to Employee under paragraph (a) of Section 4 through the end of the
month in which the Period of Employment is terminated.
(C) TERMINATION BY EMPLOYEE.
If during the Period of Employment, Employee shall terminate his employment
other than in accordance with Paragraph (b) of Section 1, he will be entitled to
be paid 66 2/3% the base annual salary otherwise payable to Employee under
paragraph (a) of Section 4 for a period of one year following the termination of
the Period of Employment. Such payments shall cease if Employee engages in
competition with Employer as specified in paragraph (a) of Section 7, whether or
not with the written consent of the Board of Directors of Employer.
7. NON-COMPETITION AND NON-DISCLOSURE.
(a) Without the consent in writing of the Board of Directors of Employer,
upon termination of the Period of Employment for any reason whatsoever, Employee
will not, for a period of one year thereafter, become an officer, employee,
agent, partner, director or substantial stockholder of any commercial bank,
savings bank or savings and loan association or holding company thereof
operating a bank or savings and loan association in any of the states or
commonwealths of Alabama, Connecticut, Delaware, Florida, Georgia, Louisiana,
Maryland, Mississippi, New Jersey, New York, North Carolina, Pennsylviania,
South Carolina, Tennessee or Virginia.
(b) Employee shall not, at any time during or following the Period of
Employment, disclose, use, transfer or sell, except in the course of employment
with Employer, any confidential information or proprietary data of Employer and
its subsidiaries so long as such information or proprietary data remains
confidential and has not been disclosed or is not otherwise in the public
domain, except as required by law or pursuant to legal process.
8. GOVERNING LAW.
This Agreement is governed by and is to be construed and enforced in
accordance with the laws of the State of North Carolina. If under such law, any
portion of this Agreement is at any time deemed to be in conflict with any
applicable statute, rule, regulation or ordinance, such portion shall be deemed
to be modified or altered to conform thereto or, if that is not possible, to be
omitted from this Agreement; and the invalidity of any such portion shall not
affect the force, effect and validity of the remaining portion hereof.
9. NOTICES.
All notices under this Agreement shall be in writing and shall be deemed
effective when delivered in person (in the Employer's case, to its Secretary) or
twenty-four (24) hours after deposit thereof in the U.S. mails, postage prepaid,
for delivery as registered or certified mail -- addressed, in the case of
Employee, to him at his residential address, and in the case of Employer, to its
corporate headquarters, attention of the Secretary, or to such other address as
Employee or Employer may designate in writing at any time or from time to time
to the other party. In lieu of notice by deposit in the U.S. mail, a party may
give notice by telegram or telex.
10. MISCELLANEOUS.
This Agreement constitutes the entire understanding between Employer and
Employee relating to employment of Employee by Employer and its subsidiaries and
supersedes and cancels all prior written and oral agreements and understandings
with respect to the subject matter of this Agreement. This Agreement may be
amended but only by a subsequent written agreement of the parties. This
Agreement shall be binding upon and shall inure to the benefit of Employee, his
heirs, executors, administrators and beneficiaries, and shall be binding upon
and inure to the benefit of Employer and its successors.
3
<PAGE>
11. GROSS UP PAYMENT.
(a) In the event that any payments under this Agreement, in combination
with payments from any other plans or arrangements maintained by Employer,
constitute "excess parachute payments" under Section 280G of the Internal
Revenue Code (the "Code"), and as such are subject to excise tax under Section
4999 of the Code, Employer shall pay to Employee an additional amount (the
"Gross Up Payment"). The Gross Up Payment shall be equal to the amount needed to
ensure that the net payments retained by Employee equal the payments due under
this Agreement before taking into account any Gross Up Payment. The net payments
retained by Employee shall be equal to the total payments made under this
Agreement reduced by the amount of any excise tax under Section 4999 of the Code
and any federal, state and local income tax on the Gross Up Payment. An example
of the foregoing is set forth on Exhibit A attached hereto.
(b) For purposes of determining whether any of the payments under this
Agreement will be subject to the excise tax and the amount of such excise tax,
(I) any other payments or benefits received or to be received by Employee in
connection with a change in control of Employer or the termination of employment
of Employee (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with Employer, any person whose actions result in a
change of control of Employer or any person affiliated with Employer or such
person) (which, together with the payments under this Agreement, shall
constitute the "Total Payments") shall be treated as "parachute payments" under
Section 280(b)(2) of the Code, and all excess parachute payments shall be
treated as subject to the excise tax, unless in the opinion of tax counsel
selected by Employer's independent auditors such other payments or benefits (in
whole or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered under Section 280G(b)(4) of the Code in excess of the "base
amount" under Section 280G(b)(3) of the Code or are otherwise not subject to the
excise tax, (ii) the amount of the Total Payments which shall be treated as
subject to the excise tax shall be equal to the lesser of (A) the total amount
of the Total Payments or (B) the amount of excess parachute payments (after
applying clause (I), above), and (iii) the value of any non-cash benefit or any
deferred payment or benefit shall be determined by Employer's independent
auditors in accordance with the principles of Section 280(G)(d)(3) and (4) of
the Code.
(c) For purposes of determining the amount of the Gross Up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation for the calendar year in which the Gross Up
Payment is to be made. Employee shall also be deemed to pay state and local
income taxes at the highest marginal rate of taxation imposed by Employee's
state of residence (or by any other state which may impose taxes on such
payments) for the calendar year in which the Gross Up Payment is to be made, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local income taxes. In computing the highest
marginal rate of federal income taxation, adjustments shall be made to the
highest marginal rate of tax imposed by Section 1 of the Code to account for the
effect of Section 68 of the Code. The marginal rate of federal income taxation
shall also be adjusted to account for Employee's portion of any FICA taxes
imposed on any Gross Up Payment by Section 3101 of the Code.
(d) In the event that the excise tax to be paid as a result of payments
pursuant to this Agreement is subsequently determined to be less than the amount
taken into account at the time the Gross Up Payment is made, Employee shall
repay Employer at the time that the amount of such reduction in excise tax is
finally determined, the portion of the Gross Up Payment attributable to such
reduction, plus interest on the amount of such repayment at the applicable
federal rate under Section 1274 of the Code from the date of payment of the
Gross Up Payment to the date of repayment. The amount of reduction of the Gross
Up Payment shall take into account any subsequent reduction in excise taxes
resulting from this payment.
(e) In the event that the excise tax is determined to exceed the amount
taken into account hereunder at the time the Gross Up Payment is made, Employer
shall make an additional Gross Up Payment in respect of such excess, plus
interest on such additional Gross Up Payment at the applicable federal rate
under Section 1274 of the Code from the date of the Gross Up Payment to the date
of payment of the additional Gross Up Payment, at the time such additional
excise tax is finally determined. The amount of the additional Gross Up Payment
shall take into account any increase in excise taxes resulting from this
payment.
(f) The Gross Up Payment provided above shall be paid not later than the
thirtieth (30th) day following payment of any amounts pursuant to this
Agreement.
(g) As a condition to making the payment set forth above, Employer shall
have the right to challenge, on Employee's behalf, any excise tax assessment
relating to payments made pursuant to this Agreement. All expenses incurred as a
result of any challenge initiated by Employer shall be born by Employer.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement, under seal, as of the day and year first above indicated.
<TABLE>
<S> <C>
FIRST UNION CORPORATION
Attest:
/s/ MARION A. COWELL, JR. By: /s/ EDWARD E. CRUTCHFIELD
Title: Secretary Title: Chairman & CEO
</TABLE>
(Corporate Seal)
<TABLE>
<S> <C>
/s/ JOHN R. GEORGIUS (L.S.)
JOHN R. GEORGIUS
</TABLE>
5
<PAGE>
EXHIBIT A
ANALYSIS OF AGREEMENT
JOHN R. GEORGIUS
ANALYSIS OF SECTION 11(A)
FOR PURPOSES OF THIS ANALYSIS ASSUME THE FOLLOWING:
<TABLE>
<S> <C> <C>
SEVERANCE PAYMENT PER CONTRACT............................................ $5,439,871
EXCISE TAX DUE BEFORE CONSIDERING GROSS UP PAYMENT........................ $1,217,888
GROSS UP PAYMENT DUE...................................................... $3,671,545
EXCISE TAX DUE AFTER CONSIDERING GROSS UP PAYMENT......................... $1,952,197
EFFECTIVE FEDERAL, STATE, FICA TAX RATE................................... 46.83%
</TABLE>
SECTION 11(A) STATES THAT THE GROSS UP PAYMENT SHALL BE EQUAL TO AMOUNT
NEEDED TO ENSURE THAT NET PAYMENTS RETAINED BY EMPLOYEE EQUAL TOTAL PAYMENTS DUE
UNDER THIS AGREEMENT BEFORE TAKING INTO ACCOUNT ANY GROSS UP PAYMENT. NET
PAYMENTS RETAINED BY EMPLOYEE EQUAL TOTAL PAYMENTS UNDER THE AGREEMENT REDUCED
BY EXCISE TAXES AND INCOME/FICA TAX ON THE GROSS UP PAYMENT.
<TABLE>
<S> <C> <C>
TOTAL PAYMENTS DUE UNDER THE CONTRACT BEFORE GROSS UP PAYMENT.................................... $5,439,871
TOTAL PAYMENTS UNDER THE AGREEMENT (INCLUDING GROSS UP PAYMENT).................................. $ 9,111,416
LESS: EXCISE TAXES UNDER SECTION 4999............................................................ $(1,952,197)
LESS: INCOME TAXES ON GROSS UP ($3,671,545 * 46.83%)............................................. $(1,719,384)
NET PAYMENTS RETAINED BY EMPLOYEE................................................................ $ 5,439,834
DIFFERENCE DUE TO ROUNDING....................................................................... $ 36.72
</TABLE>
NOTE: THE ABOVE AMOUNTS ARE USED FOR DEMONSTRATION PURPOSES ONLY. THE
AMOUNT OF ACTUAL CONTRACT PAYMENTS, EXCISE TAXES DUE, AND EFFECTIVE TAX RATES
ARE BASED ON FACTS AND CIRCUMSTANCES WHICH EXIST AT THE TIME OF ANY CHANGE OF
CONTROL.
6
<PAGE>
EXHIBIT (23)(A)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
We consent to the use of our report on the 1995 consolidated financial
statements of United Financial Corporation of South Carolina, Inc. included
herein and included in the 1995 Form 10-K of United Financial Corporation of
South Carolina, Inc. incorporated by reference herein and to the reference to
our firm under the heading "Experts" in the Prospectus/Proxy Statement.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
August 28, 1995
<PAGE>
EXHIBIT (23)(B)
CONSENT OF DELOITTE & TOUCHE LLP
BOARD OF DIRECTORS
UNITED FINANCIAL CORPORATION OF SOUTH CAROLINA, INC.
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-60835 of First Union Corporation on Form S-4 of our report dated May 16,
1994, included and incorporated by reference in the Annual Report on Form 10-K
of United Financial Corporation of South Carolina, Inc. for the year ended March
31, 1994, and to the use of our report dated May 16, 1994, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Columbia, South Carolina
August 28, 1995
<PAGE>
EXHIBIT (23)(C)
CONSENT OF KPMG PEAT MARWICK LLP
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 1994 Annual Report to Stockholders which is
incorporated by reference in the 1994 Form 10-K of First Union Corporation and
to the reference to our firm under the heading "Experts" in the Prospectus/Proxy
Statement. Our report refers to a change in the method of accounting for
investments in 1994.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
August 28, 1995
<PAGE>
EXHIBIT (23)(D)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
FIRST FIDELITY BANCORPORATION
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 1994 Annual Report on Form 10-K of First
Fidelity Bancorporation and to the reference to our firm under the heading
"Experts" in the Prospectus/Proxy Statement. Our report dated January 18, 1995,
refers to changes in the methods of accounting for income taxes, postretirement
benefits other than pensions, postemployment benefits, and investments in 1993.
KPMG PEAT MARWICK LLP
New York, New York
August 28, 1995
<PAGE>
EXHIBIT (99)
FORM OF PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS OF UFC
<PAGE>
UNITED FINANCIAL CORPORATION
R E V O C A B L E
OF SOUTH CAROLINA, INC.
P R O X Y
SPECIAL MEETING OF STOCKHOLDERS
, 1995
The undersigned hereby appoints the official proxy committee of the Board of
Directors of United Financial Corporation of South Carolina, Inc. ("UFC") with
full powers of substitution to act as attorneys and proxies for the undersigned,
to vote all shares of common stock of UFC, which the undersigned is entitled to
vote at the Special Meeting of Stockholders ("Special Meeting"), to be held at
The Inn on the Square, 104 Court St., Greenwood, South Carolina, on
, September , 1995, at :00 .m., local time, and at any and all
adjournments thereof, as follows:
To consider and vote upon a proposal to approve the Agreement and Plan of
Mergers, dated as of February 21, 1995, among UFC, United Savings Bank, FSB
("United"), Home Federal Savings Bank of South Carolina ("Home Federal" and,
together with United, the "Banks"), First Union Corporation ("FUNC"), First
Union Corporation of South Carolina ("FUNC-SC") and First Union National Bank
of South Carolina ("FUNB-SC"), pursuant to which (i) UFC would merge with and
into FUNC-SC (the "Corporate Merger") and the Banks would merge with and into
FUNB-SC, and (ii) each outstanding share of UFC common stock (excluding any
dissenting shares or certain shares held by UFC or FUNC) would be converted
into the right to receive a number of shares of FUNC common stock equal to
(a) 0.458 shares if the average closing price of FUNC common stock on the New
York Stock Exchange Composite Transactions Tape for the ten trading days
immediately prior to the effective date of the Corporate Merger is greater
than $42.75 and less than $46.75, (b) the result obtained by dividing $19.58
by such price if such price is $42.75 or less, or (c) the result obtained by
dividing $21.41 by such price if such price is $46.75 or greater (the
"Exchange Ratio"), all on and subject to the terms and conditions contained
therein.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE LISTED PROPOSITION.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE OFFICIAL PROXY
COMMITTEE IN ITS BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and after notification to the Secretary of UFC at
the Special Meeting of the stockholder's decision to terminate this proxy, then
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt from UFC prior to the execution of this
proxy of the Notice of Special Meeting of Stockholders and a Prospectus/Proxy
Statement for the Special Meeting.
Dated: , 1995
PRINT NAME OF STOCKHOLDER
SIGNATURE OF STOCKHOLDER
PRINT NAME OF STOCKHOLDER
SIGNATURE OF STOCKHOLDER
Please sign exactly as name
appears on the enclosed card. When
signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title. If shares are held jointly,
each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
