<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1997
REGISTRATION NO. 333-39515
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6711 56-0898180
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6565
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MARION A. COWELL, JR., ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
FIRST UNION CORPORATION
ONE FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-0013
(704) 374-6828
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
<TABLE>
<S> <C>
DAVID M. CARTER, ESQ. EDWARD D. HERLIHY, ESQ.
HUNTON & WILLIAMS WACHTELL, LIPTON, ROSEN & KATZ
RIVERFRONT PLAZA, EAST TOWER 51 WEST 52ND STREET
951 EAST BYRD STREET NEW YORK, NEW YORK 10019
RICHMOND, VIRGINIA 23219-4074 (212) 403-1000
(804) 788-7216
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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>
WHEAT FIRST BUTCHER SINGER, INC.
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(804) 649-2311
December 19, 1997
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 Wheat First Butcher
Singer, Inc. ("Wheat"). The meeting will be held at 4:00 p.m., on January 23,
1998, at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza,
East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia.
The purpose of the meeting is to vote on a proposal to approve the
Agreement and Plan of Merger, dated as of August 20, 1997 (as amended and
restated as of December 16, 1997, the "Merger Agreement"), by and between Wheat,
First Union Corporation ("FUNC") and a wholly-owned subsidiary of FUNC, pursuant
to which, among other things, FUNC will acquire Wheat by means of a merger of
such subsidiary with and into Wheat (the "Merger"), all on and subject to the
terms and conditions contained in the Merger Agreement. FUNC is the sixth
largest bank holding company in the nation, based on assets of $144 billion at
September 30, 1997.
On November 18, 1997, FUNC announced that it had entered into an agreement
to acquire CoreStates Financial Corp, a bank holding company based in
Philadelphia, Pennsylvania. Certain information relating to this transaction,
the Merger and two other pending or recently completed transactions is set forth
in the accompanying Prospectus/Proxy Statement under "SUMMARY," "RECENT
DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION".
Upon consummation of the Merger, each outstanding share of Wheat common
stock and each outstanding share of Wheat preferred stock (excluding any shares
held by any dissenting stockholders and certain shares held by Wheat or FUNC
("Excluded Shares")) will be converted into the right to receive the number of
shares of FUNC common stock equal to 10,267,029 divided by the number of shares
of Wheat common stock and Wheat preferred stock issued and outstanding
immediately prior to the effective date of the Merger. The Merger will be
generally tax-free to Wheat stockholders for federal income tax purposes. The
common stock of FUNC is actively traded and is listed on the New York Stock
Exchange. The last reported sale price of FUNC common stock on the New York
Stock Exchange Composite Transactions Tape on December 16, 1997, was $50.875
per share.
Based on the aggregate number of shares of Wheat common stock and Wheat
preferred stock that were issued and outstanding on December 8, 1997 (I.E.,
8,834,944), and assuming there are no Excluded Shares, on the effective date of
the Merger each share of Wheat common stock and Wheat preferred stock would be
converted into the right to receive 1.1621 shares of FUNC common stock. To the
extent any shares of Wheat common stock or Wheat preferred stock are canceled or
issued between December 8, 1997, and the effective date of the Merger, the
foregoing conversion ratio would be adjusted accordingly.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by Wheat stockholders and approval of the
Merger by various regulatory and self-regulatory authorities. Approval of the
Merger Agreement requires the affirmative vote of more than two-thirds of the
votes entitled to be cast at the meeting by the holders of (i) Wheat common
stock, and (ii) Wheat preferred stock, each voting as a separate class.
Beneficial ownership of each share of Wheat preferred stock is represented by
shares of beneficial interest ("Trust Shares") in the Wheat First Butcher Singer
Grantor Trust (the "Grantor Trust"), which is the record holder of the Wheat
preferred stock. Holders of the Trust Shares have the right to instruct the
trustees of the Grantor Trust as to how to vote the Wheat preferred stock at the
meeting. It is expected that the Grantor Trust will be liquidated on the
effective date of the Merger or as soon thereafter as practicable. Upon such
liquidation, holders of Trust Shares would become holders of the FUNC common
stock exchangeable for the shares of Wheat preferred stock represented by such
holder's Trust Shares upon consummation of the Merger. Any unpaid promissory
notes held by Wheat or the Grantor Trust relating to the purchase of Wheat
common stock or Trust Shares would be assigned to FUNC. Upon payment in full of
such notes the shares of FUNC common stock would be delivered to such holders.
(CONTINUED ON FOLLOWING PAGE)
<PAGE>
The accompanying Notice of Special Meeting and Prospectus/Proxy Statement
contain information about the Merger. I urge you to review carefully such
information and the information in FUNC's 1996 Annual Report on Form 10-K, 1997
Quarterly Reports on Form 10-Q, 1997 Annual Meeting Proxy Statement and 1997
Current Reports on Form 8-K, copies of which are available as indicated in the
accompanying Prospectus/Proxy Statement under "AVAILABLE INFORMATION".
Holders of Wheat common stock (including Wheat Associates Stock Ownership
Plan participants) and/or Wheat preferred stock who are entitled to vote on
approval of the Merger Agreement (including holders of Trust Shares and any
other beneficial owners) have the right to demand dissenters' appraisal rights
with respect to such holder's shares of Wheat common stock and/or Wheat
preferred stock (including Trust Shares), as applicable, and be paid the fair
value of such shares in cash if the Merger Agreement is approved and the Merger
is consummated. The right of any such holder of Wheat common stock and/or Wheat
preferred stock to receive such payment is contingent upon strict compliance
with the requirements set forth in the applicable provisions of the Virginia
Stock Corporation Act, the full text of which provisions is set forth in ANNEX C
to the accompanying Prospectus/Proxy Statement and a summary of which is set
forth under "THE MERGER -- Dissenters' Rights".
THE BOARD OF DIRECTORS OF WHEAT HAS ADOPTED THE MERGER AGREEMENT, BELIEVES
IT IS IN THE BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS
APPROVAL BY WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF TRUST SHARES). A FAILURE TO
VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR ENCLOSED VOTING INSTRUCTION
FORM, AS APPLICABLE, 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 OR
ENCLOSED VOTING INSTRUCTION FORM, AS APPLICABLE, SIGN AND DATE IT AND MAIL IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID, RETURN ADDRESSED ENVELOPE.
Yours very truly,
/s/ Marshall B. Wishnack
MARSHALL B. WISHNACK
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(804) 649-2311
-----------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 23, 1998
-----------------------------------------------------------------
December 19, 1997
Dear Stockholder:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Wheat
First Butcher Singer, Inc. ("Wheat") will be held at 4:00 p.m., on January 23,
1998, at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza,
East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia (the "Special
Meeting"), for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of August 20, 1997 (as amended and restated as of December
16, 1997, the "Merger Agreement"), by and between Wheat, First Union
Corporation ("FUNC") and a wholly-owned subsidiary of FUNC, pursuant to
which, among other things, (i) FUNC will acquire Wheat by means of a merger
of such subsidiary with and into Wheat (the "Merger"), and (ii) each
outstanding share of Wheat common stock and Wheat preferred stock (excluding
any shares held by any dissenting stockholders and certain shares held by
Wheat or FUNC) will be converted into the right to receive the number of
shares of FUNC common stock equal to 10,267,029 divided by the number of
shares of Wheat common stock and Wheat preferred stock issued and
outstanding immediately prior to the effective date of the Merger, all on
and subject to the terms and conditions contained in the Merger Agreement.
A copy of the Merger Agreement is set forth in ANNEX A to the accompanying
Prospectus/Proxy Statement.
The Board of Directors of Wheat has fixed December 8, 1997, as the record
date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting, and accordingly, only holders of record of Wheat common
stock and Wheat preferred stock at the close of business on that date will be
entitled to notice of and to vote at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of more than
two-thirds of the votes entitled to be cast at the Special Meeting by the
holders of (i) Wheat common stock (including shares owned by the Wheat
Associates Stock Ownership Plan, which will be voted in accordance with
instructions of participants), and (ii) Wheat preferred stock (which will be
voted by the trustees of the Wheat First Butcher Singer Grantor Trust (the
"Grantor Trust") in accordance with directions from the holders of shares of
beneficial interest in the Grantor Trust (the "Trust Shares")), each of such
Wheat common stock and Wheat preferred stock voting as a separate class.
PURSUANT TO THE VIRGINIA STOCK CORPORATION ACT, HOLDERS OF WHEAT COMMON
STOCK (INCLUDING WHEAT ASSOCIATES STOCK OWNERSHIP PLAN PARTICIPANTS) AND/OR
WHEAT PREFERRED STOCK ENTITLED TO VOTE ON APPROVAL OF THE MERGER AGREEMENT
(INCLUDING HOLDERS OF TRUST SHARES AND ANY OTHER BENEFICIAL OWNERS) HAVE THE
RIGHT TO DISSENT FROM THE MERGER AND TO DEMAND PAYMENT OF THE FAIR VALUE OF EACH
SUCH HOLDER'S SHARES OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK
(INCLUDING TRUST SHARES), AS APPLICABLE, IN THE EVENT THE MERGER IS CONSUMMATED.
A HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING TRUST
SHARES) WHO WISHES TO ASSERT SUCH HOLDER'S DISSENTERS' RIGHTS MUST (I) DELIVER
TO WHEAT (ATTENTION: CORPORATE SECRETARY), BEFORE SUCH VOTE IS TAKEN ON THE
MERGER AGREEMENT, WRITTEN NOTICE OF SUCH HOLDER'S INTENT TO DEMAND PAYMENT FOR
SUCH SHARES IF THE MERGER IS CONSUMMATED, (II) NOT VOTE SUCH SHARES IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT, AND (III) COMPLY WITH THE APPLICABLE FURTHER
PROVISIONS OF THE VIRGINIA STOCK CORPORATION ACT IN ORDER TO BE ENTITLED TO
RECEIVE IN CASH, IF THE MERGER IS CONSUMMATED, THE FAIR VALUE OF SUCH HOLDER'S
WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK (INCLUDING TRUST SHARES), AS
APPLICABLE. BENEFICIAL OWNERS OF WHEAT COMMON STOCK OR WHEAT PREFERRED STOCK WHO
ARE NOT THE RECORD HOLDERS OF THEIR SHARES (SUCH AS HOLDERS OF TRUST SHARES) WHO
WISH TO ASSERT DISSENTERS' RIGHTS WITH REGARD TO SUCH SHARES AND ANY RECORD
HOLDERS ASSERTING DISSENTERS' RIGHTS ON BEHALF OF SUCH HOLDERS, MUST COMPLY WITH
CERTAIN ADDITIONAL PROVISIONS OF THE
(CONTINUED ON FOLLOWING PAGE)
<PAGE>
VIRGINIA STOCK CORPORATION ACT. 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.
A COPY OF THE APPLICABLE PROVISIONS OF THE VIRGINIA STOCK CORPORATION ACT
REFERRED TO ABOVE IS SET FORTH IN ANNEX C TO THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT AND A SUMMARY OF SUCH PROVISIONS IS SET FORTH IN THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT UNDER "THE MERGER -- DISSENTERS' RIGHTS".
THE BOARD OF DIRECTORS OF WHEAT RECOMMENDS THAT STOCKHOLDERS (INCLUDING
HOLDERS OF TRUST SHARES) VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors of
WHEAT FIRST BUTCHER SINGER, INC.
/s/ Jonathan M. Harris
JONATHAN M. HARRIS
CORPORATE SECRETARY
BECAUSE THE AFFIRMATIVE VOTE OF MORE THAN TWO-THIRDS OF THE VOTES ENTITLED TO BE
CAST AT THE SPECIAL MEETING IS REQUIRED TO APPROVE THE MERGER AGREEMENT, WHEAT
STOCKHOLDERS (INCLUDING HOLDERS OF TRUST SHARES) ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY OR VOTING INSTRUCTION FORM, AS
APPLICABLE, IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY
OR VOTING INSTRUCTION FORM, AS APPLICABLE, OR BY CHECKING THE "ABSTAIN" BOX
THEREON, WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" APPROVAL OF THE MERGER
AGREEMENT.
<PAGE>
<TABLE>
<S> <C>
PROSPECTUS PROXY STATEMENT
- ------------------------------------------------------------ ------------------------------------------------------------
10,267,029 SHARES
FIRST UNION CORPORATION WHEAT FIRST BUTCHER SINGER, INC.
COMMON STOCK SPECIAL MEETING OF STOCKHOLDERS
$3.33 1/3 PAR VALUE PER SHARE TO BE HELD ON JANUARY 23, 1998
---------------------- ----------------------
</TABLE>
This Prospectus/Proxy Statement is being furnished by Wheat First Butcher
Singer, Inc., a Virginia corporation ("Wheat"), to (i) the holders of Wheat
common stock, par value $2.00 per share ("Wheat Common Stock"), and (ii) the
holders of Wheat preferred stock, no par value per share ("Wheat Preferred
Stock"), as a Proxy Statement in connection with the solicitation of proxies by
the Board of Directors of Wheat (the "Wheat Board") for use at a Special Meeting
of Stockholders of Wheat to be held at 4:00 p.m., on January 23, 1998, at the
offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza, East Tower,
20th Floor, 951 East Byrd Street, Richmond, Virginia (including any adjournments
or postponements thereof, the "Special Meeting"). This Prospectus/Proxy
Statement is also being furnished to the holders of Trust Shares (as hereinafter
defined) and the participants in the Wheat ASOP (as hereinafter defined) for
their information in connection with the solicitation of their voting
instructions on the proposal to be voted on at the Special Meeting. This
Prospectus/Proxy Statement is also being furnished by First Union Corporation, a
North Carolina corporation ("FUNC"), as a Prospectus with respect to the shares
(the "FUNC Common Shares") of FUNC common stock, $3.33 1/3 par value per share
("FUNC Common Stock"), that are issuable upon consummation of the Merger (as
hereinafter defined), together with the appropriate number of FUNC Rights (as
hereinafter defined) attached thereto.
This Prospectus/Proxy Statement, the accompanying Notice of Special Meeting
and form of proxy or voting instruction form, as applicable, are first being
mailed to the stockholders of Wheat (including the holders of Trust Shares) on
or about December 19, 1997.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Agreement and Plan of Merger, dated as of August 20, 1997 (as
amended and restated as of December 16, 1997, the "Merger Agreement"), between
Wheat, FUNC and First Union Virginia, Inc., a wholly-owned subsidiary of FUNC
(the "FUNC Subsidiary"), pursuant to which, among other things, FUNC will
acquire Wheat by means of a merger of the FUNC Subsidiary with and into Wheat
(the "Merger"), all on and subject to the terms and conditions contained
therein.
Upon consummation of the Merger, each outstanding share of Wheat Common
Stock and Wheat Preferred Stock (excluding any shares (i) as to which the
holders thereof have perfected their dissenters' rights, or (ii) held by FUNC or
Wheat, other than in a fiduciary capacity or in satisfaction of a debt
previously contracted (together, the "Excluded Shares")) will be converted into
the right to receive the number of FUNC Common Shares (the "Exchange Ratio")
equal to 10,267,029 divided by the number of shares of Wheat Common Stock and
Wheat Preferred Stock issued and outstanding immediately prior to the effective
date (the "Effective Date") of the Merger (the "Outstanding Share Number"). See
"THE MERGER -- General; Consideration" and ANNEX A.
Based on the aggregate number of shares of Wheat Common Stock and Wheat
Preferred Stock that were issued and outstanding on December 8, 1997 (I.E.,
8,834,944), and assuming there are no Excluded Shares, on the Effective Date
each share of Wheat Common Stock and Wheat Preferred Stock would be converted
into the right to receive 1.1621 shares of FUNC Common Stock. To the extent any
shares of Wheat Common Stock or Wheat Preferred Stock are canceled or issued
between December 8, 1997, and the Effective Date, such 1.1621 Exchange Ratio
would be adjusted accordingly.
(CONTINUED ON FOLLOWING PAGE)
----------------------
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 (THE "FDIC") OR ANY OTHER
GOVERNMENT AGENCY.
----------------------
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 DECEMBER 19, 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Pursuant to the Voting Agreements (as hereinafter defined), the beneficial
holders of 18.1 percent of the outstanding shares of Wheat Common Stock have
agreed to vote such shares in favor of approval of the Merger Agreement.
Beneficial ownership of each share of Wheat Preferred Stock is represented by a
share of beneficial interest (a "Trust Share") in the Wheat First Butcher Singer
Grantor Trust (the "Grantor Trust"), which is the record holder of the Wheat
Preferred Stock. The holders of Trust Shares on the Record Date (as hereinafter
defined) have the right to instruct the trustees of the Grantor Trust (the
"Trustees") how to vote the Wheat Preferred Stock at the Special Meeting. It is
expected that the Grantor Trust will be liquidated on the Effective Date or as
soon thereafter as practicable. Upon such liquidation, holders of Trust Shares
would become holders of the FUNC Common Shares exchangeable for the shares of
Wheat Preferred Stock represented by such holder's Trust Shares upon
consummation of the Merger. Participants in the Wheat First Butcher Singer
Associates Stock Ownership Plan (the "Wheat ASOP") have the right to instruct
the Voting Fiduciary (as hereinafter defined) of the Wheat ASOP how to vote the
shares of Wheat Common Stock allocated to such participants. Any unpaid
promissory notes (the "Notes") held by Wheat or the Grantor Trust relating to
the purchase of Wheat Common Stock or Trust Shares would be assigned to FUNC.
Upon payment in full of such Notes the FUNC Common Shares would be delivered to
such holders. See "GENERAL INFORMATION -- Record Date; Vote Required; Revocation
of Proxies" and "THE MERGER -- Exchange of Wheat Stock" and " -- Voting
Agreements".
On November 18, 1997, FUNC announced that it had entered into an agreement
to acquire CoreStates Financial Corp ("CoreStates"), a bank holding company
based in Philadelphia, Pennsylvania. In addition to the Merger, the acquisitions
of CoreStates, Signet Banking Corporation ("Signet") and Covenant Bancorp, Inc.
("Covenant") are reflected in certain of the pro forma financial information
presented herein. The Signet acquisition was consummated on November 28, 1997.
See "SUMMARY", "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION".
The FUNC Common Shares offered hereunder represent approximately 1.8
percent of the number of shares of FUNC Common Stock outstanding on September
30, 1997. FUNC Common Stock is listed and traded on the New York Stock Exchange
("NYSE"). On August 19, 1997, 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")
was $46.9375. On December 16, 1997, such price was $50.875. There is no public
trading market for Wheat Common Stock, Wheat Preferred Stock or Trust Shares.
See "THE MERGER -- Market Prices".
Pursuant to the Virginia Stock Corporation Act (the "VSCA"), holders of
Wheat Common Stock (including beneficial holders) and/or Wheat Preferred Stock
(including holders of Trust Shares) are entitled to dissenters' rights in
connection with the Merger. A Wheat stockholder (including a holder of Trust
Shares) who wishes to dissent from the Merger must comply strictly with the
provisions of the VSCA in order to receive in cash, if the Merger is
consummated, the fair value of such stockholder's shares. A copy of the
applicable provisions of the VSCA referred to above is set forth in ANNEX C to
this Prospectus/Proxy Statement and a summary of such provisions is set forth
herein under "THE MERGER -- Dissenters' Rights".
2
<PAGE>
AVAILABLE INFORMATION
FUNC, CoreStates and Covenant are, and prior to its acquisition by FUNC on
November 28, 1997, Signet was, 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, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by FUNC, CoreStates, Signet and Covenant 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. Certain of such reports, proxy statements and other
information are also available from the Commission over the Internet at
http://www.sec.gov. Reports, proxy statements and other information relating to
FUNC, CoreStates and Signet 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. 333-39515), 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 the Registration Statement have been omitted pursuant to the
rules and regulations of the Commission and reference is hereby made to such
omitted portions of the Registration Statement for further information.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN FUNC
DOCUMENTS 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 ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
PROSPECTUS/PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO: FIRST
UNION CORPORATION, CORPORATE RELATIONS, ONE FIRST UNION CENTER, CHARLOTTE, NORTH
CAROLINA 28288-0206 (TELEPHONE NUMBER (704) 374-6782). IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY JANUARY 16, 1998.
All information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to FUNC, CoreStates, Signet and Covenant
was supplied by FUNC, and all information contained in this Prospectus/Proxy
Statement with respect to Wheat was supplied by Wheat.
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 WHEAT. NEITHER THE DELIVERY OF THIS
PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF THE FUNC COMMON SHARES SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF FUNC, CORESTATES, COVENANT OR WHEAT SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE 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 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.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by FUNC (File No.
1-10000) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Prospectus/Proxy Statement:
(i) FUNC's Annual Report on Form 10-K for the year ended December 31,
1996;
(ii) FUNC's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997, and September 30, 1997; and
(iii) FUNC's Current Reports on Form 8-K dated January 13, 1997, July
21, 1997, August 20, 1997, November 18, 1997, November 28, 1997,
and December 2, 1997.
All documents filed by FUNC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the date of the
Special Meeting are hereby incorporated by reference into this Prospectus/Proxy
Statement and shall be deemed to be a part hereof from the date of filing of
such documents.
Certain financial and other information relating to Wheat is contained in
the Prospectus/Proxy Statement, including ANNEX D.
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.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus/Proxy Statement (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of FUNC and Wheat, as well
as certain information relating to CoreStates, Signet and Covenant, including
(i) statements relating to the cost savings estimated to result from the
CoreStates and Signet acquisitions (see "SUMMARY","RECENT DEVELOPMENTS" and "PRO
FORMA FINANCIAL INFORMATION"), (ii) statements relating to revenues estimated to
result from the CoreStates and Signet acquisitions (see "SUMMARY", "RECENT
DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION"), (iii) statements relating
to the restructuring charges estimated to be incurred in connection with the
CoreStates and Signet acquisitions (see "SUMMARY", "RECENT DEVELOPMENTS" and
"PRO FORMA FINANCIAL INFORMATION"), and (iv) statements preceded by, followed by
or that include the words "believes", "expects", "anticipates", "estimates" or
similar expressions (see, in particular, "SUMMARY", "RECENT DEVELOPMENTS", "THE
MERGER -- Background and Reasons" and " -- Opinion of Financial Advisor" and
"PRO FORMA FINANCIAL INFORMATION"). These forward-looking statements involve
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among others, the following possibilities: (a) expected cost savings from the
Merger and the CoreStates, Signet and Covenant acquisitions may not be fully
realized or realized within the expected time frame; (b) revenues following the
Merger and the CoreStates, Signet and Covenant acquisitions may be lower than
expected, or deposit attrition, operating costs or customer loss and business
disruption following the Merger and the CoreStates, Signet and Covenant
acquisitions may be greater than expected; (c) competitive pressures among
depository and other financial institutions may increase significantly; (d)
costs or difficulties related to the integration of the business of FUNC, Wheat,
CoreStates, Signet and/or Covenant may be greater than expected; (e) changes in
the interest rate environment may reduce margins; (f) general economic or
business conditions, either nationally or in the states in which FUNC is doing
business, may be less favorable than expected resulting in, among other things,
a deterioration in credit quality or a reduced demand for credit; (g)
legislative or regulatory changes may adversely affect the business in which
FUNC is engaged; and (h) changes may occur in the securities markets.
4
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION.................................................................................................. 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................................ 4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION............................................................ 4
SUMMARY................................................................................................................ 7
RECENT DEVELOPMENTS.................................................................................................... 21
Pending and Recent FUNC Acquisitions................................................................................. 21
FUNC Common Stock Transactions....................................................................................... 24
Future FUNC Acquisitions............................................................................................. 24
GENERAL INFORMATION.................................................................................................... 24
General.............................................................................................................. 24
Record Date; Vote Required; Revocation of Proxies.................................................................... 24
THE MERGER............................................................................................................. 26
General; Consideration............................................................................................... 26
Effective Date....................................................................................................... 26
Exchange of Wheat Stock.............................................................................................. 26
Background and Reasons............................................................................................... 27
Opinion of Financial Advisor......................................................................................... 29
Interests of Certain Persons......................................................................................... 33
Certain Federal Income Tax Consequences.............................................................................. 34
Business Pending Consummation........................................................................................ 35
Regulatory Approvals................................................................................................. 36
Conditions to Consummation; Termination.............................................................................. 36
Waiver; Amendment.................................................................................................... 37
Accounting Treatment................................................................................................. 37
Expenses; Termination Fee............................................................................................ 38
Voting Agreements.................................................................................................... 39
Dissenters' Rights................................................................................................... 39
Market Prices........................................................................................................ 41
Dividends............................................................................................................ 42
PRO FORMA FINANCIAL INFORMATION........................................................................................ 43
WHEAT.................................................................................................................. 49
General.............................................................................................................. 49
History and Business................................................................................................. 49
Description of Wheat Capital Stock................................................................................... 51
FUNC................................................................................................................... 54
General.............................................................................................................. 54
History and Business................................................................................................. 54
Certain Regulatory Considerations.................................................................................... 55
DESCRIPTION OF FUNC CAPITAL STOCK...................................................................................... 58
Authorized Capital................................................................................................... 58
FUNC Common Stock.................................................................................................... 58
FUNC Preferred Stock................................................................................................. 59
FUNC Class A Preferred Stock......................................................................................... 59
FUNC Rights Plan..................................................................................................... 59
Other Provisions..................................................................................................... 60
CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS....................................................... 61
General.............................................................................................................. 61
Authorized Capital................................................................................................... 61
Amendment to Articles of Incorporation or Bylaws..................................................................... 61
Size and Classification of Board of Directors........................................................................ 61
</TABLE>
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Removal of Directors................................................................................................. 62
Director Exculpation................................................................................................. 62
Director Conflict of Interest Transactions........................................................................... 62
Stockholder Meetings................................................................................................. 63
Director Nominations................................................................................................. 63
Stockholder Proposals................................................................................................ 63
Stockholder Protection Rights Plans.................................................................................. 63
Stockholder Inspection Rights; Stockholder Lists..................................................................... 64
Required Stockholder Vote for Certain Actions........................................................................ 64
Anti-Takeover Provisions............................................................................................. 66
Dissenters' Rights................................................................................................... 66
Dividends and Other Distributions.................................................................................... 67
Voluntary Dissolution................................................................................................ 67
RESALE OF FUNC COMMON SHARES........................................................................................... 67
VALIDITY OF FUNC COMMON SHARES......................................................................................... 67
EXPERTS................................................................................................................ 68
ANNEX A -- AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (including the form of Voting Agreement as Exhibit A
thereto).................................................................................................... A-1
ANNEX B -- OPINION OF WHEAT, FIRST SECURITIES, INC..................................................................... B-1
ANNEX C -- SECTIONS OF THE VIRGINIA STOCK CORPORATION ACT RELATING TO DISSENTERS' RIGHTS............................... C-1
ANNEX D -- CERTAIN INFORMATION RELATING TO WHEAT....................................................................... D-1
</TABLE>
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SUMMARY
THE FOLLOWING SUMMARY OF CERTAIN INFORMATION RELATING TO THE MERGER IS NOT
INTENDED TO INCLUDE ALL MATERIAL INFORMATION RELATING TO THE MERGER 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 IS SET FORTH IN ANNEX A TO THIS
PROSPECTUS/PROXY STATEMENT AND REFERENCE IS MADE THERETO FOR A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER. STOCKHOLDERS ARE URGED TO READ CAREFULLY
THIS ENTIRE PROSPECTUS/PROXY STATEMENT, INCLUDING THE ANNEXES HERETO AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS PROSPECTUS/PROXY
STATEMENT, THE TERMS "FUNC", "WHEAT", "CORESTATES", "SIGNET" AND "COVENANT"
REFER TO SUCH ORGANIZATIONS, RESPECTIVELY, AND UNLESS THE CONTEXT OTHERWISE
REQUIRES, TO THEIR RESPECTIVE CONSOLIDATED SUBSIDIARIES.
PARTIES TO THE MERGER
FUNC
FUNC is a North Carolina-based, multi-bank holding company subject to the
Bank Holding Company Act of 1956, as amended, and the rules and regulations
promulgated thereunder (the "BHCA"). Through its full-service banking
subsidiaries, FUNC provides a wide range of commercial and retail banking
services and trust services in North Carolina, Florida, South Carolina, Georgia,
Tennessee, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, New York,
Connecticut and Washington, D.C. FUNC also provides various other financial
services, including mortgage banking, home equity lending, credit cards,
leasing, investment banking, insurance and securities brokerage services,
through other subsidiaries. As of September 30, 1997, and for the nine months
then ended, FUNC reported assets of $144 billion, net loans of $95 billion,
deposits of $92 billion, stockholders' equity of $11 billion and net income
applicable to common stockholders of $1.5 billion, and as of such date FUNC
operated in 38 states, Washington, D.C. and six foreign countries. FUNC is the
sixth largest bank holding company in the United States, based on assets at
September 30, 1997. 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. The FUNC Subsidiary was organized by FUNC solely as a
vehicle to acquire Wheat by means of the Merger.
On November 18, 1997, FUNC entered into an agreement to acquire CoreStates.
As of September 30, 1997, CoreStates had assets of $48 billion. The CoreStates
acquisition will be accounted for as a pooling of interests. See "THE MERGER --
Accounting Treatment". The Merger and the CoreStates, Signet and Covenant
acquisitions are reflected in certain of the pro forma financial information
presented herein. As of September 30, 1997, Wheat, Signet and Covenant had
aggregate assets of $13 billion. The Signet acquisition was consummated on
November 28, 1997.
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".
WHEAT
Wheat is a Virginia-based holding company which engages, through its
subsidiaries, in investment banking, retail brokerage and asset management
businesses. Wheat's principal subsidiary, Wheat, First Securities, Inc. ("WFSI")
provides financial services nationwide through offices located throughout 20
states and Washington, D.C. Wheat also has other subsidiaries which are engaged
in the asset management business and certain trust and insurance agency
activities. As of September 30, 1997, and for the six months then ended, Wheat
had assets of $1.2 billion, stockholders' equity of $165 million and net income
of $24 million. The principal executive offices of Wheat are located at
Riverfront Plaza, West Tower, 901 East Byrd Street, Richmond, Virginia 23219,
and its telephone number is (804) 649-2311. See " -- Comparison of Certain
Unaudited Per Share Data", " -- Selected Financial Data", "WHEAT" and ANNEX D.
SPECIAL MEETING; RECORD DATE
The Special Meeting is scheduled to be held on January 23, 1998, at 4:00
p.m., at the offices of Hunton & Williams, counsel for Wheat, Riverfront Plaza,
East Tower, 20th Floor, 951 East Byrd Street, Richmond, Virginia. At the Special
Meeting, stockholders will consider and vote upon a proposal to approve the
Merger Agreement.
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The Wheat Board has fixed December 8, 1997, 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 8,626,044 shares of
Wheat Common Stock and 208,900 shares of Wheat Preferred Stock outstanding and
entitled to be voted at the Special Meeting, each voting as a separate class.
See "GENERAL INFORMATION".
THE MERGER; CONSIDERATION
Subject to the terms and conditions of the Merger Agreement, FUNC will
acquire Wheat by means of the merger of the FUNC Subsidiary with and into Wheat.
Upon consummation of the Merger, each outstanding share of Wheat Common Stock
and Wheat Preferred Stock (which is represented by a Trust Share) (excluding the
Excluded Shares) will be converted into the right to receive the Exchange Ratio
(I.E., the number of FUNC Common Shares equal to 10,267,029 divided by the
Outstanding Share Number).
The Corporation may at any time prior to the Effective Date change the
method of effecting the acquisition of Wheat if and to the extent it deems such
change to be desirable; provided, however, that no such change may (i) alter or
change the amount or kind of consideration to be issued to holders of Wheat
Common Stock or Wheat Preferred Stock as provided for in the Merger Agreement,
(ii) adversely affect the intended tax-free treatment to the Wheat stockholders
as a result of receiving such consideration, or (iii) materially impede or delay
receipt of any required regulatory approval or consummation of the transactions
contemplated by the Merger Agreement.
Based on the aggregate number of shares of Wheat Common Stock and Wheat
Preferred Stock that were issued and outstanding on December 8, 1997 (I.E.,
8,834,944), and assuming there are no Excluded Shares, on the Effective Date
each share of Wheat Common Stock and Wheat Preferred Stock (which is represented
by a Trust Share) would be converted into the right to receive 1.1621 shares of
FUNC Common Stock. To the extent any shares of Wheat Common Stock or Wheat
Preferred Stock are canceled or issued between December 8, 1997, and the
Effective Date, such 1.1621 Exchange Ratio would be adjusted accordingly.
See "THE MERGER -- General; Consideration", " -- Exchange of Wheat Stock",
"DESCRIPTION OF FUNC CAPITAL STOCK", "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT
AND FUNC STOCKHOLDERS" and ANNEX A.
VOTE REQUIRED
Approval of the Merger Agreement requires the affirmative vote of more than
two-thirds of the votes entitled to be cast at the Special Meeting by the
holders of (i) Wheat Common Stock, and (ii) Wheat Preferred Stock, each voting
as a separate class.
The directors and executive officers of Wheat (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting, 2,214,562 shares of Wheat Common Stock, which
represents 25.7 percent of the outstanding shares of Wheat Common Stock entitled
to be voted at the Special Meeting. As a condition to FUNC's willingness to
enter into the Merger Agreement, the five members of the Executive Committee of
the Wheat Board agreed to vote the shares of Wheat Common Stock beneficially
owned by such directors in favor of approval of the Merger Agreement at the
Special Meeting (the "Voting Agreements", the form of which is included as
Exhibit A to ANNEX A to this Prospectus/Proxy Statement). The number of shares
of Wheat Common Stock beneficially owned by such Executive Committee members as
of the Record Date is 1,561,761, which represents 18.1 percent of the
outstanding shares of Wheat Common Stock entitled to be voted at the Special
Meeting.
Participants in the Wheat ASOP will receive voting instructions with
respect to shares of Wheat Common Stock allocated to participants' accounts in
the Wheat ASOP. An independent fiduciary (the "Voting Fiduciary") has been named
to discharge voting obligations with respect to Wheat Common Stock held in the
Wheat ASOP. The Voting Fiduciary shall vote shares of Wheat Common Stock
allocated to participants' accounts in accordance with directions received from
participants. Wheat Common Stock as to which voting direction is not received
from a participant and any shares of unallocated Wheat Common Stock shall be
voted by the Voting Fiduciary on a proportionate basis in accordance with the
votes cast by shares of Wheat Common Stock as to which voting instructions are
actually received. It is expected that following consummation of the Merger the
Wheat ASOP will either be merged into FUNC's 401(k) Savings Plan or merged into
the Wheat 401(k) Plan, which plan would be subsequently merged into the FUNC
401(k) Savings Plan. The Wheat ASOP was the owner of 26.8 percent of the
outstanding shares of Wheat Common Stock on the Record Date.
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Beneficial ownership of the Wheat Preferred Stock is represented by Trust
Shares issued by the Grantor Trust, which is the record holder of the Wheat
Preferred Stock. Each Trust Share represents beneficial ownership of one share
of Wheat Preferred Stock. Holders of Trust Shares will receive voting directions
with respect to Trust Shares, which will permit such holders to instruct the
Trustees as to how to vote the Wheat Preferred Stock owned by the Grantor Trust,
including a direction to abstain from voting. Each Trust Share will be able to
instruct the voting of one share of Wheat Preferred Stock. Trust Shares as to
which voting directions are not received by the Trustees will not be voted. It
is expected that the Grantor Trust will be liquidated on the Effective Date or
as soon thereafter as practicable. Upon such liquidation, holders of Trust
Shares would become holders of the FUNC Common Shares they are entitled to
receive upon consummation of the Merger. Any unpaid Notes held by Wheat or the
Grantor Trust relating to the purchase of Wheat Common Stock or Trust Shares
would be assigned to FUNC. Upon payment in full of such Notes, the FUNC Common
Shares would be delivered to such holders.
See "GENERAL INFORMATION -- Record Date; Vote Required; Revocation of
Proxies", "THE MERGER -- General; Consideration" and ANNEXES A and D.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR VOTING
INSTRUCTION FORM, AS APPLICABLE, 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
Merger set forth in the Merger Agreement, the Effective Date will occur on (i)
such date as FUNC and Wheat mutually agree upon, or (ii) if FUNC and Wheat are
not able to agree upon such date, such date as FUNC shall notify Wheat in
writing not less than five days prior thereto, which date shall not be more than
15 days after such conditions have been satisfied or waived. Subject to the
foregoing, it is currently anticipated that the Merger will be consummated in
the first quarter of 1998. If the Merger is consummated in such quarter, or in
any other quarter, Wheat 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 MERGER -- Exchange of Wheat Stock", " -- Business Pending
Consummation" and " -- Conditions to Consummation; Termination".
RECOMMENDATION OF THE WHEAT BOARD
THE WHEAT BOARD HAS ADOPTED THE MERGER AGREEMENT, BELIEVES IT IS IN THE
BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY
WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF THE TRUST SHARES). SEE "THE
MERGER -- BACKGROUND AND REASONS; WHEAT".
OPINION OF FINANCIAL ADVISOR
WFSI, a subsidiary of Wheat which has acted as financial advisor to Wheat,
has advised the Wheat Board that, in its opinion, the consideration to be
received by Wheat stockholders in the Merger is fair, from a financial point of
view, to the holders of Wheat Common Stock and Wheat Preferred Stock (including
holders of Trust Shares). The full text of the WFSI opinion, which describes the
procedures followed, assumptions made, limitations on the review undertaken and
other matters in connection with rendering such opinion, is set forth in ANNEX B
to this Prospectus/Proxy Statement and should be read in its entirety by Wheat
stockholders. See "THE MERGER -- Opinion of Financial Advisor".
INTERESTS OF CERTAIN PERSONS
Certain members of Wheat's management and the Wheat Board may be deemed to
have interests in the Merger in addition to their interests as stockholders of
Wheat generally. These interests include, among other things, provisions in the
Merger Agreement relating to indemnification, directors' and officers' liability
insurance and certain other benefits as summarized below.
In connection with the execution of the Merger Agreement, FUNC entered into
employment agreements with Marshall B. Wishnack, Chairman and Chief Executive
Officer and a director of Wheat; Mark M. Gambill, President and a director of
Wheat; Lewis C. Everett, Vice Chairman and a director of Wheat; Daniel J.
Ludeman, Chairman of Mentor Investment Group, LLC (a subsidiary of Wheat) and a
director of Wheat; and Thomas L. Souders, Chief Financial Officer and a director
of Wheat, each of which will become effective as of the Effective Date
(collectively, the "Employment Agreements"). The Employment Agreements provide,
among other things, for such executives to receive annual compensation (salary
plus bonus) of up to approximately 105 percent of the annual compensation
received by such executive for the fiscal year ended
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March 31, 1997, for the three-year term (one-year in the case of Mr. Souders) of
such Employment Agreements, and certain additional retirement, death and other
benefits. The Employment Agreements will supersede any employment agreements
Messrs. Wishnack, Gambill, Everett, Ludeman and Souders have with Wheat. The
Employment Agreements provide for certain payments, notwithstanding termination
of employment, and associated gross-up payments for taxes. The Employment
Agreements also provide for continuity payments to Messrs. Wishnack, Gambill,
Everett and Ludeman in amounts representing approximately 37.5 percent, 37.5
percent and 75 percent of such executive's annual compensation on the first,
second and third anniversaries of the Effective Date, respectively. The
Employment Agreement for Mr. Souders provides for a termination payment equal to
one year's annual compensation upon the termination of such Employment
Agreement.
In addition, FUNC will establish a retention bonus pool payable in the form
of up to 1,701,362 restricted shares of FUNC Common Stock to be allocated to key
personnel of Wheat (other than Messrs. Wishnack, Gambill, Everett, Ludeman and
Souders) following consummation of the Merger.
See "THE MERGER -- Interests of Certain Persons" and ANNEX D.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon, among other things, receipt
(i) by FUNC of an opinion of Sullivan & Cromwell, counsel for FUNC, dated as of
the Effective Date, to the effect that the Merger constitutes a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) by Wheat of an opinion of Wachtell, Lipton, Rosen & Katz,
special counsel for Wheat, dated as of the Effective Date, to the effect that
(a) the Merger constitutes a reorganization under Section 368(a) of the Code,
and (b) no gain or loss will be recognized for federal income tax purposes by
stockholders of Wheat who receive FUNC Common Shares in exchange for their
shares of Wheat Common Stock and Wheat Preferred Stock (including Trust Shares),
except with respect to cash received in lieu of fractional share interests. See
"THE MERGER -- Certain Federal Income Tax Consequences".
BECAUSE CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR
CIRCUMSTANCES OF EACH WHEAT STOCKHOLDER, IT IS RECOMMENDED THAT WHEAT
STOCKHOLDERS CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE
AND LOCAL) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
DISSENTERS' RIGHTS
Holders of Wheat Common Stock and/or Wheat Preferred Stock entitled to vote
on approval of the Merger Agreement (including holders of Trust Shares and any
other beneficial owners) have the right to dissent from the Merger and, upon
consummation of the Merger and the satisfaction of certain procedures, to
receive cash in respect of the fair value of each such holder's shares of Wheat
Common Stock and/or Wheat Preferred Stock (including shares represented by Trust
Shares), as applicable, in accordance with the applicable provisions of the
VSCA. The procedures to be followed by dissenting stockholders are summarized
under "THE MERGER -- Dissenters' Rights" and a copy of the applicable provisions
of the VSCA is set forth in ANNEX C to this Prospectus/Proxy Statement. FAILURE
TO STRICTLY FOLLOW SUCH PROVISIONS MAY RESULT IN THE LOSS OF SUCH DISSENTERS'
RIGHTS.
In general, any dissenting stockholder who perfects such holder's statutory
dissenters' rights to be paid in cash the fair value of such holder's Wheat
Common Stock and/or Wheat Preferred Stock (including shares represented by Trust
Shares), as applicable, will recognize gain or loss for federal income tax
purposes upon receipt of such cash. See "THE MERGER -- Certain Federal Income
Tax Consequences".
RESALE OF FUNC COMMON SHARES
The FUNC Common Shares will be freely transferable by the holders of such
shares under applicable federal securities laws, except for shares held by
members of the Executive Committee of the Wheat Board and any other holders who
may be deemed to be "affiliates" (generally including directors, certain
executive officers and ten percent or more stockholders) of FUNC. See "RESALE OF
FUNC COMMON SHARES".
BUSINESS PENDING CONSUMMATION
Wheat agreed in the Merger Agreement to refrain from taking certain actions
relating to its operations pending consummation of the Merger, without the prior
written consent of FUNC, except as otherwise permitted by the Merger Agreement.
See "THE MERGER -- Business Pending Consummation".
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REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under Section 4 of the
BHCA. The Federal Reserve Board approved the Merger on November 26, 1997. The
Merger is subject to various other federal and state regulatory approvals and
various self-regulatory authority approvals. There can be no assurance that the
other necessary regulatory approvals will be obtained or as to the timing or
conditions of such approvals. See "THE MERGER -- Regulatory Approvals".
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Merger is subject, among other things, to: (i) approval
of the Merger Agreement by the requisite vote of the stockholders of Wheat; (ii)
receipt of the regulatory approvals referred to above without any requirements,
restrictions or conditions which the FUNC Board of Directors reasonably
determines would (a) following the Effective Date, have a material adverse
effect on FUNC and its subsidiaries taken as a whole, or (b) reduce the benefits
of the transactions contemplated by the Merger Agreement to such a degree that
FUNC would not have entered into the Merger Agreement had such requirements,
restrictions or conditions been known at the time the Merger Agreement was
executed; (iii) no court or governmental or regulatory authority having taken
any action which prohibits the Merger; (iv) receipt by FUNC of the opinion of
Sullivan & Cromwell and receipt by Wheat of the opinion of Wachtell, Lipton,
Rosen & Katz, each dated as of the Effective Date, as to certain federal income
tax consequences of the Merger, as discussed above; (v) receipt by FUNC of a
letter from Wheat's independent auditors, dated as of, or shortly prior to the
Effective Date, with respect to Wheat's consolidated financial position and
results of operations and that such independent auditors are not aware of any
facts or circumstances which might cause the Merger not to qualify for pooling
of interests accounting treatment; (vi) receipt by FUNC from its independent
auditors of a letter, dated as of the Effective Date, that the Merger will
qualify for pooling of interests accounting treatment; and (vii) the FUNC Common
Shares issuable in the Merger having been approved for listing on the NYSE,
subject to official notice of issuance.
The Merger Agreement may be terminated by mutual consent of FUNC and Wheat.
The Merger Agreement may also be terminated by the Board of Directors of either
FUNC or Wheat if the Merger does not occur on or before June 30, 1998, or if
certain conditions set forth in the Merger Agreement are not met.
See "THE MERGER -- Conditions to Consummation; Termination".
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 with respect to this
Prospectus/Proxy Statement will be shared equally by FUNC and Wheat.
FUNC shall be entitled to a fee of $20 million (the "Termination Fee")
following the occurrence of a Payment Event (as hereinafter defined). FUNC's
right to receive the Termination Fee shall terminate if any of the following
occurs prior to a Payment Event: (i) the Effective Date; (ii) termination of the
Merger Agreement in accordance with its terms if such termination occurs prior
to the occurrence of a Preliminary Payment Event (as hereinafter defined),
except for termination by FUNC due to a breach by Wheat; (iii) termination of
the Merger Agreement following the occurrence of a Preliminary Payment Event and
the passage of 18 months after such termination; or (iv) termination of the
Merger Agreement by FUNC due to a breach by Wheat and the passage of 18 months
after such termination.
See "THE MERGER -- Expenses; Termination Fee".
VOTING AGREEMENTS
As an inducement to and a condition of FUNC's willingness to enter into the
Merger Agreement, Messrs. Wishnack, Gambill, Everett, Ludeman and Souders
entered into the Voting Agreements. The Voting Agreements provide, among other
things, that such individuals will vote the shares of Wheat Common Stock
beneficially owned by them in favor of approval of the Merger Agreement at the
Special Meeting. See "GENERAL INFORMATION -- Record Date; Vote Required;
Revocation of Proxies", "THE MERGER -- Voting Agreements" and ANNEX A.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. Consummation of the
Merger is conditioned upon receipt by FUNC of (i) a letter from FUNC's
independent auditors to the effect that the Merger may be accounted for as a
pooling of interests and (ii) a letter from Wheat's independent auditors
11
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that they are not aware of any facts or circumstances which might cause the
Merger not to qualify for pooling of interests accounting treatment. See "RECENT
DEVELOPMENTS -- FUNC Common Stock Transactions", "THE MERGER -- Conditions to
Consummation; Termination" and " -- Accounting Treatment".
CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS
The rights of stockholders of Wheat are currently determined by reference
to the VSCA and by Wheat's articles of incorporation (as amended, the "Wheat
Articles") and bylaws (as amended, the "Wheat Bylaws"). The rights of holders of
Trust Shares are governed by the terms of the Grantor Trust. On the Effective
Date, stockholders of Wheat will become stockholders of 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 (as amended, the "FUNC Bylaws").
See "WHEAT -- Description of Capital Stock", "DESCRIPTION OF FUNC CAPITAL STOCK"
and "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS".
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following unaudited information, adjusted to reflect the two-for-one
FUNC Common Stock split paid on July 31, 1997, to holders of record on July 1,
1997 (the "FUNC Stock Split") and consummation of the Signet acquisition on
November 28, 1997, 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 Wheat; (ii) on a pro forma combined basis per
share of FUNC Common Stock, reflecting consummation of (a) the Signet
acquisition, (b) the Signet acquisition and the Merger, and (c) the Signet
acquisition, the Merger and the CoreStates and Covenant acquisitions; and (iii)
on an equivalent pro forma basis per share of Wheat Common Stock and Wheat
Preferred Stock, as applicable, reflecting consummation of (a) the Signet
acquisition, (b) the Signet acquisition and the Merger, and (c) the Signet
acquisition, the Merger and the CoreStates and Covenant acquisitions. Such pro
forma information has been prepared assuming (a) the issuance of 10,267,029
shares of FUNC Common Stock, (b) consummation of the Merger, the CoreStates
acquisition and the Signet acquisition on a pooling of interests accounting
basis as of the beginning of each of the periods presented, and (c) consummation
of the Covenant acquisition on a purchase accounting basis only for the nine
months ended September 30, 1997, and the year ended December 31, 1996. See "THE
MERGER -- Accounting Treatment". Wheat's fiscal year-end is March 31 of each
year, and accordingly, all pro forma financial information set forth below
related to Wheat as of and for the (x) nine months ended September 30, reflects
the fourth quarter of the fiscal year ended March 31, plus the following six
months ended September 30, and has been added to comparable information related
to FUNC, CoreStates, Signet and Covenant, as appropriate, for the nine months
ended September 30, and (y) 12-month periods ended March 31 has been added to
comparable information related to FUNC, CoreStates, Signet and Covenant, as
applicable, for the preceding 12-month periods ended December 31, as
appropriate.
As a result of using the foregoing assumptions, the pro forma financial
information has been calculated using an Exchange Ratio of 1.1621. The pro forma
information and 1.1621 Exchange Ratio would be different if the number of
outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the
Effective Date is different than 8,834,944. See "THE MERGER -- General;
Consideration" and ANNEX A.
Pro forma financial information is intended to show how the Merger, the
Signet acquisition and the CoreStates and Covenant acquisitions might have
affected historical financial statements if the Merger, the Signet acquisition
and the CoreStates and Covenant acquisitions had been consummated at an earlier
time. The pro forma financial information does not purport to be indicative of
the results that actually would have been realized had the Merger, the Signet
acquisition and the CoreStates and Covenant acquisitions taken place at the
beginning of the applicable periods indicated, nor is it indicative of the
combined financial position or results of operations for any future periods.
12
<PAGE>
The information shown below should be read in conjunction with the
historical financial statements of FUNC, Wheat, CoreStates, Signet and Covenant,
including the respective notes thereto, and the documents incorporated herein by
reference. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE", "RECENT DEVELOPMENTS", "PRO FORMA FINANCIAL INFORMATION" and ANNEX
D.
<TABLE>
<CAPTION>
TWELVE MONTHS
SEPTEMBER 30, ENDED
------------------ --------------
1997 1997/1996 (1)
------------------ --------------
<S> <C> <C>
BOOK VALUE PER SHARE
Historical per share of
FUNC Common Stock.................................................................... $18.86 17.41
Wheat Common Stock................................................................... 18.77 16.37
Pro forma combined per share of FUNC Common Stock (2)
FUNC and Signet...................................................................... 18.43 17.06
FUNC, Signet and Wheat............................................................... 18.39 17.02
FUNC, Signet, Wheat, CoreStates and Covenant......................................... 15.52 14.85
Equivalent pro forma per share of Wheat Common Stock (3)
FUNC and Signet...................................................................... 21.42 19.83
FUNC, Signet and Wheat............................................................... 21.38 19.78
FUNC, Signet, Wheat, CoreStates and Covenant......................................... $18.04 17.25
</TABLE>
- ---------------
(1) December 31, 1996, for FUNC, CoreStates, Signet and Covenant, and March 31,
1997, for Wheat.
(2) 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 of FUNC Common
Stock outstanding.
(3) The equivalent pro forma book value per share of Wheat Common Stock amounts
represent the pro forma combined book value per share of FUNC Common Stock
amounts multiplied by a 1.1621 Exchange Ratio.
------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED (4)
----------------- -----------------------------------
1997 1997/1996 1996/1995 1995/1994
----------------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH DIVIDENDS PAID PER SHARE
Historical per share of
FUNC Common Stock................................................. $0.90 1.10 0.98 0.86
Wheat Common Stock................................................ 0.30 0.40 0.20 0.20
Wheat Preferred Stock............................................. 0.30 0.40 0.15 --
Pro forma combined per share of FUNC Common Stock (5)
FUNC and Signet................................................... 0.87 1.06 0.61 0.57
FUNC, Signet and Wheat............................................ 0.86 1.05 0.61 0.56
FUNC, Signet, Wheat, CoreStates and Covenant...................... 0.87 1.00 0.68 0.60
Equivalent pro forma per share of Wheat Common Stock (6)
FUNC and Signet................................................... 1.01 1.23 0.71 0.66
FUNC, Signet and Wheat............................................ .99 1.22 0.71 0.65
FUNC, Signet, Wheat, CoreStates and Covenant...................... 1.01 1.17 0.79 0.70
Equivalent pro forma per share of Wheat Preferred Stock (6)
FUNC and Signet................................................... 1.01 1.23 0.71 0.66
FUNC, Signet and Wheat............................................ .99 1.22 0.71 0.65
FUNC, Signet, Wheat, CoreStates and Covenant...................... $1.01 1.17 0.79 0.70
</TABLE>
- ---------------
(4) December 31, 1996, 1995 and 1994, for FUNC, CoreStates, Signet and Covenant,
and March 31, 1997, 1996 and 1995, for Wheat.
(5) 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 the pro forma combined average number of shares of
FUNC Common Stock outstanding, rounded to the nearest cent.
(6) The equivalent pro forma cash dividends paid per share of Wheat Common Stock
and Wheat Preferred Stock amounts represent historical dividend rates per
share for FUNC Common Stock amounts multiplied by a 1.1621 Exchange Ratio,
rounded to the nearest cent. The current annualized dividend rate per share
for FUNC Common Stock, based on the most recently declared quarterly
dividend rate of $.37 per share payable on March 16, 1998, would be $1.48.
On an
13
<PAGE>
equivalent pro forma basis, such current annualized FUNC dividend per share
of Wheat Common Stock and Wheat Preferred Stock would be $1.72, rounded up
to the nearest cent. Any future FUNC and Wheat dividends are dependent on
their respective earnings and financial conditions, government regulations
and policies and other factors. Pursuant to the Merger Agreement, after
December 31, 1997, Wheat may not declare or pay any dividends on Wheat
Common Stock or Wheat Preferred Stock without the prior written consent of
FUNC. See "THE MERGERS -- Exchange of Wheat Stock", " -- Business Pending
Consummation" and " -- Dividends".
------------------------
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED (7)
------------- -----------------------------------
1997 1996 1997/1996 1996/1995 1995/1994
----- ---- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS
Historical per share of:
FUNC Common Stock (8).................................................. $2.60 1.85 2.67 2.52 2.29
Wheat Common Stock..................................................... 3.69 2.67 3.51 3.22 2.35
Pro forma combined per share of FUNC Common Stock (9)
FUNC and Signet........................................................ 2.43 1.80 2.59 2.43 2.29
FUNC, Signet and Wheat................................................. 2.45 1.80 2.59 2.44 2.29
FUNC, Signet, Wheat, CoreStates and Covenant........................... 2.22 1.61 2.31 2.21 1.89
Equivalent pro forma per share of Wheat Common Stock (10)
FUNC and Signet........................................................ 2.83 2.09 3.01 2.82 2.67
FUNC, Signet and Wheat................................................. 2.84 2.10 3.02 2.83 2.66
FUNC, Signet, Wheat, CoreStates and Covenant........................... $2.58 1.88 2.69 2.57 2.19
</TABLE>
- ---------------
(7) December 31, 1996, 1995 and 1994, for FUNC, CoreStates, Signet and
Covenant, and March 31, 1997, 1996 and 1995, for Wheat.
(8) FUNC net income applicable to common stockholders for the year ended
December 31, 1996, includes (i) $181 million, or $0.32 per share of FUNC
Common Stock, in after-tax merger-related restructuring charges related to
the pooling of interests accounting acquisition of First Fidelity
Bancorporation ("FFB") on January 1, 1996, and (ii) $86 million, or $0.16
per share of FUNC Common Stock, in after-tax charges relating to the
recapitalization of the Savings Association Insurance Fund ("SAIF"). See
"FUNC -- History and Business" and " -- Certain Regulatory Considerations".
(9) The pro forma combined income per share of FUNC Common Stock amounts
represent pro forma combined net income applicable to holders of FUNC
Common Stock, divided by the pro forma combined average number of shares of
FUNC Common Stock outstanding.
(10) The equivalent pro forma income per share of Wheat Common Stock amounts
represent pro forma combined income per share of FUNC Common Stock amounts
multiplied by a 1.1621 Exchange Ratio.
------------------------
<TABLE>
<CAPTION>
HISTORICAL
------------ EQUIVALENT PRO FORMA
FUNC PER SHARE OF WHEAT COMMON STOCK
COMMON STOCK AND WHEAT PREFERRED STOCK (11)
------------ -------------------------------
<S> <C> <C>
MARKET VALUE PER SHARE
August 19, 1997........................................................... $ 46.9375 54.50
December 16, 1997......................................................... $ 50.8750 59.00
</TABLE>
- ---------------
(11) The equivalent pro forma market values per share of Wheat Common Stock and
Wheat Preferred Stock represent the historical market values per share of
FUNC Common Stock multiplied by a 1.1621 Exchange Ratio, rounded down to
the nearest one-eighth. The FUNC historical market values per share
represent the last reported sale prices per share of FUNC Common Stock on
the NYSE Tape on: (i) August 19, 1997, the last business day preceding
public announcement of the execution of the Merger Agreement; and (ii) on
December 16, 1997. There is no public trading market for Wheat Common Stock
or Wheat Preferred Stock. See "THE MERGER -- Market Prices".
Because the market price of FUNC Common Stock is subject to fluctuation,
the market value of the FUNC Common Shares that holders of Wheat Common Stock
and Wheat Preferred Stock will receive upon consummation of the Merger may
increase or decrease prior to and after the receipt of such shares. Wheat
stockholders are urged to obtain current market quotations for FUNC Common
Stock.
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain unaudited historical consolidated
selected financial information for FUNC and Wheat and certain unaudited pro
forma combined selected financial information, adjusted to reflect the FUNC
Stock Split and consummation of the Signet acquisition on November 28, 1997.
Such pro forma information has been prepared assuming (a) the issuance of
10,267,029 shares of FUNC Common Stock, (b) consummation of the Merger, the
CoreStates acquisition and the Signet acquisition on a pooling of interests
accounting basis as of the beginning of each of the periods presented, and (c)
consummation of the Covenant acquisition on a purchase accounting basis only for
the nine months ended September 30, 1997, and for the year ended December 31,
1996. See "THE MERGER -- Accounting Treatment". FUNC net income applicable to
common stockholders as of and for the year ended December 31, 1996, includes (i)
$181 million, or $0.32 per share of FUNC Common Stock, in after-tax FFB
merger-related restructuring charges, and (ii) $86 million, or $0.16 per share
of FUNC Common Stock, in after-tax charges relating to the recapitalization of
the SAIF. See "FUNC -- History and Business" and " -- Certain Regulatory
Considerations". This information should be read in conjunction with the
historical financial statements of FUNC, Wheat, CoreStates, Signet and Covenant,
including the respective notes thereto, and the documents incorporated herein by
reference. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE", "RECENT DEVELOPMENTS ", "PRO FORMA FINANCIAL INFORMATION" and ANNEX
D. Wheat's fiscal year-end is March 31 of each year, and accordingly, all pro
forma financial information set forth below related to Wheat as of and for the
(x) nine months ended September 30 reflects the fourth quarter of the fiscal
year ended March 31, plus the following six months ended September 30, and has
been added to comparable information related to FUNC, CoreStates, Signet and
Covenant for the nine months ended September 30, as appropriate, and (y)
12-month periods ended March 31 has been added to comparable information related
to FUNC, CoreStates, Signet and Covenant for the 12-month periods ended December
31, as appropriate. Interim unaudited historical data of FUNC and Wheat reflect,
in the respective opinions of management, all adjustments (consisting only of
normal recurring adjustments) necessary to a fair presentation of such data.
As a result of using the foregoing assumptions, the pro forma financial
information has been calculated using a 1.1621 Exchange Ratio. The pro forma
information and 1.1621 Exchange Ratio would be different if the number of
outstanding shares of Wheat Common Stock or Wheat Preferred Stock on the
Effective Date is different than 8,834,944. See "THE MERGER -- General;
Consideration" and ANNEX A.
Pro forma financial information is intended to show how the Merger, the
Signet acquisition and the CoreStates and Covenant acquisitions might have
affected historical financial statements if the Merger, the Signet acquisition
and the CoreStates and Covenant acquisitions had been consummated at an earlier
time. The pro forma combined selected financial data does not purport to be
indicative of the results that actually would have been realized had the Merger,
the Signet acquisition and the CoreStates and Covenant acquisitions taken place
at the beginning of the applicable periods indicated, nor is it indicative of
the combined financial position or results of operations for any future periods.
15
<PAGE>
FUNC (HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993
- -------------------------------------------------------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income....................................... $ 7,556 7,193 9,628 8,687 7,231 6,602
Interest expense...................................... 3,586 3,452 4,632 4,052 2,793 2,482
-------- ------- ------- ------- ------- -------
Net interest income................................... 3,970 3,741 4,996 4,635 4,438 4,120
Provision for loan losses............................. 465 255 375 220 179 370
-------- ------- ------- ------- ------- -------
Net interest income after provision for loan losses... 3,505 3,486 4,621 4,415 4,259 3,750
Securities available for sale transactions............ 12 20 31 44 6 33
Investment security transactions...................... 3 3 4 5 4 7
Noninterest income.................................... 2,262 1,649 2,322 1,848 1,566 1,542
Merger-related restructuring charges.................. -- 281 281 94 -- --
SAIF special assessment............................... -- 133 133 -- -- --
Noninterest expense................................... 3,529 3,141 4,254 3,999 3,747 3,536
-------- ------- ------- ------- ------- -------
Income before income taxes............................ 2,253 1,603 2,310 2,219 2,088 1,796
Income taxes.......................................... 792 564 811 789 712 579
-------- ------- ------- ------- ------- -------
Net income............................................ 1,461 1,039 1,499 1,430 1,376 1,217
Dividends on preferred stock.......................... -- 8 9 26 46 46
-------- ------- ------- ------- ------- -------
Net income applicable to common stockholders before
redemption premium.................................. 1,461 1,031 1,490 1,404 1,330 1,171
Redemption premium on preferred stock................. -- -- -- -- 41 --
-------- ------- ------- ------- ------- -------
Net income applicable to common stockholders after
redemption premium.................................. $ 1,461 1,031 1,490 1,404 1,289 1,171
-------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- -------
PER COMMON SHARE DATA (a)
Net income before redemption premium.................. $ 2.60 1.85 2.67 2.52 2.36 2.15
Net income after redemption premium................... 2.60 1.85 2.67 2.52 2.29 2.15
Cash dividends........................................ 0.90 0.81 1.10 0.98 0.86 0.75
Book value............................................ 18.86 15.97 17.41 15.94 14.10 13.36
CASH DIVIDENDS PAID ON COMMON STOCK..................... 508 449 611 336 298 244
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets................................................ 143,904 133,882 140,127 131,880 113,529 104,550
Loans, net of unearned income......................... 94,904 92,520 95,858 90,563 77,831 68,263
Deposits.............................................. 91,690 91,444 94,815 92,555 87,865 81,885
Long-term debt........................................ 7,819 7,332 7,660 7,121 4,242 3,675
Guaranteed preferred beneficial interests............. 990 -- 495 -- -- --
Preferred stockholders' equity........................ -- 48 -- 183 230 514
Common stockholders' equity........................... 10,720 8,641 10,008 8,860 8,044 7,432
Total stockholders' equity............................ $ 10,720 8,689 10,008 9,043 8,274 7,946
Preferred shares outstanding (IN THOUSANDS)........... -- 1,911 -- 3,388 5,213 11,560
Common shares outstanding (IN THOUSANDS).............. 568,296 541,015 574,697 555,692 570,721 556,408
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
Assets................................................ $138,301 133,541 134,127 118,142 106,413 99,610
Loans, net of unearned income......................... 94,636 89,864 90,660 83,265 70,726 62,996
Deposits.............................................. 92,325 91,064 91,320 87,274 80,760 76,830
Long-term debt........................................ 7,489 7,570 7,565 5,707 4,009 3,598
Guaranteed preferred beneficial interests............. 964 -- 47 -- -- --
Common stockholders' equity (b)....................... 9,889 9,000 9,079 8,412 7,870 6,782
Total stockholders' equity (b)........................ $ 9,889 9,138 9,187 8,623 8,372 7,302
Common shares outstanding (IN THOUSANDS).............. 562,534 557,968 557,624 557,354 563,325 544,876
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before
redemption premium to average common
stockholders' equity (b)............................. 19.75%(c) 15.30(c) 16.41 16.69 16.91 17.26
Net income applicable to common stockholders after
redemption premium to average common stockholders'
equity (b).......................................... 19.75(c) 15.30(c) 16.41 16.69 16.38 17.26
Net income to
Average total stockholders' equity (b).............. 19.75(c) 15.19(c) 16.32 16.59 16.44 16.66
Average assets...................................... 1.41(c) 1.04(c) 1.12 1.21 1.29 1.22
Average stockholders' equity to average assets (d).... 7.14 6.81 6.82 7.23 7.52 7.11
Allowance for loan losses to
Net loans........................................... 1.44 1.49 1.42 1.66 2.03 2.38
Nonaccrual and restructured loans................... 224 188 204 233 248 151
Nonperforming assets................................ 194 167 179 182 178 115
Net charge-offs to average net loans.................. 0.65(c) 0.58(c) 0.63 0.41 0.40 0.78
Nonperforming assets to loans, net and foreclosed
properties.......................................... 0.74 0.89 0.80 0.91 1.14 2.06
Capital ratios (d)
Tier 1 capital...................................... 8.18 6.38 7.33 6.70 7.76 9.14
Total capital....................................... 13.72 10.94 12.33 11.45 12.94 14.64
Leverage............................................ 6.53 5.23 6.13 5.49 6.12 6.13
Net interest margin................................... 4.36%(c) 4.21(c) 4.21 4.46 4.75 4.82
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA) 1992
- -------------------------------------------------------- -------
<S> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income....................................... 6,609
Interest expense...................................... 2,942
-------
Net interest income................................... 3,667
Provision for loan losses............................. 643
-------
Net interest income after provision for loan losses... 3,024
Securities available for sale transactions............ 39
Investment security transactions...................... (3)
Noninterest income.................................... 1,360
Merger-related restructuring charges.................. --
SAIF special assessment............................... --
Noninterest expense................................... 3,443
-------
Income before income taxes............................ 977
Income taxes.......................................... 278
-------
Net income............................................ 699
Dividends on preferred stock.......................... 53
-------
Net income applicable to common stockholders before
redemption premium.................................. 646
Redemption premium on preferred stock................. --
-------
Net income applicable to common stockholders after
redemption premium.................................. 646
-------
-------
PER COMMON SHARE DATA (a)
Net income before redemption premium.................. 1.26
Net income after redemption premium................... 1.26
Cash dividends........................................ 0.64
Book value............................................ 11.68
CASH DIVIDENDS PAID ON COMMON STOCK..................... 168
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets................................................ 95,308
Loans, net of unearned income......................... 60,301
Deposits.............................................. 76,156
Long-term debt........................................ 3,733
Guaranteed preferred beneficial interests............. --
Preferred stockholders' equity........................ 530
Common stockholders' equity........................... 6,187
Total stockholders' equity............................ 6,717
Preferred shares outstanding (IN THOUSANDS)........... 12,158
Common shares outstanding (IN THOUSANDS).............. 529,790
CONSOLIDATED AVERAGE BALANCE SHEET ITEMS
Assets................................................ 90,621
Loans, net of unearned income......................... 58,700
Deposits.............................................. 71,947
Long-term debt........................................ 3,528
Guaranteed preferred beneficial interests............. --
Common stockholders' equity (b)....................... 5,724
Total stockholders' equity (b)........................ 6,280
Common shares outstanding (IN THOUSANDS).............. 510,768
CONSOLIDATED PERCENTAGES
Net income applicable to common stockholders before
redemption premium to average common
stockholders' equity (b)............................. 11.28
Net income applicable to common stockholders after
redemption premium to average common stockholders'
equity (b).......................................... 11.28
Net income to
Average total stockholders' equity (b).............. 11.13
Average assets...................................... 0.77
Average stockholders' equity to average assets (d).... 6.89
Allowance for loan losses to
Net loans........................................... 2.57
Nonaccrual and restructured loans................... 105
Nonperforming assets................................ 76
Net charge-offs to average net loans.................. 1.03
Nonperforming assets to loans, net and foreclosed
properties.......................................... 3.36
Capital ratios (d)
Tier 1 capital...................................... 9.22
Total capital....................................... 14.31
Leverage............................................ 6.55
Net interest margin................................... 4.73
</TABLE>
- ---------------
(a) Per common share data has been restated to reflect the FUNC Stock Split.
(b) Average common stockholders' equity and total stockholders' equity exclude
net unrealized gains and (losses) on debt and equity securities in 1994
through 1997.
(c) Annualized.
(d) The average stockholders' equity to average assets ratios and all capital
ratios for 1992-1994 are not restated for pooling of interests acquisitions.
Risk-based capital ratio guidelines require a minimum ratio of tier 1
capital to risk-weighted assets of four percent and total capital to
risk-weighted assets of eight percent. The minimum leverage ratio of tier 1
capital to adjusted average quarterly assets is from three to five percent.
16
<PAGE>
FUNC AND SIGNET
PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------------------- --------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994
- -------------------------------------------------- ----------------- ----------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income................................. $ 8,187 7,812 10,459 9,553 8,038
Interest expense................................ 3,859 3,719 4,994 4,425 3,090
-------- -------- -------- -------- --------
Net interest income............................. 4,328 4,093 5,465 5,128 4,948
Provision for loan losses....................... 515 299 449 258 193
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses........................................ 3,813 3,794 5,016 4,870 4,755
Securities available for sale transactions...... 19 20 36 45 9
Investment security transactions................ 3 3 4 6 4
Noninterest income.............................. 2,457 1,839 2,597 2,125 2,130
Merger-related restructuring charges............ -- 281 281 94 --
SAIF special assessment......................... -- 133 133 -- --
Noninterest expense............................. 3,930 3,501 4,740 4,563 4,593
-------- -------- -------- -------- --------
Income before income taxes...................... 2,362 1,741 2,499 2,389 2,305
Income taxes.................................... 828 611 875 848 779
-------- -------- -------- -------- --------
Net income...................................... 1,534 1,130 1,624 1,541 1,526
Dividends on preferred stock.................... -- 8 9 26 46
-------- -------- -------- -------- --------
Net income applicable to common stockholders
before redemption premium..................... 1,534 1,122 1,615 1,515 1,480
Redemption premium on preferred stock........... -- -- -- -- 41
-------- -------- -------- -------- --------
Net income applicable to common stockholders
after redemption premium...................... $ 1,534 1,122 1,615 1,515 1,439
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PER COMMON SHARE DATA
Net income before redemption premium............ $ 2.43 1.80 2.59 2.43 2.36
Net income after redemption premium............. 2.43 1.80 2.59 2.43 2.29
Book value...................................... 18.43 15.79 17.06 15.66 14.41
CASH DIVIDENDS PAID ON COMMON STOCK............... 546 485 659 382 355
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets.......................................... 155,175 145,375 151,847 142,858 126,460
Loans, net of unearned income................... 101,426 98,692 102,213 95,979 85,755
Deposits........................................ 99,402 99,278 102,702 100,148 95,687
Long-term debt.................................. 8,169 7,732 8,060 7,374 4,496
Guaranteed preferred beneficial interests....... 990 -- 495 -- --
Preferred stockholders' equity.................. -- 48 -- 183 230
Common stockholders' equity..................... 11,710 9,530 10,932 9,724 9,155
Total stockholders' equity...................... $ 11,710 9,578 10,932 9,907 9,385
Preferred shares outstanding (IN THOUSANDS)..... -- 1,911 -- 3,388 5,213
Common shares outstanding (IN THOUSANDS)........ 635,334 606,711 640,782 620,822 635,222
CONSOLIDATED PERCENTAGES
Allowance for loan losses to
Net loans..................................... 1.47% 1.53 1.47 1.71 2.10
Nonperforming assets.......................... 203 173 187 186 192
Net charge-offs to average net loans............ 0.67(b) 0.61(b) 0.66 0.44 0.42
Nonperforming assets to loans, net and
foreclosed properties......................... 0.73% 0.88 0.78 0.92 1.09
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA) 1993 1992
- -------------------------------------------------- -------- --------
<S> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income................................. 7,406 7,376
Interest expense................................ 2,757 3,273
-------- --------
Net interest income............................. 4,649 4,103
Provision for loan losses....................... 417 711
-------- --------
Net interest income after provision for loan
losses........................................ 4,232 3,392
Securities available for sale transactions...... 37 49
Investment security transactions................ 7 (21)
Noninterest income.............................. 1,903 1,641
Merger-related restructuring charges............ -- --
SAIF special assessment......................... -- --
Noninterest expense............................. 4,134 3,942
-------- --------
Income before income taxes...................... 2,045 1,119
Income taxes.................................... 654 311
-------- --------
Net income...................................... 1,391 808
Dividends on preferred stock.................... 46 53
-------- --------
Net income applicable to common stockholders
before redemption premium..................... 1,345 755
Redemption premium on preferred stock........... -- --
-------- --------
Net income applicable to common stockholders
after redemption premium...................... 1,345 755
-------- --------
-------- --------
PER COMMON SHARE DATA
Net income before redemption premium............ 2.21 1.32
Net income after redemption premium............. 2.21 1.32
Book value...................................... 13.57 11.86
CASH DIVIDENDS PAID ON COMMON STOCK............... 289 193
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets.......................................... 116,399 107,401
Loans, net of unearned income................... 74,573 66,110
Deposits........................................ 89,706 83,979
Long-term debt.................................. 3,941 4,031
Guaranteed preferred beneficial interests....... -- --
Preferred stockholders' equity.................. 514 530
Common stockholders' equity..................... 8,397 7,014
Total stockholders' equity...................... 8,911 7,544
Preferred shares outstanding (IN THOUSANDS)..... 11,560 12,158
Common shares outstanding (IN THOUSANDS)........ 618,678 591,348
CONSOLIDATED PERCENTAGES
Allowance for loan losses to
Net loans..................................... 2.52 2.75
Nonperforming assets.......................... 123 82
Net charge-offs to average net loans............ 0.79 1.14
Nonperforming assets to loans, net and
foreclosed properties......................... 2.04 3.34
</TABLE>
- ---------------
(a) See "Pro Forma Financial Information".
(b) Annualized.
17
<PAGE>
WHEAT (HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED MARCH 31,
------------------- -----------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996 1995 1994 1993
- --------------------------------------------------------------- ------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income.............................................. $ 40 33 49 40 34 24 18
Interest expense............................................. 18 14 22 19 16 9 6
------- ----- ----- ----- ----- ----- -----
Net interest income.......................................... 22 19 27 21 18 15 12
Securities available for sale transactions................... 67 67 88 80 70 74 80
Noninterest income........................................... 318 256 357 293 215 251 213
Noninterest expense.......................................... 352 301 420 347 269 304 272
------- ----- ----- ----- ----- ----- -----
Income before income taxes................................... 55 41 52 47 34 36 33
Income taxes................................................. 22 17 21 19 13 15 13
------- ----- ----- ----- ----- ----- -----
Net income................................................... $ 33 24 31 28 21 21 20
------- ----- ----- ----- ----- ----- -----
------- ----- ----- ----- ----- ----- -----
PER COMMON AND PREFERRED SHARE DATA
Net income................................................... $ 3.69 2.67 3.51 3.22 2.35 2.34 2.26
Book value................................................... 18.77 14.73 16.37 13.70 11.04 9.42 7.39
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets....................................................... 1,173 958 944 737 608 586 443
Long-term debt............................................... 86 41 64 34 36 31 22
Total stockholders' equity................................... $ 165 134 147 122 96 84 69
Common and preferred shares outstanding (IN THOUSANDS)....... 8,809 9,116 8,954 8,881 8,673 8,931 9,345
</TABLE>
18
<PAGE>
FUNC, SIGNET AND WHEAT
PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED
-------------------- ------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993
- -------------------------------------------- -------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income........................... $ 8,227 7,845 10,508 9,593 8,072 7,430
Interest expense.......................... 3,877 3,733 5,016 4,444 3,106 2,766
-------- ------- --------- --------- --------- ---------
Net interest income....................... 4,350 4,112 5,492 5,149 4,966 4,664
Provision for loan losses................. 515 299 449 258 193 417
-------- ------- --------- --------- --------- ---------
Net interest income after provision for
loan losses............................. 3,835 3,813 5,043 4,891 4,773 4,247
Securities available for sale
transactions............................ 86 87 124 125 79 111
Investment security transactions.......... 3 3 4 6 4 7
Noninterest income........................ 2,775 2,095 2,954 2,418 2,345 2,154
Merger-related restructuring charges...... -- 281 281 94 -- --
SAIF special assessment................... -- 133 133 -- -- --
Noninterest expense....................... 4,282 3,802 5,160 4,910 4,862 4,438
-------- ------- --------- --------- --------- ---------
Income before income taxes................ 2,417 1,782 2,551 2,436 2,339 2,081
Income taxes.............................. 850 628 896 867 792 669
-------- ------- --------- --------- --------- ---------
Net income................................ 1,567 1,154 1,655 1,569 1,547 1,412
Dividends on preferred stock.............. -- 8 9 26 46 46
-------- ------- --------- --------- --------- ---------
Net income applicable to common
stockholders before
redemption premium...................... 1,567 1,146 1,646 1,543 1,501 1,366
Redemption premium on preferred stock..... -- -- -- -- 41 --
-------- ------- --------- --------- --------- ---------
Net income applicable to common
stockholders after redemption premium... $ 1,567 1,146 1,646 1,543 1,460 1,366
-------- ------- --------- --------- --------- ---------
-------- ------- --------- --------- --------- ---------
PER COMMON SHARE DATA
Net income before redemption premium...... $ 2.45 1.80 2.59 2.44 2.36 2.21
Net income after redemption premium....... 2.45 1.80 2.59 2.44 2.29 2.21
Book value................................ 18.39 15.67 17.02 15.60 14.33 13.48
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets.................................... 156,348 146,333 152,791 143,595 127,068 116,985
Loans, net of unearned income............. 101,426 98,692 102,213 95,979 85,755 74,573
Deposits.................................. 99,402 99,278 102,702 100,148 95,687 89,706
Long-term debt............................ 8,255 7,773 8,124 7,408 4,532 3,972
Guaranteed preferred beneficial
interests............................... 990 -- 495 -- -- --
Preferred stockholders' equity............ -- 48 -- 183 230 514
Common stockholders' equity............... 11,875 9,664 11,079 9,846 9,251 8,481
Total stockholders' equity................ $ 11,875 9,712 11,079 10,029 9,481 8,995
Preferred shares outstanding
(IN THOUSANDS).......................... -- 1,911 -- 3,388 5,213 11,560
Common shares outstanding
(IN THOUSANDS).......................... 645,601 616,978 651,049 631,089 645,489 628,945
CONSOLIDATED PERCENTAGES
Allowance for loan losses to
Net loans............................... 1.47% 1.53 1.47 1.71 2.10 2.52
Nonperforming assets.................... 203 173 187 186 192 123
Net charge-offs to average net loans...... 0.67(b) 0.61(b) 0.66 0.44 0.42 0.79
Nonperforming assets to loans, net and
foreclosed properties................... 0.73% 0.88 0.78 0.92 1.09 2.04
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA) 1993/1992
- -------------------------------------------- ---------
<S> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income........................... 7,394
Interest expense.......................... 3,279
---------
Net interest income....................... 4,115
Provision for loan losses................. 711
---------
Net interest income after provision for
loan losses............................. 3,404
Securities available for sale
transactions............................ 129
Investment security transactions.......... (21)
Noninterest income........................ 1,854
Merger-related restructuring charges...... --
SAIF special assessment................... --
Noninterest expense....................... 4,214
---------
Income before income taxes................ 1,152
Income taxes.............................. 324
---------
Net income................................ 828
Dividends on preferred stock.............. 53
---------
Net income applicable to common
stockholders before
redemption premium...................... 775
Redemption premium on preferred stock..... --
---------
Net income applicable to common
stockholders after redemption premium... 775
---------
---------
PER COMMON SHARE DATA
Net income before redemption premium...... 1.33
Net income after redemption premium....... 1.33
Book value................................ 11.77
CONSOLIDATED PERIOD-END BALANCE SHEET ITEMS
Assets.................................... 107,844
Loans, net of unearned income............. 66,110
Deposits.................................. 83,979
Long-term debt............................ 4,053
Guaranteed preferred beneficial
interests............................... --
Preferred stockholders' equity............ 530
Common stockholders' equity............... 7,083
Total stockholders' equity................ 7,613
Preferred shares outstanding
(IN THOUSANDS).......................... 12,158
Common shares outstanding
(IN THOUSANDS).......................... 601,615
CONSOLIDATED PERCENTAGES
Allowance for loan losses to
Net loans............................... 2.75
Nonperforming assets.................... 82
Net charge-offs to average net loans...... 1.14
Nonperforming assets to loans, net and
foreclosed properties................... 3.34
</TABLE>
- ---------------
(a) See "PRO FORMA FINANCIAL INFORMATION".
(b) Annualized.
19
<PAGE>
FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT
PRO FORMA COMBINED SELECTED FINANCIAL DATA (A)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED
-------------------- -------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 1993/1992
- ----------------------------------------- -------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income........................ $ 10,787 10,308 13,831 13,068 11,086 10,335 10,480
Interest expense....................... 4,839 4,591 6,187 5,752 4,052 3,660 4,477
-------- ------- --------- --------- --------- --------- ---------
Net interest income.................... 5,948 5,717 7,644 7,316 7,034 6,675 6,003
Provision for loan losses.............. 658 488 679 402 472 606 972
-------- ------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses.......................... 5,290 5,229 6,965 6,914 6,562 6,069 5,031
Securities available for sale
transactions......................... 101 142 184 156 97 154 146
Investment security transactions....... 3 3 4 6 4 7 (21)
Noninterest income..................... 3,438 2,715 3,794 3,269 3,115 2,944 2,691
Restructuring and merger-related
charges.............................. -- 411 422 233 107 -- --
SAIF special assessment................ -- 147 148 -- -- -- --
Noninterest expense.................... 5,497 5,018 6,802 6,656 6,673 6,332 6,246
-------- ------- --------- --------- --------- --------- ---------
Income before income taxes............. 3,335 2,513 3,575 3,456 2,998 2,842 1,601
Income taxes........................... 1,173 905 1,278 1,232 1,018 908 455
-------- ------- --------- --------- --------- --------- ---------
Net income............................. 2,162 1,608 2,297 2,224 1,980 1,934 1,146
Dividends on preferred stock........... -- 8 10 26 46 46 53
-------- ------- --------- --------- --------- --------- ---------
Net income applicable to common
stockholders before redemption
premium.............................. 2,162 1,600 2,287 2,198 1,934 1,888 1,093
Redemption premium on preferred stock.. -- -- -- -- 41 -- --
-------- ------- --------- --------- --------- --------- ---------
Net income applicable to common
stockholders after redemption
premium.............................. $ 2,162 1,600 2,287 2,198 1,893 1,888 1,093
-------- ------- --------- --------- --------- --------- ---------
-------- ------- --------- --------- --------- --------- ---------
PER COMMON SHARE DATA
Net income before redemption
premium.............................. $ 2.22 1.61 2.31 2.21 1.93 1.91 1.17
Net income after redemption premium.... $ 2.22 1.61 2.31 2.21 1.89 1.91 1.17
Average common shares outstanding
(IN THOUSANDS)....................... 973,263 990,901 989,106 993,504 1,003,740 988,055 933,400
CONSOLIDATED PERIOD-END BALANCE SHEET
ITEMS
Assets................................. $204,327 191,531 198,668 189,592 173,116 161,194 152,535
Loans, net of unearned income.......... 136,769 131,526 135,231 127,693 116,510 104,411 94,635
Deposits............................... 133,447 131,581 136,706 134,112 130,461 123,570 118,799
Long-term debt......................... 12,054 10,291 11,193 9,620 6,695 5,983 5,724
Guaranteed preferred
beneficial interests................. 990 -- 495 -- -- -- --
Preferred stockholders' equity......... -- 48 -- 183 230 514 530
Common stockholders' equity............ 14,988 13,696 14,775 13,722 12,982 12,186 10,367
Total stockholders' equity............. $ 14,988 13,744 14,775 13,905 13,212 12,700 10,897
Preferred shares outstanding (IN
THOUSANDS)........................... -- 1,911 -- 3,388 5,213 11,560 12,158
Common shares outstanding (IN
THOUSANDS)........................... 965,709 974,937 995,189 987,596 1,013,603 1,001,056 969,491
CONSOLIDATED PERCENTAGES
Allowance for loan losses to
Net loans............................ 1.59% 1.68 1.64 1.81 2.13 2.41 2.57
Nonperforming assets................. 217 195 211 201 180 117 78
Net charge-offs to average net loans... 0.67(b) 0.62(b) 0.64 0.45 0.55 0.74 1.10
Nonperforming assets to loans, net and
foreclosed properties................ 0.73% 0.86 0.78 0.90 1.18 2.05 3.28
</TABLE>
- ---------------
(a) See "PRO FORMA FINANCIAL INFORMATION".
(b) Annualized.
20
<PAGE>
RECENT DEVELOPMENTS
PENDING AND RECENT FUNC ACQUISITIONS
CORESTATES
On November 18, 1997, FUNC entered into an agreement to acquire CoreStates,
a bank holding company based in Philadelphia, Pennsylvania. CoreStates, through
its lead bank subsidiary, CoreStates Bank, N.A., provides financial services
through banking offices located in Pennsylvania, New Jersey and Delaware. As of
September 30, 1997, and for the nine months then ended, CoreStates reported
assets of $48 billion, net loans of $35 billion, deposits of $34 billion,
stockholders' equity of $3 billion and net income of $597 million. Under the
terms of the CoreStates acquisition agreement, FUNC will exchange 1.62 shares of
FUNC Common Stock (subject to possible adjustment under certain circumstances)
for each outstanding share of CoreStates common stock. The acquisition of
CoreStates, which will be accounted for as a pooling of interests, is expected
to close in the second quarter of 1998, subject to certain conditions of
closing, including approval of the CoreStates acquisition agreement by
CoreStates and FUNC stockholders, approval by FUNC stockholders of an amendment
to the FUNC Articles to increase the number of authorized shares of FUNC Common
Stock from 750,000,000 to 2,000,000,000, and approval by various regulatory
agencies. Based on the 1.62 exchange ratio, a total of 323,642,000 shares of
FUNC Common Stock are expected to be issued upon consummation of the CoreStates
acquisition, excluding FUNC Common Stock to be exchanged for an estimated 3.5
million shares of CoreStates common stock that CoreStates expects to issue in
order to qualify the CoreStates acquisition as a pooling of interests. See "THE
MERGER -- Accounting Treatment".
In connection with the CoreStates acquisition, CoreStates granted FUNC an
option to purchase, under certain circumstances, up to 19.9 percent of the
outstanding shares of common stock of CoreStates at a price of $72.00 per share,
subject to certain adjustments, and FUNC granted CoreStates an option to
purchase, under certain circumstances, up to 9.9 percent of the outstanding
shares of FUNC Common Stock at a price of $52.00 per share, subject to certain
adjustments. Under certain circumstances, the respective issuers of such options
may be required to repurchase the options or the shares acquired pursuant to the
exercise thereof. In addition, Terrence A. Larsen, CoreStates' Chairman and
Chief Executive Officer, would become a Vice Chairman of FUNC and would become a
member of the Office of the Chairman, which also would include Edward E.
Crutchfield, Chairman and Chief Executive Officer of FUNC, and John R. Georgius,
President of FUNC. Also, six directors of CoreStates would become directors of
FUNC.
On November 18, 1997, FUNC filed a Current Report on Form 8-K with the
Commission (the "CoreStates Form 8-K"), which contains, among other things,
certain financial and other information (the "CoreStates Form 8-K Materials")
about CoreStates and the CoreStates acquisition. The CoreStates Form 8-K
Materials contain certain forward-looking statements regarding FUNC, CoreStates
and the combined organization following the CoreStates acquisition, including
statements relating to estimated cost savings and enhanced revenues that may be
realized from the CoreStates acquisition, and certain restructuring charges
expected to be incurred in connection with the CoreStates acquisition. Such
forward-looking statements involve significant risks and uncertainties. Actual
results may differ materially from the results discussed in the CoreStates Form
8-K Materials and herein. Factors that might cause such a difference include,
but are not limited to, those discussed in the CoreStates Form 8-K and FUNC's
Quarterly Report on Form 10-Q for the period ended September 30, 1997. See
"AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS".
As indicated in the CoreStates Form 8-K:
(Bullet) FUNC expects to realize before-tax expense savings resulting
from the CoreStates acquisition of approximately $406
million and $723 million in 1998 and 1999, respectively, or
approximately $258 million and $459 million after-tax,
respectively. These estimates assume that approximately 45
percent of CoreStates' 1997 annualized expenses are
eliminated by the end of 1999.
(Bullet) FUNC expects to realize before-tax revenue enhancements
relating to the CoreStates acquisition of approximately $123
million and $194 million in 1998 and 1999, respectively, or
approximately $58 million and $89 million after-tax,
respectively. These estimates are primarily based on FUNC's
broader array of income generating products from its capital
markets, capital management and other fee producing
businesses.
(Bullet) Assuming (i) the restructuring charges discussed below and
the expense savings and revenue enhancements discussed above
are as estimated, (ii) 985 million shares of FUNC Common
Stock are outstanding in 1998 and 999 million shares are
outstanding in 1999, (iii) the CoreStates acquisition is
consummated by mid-1998, (iv) the conversion of CoreStates'
operations and computer systems to FUNC's operations and
computer systems is completed by November 1998, (v) 1998
earnings per share of (a) FUNC Common Stock are $3.91, and
(b) CoreStates common stock are $4.23, each of which
represents the First Call consensus earnings estimates as of
21
<PAGE>
November 18, 1997 (before public announcement of the
CoreStates acquisition but after public announcement of the
Signet acquisition and the filing of the Signet Form 8-K (as
hereinafter defined), the "1998 Illustrative First Call
Consensus Estimates"), (vi) 1999 earnings per share of FUNC
Common Stock and CoreStates common stock are equal to the
1998 Illustrative First Call Consensus Estimates plus 11
percent for FUNC and ten percent for CoreStates (the "1999
Illustrative Estimates") (I.E., $4.34 for FUNC Common Stock
and $4.65 for CoreStates common stock), and (vii) certain
other assumptions contained in the CoreStates Form 8-K, the
CoreStates acquisition is estimated to dilute the 1998
Illustrative First Call Consensus Estimate for FUNC Common
Stock by $.09 and add $.12 to the 1999 Illustrative Estimate
for FUNC Common Stock. The 1998 Illustrative First Call
Consensus Estimates and the 1999 Illustrative Estimates are
presented for illustrative purposes only, are subject to the
risks and uncertainties set forth in the CoreStates Form 8-K
Materials and under "CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION", among others, and do not
constitute earnings projections or estimates by FUNC or
CoreStates.
(Bullet) FUNC expects to record after-tax restructuring and
merger-related charges associated with the CoreStates
acquisition, currently estimated at $795 million, or $0.81
per share of FUNC Common Stock, in the second quarter of
1998. The estimated $795 million restructuring charge is
summarized below.
<TABLE>
<S> <C>
(IN MILLIONS, AFTER TAX)
- ----------------------------------------------------------------------------------
Severance and change in control related obligations............................... $214
Fixed asset write-downs and vacant space accruals................................. 289
Service contract terminations..................................................... 127
Charitable support................................................................ 63
Other............................................................................. 102
----
Total............................................................................. $795
----
----
</TABLE>
The estimated restructuring charge includes approximately $149 million in
non-cash charges. Cash payments included in the estimated restructuring charge
are expected to be completed within 18 months from the date of consummation. The
"Other" category includes CoreStates acquisition-related amounts, none of which
individually is estimated to exceed $50 million. The amounts included in the
$795 million estimated restructuring charge are subject to change prior to the
effective date of the CoreStates acquisition. The estimates include assumptions
about the timing of the consummation of the CoreStates acquisition and the
number of employees whose employment will terminate as a result of the
CoreStates acquisition. Changes in such assumptions could result in a change in
the estimated restructuring charge. In addition, FUNC estimates that another $75
million in pre-tax CoreStates acquisition-related costs will be incurred over
the 12 months following consummation of the CoreStates acquisition. These costs
primarily relate to training and systems conversions.
See "PRO FORMA FINANCIAL INFORMATION".
SIGNET
On July 18, 1997, FUNC entered into an agreement to acquire Signet, a
Virginia-based bank holding company. Signet, through its principal bank
subsidiary, Signet Bank, provides financial services through banking offices
located in Virginia, Maryland and Washington, D.C. As of September 30, 1997, and
for the nine months then ended, Signet reported assets of $11 billion, net loans
of $7 billion, deposits of $8 billion, stockholders' equity of $990 million and
net income of $73 million. Under the terms of the Signet acquisition agreement,
FUNC exchanged 1.10 shares of FUNC Common Stock for each outstanding share of
Signet common stock. As of September 30, 1997, Signet had 60.9 million shares of
common stock outstanding. The Signet acquisition, which will be accounted for as
a pooling of interests, was consummated on November 28, 1997. See " -- FUNC
Common Stock Transactions" and "THE MERGER -- Accounting Treatment". Two
directors of Signet are expected to be elected or appointed as directors of
FUNC.
On July 21, 1997, FUNC filed a Current Report on Form 8-K with the
Commission (the "Signet Form 8-K") which contains, among other items, certain
financial and other information (the "Signet Form 8-K Materials") about the
Signet acquisition. The Signet Form 8-K Materials contain certain
forward-looking statements regarding FUNC, Signet and the combined organization
following the Signet acquisition, including statements relating to estimated
cost savings and enhanced revenues that may be realized from the Signet
acquisition, and certain restructuring charges expected to be incurred in
connection with the Signet acquisition. Such forward-looking statements involve
significant risks and uncertainties. Actual results may differ materially from
the results discussed in the Signet Form 8-K Materials and herein. Factors that
might cause such a difference include, but are not limited to, those discussed
in the Signet Form 8-K and FUNC's Quarterly Report on Form 10-Q for the period
ended September 30, 1997. See "AVAILABLE INFORMATION", "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION".
22
<PAGE>
As indicated in the Signet Form 8-K:
(Bullet) FUNC expects to realize before-tax expense savings resulting
from the Signet acquisition of approximately $169 million in
1998 and $242 million in 1999, or approximately $108 million
and $155 million after-tax, respectively. These estimates
assume that approximately 50 percent of Signet's 1996 annual
expenses are eliminated by the end of 1999.
(Bullet) FUNC expects to realize before-tax revenue enhancements
relating to the Signet acquisition of approximately $30
million in 1998 and $37 million in 1999, or approximately
$15 million and $19 million after-tax, respectively. These
estimates are primarily based on an analysis of fee income
generating products currently offered by FUNC which either
are not offered by Signet or are offered by Signet on a more
limited basis.
(Bullet) Assuming (i) the restructuring charges discussed below and
the expense savings and revenue enhancements discussed above
are as estimated, (ii) 641 million shares of FUNC Common
Stock are outstanding in 1998 and 646 million shares of FUNC
Common Stock are outstanding in 1999, (iii) the Signet
acquisition is consummated in 1997 (the Signet acquisition
was consummated on November 28, 1997), (iv) the conversion
of Signet's operations and computer systems to FUNC's
operations and computer systems are completed by April 1998,
(v) 1998 earnings per share of FUNC Common Stock are $3.905
and per share of Signet common stock are $2.62, which
represent the First Call consensus earnings estimates
(before public announcement of the Signet and CoreStates
acquisition agreements and before Signet's June 3, 1997,
corporate redesign announcement, the "1998 Illustrative
First Call Consensus Estimates"), (vi) 1999 earnings per
share of FUNC Common Stock and Signet common stock are equal
to the 1998 Illustrative First Call Consensus Estimates plus
ten percent (the "1999 Illustrative Estimates") (i.e.,
$4.295 for FUNC Common Stock and $2.88 for Signet common
stock), and (vii) certain other assumptions contained in the
Signet Form 8-K, the Signet acquisition is estimated to add
$0.005 per share to the 1998 Illustrative First Call
Consensus Estimate for FUNC Common Stock and $0.065 per
share to the 1999 Illustrative Estimate for FUNC Common
Stock. The 1998 Illustrative First Call Consensus Estimates
and the 1999 Illustrative Estimates are presented for
illustrative purposes only, are subject to the risks and
uncertainties set forth in the Signet Form 8-K Materials and
under "CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION", among others, and do not constitute earnings
projections or estimates by FUNC or Signet.
(Bullet) FUNC expects to take an after-tax restructuring charge
relating to the Signet acquisition currently estimated at
$135 million, or $0.42 per share of FUNC Common Stock, in
1997. The estimated $135 million restructuring charge is
summarized below.
<TABLE>
<CAPTION>
(IN MILLIONS, AFTER TAX)
- ----------------------------------------------------------------------------------
<S> <C>
Severance and change in control related obligations............................... $ 58
Fixed asset write-downs and vacant space accruals................................. 38
Service contract terminations..................................................... 18
Other............................................................................. 21
----
Total............................................................................. $135
----
----
</TABLE>
The estimated restructuring charge includes approximately $18 million in
non-cash charges. Cash payments included in the estimated restructuring charge
are expected to be completed by the end of the second quarter of 1998. The
"Other" category includes Signet acquisition-related amounts, none of which is
estimated to exceed $13 million. The estimates include certain assumptions,
including the number of employees whose employment will terminate as a result of
the Signet acquisition. Changes in such assumptions could result in a change in
the estimated restructuring charge.
See "THE MERGER -- Opinion of Financial Advisor" and "PRO FORMA FINANCIAL
INFORMATION".
COVENANT
On August 4, 1997, FUNC entered into an agreement to acquire Covenant, a
bank holding company based in Haddonfield, New Jersey. Covenant's bank
subsidiary operates 16 branches in southern New Jersey and at September 30,
1997, Covenant reported $420 million in assets. Under the terms of the
agreement, FUNC will exchange (i) 0.3813 shares of FUNC Common Stock for each
share of Covenant common stock and (ii) 1.2 shares of FUNC Common Stock for each
share of Covenant Series B preferred stock. Based on a price of $49.50 per share
of FUNC Common Stock (the last reported sale price per share of FUNC Common
Stock on the NYSE Tape on August 4, 1997, the day before the acquisition was
announced), the purchase price would be approximately $78 million. The
acquisition, which will be accounted for as a purchase, is expected to close in
the first quarter of 1998, subject to certain conditions of closing. See "THE
MERGER -- Accounting Treatment". FUNC has repurchased in the open market 1.65
million shares of FUNC Common Stock expected to
23
<PAGE>
be issued in the acquisition at a cost of $79 million. WFSI is a market maker
for the common and preferred stock of Covenant. See "WHEAT -- History and
Business".
FUNC COMMON STOCK TRANSACTIONS
In 1995, as adjusted to reflect the FUNC Stock Split, FUNC repurchased in
the open market 51 million shares of FUNC Common Stock at a cost of $1.2
billion; in 1996, 31 million shares at a cost of $968 million; and from January
1, 1997 to the most recent practicable date prior to the mailing of this
Prospectus/Proxy Statement, 24 million shares (including the shares related to
the acquisition of Covenant discussed above) at a cost of $1.0 billion.
On September 23, 1997, FUNC sold 7.5 million shares of FUNC Common Stock in
a public offering (the "Offering"), in order for the Signet acquisition and the
Merger to qualify for pooling of interests accounting treatment. See "THE
MERGER -- Accounting Treatment". The Offering also included the sale by Banco
Santander, S.A. ("Santander") of all of the remaining 44.7 million shares of
FUNC Common Stock (approximately 7.98 percent of the outstanding shares of FUNC
Common Stock as of August 31, 1997) beneficially owned by Santander. Santander
had acquired its shares of FUNC Common Stock in connection with FUNC's
acquisition of FFB on January 1, 1996. FUNC received $358 million in net
proceeds from its sale of the 7.5 million shares in the Offering. FUNC did not
receive any proceeds from the sale of Santander's shares in the Offering. WFSI
was an underwriter in the Offering. See "WHEAT -- History and Business".
FUTURE FUNC ACQUISITIONS
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 and 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 may occur in connection with future acquisitions. See
"FUNC -- History and Business".
GENERAL INFORMATION
GENERAL
This Prospectus/Proxy Statement is being furnished by Wheat to its
stockholders as a Proxy Statement in connection with the solicitation of proxies
by the Wheat Board for use at the Special Meeting to be held on January 23,
1998, and any adjournments or postponements thereof, to consider and vote upon a
proposal to approve the Merger Agreement. This Prospectus/Proxy Statement is
also being furnished to the holders of Trust Shares and the participants in the
Wheat ASOP for their information in connection with the solicitation of their
voting instructions on the proposal to be voted on at the Special Meeting. This
Prospectus/Proxy Statement is also being furnished by FUNC as a Prospectus in
connection with the issuance by FUNC of the FUNC Common Shares upon consummation
of the Merger.
Directors, officers and employees of Wheat and FUNC may solicit proxies
from Wheat stockholders and voting instructions from holders of Trust Shares and
any other beneficial owners, either personally or by telephone, telegraph or
other forms of communication. Such persons will receive no additional
compensation for such services. All expenses associated with the solicitation of
proxies in the form enclosed will be borne by the party incurring the same,
except for printing expenses and fees related to the Registration Statement,
which will be shared equally between FUNC and Wheat.
THE WHEAT BOARD HAS ADOPTED THE MERGER AGREEMENT, BELIEVES IT IS IN THE
BEST INTERESTS OF WHEAT AND ITS STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY
WHEAT STOCKHOLDERS (INCLUDING HOLDERS OF THE TRUST SHARES). SEE "THE
MERGER -- BACKGROUND AND REASONS; WHEAT ".
RECORD DATE; VOTE REQUIRED; REVOCATION OF PROXIES
The Wheat Board has fixed December 8, 1997, as the Record Date for
determining stockholders entitled to notice of and to vote at the Special
Meeting, and accordingly, only holders of record of Wheat Common Stock and Wheat
Preferred Stock at the close of business on that day are entitled to notice of
and to vote at the Special Meeting. The number of shares of Wheat Common Stock
and Wheat Preferred Stock outstanding on the Record Date was 8,626,044 and
208,900, respectively, each of such shares being entitled to one vote. The
presence, in person or by proxy, of at least a majority of the total number of
outstanding shares of Wheat Common Stock and Wheat Preferred Stock is necessary
to constitute a quorum at the Special Meeting. Abstentions will be treated as
shares present at the Special Meeting for purposes of determining the presence
of a quorum. Approval of the Merger Agreement requires the affirmative vote of
more than two-thirds of the votes entitled to be cast at the Special Meeting by
the holders of Wheat Common Stock and Wheat Preferred Stock, each voting as a
separate class. Therefore, abstentions will have the same effect as votes
against approval of the Merger Agreement.
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The directors and executive officers of Wheat (including certain of their
related interests) beneficially owned, as of the Record Date, and are entitled
to vote at the Special Meeting 2,214,562 shares of Wheat Common Stock which
represents 25.7 percent of the outstanding shares of Wheat Common Stock entitled
to be voted at the Special Meeting. As a condition of FUNC's willingness to
enter into the Merger Agreement, each of the members of the Executive Committee
of the Wheat Board entered into the Voting Agreements and agreed to vote the
shares of Wheat Common Stock beneficially owned by such directors in favor of
approval of the Merger Agreement at the Special Meeting. The form of Voting
Agreement is included as Exhibit A to ANNEX A to this Prospectus/Proxy
Statement). The number of shares of Wheat Common Stock beneficially owned by
such directors as of the Record Date is 1,561,761, which represents 18.1 percent
of the outstanding shares of Wheat Common Stock entitled to be voted at the
Special Meeting. The directors and executive officers of Wheat have indicated
that they intend to vote their shares of Wheat Common Stock and Trust Shares in
favor of approval of the Merger Agreement. To the best of FUNC's knowledge, no
shares of Wheat Common Stock or Wheat Preferred Stock are owned by the executive
officers, directors or affiliates of FUNC. See "THE MERGER -- Voting Agreements"
and ANNEXES A and D.
Participants in the Wheat ASOP will receive voting instructions with
respect to shares of Wheat Common Stock allocated to participant accounts in the
Wheat ASOP. The Voting Fiduciary has been named to discharge voting obligations
with respect to Wheat Common Stock held in the Wheat ASOP. The Voting Fiduciary
shall vote shares of Wheat Common Stock allocated to participants' accounts in
accordance with directions received from participants. Wheat Common Stock as to
which voting direction is not received from a participant and any shares of
unallocated Wheat Common Stock shall be voted by the Voting Fiduciary on a
proportionate basis in accordance with the votes cast by shares of Wheat Common
Stock as to which voting instructions are actually received. It is expected that
following consummation of the Merger the Wheat ASOP will either be merged into
FUNC's 401(k) Savings Plan or merged into the Wheat 401(k) Plan, which plan
would be subsequently merged into the FUNC 401(k) Savings Plan. The Wheat ASOP
was the owner of 26.8 percent of the outstanding shares of Wheat Common Stock on
the Record Date.
Beneficial ownership of the Wheat Preferred Stock is represented by Trust
Shares issued by the Grantor Trust, which is the record holder of the Wheat
Preferred Stock. Each Trust Share represents beneficial ownership of one share
of Wheat Preferred Stock. Holders of Trust Shares will receive voting directions
with respect to Trust Shares, which will permit such holders to instruct the
Trustees as to how to vote the Wheat Preferred Stock owned by the Grantor Trust,
including a direction to abstain from voting. Each Trust Share will be able to
instruct the voting of one share of Wheat Preferred Stock. Trust Shares as to
which voting directions are not received by the Trustees will not be voted. It
is expected that the Grantor Trust will be liquidated on the Effective Date or
as soon thereafter as practicable. Upon such liquidation, holders of Trust
Shares would become holders of the FUNC Common Shares they are entitled to
receive upon consummation of the Merger. Any unpaid Notes held by Wheat or the
Grantor Trust relating to the purchase of Wheat Common Stock and the Trust
Shares would be assigned to FUNC. Upon payment in full of such Notes, the FUNC
Common Shares would be delivered to such holders.
After having been submitted, the enclosed proxy or voting instruction form,
as applicable, may be revoked by the person giving it, at any time before it is
exercised, by, in the case of proxies: (i) submitting written notice of
revocation of such proxy to the Secretary of Wheat; (ii) submitting a duly
executed proxy having a later date; or (iii) appearing at the Special Meeting
and notifying the Secretary of such stockholder's intention to vote in person.
All shares represented by valid proxies or voting instruction forms, as
applicable, will be exercised in the manner specified thereon. If no
specification is made, such shares will be voted in favor of approval of the
Merger Agreement and otherwise in the discretion of the proxyholders named
thereon or the Voting Fiduciary, as applicable, as to any other matters which
may be voted on at 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 or voting instruction form, as applicable, which is voted against the
proposal to adopt the Merger Agreement will be voted in favor of any adjournment
or postponement proposed for the purpose of soliciting additional votes in favor
of the Merger Agreement.
After having been submitted to the Voting Fiduciary or the Trustees, as
applicable, a voting instruction form 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 Voting Fiduciary or the Trustees, as applicable, or (ii)
submitting a duly executed voting instruction form to the Voting Fiduciary or
the Trustees, as applicable, having a later date. Holders of Trust Shares do not
have the right to vote in person at the Special Meeting, as voting rights of the
Wheat Preferred Stock held by the Grantor Trust may be exercised only by the
Trustees.
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THE MERGER
THE FOLLOWING INFORMATION RELATING TO THE MERGER 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 HEREIN BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS
SET FORTH IN ANNEX A TO THIS PROSPECTUS/PROXY STATEMENT AND REFERENCE IS MADE
THERETO FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE MERGER. STOCKHOLDERS OF
WHEAT ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY.
GENERAL; CONSIDERATION
Subject to the terms and conditions of the Merger Agreement, FUNC will
acquire Wheat by means of the merger of the FUNC Subsidiary with and into Wheat.
Upon consummation of the Merger, each outstanding share of Wheat Common Stock
and Wheat Preferred Stock (which is represented by a Trust Share) (other than
Excluded Shares) will be converted, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, into the right to receive
the Exchange Ratio (I.E., the number of FUNC Common Shares equal to 10,267,029
divided by the Outstanding Share Number). Each holder of Wheat Common Stock and
Wheat Preferred Stock (including holders of Trust Shares) 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 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 the fraction of a share of FUNC Common Stock to which such
holder would otherwise be entitled.
The Corporation may at any time prior to the Effective Date change the
method of effecting the acquisition of Wheat if and to the extent it deems such
change to be desirable; provided, however, that no such change may (i) alter or
change the amount or kind of consideration to be issued to holders of Wheat
Common Stock or Wheat Preferred Stock as provided for in the Merger Agreement,
(ii) adversely affect the intended tax-free treatment to the Wheat stockholders
as a result of receiving such consideration, or (iii) materially impede or delay
receipt of any required regulatory approval or consummation of the transactions
contemplated by the Merger Agreement.
Based on the aggregate number of shares of Wheat Common Stock and Wheat
Preferred Stock that were issued and outstanding on December 8, 1997 (I.E.,
8,834,944), and assuming there are no Excluded Shares, on the Effective Date
each share of Wheat Common Stock and Wheat Preferred Stock (which is represented
by a Trust Share) would be converted into the right to receive 1.1621 shares of
FUNC Common Stock. To the extent any shares of Wheat Common Stock or Wheat
Preferred Stock are canceled or issued between December 8, 1997, and the
Effective Date, such 1.1621 Exchange Ratio would be adjusted accordingly. See
ANNEX A.
EFFECTIVE DATE
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Date will occur on (i) such date as FUNC and Wheat
mutually agree upon, or (ii) if FUNC and Wheat are not able to agree upon such
date, such date as FUNC shall notify Wheat in writing not less than five days
prior thereto, which date shall not be more than 15 days after such conditions
have been satisfied or waived. Subject to the foregoing, it is currently
anticipated that the Merger will be consummated in the first quarter of 1998. If
the Merger is consummated in such quarter, or in any other quarter, Wheat
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 Wheat may terminate the Merger Agreement if the Effective Date
does not occur on or before June 30, 1998. See " -- Exchange of Wheat Stock", "
- -- Business Pending Consummation" and " -- Conditions to Consummation;
Termination".
EXCHANGE OF WHEAT STOCK
As promptly as practicable after the Effective Date, FUNC will send or
cause to be sent to the holders of Wheat Common Stock and Trust Shares (assuming
the Grantor Trust is liquidated) on the Effective Date, transmittal materials
for use in effecting the exchange of each such holder's shares of Wheat Common
Stock and Trust Shares (assuming the Grantor Trust is liquidated) for a
certificate or certificates representing the FUNC Common Shares to which such
holder is entitled, any checks for such holder's fractional share interests and
any dividends to which such holder is entitled, as appropriate. The transmittal
materials will contain information and instructions with respect to such
exchange. With respect to any unpaid Notes, to the extent such holders have not
made full payment for such Wheat Common Stock and/or Trust Shares in full, the
certificates representing the related FUNC Common Shares will not be distributed
to such holders unless and until such payments in full have been made.
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Upon delivery to the exchange agent selected by FUNC (the "Exchange Agent")
of a properly completed letter of transmittal (together with certificates for
those shares of Wheat Common Stock that are certificated), the Exchange Agent
will mail to such holders (other than the holders of any unpaid Notes),
certificates representing the number of FUNC Common Shares to which such holders
are entitled, together with all undelivered dividends or distributions in
respect of such shares and, where applicable, checks for any fractional share
interests (in each case, without interest).
All FUNC Common Shares issued to the holders of Wheat Common Stock and
Trust Shares pursuant to the Merger will be deemed issued as of the Effective
Date. After the Effective Date, former holders of Wheat Common Stock and Trust
Shares will be entitled to vote at any meeting of holders of FUNC Common Stock
having a record date on or after the Effective Date, the number of FUNC Common
Shares into which their shares of Wheat Common Stock and Trust Shares have been
converted, regardless of whether they have exchanged their shares of Wheat
Common Stock and Trust Shares as described above. FUNC dividends having a record
date on or after the Effective Date will include dividends on all FUNC Common
Shares issued in the Merger. 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 be paid on the FUNC Common Shares issued in the Merger.
The Merger Agreement provides that Wheat will cause each person who may be
deemed to be an "affiliate" (as defined in the Securities Act) of Wheat to
execute an agreement restricting the disposition of such affiliate's shares of
Wheat Common Stock, Wheat Preferred Stock and FUNC Common Shares. The Merger
Agreement further provides that although shares of Wheat Common Stock and Wheat
Preferred Stock (which are represented by the Trust Shares) held by an affiliate
of Wheat will automatically be converted into the right to receive FUNC Common
Shares upon consummation of the Merger, such shares will not be physically
exchanged for FUNC Common Shares until FUNC receives such an agreement.
BACKGROUND AND REASONS
WHEAT
INTRODUCTION. Beginning in January 1997, Wheat and FUNC held preliminary
discussions regarding a possible cooperative business arrangement, and a
confidentiality agreement was executed at that time. Discussions continued until
late April, but in early May 1997, FUNC indicated to Wheat that it had decided
at that time to develop its equity capital markets capability through internal
growth and broke off further discussions with Wheat.
Following announcement in late June 1997, by NationsBank Corporation of its
proposed acquisition of Montgomery Securities, on July 2, 1997, Wheat's Chairman
and Chief Executive Officer, Marshall B. Wishnack, telephoned FUNC's Chairman
and Chief Executive Officer, Edward E. Crutchfield, to discuss whether an FUNC
acquisition of, or a joint venture with, Wheat's capital markets division would
be desirable and could be structured in a tax efficient manner. Over the next
few weeks it was determined that such a transaction could not be effected in a
tax efficient manner that would be attractive to Wheat stockholders.
On August 8, 1997, Mr. Crutchfield telephoned Mr. Wishnack to state that
FUNC was interested in discussing a full merger with Wheat. Mr. Wishnack told
Mr. Crutchfield he would call a meeting of Wheat's Executive Committee to
consider the idea. The meeting was held on August 11, 1997, and the Executive
Committee authorized Mr. Wishnack to commence such discussions. On August 12,
1997, Wheat and FUNC representatives met to explore a possible combination.
Discussions occurred during the remainder of such week. On August 15, 1997, FUNC
indicated it would like to make a preliminary nonbinding indication of interest
to acquire Wheat. First Union made this preliminary nonbinding indication of
interest in Richmond on August 16, 1997. Negotiations occurred and due diligence
was conducted between August 16 and August 20, 1997. On August 19, 1997, the
Merger Agreement was considered by the Wheat Board. All of the members of the
Wheat Board, with the exception of one director who abstained from voting, voted
to approve the Merger Agreement. On August 20, 1997, the Merger Agreement was
signed. The abstaining director resigned as a director prior to the Record Date.
Accordingly, all references to the directors as of the Record Date or the date
of this Prospectus/Proxy Statement do not include such director.
HISTORIC AND STRATEGIC CONSIDERATIONS. Wheat's strategy and intention
historically have been to remain an independent financial services firm. This
notwithstanding, the Wheat Board has closely followed recent regulatory and
competitive changes in the securities industry. The Wheat Board was interested
particularly in the Federal Reserve Board's recent decisions to allow commercial
banks greater access to the securities industry and the resulting rush by
commercial banks to enter the securities business by acquiring brokerage and
investment banking firms.
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In March 1997, the Federal Reserve Board raised the cap on revenues that
commercial banks may derive from an approved subsidiary engaged in securities
activities from 10 percent to 25 percent of revenues. In April 1997, Bankers
Trust New York Corporation announced the acquisition of Alex. Brown
Incorporated. A month later, BB&T Corporation, a regional bank holding company
headquartered in North Carolina, announced its purchase of the regional
investment banking firm of Craigie Incorporated, headquartered in Richmond, and
two weeks later, Swiss Bank Corporation announced its acquisition of the old
line investment banking firm of Dillon Read & Co. Commercial bank acquisitions
of investment banking and brokerage firms continued in June 1997, with
BankAmerica Corporation's announcement of its proposed purchase of Robertson
Stephens & Company and NationsBank Corporation's announcement of its proposed
merger with Montgomery Securities.
In its evaluation of Wheat's future as an independent firm, the Wheat Board
concluded that firms that successfully combined the strengths of commercial
banks with those of investment banks could have significant competitive
advantages over independent firms and eventually could dominate the capital
markets business. The Wheat Board believes that the Merger provides a unique
opportunity for increased financial strength, as it will leverage the Wheat
franchise with one of the largest commercial banks on the East Coast. The Merger
will combine Wheat's investment banking, equity underwriting, retail brokerage
network and asset management services with FUNC's large base of middle market
clients and capability to hold and place debt, enabling Wheat to offer a wider
array of services to its existing customers and to expand its customer base
through FUNC's network of customers.
FACTORS CONSIDERED BY THE WHEAT BOARD. In reaching its conclusion to
approve the Merger Agreement and the transactions contemplated thereby, the
Wheat Board consulted with Wheat management, and with financial and legal
advisors, and considered a variety of factors, including the following principal
factors:
THE COMPLEMENTARY NATURE OF WHEAT'S AND FUNC'S RESPECTIVE BUSINESSES AND
BUSINESS CULTURES. The Wheat Board believes that FUNC and Wheat share common
fundamental values and a strong commitment to serving the client's best
interests. The Wheat Board believes it has found in FUNC a partner with an
existing investment culture and a successful growth strategy. Importantly, the
Wheat Board believes that Wheat and FUNC serve many complementary markets and
that FUNC offers a strong platform of clients and services against which Wheat
can leverage its existing business. FUNC complements Wheat's geographic
footprint and offers a household name that Wheat hopes will strengthen its
reputation. The Wheat Board believes that the Merger will allow Wheat to remain
competitive and to leverage its capabilities with the goal of continuing to grow
its business.
Wheat's equity capital markets group will have the opportunity to leverage
its capabilities across FUNC's large customer base of middle market companies.
In addition, Wheat will have the opportunity to introduce FUNC's high yield and
other debt products to existing corporate and institutional clients. The Merger
will allow Wheat to offer its public finance and institutional clients, products
and services to which Wheat has not previously had access. Similarly, Wheat's
asset management affiliate, Mentor Investment Group, LLC ("Mentor"), will have
the opportunity to take advantage of FUNC's large branch banking network. The
Merger will enhance Wheat's retail brokerage business by permitting Wheat's
financial consultants to offer a wider range of products. The Merger also should
benefit Wheat's fully-disclosed securities clearing operations.
STOCKHOLDER CONSIDERATION. The Wheat Board carefully evaluated the
consideration to be received by Wheat's stockholders in the Merger. The
presentation WFSI made to the Wheat Board on August 19, 1997, included, without
limitation, WFSI's opinion that from a financial point of view the Exchange
Ratio is fair to Wheat stockholders. See " -- Opinion of Financial Advisor" and
ANNEX B. The Wheat Board also took into account the fact that FUNC's stock has
performed favorably against the S&P Index since the early 1990s. FUNC Common
Stock was trading at a price to earning ratio below its peers and has been given
a number one rating by WFSI's banking analyst. Moreover, FUNC's current annual
dividend has increased steadily since the early 1980s.
MERGER AGREEMENT. Management of Wheat discussed with the Wheat Board the
terms and conditions of the Merger Agreement, including the amount and form of
consideration, the parties' representations, warranties, covenants and
agreements, and the conditions to the respective obligations set forth in the
Merger Agreement.
WHEAT'S FUTURE AS AN INDEPENDENT FIRM. The Wheat Board carefully considered
the advantages and disadvantages of remaining independent in the current
competitive environment. The Wheat Board believes that rapidly increasing
competition in the equity underwriting business will create pressures on profits
and will result in strong competition for top talent. It most likely will be
difficult for an independent firm to remain competitive in this environment when
facing strong, better-
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capitalized competitors. These better-capitalized competitors include commercial
banks that generally have much larger market capitalizations than independent
broker-dealer companies. The Wheat Board also considered the effects of
continued uncertainty about the future of an independent Wheat organization and
the prospect of unfriendly suitors. These factors, in turn, also could lead to
potentially lower Wheat stockholder returns.
INFORMATION PROVIDED BY WHEAT'S ADVISORS WITH RESPECT TO THE FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO WHEAT STOCKHOLDERS. The Wheat Board has been
advised that, for federal income tax purposes, Wheat stockholders generally
would not recognize taxable gain or loss as a result of the Merger. See
" -- Certain Federal Income Tax Consequences".
RESPECT FOR WHEAT'S UNIQUE SECURITIES EXPERTISE. The Wheat Board considered
FUNC to be a partner that would respect the unique securities expertise and
dedication of Wheat's 3,000 associates and the important relationship between a
financial consultant and his or her client. Like Wheat, FUNC shares Wheat's
philosophy that the relationship between the financial consultant and the client
is fundamental to the brokerage business. FUNC and Wheat management both offer a
"level playing field" without special incentives for proprietary products and a
firm commitment to serving the best interests of the client. The Wheat Board
believes that the Merger will allow Wheat to maintain its personalized service
and accessibility.
CONTINUED OPERATIONS IN RICHMOND AND RETENTION OF KEY EMPLOYEES. After the
Merger, WFSI, doing business as Wheat First Union, will continue to be
headquartered in Richmond, Virginia, and its brokerage operations group will
remain in Wheat's current facilities in suburban Richmond. The Wheat management
structure will continue at Wheat First Union, with Marshall B. Wishnack, Lewis
C. Everett, Mark M. Gambill and Daniel J. Ludeman in key leadership positions.
The above discussion of factors considered by the Wheat Board is not
intended to be exhaustive. Because it considered many factors, each with its own
considerations, the Wheat Board did not assign relative weights to specific
factors considered in reaching their conclusions. Moreover, individual members
of the Wheat Board may have assigned different weights to different factors.
RECOMMENDATION OF THE WHEAT BOARD OF DIRECTORS. THE WHEAT BOARD BELIEVES
THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, WHEAT AND THE WHEAT
STOCKHOLDERS (INCLUDING THE HOLDERS OF TRUST SHARES). ACCORDINGLY, THE WHEAT
BOARD HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT THE
WHEAT STOCKHOLDERS (INCLUDING THE HOLDERS OF TRUST SHARES) VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER.
FUNC
In addition to building a multi-state banking organization that has one of
the leading positions in each of its markets, FUNC believes it is advantageous
to expand its non-commercial banking fee-based businesses, such as its capital
markets, investment banking, investment advisory and retail brokerage
businesses, as a way to diversify and strengthen its sources of income. The
economies of banking and increased competition from non-banking organizations
favor such an organization as a way of gaining efficiency and spreading costs
over a larger base, as well as providing product and revenue diversification. To
further its objective to build such an organization, FUNC has concentrated its
efforts on what it perceives to be some of the better banking markets in the
eastern region of the United States, on advantageous ways of entering or
expanding its presence in those markets, and on selected acquisitions of
fee-based businesses to complement certain strategic initiatives. FUNC believes
that acquiring Wheat is an excellent way to significantly expand its investment
banking, retail brokerage and investment advisory businesses.
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
"FUNC -- History and Business".
OPINION OF FINANCIAL ADVISOR
Wheat retained WFSI to act as its financial advisor in connection with the
Merger and to render an opinion to the Wheat Board as to the fairness, from a
financial point of view, to the holders of Wheat Common Stock and Wheat
Preferred Stock (including the holders of Trust Shares) of the Exchange Ratio.
WFSI is a nationally recognized investment banking firm regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated
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underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. The Wheat Board selected WFSI to serve as its financial advisor
in connection with the Merger on the basis of such firm's expertise.
WFSI is a wholly-owned subsidiary of Wheat, and certain members of
management of WFSI are also members of management of Wheat and also may have
interests that are in addition to, and may be different from, the interests of
Wheat stockholders. The Wheat Board relied on WFSI's experience in providing
advice in connection with mergers and acquisitions and related transactions.
Wheat was advised by its outside counsel, Wachtell, Lipton, Rosen & Katz, that
the Wheat Board's fiduciary duties did not require it to retain a third party
financial advisor.
Representatives of WFSI attended the meeting of the Wheat Board on August
19, 1997, at which the Merger Agreement was considered, approved and adopted. At
the meeting, WFSI issued an oral opinion that, as of such date, the Exchange
Ratio was fair, from a financial point of view, to the holders of Wheat Common
Stock and Wheat Preferred Stock (including the holders of Trust Shares). WFSI
subsequently issued a written opinion dated as of August 19, 1997, that the
Exchange Ratio was fair, from a financial point of view, to the holders of Wheat
Common Stock and Wheat Preferred Stock (including the holders of Trust Shares).
The full text of WFSI's written opinion which sets forth certain
assumptions made, matters considered and limitations on review undertaken is
attached as ANNEX B 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 WFSI set forth in this
Prospectus/Proxy Statement is qualified in its entirety by reference to the
opinion. WFSI's opinion is directed only to the fairness, from a financial point
of view, of the Exchange Ratio to the holders of Wheat Common Stock and Wheat
Preferred Stock. WFSI's opinion was provided to the Wheat Board to assist it in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of Wheat as to how such stockholder should
vote on the Merger Agreement.
In arriving as its opinion, WFSI reviewed certain publicly available
business and financial information relating to Wheat and FUNC and certain other
information provided to it, including the following: (i) certain internal
financial reports provided by the management of Wheat; (ii) FUNC's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the three fiscal years ended December 31, 1996; (iii) FUNC's
Quarterly Reports on Form 10-Q and related financial information for the periods
ended June 30, 1997 and March 31, 1997; (iv) certain publicly available
information with respect to historical market prices and trading activities for
FUNC Common Stock and for certain publicly traded financial institutions which
WFSI deemed relevant; (v) certain publicly available information with respect to
banking companies and the financial terms of certain other mergers and
acquisitions which WFSI deemed relevant; (vi) the Merger Agreement; (vii)
certain estimates of the earnings and cost savings projected by Wheat and FUNC
for the combined company; (viii) other financial information concerning the
businesses and operations of Wheat and FUNC, including certain audited financial
information and certain financial analyses and forecasts for FUNC prepared by
senior management in connection with its previously announced acquisitions; and
(ix) such financial studies, analyses, inquiries and other matters as WFSI
deemed necessary. In addition, WFSI discussed the business and prospects of each
company with members of senior management of Wheat and FUNC.
In connection with its review, WFSI 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 Wheat and FUNC included
in the Merger Agreement, and WFSI has not assumed any responsibility for
independent verification of such information. WFSI relied upon the managements
of Wheat and FUNC as to the reasonableness and achieveability of their financial
and operational forecasts and projections, and the assumptions and bases
therefor, provided to WFSI, and assumed that such forecasts and projections
reflect the best currently available estimates and judgments of such managements
and that such forecasts and projections will be realized in the amounts and in
the time periods currently estimated by such managements. WFSI also assumed,
without independent verification, that the aggregate reserves for loan losses,
litigation and other contingencies for Wheat and FUNC are adequate to cover such
losses. WFSI did not review any individual credit files of FUNC, not did it make
an independent evaluation or appraisal of the assets or liabilities of Wheat or
FUNC.
In connection with rendering its opinion, WFSI 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, from a financial
point of view, of the Exchange Ratio to holders of Wheat Common Stock and Wheat
Preferred Stock was to some extent a subjective one based on the
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experience and judgment of WFSI and not merely the result of mathematical
analysis of financial data. Accordingly, notwithstanding the separate factors
summarized below, WFSI 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
WFSI's view of the actual value of Wheat or FUNC.
In performing its analyses, WFSI made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of Wheat or FUNC. The analyses performed by WFSI
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, WFSI 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 FUNC.
WFSI's opinion is just one of the many factors taken into consideration by
the Wheat Board in determining to approve the Merger Agreement. WFSI's opinion
does not address the relative merits of the Merger as compared to any
alternative business strategies that might exist for Wheat, nor does it address
the effect of any other business combination in which Wheat might engage.
The following is a summary of the analyses performed by WFSI in connection
with its opinions delivered to the Wheat Board on August 19, 1997;
COMPARISON OF SELECTED COMPANIES. WFSI compared the financial performance
and market trading information of FUNC to that of a group of certain bank
holding companies (the "Group"). This Group included: BankAmerica Corp.; Barnett
Banks, Inc.; BankBoston Corp.; First Chicago NBD Corp.; Fleet Financial Group;
KeyCorp; Mellon Bank Corp.; NationsBank Corporation; National City Corp.;
Norwest Corp.; Banc One Corp.; PNC Bank Corp.; SunTrust Banks, Inc.; U.S.
Bancorp; and Wells Fargo & Co.
Based on financial data as of and for the three-month period ended June 30,
1997, FUNC (as estimated by WFSI pro forma for the Signet acquisition) had: (i)
tangible equity to assets of 5.24 percent compared to an average of 6.36
percent, a minimum of 4.03 percent, and a maximum of 8.77 percent for the Group;
(ii) nonperforming assets to total assets of 0.48 percent compared to an average
of 0.48 percent, a minimum of 0.28 percent, and a maximum of 0.81 percent for
the Group; (iii) returns on average assets before extraordinary items of 1.38
percent compared to an average of 1.48 percent, a minimum of 0.91 percent, and a
maximum of 2.10 percent for the Group; and (iv) returns on average equity before
extraordinary items of 19.47 percent compared to an average of 17.96 percent, a
minimum of 6.86 percent, and a maximum of 24.39 percent for the Group.
Additionally, for the five fiscal years ended December 31, 1996, FUNC had (i)
average returns on average assets before extraordinary items of 1.15 percent
compared to an average of 1.28 percent, a minimum of 1.04 percent, and a maximum
of 1.68 percent for the Group, and (ii) returns on average equity before
extraordinary items of 15.94 percent compared to an average of 16.15 percent, a
minimum of 13.68 percent, and a maximum of 19.90 percent for the Group. Also,
based on earnings per share for the fiscal year ended December 31, 1996, and
earnings per share estimates for the fiscal year ending December 31, 1998, as
reported by "First Call" (First Call is a data service that monitors and
publishes a compilation of earnings estimates produced by selected research
analysts regarding companies of interest to institutional investors), FUNC had
projected compound annual earnings per share growth of 11.09 percent, compared
with an average of 12.74 percent, a minimum of 10.66 percent, and a maximum of
16.39 percent for the Group.
Based on the market values as of August 18, 1997, and financial data as of
June 30, 1997, FUNC had (as estimated by WFSI pro forma for the Signet
acquisition): (i) a stock price to book value multiple of 266.5 percent compared
to an average of 281.9 percent, a minimum of 181.0 percent, and a maximum of
373.3 percent for the Group; (ii) a stock price to First Call 1997 estimated
earnings per share before extraordinary items multiple of 13.3x compared to an
average of 16.2x, a minimum of 13.0x, and a maximum of 20.5x for the Group;
(iii) a stock price to First Call 1998 estimated earnings per share multiple of
11.8x, compared to an average of 14.0x, a minimum of 11.8x, and a maximum of
18.2x for the Group; and (iv) indicated dividend yield of 2.78 percent compared
to an average of 2.41 percent, a minimum of 1.45 percent, and a maximum of 3.48
percent for the Group.
ANALYSIS OF SELECTED TRANSACTIONS. WFSI performed an analysis of
consideration paid in five selected completed or pending acquisitions of
brokerage firms announced between April 1, 1997 and August 18, 1997 (the
"Selected Transactions"). The consideration in the Selected Transactions was
derived by computing the present value of deferred payments to be made to
stockholders. In the Selected Transactions, deferred payments to
employees/stockholders were contingent on
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these employees being employed by the company at the time of the payment. Using
this calculation, multiples of book value and trailing earnings in the Selected
Transactions were compared to the multiples and premiums implied by the
consideration offered by FUNC in the Merger. The Selected Transactions included
the following completed or pending transactions: Bankers Trust New York
Corp./Alex. Brown, Inc.; Swiss Bank Corporation/Dillon Read & Co., Inc.;
BankAmerica Corp./Robertson Stephens & Company L.P.; NationsBank
Corporation/Montgomery Securities; and Canadian Imperial Bank of Commerce
("CIBC")/Oppenheimer & Co., Inc.
Based on the market value of FUNC Common Stock on August 18, 1997, and
financial data for Wheat as of or for the twelve months ended July 31, 1997, the
following summarizes the WFSI analysis:
ANALYSIS OF SELECTED TRANSACTIONS
<TABLE>
<CAPTION>
BASED ON PRESENT VALUE
TO STOCKHOLDERS
----------------------------
<S> <C> <C> <C> <C>
ANNOUNCEMENT PRESENT PRICE/ PRICE/
TRANSACTION DATE VALUE EARNINGS BOOK
- --------------------------------------------------------------------------------- ------------ ------- -------- -----
CIBC -- Oppenheimer.............................................................. 7/22/97 $ 350 8.3x 109.4%
NationsBank -- Montgomery........................................................ 6/30/97 1,114 13.9 994.6
BankAmerica -- Robertson Stephens................................................ 6/10/97 416 15.9 388.6
Swiss Bank -- Dillon Read........................................................ 5/15/97 528 13.2 264.2
Bankers Trust -- Alex. Brown..................................................... 4/6/97 $ 1,700 11.0 264.0
------------ ------- -------- -----
Average.......................................................................... 12.5 404.2
Median........................................................................... 13.2 264.2
FUNC -- Wheat.................................................................... 13.5x 302.6%
</TABLE>
IMPACT ANALYSIS. WFSI analyzed the impact to the projected earnings of FUNC
based on First Call estimated earnings per share for FUNC, a 20 percent growth
rate in net income for Wheat from calendar 1998 to 1999 and certain assumptions
relating to retention expense and cost savings that could be realized in the
Merger. WFSI's analysis estimated that the Merger would be 0.30 percent dilutive
to FUNC's earnings per share in the year ended December 31, 1998, and 0.31
percent accretive to FUNC's earnings per share for the year ended December 31,
1999.
COMPARABLE PUBLIC COMPANIES TRADING ANALYSIS. WFSI compared the multiples
to earnings and book value implied by the Exchange Ratio to the trading
multiples of certain publicly traded regional broker-dealers (the "Broker
Group"). The Broker Group included: A.G. Edwards, Inc.; EVEREN Capital
Corporation; Hambrecht & Quist; Interra Financial, Inc.; Legg Mason, Inc.;
McDonald & Company Investments, Inc.; Morgan Keegan & Co.; Piper Jaffray
Companies, Inc.; and Raymond James Financial, Inc.
Based on the market value of FUNC Common Stock on August 18, 1997, and
Wheat financial data as of June 30, 1997, and based on market values as of
August 18, 1997, quarterly earnings and book values as reported by First Call
for the most recently completed quarter for the Broker Group, the analysis
yielded ratios of the implied consideration to be paid by FUNC to Wheat in the
Merger (i) to book value of 302.6 percent compared to an average of 217.8
percent, a minimum of 169.1 percent, and a maximum of 248.5 percent for the
Broker Group; and (ii) to trailing earnings per share of 13.5x compared to an
average of 14.8x, a minimum of 9.5x, and a maximum of 20.1x for the Group.
DISCOUNTED DIVIDENDS ANALYSIS. Using discounted dividends analysis, WFSI
estimated the percent value of the future stream of dividends that Wheat could
produce over the next five years, under various circumstances, assuming Wheat
performed in accordance with the earnings forecasts of management. WFSI then
estimated the terminal values for Wheat Common Stock and Wheat Preferred Stock
at the end of the period by applying prices to book value multiples ranging from
150 percent to 300 percent of projected book value in year five. The dividend
streams and terminal values were then discounted to present values using
different discount rates (ranging from 14 percent to 16 percent) chosen to
reflect different assumptions regarding the required rates of return to holders
or prospective buyers of Wheat Common Stock and Wheat Preferred Stock. This
discounted dividend analysis indicated reference valuation ranges of between
$275 million and $513 million for Wheat. These values compare to the implied
consideration to be offered by FUNC to Wheat in the Merger of $474 million based
on the market value of FUNC Common Stock on August 18, 1997.
No company or transaction used as a comparison in the above analysis is
identical to Wheat, FUNC or the Merger. 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.
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WFSI's opinion is dated as of August 19, 1997, and is based solely upon the
information available to WFSI and the economic, market and other circumstances
as they existed as of such date. Events occurring after that date could
materially affect the assumptions and conclusions contained in WFSI's opinion.
WFSI has not undertaken to reaffirm or revise its opinion or otherwise comment
on any events occurring after that date. Subsequent to the date WFSI rendered
its opinion, Wheat allocated $350,000 to WFSI's corporate finance department for
WFSI's services performed in rendering the opinion.
See " -- Interests of Certain Persons", " -- Business Pending Consummation"
and " -- Market Prices".
INTERESTS OF CERTAIN PERSONS
GENERAL
Certain members of Wheat's management and the Wheat Board have interests in
the Merger that are in addition to any interests they have as stockholders of
Wheat generally. The material interests include provisions in the Merger
Agreement relating to the indemnification of Wheat's directors and officers,
directors' and officers' liability insurance, and certain other benefits, as
described below.
EMPLOYMENT AGREEMENTS
FUNC has entered into the Employment Agreements with Messrs. Wishnack,
Gambill, Everett, Ludeman and Souders. The terms of the Employment Agreements
run from the Effective Date through the third anniversary (in the case of Mr.
Souders, the first anniversary) of the Effective Date (the "Employment
Periods"). Pursuant to his Employment Agreement, Mr. Wishnack will serve as the
most senior officer of Wheat First Union, a division of First Union's Capital
Markets Group reporting to the Executive Vice Presidents of FUNC responsible for
FUNC's Capital Markets Group and Capital Management Group. During the Employment
Periods of the respective Employment Agreements, Messers. Wishnack, Gambill,
Everett, Ludeman and Souders will be entitled to receive minimum annual
compensation (salary and bonus) of up to approximately 105 percent of the annual
compensation received by such executives for the fiscal year ended March 31,
1997.
The Employment Agreements also provide for continuity payments on the
first, second and third anniversaries of the Effective Date to Messrs. Wishnack,
Gambill, Everett and Ludeman in the amounts representing approximately 37.5
percent, 37.5 percent and 75 percent of such executive's annual compensation on
the first, second and third anniversaries of the Effective Date, respectively.
The Employment Agreement for Mr. Souders provides for a termination payment
equal to one year's annual compensation upon the termination of his Employment
Period.
In the event the employment of the executive is terminated during the
Employment Period by FUNC without "Cause" or by the executive for "Good Reason"
or due to death or disability, FUNC shall (i) pay the executive a pro rata
minimum annual bonus for the year of termination, (ii) continue to pay the
executive his base salary and minimum annual compensation through the Employment
Period, and (iii) pay the applicable continuity payments.
The Employment Agreements provide for a gross-up payment to be made to the
executive, if necessary, to eliminate the effects of the imposition of the
excise tax under Section 4999 of the Code (as hereinafter defined) on payments
made to the executive and of the imposition of income and excise taxes on such
gross-up payment.
RETENTION POOL
FUNC has agreed to grant certain Wheat employees up to 1,701,362 restricted
shares of FUNC Common Stock as incentive for such individuals to remain
employees of Wheat following the Effective Date. Messrs. Wishnack, Gambill,
Everett, Ludeman and Souders will not participate in such retention pool. Such
restricted stock awards will vest in 25 percent, 25 percent and 50 percent
increments, respectively, over a three-year period following the Effective Date.
Such restricted stock awards may be forfeited by a participant if such
participant ceases to be an employee of Wheat for certain reasons.
EQUITY FUND
Certain officers and employees of Wheat (the "Limited Partners") acquired
limited partnership interests in the Wheat First Butcher Singer Private Equity
Fund, Limited Partnership (the "Limited Partnership"), offered by a Private
Placement Memorandum dated June 10, 1997. WFSI serves as General Partner of the
Limited Partnership. WFSI is required to match (the "Matching Contributions") 50
percent of the investments by the Limited Partners, excluding such investments
by any director or executive officer of Wheat. Each Limited Partner will fully
vest in his investments and Matching Contributions, as applicable, in the event
of death, disability or a "Change in Control" of WFSI. Approval of the Merger
Agreement by Wheat stockholders would constitute a "Change in Control" of WFSI
under the Limited Partnership.
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INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The Merger Agreement provides that for the six-year period following the
Effective Date, FUNC will indemnify the directors and officers of Wheat and its
affiliates 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 VSCA, the Wheat Articles and the Wheat 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 Wheat's existing directors' and officers' liability
insurance policy for persons who were covered by such policy 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 the current amount expended by Wheat to
maintain or procure such insurance coverage for a comparable three-year period.
CERTAIN OTHER MATTERS RELATING TO THE MERGER
Upon consummation of the Merger, (i) Mr. Wishnack will serve as Chairman
and Chief Executive Officer of Wheat First Union, a division of FUNC's Capital
Markets Group, (ii) Mr. Gambill will serve as President of Wheat First Union,
(iii) Mr. Everett will serve as Vice Chairman of Wheat First Union, and (iv) Mr.
Ludeman will serve as Chairman and Chief Executive Officer of Mentor Investment
Group, LLC. Upon completion of the Merger, it is anticipated that certain
overlapping operations will be consolidated, certain products and services
currently offered by FUNC will be offered to Wheat customers, and certain
products and services currently offered by Wheat will be offered to FUNC
customers.
See " -- Business Pending Consummation" and ANNEX D.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A DISCUSSION OF ALL MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THE DISCUSSION IS INCLUDED FOR GENERAL INFORMATION
PURPOSES ONLY AND MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS WHEAT
STOCKHOLDERS WHO RECEIVED THEIR WHEAT COMMON STOCK OR WHEAT PREFERRED STOCK AS
COMPENSATION.
Sullivan & Cromwell, counsel for FUNC, has advised FUNC, and Wachtell,
Lipton, Rosen & Katz, special counsel for Wheat, has advised Wheat, that, in
their opinion:
(i) No gain or loss will be recognized for federal income tax
purposes by Wheat stockholders upon the exchange in the Merger of shares of
Wheat Common Stock or Wheat Preferred Stock solely for FUNC Common Shares
(except with respect to cash received in lieu of fractional share interests
in FUNC Common Stock deemed received).
(ii) The basis of FUNC Common Shares received in the Merger by Wheat
stockholders (including the basis of fractional share interests in FUNC
Common Stock deemed received) will be the same as the basis of the shares
of Wheat Common Stock or Wheat Preferred Stock surrendered in exchange
therefor.
(iii) The holding period of the FUNC Common Shares received in the
Merger by a Wheat stockholder (including the holding period of fractional
share interests in FUNC Common Stock deemed received) will include the
holding period of the shares of Wheat Common Stock or Wheat Preferred Stock
surrendered in exchange therefor, provided such shares of Wheat Common
Stock or Wheat Preferred Stock were held as capital assets at the Effective
Time.
(iv) Cash received by a holder of Wheat Common Stock or Wheat
Preferred Stock in lieu of fractional share interests in FUNC Common Stock
will be treated as received for such fractional share interests and,
provided the fractional shares 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 Wheat Common
Stock or Wheat Preferred Stock allocable to the fractional share interests.
Wheat stockholders that dissent from the Merger and receive cash in
exchange for their shares of Wheat Common Stock or Wheat Preferred 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 Wheat stockholder's basis in the Wheat Common Stock or Wheat Preferred
Stock, as applicable, surrendered therefor. Special rules may apply to
dissenting Wheat stockholders that actually or constructively (pursuant to
Section 318 of the Code) own either shares of Wheat as to which dissenters'
rights are not being exercised or shares of FUNC Common Stock. Any amount
constituting interest would be taxable as ordinary income.
In addition, consummation of the Merger is conditioned, among other things,
upon receipt by FUNC of an opinion of Sullivan & Cromwell dated as of the
Effective Date, that the Merger constitutes a reorganization under Section
368(a) of the
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Code and by Wheat of an opinion of Wachtell, Lipton, Rosen & Katz, dated as of
the Effective Date, that (i) the Merger constitutes a reorganization within the
meaning of Section 368(a) of the Code, and (ii) no gain or loss will be
recognized by Wheat stockholders who receive FUNC Common Shares in exchange for
their shares of Wheat Common Stock or Wheat Preferred Stock, except with respect
to cash received in lieu of fractional share interests. FUNC and Wheat do not
currently intend to waive the receipt of such tax opinions; however, if such tax
opinions were waived and the material federal income tax consequences of the
Merger were materially different from those summarized above, Wheat would
resolicit its stockholders prior to consummating the Merger. The tax opinions of
Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz 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 Merger.
Distributions from the Wheat ASOP will be taxed in accordance with the
rules pertaining to distributions from "qualified plans".
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH WHEAT STOCKHOLDER AND OTHER FACTORS, EACH WHEAT
STOCKHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
BUSINESS PENDING CONSUMMATION
Wheat agreed in the Merger Agreement to refrain from taking certain actions
relating to its operations pending consummation of the Merger, without the prior
written consent of FUNC, except as otherwise permitted in the Merger Agreement.
These actions include, without limitation: (i) conducting the business of Wheat
other than in the ordinary and usual course or failing to use reasonable efforts
to preserve intact Wheat's business organizations, assets and relationships, or
taking any action reasonably likely to have an adverse effect upon Wheat's
ability to perform its obligations under the Merger Agreement; (ii) issuing any
additional shares of Wheat capital stock, or permitting any additional shares of
Wheat capital stock to become subject to new grants of employee or director
stock options, or similar stock-based employee rights; (iii) (a) declaring or
paying any dividend on shares of Wheat capital stock after December 31, 1997, or
(b) adjusting, reclassifying or acquiring any shares of Wheat capital stock;
(iv) entering into, amending or renewing any employment, consulting, severance
or similar agreement with any director, officer or employee, or granting any
salary or wage increase or increasing any employee benefit, except (a) for
normal individual compensation increases in the ordinary course of business
consistent with past practice, (b) for changes required by applicable law, (c)
to satisfy existing contractual obligations, or (d) for employment arrangements
for, or grants of awards to newly hired employees in the ordinary course of
business consistent with past practice; (v) entering into, establishing,
adopting or amending (except (a) as required by applicable law, or (b) to
satisfy existing obligations) any employee benefit, incentive or welfare
contract, plan or arrangement, in respect of any director, officer or employee,
or taking any action to accelerate the vesting or exercisability of stock
options, restricted stock or other compensation or benefits payable thereunder;
(vi) except for sales of securities or other instruments in the ordinary course
of business consistent with past practices, encumbering or disposing of or
discontinuing any of its assets, business or properties; (vii) except for the
purchase of securities or other instruments in the ordinary course of business
consistent with past practice, acquiring all or any portion of, the assets,
business or properties of any other entity; (viii) amending the Wheat Articles
or the Wheat Bylaws; (ix) implementing or adopting any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles; (x) entering into, terminating, amending or
modifying any material contract; (xi) settling any claim, action or proceeding,
except for those involving solely money damages in an amount, individually or in
the aggregate for all such settlements, that does not exceed $250,000; (xii)
knowingly taking any action that would (a) prevent or impede the Merger from
qualifying (1) for pooling of interests accounting treatment, or (2) as a
reorganization within the meaning of Section 368 of the Code, or (b) result in
(1) any of its representations and warranties set forth in the Merger Agreement
being untrue in any material respect at any time on or prior to the Effective
Date, (2) any of the conditions to the Merger set forth in the Merger Agreement
not being satisfied, or (3) a material violation of any provision of the Merger
Agreement except, in each case, as may be required by applicable law; (xiii)
except as in the exercise of the fiduciary obligations of Wheat to any
investment company (as advised in writing by its counsel), requesting that any
action be taken by any investment company board other than routine actions
reasonably not likely to have a material adverse effect on Wheat; (xiv)
incurring any indebtedness for borrowed money; and (xv) agreeing or committing
to do any of the foregoing.
From time to time Wheat and its affiliates (including its directors and
executive officers) engage in transactions with FUNC and its affiliates
(including its directors and executive officers) in the ordinary course of
business, including the
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transactions described below. It is anticipated that such transactions will
increase, and various additional transactions may be engaged in, as a result of
the execution of the Merger Agreement. See "RECENT DEVELOPMENTS -- FUNC Common
Stock Transactions".
FUNC's banking subsidiaries have various extensions of credit to Wheat and
WFSI. All of such extensions of credit predate execution of the Merger Agreement
except one, a $125 million intra-day lending arrangement that can be used by
WFSI to fund a specific underwriting. The maximum exposure under such extensions
of credit is currently $248 million. As of November 30, 1997, outstandings under
such extensions of credit amounted to $25 million.
REGULATORY APPROVALS
Consummation of the Merger is conditioned on the receipt of all approvals
of regulatory authorities required for the Merger without any conditions,
restrictions or requirements which the FUNC Board of Directors reasonably
determines would (i) following the Effective Date, have a material adverse
effect on FUNC and its subsidiaries taken as a whole, or (ii) reduce the
benefits of the transactions contemplated by the Merger Agreement to such a
degree that FUNC would not have entered into the Merger Agreement had such
conditions, restrictions or requirements been known at the date the Merger
Agreement was executed.
The Merger is subject to prior notice to the Federal Reserve Board under
Section 4 of the BHCA. Under Section 4 of the BHCA and related regulations, the
Federal Reserve Board must consider whether the performance of FUNC's and
Wheat's nonbanking activities on a combined basis can reasonably be expected to
produce benefits to the public (such as greater convenience, increased
competition and gains in efficiency) that outweigh possible adverse effects
(such as undue concentration of resources, decreased or unfair competition,
conflicts of interest and unsound banking practices). This consideration
includes an evaluation of the financial and managerial resources of FUNC and
Wheat and the effect of the proposed transaction on those resources. The Federal
Reserve Board approved the Merger on November 26, 1997.
Approvals also will be required from certain regulatory authorities in
connection with changes, as a result of the Merger, in the ownership of certain
businesses that are controlled by Wheat. These authorities include the
Comptroller of the Currency of the United States (the "OCC"), certain state
insurance authorities and state authorities who supervise trust company
activities in Virginia and Pennsylvania. Approval also is required from the NYSE
with respect to the Merger and the merger of a subsidiary of FUNC into WFSI.
A notice has been filed with the OCC. Additional notices, applications and
other filings are being made with respect to state insurance and trust company
authorities, the National Association of Securities Dealers, Inc., state "blue
sky" administrators, the NYSE, and the other securities' exchanges WFSI is a
member of, as applicable.
THE MERGER WILL NOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS WILL BE
OBTAINED, AND IF OBTAINED, THERE CAN BE NO ASSURANCE AS TO THE DATE OF ANY SUCH
APPROVAL. THERE CAN ALSO BE NO ASSURANCE THAT SUCH APPROVAL WILL NOT CONTAIN A
CONDITION OR REQUIREMENT WHICH CAUSES SUCH APPROVAL TO FAIL TO SATISFY THE
CONDITIONS SET FORTH IN THE MERGER AGREEMENT AND DESCRIBED BELOW UNDER " --
CONDITIONS TO CONSUMMATION; TERMINATION". THERE CAN LIKEWISE BE NO ASSURANCE
THAT THE UNITED STATES DEPARTMENT OF JUSTICE OR A STATE ATTORNEY GENERAL WILL
NOT CHALLENGE THE MERGER, OR IF SUCH A CHALLENGE IS MADE, AS TO THE OUTCOME
THEREOF.
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Merger is subject, among other things, to: (i) approval
of the Merger Agreement by the requisite vote of the stockholders of Wheat; (ii)
receipt of the regulatory approvals referred to above without any requirements,
restrictions or conditions which the FUNC Board of Directors reasonably
determines would (a) following the Effective Date, have a material adverse
effect on FUNC and its subsidiaries taken as a whole, or (b) reduce the benefits
of the transactions contemplated by the Merger Agreement to such a degree that
FUNC would not have entered into the Merger Agreement had such requirements,
restrictions or conditions been known at the time the Merger Agreement was
executed; (iii) no court or governmental or regulatory authority having taken
any action which enjoins or prohibits the Merger; (iv) receipt by FUNC of the
opinion of Sullivan & Cromwell and by Wheat of the opinion of Wachtell, Lipton,
Rosen & Katz, each dated as of the Effective Date, as to certain federal income
tax consequences of the Merger; (v) Wheat having obtained the consents or
approvals of the stockholders of investment companies to which certain Wheat
subsidiaries provide investment management or other services; (vi) the
Employment Agreements remaining in effect (other than as a consequence of death
or disability); and (vii) the FUNC Common Shares having been approved for
listing on the NYSE, subject to official notice of issuance.
36
<PAGE>
Consummation of the Merger is also subject to the satisfaction or waiver of
various other conditions specified in the Merger Agreement, including, among
others: (i) the delivery by Wheat and FUNC, each to the other, of certificates
executed by certain of their respective executive officers as to compliance with
the Merger Agreement; and (ii) the receipt by FUNC of a letter from its
independent certified public accountants, dated as of or shortly prior to the
Effective Date, that the Merger qualifies for pooling of interests accounting
treatment; and (iii) the receipt by FUNC of a letter from Wheat's independent
certified public accountant, dated as of or shortly prior to the Effective Date,
with respect to Wheat's financial position and results of operations and that
such independent auditors are not aware of any facts or circumstances which
might cause the Merger not to qualify for pooling of interests accounting
treatment.
The Merger Agreement provides that, whether before or after the Special
Meeting and notwithstanding the approval of the Merger Agreement by the
stockholders of Wheat, the Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Date: (i) by mutual consent of FUNC
and Wheat; or (ii) by either the Board of Directors of FUNC or the Wheat Board
(a) if the stockholders of Wheat fail to approve the Merger Agreement or any
required regulatory approval is denied, (b) in the event of a breach by the
other party of any representation, warranty or covenant contained in the Merger
Agreement, which breach is not cured after 30 days' written notice thereof is
given to the party committing such breach, (c) if the Merger is not consummated
on or before June 30, 1998, or (d) if the Wheat Board has failed to recommend
approval of the Merger, has withdrawn such recommendation or has modified or
changed such recommendation in a manner adverse in any respect to the interests
of FUNC. 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 by an agreement in writing among the parties executed in the same
manner as the Merger Agreement, provided that after approval by the stockholders
of Wheat, the Merger Agreement may not be amended if the consideration to be
received by the stockholders of Wheat would thereby be decreased. FUNC may at
any time change the method of effecting the acquisition of Wheat if and to the
extent it deems such change to be desirable; provided, however, no such change
shall (a) alter or change the amount or kind of consideration to be issued to
Wheat stockholders, (b) adversely affect the intended tax-free treatment to
Wheat stockholders, or (c) materially impede or delay receipt of approvals or
the consummation of the transactions contemplated by the Merger Agreement.
ACCOUNTING TREATMENT
Pooling of interests accounting will be used to reflect the Signet
acquisition, and it is expected that the pooling of interests method of
accounting will be used to reflect the Merger and the CoreStates acquisition
upon consummation. The unaudited pro forma financial data contained in this
Prospectus/Proxy Statement have been prepared using the pooling of interests
accounting basis to account for the Merger, the CoreStates acquisition and the
Signet acquisition. Under pooling of interests accounting, upon consummation,
the assets and liabilities of the acquired company are added to those of the
acquiring company at their recorded book values, and the stockholders' equity
accounts of the acquired company and the acquiring company are combined on the
acquiring company's consolidated balance sheet. Depending on the relative
significance of the acquisition, together with any other pending or recently
completed acquisitions, to the acquiring company, the income and other financial
statements of the acquiring company for periods ended prior to consummation may
be restated to reflect the consolidated combined financial position and results
of operations as if such acquisition had taken place prior to the periods
covered by such financial statements. Due to the relative significance of the
Merger to FUNC, FUNC's financial statements will not be restated as a result of
the Merger. Such financial statements will be restated upon consummation of the
Signet acquisition only for periods beginning on and after January 1, 1995, and
will be restated upon consummation of the CoreStates acquisition, for all
periods presented.
It is expected that the purchase method of accounting will be used to
reflect the Covenant acquisition upon consummation. The unaudited pro forma
financial information contained in this Prospectus/Proxy Statement has been
prepared using the purchase accounting basis to account for the Covenant
acquisition. Under purchase accounting, the assets and liabilities of the
acquired company are recorded at their respective fair market values upon
consummation and added to those of the acquiring company. Financial statements
of the acquiring company issued after consummation would reflect such values.
Financial statements of the acquiring company issued before consummation would
not be restated retroactively to reflect the acquired company's historical
financial position or results of operations.
See "RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION".
37
<PAGE>
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 with respect to this
Prospectus/Proxy Statement will be shared equally by FUNC and Wheat.
FUNC shall be entitled to the Termination Fee of $20 million from Wheat
following the occurrence of a Payment Event. FUNC's right to receive the
Termination Fee shall terminate if any of the following occurs prior to a
Payment Event: (i) the Effective Date; (ii) termination of the Merger Agreement
in accordance with its terms if such termination occurs prior to the occurrence
of a Preliminary Payment Event, except termination by FUNC due to a breach by
Wheat; (iii) termination of the Merger Agreement following the occurrence of a
Preliminary Payment Event and the passage of 18 months after such termination;
or (iv) termination of the Merger Agreement by FUNC due to a breach by Wheat and
the passage of 18 months after such termination.
A Preliminary Payment Event refers to any of the following events or
transactions occurring after the date of the Merger Agreement:
(i) Wheat, without having received FUNC's prior written consent, shall
have entered into an agreement to engage in any Acquisition Transaction (as
hereinafter defined) with any person other than FUNC, or the Wheat Board
shall have recommended that the stockholders of Wheat approve or accept any
Acquisition Transaction with any person other than FUNC. For purposes of
the Merger Agreement, "Acquisition Transaction" means (a) a merger or
consolidation, or any similar transaction, involving Wheat, (b) a purchase,
lease or other acquisition of all or substantially all of the assets of
Wheat, (c) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 20
percent or more of the voting power of Wheat; provided that the term
"Acquisition Transaction" does not include any internal merger or
consolidation involving only Wheat or any Wheat subsidiaries;
(ii)(a) any person (other than FUNC or the Wheat ASOP) shall have
acquired beneficial ownership or the right to acquire beneficial ownership
of 20 percent or more of the outstanding shares of Wheat Common Stock, or
(b) any group, other than a group of which FUNC is a member, shall have
been formed that beneficially owns 20 percent or more of the shares of
Wheat Common Stock then outstanding;
(iii) any person, other than FUNC, or any group, other than a group of
which FUNC is a member, shall have made a proposal to Wheat or its
stockholders, by public announcement or public or nonpublic written
communication to engage in an Acquisition Transaction or to acquire
beneficial ownership of 20 percent or more of the then outstanding shares
of Wheat Common Stock;
(iv) after a proposal is made by a third party to Wheat or its
stockholders to engage in an Acquisition Transaction, or such third party
states its intention to Wheat to make such a proposal, Wheat shall have
breached any representation, covenant or obligation contained in the Merger
Agreement and such breach would entitle FUNC to terminate the Merger
Agreement (without regard to the cure period provided for in the Merger
Agreement unless such cure is promptly effected without jeopardizing
consummation of the Merger);
(v) the holders of shares of Wheat Common Stock and Wheat Preferred
Stock shall not have approved the Merger Agreement at the Special Meeting
or the Special Meeting shall not have been held or shall have been canceled
prior to termination of the Merger Agreement, in each case after any person
(other than FUNC or the Wheat ASOP) shall have (a) made, or disclosed an
intention to make, a proposal to engage in an Acquisition Transaction or
(b) to acquire beneficial ownership of 25 percent or more of Wheat Common
Stock.
The term "Payment Event" shall mean either of the following events or
transactions occurring after the date of the Merger Agreement:
(a) the acquisition by any person, other than FUNC or the Wheat ASOP,
alone or together with such person's affiliates and associates, or any
group, of beneficial ownership of 25 percent or more of the outstanding
shares of Wheat Common Stock; or
(b) the occurrence of a Preliminary Payment Event described in clause
(i) above, except that the percentage referred to therein shall be 25
percent.
The foregoing discussion is qualified in its entirety by reference to the
applicable provisions in the Merger Agreement relating to the Termination Fee.
See ANNEX A.
38
<PAGE>
VOTING AGREEMENTS
As an inducement to and a condition of FUNC's willingness to enter into the
Merger Agreement, Messrs. Wishnack, Gambill, Everett, Ludeman and Souders, who,
as of the Record Date, beneficially owned in the aggregate approximately 18.1
percent of the outstanding shares of Wheat Common Stock, executed separate
Voting Agreements with FUNC pursuant to which each agreed, among other things,
that all such shares will be voted to approve the Merger Agreement at the
Special Meeting.
A copy of the form of the Voting Agreements 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 Voting
Agreements. The foregoing discussion is qualified in its entirety by reference
to the form of the Voting Agreements.
DISSENTERS' RIGHTS
Holders of Wheat Common Stock and/or Wheat Preferred Stock entitled to vote
on approval of the Merger Agreement (including Wheat ASOP participants and
holders of Trust Shares) will be entitled to have the fair value of each such
holder's shares of Wheat Common Stock and/or Wheat Preferred Stock, as
applicable, immediately prior to consummation of the Merger paid to such holder
in cash, together with interest, if any, by complying with the provisions of
Article 15 of the VSCA ("Article 15"). Under Article 15, the determination of
the fair value of a dissenter's shares would exclude any appreciation or
depreciation in the value of such shares in anticipation of the Merger, unless
such exclusion would be inequitable.
A holder of Wheat Common Stock and/or Wheat Preferred Stock who desires to
exercise such holder's dissenters' rights must satisfy all of the following
conditions. A written notice of such holder's intent to demand payment for such
holder's Wheat Common Stock and/or Wheat Preferred Stock, as applicable, must be
delivered to Wheat (attention: Corporate Secretary) before the taking of the
vote on approval of the Merger Agreement. This written notice must be in
addition to and separate from voting against, abstaining from voting, or failing
to vote on approval of the Merger Agreement. Voting against, abstaining from
voting or failing to vote on approval of the Merger Agreement will not
constitute written notice of an intent to demand payment within the meaning of
Article 15.
A holder of Wheat Common Stock and/or Wheat Preferred Stock, as applicable,
electing to exercise such holder's dissenters' rights under Article 15 must not
vote for approval of the Merger Agreement with respect to such holder's shares
of Wheat Common Stock and/or Wheat Preferred Stock, as applicable. Voting for
approval of the Merger Agreement with respect to such shares, or delivering a
proxy in connection with the Special Meeting with respect to such shares (unless
the proxy specifies a vote against, or abstaining from voting on, approval of
the Merger Agreement), will constitute a waiver of such holder's dissenters'
rights with respect to such shares and will nullify any written notice of an
intent to demand payment submitted by such holder with respect to such shares.
Holders of Trust Shares electing to assert dissenters' rights with respect to
the shares of Wheat Preferred Stock beneficially owned by such holder must not
instruct the Trustees to vote such shares in favor of approval of the Merger
Agreement.
A holder of record of shares of Wheat Common Stock and/or Wheat Preferred
Stock, as applicable, that are beneficially owned by others (such as the Trust
Shares) may assert dissenters' rights as to less than all of such shares only if
such holder dissents with respect to all shares of Wheat Common Stock and/or
Wheat Preferred Stock, as applicable, beneficially owned by any one person and
notifies Wheat in writing of the name and address of each person on whose behalf
such holder is asserting dissenters' rights. The rights of a partial dissenter
under Article 15 are determined as if the shares as to which the holder dissents
and the holder's other shares were registered in the names of different
stockholders.
A beneficial holder of Wheat Common Stock and/or Wheat Preferred Stock
(such as holders of the Trust Shares), as applicable, may assert dissenters'
rights as to shares of Wheat Common Stock and/or Wheat Preferred Stock, as
applicable, held on such holder's behalf only if such holder: (i) submits to
Wheat the record holder's written consent to the dissent not later than the time
the beneficial holder asserts dissenters' rights; and (ii) does so with respect
to all shares of Wheat Common Stock and/or Wheat Preferred Stock, as applicable,
of which such holder is the beneficial holder or over which such holder has the
power to direct the vote.
If the Merger is consummated, FUNC will, within ten days after the
Effective Date, deliver a dissenters' notice to all holders who satisfied the
foregoing requirements, which will: (i) state where payment demand is to be sent
and where and when certificates for shares of dissenting stockholders are to be
deposited; (ii) supply a form for demanding payment that includes the date
(August 20, 1997) of the first annoucement to news media of the terms of the
Merger, and requires that the person asserting dissenters' rights certify
whether or not such person acquired beneficial ownership of such person's
dissenting shares before or after such date; (iii) set a date by which FUNC must
receive the payment demand, which date may not be
39
<PAGE>
less than 30 nor more than 60 days after the date of delivery of the dissenters'
notice; and (iv) be accompanied by a copy of Article 15.
A stockholder who is sent a dissenters' notice shall demand payment,
certify that such holder acquired beneficial ownership of such holder's
dissenting shares before, on or after August 20, 1997, and, if such holders
shares are certificated, deposit the certificates representing such holder's
dissenting shares in accordance with the dissenters' notice. A stockholder who
deposits such holder's shares as described in the dissenters' notice retains all
other rights of a holder of Wheat Common Stock and/or Wheat Preferred Stock, as
the case may be, except to the extent such rights are cancelled or modified by
consummation of the Merger. A stockholder who does not demand payment and
deposit his share certificates where required, in each case by the date set
forth in the dissenters' notice, is not entitled to payment for such holder's
shares under Article 15.
Except as provided below with respect to after-acquired shares, within 30
days after receipt of a payment demand, FUNC shall pay the dissenter the amount
that FUNC estimates to be the fair value of the dissenter's shares, plus accrued
interest. The obligation of FUNC to make such payment may be enforced: (i) by
the Circuit Court for the City of Richmond, Virginia; or (ii) at the election of
any dissenter residing or having its principal office in Virginia, by the
circuit court in the city or county where the dissenter resides or has such
office. The payment by FUNC will be accompanied by: (i) FUNC's balance sheet as
of the end of a fiscal year ended not more than 16 months before the Effective
Date, an income statement for that year, a statement of changes in stockholders'
equity for that year and the latest available interim financial statements, if
any; (ii) an explanation of how FUNC estimated the fair value of the dissenting
shares and of how the interest was calculated; (iii) a statement of the
dissenter's right to demand payment as described below; and (iv) a copy of
Article 15.
FUNC may elect to withhold payment from a dissenter unless the dissenter
was the beneficial owner of the dissenting shares on August 20, 1997, in which
case FUNC will estimate the fair value of such after-acquired shares, plus
accrued interest, and will offer to pay such amount to each dissenter who agrees
to accept it in full satisfaction of such dissenter's demand. FUNC will send
with such offer an explanation of how it estimated the fair value of the shares
and of how the interest was calculated, and a statement of the dissenter's right
to demand payment as described below.
Within 30 days after FUNC makes or offers payment as described above, a
dissenter may notify FUNC in writing of the dissenter's own estimate of the fair
value of the dissenting shares and the amount of interest due, and demand
payment of such estimate (less any payment by FUNC) or reject FUNC's offer and
demand payment of such estimate. Failure to do so is deemed a waiver of the
dissenters' right to demand payment under Article 15.
If any such demand for payment remains unsettled, within 60 days after
receiving the payment demand FUNC will petition the Circuit Court for the City
of Richmond, Virginia, to determine the fair value of the shares and the accrued
interest and make all dissenters whose demands remain unsettled parties to such
proceeding, or pay each dissenter whose demand remains unsettled the amount
demanded. Each dissenter made a party to such proceeding is entitled to a
judgment for: (i) the amount, if any, by which the court finds that the fair
value of the dissenting shares, plus interest, exceeds the amount paid by FUNC;
or (ii) the fair value, plus accrued interest, of the dissenter's after-acquired
shares for which FUNC elected to withhold payment. The court will determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court and assess the costs against FUNC, or against
all or some of the dissenters to the extent the court finds the dissenters did
not act in good faith in demanding payment.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF
WHEAT COMMON STOCK AND/OR WHEAT PREFERRED STOCK AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE APPLICABLE PROVISIONS OF THE VSCA SET FORTH IN ANNEX C TO
THIS PROSPECTUS/PROXY STATEMENT. ANY HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT
PREFERRED STOCK, AS APPLICABLE, WHO INTENDS TO DISSENT FROM THE MERGER SHOULD
CAREFULLY REVIEW THE TEXT OF THE APPLICABLE PROVISIONS OF THE VSCA SET FORTH IN
ANNEX C TO THIS PROSPECTUS/PROXY STATEMENT AND SHOULD ALSO CONSULT WITH SUCH
HOLDER'S ATTORNEY. THE FAILURE OF A HOLDER OF WHEAT COMMON STOCK AND/OR WHEAT
PREFERRED STOCK, AS APPLICABLE, TO FOLLOW PRECISELY THE PROCEDURES SUMMARIZED
ABOVE, AND SET FORTH IN ANNEX C, MAY RESULT IN LOSS OF DISSENTERS' RIGHTS. NO
FURTHER NOTICE OF THE EVENTS GIVING RISE TO DISSENTERS' RIGHTS OR ANY STEPS
ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF WHEAT COMMON STOCK AND/OR
WHEAT PREFERRED STOCK (INCLUDING HOLDERS OF TRUST SHARES), EXCEPT AS INDICATED
ABOVE OR OTHERWISE REQUIRED BY LAW.
In general, any dissenting stockholder who perfects such holder's right to
be paid the fair value of such holder's Wheat Common Stock and/or Wheat
Preferred Stock, as applicable, in cash will recognize taxable gain or loss for
federal income tax purposes upon receipt of such cash. See " -- Certain Federal
Income Tax Consequences".
40
<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),
with respect to each quarterly period since January 1, 1996, (ii) the book value
per share of Wheat Common Stock and Wheat Preferred Stock as of the last day of
the fiscal quarter represented, and (iii) the equivalent pro forma market values
per share of Wheat Common Stock and Wheat Preferred Stock. The prices of FUNC
Common Stock shown below have been adjusted, where applicable, to reflect the
FUNC Stock Split. Wheat stockholders are urged to obtain current quotations of
the market price of FUNC Common Stock. There is no public trading market for
Wheat Common Stock, Wheat Preferred Stock or Trust Shares. See "RECENT
DEVELOPMENTS -- Pending and Recent FUNC Acquisitions" and " -- FUNC Common Stock
Transactions".
The pro forma financial information presented below has been calculated
using a 1.1621 Exchange Ratio. The pro forma information and 1.1621 Exchange
Ratio would be different if the number of outstanding shares of Wheat Common
Stock or Wheat Preferred Stock on the Effective Date is different than
8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A.
<TABLE>
<CAPTION>
WHEAT
COMMON
STOCK
FUNC COMMON STOCK AND
WHEAT
----------------------------- PREFERRED
HIGH LOW STOCK
------------- ---------- -----
<S> <C> <C> <C>
1996
First quarter................................................... $ 31 3/8 25 3/4 13.70
Second quarter.................................................. 32 1/4 28 3/4 14.24
Third quarter................................................... 33 7/8 30 1/2 14.73
Fourth quarter.................................................. 38 1/2 33 1/2 15.55
1997
First quarter................................................... 47 3/4 36 5/8 16.37
Second quarter.................................................. 47 7/8 39 1/8 17.25
Third quarter................................................... 50 11/16 45 7/8 18.77
Fourth quarter (through December 16, 1997)...................... $ 52 7/8 46 15/16 19.76(2)
<CAPTION>
EQUIVALENT PRO FORMA PER
SHARE OF WHEAT
COMMON STOCK AND WHEAT
PREFERRED STOCK(1)
---------------------------
HIGH LOW
----------- -----------
<S> <C> <C>
1996
First quarter................................................... 36 3/8 29 7/8
Second quarter.................................................. 37 3/8 33 3/8
Third quarter................................................... 39 1/4 35 3/8
Fourth quarter.................................................. 44 5/8 38 7/8
1997
First quarter................................................... 55 3/8 42 1/2
Second quarter.................................................. 55 5/8 45 3/8
Third quarter................................................... 58 7/8 53 1/4
Fourth quarter (through December 16, 1997)...................... 61 3/8 54 1/2
</TABLE>
- ---------------
(1) Equivalent pro forma market values per share of Wheat Common Stock and Wheat
Preferred Stock amounts represent the high and low last reported sales
prices per share of FUNC Common Stock multiplied by a 1.1621 Exchange Ratio,
rounded down to the nearest one-eighth.
(2) Represents the book value per share as of November 30, 1997.
On August 19, 1997, 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 Tape was $46.9375. On December 16, 1997, such
price was $50.875.
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 Merger that the FUNC Common Shares be approved for listing on the NYSE,
effective upon official notice of issuance. See " -- Conditions to Consummation;
Termination".
Shares distributed from the Wheat ASOP are valued according to an
independent appraisal, which historically has been performed, as of June 30 and
December 31 of each year. Since 1983 the valuation has been performed by Piper
Jaffray Inc. ("Piper Jaffray"). Piper Jaffray has valued the Wheat Common Stock
on the basis of minority interest value. In estimating this fair market value,
Piper Jaffray considered Wheat as a going concern engaged in the business in
which it was engaged as of the valuation date. Piper Jaffray's valuations, for
Wheat ASOP purposes, of the fair market value per share of Wheat Common Stock on
December 31, 1995, June 30, 1996, December 31, 1996 and June 30, 1997 were
$20.75-$21.25; $22.50-$23.00; $29.50-$30.00; and $39.25-$39.75, respectively. In
providing its opinions, Piper Jaffray assumed that all information and data
furnished to it by Wheat or otherwise made available to it is accurate and
complete, and it made no independent verification of such information and data.
Piper Jaffray further relied upon the assurance of Wheat's management that it is
not aware of any information or facts that would make the information incomplete
or misleading. In arriving at its opinions, Piper Jaffray did not perform any
appraisal or valuation of specific assets of Wheat and expressed no opinion
regarding its liquidation value.
41
<PAGE>
DIVIDENDS
The following table sets forth the cash dividends paid on FUNC Common
Stock, Wheat Common Stock and Wheat Preferred Stock with respect to each
calendar quarter since January 1, 1996, and the equivalent pro forma cash
dividends paid per share of Wheat Common Stock and Wheat Preferred Stock.
Dividends paid on shares of FUNC Common Stock shown below have been adjusted,
where applicable, to reflect the FUNC Stock Split.
The pro forma financial information presented below has been calculated
using a 1.1621 Exchange Ratio. The pro forma information and 1.1621 Exchange
Ratio would be different if the number of outstanding shares of Wheat Common
Stock or Wheat Preferred Stock on the Effective Date is different than
8,834,944. See "THE MERGER -- General; Consideration" and ANNEX A.
<TABLE>
<CAPTION>
EQUIVALENT
PRO
FORMA
PER
SHARE
OF
WHEAT
COMMON
STOCK
AND
FUNC WHEAT WHEAT WHEAT
COMMON COMMON PREFERRED PREFERRED
STOCK STOCK STOCK STOCK(1)
------ -- -- -----
<S> <C> <C> <C> <C>
1996
First quarter............................................................... $0.26 0.05 0.05 0.300
Second quarter.............................................................. 0.26 0.10 0.10 0.300
Third quarter............................................................... 0.29 0.10 0.10 0.335
Fourth quarter.............................................................. 0.29 0.10 0.10 0.335
1997
First quarter............................................................... 0.29 0.10 0.10 0.335
Second quarter.............................................................. 0.29 0.10 0.10 0.335
Third quarter............................................................... 0.32 0.10 0.10 0.370
Fourth quarter.............................................................. $0.32 0.10 0.10 0.370
</TABLE>
- ---------------
(1) Equivalent pro forma cash dividends paid per share of Wheat Common Stock and
Wheat Preferred Stock amounts represent FUNC historical dividend rates per
share multiplied by the 1.1621 Exchange Ratio, rounded to the nearest one-
half cent. The current annualized dividend rate per share for FUNC Common
Stock, based on the most recently declared quarterly dividend of $.37 per
share payable on March 16, 1998, would be $1.48. On an equivalent pro forma
basis, such current annualized FUNC dividend per share of Wheat Common Stock
and Wheat Preferred Stock would be $1.72, rounded up to the nearest cent.
Any future FUNC and Wheat dividends are dependent on their respective
earnings and financial condition, government regulations and policies and
other factors.
Pursuant to the Merger Agreement, after December 31, 1997, Wheat may not
declare or pay any dividends on Wheat Common Stock or Wheat Preferred Stock
without the prior written consent of FUNC.
See " -- Business Pending Consummation", "FUNC -- Certain Regulatory
Considerations; PAYMENT OF DIVIDENDS" and "DESCRIPTION OF FUNC CAPITAL STOCK".
42
<PAGE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT
SEPTEMBER 30, 1997
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet combines
the consolidated historical balance sheets of FUNC, Signet, Wheat, CoreStates
and Covenant assuming the companies had been combined as of September 30, 1997,
on a pooling of interests accounting basis with respect to the Merger and the
Signet and CoreStates acquisitions, and on a purchase accounting basis with
respect to the Covenant acquisition. The Signet acquisition was consummated on
November 28, 1997.
<TABLE>
<CAPTION>
FUNC
AND FUNC, SIGNET
(IN MILLIONS) FUNC SIGNET SIGNET WHEAT AND WHEAT CORESTATES COVENANT
------------ -------- ------ ------- ----- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 6,200 462 6,662 34 6,696 3,166 16
Interest-bearing bank balances................. 200 4 204 -- 204 3,044 --
Federal funds sold and securities purchased
under resale agreements...................... 6,011 887 6,898 77 6,975 139 --
-------- ------ ------- ----- ------------ ---------- ---
Total cash and cash equivalents.............. 12,411 1,353 13,764 111 13,875 6,349 16
-------- ------ ------- ----- ------------ ---------- ---
Trading account assets......................... 7,548 277 7,825 180 8,005 327
Securities available for sale.................. 16,690 2,233 18,923 -- 18,923 2,211 120
Investment securities.......................... 2,268 -- 2,268 6 2,274 1,413 11
Loans, net of unearned income.................. 94,904 6,522 101,426 -- 101,426 35,085 258
Allowance for loan losses.................... (1,370) (126) (1,496) -- (1,496) (679) (3)
-------- ------ ------- ----- ------------ ---------- ---
Loans, net................................... 93,534 6,396 99,930 -- 99,930 34,406 255
-------- ------ ------- ----- ------------ ---------- ---
Premises and equipment......................... 4,056 172 4,228 66 4,294 627 9
Due from customers on acceptances.............. 837 -- 837 -- 837 791 --
Other intangible assets........................ 2,701 31 2,732 -- 2,732 287 --
Other assets................................... 3,859 809 4,668 810 5,478 1,180 9
-------- ------ ------- ----- ------------ ---------- ---
Total...................................... $143,904 11,271 155,175 1,173 156,348 47,591 420
-------- ------ ------- ----- ------------ ---------- ---
-------- ------ ------- ----- ------------ ---------- ---
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Deposits
Noninterest-bearing.......................... 18,963 1,771 20,734 -- 20,734 8,942 48
Interest-bearing............................. 72,727 5,941 78,668 -- 78,668 24,799 256
-------- ------ ------- ----- ------------ ---------- ---
Total deposits............................. 91,690 7,712 99,402 -- 99,402 33,741 304
Short-term borrowings.......................... 27,623 1,922 29,545 271 29,816 4,239 64
Bank acceptances outstanding................... 837 -- 837 -- 837 789 --
Other liabilities.............................. 4,225 297 4,522 651 5,173 1,925 5
Long-term debt................................. 7,819 350 8,169 86 8,255 3,784 15
-------- ------ ------- ----- ------------ ---------- ---
Total liabilities.......................... 132,194 10,281 142,475 1,008 143,483 44,478 388
-------- ------ ------- ----- ------------ ---------- ---
Guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable
interest debentures.......................... 990 -- 990 -- 990 -- --
-------- ------ ------- ----- ------------ ---------- ---
STOCKHOLDERS'
EQUITY
Preferred stock................................ -- -- -- 3 -- -- 8
Common stock................................... 1,894 305 2,118 17 2,152 224 15
Paid-in capital................................ 999 216 1,296 21 1,303 1,253 12
Retained earnings.............................. 7,681 435 8,116 124 8,240 2,955 (3)
Unrealized gain on debt and equity securities,
net.......................................... 146 34 180 -- 180 35 --
Treasury stock................................. -- -- -- -- -- (1,302) --
Unallocated shares held by ESOP................ -- -- -- -- -- (52) --
-------- ------ ------- ----- ------------ ---------- ---
Total stockholders' equity................. 10,720 990 11,710 165 11,875 3,113 32
-------- ------ ------- ----- ------------ ---------- ---
Total...................................... $143,904 11,271 155,175 1,173 156,348 47,591 420
-------- ------ ------- ----- ------------ ---------- ---
-------- ------ ------- ----- ------------ ---------- ---
<CAPTION>
FUNC, SIGNET,
WHEAT,
CORESTATES
(IN MILLIONS) AND COVENANT
------------ -------------
<S> <C>
ASSETS
Cash and due from banks........................ 9,791
Interest-bearing bank balances................. 3,248
Federal funds sold and securities purchased
under resale agreements...................... 7,114
-------------
Total cash and cash equivalents.............. 20,153
-------------
Trading account assets......................... 8,332
Securities available for sale.................. 21,254
Investment securities.......................... 3,698
Loans, net of unearned income.................. 136,769
Allowance for loan losses.................... (2,178)
-------------
Loans, net................................... 134,591
-------------
Premises and equipment......................... 4,930
Due from customers on acceptances.............. 1,628
Other intangible assets........................ 3,074
Other assets................................... 6,667
-------------
Total...................................... 204,327
-------------
-------------
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Deposits
Noninterest-bearing.......................... 29,724
Interest-bearing............................. 103,723
-------------
Total deposits............................. 133,447
Short-term borrowings.......................... 34,119
Bank acceptances outstanding................... 1,626
Other liabilities.............................. 7,103
Long-term debt................................. 12,054
-------------
Total liabilities.......................... 188,349
-------------
Guaranteed preferred beneficial interests in
Corporation's junior subordinated deferrable
interest debentures.......................... 990
-------------
STOCKHOLDERS'
EQUITY
Preferred stock................................ --
Common stock................................... 3,231
Paid-in capital................................ 1,492
Retained earnings.............................. 10,050
Unrealized gain on debt and equity securities,
net.......................................... 215
Treasury stock................................. --
Unallocated shares held by ESOP................ --
-------------
Total stockholders' equity................. 14,988
-------------
Total...................................... 204,327
-------------
-------------
</TABLE>
See accompanying notes to pro forma financial information.
43
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FUNC AND SIGNET
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of FUNC and Signet assuming the
companies had been combined for each period presented on a pooling of interests
accounting basis. The Signet acquisition was consummated on November 28, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ---------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1996 1995 1994 1993 1992
- ----------------------------------------------------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income...................................... $ 8,187 7,812 10,459 9,553 8,038 7,406 7,376
Interest expense..................................... 3,859 3,719 4,994 4,425 3,090 2,757 3,273
-------- ------- ------- ------- ------- ------- -------
Net interest income.................................. 4,328 4,093 5,465 5,128 4,948 4,649 4,103
Provision for loan losses............................ 515 299 449 258 193 417 711
-------- ------- ------- ------- ------- ------- -------
Net interest income after provision for loan
losses............................................. 3,813 3,794 5,016 4,870 4,755 4,232 3,392
Securities available for sale transactions........... 19 20 36 45 9 37 49
Investment security transactions..................... 3 3 4 6 4 7 (21)
Noninterest income................................... 2,457 1,839 2,597 2,125 2,130 1,903 1,641
Merger-related restructuring charges................. -- 281 281 94 -- -- --
SAIF special assessment.............................. -- 133 133 -- -- -- --
Noninterest expense.................................. 3,930 3,501 4,740 4,563 4,593 4,134 3,942
-------- ------- ------- ------- ------- ------- -------
Income before income taxes........................... 2,362 1,741 2,499 2,389 2,305 2,045 1,119
Income taxes......................................... 828 611 875 848 779 654 311
-------- ------- ------- ------- ------- ------- -------
Net income........................................... 1,534 1,130 1,624 1,541 1,526 1,391 808
Dividends on preferred stock......................... -- 8 9 26 46 46 53
-------- ------- ------- ------- ------- ------- -------
Net income applicable to common stockholders before
redemption premium................................. 1,534 1,122 1,615 1,515 1,480 1,345 755
Redemption premium on preferred stock................ -- -- -- -- 41 -- --
-------- ------- ------- ------- ------- ------- -------
Net income applicable to common stockholders after
redemption premium................................. $ 1,534 1,122 1,615 1,515 1,439 1,345 755
-------- ------- ------- ------- ------- ------- -------
-------- ------- ------- ------- ------- ------- -------
PER COMMON SHARE DATA
Net income before redemption premium............... $ 2.43 1.80 2.59 2.43 2.36 2.21 1.32
Net income after redemption premium................ $ 2.43 1.80 2.59 2.43 2.29 2.21 1.32
Average common shares outstanding (IN THOUSANDS)... 630,384 624,554 624,363 623,163 626,974 607,488 572,068
FUNC HISTORICAL PER COMMON SHARE DATA
Net income before redemption premium............... $ 2.60 1.85 2.67 2.52 2.36 2.15 1.26
Net income after redemption premium................ $ 2.60 1.85 2.67 2.52 2.29 2.15 1.26
Average common shares outstanding (IN THOUSANDS)... 562,534 557,968 557,624 557,354 563,325 544,876 510,768
</TABLE>
See accompanying notes to pro forma financial information.
44
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FUNC, SIGNET AND WHEAT
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of FUNC, Signet and Wheat assuming the
companies had been combined for each period presented on a pooling of interests
accounting basis with respect to the Merger and the Signet acquisition. Such
information for Wheat for the 12-month periods ended March 31 has been added to
comparable information related to FUNC and Signet for the preceding 12-month
periods ended December 31, to reflect the combined results of operations. The
Signet acquisition was consummated on November 28, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED
(IN MILLIONS, EXCEPT PER SHARE ------------------- -------------------------------------------------------------
DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993 1993/1992
- ----------------------------------- -------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income.................... $ 8,227 7,845 10,508 9,593 8,072 7,430 7,394
Interest expense................... 3,877 3,733 5,016 4,444 3,106 2,766 3,279
-------- ------- --------- --------- --------- --------- ---------
Net interest income................ 4,350 4,112 5,492 5,149 4,966 4,664 4,115
Provision for loan losses.......... 515 299 449 258 193 417 711
-------- ------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan losses.................. 3,835 3,813 5,043 4,891 4,773 4,247 3,404
Securities available for sale
transactions..................... 86 87 124 125 79 111 129
Investment security transactions... 3 3 4 6 4 7 (21)
Noninterest income................. 2,775 2,095 2,954 2,418 2,345 2,154 1,854
Merger-related restructuring
charges.......................... -- 281 281 94 -- -- --
SAIF special assessment............ -- 133 133 -- -- -- --
Noninterest expense................ 4,282 3,802 5,160 4,910 4,862 4,438 4,214
-------- ------- --------- --------- --------- --------- ---------
Income before income taxes......... 2,417 1,782 2,551 2,436 2,339 2,081 1,152
Income taxes....................... 850 628 896 867 792 669 324
-------- ------- --------- --------- --------- --------- ---------
Net income......................... 1,567 1,154 1,655 1,569 1,547 1,412 828
Dividends on preferred stock....... -- 8 9 26 46 46 53
-------- ------- --------- --------- --------- --------- ---------
Net income applicable to common
stockholders before redemption
premium.......................... 1,567 1,146 1,646 1,543 1,501 1,366 775
Redemption premium on preferred
stock............................ -- -- -- -- 41 -- --
-------- ------- --------- --------- --------- --------- ---------
Net income applicable to common
stockholders after redemption
premium.......................... $ 1,567 1,146 1,646 1,543 1,460 1,366 775
-------- ------- --------- --------- --------- --------- ---------
-------- ------- --------- --------- --------- --------- ---------
PER COMMON SHARE DATA
Net income before redemption
premium........................ $ 2.45 1.80 2.59 2.44 2.36 2.21 1.33
Net income after redemption
premium........................ $ 2.45 1.80 2.59 2.44 2.29 2.21 1.33
Average common shares outstanding
(IN THOUSANDS)................. 640,651 634,821 634,630 633,430 637,241 617,755 582,335
FUNC HISTORICAL PER COMMON
SHARE DATA
Net income before redemption
premium........................ $ 2.60 1.85 2.67 2.52 2.36 2.15 1.26
Net income after redemption
premium........................ $ 2.60 1.85 2.67 2.52 2.29 2.15 1.26
Average common shares outstanding
(IN THOUSANDS)................. 562,534 557,968 557,624 557,354 563,325 544,876 510,768
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE
DATA)
- -----------------------------------
<S> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income....................
Interest expense...................
Net interest income................
Provision for loan losses..........
Net interest income after provision
for loan losses..................
Securities available for sale
transactions.....................
Investment security transactions...
Noninterest income.................
Merger-related restructuring
charges..........................
SAIF special assessment............
Noninterest expense................
Income before income taxes.........
Income taxes.......................
Net income.........................
Dividends on preferred stock.......
Net income applicable to common
stockholders before redemption
premium..........................
Redemption premium on preferred
stock............................
Net income applicable to common
stockholders after redemption
premium..........................
PER COMMON SHARE DATA
Net income before redemption
premium........................
Net income after redemption
premium........................
Average common shares outstanding
(IN THOUSANDS).................
FUNC HISTORICAL PER COMMON
SHARE DATA
Net income before redemption
premium........................
Net income after redemption
premium........................
Average common shares outstanding
(IN THOUSANDS).................
</TABLE>
See accompanying notes to pro forma financial information.
45
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FUNC, SIGNET, WHEAT, CORESTATES AND COVENANT
(UNAUDITED)
The following unaudited pro forma combined condensed statements of income
present the combined statements of income of FUNC, Signet, Wheat, CoreStates and
Covenant assuming the companies had been combined for each period presented on a
pooling of interests accounting basis with respect to the Merger and the Signet
and CoreStates acquisitions, and on a purchase accounting basis with respect to
the Covenant acquisition (only for the nine months ended September 30, 1997, and
the year ended December 31, 1996). Such information for Wheat for the 12-month
periods ended March 31 has been added to comparable information related to FUNC,
Signet, CoreStates and Covenant for the preceding 12-month periods ended
December 31, to reflect the combined results of operations. The Signet
acquisition was consummated on November 28, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, TWELVE MONTHS ENDED
------------------- ------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1997 1996 1997/1996 1996/1995 1995/1994 1994/1993
- ----------------------------------------------- -------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income................................ $ 10,787 10,308 13,831 13,068 11,086 10,335
Interest expense............................... 4,839 4,591 6,187 5,752 4,052 3,660
-------- ------- --------- --------- --------- ---------
Net interest income............................ 5,948 5,717 7,644 7,316 7,034 6,675
Provision for loan losses...................... 658 488 679 402 472 606
-------- ------- --------- --------- --------- ---------
Net interest income after provision for loan
losses....................................... 5,290 5,229 6,965 6,914 6,562 6,069
Securities available for sale transactions..... 101 142 184 156 97 154
Investment security transactions............... 3 3 4 6 4 7
Noninterest income............................. 3,438 2,715 3,794 3,269 3,115 2,944
Restructuring and merger-related charges....... -- 411 422 233 107 --
SAIF special assessment........................ -- 147 148 -- -- --
Noninterest expense............................ 5,497 5,018 6,802 6,656 6,673 6,332
-------- ------- --------- --------- --------- ---------
Income before income taxes..................... 3,335 2,513 3,575 3,456 2,998 2,842
Income taxes................................... 1,173 905 1,278 1,232 1,018 908
-------- ------- --------- --------- --------- ---------
Net income..................................... 2,162 1,608 2,297 2,224 1,980 1,934
Dividends on preferred stock................... -- 8 10 26 46 46
-------- ------- --------- --------- --------- ---------
Net income applicable to common stockholders
before redemption premium.................... 2,162 1,600 2,287 2,198 1,934 1,888
Redemption premium on preferred stock.......... -- -- -- -- 41 --
-------- ------- --------- --------- --------- ---------
Net income applicable to common stockholders
after redemption premium..................... $ 2,162 1,600 2,287 2,198 1,893 1,888
-------- ------- --------- --------- --------- ---------
-------- ------- --------- --------- --------- ---------
PER COMMON SHARE DATA
Net income before redemption premium......... $ 2.22 1.61 2.31 2.21 1.93 1.91
Net income after redemption premium.......... $ 2.22 1.61 2.31 2.21 1.89 1.91
Average common shares outstanding (IN
THOUSANDS)................................. 973,263 990,901 989,106 993,504 1,003,740 988,055
FUNC HISTORICAL PER COMMON
SHARE DATA
Net income before redemption premium......... $ 2.60 1.85 2.67 2.52 2.36 2.15
Net income after redemption premium.......... $ 2.60 1.85 2.67 2.52 2.29 2.15
Average common shares outstanding (IN
THOUSANDS)................................. 562,534 557,968 557,624 557,354 563,325 544,876
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA) 1993/1992
- ----------------------------------------------- ---------
<S> <C>
CONSOLIDATED SUMMARIES OF INCOME
Interest income................................ 10,480
Interest expense............................... 4,477
---------
Net interest income............................ 6,003
Provision for loan losses...................... 972
---------
Net interest income after provision for loan
losses....................................... 5,031
Securities available for sale transactions..... 146
Investment security transactions............... (21)
Noninterest income............................. 2,691
Restructuring and merger-related charges....... --
SAIF special assessment........................ --
Noninterest expense............................ 6,246
---------
Income before income taxes..................... 1,601
Income taxes................................... 455
---------
Net income..................................... 1,146
Dividends on preferred stock................... 53
---------
Net income applicable to common stockholders
before redemption premium.................... 1,093
Redemption premium on preferred stock.......... --
---------
Net income applicable to common stockholders
after redemption premium..................... 1,093
---------
---------
PER COMMON SHARE DATA
Net income before redemption premium......... 1.17
Net income after redemption premium.......... 1.17
Average common shares outstanding (IN
THOUSANDS)................................. 933,400
FUNC HISTORICAL PER COMMON
SHARE DATA
Net income before redemption premium......... 1.26
Net income after redemption premium.......... 1.26
Average common shares outstanding (IN
THOUSANDS)................................. 510,768
</TABLE>
See accompanying notes to pro forma financial information.
46
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) The unaudited pro forma information presented herein is not necessarily
indicative of the results of operations or the combined financial position
that would have resulted had the Merger, the Signet acquisition or either
of the CoreStates or Covenant acquisitions 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 Merger or
either of the CoreStates or Covenant acquisitions is not contingent upon
consummation of any other of such acquisitions. Pro forma financial
information with respect to the Merger and the Signet and CoreStates
acquisitions assumes such acquisitions were consummated as of the beginning
of each period presented. Such information for Wheat for the 12-month
periods ended March 31 has been added to comparable information related to
FUNC, Signet and CoreStates for the preceding 12-month periods ended
December 31, as appropriate. Pro forma financial information for the
Covenant acquisition is included only for the nine months ended September
30, 1997, and December 31, 1996. See "RECENT DEVELOPMENTS" and "THE
MERGER -- Accounting Treatment".
(2) It is assumed that the 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 1.1621
shares of FUNC Common Stock for each of the 209,000 shares of Wheat
Preferred Stock and 8,599,000 shares of Wheat Common Stock which were
outstanding at September 30, 1997. The 1.1621 Exchange Ratio is subject to
possible adjustment under certain circumstances. See "THE
MERGER -- General; Consideration".
As a result, information was adjusted for the Merger by the (i) addition of
10,267,000 shares of FUNC Common Stock amounting to $34 million; (ii)
elimination of 209,000 shares of Wheat Preferred Stock amounting to $3
million; (iii) elimination of 8,599,000 shares of Wheat Common Stock
amounting to $17 million; and (iv) recordation of the remaining amount of
$14 million as a reduction of paid-in capital at September 30, 1997.
As of September 30, 1997, FUNC had 50,530,000 shares, and Wheat had no
shares, of common stock reserved for issuance primarily for stock option
plans (excluding, as to FUNC, shares reserved for issuance in connection
with the Merger, the Signet acquisition and the CoreStates and Covenant
acquisitions, or upon exercise of the rights attached to shares of FUNC
Common Stock), which are not included in the unaudited pro forma financial
information presented herein.
For the nine months ended September 30, 1997, Wheat had net income
applicable to common stockholders of $33 million, which includes $9 million
related to Wheat's results of operations in the fourth quarter ended March
31, 1997.
(3) The Signet acquisition, which was consummated on November 28, 1997, 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 1.10 shares of FUNC Common Stock for each of the
60,944,000 shares of Signet common stock which were outstanding at
September 30, 1997.
As a result, information was adjusted for the Signet acquisition by the (i)
addition of 67,038,000 shares of FUNC Common Stock amounting to $224
million; (ii) elimination of 60,944,000 shares of Signet common stock
amounting to $305 million; and (iii) recordation of the remaining amount of
$81 million as an increase to paid-in capital at September 30, 1997.
As of September 30, 1997, FUNC and Signet had 50,530,000 and 3,501,000
shares of common stock reserved for issuance primarily for stock option
plans, respectively, (excluding, as to FUNC, shares reserved for issuance
in connection with the Merger, the Signet acquisition and the CoreStates
and Covenant acquisitions, or upon exercise of the rights attached to
shares of FUNC Common Stock and, as to Signet, shares reserved for issuance
upon exercise of the rights attached to shares of Signet common stock),
which are not included in the unaudited pro forma financial information
presented herein.
For the nine months ended September 30, 1997, Signet had net income
applicable to common stockholders of $73 million.
(4) It is assumed that the CoreStates acqusition 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
1.62 shares of FUNC Common Stock for each of the 199,779,000 shares of
CoreStates common stock which were outstanding at September 30, 1997. The
1.62 exchange ratio is subject to possible adjustment under certain
circumstances.
As a result, information was adjusted for the CoreStates acquisition by the
(i) addition of 323,642,000 shares of FUNC Common Stock amounting to $1.1
billion (excluding an estimated 3.5 million shares of CoreStates common
stock that
47
<PAGE>
CoreStates expects to issue in order to qualify the CoreStates acquisition
as a pooling of interests and including 2,182,000 shares of CoreStates
common stock allocated to the CoreStates ESOP); (ii) elimination of
199,779,000 shares of outstanding CoreStates common stock amounting to $200
million; (iii) elimination of the cost of CoreStates treasury stock of $1.3
billion of which $1.1 billion reduced retained earnings; (iv)
reclassification of the cost of unallocated shares held by the CoreStates
ESOP of $52 million; and (v) recordation of the remaining amount of $1.0
billion as a reduction of paid-in capital at September 30, 1997.
As of September 30, 1997, FUNC and CoreStates had 50,530,000 and 16,915,000
shares of common stock reserved for issuance primarily for stock option
plans, respectively, (excluding, as to FUNC, shares reserved for issuance
in connection with the Merger, the Signet acquisition and the CoreStates
and Covenant acquisitions, or upon exercise of the rights attached to
shares of FUNC Common Stock), which are not included in the unaudited pro
forma financial information presented herein.
For the nine months ended September 30, 1997, CoreStates had net income
applicable to common stockholders of $597 million.
In 1993, CoreStates changed its method of accounting for postemployment
benefits, and in 1993 CoreStates reported additional expense as a
cumulative effect of a change in accounting principle, net of tax of $16
million in 1993 and $108 million in 1992. Such amounts have been included
in noninterest expense in 1993 and 1992, respectively, in the pro forma
financial information presented herein.
(5) The Covenant acquisition will be accounted for on a purchase accounting
basis, and accordingly, the related pro forma adjustments herein reflect,
where applicable, (i) an exchange ratio of (a) 1.516 shares of FUNC Common
Stock for each of the 138,000 shares of Covenant series A preferred stock
which were outstanding at September 30, 1997, (b) an exchange ratio of 1.2
shares of FUNC Common Stock for each of the 162,000 shares of Covenant
series B preferred stock which were outstanding at September 30, 1997, (c)
an exchange ratio of .3813 shares of FUNC Common Stock for each of the
3,057,000 shares of Covenant common stock which were outstanding at
September 30, 1997, and (d) the resulting issuance of 1,743,000 shares of
FUNC Common Stock; (ii) the repurchase of such aggregate shares in the open
market at a cost of $87 million; and (iii) an increase in goodwill and
deposit base premium of $49 million and $6 million, respectively. The
Covenant series A preferred stock will be converted into shares of Covenant
common stock on December 31, 1997, in accordance with the terms of the
Covenant series A preferred stock.
Additionally, the pro forma adjustments related to the unaudited pro forma
combined condensed statements of income with respect to Covenant reflect a
(i) 5.51 percent and 5.27 percent cost of funds for the nine months ended
September 30, 1997, and for the year ended December 31, 1996, respectively;
(ii) ten-year sum-of-the-years' digits method related to deposit base
premium; and (iii) 25-year straight-line life related to goodwill.
As a result, for the nine months ended September 30, 1997, and the year
ended December 31, 1996, these adjustments amounted to (i) an increase in
noninterest expense of $2 million and $10 million, respectively; and (ii)
reductions in (a) interest income of $2 million and $4 million,
respectively; (b) income taxes of $1 million and $5 million, respectively,
and (c) net income applicable to common stockholders of $5 million and $9
million, respectively.
(6) In the second quarter of 1997, FUNC acquired the Bank of Boca Raton with
assets of $29 million, net loans of $15 million and deposits of $27 million
for $2 million in cash. This purchase accounting acquisition has been
reflected in the pro forma financial information only from the date of
consummation.
From January 1, 1997, through September 30, 1997, FUNC has purchased 24
million shares of FUNC Common Stock in the open market at a cost of $1.0
billion, of which 1.65 million shares relate to the Covenant acquisition as
noted above.
The historical financial statements of FUNC will be restated for the
CoreStates acquisition for all periods presented and for the Signet
acquisition only for periods on and after January 1, 1995. Such statements
will not be restated as a result of the Merger or the Covenant acquisition.
(7) Income per share data has been computed based on the combined historical
net income applicable to common stockholders of FUNC, Signet, Wheat,
CoreStates and Covenant 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, as appropriate.
48
<PAGE>
(8) Certain insignificant reclassifications have been included herein to
conform to statement presentations. Transactions conducted in the ordinary
course of business between FUNC, Signet, Wheat, CoreStates and Covenant are
immaterial, and accordingly, have not been eliminated.
(9) The unaudited pro forma financial information does not include any material
merger-related expenses or any material expenses related to the Merger, the
Signet acquisition or the CoreStates and Covenant acquisitions. FUNC
currently estimates after-tax restructuring and merger-related charges of
approximately (i) $135 million related to the Signet acquisition, or $0.42
per share of FUNC Common Stock, expected to be taken in the fourth quarter
of 1997, and (ii) $795 million related to the CoreStates acquisition, or
$0.81 per share of FUNC Common Stock, expected to be taken in the second
quarter of 1998. In addition, FUNC expects to incur an estimated $75
million in pre-tax restructuring and merger-related expenses in the
12-month period following the CoreStates acquisition.
(10) FUNC expects to realize significant revenue enhancements and cost savings
from the Signet acquisition and the CoreStates acquisition. The pro forma
financial information, which does not reflect any revenue enhancements,
direct costs or potential savings from the consolidation of operations of
FUNC, Signet, Wheat, CoreStates and Covenant, is not indicative of the
results of future operations. No assurance can be given with respect to the
ultimate level of such revenue enhancements or cost savings. As indicated
by the foregoing unaudited pro forma financial information and based solely
on the foregoing assumptions, consummation of the Merger, the Signet
acquisition and the CoreStates and Covenant acquisitions would have diluted
FUNC's historical net income per common share for the nine months ended
September 30, 1997, and the year ended December 31, 1996, by 15 percent and
13 percent, respectively.
WHEAT
GENERAL
Financial and other information relating to Wheat, including information
about Wheat's directors and executive officers, is set forth in ANNEX D to this
Prospectus/Proxy Statement.
HISTORY AND BUSINESS
GENERAL
Wheat is a diversified financial services holding company that provides,
through its subsidiaries, a wide range of investment and financial services to
individuals, corporations, institutions, and state and local governments.
WHEAT, FIRST SECURITIES, INC.
WFSI is a wholly-owned subsidiary of Wheat and has been conducting business
since 1934. WFSI, which conducts business under the servicemarks "Wheat First
Butcher Singer", "Wheat First Butcher Singer Capital Markets" and WFS Clearing
Services", operates 128 retail and institutional offices in 20 states and
Washington, D.C., and employs approximately 1,100 retail and institutional
financial consultants. WFSI is a member of the NYSE, the American Stock
Exchange, the Boston Stock Exchange, the Chicago Stock Exchange, the
Philadelphia Stock Exchange, the National Futures Association and the NASD.
WFSI's headquarters are at Riverfront Plaza, West Tower, 901 East Byrd Street,
Richmond, Virginia 23219.
WFSI, directly and through its subsidiaries, offers brokerage services to
retail and institutional investors, investment banking, fully-disclosed
securities clearing services and asset management services. In support of these
investment services, WFSI effects transactions in equity and debt securities as
both agent and principal, provides access to mutual funds, insurance and
annuities and direct investments and provides investment advice on selected
sectors of the financial markets through its Research Department. WFSI makes a
market in numerous over-the-counter ("OTC") securities, including the common and
preferred stock of Covenant. See "RECENT DEVELOPMENTS -- Pending FUNC
Acquisitions".
Certain of the foregoing and following services are provided by WFSI to, or
together with, FUNC and its affiliates in the ordinary course of business.
SECURITIES COMMISSIONS
Wheat derives most of its income from its securities brokerage and
investment banking activities. WFSI provides securities brokerage services to
individual and institutional investors and effects transaction in equity and
debt securities as both agent and principal. For the fiscal year ended March 31,
1997, WFSI's revenues from commissions and principal transactions amounted to
$267.9 million. WFSI charges commissions on both exchange and OTC agency
transactions for individual clients in accordance with a schedule that is
revised periodically. In some cases, WFSI may grant discounts from the schedule
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to certain clients. In addition, a substantial portion of WFSI's commission
revenues generally is attributable to investment advice and/or research services
given to individual and institutional investors.
WFSI also provides research and other services to institutional clients.
Institutional clients include banks, retirement funds, mutual funds, investment
advisers, insurance companies, and state and local governments. Institutional
investors typically purchase and sell securities in large block transactions.
Revenues from securities transactions with institutional clients are based on
negotiated rates that typically represent a significant discount from WFSI's
regular commission schedules.
PRINCIPAL TRANSACTIONS
In addition to executing trades as agent, WFSI regularly acts as principal
in executing trades in OTC equity securities, municipal bonds and corporate
debt, as well as United States government and agency securities. WFSI carries
inventories of OTC equities securities, municipal bonds and corporate debt, as
well as U.S. government and agency securities to facilitate sales to clients and
other dealers. When transactions are executed on a principal basis, WFSI
receives mark-ups or mark-downs in lieu of commissions.
OTC SECURITIES. WFSI makes a market by buying and selling as principal in
approximately 310 common stocks and other securities traded on The Nasdaq Stock
Market or otherwise in the OTC market. A majority of the equity securities for
which WFSI makes a market are in the broad industry areas followed by WFSI's
research analysts. Principal transactions with clients are generally effected at
a net price within or equal to the current inter-dealer price, plus or minus a
mark-up or mark-down.
FIXED INCOME SECURITIES. WFSI buys and sells as principal a wide range of
state, county and municipal securities, corporate fixed income securities,
certificates of deposit and U.S. government and agency obligations. State,
county and municipal securities include general obligations and revenue bonds
and notes issued by states, counties and cities, as well as state and local
government agencies and authorities. Corporate fixed income securities include
industrial and utility bonds and preferred stocks. Certificates of deposit
include those issued by banks and savings and loan associations. United States
government and agency obligations include direct U.S. government obligations and
government-guaranteed securities and agency obligations such as Government
National Mortgage Association securities and Federal Home Loan Mortgage
Corporation Participation Certificates.
INVESTMENT BANKING
Investment banking revenues are derived from management of, participation
in and sale of public offerings of equity and debt securities, as well as from
advisory fees received in connection with mergers and acquisitions, financial
advisory assignments and private placements of securities. WFSI had total
investment banking revenues of $66.2 million in fiscal 1997 and $51.0 million in
fiscal 1996.
UNDERWRITING. WFSI is a major underwriter of corporate and municipal
securities. Wheat's corporate underwriting activities are conducted by WFSI's
Capital Markets Division (the "Division"). During the calendar year ended
December 31, 1996, WFSI managed or co-managed 42 corporate equity and debt
offerings with principal values amounting to $2.4 billion, and 177 municipal
offerings with principal values amounting to $4.9 billion.
CORPORATE FINANCE. The Division provides financial advice to and raises
capital for a broad range of corporate clients. The Division manages and
participates in public offerings and arranges the private placement of equity
and debt securities directly with institutional and individual investors. A
majority of the public offerings managed and co-managed by the Division involve
equity securities. The Division also provides advice on a fee basis to clients
on a wide range of financial matters, including mergers and acquisitions,
divestitures, financial planning, corporate reorganizations and
recapitalizations, opinion letters, valuations and various other services.
MUNICIPAL FINANCE. The Municipal Finance Department provides financial
advice to and raises capital for many types of issuers of tax-exempt securities,
including states, counties, cities, transportation authorities, sewer and water
authorities, and housing, health and higher education agencies. Most of these
issuers are located in Virginia, Pennsylvania, West Virginia, North Carolina,
New Jersey, Maryland, Delaware and Washington, D.C.
RESEARCH
WFSI's Research Department develops market information and investment
recommendations primarily with respect to selected industries. The Research
Department employs 21 analysts, of whom seven are Chartered Financial Analysts,
and follows approximately 300 companies. WFSI's research activities include
review and analysis of general market conditions,
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industries and specific companies; recommendations with regard to industries and
specific companies; provision of information to retail and institutional
clients; and responses to inquiries from clients and WFSI's financial
consultants. In addition, WFSI hosts periodic seminars in which presentations
with respect to specific companies, industries and industry trends are made by
representatives and industry authorities.
ASSET MANAGEMENT
Wheat earns asset management and related service fees through WFSI and
another subsidiary, Mentor. WFSI provides investment consulting services on a
wrap-fee or directed commission basis on customer assets of approximately $4.1
billion. WFSI's investment consulting services include direct portfolio
management; evaluation, recommendation and monitoring of independent financial
advisor performance; and brokerage services on a fee basis in lieu of
commission. Mentor Group and its subsidiaries manage assets of private,
institutional, pension and mutual fund portfolios amounting to approximately
$11.5 billion. EVEREN Securities Holding, Inc. has a 20 percent ownership
interest in Mentor and may acquire additional ownership based principally on the
amount of Mentor's revenues attributable to clients of EVEREN Securities, Inc.,
and its affiliates.
WFS CLEARING SERVICES
WFSI executes and clears client and proprietary accounts of approximately
54 introducing firms on a fully disclosed basis under the service name WFS
Clearing Services. The introducing firms are registered broker dealers and banks
whose clients are accounts of WFSI for regulatory purposes, including client
margin account rules. Approximately 25 percent of all customer accounts and 30
percent of all trades processed by WFSI are conducted on a fully disclosed
basis. WFSI had execution and clearing fees of $14.0 million in fiscal 1997 and
$13.9 million in fiscal 1996. The client brokerage account and money market
balances introduced on a fully disclosed basis also contribute to WFSI's net
interest income and Mentor's asset management fees.
NET CAPITAL REQUIREMENTS
As a broker/dealer, Wheat is subject to the net capital rules of the
Commission, the NYSE, and the Commodity Futures Trading Commission and elects to
compute its net capital requirements in accordance with the alternative method.
Under this method, Wheat is required to maintain minimum net capital, as
defined, equal to two percent of aggregate debit balances arising from customer
transactions, as defined. The net capital rules also provide that equity capital
may not be withdrawn or cash dividends paid if resulting net capital would be
less than five percent of aggregate debits. At September 30, 1997, Wheat's net
capital of $114.9 million was $101.4 million in excess of the minimum net
capital required.
DESCRIPTION OF WHEAT CAPITAL STOCK
THE FOLLOWING DESCRIPTIVE INFORMATION DOES NOT PURPORT TO BE COMPLETE AND
IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE PROVISIONS OF THE WHEAT
ARTICLES, WHEAT BYLAWS AND THE VSCA.
GENERAL
The authorized capital stock of Wheat consists of 19,000,000 shares of
Wheat Common Stock, $2.00 par value; 500,000 shares of Non-Voting Common Stock,
$2 par value; and 1,000,000 shares of Wheat Preferred Stock, without par value.
On the Record Date, 8,626,044 shares of Wheat Common Stock were outstanding,
owned by 378 stockholders of record, 208,900 shares of Wheat Preferred Stock
were outstanding and owned by the Grantor Trust (which are represented by the
Trust Shares owned by 239 holders of record) and no shares of Non-Voting Common
Stock were outstanding.
COMMON STOCK
Wheat Common Stock and Non-Voting Common Stock are identical except for the
right to vote. Each holder of Wheat Common Stock is entitled to one vote for
each share held of record on each matter submitted to stockholders. Non-Voting
Common Stock has no right to vote except where that right is conferred by the
laws of Virginia. Cumulative voting in the election of directors is not
permitted. As a result, the holders of 50 percent of the outstanding shares of
Wheat Common Stock have the power to elect all directors. The quorum required at
a stockholder meeting for consideration of any matter is a majority of the
shares entitled to vote on that matter, represented in person or by proxy. If a
quorum is present, the affirmative vote of a majority of the shares represented
at the meeting and entitled to vote on the matter is required for stockholder
approval except in the case of certain major corporate actions, such as a merger
or liquidation of Wheat, an amendment to the Wheat Articles or sale of all or
substantially all of Wheat's assets, all of which Virginia law requires to be
approved by the affirmative vote of more than two-thirds of all shares entitled
to vote on the matter. In addition, under Virginia law, certain material
transactions between Wheat and interested stockholders must be approved by a
majority of disinterested directors or
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by two-thirds vote of disinterested stockholders unless disinterested
stockholders are paid the "fair market value" of their shares.
The holders of shares of Wheat Common Stock are entitled to receive
dividends when, as and if declared by the Wheat Board out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
Wheat, stockholders are entitled to share ratably in all assets remaining after
the payment of liabilities. Stockholders have no preemptive or other
subscription rights, conversion rights, or redemption or sinking fund provisions
with respect to shares of Wheat Common Stock except as described above and in
the Redemption Agreements to which stockholders are parties.
WHEAT PREFERRED STOCK
Except as otherwise provided by the VSCA, Wheat Preferred Stock has no
vote. Wheat Preferred Stock is not convertible into Wheat Common Stock or
Non-Voting Common Stock, and is entitled to receive dividends in the same per
share amounts and at the same time as is declared on Wheat Common Stock. In the
event of any liquidation, dissolution or winding up of Wheat, holders of Wheat
Preferred Stock are entitled to be paid out of assets of Wheat available for
distribution to its stockholders before any payment or declaration in respect of
Wheat Common Stock or Non-Voting Common Stock, a per share ratable amount with
each share of Wheat Common Stock and each share of Non-Voting Common Stock, plus
the amount of any declared but unpaid dividends and distributions. If, upon
liquidation, the assets to be distributed to holders of Wheat Preferred Stock
are insufficient to permit payment in full to such stockholder of the preferred
stock preference, than all assets of Wheat are to be distributed to holders of
Wheat Preferred Stock. All of the outstanding shares of Wheat Preferred Stock
are owned by the Grantor Trust and are represented by the Trust Shares.
WHEAT ARTICLES
The Wheat Articles contain provisions similar to those in the Redemption
Agreements to which all stockholders of Wheat (including holders of the Trust
Shares) are parties, excluding the Wheat ASOP. The Wheat Articles generally
prohibit any holder from selling, donating, pledging or in any other way
transferring his or her stock without the prior written consent of the Wheat
Board or its Executive Committee. If the stockholder is a party to a Redemption
Agreement, the terms of the Redemption Agreement are controlling, but if he or
she is not a party to such agreement the Wheat Articles are controlling. If the
Wheat Board declines to consent to such transfer, Wheat may be required to
purchase the shares proposed to be transferred, the price and terms to be
reached by agreement or, if no agreement can be reached, to be determined by
appraisal. The Wheat Articles also provide that if a stockholder violates any
agreement with Wheat or the NYSE, is suspended or expelled from the NYSE or, is
an officer or employee of Wheat or a subsidiary and ceases to be so employed
except by reason of death or disability, or retirement, Wheat has the right to
redeem the stockholder's shares at their book value as of the end of the
calendar quarter preceding the date of redemption. See "; STOCK REDEMPTION
AGREEMENTS".
STOCK REDEMPTION AGREEMENTS
The holders of Wheat Common Stock and Wheat Preferred Stock (including the
holders of Trust Shares) (together, the "Wheat Holders"), excluding the Wheat
ASOP, are subject to Stock Redemption Agreements (the "Redemption Agreements")
with Wheat or the Grantor Trust, as applicable, that place restrictions on the
sale or transfer of such shares. Under the Redemption Agreements, a disabled
Wheat Holder may elect to sell to Wheat or the Grantor Trust, as applicable, all
or part of his Wheat shares or Trust Shares, as applicable. The purchase price
of such shares is either the book value per share ("Book Value") or an amount
determined under the earnings formula set forth in the Redemption Agreement (the
"Earnings Formula"), as elected by the Wheat Holder. Similarly, after receiving
the approval of the Executive Committee of the Wheat Board, a Wheat Holder whose
age plus years of service exceeds 75 may elect to sell a certain portion of his
shares held for at least ten years for either the Book Value per share or the
price determined by the Earnings Formula.
In addition, upon retirement, the Wheat Holder must sell all of the Wheat
Holder's shares to Wheat or the Grantor Trust, as applicable. If the shares have
been held by the Wheat Holder for at least ten years, the purchase price for
such shares is either the Book Value per share or the amount determined by the
Earnings Formula, as elected by the Wheat Holder. Wheat must purchase shares
held for fewer than ten years at the Book Value per share. Moreover, upon the
death of a Wheat Holder, Wheat or the Grantor Trust, as applicable, must
purchase and the Wheat Holder's representative must sell all of the Wheat
Holder's shares at either the Book Value per share or the price determined by
the Earnings Formula.
Finally, in the following circumstances, Wheat has the right to purchase at
Book Value all shares held by a Wheat Holder: (i) the Wheat Holder has proposed
to sell shares without the approval of the Executive Committee of the Wheat
Board, (ii) the Wheat Holder has violated an agreement made by the Wheat Holder
with Wheat, its affiliates or the NYSE, (iii) the Wheat Holder desires to sell
his shares to Wheat or the Grantor Trust, as applicable, (iv) the Wheat Holder
is suspended or expelled from the NYSE or any other national securities or
commodities exchange, or (v) the Wheat Holder
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ceases to be employed, either voluntarily or involuntarily (except by reason of
death, disability or retirement), as an officer or employee of Wheat or an
affiliate of Wheat.
Payments pursuant to the Redemption Agreements where the Wheat Holder has
elected the Earnings Formula are evidenced by promissory notes issued by Wheat
(the "Redemption Notes"). The Redemption Notes are payable in equal annual
installments, generally over a four-year period at a rate of interest of nine
percent per annum. As of December 5, 1997, Wheat owed an aggregrate of
$8,561,964 pursuant to the Redemption Notes, including an aggregate of $534,520
payable to a director of Wheat.
Shares distributed from the Wheat ASOP are valued according to an
independent appraisal, which historically has been performed as of June 30 and
December 31 of each year. Since 1983 the valuation has been performed by Piper
Jaffray. Piper Jaffray has valued the Wheat Common Stock on the basis of
minority interest value. In estimating this fair market value, Piper Jaffray
considered Wheat as a going concern engaged in the business in which it was
engaged as of the valuation date. Piper Jaffray's valuations, for Wheat ASOP
purposes, of the fair market value per share of Wheat Common Stock on December
31, 1995, June 30, 1996, December 31, 1996 and June 30, 1997 were $20.75-$21.25;
$22.50-$23.00; $29.50-$30.00; and $39.25-$39.75, respectively. In providing its
opinions, Piper Jaffray assumed that all information and data furnished to it by
Wheat or otherwise made available to it is accurate and complete, and it made no
independent verification of such information and data. Piper Jaffray further
relied upon the assurance of Wheat's management that it is not aware of any
information or facts that would make the information incomplete or misleading.
In arriving at its opinion, Piper Jaffray did not perform any appraisal or
valuation of specific assets of Wheat and expressed no opinion regarding its
liquidation value.
NOTES
From time to time, shares of Wheat Common Stock and Trust Shares have been
offered for sale by Wheat to selected employees of Wheat. The purchase price for
such shares has been the most recent book value per share of Wheat prior to the
offering.
The purchase price for such shares is payable in accordance with the terms
of the Notes. The Notes relating to shares of Wheat Common Stock are payable to
Wheat. The Notes relating to Trust Shares are payable to the Grantor Trust,
which in turn has issued corresponding Notes to Wheat for the corresponding
shares of Wheat Preferred Stock purchased by the Grantor Trust with the proceeds
from the sale of the Trust Shares. See "THE MERGER -- Exchange of Wheat Stock".
The Notes are payable over either a four-year or an eight-year period with
interest at a rate of nine percent per annum. Notes payable over the four-year
period are payable in four equal annual installments. Notes payable over the
eight-year period are payable on or before their maturity date and may be paid
by Wheat withholding 25 percent of the gross amount of any incentive
compensation paid by Wheat to the Noteholder. The Notes are secured by the
shares of Wheat Common Stock or Trust Shares to which they relate.
As of December 5, 1997, Wheat was owed an aggregate of $2,927,213 pursuant
to outstanding Notes, including an aggregate of $199,423 payable by three
directors of Wheat.
BOOK ENTRY SYSTEM
Wheat uses a "book entry" system to evidence ownership of Wheat Common
Stock. Under this system, certificates for shares of Wheat Common Stock are not
issued in the name of individual stockholders, and stockholders have no right to
have such certificates issued. Instead, all of the shares of Wheat Common Stock
issued on or after September 30, 1992, are represented by one or more master
stock certificates registered in the name of (and held by) Wheat, as nominee.
Individual ownership interests, including any security interests related to the
financing of the purchase price of any shares, are represented by entries on the
stock records of Wheat.
TRANSFER AGENT AND REGISTRAR
Wheat acts as its transfer agent and registrar for the shares of Wheat
Common Stock and Wheat Preferred Stock (including the Trust Shares).
See "CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS".
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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 1996
Annual Report on Form 10-K, 1997 Quarterly Reports on Form 10-Q, 1997 Annual
Meeting Proxy Statement and 1997 Current Reports on Form 8-K, each of which is
incorporated by reference herein and 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 FUNC is
registered as a bank holding company under the BHCA. Pursuant to a corporate
reorganization in 1968, First Union National Bank, based in Charlotte, North
Carolina ("FUNB"), and First Union Mortgage Corporation, a mortgage banking firm
acquired by FUNB in 1964, became subsidiaries of FUNC.
In addition to FUNB (which, as a result of corporate reorganizations in
June and July 1997, conducts commercial banking operations in Florida, Georgia,
South Carolina, North Carolina, Tennessee, Virginia, Maryland, Connecticut and
Washington, D.C.), FUNC also owns banks conducting operations in Delaware, New
Jersey, Pennsylvania and New York. In addition to providing a wide range of
commercial and retail banking and trust services through its banking
subsidiaries, FUNC also provides various other financial services, including
mortgage banking, home equity lending, credit cards, leasing, investment
banking, 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 over 70 banking-related acquisitions and has pending three
acquisitions (including Wheat), 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. See "RECENT DEVELOPMENTS -- Pending and Recent
FUNC Acquisitions".
<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 of Florida, F.S.B........... Florida 3.6 billion common stock/purchase July 1995
FFB.......................................... New Jersey,
Pennsylvania 35.3 billion common stock and January 1996
preferred stock/pooling
Center Financial Corporation................. Connecticut 4.0 billion common stock/purchase November 1996
Signet....................................... Virginia 11.9 billion common stock/pooling November 1997
CoreStates................................... Pennsylvania $ 47.6 billion common stock/pooling pending
</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
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acquired from the RTC, and (ii) the dollar amount relating to Southeast
banks, which represents assets of the two banking subsidiaries of Southeast
Banking Corporation acquired from the FDIC.
(2) In addition, FUNC acquired (i) Lieber & Company, a mutual fund advisory
company with approximately $3.4 billion in assets under management, in June
1994, and (ii) Keystone Investments, Inc., a mutual fund advisory company
with approximately $11.6 billion in assets under management, in December
1996. The consideration paid by FUNC in each acquisition was FUNC Common
Stock. Since such assets are not owned by these mutual fund advisory
companies, they are not reflected on FUNC's balance sheet.
FUNC is continually evaluating acquisition opportunities and frequently
conducts due diligence activities in connection with possible acquisitions. As a
result, acquisition discussions and, in some cases, negotiations frequently take
place and future acquisitions involving cash, debt or equity securities can be
expected. Acquisitions typically involve the payment of a premium over book and
market values, and therefore, some dilution of FUNC's book value and net income
per common share may occur in connection with any future transactions.
CERTAIN REGULATORY CONSIDERATIONS
AS 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 APPLICABLE STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF FUNC.
GENERAL
As a bank holding company, FUNC is subject to regulation under the BHCA and
to its examination and reporting requirements. 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, or a waiver of
the requirement for such approval by, the Federal Reserve Board. 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 the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve Board,
the OCC and the FDIC. 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 for the payment of any dividend by a national bank if the total
of all dividends declared by the board of directors of such 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.
In addition to its national bank subsidiaries, FUNC has one state-chartered
bank subsidiary which is subject to dividend limitations under applicable state
laws.
Under the foregoing dividend restrictions and certain restrictions
applicable to certain of FUNC's nonbanking subsidiaries, as of September 30,
1997, FUNC's subsidiaries, without obtaining affirmative governmental approvals,
could pay aggregate dividends of $880 million to FUNC. In the first nine months
of 1997, FUNC's subsidiaries paid $896 million in cash dividends to FUNC. In
addition, the corporate reorganization of certain of FUNC's subsidiary banks
into FUNB resulted in a reduction of capital in the amount of $835 million,
which was paid to FUNC.
In addition, FUNC and its 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 (the appropriate
agency with respect to FUNC's national bank subsidiaries) and the
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FDIC (the appropriate agency with respect to FUNC's state-chartered bank
subsidiary) 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; ETC.
There are also various legal restrictions on the extent to which each of
FUNC and certain of 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.
The Federal Deposit Insurance Act, as amended (the "FDIA") imposes
liability on an institution whose deposits are insured by the FDIC, such as
FUNC's subsidiary banks, for certain potential losses of 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.
CAPITAL ADEQUACY
The Federal Reserve Board, the FDIC and the OCC have adopted substantially
similar risk-based and leverage capital guidelines for United States banking
organizations. Under these risked-based capital standards, the minimum
consolidated ratio of total 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
stockholder's equity, retained earnings, a limited amount of qualifying
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill and certain intangibles ("tier 1
capital" and, together with tier 2 capital, "total capital"). The remainder of
total capital may consist of mandatory convertible debt securities and a limited
amount of subordinated debt, qualifying preferred stock and loan loss allowance
("tier 2 capital"). At September 30, 1997, FUNC's tier 1 and total capital
ratios were 8.18 percent and 13.72 percent, respectively. On an FUNC, Signet and
Wheat combined basis, such ratios at September 30, 1997, would have been 8.46
percent and 13.86 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
less certain amounts ("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 September 30, 1997, was 6.53 percent. On an FUNC, Signet and
Wheat combined basis, such ratio at September 30, 1997, would have been 6.72
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 banks is subject to similar capital requirements
adopted by the OCC or the FDIC. Each of FUNC's subsidiary banks had a leverage
ratio in excess of 5.87 percent as of September 30, 1997. The federal banking
agencies have not advised any of the subsidiary banks of any specific minimum
leverage ratio applicable to it.
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PROMPT CORRECTIVE ACTION
The FDIA, 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 FDIA 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 federal bank regulatory agencies have adopted regulations establishing
relevant capital measures and relevant capital levels applicable to FDIC-insured
banks. The relevant capital measures are the total capital ratio, tier 1 capital
ratio and the leverage ratio. Under the regulations, a FDIC-insured 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. An institution may be
downgraded to, or deemed to be in, a capital category that is lower than is
indicated by its capital ratios if it is determined to be in an unsafe or
unsound condition or if it receives an unsatisfactory examination rating with
respect to certain matters. As of September 30, 1997, all of FUNC's
deposit-taking subsidiary banks had capital levels that qualify them as being
"well capitalized" under such regulations.
The FDIA generally prohibits a FDIC-insured 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" insured depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized", requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator. A bank that is not "well capitalized" is subject
to certain limitations relating to so-called "brokered" deposits.
DEPOSITOR PREFERENCE STATUTE
Under federal law, 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") authorized interstate acquisitions of banks and bank holding
companies without geographic limitation beginning one year after enactment. In
addition, it authorized, beginning June 1, 1997, a bank to 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. In
addition, 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
interstate branching. It was pursuant to authority from IBBEA that FUNB
completed its reorganizations in June and July 1997. In addition, First Union
National Bank, which conducts banking operations in New York, New Jersey and
Pennsylvania, is to be merged with FUNB in February 1998, pending regulatory
approval.
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FDIC INSURANCE ASSESSMENTS; DIFA
Effective January 1, 1996, the FDIC reduced the insurance premiums it
currently charges on bank deposits insured by the Bank Insurance Fund ("BIF") to
the statutory minimum of $2,000 for "well capitalized" banks. The Deposit
Insurance Funds Act of 1996, which was enacted on September 30, 1996 ("DIFA"),
reduced the amount of semi-annual FDIC insurance premiums for savings
association deposits acquired by banks and insured by SAIF to the same levels
assessed for deposits insured by BIF. DIFA also provided for a special one-time
assessment imposed on deposits insured by SAIF, including such deposits held by
banks, to bring the SAIF up to statutorily required levels. FUNC accrued for the
one-time assessment in the third quarter of 1996 in the amount of $86 million
after tax in connection with the SAIF recapitalization.
DIFA further provides for assessments to be imposed on insured depository
institutions with respect to deposits insured by the BIF, and continues the
assessments currently imposed on depository institutions with respect to
SAIF-insured deposits, to pay for the cost of Financing Corporation funding.
DESCRIPTION OF FUNC CAPITAL STOCK
THE DESCRIPTIVE INFORMATION SUPPLIED HEREIN OUTLINES CERTAIN PROVISIONS OF
THE FUNC ARTICLES, THE FUNC BYLAWS AND THE NCBCA. THE INFORMATION DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE
PROVISIONS OF THE FUNC ARTICLES, THE FUNC BYLAWS AND THE NCBCA.
AUTHORIZED CAPITAL
The authorized capital stock of FUNC consists of 750,000,000 shares of FUNC
Common Stock, 10,000,000 shares of Preferred Stock, no-par value per share
("FUNC Preferred Stock"), and 40,000,000 shares of FUNC Class A Preferred Stock,
no-par value per share ("FUNC Class A Preferred Stock"). As of September 30,
1997, there were 568,296,416 shares of FUNC Common Stock, no shares of FUNC
Preferred Stock and no shares of FUNC Class A Preferred Stock issued and
outstanding. In connection with the CoreStates acquisition, FUNC stockholders
will vote on a proposal to increase the authorized shares of FUNC Common Stock
from 750,000,000 to 2,000,000,000. See "RECENT DEVELOPMENTS -- Pending and
Recent FUNC Acquisitions; CORESTATES". 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 FUNC Board of Directors, subject to certain limitations, is
authorized to fix the number of shares, dividend rates, liquidation prices,
liquidation rights of holders, redemption, conversion and voting rights and
other terms of the series. Shares of FUNC Class A Preferred Stock and FUNC
Preferred Stock that are redeemed, repurchased or otherwise acquired by FUNC
have the status of authorized, unissued and undesignated shares of FUNC Class A
Preferred Stock and FUNC Preferred Stock, respectively, and may be reissued.
FUNC COMMON STOCK
Subject to the prior rights of the holders of any FUNC Preferred Stock and
any FUNC Class A Preferred Stock then outstanding, holders of FUNC Common Stock
are entitled to receive such dividends as may be declared by the FUNC 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".
Pursuant to an indenture dated as of November 27, 1996, between FUNC and
Wilmington Trust Company, as trustee, under which certain of FUNC's outstanding
junior subordinated debt securities have been issued, FUNC has covenanted that
it generally will not declare or pay any dividends or distributions on, or
redeem, repurchase, acquire or make a liquidation payment with respect to, any
of FUNC's capital stock, including FUNC Common Stock, FUNC Preferred Stock and
FUNC Class A Preferred Stock if, at such time, certain defaults have occurred
under such indenture or a related guarantee of FUNC or FUNC shall have exercised
its right under such indenture to defer interest payments on the securities
issued thereunder.
Subject to the rights of the holders of any FUNC Preferred Stock and any
FUNC Class A Preferred Stock then outstanding, all voting rights are vested in
the holders of the shares of FUNC Common Stock, each share being entitled to one
vote on all matters requiring stockholder action and in the election of
directors. Holders of FUNC Common Stock have no preemptive, subscription or
conversion rights. All of the outstanding shares of FUNC Common Stock are fully
paid and nonassessable, and the FUNC Common Shares issuable to the stockholders
of Wheat upon consummation of the Merger will, upon issuance, be fully paid and
nonassessable.
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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 be 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 to the terms of any particular series of FUNC
Class A Preferred Stock, each series of FUNC Class A Preferred Stock may vary as
to priority.
FUNC RIGHTS PLAN
Each outstanding share of FUNC Common Stock currently has attached to it
one right (an "FUNC Right") issued pursuant to a Shareholder Protection Rights
Agreement (as amended, the "FUNC Rights Agreement"). Accordingly, in the Merger,
holders of Wheat Common Stock and Wheat Preferred 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 Wheat
Common Stock and Wheat Preferred Stock would receive separate certificates with
respect to such FUNC Rights. Each FUNC Right entitles its registered holder to
purchase one one-hundredth of a share of a junior participating series of FUNC
Class A Preferred Stock designed to have economic and voting terms similar to
those of one share of FUNC Common Stock, for $105.00 (as adjusted to reflect the
FUNC Stock Split), 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 by FUNC
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-based 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 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
FUNC Board of Directors may, at its option, at any time after a Flip-in Date,
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 FUNC 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
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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 may be canceled and terminated without any payment to
holders thereof at any time prior to the date that they become exercisable and
are redeemable by FUNC at $.01 per FUNC Right, subject to adjustment upon the
occurrence of certain events, at any date between the date on which they become
exercisable and the Flip-In Date. 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 (or that acquires "control" of FUNC within
the meaning of the BHCA) unless the FUNC Rights are first redeemed or terminated
by the FUNC Board of Directors. 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, 1525 West W. T. Harris
Blvd., Charlotte, North Carolina 28288-1153.
OTHER PROVISIONS
The FUNC Articles and the FUNC Bylaws contain a number of provisions which
may be deemed to have the effect of discouraging or delaying attempts to gain
control of FUNC. These include provisions in the FUNC Articles: (i) classifying
the FUNC Board of Directors into three classes with each class to serve for
three years with one class being elected annually; (ii) authorizing the FUNC
Board of Directors to fix the size of the FUNC Board of Directors at between
nine and 30 directors; (iii) authorizing directors to fill vacancies on the FUNC
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 FUNC Board of Directors, the Chairman of the FUNC Board of Directors 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 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 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.
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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 ability of the FUNC
Board of Directors to issue authorized but theretofore unissued shares of FUNC
Common Stock, FUNC Class A Preferred Stock or FUNC Preferred Stock may have an
anti-takeover effect.
The existence of the foregoing provisions could (i) result in FUNC being
less attractive to a potential acquiror, or (ii) result in FUNC stockholders
receiving less for their shares of FUNC Common Stock than otherwise might be
available in the event of a takeover attempt.
CERTAIN DIFFERENCES IN THE RIGHTS OF WHEAT AND FUNC STOCKHOLDERS
GENERAL
FUNC is a North Carolina corporation subject to the provisions of the
NCBCA, and Wheat is a Virginia corporation subject to the provisions of the
VSCA. Stockholders of Wheat will, upon consummation of the Merger, become
stockholders of FUNC. The rights of such stockholders as stockholders of FUNC
will then be governed by the FUNC Articles and the FUNC Bylaws, in addition to
the NCBCA.
Set forth below are the material differences between the rights of a Wheat
stockholder under the VSCA, the Wheat Articles and the Wheat Bylaws, on the one
hand, and the rights of an FUNC stockholder under the NCBCA, the FUNC Articles
and the FUNC Bylaws, 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
WHEAT. Wheat's authorized capital is set forth under "WHEAT -- Description
of Wheat Capital Stock; GENERAL".
FUNC. FUNC's authorized capital is set forth under "DESCRIPTION OF FUNC
CAPITAL STOCK -- Authorized Capital".
AMENDMENT TO ARTICLES OF INCORPORATION OR BYLAWS
WHEAT. Except for certain minor amendments specified in the VSCA, any
proposed amendment to the Wheat Articles must receive approval from both the
Wheat Board and the stockholders. The Wheat Board may propose an amendment to
the Wheat Articles for submission to the stockholders. For the amendment to be
adopted, the Wheat Board must recommend the amendment to the stockholders,
unless it determines that it should not make a recommendation because of a
conflict of interest or other special circumstances. In accordance with the
VSCA, the Wheat Board may condition its submission of a proposed amendment on
any basis. The Wheat stockholders then must approve the amendment by more than
two-thirds of the votes entitled to be cast by each voting group. In certain
circumstances, a class or series of shares is entitled to vote as a separate
voting group on a proposed amendment. Either the Wheat Board or the stockholders
may amend the Wheat Bylaws. The Wheat stockholders may prescribe that any bylaw
made by them shall not be altered, amended or repealed by the Wheat Board.
FUNC. Under North Carolina law, an amendment to the FUNC Articles generally
requires the recommendation of the FUNC 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 FUNC Board of Directors may condition its submission of
the proposed amendment on any basis. An amendment to the FUNC Bylaws generally
requires the approval of either the stockholders or the FUNC Board of Directors.
The FUNC Board of Directors 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 the FUNC 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
WHEAT. The number of Wheat directors currently is determined by the Wheat
Board between annual meetings of the stockholders, but must always be at least
three. Under the VSCA, Wheat stockholders may adopt a bylaw fixing the number
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of directors and may direct that such bylaw may not be amended by the Wheat
Board. The number of directors of Wheat is currently set at 12.
FUNC. The size of the FUNC Board of Directors is determined by the
affirmative vote of a majority of the FUNC Board of Directors, provided that the
FUNC Board 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 29. See "RECENT DEVELOPMENTS -- Pending and Recent FUNC
Acquisitions". 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.
REMOVAL OF DIRECTORS
WHEAT. Any Wheat director may be removed, with or without cause, by the
vote of the holders of a majority of shares of the voting group who elected such
director, given either at a special meeting of such stockholders duly called for
such purpose or pursuant to a written consent of such stockholders. Any vacancy
in the Wheat Board created by such removal may be filled by the holders of the
shares of such voting group represented at such meeting or pursuant to such
written consent.
FUNC. Except for directors elected 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, 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
WHEAT. The Wheat Articles provide that, in any proceeding brought by or in
the right of Wheat or brought by or on behalf of the Wheat stockholders, no
Wheat director shall be liable to Wheat or its stockholders for monetary damages
with respect to any single transaction, occurrence or course of conduct. The
liability of any Wheat director, however, may not be limited if the director
engaged in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law.
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
WHEAT. The VSCA provides that transactions between a corporation and a
director in which the director has a direct or indirect personal interest is not
voidable by the corporation solely because of the director's interest in the
transaction if: (i) the material facts of the transaction and the director's
interest were disclosed or known to the board of directors (or a committee
thereof) and the board (or such committee) authorized, approved or ratified the
transaction, (ii) the material facts of the transaction and the director's
interest were disclosed to the stockholders entitled to vote and they
authorized, approved or ratified the transaction, or (iii) the transaction was
fair to the corporation. For purposes of clause (i) above, a conflict of
interest transaction is authorized, approved or ratified if it receives the
affirmative vote of the majority of directors (or committee members), who have
no direct or indirect personal interest in the transaction. The presence of, or
a vote cast by, a director with a direct or indirect personal interest does not
affect the validity of any action taken under clause (i) above if the
transaction is otherwise authorized, approved or ratified pursuant to that
clause.
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.
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STOCKHOLDER MEETINGS
WHEAT. A meeting of the Wheat stockholders must be held if it is called by
(i) the President, (ii) by a majority of directors, or (iii) by the holders of
at least one-tenth of the outstanding number of shares of Wheat capital stock
entitled to vote. A quorum for a meeting of Wheat stockholders is a majority of
the outstanding shares of Wheat capital stock entitled to vote. Except as set
forth under " -- Required Stockholder Vote for Certain Actions; WHEAT", the
Wheat Articles provide that a majority of votes cast generally is required for
any action by the stockholders of Wheat.
FUNC. A special meeting of stockholders may be called for any purpose only
by the FUNC Board of Directors, the Chairman of the FUNC Board of Directors or
the President (except for special meetings called under specified circumstances
for holders of any class or series of stock having a preference over 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 in 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
WHEAT. Neither the VSCA nor the Wheat Bylaws establish procedures for
stockholders to nominate persons for election to the Wheat Board.
FUNC. The FUNC Bylaws establish procedures that must be followed for
stockholders to nominate persons for election to the FUNC Board of Directors.
Such nominations must be made by delivering written notice to the Secretary of
FUNC not less than 60 or more than 90 days prior to the annual meeting at which
directors will be elected; provided, however, that if less than 70 days' notice
of the date of the meeting is given, such written notice by the stockholder must
be so delivered not later than the tenth day after the day on which such notice
of the date of the meeting was given. Notice will be deemed to have been given
more than 70 days prior to the meeting if the meeting is called on the third
Tuesday of April regardless as to when public disclosure is made. The nomination
notice must set forth certain information about the person to be nominated
similar to that required to be disclosed in the solicitation of proxies for
election of directors pursuant to Items 7(a) and 7(b) of Regulation 14A under
the Exchange Act and such person's written consent to being nominated and to
serving as a director if elected. The nomination notice must also set forth
certain information about the person submitting the notice, including the name
and address of the stockholder and the class and number of shares of FUNC Common
Stock owned of record or beneficially by such stockholder. The Chairman of the
meeting will, if the facts warrant, determine that a nomination was not made in
accordance with the provisions prescribed by the FUNC Bylaws, and the defective
nomination will be disregarded. The foregoing procedures do not apply to any
director who is nominated under specified circumstances by holders of any class
or series of stock having a preference over FUNC Common Stock as to dividends or
upon liquidation.
STOCKHOLDER PROPOSALS
WHEAT. Neither the VSCA nor the Wheat Bylaws establish procedures for
submission of stockholder proposals.
FUNC. The FUNC 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 FUNC Bylaws, and the defective
proposal will not be submitted at the meeting for a vote of the stockholders.
STOCKHOLDER PROTECTION RIGHTS PLANS
WHEAT. Wheat has not adopted a stockholder rights plan.
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FUNC. FUNC has adopted the FUNC Rights Agreement. See "DESCRIPTION OF FUNC
CAPITAL STOCK -- FUNC Rights Plan".
STOCKHOLDER INSPECTION RIGHTS; STOCKHOLDER LISTS
WHEAT. The VSCA requires a Virginia corporation to allow any stockholder to
inspect and copy, after at least five business days notice to the corporation,
the following records: (i) current articles of incorporation and bylaws, (ii)
any board of directors resolutions creating any outstanding class or series of
shares, (iii) minutes and written unanimous consents of stockholders for the
past three years, (iv) written communications to stockholders for the past three
years, (v) names and addresses of current directors and officers, and (vi) the
most recent annual report to the State Corporation Commission. Under the VSCA, a
stockholder of a Virginia corporation is entitled to inspect and copy certain
other books and records of the corporation, including a list of stockholders, if
(i) the stockholder has been a stockholder of record for at least six months
immediately preceding his or her written demand or is the holder of at least
five percent of the corporation's outstanding shares, (ii) the stockholder's
demand is made in good faith and for a proper purpose, (iii) the stockholder
describes with reasonable particularity the purpose of the request and the
records desired to be inspected, and (iv) the records are directly connected
with the stated purpose, and the stockholder gives the corporation written
notice of his or her demand at least five business days before the date he or
she wishes to inspect or copy. The VSCA also provides that a corporation shall
make available for inspection by any stockholder during usual business hours, at
least ten days before each meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, provided that such stockholder
meets the requirements of the preceding sentence if the corporation has
securities registered under the Exchange Act.
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 or she 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 or her agent or attorney upon written demand at his or her
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 or
her agent or attorney, may inspect such list at any time during the meeting or
any adjournment thereof.
REQUIRED STOCKHOLDER VOTE FOR CERTAIN ACTIONS
WHEAT. The Wheat Articles require the approval of the holders of more than
two-thirds of all the votes entitled to be cast thereon by each voting group
entitled to vote, on any amendment to the Wheat Articles, plan of merger, plan
of share exchange, sale or other disposition of substantially all of the assets
of a corporation not in the ordinary course of business or dissolution. The
Wheat Articles also provide that directors shall be elected by a plurality of
the votes cast by the holders of shares entitled to vote in an election at a
meeting at which a quorum is present. The VSCA specifies additional voting
requirements for Affiliated Transactions (as hereinafter defined) and
transactions that would cause an acquiring person's voting power to meet or
exceed specified thresholds, as discussed below.
The VSCA contains provisions governing "Affiliated Transactions". These
provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any holder
of more than ten percent of any class of its outstanding voting shares (an
"Interested Shareholder") by the holders of at least two-thirds of the remaining
voting shares. Affiliated Transactions subject to the approval requirement
include mergers, share exchanges, dispositions of corporate assets with a value
in excess of five percent of the corporation's net worth, any guaranty of
indebtedness in excess of five percent of the corporation's net worth,
disposition of voting shares with an aggregate value in excess of five
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percent of the aggregate value of all outstanding shares, any dissolution of the
corporation proposed by or on behalf of an Interested Shareholder, or any
reclassification of securities, including reverse stock splits, recapitalization
or merger of the corporation with its subsidiaries which increases the
percentage of voting shares owned beneficially by an Interested Shareholder by
more than five percent.
For three years following the time that an Interested Shareholder becomes
an owner of ten percent of the outstanding voting shares, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Shareholder
without approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Shareholder, and majority approval of the
"Disinterested Directors". A Disinterested Director means, with respect to a
particular Interested Shareholder, a member of a corporation's board of
directors who was (i) a member on the date on which an Interested Shareholder
became an Interested Shareholder, and (ii) recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the board.
After the three-year moratorium has expired, an Interested Shareholder may
engage in an Affiliated Transaction with the corporation, but only if it is
approved by a majority of the Disinterested Directors or by two-thirds of the
disinterested stockholders or unless it complies with certain statutory fair
price provisions. The statutory fair price exception is designed to permit an
Interested Shareholder to effect an affiliated transaction even if he is unable
to obtain the approval of a majority of Disinterested Directors or more than
two-thirds of the disinterested shares so long as all stockholders of the
corporation receive a "fair price" for their shares.
To qualify for this exception, in the Affiliated Transaction the holders of
all voting shares must receive consideration in the transaction and the per
share consideration for each class or series of shares must at least equal the
highest of the following: (i) the highest price paid by the Interested
Shareholder for shares during the two-year period prior to the date on which the
stockholder became an Interested Shareholder or, if higher, in the transaction
in which he became an Interested Shareholder, plus interest net of any cash
dividends paid; (ii) the fair market value of the shares plus interest net of
any cash dividends; (iii) if applicable, the price determined pursuant to clause
(ii) multiplied by the ratio of the highest price that the Interested
Shareholder paid for any shares during the two-year period prior to the date he
became an Interested Shareholder to the fair market value of such shares on the
first day in such two-year period in which he acquired any of the shares; or
(iv) if applicable, the highest preferential amount to which the shares are
entitled upon any voluntary or involuntary dissolution of the corporation.
None of the foregoing limitations and special voting requirements applies
to a transaction, such as the Merger, with an Interested Shareholder whose
acquisition of shares making such person an Interested Shareholder was approved
in advance by a majority of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of the
holders of a majority of the voting shares other than shares owned by any
Interested Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. Wheat has not "opted out" of (i.e., elected
not to be governed by) the Affiliated Transactions provisions.
Whereas the purpose of the Affiliated Transactions statute is to protect
minority stockholders from self-dealing transactions by a controlling
stockholder after that stockholder has acquired a potentially controlling
position, Virginia's Control Share Acquisition statute is designed to give a
prior approval right when a person or entity seeks to acquire a sufficient
number of shares so as to be in potential or actual control of the corporation.
This statute applies to any proposed acquisition by an acquiring person of
shares entitled to vote generally in the election of directors within any one of
the following ranges of percentage ownership: 20 percent to 33 1/3 percent,
33 1/3 percent to 50 percent and 50 percent or more. When shares are acquired
within any of these ranges, the acquiring stockholder automatically loses the
right to vote any shares within the range, as well as any shares acquired within
90 days before crossing the threshold and any shares acquired pursuant to a plan
to make a control shares acquisition (the "Control Shares"), unless a majority
of the "disinterested shares" vote to grant him voting rights.
The acquiring stockholder can request a special meeting of the stockholders
to consider granting rights to shares that he owns or proposes to acquire. The
special meeting must be held no later than 50 days from the date of the request,
and the acquiring stockholder must provide the stockholders with a disclosure
statement detailing his plans for the corporation. If authorized in the
corporation's articles of incorporation or bylaws before a control share
acquisition has occurred, the Control Shares that the stockholders have failed
to grant voting rights may be redeemed by the corporation at a per share
redemption price equal to the average per share price paid by the acquiring
person for such shares. If the Control Shares are accorded full
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voting rights and the acquiring person thereby is entitled to cast a majority of
votes that could be cast in an election of directors, all stockholders of the
corporation other than the acquiring person have the right to dissent from the
granting of voting rights and to demand payment of "fair value" for their
shares.
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 FUNC Board of Directors, which 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 FUNC 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 FUNC 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 FUNC 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
WHEAT. For a description of certain provisions of the VSCA which may be
deemed to have an anti-takeover effect and are applicable to Wheat as a Virginia
corporation, see " -- Required Stockholder Vote for Certain Actions; WHEAT".
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
WHEAT. Article 15 of the VSCA provides stockholders of a Virginia
corporation the right to dissent from and obtain payment of the fair value of
their shares in the event of mergers, consolidations and certain other corporate
transactions. However, Article 15 of the VSCA, also provides that stockholders
of a Virginia corporation with shares listed on a national securities exchange
or with at least 2,000 record stockholders are not entitled to dissenters'
rights unless certain requirements are met. Because Wheat does not have more
than 2,000 record stockholders, holders of Wheat Common Stock and Wheat
Preferred Stock have dissenters' rights in connection with the Merger. See "THE
MERGER -- Dissenters' Rights" and ANNEX C.
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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 that the articles of
incorporation, bylaws or a resolution of the board of directors entitle
stockholders to dissent.
DIVIDENDS AND OTHER DISTRIBUTIONS
WHEAT. The VSCA generally provides that a corporation may make
distributions to its stockholders unless, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. These requirements are applicable to Wheat as a Virginia
corporation.
FUNC. Under North Carolina law, FUNC generally may make dividends or 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
WHEAT. The VSCA and the Wheat Articles provide that the Wheat Board may
propose dissolution for submission to stockholders and that to be authorized,
dissolution must be recommended by the Wheat Board to the stockholders and
approved by the holders of more than two-thirds of all votes entitled to be cast
by each voting group on the proposal.
FUNC. North Carolina law provides that FUNC may be dissolved if the FUNC
Board of Directors proposes dissolution and a majority of the shares of FUNC
entitled to vote thereon approves. In accordance with North Carolina law, the
FUNC Board of Directors 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 Wheat Common Stock and Wheat Preferred Stock (including
beneficial owners) who receive such shares following consummation of the Merger
and who are not deemed to be "affiliates" (as defined under the Securities Act)
of Wheat or FUNC. Wheat has agreed to use its reasonable best efforts to cause
each holder of Wheat Common Stock and Wheat Preferred Stock (including any
beneficial owner) who is deemed by Wheat to be an affiliate to enter into an
agreement with FUNC providing, among other things, that such affiliate will not
transfer any FUNC Common Shares received by such affiliate in the 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 Wheat.
In addition to the foregoing, the "affiliates" of Wheat and FUNC, subject
to certain limited exceptions, may not sell or otherwise dispose of any FUNC
Common Stock, Wheat Common Stock or Wheat Preferred Stock beneficially owned by
them during a period commencing 30 days prior to the Effective Date and ending
upon publication by FUNC of combined financial statements covering at least 30
days of the combined entities' operations after the Merger.
VALIDITY OF FUNC COMMON SHARES
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.
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EXPERTS
The consolidated statements of financial condition of Wheat as of March 31,
1997 and 1996 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 March 31, 1997, have been included herein in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheets of FUNC as of December 31, 1996 and 1995,
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, 1996, included in FUNC's 1996 Annual Report to Stockholders which
is incorporated by reference in FUNC's 1996 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 consolidated financial statements of CoreStates at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
included in FUNC's Current Report on Form 8-K dated November 28, 1997 and
incorporated by reference herein have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing in FUNC's
Current Report on Form 8-K dated November 28, 1997, and are incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated balance sheet of Meridian Bancorp, Inc. and subsidiaries
as of December 31, 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1995, included in FUNC's Current Report on
Form 8-K dated November 28, 1997, 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. Such financial statements were combined with those of CoreStates for
such periods.
The consolidated balance sheet of United Counties Bancorporation and
subsidiaries as of December 31, 1995, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the two-year period ended December 31, 1995, included in FUNC's Current Report
on Form 8-K dated November 28, 1997 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. Such financial statements were combined with those of CoreStates for
such periods.
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ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 20th day of August, 1997 (as
amended and restated as of December 16, 1997, this "Plan"), by and among WHEAT
FIRST BUTCHER SINGER, INC. (the "Company"), FIRST UNION CORPORATION ("First
Union") and FIRST UNION VIRGINIA, INC. (the "FUNC Subsidiary").
RECITALS:
(A) THE COMPANY. The Company is a corporation duly organized and validly
existing in good standing under the laws of the Commonwealth of Virginia, with
its principal executive offices located in Richmond, Virginia. As of the date
hereof, the Company has 19,000,000 authorized shares of common stock, each of
$2.00 par value ("Company Common Stock"), 1,000,000 authorized shares of
preferred stock, each of no par value ("Company Preferred Stock") and 500,000
authorized shares of non-voting common stock, each of $2.00 par value ("Company
Non-Voting Common Stock") (no other class of capital stock being authorized), of
which 8,636,798 shares of Company Common Stock, 184,750 shares of Company
Preferred Stock and no shares of Company Non-Voting Common Stock are issued and
outstanding.
(B) FIRST UNION. First Union is a corporation duly organized and validly
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 561,374,603 shares of First Union Common Stock, no shares
of First Union Class A Preferred Stock, and no shares of First Union Preferred
Stock, were issued and outstanding as of July 31, 1997. The FUNC Subsidiary is a
wholly-owned subsidiary of FUNC and was organized by FUNC solely as a vehicle to
effect the Merger (as hereinafter defined).
(C) RIGHTS, ETC. Except as Previously Disclosed (as hereinafter defined),
there are no shares of capital stock of the Company authorized and reserved for
issuance, the Company has no Rights (as hereinafter defined) issued or
outstanding and the Company has no commitment to authorize, issue or sell any
such shares or any Rights, except pursuant to this Plan. There are no preemptive
rights in respect of the Company Common Stock.
(D) APPROVALS. The Board of Directors of each of the Company, the FUNC
Subsidiary and First Union has approved, at meetings of each of such Boards of
Directors, this Plan and has authorized the execution hereof in counterparts.
First Union has approved the Plan in its capacity as sole shareholder of the
FUNC Subsidiary.
(E) INTENTION OF THE PARTIES. It is the intention of the parties that (1)
the transactions contemplated hereby shall qualify as a "pooling of interests"
under generally accepted accounting principles and (2) the Merger (as
hereinafter defined) shall qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
(F) EMPLOYMENT AGREEMENTS. In connection with the transactions contemplated
hereby, certain employees of the Company identified on ANNEX A hereto have
entered into employment agreements with First Union in substantially the form of
ANNEX B hereto.
(G) VOTING AGREEMENTS. As a condition and inducement to First Union's
willingness to enter into this Plan, certain individuals have entered into an
agreement with First Union in the form attached hereto as EXHIBIT A (the "Voting
Agreement"), pursuant to which such individuals have agreed to vote all shares
of capital stock owned or acquired by them in favor of approval of the
transactions contemplated by this Plan at the Meeting (as hereinafter defined).
(H) RETENTION PROGRAM. First Union and the Company have agreed, in
connection with the transactions contemplated hereby, to establish a retention
program on substantially the terms described herein, the purposes of which is to
retain the services of certain employees of the Company following the
consummation of the transactions contemplated hereby.
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:
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I. THE MERGER.
1.01. THE MERGER. On the Effective Date:
(A) THE CONTINUING CORPORATION. The FUNC Subsidiary shall merge with
and into the Company (the "Merger"), the separate existence of the FUNC
Subsidiary shall cease and the Company (the "Continuing Corporation") shall
survive as a wholly-owned subsidiary of FUNC and the name of the Continuing
Corporation shall be "Wheat First Butcher Singer, Inc."
(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 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; BYLAWS; DIRECTORS; OFFICERS. The
Articles of Incorporation and Bylaws of the Continuing Corporation shall be
those of the Company, as in effect immediately prior to the Merger becoming
effective. The directors and officers of the FUNC Subsidiary in office
immediately prior to the Merger becoming effective shall be the directors
and officers of the Continuing Corporation, together with such additional
directors and officers as may thereafter be elected, who shall hold office
until such time as their successors are elected and qualified.
1.02. EFFECTIVE DATE. Subject to the conditions to the obligations of the
parties to effect the Merger as set forth in ARTICLE VI, the effective date (the
"Effective Date") of the Merger shall be such date as the parties hereto
mutually agree upon; provided, however, that if the parties are not able to
agree upon such date, such date shall be the date as First Union shall notify
the Company in writing not less than five days prior thereto, which date shall
not be more than 15 days after such conditions have been satisfied or waived in
writing. Prior to the Effective Date, the FUNC Subsidiary and the Company shall
execute and deliver to the Clerk of the State Corporation Commission of the
Commonwealth of Virginia, Articles of Merger, in accordance with applicable law
specifying the time at which the Merger shall become effective. The time on the
Effective Date at which the Merger becomes effective is referred to as the
"Effective Time".
1.03. INTEGRATION OF LEGAL ENTITIES. The parties hereto currently intend to
effectuate, or cause to be effectuated, no earlier than the day following the
Effective Time, the combination of (the "Subsidiary Combination") Wheat, First
Securities, Inc., a Virginia corporation and a wholly owned subsidiary of the
Company ("Wheat Securities"), with First Union Capital Markets Corp., a North
Carolina corporation and a wholly owned subsidiary of First Union. The parties
hereto shall cooperate and take all requisite actions, including, without
limitation, executing all requisite documentation, prior to or following the
Effective Time to consummate the Subsidiary Combination. The parties also agree
to cooperate and take all requisite additional action prior to or following the
Effective Time to merge or otherwise consolidate legal entities to the extent
desirable for regulatory or other reasons.
II. CONSIDERATION.
2.01. MERGER CONSIDERATION. Subject to the provisions of this Plan, at the
Effective Time:
(A) OUTSTANDING FUNC SUBSIDIARY COMMON STOCK. The shares of FUNC
Subsidiary common stock issued and outstanding immediately prior to the
Effective Date shall by virtue for the Merger, become and be converted into
one share of Company Common Stock, which shall be owned by First Union.
(B) OUTSTANDING COMPANY COMMON STOCK AND COMPANY PREFERRED STOCK. Each
share (excluding (i) shares ("Dissenter's Shares") of Company Common Stock
and Company Preferred Stock held by holders who take all of the steps
required to be taken in order to entitle such holders to be paid in
accordance with Sections 13.1-730 through 13.1-741 of the VSCA (as
hereinafter defined) 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 and Company
Preferred Stock issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger, automatically and without any action
on the part of the holder thereof, become and be converted into the right
to receive the number of shares of First Union Common Stock (the "Exchange
Ratio"), subject to possible adjustment as set forth in SECTION 2.05, equal
to (i) 10,267,029 divided by (ii) the number of
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shares of Company Common Stock and Company Preferred Stock issued and
outstanding immediately prior to the Effective Time (the "Outstanding Share
Number").
2.02. STOCKHOLDER RIGHTS; STOCK TRANSFERS. At the Effective Time, holders
of Company Common Stock or Company Preferred 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 or
Company Preferred 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 Merger;
instead, First Union shall pay to each holder of Company Common Stock or Company
Preferred Stock who would otherwise be entitled to a fractional share an amount
in cash determined by multiplying such fraction by the last sale price of First
Union Common Stock on the last trading day prior to the Effective Date as
reported by the New York Stock Exchange, Inc. ("NYSE") Composite Transactions
tape (as reported in THE WALL STREET JOURNAL).
2.04. EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, First Union will send or cause to be sent to each former stockholder of
the Company of record immediately prior to the Effective Time (including holders
of shares of beneficial interest ("Trust Shares"), the Wheat First Butcher
Singer Grantor Trust (the "Grantor Trust"), which is the owner of record of
Company Preferred Stock, in the event the Grantor Trust is liquidated as of the
Effective Time), transmittal materials for use in effecting the exchange of such
holder's Company Common Stock and Company Preferred Stock (or Trust Shares if
the Grantor Trust is liquidated as of the Effective Time) 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
and/or Company Preferred Stock (or Trust Shares if the Grantor Trust is
liquidated as of the Effective Time) are converted on the Effective Date; any
fractional share check which such stockholder shall be entitled to receive; and
with respect to such stockholders as to which (i) below applies, 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 (i) delivery to
First Union National Bank (the "Exchange Agent") of the certificates
representing all of such shares of Company Common Stock and Company Preferred
Stock (or Trust Shares if the Grantor Trust is liquidated as of the Effective
Time) if such shares are in certificated form and (ii) the payment in full by
such stockholder of any outstanding amounts owed to the Company relating to the
purchase of such stockholder's shares of Company Common Stock and/or Company
Preferred Stock or owed to the Company or to the Grantor Trust relating to the
purchase of such stockholder's Trust Shares, as applicable. No interest will be
paid on any fractional share check or dividends to which the holder of such
shares shall be entitled to receive upon such delivery. Shares to be exchanged
by any person constituting an Affiliate (as hereinafter defined) of the Company
shall not be physically 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 or the third anniversary of the Effective Date, as the case may
be, 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; DISSENTER'S SHARES. Each of the Excluded Shares
shall be canceled and retired at the Effective Time, and no consideration shall
be issued in exchange therefor. Dissenter's Shares shall be purchased and paid
for in accordance with Section 13.1-737 of the VSCA. If requested by First
Union, prior to the Effective Time, the Company will establish an escrow to pay
for such Dissenter's 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 (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
(A) alter or change the amount or kind of consideration to be issued to holders
of Company Common Stock or Company Preferred Stock as provided for in this Plan,
(B) adversely affect the intended tax-free treatment to the Company's
stockholders as a result of receiving such consideration, or (C) 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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III. ACTIONS PENDING CONSUMMATION.
3.01. FOREBEARANCES OF THE COMPANY. From the date hereof until the
Effective Time, except as expressly contemplated by this Plan or as Previously
Disclosed, without the prior written consent of First Union, which consent shall
not be unreasonably withheld, the Company will not, and will cause each of its
Subsidiaries not to:
(A) ORDINARY COURSE. Conduct the business of the Company and the Company
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and assets
and maintain their rights, franchises and existing relations with clients,
customers, suppliers, employees and business associates, or take any action
reasonably likely to have an adverse affect upon the Company's ability to
perform any of its material obligations under this Plan.
(B) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed and
outstanding on the date hereof, (i) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of capital
stock of the Company or any Rights, (ii) enter into any agreement with respect
to the foregoing, or (iii) permit any additional shares of capital stock of the
Company to become subject to new grants of employee or director stock options,
other Rights or similar stock-based employee rights.
(C) DIVIDENDS, ETC. (a) Make, declare, pay or set aside for payment any
dividend (other than dividends from wholly owned Company Subsidiaries to the
Company or another wholly owned Company Subsidiary) on or in respect of, or
declare or make any distribution on, any shares of capital stock of the Company
or (b) directly or indirectly adjust, split, combine, redeem, reclassify,
purchase or otherwise acquire, any shares of its capital stock.
(D) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into, amend, modify or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of the Company or any
Company Subsidiary, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are required
by applicable law, (iii) to satisfy Previously Disclosed contractual obligations
existing as of the date hereof, or (iv) for employment arrangements for, or
grants of awards to newly hired employees in the ordinary course of business
consistent with past practice.
(E) BENEFIT PLANS. Enter into, establish, adopt or amend (except (i) as may
be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) 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 (or similar
arrangement) related thereto, in respect of any director, officer or employee of
the Company or any of the Company Subsidiaries, or take any action to accelerate
the vesting or exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder.
(F) DISPOSITIONS. Except (i) as Previously Disclosed or (ii) sales of
securities or other investments or assets in the ordinary course of business
consistent with past practice, sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, business or properties.
(G) ACQUISITIONS. Except (i) as Previously Disclosed or (ii) the purchase
of securities or other investments or assets in the ordinary course of business
consistent with past practice, acquire any assets, business, or properties of
any other entity.
(H) GOVERNING DOCUMENTS. Amend the Company's Articles of Incorporation,
by-laws or the articles of incorporation or by-laws (or similar governing
documents) of any of the Company Subsidiaries.
(I) ACCOUNTING METHODS. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(J) CONTRACTS. Except in the ordinary course of business consistent with
past practice, enter into or terminate any material contract or amend or modify
in any material respect any of its existing material contracts.
(K) CLAIMS. Settle any claim, action or proceeding, except for any claim,
action or proceeding involving solely money damages in an amount, individually
and in the aggregate for all such settlements, not more than $250,000 and which
is not reasonably likely to establish an adverse precedent or basis for
subsequent settlements.
(L) ADVERSE ACTIONS. (a) Take any action reasonably likely to prevent or
impede the Merger from qualifying (i) for pooling of interests accounting
treatment or (ii) as a reorganization within the meaning of Section 368(a) of
the Code; or (b) knowingly take any action that is intended or is reasonably
likely to result in (i) any of its representations and warranties set
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forth in this Plan being or becoming untrue in any material respect at any time
at or prior to the Effective Time, (ii) any of the conditions to the Merger set
forth in ARTICLE VII not being satisfied or (iii) a material violation of any
provision of this Plan except, in each case, as may be required by applicable
law or regulation.
(M) INDEBTEDNESS. Incur any indebtedness for borrowed money other than in
the ordinary course of business.
(N) FUND ACTION. Except as and to the extent required, based upon the
written advice of counsel, in the exercise of the fiduciary obligations of the
Company or a Company Subsidiary to any Investment Company (as hereinafter
defined), request that any action be taken by any Fund Board (as hereinafter
defined), other than (i) routine actions that would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on the Company
or any Investment Company or (ii) actions Previously Disclosed.
(O) COMMITMENTS. Agree, commit to or enter into any agreement to take any
of the actions referred to in SECTION 3.01(A) through (N).
3.02. FOREBEARANCES OF FIRST UNION. From the date hereof until the
Effective Time, except as expressly contemplated by this Plan, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, First Union will not, and will cause each of its Subsidiaries not to:
(A) EXTRAORDINARY DIVIDENDS. Make, declare, pay or set aside for payment
any extraordinary dividend; provided, however, the foregoing shall not apply to
increases in the quarterly dividend rate payable on First Union Common Stock in
the ordinary course of business consistent with past practices or the payment of
dividends on any preferred stock (now or hereafter outstanding) in accordance
with the terms thereof.
(B) ADVERSE ACTIONS. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling of interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368(a) of the Code; or (b) knowingly take any
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Plan being or becoming untrue
in any material respect at any time at or prior to the Effective Time, (ii) any
of the conditions to the Merger set forth in ARTICLE VI not being satisfied or
(iii) a material violation of any provision of this Plan except, in each case,
as may be required by applicable law or regulation.
IV. REPRESENTATIONS AND WARRANTIES.
4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to First Union as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with respect
to it are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. It is duly qualified to do
business and is in good standing in the States of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be duly
qualified, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect 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, except for such authorizations,
the absence of which, individually or in the aggregate, is not reasonably likely
to have a Material Adverse Effect on the Company. Wheat Securities is duly
registered, qualified to do business and in good standing as a broker-dealer
with the Securities and Exchange Commission (the "SEC"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD"),
the NYSE, the American Stock Exchange, Inc. (the "AMEX") and all applicable
securities and commodities exchanges.
(C) SHARES. The outstanding shares of Company Common Stock and Company
Preferred Stock are validly issued and outstanding, fully paid and
nonassessable, and are subject to no, and have not been issued in violation of
any, preemptive or similar rights. Except as Previously Disclosed, there are no
shares of capital stock or other equity securities of the Company outstanding
and no outstanding Rights with respect thereto.
(D) COMPANY SUBSIDIARIES. The Company has Previously Disclosed a list of
all the Company Subsidiaries, including the states in which such Company
Subsidiaries are organized, a brief description of such Company Subsidiaries'
principal activities, and if any of such Company Subsidiaries is not
wholly-owned by the Company or a Company Subsidiary, the percentage owned by the
Company or any Company Subsidiary and the names, addresses and percentage
ownership by any other individual or corporation, partnership, joint venture,
business trust, limited liability corporation or partnership, association or
other organization (each, a "Business Entity"). No equity securities of any of
the Company Subsidiaries are or may become
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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 to vote or to dispose of such
shares. All of the shares of capital stock of each Company Subsidiary are fully
paid and nonassessable and subject to no preemptive rights and, except as
Previously Disclosed, 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 each jurisdiction where its
ownership or leasing of property or the conduct of its business requires it to
be so qualified and in which the failure to be duly qualified is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
the Company. Except as Previously Disclosed, the Company does not own
beneficially, directly or indirectly, any equity securities or similar interests
of any Business Entity. The term "Company Subsidiary" means any Business Entity
in which the Company, directly or indirectly, owns or controls 50% or more of
any class of such entity's voting securities.
The Company has Previously Disclosed a list of all equity securities it or
a Company Subsidiary holds involving, in the aggregate, ownership or control of
5% or more of any class of the issuer's voting securities or 25% or more of the
issuer's equity (treating subordinated debt as equity). The Company has
Previously Disclosed a list of all partnerships, joint ventures or similar
entities, in which it owns or controls an interest, directly or indirectly.
(E) CORPORATE POWER. The Company 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. The
Company has Previously Disclosed a brief description of each line of business in
which the Company or any Company Subsidiary is engaged.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of approval by
its stockholders referred to in SECTION 6.01(A), this Plan has been authorized
by all necessary corporate action of the Company and is a valid and binding
agreement of the Company enforceable 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 the holders of at least
two-thirds of the outstanding shares of Company Common Stock and at least
two-thirds of the outstanding shares of Company Preferred Stock, the required
regulatory approvals Previously Disclosed, the Previously Disclosed required
filings under federal and state securities and insurance laws and the approvals
of the NYSE and any other applicable exchange of the Merger and the other
transactions contemplated hereby, the execution, delivery and performance of
this Plan and the consummation by the Company of the transactions contemplated
hereby, does not and will not (1) constitute a breach or violation of, or a
default under, or cause or allow the acceleration or creation of a Lien (with or
without the giving of notice, passage of time or both) pursuant to, any law,
rule or regulation or any judgment, decree, order, governmental or
non-governmental permit or license, or agreement, indenture or instrument of it
or of any of the Company Subsidiaries or to which the Company or any of the
Company Subsidiaries or its or their properties is subject or bound, which
breach, violation, default or Lien is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on the Company, (2) constitute a
breach or violation of, or a default under, its Articles of Incorporation,
Charter or Bylaws, or (3) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental or non-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) COMPANY REPORTS. Except as Previously Disclosed, the Company has timely
filed all material reports, registrations, statements and other filings,
together with any amendments required to be made with respect thereto, that were
required to be filed since December 31, 1993 with (1) the SEC and the
Commodities Futures Trading Commission (the "CFTC"), (2) any applicable federal,
state, local or foreign governmental authorities and (3) the NASD, the NYSE, the
AMEX, the Chicago Mercantile Exchange (the "CME"), the Chicago Board of Trade
(the "CBOT"), the Municipal Securities Rulemaking Board (the "MSRB") or any
non-governmental self-regulatory agency, commission or authority (a
"Self-Regulatory Body") (all such reports and statements, including the
financial statements, exhibits and schedules thereto, being collectively
referred to herein as the "Company Reports"), including without limitation, all
reports, registrations, statements and filings required under the Investment
Company Act of 1940 (together with the rules and regulations thereunder, the
"Investment Company Act"), the Investment Advisers Act of 1940 (together with
the rules and regulations thereunder, the "Investment Advisers Act"), the
Securities Exchange Act of 1934 (together with the rules and regulations
thereunder, the "Exchange Act"), the Securities Act of 1933 (together with the
rules and regulations thereunder, the "Securities Act") or any applicable state
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securities or "blue sky" laws. As of their respective dates (and without giving
effect to any amendments or modifications filed after the date of this Plan with
respect to Company Reports filed before the date of this Plan), each of the
Company Reports complied in all material respects with the statutes, rules,
regulations and orders enforced or promulgated by the Regulatory Authority with
which they were filed and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(I) FINANCIAL STATEMENTS
(1) The Company has delivered to First Union (a) copies of the audited
consolidated balance sheets and the related consolidated statements of
income, consolidated statements of changes in shareholder's equity and
consolidated statements of cash flows (including the related notes and
schedules thereto and reports of independent auditors) of the Company and
the Company Subsidiaries (the "Audited Reports") as of and for the fiscal
years ended March 31, 1997, and (b) copies of the reports of the Company
filed with the SEC (the "SEC Reports") pursuant to Section 17 of the
Exchange Act and Rule 17a-5 thereunder for the fiscal years ended March 31,
1997, and for the quarter ended June 30, 1997 (collectively and together
with all future Audited Reports and SEC Reports, the "Company Financial
Statements"). The Company shall promptly deliver to First Union, upon the
preparation thereof, copies of the Company Financial Statements prepared
subsequent to the date hereof.
(2) Except as Previously Disclosed, the Company Financial Statements
(as of the dates thereof and for the periods covered thereby) (a) are and
will be in accordance with the books and records of the Company in all
material respects, which books and records are complete and accurate in all
material respects, (b) did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading, and (c) each
of the balance sheets in or incorporated by reference into the Company
Financial Statements (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 Financial Statements (including any
related notes and schedules thereto) fairly presents and will fairly
present the results of operations, the changes in stockholders' equity and
subordinated debt and the changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein,
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, as to the Audited
Reports, and in accordance with regulatory accounting principles, as to the
SEC Reports, except in each case as may be noted therein, subject to normal
and recurring year-end audit adjustments in the case of unaudited
statements.
(J) ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Company
Financial Statements prior to the date hereof, none of the Company or the
Company Subsidiaries has any obligation or liability (contingent or otherwise),
including liabilities under Environmental Laws (as hereinafter defined), that,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on the Company.
(K) ABSENCE OF CERTAIN CHANGES. Since March 31, 1997, the business of the
Company and the Company Subsidiaries has been conducted in the ordinary and
usual course, consistent with past practice and there has not been:
(1) any event, occurrence, development or state of circumstances or
facts which has had or could reasonably be expected to constitute or result
in a Material Adverse Effect on the Company; or
(2) except as Previously Disclosed, any event, occurrence, development
or state of circumstances or facts which would result in a violation of the
covenants set forth in ARTICLE III of this Plan had such events,
occurrences, developments or state of circumstances or facts occurred after
the date hereof.
(L) PROPERTIES; SECURITIES. Except as specifically reserved against or
otherwise disclosed in the Company Financial Statements (including the related
notes and schedules thereto) and except for those properties and assets that
have been sold or otherwise disposed of in the ordinary course of business, and
except as Previously Disclosed, 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
Statements 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. The
Company and the Company Subsidiaries do not, directly or indirectly, control any
real property
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not used in the ordinary course of their business, except as Previously
Disclosed. All buildings and all 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. Each of the Company and the Company
Subsidiaries has good and marketable title to all securities held by it (except
securities sold under repurchase agreements or held in any fiduciary or agency
capacity), free and clear of any Lien, except to the extent such securities are
pledged in the ordinary course of business consistent with prudent business
practices to secure obligations of each of the Company or any of the Company
Subsidiaries. Such securities are valued on the books of the Company or the
Company Subsidiaries in accordance with generally accepted accounting
principles.
(M) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed, (1) no
litigation, proceeding or controversy ("Litigation") before any court,
arbitrator, mediator or Regulatory Authority (as hereinafter defined) is pending
against the Company or the Company Subsidiaries which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company, and, to the best of the Company's knowledge, no such Litigation has
been threatened; (2) neither the Company nor any of the Company Subsidiaries or
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any federal, state or municipal governmental agency or
authority or Self-Regulatory Body (the "Regulatory Authorities") charged with
the supervision or regulation of broker-dealers, securities underwriting or
trading, stock exchanges, commodities exchanges, investment companies,
investment advisers or insurance agents and brokers (including, without
limitation, the SEC, the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the CFTC, the NYSE, the NASD, the AMEX, the CME, the
CBOT and the Federal Trade Commission) or the supervision or regulation of the
Company or any of the Company Subsidiaries; and (3) neither the Company nor any
of the Company Subsidiaries has been advised by any such Regulatory Authority
that such Regulatory 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. Previously Disclosed is a true and complete list, as of the date
hereof, of all Litigation pending or threatened arising out of any state of
facts relating to the sale of investment products by the Company, the Company
Subsidiaries or any employees thereof (including, without limitation, equity or
debt securities, mutual funds, insurance contracts, annuities, partnership and
limited partnership interests, interests in real estate, investment banking
services, securities underwritings in which the Company or any Company
Subsidiary was a manager, co-manager, syndicate member or distributor,
Derivatives Contracts (as hereinafter defined) or structured notes).
(N) COMPLIANCE WITH LAWS. Except as Previously Disclosed, each of the
Company and the Company Subsidiaries and their respective officers and
employees:
(1) in the conduct of its business (including without limitation, its
municipal securities and NASDAQ market-making activities), is in compliance
with all applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, and the rules of
all Self-Regulatory Bodies applicable thereto;
(2) has all permits, licenses, authorizations, orders and approvals
of, and have made all filings, applications and registrations with, all
Regulatory Authorities that are required in order to permit them to own and
operate their businesses 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 its knowledge, no suspension or
cancellation of any of them is threatened or reasonably likely; and all
such filings, applications and registrations are current;
(3) has received no notification or communication from any Regulatory
Authority (a) asserting that any of them is not in compliance with any of
the statutes, rules, regulations, or ordinances which such Regulatory
Authority enforces, or has otherwise engaged in any unlawful business
practice 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, (b) threatening to revoke any license,
franchise, permit, seat on any stock or commodities exchange, or
governmental authorization which revocation, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company, (c) requiring any of them (including any of the Company's or the
Company Subsidiary's directors or controlling persons) to enter into a
cease and desist order, agreement, or memorandum of understanding (or
requiring the board of directors thereof to adopt any resolution or policy)
or (d) restricting or disqualifying the activities of the Company or any of
the Company Subsidiaries (except for restrictions generally imposed by
rule, regulation or administrative policy on broker-dealers generally);
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(4) is not aware of any pending or threatened investigation, review or
disciplinary proceedings by any Regulatory Authority against the Company,
any Company Subsidiary or any officer, director or employee thereof;
(5) each Investment Company has operated and is currently operating
(including, but not limited to, prospectuses and periodic reports to
shareholders) in compliance in all material respects with all laws, rules,
regulations and orders applicable to it or its business, including, but not
limited to, the Securities Act, the Exchange Act, the Investment Company
Act, applicable Self-Regulatory Bodies;
(6) neither the Company, nor any "affiliated person" (as defined in
the Investment Company Act) thereof, is ineligible pursuant to Section 9(a)
or 9(b) of the Investment Company Act to serve as an investment advisor (or
in any other capacity contemplated by the Investment Company Act) to an
Investment Company. Neither the Company, nor any "associated person" (as
defined in the Investment Advisors Act) thereof, is ineligible pursuant to
Section 203 of the Investment Advisors Act to serve as an investment
advisor or as an associated person to a registered investment advisor; and
(7) is not, nor is any Affiliate of any of them, subject to a
"statutory disability" as defined in Section 3(a)(39) of the Exchange Act.
(O) REGISTRATIONS. Except as Previously Disclosed, neither the Company nor
any of the Company Subsidiaries or Affiliates is subject to regulation under the
Investment Company Act or the Investment Advisors Act. The Company and the
Company Subsidiaries and each of their employees which are or who are required
to be registered as a broker/dealer, a registered representative, an insurance
agent or a sales person with the SEC, the securities commission of any state or
foreign jurisdiction or any Self-Regulatory Body are duly registered as such and
such registrations are in full force and effect, except for such instances of
noncompliance which, individually or in the aggregate, would not constitute a
Material Adverse Effect on the Company. All federal, state and foreign
registration requirements have been complied with in all material respects and
such registrations as currently filed, and all periodic reports required to be
filed with respect thereto, are accurate and complete in all material respects.
(P) MATERIAL CONTRACTS.
(1) Except as Previously Disclosed, 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 its respective assets, business, or
operations receives benefits (each, a "Contract"), 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. Neither the Company nor any Company Subsidiary is subject
to or bound by any exclusive dealing arrangement or other contract or
arrangement 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). True and complete copies of all such Contracts and all
amendments thereto have been supplied to First Union and a brief
description of the same is Previously Disclosed. There are no Contracts
between any Affiliate of the Company, on the one hand, and the Company or
any Company Subsidiary, on the other hand.
(2) CONTRACTS WITH CLIENTS.
(A) Each of the Company and the Company Subsidiaries is in
compliance with the terms of each Contract with any customer to whom the
Company or any Company Subsidiary provides services under any Contract
(a "Client"), and each such Contract is in full force and effect with
respect to the applicable Client.
(B) Except as Previously Disclosed, no Client is (i) an employee
benefit plan subject to Title I of ERISA (as hereinafter defined), or
Section 4975 of the Code, or (ii) an entity whose assets are treated as
assets of such a plan under ERISA or applicable regulations.
(C) Each extension of credit by the Company or any of the Company
Subsidiaries to any Client (i) is in full compliance with Regulation T
of the Federal Reserve Board or any substantially similar regulation of
any Regulatory Authority, (ii) is fully secured, and (iii) the Company
or a Company Subsidiary, as the case may be, has a first priority
perfected security interest in the collateral securing such extension.
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(Q) 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.
(R) EMPLOYEE BENEFIT PLANS.
(1) Previously Disclosed is 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 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 with respect to "TRA" (as defined
in Section 1 of Internal Revenue Service Revenue Procedure 93-39), 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
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.
(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 Previously
Disclosed. 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, neither the execution and delivery
of this Plan nor the consummation of the transactions contemplated hereby
will (a) 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, (b) increase any benefits otherwise payable under any
Compensation and Benefit Plan, (c) result in any acceleration
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of the time of payment or vesting of any such benefit, or (d) result in the
imposition to the recipient of any excise tax pursuant to Section 4999 of
the Code.
(S) NO KNOWLEDGE. It knows of no reason why the regulatory approvals
referred to in SECTION 6.01(B) should not be obtained without the imposition of
any condition of the type referred to in the proviso following such SECTION
6.01(B).
(T) LABOR RELATIONS. Each of the Company and the Company Subsidiaries is in
compliance with all currently applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation, the Immigration Reform and Control Act, the
Worker Adjustment and Retraining Notification Act, any such laws respecting
employment discrimination, disability rights or benefits, equal opportunity,
plant closure issues, affirmative action, workers' compensation, employee
benefits, severance payments, labor relations, employee leave issues, wage and
hour standards, occupational safety and health requirements and unemployment
insurance and related matters to the extent that non-compliance with any such
laws would not be reasonably likely to have a Material Adverse Effect on the
Company. None of the Company nor any of the Company Subsidiaries is engaged in
any unfair labor practice and there is no unfair labor practice complaint
pending or threatened against any of the Company or the Company Subsidiaries
before the National Labor Relations Board. 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 Company 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.
(U) INSURANCE. The Company and the Company Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the management of
the Company reasonably has determined to be prudent in accordance with industry
practices. All of the insurance policies, binders, or bonds maintained by the
Company or the Company Subsidiaries are in full force and effect; the Company
and the Company Subsidiaries are not in default thereunder; and all claims
thereunder have been filed in due and timely fashion. Previously Disclosed 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.
(V) AFFILIATES. Except as Previously Disclosed, there is no person who, as
of the date of this Plan, may be deemed to be an "affiliate" of the Company
(each, an "Affiliate") as that term is used in Rule 145 under the Securities
Act.
(W) STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. It has taken all
necessary action to exempt this Plan and the transactions contemplated hereby
from, and this Plan and the transactions contemplated hereby are exempt from,
(1) any applicable state takeover laws, including, without limitation, the
provisions of Sections 13.1-725 through 13.1-728 of the Virginia Stock
Corporation Act (the "VSCA"), (because a majority of the Company's disinterested
directors approved such transactions for such purposes prior to any
"determination date" with respect to First Union) and Sections 13.1-728.1
through 13.1-728.9 of the VSCA, (2) any applicable takeover provisions in the
Company's Articles of Incorporation or By-laws, and (3) any takeover provisions
set forth in any agreement to which the Company is a party or may be bound.
(X) NO FURTHER ACTION. It has taken all action so that the entering into of
this Plan, and the consummation of the transactions contemplated hereby
(including without limitation the Merger) or any other action or combination of
actions, or any other transactions, contemplated hereby do not and will not (1)
require a vote of stockholders (other than the affirmative vote of more than
two-thirds of the votes entitled to be cast by the holders of shares of Company
Common Stock and Company Preferred Stock, each voting as a separate class, on
this Plan or on any other actions necessary to facilitate the transactions
contemplated hereby), or (2) result in the grant of any rights to any person
under the Articles of Incorporation, Charter or Bylaws 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 (3) restrict or impair in any way the
ability of First Union to exercise the rights granted hereunder.
(Y) ENVIRONMENTAL MATTERS. The Company and the Company Subsidiaries have
obtained and maintained in effect all material licenses, permits and other
authorizations required under all applicable laws, regulations and other
requirements of governmental or regulatory authorities relating to pollution or
to the protection of the environment ("Environmental Laws") and is in compliance
in all material respects with all Environmental Laws and with all such licenses,
permits and authorizations. It has not received notice of liability to any
person, governmental entity or Business Entity under the Comprehensive
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Environmental Response, Compensation and Liability Act, 42 U.S.C. (section mark)
9601 et seq. or any other Environmental Laws with respect to real property owned
or leased by the Company or the Company Subsidiaries.
(Z) TAXES. Except as Previously Disclosed, (1) 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, and such Company Tax Returns were true, complete and
accurate in all material respects, (2) all taxes (which shall mean federal,
state, local or foreign income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise, franchise, employment,
premium, recording, documentary, documentary stamps, real estate transfer,
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 have been paid in full or have been adequately
reserved against on the books of the Company or the Company Subsidiaries, (3)
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, (4) all Taxes due with respect to completed
and settled examinations have been paid in full, (5) 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
Statements prior to the date of this Plan, (6) no waivers of statutes of
limitations have been given by or requested with respect to any Taxes of the
Company or the Company Subsidiaries, and (7) none of the Company, the Company
Subsidiaries, First Union or any direct or indirect subsidiary of First Union,
as a consequence of the Company's actions prior to the Effective Time, will be
obligated to make a payment to an individual that would be a "parachute payment"
as such term is defined in Section 280G of the Code without regard to whether
such payment is to be performed in the future.
(AA) ACCURACY OF INFORMATION. The statements with respect to the Company
and the Company Subsidiaries contained in this Plan, 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.
(BB) DERIVATIVES. All exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or any other similar
arrangement, whether entered into for the Company's account, or for the account
of one or more of the Company Subsidiaries or their customers, were entered into
(1) in accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (2) with counterparties believed
to be financially responsible at the time; and each of them constitutes the
valid and legally binding obligation of the Company or Company Subsidiary,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and are in full
force and effect. Neither the Company nor a Company Subsidiary, nor to the
Company's knowledge any other party thereto, is in breach of any of its
obligations under any such agreement or arrangement. The Company's Audited
Reports disclose the value of such agreements and arrangements on a
mark-to-market basis in accordance with generally accepted accounting principles
and, since March 31, 1997, there has not been a change in such value that,
individually or in the aggregate, has resulted in a Material Adverse Effect on
the Company.
(CC) 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 (1) all material transactions are executed in accordance with
management's general or specific authorization; (2) 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 broker-dealers or any other criteria applicable to such
statements, (3) 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 (4) the recorded accountability for items
is compared with the actual levels at reasonable intervals and appropriate
action is taken with respect to any differences.
(DD) PROPRIETARY RIGHTS. The Company and the Company Subsidiaries have the
right to use the names, service-marks, trademarks and other intellectual
property material to the conduct of their business, which have been Previously
Disclosed;
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and in the case of such names, service-marks and trademarks, in each state of
the United States, such right of use is free and clear of any Liens, and no
other person has the right to use such names, service-marks or trademarks in any
such state.
(EE) POOLING; REORGANIZATION. As of the date hereof, it is aware of no
reason why the Merger will fail to qualify (1) for pooling-of-interests
accounting treatment or (2) as a reorganization under Section 368(a) of the
Code.
(FF) INVESTMENT ADVISORY ACTIVITIES.
(1) Certain of the Company Subsidiaries provide investment management,
investment advisory, sub-advisory, administration, distribution or certain
other services to the Investment Companies, each of which has been
Previously Disclosed. Each of the Investment Companies (or the trust of
which it is a series) is duly organized and existing in good standing under
the laws of the jurisdiction under which it is organized as Previously
Disclosed. Each of the Investment Companies is governed by a board of
trustees or directors (each a "Fund Board" and, collectively, the "Fund
Boards") consisting of at least 50% of trustees or directors who are not
"interested persons" (as defined in the Investment Company Act) of the
Investment Companies or the Company. The Fund Boards operate in all
material respects in conformity with the requirements and restrictions of
Sections 10 and 16 of the Investment Company Act. The term "Investment
Company" shall have the meaning provided in the Investment Company Act.
(2) Each of the Investment Companies is in compliance in all material
respect with all applicable laws, rules and regulations of the SEC, the
NASD, the Internal Revenue Service, and any other Self-Regulatory Body
having jurisdiction over such Investment Company and of any state in which
such Investment Company is registered, qualified or sold. The Company has
provided to First Union true and complete copies of all the constituent
documents and related advisory agreements of all of the Investment
Companies managed by the Company or any Company Subsidiary.
(3) Except as Previously Disclosed, none of the Company or any Company
Subsidiary is or has been during the past five years an "investment
adviser" within the meaning of the Investment Advisers Act, required to be
registered, licensed or qualified as an investment advisor under the
Investment Advisers Act or subject to any material liability or disability
by reason of any failure to be so registered, licensed or qualified, except
for any such failure to be so registered, licensed or qualified that could
not, individually or in the aggregate, reasonably be likely to have a
Material Adverse Effect on the Company.
(4) Each Investment Company has been operated in compliance with its
respective objectives, policies and restrictions, including without
limitation, those set forth in the applicable prospectus and registration
statement for that Investment Company or governing instruments for a
Client, except where lack of compliance would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company. The Company and the Company Subsidiaries have in all material
respects operated each of its investment accounts in accordance with the
investment objectives and guidelines in effect for each such investment
account, except when lack of compliance would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on the
Company.
(5) Each Investment Company has duly adopted procedures pursuant to
Rules 17a-7, 17e-1 and 10f-3 under the Investment Company Act, to the
extent applicable.
(6) Neither the Company, any Company Subsidiary nor any Affiliate
thereof has been found to have engaged in any conduct of the types
described in Section 9(a) of the Investment Company Act as a result of
which a national bank would be disqualified from acting as investment
advisor to a registered investment company.
4.02. FIRST UNION REPRESENTATIONS AND WARRANTIES. First Union hereby
represents and warrants to the Company, as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with respect
to First Union and the FUNC Subsidiary are true and correct.
(B) CORPORATE AUTHORITY. Subject to the required regulatory approvals
referred to in SECTION 6.02, this Plan has been authorized by all necessary
corporate action of First Union and the FUNC Subsidiary and is a valid and
binding agreement of it enforceable against First Union and the FUNC Subsidiary
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 approval of the Federal Reserve
Board, and any required filings under federal and state securities' and
insurance laws, and the approvals of the NYSE and the other securities exchanges
referred to in SECTION 4.01(G), of the Merger and and the other transactions
contemplated hereby, the execution, delivery and performance
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of this Plan, and the consummation of the transactions contemplated hereby by
it, does not and will not (1) 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, (2) constitute a breach or violation of,
or a default under, its Articles of Incorporation, Charter or Bylaws, or (3)
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. Its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and all other documents filed or to be filed subsequent
to December 31, 1996, 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
June 30, 1997, 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 (1) the regulatory approvals
referred to in SECTION 6.01(B) should not be obtained without the imposition of
any condition of the type referred to in the proviso following such SECTION
6.01(B) and (2) the Merger would fail to qualify as a pooling of interests for
accounting purposes or as a reorganization under Section 368(a) of the Code.
(H) SHARES AUTHORIZED. The shares of First Union Common Stock to be issued
in exchange for shares of Company Common Stock and Company Preferred Stock upon
consummation of the Merger in accordance with ARTICLE II of this Plan, have been
duly authorized and, when issued in accordance with the terms of this Plan and
in the case of shares issued upon the exercise of such Options, the related
stock option plan, will be validly issued, fully paid and nonassessable and
subject to no preemptive rights.
(I) ORGANIZATION, STANDING AND AUTHORITY. First Union and the FUNC
Subsidiary each 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 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
contained in this Plan, the Schedules and any other written documents executed
and delivered by or on behalf of First Union 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 is a party to any Litigation before any court, arbitrator, mediator
or Regulatory Authority which, individually or in the aggregate, is reasonably
likely to have a
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Material Adverse Effect on First Union and, to the best of its knowledge, no
such Litigation 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.
The Company hereby covenants to First Union, and First Union hereby
covenants to the Company, as applicable, that:
5.01. EFFORTS. Subject to the terms and conditions of this Plan, 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 Merger on the Effective Date and to otherwise enable consummation of the
transactions contemplated hereby 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/REGISTRATION STATEMENT. The Company and First Union
shall prepare a proxy statement/prospectus (the "Proxy Statement") to be mailed
to the holders of Company Common Stock and Company Preferred Stock in connection
with the transactions contemplated hereby and to be filed by First Union in a
registration statement (the "Registration Statement") with the SEC (it being
understood that First Union shall use its reasonable best efforts to file the
Registration Statement or the preliminary Proxy Statement with the SEC within 30
days of the date hereof). The Company shall call a special meeting (the
"Meeting") of the holders of Company Common Stock and Company Preferred Stock to
be held as soon as practicable for purposes of voting upon the approval of this
Plan and the Company shall use its reasonable best efforts to solicit and obtain
votes of the holders of Company Common Stock and Company Preferred Stock in
favor of the approval of this Plan, and 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, (A) will comply in all material
respects with the provisions of the Securities Act and the Exchange Act and any
other applicable statutory or regulatory requirements, and (B) 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 (after providing drafts in advance to the Company and its counsel
for review and comment), 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. The Company will not, without the prior approval of
First Union (which approval shall not be unreasonably withheld or delayed), and
First Union will not, without the 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.
5.06. ACCESS; INFORMATION. (A) Upon reasonable notice, the Company shall
afford First Union and its officers, employees, counsel, accountants and other
authorized representatives, access, during normal business hours throughout the
period prior to the Effective Date, to all of its properties, books, contracts,
data processing system files, commitments and records and, during such period,
the Company shall furnish promptly to First Union (1) a copy of each material
report, schedule and
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other document filed by the Company and the Company Subsidiaries with any
Regulatory Authority, and (2) 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 conditions to the obligations of the Company
to consummate the transactions contemplated by this Plan; and (B) First Union
will not use any information obtained pursuant to this SECTION 5.06 for any
purpose unrelated to the consummation of the transactions contemplated by this
Plan and, if this Plan is terminated, will hold all information and documents
obtained pursuant to this paragraph in confidence (as provided in SECTION 8.06)
unless and until such time as such information or documents become publicly
available other than by reason of any action or failure to act by First Union or
as it is advised by counsel 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, it shall not, and
it shall cause the Company Subsidiaries not to, solicit or encourage inquiries
or proposals with respect to, or 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 taking any action that would violate or conflict with 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. BLUE-SKY FILINGS. In the case of First Union, it shall use its
reasonable 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.
5.09. STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. In the case of the
Company, it shall not take any action that would cause the transactions
contemplated by this Plan 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 from (A) any
applicable state takeover law, as now or hereafter in effect, including, without
limitation, Sections 13.1-725 through 13.1-728 of the VSCA, (B) any applicable
takeover provisions in the Company's Articles of Incorporation or By-laws, and
(C) any takeover provisions set forth in any agreement to which the Company is a
party or may be bound.
5.10. AFFILIATE AGREEMENTS. In the case of the Company, it will cause each
person who may be deemed to be an Affiliate of the Company 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
Affiliate in exchange for such Affiliate's shares of Company Common Stock and/or
Company Preferred Stock.
5.11. REDEMPTION AGREEMENTS. The Company will enforce its rights under each
Stock Redemption Agreement entered into by the Company with the stockholders of
the Company and, to the extent consistent with pooling of interests accounting,
shall exercise its rights to redeem any and all shares of stock to the extent it
is entitled thereunder.
5.12. SHARES LISTED. In the case of First Union, it shall use its
reasonable 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 Company Preferred Stock, pursuant to
this Plan.
5.13. REGULATORY APPLICATIONS. In the case of First Union, subject to the
cooperation of the Company, (A) it shall use its reasonable best efforts to
prepare and submit applications to the appropriate Regulatory Authorities for
approval of the Merger within 30 days of the date hereof, and (B) promptly make
all other appropriate filings to secure all other approvals, consents and
rulings which are necessary for the consummation of the Merger by First Union.
First Union will provide copies of such applications and responses to the
Company and its counsel prior to submitting such applications and responses to
the applicable Regulatory Authorities. In the case of the Company, it agrees,
upon request, to furnish First Union with information concerning itself, the
Company Subsidiaries, its and their directors, officers and stockholders and
such other matters as may be necessary or advisable in connection with any
filing, notice or application made by or on behalf of First Union or any of its
subsidiaries in connection with the Merger and the other transactions
contemplated in this Plan.
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5.14. CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective Date,
each of the Company 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 shall promptly notify First Union of (1) any material
change in the business or operations of the Company or any Company Subsidiary,
(2) 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, (3) the institution or the
threat of material Litigation involving or relating to the Company or any
Company Subsidiary, or (4) any event or condition that might be reasonably
expected to cause any of the Company's representations or warranties set forth
herein not to be true and correct as of the Effective Time or prevent the
Company from fulfilling its obligations hereunder; and in each case shall keep
First Union informed with respect thereto.
(C) First Union shall (1) promptly notify the Company of any event or
condition that might reasonably be expected to cause any of First Union's
representations or warranties set forth herein not to be true and correct as of
the Effective Date or prevent First Union from fulfilling its obligations
hereunder and (2) notify the Company immediately of any denial of any
application filed by First Union with any Regulatory Authority with respect to
this Plan, and in each case shall keep the Company informed with respect
thereto.
5.15. INVESTMENT COMPANIES.
(A) The parties each agree for a period of three years following the
Effective Time to use their respective reasonable best efforts to assure
compliance with the conditions of Section 15(f) of the Investment Company Act as
it applies to the transactions contemplated by this Plan.
(B) The Company will use its reasonable best efforts to obtain, as promptly
as practicable, the approval of the Fund Boards and shareholders of each
Investment Company, pursuant to the provisions of Section 15 of the Investment
Company Act applicable thereto, of a new Investment Company advisory Contracts
with the applicable Investment Company having terms in the aggregate that are at
least as favorable to First Union as the existing Investment Company advisory
Contracts.
5.16. RETENTION PROGRAM.
(A) RETENTION POOL. At the Effective Time, First Union will establish a
retention pool (the "Retention Pool") consisting of 1,701,362 restricted shares
of First Union Common Stock, to be used to retain key employees of the Company.
The individuals eligible for inclusion in the Retention Pool and the respective
allocations will be determined by the Chief Executive Officer of the Company, in
consultation with and subject to the approval of First Union, prior to the
Effective Time.
(B) VOTING. The shares of restricted First Union Common Stock in the
Retention Pool shall vest, and shall be issued to the participants in the
Retention Pool then eligible to receive such shares, in the installments as set
forth in ANNEX C hereto.
(C) ELIGIBILITY. Eligibility to participate in the Retention Pool shall
require an individual to be employed by First Union as of the dates and subject
to the terms and conditions set forth in such ANNEX C.
(D) ADJUSTMENT. If an employee of the Company who has been selected to
participate in the Retention Pool shall forfeit the right to receive the shares
of restricted First Union Common Stock thereunder, as set forth in ANNEX C, the
shares of restricted First Union Common Stock allocated to that individual shall
be cancelled and the number of shares of First Union Common Stock in the
Retention Pool shall be adjusted accordingly.
5.17. INDEMNIFICATION/LIABILITY COVERAGE.
(A) For six years after the Effective Date, First Union 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) to the extent
such persons are indemnified under the VSCA 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 an annual 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
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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 an annual 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 SECTION
5.17(A), 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 SECTION 5.17(A) (unless such failure materially increases
First Union's liability under such Section). In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Date), (1) First Union or the Continuing 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, (2) the
Indemnified Parties will cooperate in the defense of any such matter, and (3)
First Union shall not be liable for any settlement effected without its prior
written consent.
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 Bylaws of the Company, under the VSCA or otherwise.
5.18. WAIVER OF NONLAPSE RESTRICTIONS. First Union and the Company agree
that the termination of the restrictions set forth in the Company's Stock
Redemption Agreements with respect to shares of the Company Common Stock and
Company Preferred Stock upon consummation of the Merger constitutes a
noncompensatory waiver of a nonlapse restriction within the meaning of Section
83 of the Code and the regulations promulgated thereunder and that First Union
shall not take an income tax deduction with respect thereto. First Union and the
Company agree to furnish each former stockholder of the Company with the
statement required by Treasury Regulation Section 1.83-5(b)(2), if so requested.
VI. CONDITIONS TO CONSUMMATION OF THE MERGER.
6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGERS. The
respective obligation of each of First Union and the FUNC Subsidiary, on the one
hand, and the Company, on the other hand, to consummate the Merger is subject to
the fulfillment or written waiver by First Union and the Company prior to the
Effective Time of each of the following conditions:
(A) STOCKHOLDER APPROVALS. This Plan and the Merger shall have been duly
adopted by the requisite vote of the stockholders of the Company.
(B) REGULATORY APPROVALS. All regulatory approvals required to consummate
the transactions contemplated hereby, shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect thereof
shall have expired and no such approvals shall contain any conditions,
restrictions or requirements which First Union reasonably determines would (1)
following the Effective Time, have a Material Adverse Effect on the Continuing
Corporation or (2) reduce the benefits of the transactions contemplated hereby
to such a degree that First Union would not have entered into this Plan had such
conditions, restrictions or requirements been known at the date hereof.
(C) NO INJUNCTION. No Regulatory Authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and prohibits consummation of the
transactions contemplated by this Plan.
(D) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(E) BLUE SKY APPROVALS. All permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated hereby and
to issue the shares of First Union Common Stock to be issued in the Merger shall
have been received and be in full force and effect.
(F) LISTING. The shares of First Union Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
6.02. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the Merger is also subject to the fulfillment or written
waiver by the Company prior to the Effective Time of each of the following
conditions:
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(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
First Union set forth in this Plan shall be true and correct as of the date of
this Plan and as of the Effective Date as though made on and as of the Effective
Date (except that representations and warranties that by their terms speak as of
the date of this Plan or some other date shall be true and correct as of such
date), (PROVIDED, HOWEVER, that for purposes of determining the satisfaction of
the condition contained in this SECTION 6.02(A), such representations and
warranties shall be deemed to be true and correct if the failure or failures of
such representations and warranties to be so true and correct (excluding the
effect of any qualification set forth therein relating to "materiality" or
"Material Adverse Effect") are not reasonably likely to constitute or give rise
to, individually or in the aggregate, a Material Adverse Effect on First Union),
and the Company shall have received a certificate, dated the Effective Date,
signed on behalf of First Union by an executive officer of First Union to such
effect.
(B) PERFORMANCE OF OBLIGATIONS OF FIRST UNION. First Union shall have
performed in all material respects all obligations required to be performed by
it under this Plan at or prior to the Effective Time, and the Company shall have
received a certificate, dated the Effective Date, signed on behalf of First
Union by an executive officer of First Union to such effect.
(C) OPINION OF THE COMPANY'S COUNSEL. The Company shall have received an
opinion of Wachtell, Lipton, Rosen & Katz, special counsel to the Company, dated
the Effective Date, to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, (i) the Merger constitutes a
"reorganization" within the meaning of Section 368(a) 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 shares of Company Common
Stock and Company Preferred Stock, except with respect to cash received in lieu
of fractional share interests. In rendering its opinion, Wachtell, Lipton, Rosen
& Katz, may require and rely upon representations contained in letters from the
Company, First Union and stockholders of the Company.
6.03. CONDITIONS TO OBLIGATION OF FIRST UNION. The obligation of First
Union to consummate the Merger is also subject to the fulfillment or written
waiver by First Union prior to the Effective Time of each of the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Plan shall be true and correct as of the date of
this Plan and as of the Effective Date as though made on and as of the Effective
Date (except that representations and warranties that by their terms speak as of
the date of this Plan or some other date shall be true and correct as of such
date); (PROVIDED, HOWEVER, that for purposes of determining the satisfaction of
the condition contained in this SECTION 6.03(A), such representations and
warranties shall be deemed to be true and correct if the failure or failures of
such representations and warranties to be so true and correct (excluding the
effect of any qualification set forth therein relating to "materiality" or
"Material Adverse Effect") are not reasonably likely to constitute or give rise
to, individually or in the aggregate, a Material Adverse Effect on the Company),
and First Union shall have received a certificate, dated the Effective Date,
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(B) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Plan at or prior to the Effective Time, and First Union shall have
received a certificate, dated the Effective Date, signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer of the
Company to such effect.
(C) OPINION OF FIRST UNION'S COUNSEL. First Union shall have received an
opinion of Sullivan & Cromwell, counsel to First Union, dated the Effective
Date, to the effect that, on the basis of facts, representations and assumptions
set forth in such opinion, the Merger constitutes a reorganization under Section
368(a) of the Code. In rendering its opinion, Sullivan & Cromwell may require
and rely upon representations contained in letters from the Company, First Union
and stockholders of the Company.
(D) ACCOUNTANTS' LETTERS. KPMG Peat Marwick LLP, independent auditors for
the Company, shall have delivered to First Union letters, dated the date of or
shortly prior to (A) the mailing of the Proxy Statement, and (B) the Effective
Date, in form and substance reasonably satisfactory to First Union, (1) with
respect to the Company's consolidated financial position and results of
operations, which letters shall be based upon "agreed upon procedures"
undertaken by such firm in accordance with the Statements on Auditing Standards
No. 72 and (2) to the effect that such accountants are not aware of any facts or
circumstances which might cause the Merger not to qualify for pooling of
interests accounting treatment.
(E) ACCOUNTING TREATMENT. First Union shall have received from KPMG Peat
Marwick LLP a letter, dated on or shortly prior to the Effective Date, to the
effect that the Merger will qualify for pooling-of-interests accounting
treatment under Accounting Principles Board Opinion No. 16 if closed and
consummated in accordance with this Plan and the related agreements executed in
connection with or contemplated hereby.
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(F) CONSENTS. The Company shall have obtained the consents or approvals of
the Investment Company shareholders necessary to consummate the transactions
contemplated by this Plan.
(G) EMPLOYMENT AGREEMENTS. The employment agreements referred to in RECITAL
(F) of this Plan shall have been entered into and shall be in effect (other than
as a consequence of death or disability).
(H) NO MATERIAL ADVERSE EFFECT. Since March 31, 1997, no events have
occurred or circumstances have risen that, individually or in the aggregate,
have had or are reasonably likely to have a Material Adverse Effect on 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.
7.02. BREACH. By First Union or the Company, in the event of (A) a breach
by the other party of any representation or warranty contained herein, which
breach cannot be or has not been cured within thirty (30) days after the giving
of written notice to the breaching party of such breach (provided that a party
may terminate this Plan pursuant to this SECTION 7.02(A) only with respect to a
breach or breaches that would permit such party not to consummate the Merger
under the standards set forth in SECTION 6.02(A) or SECTION 6.03(A), as the case
may be), or (B) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching party of
such breach.
7.03. DELAY. By First Union or the Company, in the event that the Merger is
not consummated by June 30, 1998.
7.04. NO STOCKHOLDER OR REGULATORY APPROVAL. By the Company or First Union,
(A) in the event that any stockholder approval contemplated by SECTION 6.01(A)
is not obtained at the Meeting, including any adjournment or adjournments
thereof, or (B) in the event that written notice is received which states that
any required regulatory approval contemplated by SECTION 6.01(B) will not be
approved or has been denied.
7.05. FAILURE TO RECOMMEND, ETC. At any time prior to the Meeting, by First
Union if the board of directors of the Company shall have failed to make its
recommendation referred to in SECTION 5.02, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect to
the interests of First Union.
7.06. TERMINATION FEE.
(A) The Company hereby agrees to pay First Union and First Union shall be
entitled to payment of, a nonperformance fee (the "Termination Fee") of $20
million following the occurrence of a Payment Event (as defined below). Such
payment shall be made in immediately available funds within five business days
after delivery of a notice from First Union requesting such payment. The right
to receive the Termination Fee shall terminate if any of the following (a "Fee
Termination Event") occurs prior to a Payment Event: (i) the Effective Date,
(ii) termination of this Plan in accordance with the provisions hereof if such
termination occurs prior to the occurrence of a Preliminary Payment Event (as
defined below), except a termination by First Union pursuant to SECTION 7.02,
(iii) termination of this Plan following the occurrence of a Preliminary Payment
Event and the passage of eighteen (18) months after such termination, or (iv)
termination of this Plan by First Union pursuant to SECTION 7.02 (under
circumstances that would permit First Union not to consummate the Merger under
the standards set forth in SECTION 6.03(A)) and the passage of eighteen (18)
months after such termination.
(B) The term "Preliminary Payment Event" shall mean any of the following
events or transactions occurring after the date hereof:
(1) The Company without having received First Union's prior written
consent, shall have entered into an agreement to engage in any Acquisition
Transaction (as defined below) with any person (the term "person" for
purposes of this SECTION 7.06 having the meaning assigned thereto in
Section 3(a)(9) and 13(d)(3) of the Exchange Act) other than First Union or
any of its subsidiaries or affiliates, or the Board of Directors of the
Company shall have recommended that the shareholders of the Company approve
or accept any Acquisition Transaction with any person other than First
Union or any of its subsidiaries or affiliates. For purposes of this Plan,
"Acquisition Transaction" shall mean (a) a merger or consolidation, or any
similar transaction, involving the Company, (b) a purchase, lease or other
acquisition of all or substantially all of the assets of the Company, (c) a
purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 20% or more of the
voting power of the Company; PROVIDED that the term "Acquisition
Transaction" does not include any internal merger or consolidation
involving only the Company and/or any of the Company Subsidiaries;
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<PAGE>
(2) (a) any person, other than First Union or any of its subsidiaries
or affiliates or the Company's Associate Stock Ownership Plan (the "ASOP")
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the outstanding shares of voting stock
("Company Voting Stock") of the Company (the term "beneficial ownership"
for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the Exchange Act, or (b) any group (as such term "group"
is defined in Section 13(d)(3) of the Exchange Act), other than a group of
which any of First Union or any of its subsidiaries or affiliates is a
member, shall have been formed that beneficially owns 20% or more of the
Company Common Stock then outstanding;
(3) any person, other than First Union or any of its subsidiaries or
affiliates, or any group, other than a group of which First Union or any of
its Subsidiaries is a member, shall have made a proposal to the Company or
its shareholders, by public announcement or public or nonpublic written
communication to engage in an Acquisition Transaction or to acquire
beneficial ownership of 20% or more of the outstanding shares of Company
Voting Stock;
(4) after a proposal is made by a third party to the Company or its
shareholders to engage in an Acquisition Transaction, or such third party
states its intention to the Company to make such a proposal, the Company
shall have breached any representation, covenant or obligation contained in
this Plan and such breach would entitle First Union to terminate this Plan
under SECTION 7.02 (without regard to the cure period provided for therein
unless such cure is promptly effected without jeopardizing consummation of
the Merger); or
(5) the holders of shares of Company Common Stock and Company
Preferred Stock shall not have approved this Plan at the Meeting or the
Meeting shall not have been held or shall have been canceled prior to
termination of this Plan, in each case after any person other than First
Union or any of its subsidiaries or affiliates or the ASOP shall have (a)
made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction or (b) to acquire beneficial ownership of 25% or
more of the Company's Voting Stock.
(C) The term "Payment Event" shall mean either of the following events or
transactions occurring after the date hereof:
(1) the acquisition by any person other than First Union or any of its
subsidiaries or affiliates, or the ASOP alone or together with such
person's affiliates and associates, or any group (as defined in Section
13(d)(3) of the Exchange Act), of beneficial ownership of 25% or more of
the outstanding shares of Company Voting Stock; or
(2) the occurrence of a Preliminary Payment Event described in clause
(B)(1) above, except that the percentage referred to in clause (c) thereof
shall be 25%.
(D) The Company shall notify First Union promptly in writing of its
knowledge of the occurrence of any Preliminary Payment Event or Payment Event;
PROVIDED, HOWEVER, that the giving of such notice by the Company shall not be a
condition to the right of First Union to the Termination Fee.
VIII. OTHER MATTERS.
8.01. SURVIVAL. If the Effective Date occurs, all representations,
warranties, agreements and covenants contained in this Plan, except for SECTIONS
5.16, 5.17, 8.04 and 8.09, 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(Q) and 4.02(F), SECTIONS 5.03, 5.06(B), SECTION
7.06, and SECTIONS 8.01, 8.03, 8.04, 8.05, 8.06, 8.07, 8.09, 8.11 and 8.12 shall
survive such termination.
8.02. WAIVER; AMENDMENT. Prior to the Effective Date, any provision of this
Plan may be (A) waived in writing by the party benefitting by the provision, or
(B) 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 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.
8.05. EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Plan and the transactions contemplated hereby, except Proxy
Statement printing expenses which shall be shared equally between the Company
and First Union.
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<PAGE>
8.06. CONFIDENTIALITY. Except as otherwise provided in SECTION 5.06(B),
each of the parties hereto and their respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
8.07. NOTICES. All notices 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, First Union Corporation
to: 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, Wheat First Butcher Singer, Inc.
to: Riverfront Plaza
901 East Byrd Street
Richmond, Virginia 23219
Telecopy Number: (804) 782-3739
Attention: Marshall B. Wishnack
Chairman and Chief Executive Officer
Copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy Number: (212) 403-2000
Attention: Edward D. Herlihy, Esq.
</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:
(A) 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 (1) has a material adverse effect on the financial condition, results
of operations, or business of such party and its subsidiaries, taken as a
whole, or (2) would materially impair any party's ability to timely perform
its obligations under this Plan or the consummation of any of the
transactions contemplated hereby; PROVIDED, that a Material Adverse Effect
with respect to a party shall not include events or conditions generally
affecting the securities industry or effects resulting from general
economic conditions (including changes in interest rates), changes in
accounting practices or changes to statutes, regulations or regulatory
policies, that do not have a materially more adverse effect on such party
than that experienced by similarly situated financial services companies;
(B) 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;
(C) the term "Previously Disclosed" by a party shall mean information
set forth in a Schedule, correspondingly enumerated to the representation,
warranty or covenant to which it relates, 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 (it being understood that notwithstanding any other provision
herein such information shall
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<PAGE>
be disclosed in light of the particular standard of "materiality" set forth
in the representation, warranty or covenant to which such information
relates); and
(D) the term "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).
8.09. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan and all
schedules hereto represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersede any and all
other oral or written agreements heretofore made. Nothing in this Plan,
expressed or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Plan, except that SECTION 5.17 is
intended to confer on the persons named therein those rights expressly stated in
such Section.
8.10. BENEFIT PLANS.
(A) As soon as administratively practicable after the Effective Time,
employees of the Company and the Company Subsidiaries shall be generally
entitled to participate in the pension, benefit, welfare, incentive
compensation, sick pay, vacation, fringe benefit and similar plans of First
Union on substantially the same terms and conditions applied to employees of
First Union and its subsidiaries (other than the severance plan of First Union
during such period that the Company severance plan remains in effect pursuant to
SECTION 8.10(C)) and until such time the plans of the Company shall remain in
effect without any adverse amendments. 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. No employee of the Company who elects coverage under a First Union
medical insurance plan shall be excluded from coverage under such plan (for such
employee or any other covered person) on the basis of a pre-existing condition
that was not also excluded under the Company's medical insurance plans.
(B) First Union shall honor in accordance with their terms all individual
compensation contracts Previously Disclosed, the Employment Agreements entered
into by First Union with Messrs. Wishnack, Gambill, Everett, Ludeman and Souders
and all provisions for vested benefits or other vested amounts earned or accrued
through the Effective Time under any of the Compensation and Benefit Plans. The
provisions of this SECTION 8.10(B) relating to Previously Disclosed individual
compensation contracts are intended to be for the benefit of, and shall be
enforceable by the employees who executed such employment contracts.
(C) The Company's severance plan as in effect on the date hereof (subject
to any non-adverse modifications permitted under SECTION 3.01(D) hereof) shall
remain in place until the end of the 12th month following the month in which the
Effective Time occurs.
8.11. HEADINGS. The headings contained in this Plan are for reference
purposes only and are not part of this Plan.
8.12. INTERPRETATION; EFFECT. When a reference is made in this Plan to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Plan unless otherwise indicated. Whenever the words
"include," "includes" or "including" are used in this Plan, they shall be deemed
to be followed by the words "without limitation". No provision of this Plan
shall be construed to require the Company, First Union or any of their
respective Subsidiaries, affiliates or directors to take any action which would
violate applicable law (whether statutory or common law), rule or regulation.
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<PAGE>
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/ G. KENNEDY THOMPSON____________
Name: G. Kennedy Thompson
Title: Executive Vice President
FIRST UNION VIRGINIA, INC.
By: /s/ MARION A. COWELL, JR.__________
Name: Marion A. Cowell, Jr.
Title: President
WHEAT FIRST BUTCHER SINGER, INC.
By: /s/ MARSHALL B. WISHNACK___________
Name: Marshall B. Wishnack
Title: Chairman and Chief Executive
Officer
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<PAGE>
EXHIBIT A
AGREEMENT, dated as of August 20, 1997, by and between the individual
stockholder of Wheat First Butcher Singer, Inc. (the "Stockholder") and First
Union Corporation ("First Union").
WHEREAS, the Stockholder is the beneficial owner of and has the right to
vote shares of Common Stock, each of $2.00 par value, and shares of
Preferred Stock, each of no par value, of Wheat First Butcher Singer, Inc. (the
"Company") (collectively, the "Shares");
WHEREAS, First Union and the Company have entered into an Agreement and
Plan of Merger (the "Plan"), pursuant to which First Union will acquire the
Company (the "Acquisition"), subject to the terms and conditions of the Plan;
WHEREAS, the Stockholder believes it is in the best interests of the
Company and all of the Company's stockholders for the Acquisition to be
consummated on the terms set forth in the Plan, and as a condition and
inducement to First Union's willingness to enter into the Plan, the Stockholder
has agreed to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereto agree as follows:
1. The Stockholder agrees to vote (including by proxy or written consent)
all the Shares, any additional Shares acquired by the Stockholder after the date
hereof and any other shares of stock of the Company owned or controlled by him
or her entitled to be voted, in favor of the Plan and the transactions
contemplated thereby at the meeting of stockholders of the Company called for
that purpose. The Stockholder also agrees that, to the extent he has authority
or power to vote or direct the voting of any additional Shares, he shall vote or
direct the voting of such Shares in favor of approval of the Plan, subject to
any determination that to so vote the Shares would violate fiduciary duties
under applicable law.
2. The Stockholder agrees that he/she will not sell or transfer any Shares
owned by him to any other party unless such party enters into an agreement,
satisfactory to First Union, to abide by all the terms of this Agreement.
3. The Stockholder agrees to use all reasonable efforts to cooperate with
First Union in connection with the Acquisition, promptly take such actions as
are necessary or appropriate to consummate the Acquisition, and provide any
information reasonably requested by First Union for any regulatory application
or filing made or approval sought for the transactions contemplated by the Plan.
4. The parties hereto agree that this Agreement shall terminate and be of
no further force and effect if the Plan is terminated in accordance with its
terms.
5. This Agreement shall not affect the Stockholder's obligations, to the
extent the Stockholder serves in such capacity, as a director of the Company.
6. The Stockholder represents and warrants to First Union as follows:
(i) the Stockholder has good title to the Shares and owns the Shares free
and clear of any rights, claims, encumbrances, liens, interests or restrictions
of any nature whatsoever (other than under the Stock Redemption Agreement),
including, without limitation, any restrictions on the voting of the Shares or
any rights of others to vote, or to participate (including by consultation) in
the voting of, the Shares;
(ii) this Agreement is a valid and legally binding agreement enforceable
against the Stockholder in accordance with its terms, subject to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and
(iii) the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby by the Stockholder, do not
and will not 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 the Stockholder or to which
the Stockholder is subject or bound, or require any consent or approval under
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.
7. The Stockholder hereby agrees that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed by the
Stockholder in accordance with its specific terms or were otherwise breached.
Accordingly, the Stockholder agrees that First Union shall be entitled to an
injunction or injunctions to prevent breaches of this
A-25
<PAGE>
Agreement by the Stockholder and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which First Union
may be entitled at law or in equity.
8. This Agreement shall bind and benefit the successors, assigns,
executors, trustees and heirs of the parties hereto. 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. Any term
hereof which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without affecting the remaining terms or their validity or
enforceability in any other jurisdiction.
9. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to constitute an original. This Agreement shall become
effective when one counterpart has been signed by each party hereto.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed
as of the day and year first above written.
FIRST UNION CORPORATION
By: ___________________________________
Name:
Title:
_______________________________________
(the Stockholder)
A-26
<PAGE>
ANNEX B
OPINION OF WHEAT, FIRST SECURITIES, INC.
August 19, 1997
Board of Directors
Wheat First Butcher Singer, Inc.
Riverfront Plaza
901 East Byrd Street
Richmond, Virginia 23219
Members of the Board:
Wheat First Butcher Singer, Inc. ("Wheat") and First Union Corporation
("FUNC") have entered into an Agreement and a Plan of Merger, dated as of August
20, 1997 (the "Agreement"), pursuant to which Wheat will combine with FUNC by
means of the merger (the "Merger") of Wheat with and into FUNC. Upon
consummation of the Merger, all of the then outstanding shares of the $2.00 par
value common stock ("Wheat Common Stock") and the preferred stock of Wheat
represented by shares of beneficial interest ("Trust Shares") in the Wheat First
Butcher Singer Grantor Trust ("Wheat Preferred Stock") (other than shares held
by dissenting shareholders) will be converted into 10,267,029 shares of the
$3.33 1/3 par value common stock of FUNC ("FUNC Stock"), as adjusted in
accordance with the terms of the Agreement (the "Exchange Ratio").
Wheat, First Securities, Inc. ("WFSI") 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 FUNC for our own account or for the accounts of our
customers.
WFSI is a wholly-owned subsidiary of Wheat, and certain members of
management of WFSI are also members of management of Wheat and may have
interests that are in addition to, and may be different from, the interests of
Wheat shareholders. The Wheat Board relied on WFSI's experience in providing
advice in connection with mergers and acquisitions and related transactions.
Wheat was advised by its outside counsel, Wachtell, Lipton, Rosen & Katz, that
the Board's fiduciary duties did not require it to retain a third party
financial advisor.
You have asked us whether, in our opinion, the Exchange Ratio is fair, from
a financial point of view, to the holders of Wheat Common Stock and Wheat
Preferred Stock.
In arriving at the opinion set forth below, we have conducted discussions
with members of senior management of Wheat and FUNC 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) Certain internal financial reports provided by the management of Wheat;
(2) FUNC's Annual Reports to Stockholders, Annual Reports on Form 10-K and
related financial information for the three fiscal years ended December
31, 1996;
(3) First Union's Quarterly Reports on Form 10-Q and related financial
information for the periods ended March 31, 1997 and June 30, 1997;
(4) Certain publicly available information with respect to historical
market prices and trading activities for FUNC Stock and for certain
publicly traded financial institutions which WFSI deemed relevant;
(5) Certain publicly available information with respect to banking
companies and the financial terms of certain other mergers and
acquisitions which WFSI deemed relevant;
(6) The Agreement;
(7) Certain estimates of the earnings and cost savings projected by Wheat
and FUNC for the combined company;
B-1
<PAGE>
(8) Other financial information concerning the businesses and operations of
Wheat and FUNC, including certain audited financial information and
certain financial analyses and forecasts for FTU prepared by senior
management in connection with its previously announced acquisitions;
and
(9) Such financial studies, analyses, inquiries and other matters as WFSI
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 Wheat and FUNC included in the Agreement,
and we have not assumed any responsibility for independent verification of such
information. We have relied upon the managements of Wheat and FUNC as to the
reasonableness and achievability of their financial and operational forecasts
and projections, including the estimates of cost savings and revenue
enhancements expected to result from the Merger, and the assumptions and bases
therefor, provided to us, and, with your consent, we have assumed that such
forecasts and projections reflect the best currently available estimates and
judgments of such managements, and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by such
managements. We also assumed, without independent verification, that the
aggregate allowances for loan losses and other contingencies for Wheat and FUNC
are adequate to cover such losses. WFSI did not review any individual credit
files of FUNC, nor did it make an independent evaluation or appraisal of the
assets or liabilities of Wheat or FUNC. 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 FUNC.
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. WFSI's opinion is directed to the
Board of Directors of Wheat and relates only to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Wheat Common Stock and
Wheat Preferred Stock and does not address any other aspect of the Merger or
constitute a recommendation to any shareholder of Wheat as to how such
shareholder should vote with respect to the Merger. WFSI's opinion does not
address the relative merits of the Merger as compared to any alternative
business strategies that might exist for Wheat, nor does it address the effect
of any other business combination in which Wheat might engage.
It is understood that this opinion may be included in its entirety in the
Prospectus/Proxy Statement. 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 Wheat Common Stock and Wheat Preferred Stock (including the
holders of Trust Shares).
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
B-2
<PAGE>
ANNEX C
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS
13.1-729 DEFINITIONS. -- In this article:
"Corporation" means the issuer of the shares held by a dissenter before the
corporate action, except that (i) with respect to a merger, "corporation" means
the surviving domestic or foreign corporation or limited liability company by
merger of that issuer, and (ii) with respect to a share exchange, "corporation"
means the acquiring corporation by share exchange, rather than the issuer, if
the plan of share exchange places the responsibility for dissenters' rights on
the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from corporate
action under (section mark)13.1-730 and who exercises that right when and in the
manner required by (section mark)(section mark)13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
"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.
"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.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial shareholder.
13.1-730 RIGHT TO DISSENT. -- A. 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 mark)13.1-718 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 mark)13.1-719;
2. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will 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 if the shareholder was entitled to vote on the sale
or exchange or if the sale or exchange was in furtherance of a dissolution on
which the shareholder was entitled to vote, provided that such dissenter's
rights shall not apply in the case of (i) a sale or exchange pursuant to court
order, or (ii) a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect to a
plan of merger or share exchange or a sale or exchange of property there shall
be no right of dissent in favor of holders of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or (ii) held by at least
2,000 record shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such shares
provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for such shares anything except:
a. Cash;
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<PAGE>
b. Shares or membership interests, or shares or membership interests and
cash in lieu of fractional shares (i) of the surviving or acquiring corporation
or limited liability company or (ii) of any other corporation or limited
liability company which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at the meeting at which the plan of
merger or share exchange is to be acted on, were either listed subject to notice
of issuance on a national securities exchange or held of record by at least
2,000 record shareholders or members; or
c. A combination of cash and shares or membership interests as set forth in
subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and is not
approved by a majority of "disinterested directors" as such terms are defined in
(section mark)13.1-725.
D. The right of a dissenting shareholder to obtain payment of the fair
value of his shares shall terminate upon the occurrence of any one of the
following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation.
13.1-731 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- A. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
1. He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
2. He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
13.1-732 NOTICE OF DISSENTERS' RIGHTS. -- A. If proposed corporate action
creating dissenters' rights under (section mark)13.1-730 is submitted to a vote
at a shareholders' meeting, the meeting notice shall state that shareholders are
or may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under
(section mark)13.1-730 is taken without a vote of shareholders, the corporation,
during the ten-day period after the effectuation of such corporate action, shall
notify in writing all record shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described in
(section mark)13.1-734.
13.1-733 NOTICE OF INTENT TO DEMAND PAYMENT. -- A. If proposed corporate
action creating dissenters' rights under (section mark)13.1-730 is submitted to
a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenter's rights (i) shall deliver 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 (ii) shall not vote such shares in favor of the
proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
13.1-734 DISSENTERS' NOTICE. -- A. If proposed corporate action creating
dissenters' rights under (section mark)13.1-730 is authorized at a shareholders'
meeting, the corporation, during the ten-day period after the effectuation of
such corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of (section mark)13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment 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 acquired beneficial ownership of the shares before or
after that date;
4. Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the date
of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
C-2
<PAGE>
13.1-735 DUTY TO DEMAND PAYMENT. -- A. A shareholder sent a dissenters'
notice described in (section mark)13.1-734 shall demand payment, certify that he
acquired beneficial ownership of the shares before or after the date required to
be set forth in the dissenters' notice pursuant to paragraph 3 of subsection B
of (section mark)13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A of this
section retains all other rights of a shareholder except to the extent that
these rights are cancelled or modified by the taking of the proposed corporate
action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set forth in the dissenters'
notice, is not entitled to payment for his shares under this article.
13.1-736 SHARE RESTRICTIONS. -- A. The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received.
B. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder except to the extent that these
rights are cancelled or modified by the taking of the proposed corporate action.
13.1-737 PAYMENT. -- A. Except as provided in (section mark)13.1-738,
within thirty days after receipt of a payment demand made pursuant to
(section mark)13.1-735, the corporation shall pay the dissenter the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
The obligation of the corporation under this paragraph may be enforced (i) by
the circuit court in the city or county where the corporation's principal office
is located, or, if none in this Commonwealth, where its registered office is
located or (ii) at the election of any dissenter residing or having its
principal office in the Commonwealth, by the circuit court in the city or county
where the dissenter resides or has its principal office. The court shall dispose
of the complaint on an expedited basis.
B. The payment shall 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 effective date of the corporate action
creating dissenters' rights, 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. An explanation of how the corporation estimated the fair value of the
shares and of how the interest was calculated;
3. A statement of the dissenters' rights to demand payment under
(section mark)13.1-739; and
4. A copy of this article.
13.1-738 AFTER-ACQUIRED SHARES. -- A. A corporation may elect to withhold
payment required by (section mark)13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under (section mark)13.1-739.
13.1-739 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 mark)13.1-737), or reject the
corporation's offer under (section mark)13.1-738 and demand payment of the fair
value of his shares and interest due, if the dissenter believes the amount paid
under (section mark)13.1-737 or offered under (section mark)13.1-738 is less
than the fair value of his shares or that the interest due is incorrectly
calculated.
B. A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection A of this
section within thirty days after the corporation made or offered payment for his
shares.
13.1-740 COURT ACTION. -- A. If a demand for payment under
(section mark)13.1-739 remains unsettled, the corporation shall commence a
proceeding within sixty days after receiving the payment demand and petition the
circuit court in the city or county described in subsection B of this section 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 city or county
where its principal office is located, or, if none in this Commonwealth, where
its registered office is located. If the corporation is a foreign corporation
without a registered office in this Commonwealth, it shall commence the
proceeding in the city or county in this Commonwealth where the
C-3
<PAGE>
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 Commonwealth, whose demands remain unsettled parties to the proceeding as
in an action against their shares and all parties shall 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 corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this article. If the court determines that such
shareholder has not complied with the provisions of this article, he shall be
dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced under
subsection B of this section is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive evidence and recommend a decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to judgment
(i) 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 or (ii) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under (section mark)13.1-738.
13.1-741 COURT COSTS AND COUNSEL FEES. -- A. The court in an appraisal
proceeding commenced under (section mark)13.1-740 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 did not act in good faith in demanding payment under
(section mark)13.1-739.
B. The court may also assess the reasonable fees and expenses of experts,
excluding those of counsel, for the respective parties, in amounts the court
finds equitable:
1. Against the corporation and in favor of any and all dissenters if the
court finds the corporation did not substantially comply with the requirements
of (section mark)(section mark)13.1-732 through 13.1-739; 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 did not act in good faith with respect to the rights provided by this
article.
C. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, 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 under subsection A of (section mark)13.1-737
the court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
C-4
<PAGE>
ANNEX D
CERTAIN INFORMATION RELATING TO WHEAT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Financial Information for the Six Months Ended September 30, 1997 and 1996
Management's Discussion and Analysis................................................................................ D-2
Consolidated Statements of Financial Condition...................................................................... D-3
Consolidated Statements of Income................................................................................... D-4
Consolidated Statements of Changes in Stockholders' Equity.......................................................... D-5
Consolidated Statements of Cash Flows............................................................................... D-6
Management's Discussion and Analysis
Fiscal Year Ended March 31, 1997 compared to Fiscal Year Ended March 31, 1996....................................... D-7
Fiscal Year Ended March 31, 1996 compared to Fiscal Year Ended March 31, 1995....................................... D-8
Independent Auditors' Reports (including the related financial statements)
Years Ended March 31, 1997 and 1996................................................................................. D-9
Years Ended March 31, 1996 and 1995................................................................................. D-23
Ownership of Wheat Capital Stock by Certain Beneficial Owners and Management.......................................... D-36
</TABLE>
D-1
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996
GENERAL
The Company derives most of its income from securities brokerage,
fully-disclosed clearing, capital markets, and investment management activities.
RESULTS OF OPERATIONS
Revenues were $293.2 million, an increase of $56.3 million, or 24%, from
$236.9 million in 1996. The revenue increase reflected continued improvement in
industry revenues.
Commission revenues rose $25.6 million, from $83.6 million to $109.2
million. Principal transaction revenues rose $2.0 million, from $44.1 million to
$46.1 million. Investment banking fees increased $6.2 million, from $36.5
million to $42.7 million. Asset management revenues rose $14.5 million, from
$35.8 million to $50.3 million. Interest and dividend revenues increased $4.5
million, from $23.5 million to $28.0 million, due to rising customer margin loan
balances. Execution and clearing fees increased $2.1 million, from $6.6 million
to $8.7 million. Other revenues rose $1.3 million, from $6.8 million to $8.1
million.
Expenses were $252.9 million, an increase of $39.8 million, or 19%, from
$213.1 million in 1996. The increase was attributable to higher compensation
expenses resulting from increased revenues.
Compensation and benefits rose $28.4 million, from $146.2 million to $174.6
million, including a $14.5 million increase in sales compensation attributable
to the compensable revenue increase. Communications expenses increased $4.6
million, from $22.3 million to $26.9 million. Advertising and sales promotion
increased $1.0 million, from $10.4 million to $11.4 million. Interest expense
rose $2.2 million, from $10.4 million to $12.6 million, as a result of the
growth in customer margin loans. Occupancy and equipment expenses rose $1.8
million, from $8.0 million to $9.8 million. Brokerage, clearing, and exchange
fees rose $0.6 million, from $4.2 million to $4.8 million. Other operating
expenses increased $1.1 million, from $11.7 million to $12.8 million.
Net income for the six months ended September 30, 1997 was $24.2 million,
an increase of $9.9 million, or 69%, from net income of $14.3 million in 1996.
CAPITAL RESOURCES AND LIQUIDITY
The Company's assets consist primarily of cash and assets readily
convertible to cash. Securities inventories are stated at market value and are
generally readily marketable. Customers' margin loans are collateralized by
securities and have floating interest rates. The Company's assets are financed
by bank loans, proceeds from securities lending, long-term and subordinated
borrowings, equity capital, and customer and other payables.
The Company's receivables from customers increased significantly during the
six months ended September 30, 1997. At that date, receivables from customers
were $604 million, versus $518 million in March of 1997. Receivables from
customers consist primarily of margin loans collateralized by marketable
securities.
The Company maintains approximately $500 million in uncommitted lines of
credit for the purpose of financing firm inventories and customer margin loans.
The lines bear interest at rates based on the federal funds rate.
In June of 1997, the Company established a $75 million committed,
unsecured, revolving line of credit with a syndicate of lenders. This line
replaced the $19 million line originally established in October of 1995.
Borrowings bear interest at a rate based on the federal funds rate. At September
30, 1997, there was a $35 million borrowing outstanding under this line.
The Company maintains a $16 million committed revolving line of credit,
secured by certain property and buildings. Borrowings bear interest at a rate
based on the federal funds rate. At September 30, 1997, there was a $16 million
borrowing outstanding under this line.
The Company's securities broker/dealer, Wheat, First Securities, Inc., is
required by Securities and Exchange Commission regulations to meet certain
liquidity and capital standards. At September 30, 1997, Wheat, First Securities,
Inc. had net capital, as defined in the regulations, of $114.9 million, which
exceeded the minimum net capital requirements by $101.4 million.
D-2
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................................. $ 34,023,172 18,754,301
Receivable from brokers, dealers, and clearing organizations............................... 104,865,620 53,341,615
Receivable from customers.................................................................. 603,505,596 530,095,445
Securities purchased under agreements to resell............................................ 77,148,456 68,807,750
Trading and investment securities.......................................................... 186,465,710 153,629,771
Property and equipment, at cost (less accumulated depreciation and amortization of
$53,823,518 in 1997 and $43,564,504 in 1996)............................................. 65,599,731 52,421,999
Deferred income taxes...................................................................... 7,846,925 5,973,709
Other assets............................................................................... 93,743,456 74,728,454
-------------- ------------
$1,173,198,666 957,753,044
-------------- ------------
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings...................................................................... $ 159,979,650 117,890,042
Payable to brokers, dealers, and clearing organizations.................................... 272,595,978 279,683,603
Payable to customers....................................................................... 256,204,719 165,978,781
Securities sold under agreements to repurchase............................................. 39,995,936 61,319,679
Securities sold, but not yet purchased..................................................... 71,259,530 43,614,602
Accrued compensation and benefits.......................................................... 62,366,334 53,122,444
Accounts payable and other liabilities..................................................... 59,659,611 60,761,168
Long-term borrowings and capital lease obligation.......................................... 52,178,281 5,743,930
-------------- ------------
974,240,039 788,114,249
Liabilities subordinated to claims of general creditors.................................... 33,581,074 35,328,345
Stockholders' equity....................................................................... 165,377,553 134,310,450
-------------- ------------
$1,173,198,666 957,753,044
-------------- ------------
-------------- ------------
</TABLE>
Note: The interim unaudited consolidated statements of financial condition
and the related consolidated statements of income, changes in stockholders'
equity and cash flows included herein on page D-3 through D-6 reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to a fair presentation of such financial statements.
D-3
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Commissions................................................................................ $109,235,155 83,594,189
Principal transactions..................................................................... 46,069,245 44,132,997
Investment banking......................................................................... 42,698,181 36,472,749
Asset management and related fees.......................................................... 50,321,989 35,831,724
Interest and dividends..................................................................... 28,024,053 23,474,689
Execution and clearing fees................................................................ 8,733,124 6,607,500
Other...................................................................................... 8,114,156 6,828,897
------------ ------------
293,195,903 236,942,745
------------ ------------
Expenses:
Compensation and benefits.................................................................. 174,643,658 146,155,003
Communications and information systems..................................................... 26,902,907 22,257,555
Advertising and sales promotion............................................................ 11,432,719 10,383,491
Interest................................................................................... 12,570,967 10,443,992
Occupancy and equipment.................................................................... 9,772,900 8,038,910
Brokerage, clearing, and exchange fees..................................................... 4,804,325 4,156,251
Other...................................................................................... 12,774,710 11,688,251
------------ ------------
252,902,186 213,123,453
------------ ------------
Income before income taxes................................................................... 40,293,717 23,819,292
Income taxes................................................................................. 16,117,487 9,527,717
------------ ------------
Net income................................................................................... $ 24,176,230 14,291,575
------------ ------------
------------ ------------
Earnings per share based on weighted average shares outstanding of 8,891,235 in 1997
and 8,855,429 in 1996...................................................................... $ 2.72 1.61
------------ ------------
------------ ------------
</TABLE>
Note: The interim unaudited consolidated statements of financial condition
and the related consolidated statements of income, changes in stockholders'
equity and cash flows included herein on page D-3 through D-6 reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to a fair presentation of such financial statements.
D-4
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NONVOTING VOTING ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996.............................. $1,010,105 17,587,466 16,777,000 86,247,979 121,622,550
Purchase and retirement of 378,034 shares of voting
common stock....................................... -- (756,068) (530,320) (7,244,139) (8,530,527)
Issuance of 515,450 shares of voting common stock.... -- 1,030,900 6,309,108 -- 7,340,008
Purchase and retirement of 7,800 shares of nonvoting
preferred stock.................................... (108,642) -- -- -- (108,642)
Issuance of 105,600 shares of nonvoting preferred
stock.............................................. 1,503,744 -- -- -- 1,503,744
Cash dividends:
Preferred ($.20 per share)......................... -- -- -- (27,240) (27,240)
Common ($.20 per share)............................ -- -- -- (1,781,018) (1,781,018)
Net income........................................... -- -- -- 14,291,575 14,291,575
---------- ---------- ---------- ----------- -----------
Balance, September 30, 1996.......................... $2,405,207 17,862,298 22,555,788 91,487,157 134,310,450
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
Balance, March 31, 1997.............................. $2,487,348 17,529,672 21,828,879 104,715,155 146,561,054
Purchase and retirement of 165,438 shares of voting
common stock....................................... -- (330,876) (371,963) (3,215,076) (3,917,915)
Purchase and retirement of 7,750 shares of nonvoting
preferred stock.................................... (135,196) -- -- -- (135,196)
Issuance of 27,250 shares of nonvoting preferred
stock.............................................. 470,063 -- -- -- 470,063
Cash dividends:
Preferred ($.20 per share)......................... -- -- -- (39,810) (39,810)
Common ($.20 per share)............................ -- -- -- (1,736,873) (1,736,873)
Net income........................................... -- -- -- 24,176,230 24,176,320
---------- ---------- ---------- ----------- -----------
Balance, September 30, 1997.......................... $2,822,215 17,198,796 21,456,916 123,899,626 165,377,553
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
Note: The interim unaudited consolidated statements of financial condition
and the related consolidated statements of income, changes in stockholders'
equity and cash flows included herein on page D-3 through D-6 reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to a fair presentation of such financial statements.
D-5
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 24,176,230 14,291,575
Adjustments to reconcile net income to net cash and cash equivalents used for operating
activities:
Non-cash charges (credits) included in net income:
Depreciation and amortization......................................................... 9,012,618 5,393,444
Deferred income tax benefit........................................................... (551,925) (1,069,709)
Other, net............................................................................ (296,457) (71,008)
(Increase) decrease in assets:
Receivable from brokers, dealers, and clearing organizations.......................... (15,163,427) 6,579,713
Receivable from customers............................................................. (85,258,436) (75,310,659)
Securities purchased under agreements to resell....................................... (51,586,773) (42,913,787)
Trading securities.................................................................... (99,456,598) (61,099,376)
Other assets.......................................................................... 40,942,185 (13,162,012)
Increase (decrease) in liabilities:
Payable to brokers, dealers, and clearing organizations............................... 41,484,420 15,163,628
Payable to customers.................................................................. (896,424) 39,164,316
Securities sold under agreements to repurchase........................................ (15,754,852) 26,427,712
Securities sold, but not yet purchased................................................ 39,237,205 11,578,780
Other liabilities..................................................................... (11,129,075) (2,357,546)
------------- ------------
Total adjustments............................................................................ (149,417,539) (91,676,504)
------------- ------------
Net cash and cash equivalents used for operating activities.................................. (125,241,309) (77,384,929)
------------- ------------
Cash flows from investing activities:
Purchase of investment securities.......................................................... -- (10,050)
Proceeds from sale of investment securities................................................ -- 1,107,612
Purchase of property and equipment......................................................... (5,998,154) (20,792,719)
Proceeds from sale of property and equipment............................................... 110,962 103,199
------------- ------------
Net cash and cash equivalents used for investing activities.................................. (5,887,192) (19,591,958)
------------- ------------
Cash flows from financing activities:
Proceeds from (payments for):
Short-term borrowings, net.............................................................. $ 91,327,196 18,167,018
Securities loaned, net of securities borrowed........................................... (32,623,667) 52,001,968
Securities sold under agreements to repurchase.......................................... 45,835,032 23,825,711
Long-term borrowings.................................................................... 24,000,000 5,000,000
Capital lease obligation................................................................ (492,260) 743,930
Subordinated notes...................................................................... (3,757,308) (3,098,150)
Sale of common and preferred stock...................................................... 3,878,537 7,169,340
Repurchase of common and preferred stock................................................ (1,982,798) (4,226,432)
Dividends paid.......................................................................... (1,776,683) (1,808,258)
------------- ------------
Net cash and cash equivalents provided by financing activities............................... 124,408,049 97,775,127
------------- ------------
Net increase (decrease) in cash and cash equivalents......................................... (6,720,452) 798,240
Cash and cash equivalents at beginning of year............................................... 40,743,624 17,956,061
------------- ------------
Cash and cash equivalents at end of year..................................................... $ 34,023,172 18,754,301
------------- ------------
------------- ------------
Supplemental disclosures of cash flow information:
Income tax payments........................................................................ $ 24,613,195 14,082,990
Interest payments.......................................................................... 11,599,992 9,844,131
------------- ------------
------------- ------------
Supplemental disclosures of non-cash investing and financing activities:
Subordinated debt issued in connection with the repurchase of common and preferred stock... $ 1,963,195 4,079,900
Notes received from the sale of common and preferred stock................................. 376,050 4,904,048
Property and equipment acquired under capital lease obligation............................. -- 743,940
------------- ------------
------------- ------------
</TABLE>
Note: The interim unaudited consolidated statements of financial condition
and the related consolidated statements of income, changes in stockholders'
equity and cash flows included herein on page D-3 through D-6 reflect, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to a fair presentation of such financial statements.
D-6
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996
GENERAL
The Company derives most of its income from securities brokerage,
fully-disclosed clearing, capital markets, and investment management activities.
RESULTS OF OPERATIONS
Revenues in 1997 were $493.8 million, an increase of $80.0 million, or 19%
from $413.8 million in 1996. The revenue increase reflected continued
improvement in industry revenues and expanded product offerings.
Commission revenues rose $22.8 million, from $157.1 million to $179.9
million. Principal transaction revenues rose $7.7 million, from $80.3 million to
$88.0 million. Asset management fees increased $21.6 million, from $57.5 million
to $79.1 million, on growth in assets under management. The growth in assets
managed included approximately $3.0 billion associated with the purchase by
Everen Securities Holdings, Inc. of an ownership interest in the Company's asset
management subsidiary. Investment banking revenues rose $15.4 million, from
$51.1 million to $66.5 million, primarily because of increased underwriting
activity. Interest and dividend revenues increased $8.5 million, from $40.6
million to $49.1 million, due to rising customer margin loan balances. Execution
and clearing fees increased $0.1 million, from $13.9 million to $14.0 million.
Other revenues rose $3.9 million, from $13.3 million to $17.2 million.
Expenses in 1997 were $441.3 million, an increase of $74.8 million, or 20%,
from $366.5 million in 1996. The increase was attributable to higher
compensation expenses resulting from increased revenues, as well as the costs
associated with significant technology investments.
Compensation and benefits rose $44.3 million, from $252.1 million to $296.4
million, including a $25.1 million increase in sales compensation attributable
to the compensable revenue increase. Communications and information systems
expenses increased $15.2 million, from $34.7 million to $49.9 million, including
a $12.2 million increase in equipment and software related expenses. Advertising
and sales promotion increased $6.3 million, from $16.4 million to $22.7 million,
including a $4.8 million increase in travel and entertainment expenses. Interest
expense rose $2.5 million, from $19.1 million to $21.6 million, as a result of
the growth in customer margin loans. Occupancy and equipment expenses rose $0.8
million, from $16.0 million to $16.8 million. Brokerage, clearing and exchange
fees rose $0.7 million, from $7.8 million to $8.5 million. Other operating
expenses increased $4.7 million, from $20.5 million to $25.2 million.
Net income in 1997 was $31.5 million, an increase of $3.1 million, or 11%,
from net income of $28.4 million in 1996.
CAPITAL RESOURCES AND LIQUIDITY
The Company's assets consist primarily of cash and assets readily
convertible to cash. Securities inventories are stated at market value and are
generally readily marketable. Customers' margin loans are collateralized by
securities and have floating interest rates. The Company's assets are financed
by bank loans, proceeds from securities lending, long-term and subordinated
borrowings, equity capital, and customer and other payables.
The Company's receivables from customers have increased significantly since
1996. At March 31, 1997, receivable from customers were $518 million, versus
$455 million in March of 1996. Receivables from customers consist primarily of
margin loans collateralized by securities.
The Company maintained a $19 million committed, unsecured, revolving line
of credit. The line was established as a $15 million line in October of 1995,
and increased to $19 million in March of 1997. Borrowings bear interest at a
rate based on the federal funds rate. At March 31, 1997, there was a $19 million
borrowing outstanding under this line.
The Company maintained a $16 million committed revolving line of credit,
secured by certain property and buildings. Borrowings bear interest at a rate
based on the federal funds rate. At March 31, 1997, there was an $8 million
borrowing outstanding under this line.
The Company's securities broker/dealer, Wheat, First Securities, Inc., is
required by Securities and Exchange Commission regulations to meet certain
liquidity and capital standards. At March 31, 1997, Wheat, First Securities,
Inc. had net capital, as defined in the regulations, of $81.6 million, which
exceeded the minimum net capital requirements by $70.8 million.
D-7
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
GENERAL
The Company derives most of its income from securities brokerage,
fully-disclosed clearing, capital markets, and investment management activities.
RESULTS OF OPERATIONS
Revenues in 1996 were $413.8 million, an increase of $94.9 million, or 30%,
from $318.9 million in 1995. The revenue increase reflected a general
improvement in industry revenues and the Company's growth in the number of
branches, financial consultants, and fully disclosed clearing clients.
Commission revenues rose $51.7 million, from $105.4 million to $157.1
million. Principal transaction revenues rose $10.8 million, from $69.5 million
to $80.3 million, mainly because of a $9.3 million increase in over-the-counter
trading revenues. Asset management fees increased $12.5 million, from $45.0
million to $57.5 million, as assets under management increased. Investment
banking revenues rose $6.8 million, from $44.3 million to $51.1 million.
Interest and dividend revenues increased $6.1 million, from $34.5 million to
$40.6 million, due to rising customer margin loan balances and higher interest
rates. Execution and clearing fees increased $3.1 million, from $10.8 million to
$13.9 million, as trading volume, coupled with the addition of new
fully-disclosed firms, continued to rise. Other revenues rose $3.9 million, from
$9.4 million to $13.3 million.
Expenses in 1996 were $366.5 million, an increase of $82.0 million, or 29%
from $284.5 million in 1995. The increase was attributable primarily to higher
compensation expenses resulting from increased revenues.
Compensation and benefits rose $59.8 million, from $192.3 million to $252.1
million, including a $33.6 million increase in sales compensation attributable
to the revenue increase. Communications and information systems expenses
increased $15.5 million, from $19.2 million to $34.7 million, partly because of
a reclassification from occupancy and equipment expenses. Advertising and sales
promotion increased $5.2 million, from $11.2 million to $16.4 million, including
a $3.9 million increase in travel and entertainment expenses. Interest expense
rose $3.1 million, from $16.0 million to $19.1 million, as a result of the
growth in customer margin loans and firm inventories. Occupancy and equipment
expenses declined $7.3 million, from $23.3 million to $16.0 million. The decline
was attributable to the reclassification of certain expenses to the
communications and information systems category in 1996. Brokerage, clearing,
and exchange fees rose $1.2 million, from $6.6 million to $7.8 million,
primarily because of the increase in transaction volume. Other operating
expenses increased $4.6 million, from $15.9 million to $20.5 million.
Net income in 1996 was $28.4 million, an increase of $7.6 million, or 37%,
from net income of $20.8 million in 1995.
CAPITAL RESOURCES AND LIQUIDITY
The Company's assets consist primarily of cash and assets readily
convertible to cash. Securities inventories are stated at market value and are
generally readily marketable. Customers' margin loans are collateralized by
securities and have floating interest rates. The Company's assets are financed
by bank loans, proceeds from securities lending, long-term and subordinated
borrowings, equity capital, and customer and other payables.
The Company's receivables from customers have increased significantly since
1995. At March 31, 1996, receivables from customers were $455 million, versus
$353 million at March 31, 1995. Receivables from customers consist primarily of
margin loans collateralized by securities.
In October of 1995, the Company established a $15 million committed,
unsecured, revolving line of credit. Borrowings bear interest at a rate based on
the federal funds rate. At March 31, 1996, there were no borrowings outstanding
under this line.
In February of 1996, the Company established a $16 million committed
revolving line of credit, secured by certain property and buildings. Borrowings
bear interest at a rate based on the federal funds rate. At March 31, 1996,
there were no borrowings outstanding under this line.
The Company's securities broker/dealer, Wheat, First Securities, Inc., is
required by Securities and Exchange Commission regulations to meet certain
liquidity and capital standards. At March 31, 1996, Wheat, First Securities,
Inc. had net capital, as defined in the regulations, of $81.2 million, which
exceeded the minimum net capital requirements by $71.5 million.
D-8
<PAGE>
(KPMG Peat Marwick LLP logo)
SUITE 1900
1021 EAST CARY STREET
RICHMOND, VA 23219-4023
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wheat First Butcher Singer, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wheat First
Butcher Singer, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
May 14, 1997
(logo--Member Firm of Klynveld Peat Marwick Goerdeier)
D-9
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................................... $ 40,743,624 17,956,061
Receivable from brokers, dealers, and clearing organizations (note 2)........................ 58,515,386 42,433,353
Receivable from customers (note 3)........................................................... 518,247,160 454,784,786
Securities purchased under agreements to resell.............................................. 25,561,683 25,893,963
Trading and investment securities (notes 4 and 6)............................................ 86,614,403 93,571,079
Property and equipment, net (notes 5, 7, and 8).............................................. 68,340,298 36,956,209
Deferred income taxes (note 12).............................................................. 7,295,000 4,904,000
Other assets................................................................................. 138,659,256 60,350,468
------------ ------------
$943,976,810 736,849,919
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings (note 6)............................................................... $ 68,652,454 99,723,024
Payable to brokers, dealers, and clearing organizations (note 2)............................. 232,548,418 195,030,032
Payable to customers (note 3)................................................................ 257,101,143 126,814,465
Securities sold under agreements to repurchase............................................... 9,915,756 11,066,256
Securities sold, but not yet purchased (note 4).............................................. 32,022,325 32,035,822
Accrued compensation and benefits............................................................ 73,689,298 69,061,622
Accounts payable and other liabilities....................................................... 59,440,634 47,103,499
Long-term borrowings and capital lease obligation (notes 7 and 8)............................ 28,670,541 --
------------ ------------
762,040,569 580,834,720
Liabilities subordinated to claims of general creditors (note 9)............................. 35,375,187 34,392,649
Stockholders' equity (notes 10 and 11)....................................................... 146,561,054 121,622,550
Commitments and contingent liabilities (notes 8, 14, and 15)
------------ ------------
$943,976,810 736,849,919
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-10
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Commissions................................................................................ $179,868,984 157,121,938
Principal transactions..................................................................... 88,009,043 80,314,051
Asset management and related fees.......................................................... 79,087,271 57,498,194
Investment banking......................................................................... 66,496,249 51,100,288
Interest and dividends..................................................................... 49,119,848 40,573,137
Execution and clearing fees................................................................ 14,046,430 13,885,505
Other...................................................................................... 17,169,870 13,268,699
------------ ------------
493,797,695 413,761,812
------------ ------------
Expenses:
Compensation and benefits.................................................................. 296,443,142 252,079,355
Communications and information systems..................................................... 49,930,544 34,655,967
Advertising and sales promotion............................................................ 22,718,139 16,374,910
Interest................................................................................... 21,619,883 19,135,755
Occupancy and equipment.................................................................... 16,845,192 15,953,439
Brokerage, clearing, and exchange fees..................................................... 8,505,393 7,779,952
Other...................................................................................... 25,242,212 20,526,667
------------ ------------
441,304,505 366,506,045
------------ ------------
Income before income taxes................................................................... 52,493,190 47,255,767
Income taxes (note 12)....................................................................... 20,997,000 18,902,000
------------ ------------
Net income................................................................................... $ 31,496,190 28,353,767
------------ ------------
------------ ------------
Earnings per share based on weighted average shares outstanding of 8,963,447 in 1997 and
8,801,725 in 1996.......................................................................... $ 3.51 3.22
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-11
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
NONVOTING VOTING ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995.............................. $ -- 17,346,060 12,360,725 66,083,096 95,789,881
Purchase and retirement of 421,997 shares of voting
common stock....................................... -- (843,994) (695,959) (6,409,964) (7,949,917)
Issuance of 542,700 shares of voting common stock.... -- 1,085,400 5,112,234 -- 6,197,634
Purchase and retirement of 900 shares of nonvoting
preferred stock.................................... (11,120) -- -- -- (11,120)
Issuance of 88,050 shares of nonvoting preferred
stock.............................................. 1,021,225 -- -- -- 1,021,255
Cash dividends:
Preferred ($.15 per share)......................... -- -- -- (11,412) (11,412)
Common ($.20 per share)............................ -- -- -- (1,767,508) (1,767,508)
Net income........................................... -- -- -- 28,353,767 28,353,767
---------- ---------- ---------- ----------- -----------
Balance, March 31, 1996.............................. 1,010,105 17,587,466 16,777,000 86,247,979 121,622,550
Purchase and retirement of 544,347 shares of voting
common stock....................................... -- (1,088,694) (1,257,229) (9,409,259) (11,755,182)
Issuance of 515,450 shares of voting common stock.... -- 1,030,900 6,309,108 -- 7,340,008
Purchase and retirement of 16,450 shares of nonvoting
preferred stock.................................... (236,426) -- -- -- (236,426)
Issuance of 119,100 shares of nonvoting preferred
stock.............................................. 1,713,669 -- -- -- 1,713,669
Cash dividends:
Preferred ($.40 per share)......................... -- -- -- (63,880) (63,880)
Common ($.40 per share)............................ -- -- -- (3,555,875) (3,555,875)
Net income........................................... -- -- -- 31,496,190 31,496,190
---------- ---------- ---------- ----------- -----------
Balance, March 31, 1997.............................. $2,487,348 17,529,672 21,828,879 104,715,155 146,561,054
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
D-12
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 31,496,190 28,353,767
Adjustments to reconcile net income to net cash and cash equivalents provided by (used for)
operating activities:
Non-cash charges (credits) included in net income:
Depreciation and amortization......................................................... 13,339,888 9,881,362
Deferred income tax benefit........................................................... (2,391,000) (1,970,000)
Other, net............................................................................ 1,159,069 (5,203)
(Increase) decrease in assets:
Receivable from brokers, dealers, and clearing organizations.......................... (13,931,229) 8,895,053
Receivable from customers............................................................. (63,462,374) (101,598,495)
Securities purchased under agreements to resell....................................... 332,280 (18,009,963)
Trading securities.................................................................... 6,483,161 (12,493,824)
Other assets.......................................................................... (79,335,344) (6,971,914)
Increase (decrease) in liabilities:
Payable to brokers, dealers, and clearing organizations............................... 19,692,440 5,225,418
Payable to customers.................................................................. 130,286,678 22,580,911
Securities sold under agreements to repurchase........................................ 345,157 (4,851,244)
Securities sold, but not yet purchased................................................ (13,497) 14,667,675
Other liabilities..................................................................... 16,949,494 36,217,434
------------ ------------
Total adjustments............................................................................ 29,454,723 (48,432,790)
------------ ------------
Net cash and cash equivalents provided by (used for) operating activities.................... 60,950,913 (20,079,023)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities.......................................................... (10,941) (2,331,251)
Proceeds from sale of investment securities................................................ 973,249 204,702
Purchase of property and equipment......................................................... (42,196,261) (13,705,501)
Proceeds from sale of property and equipment............................................... 158,539 10,619
------------ ------------
Net cash and cash equivalents used for investing activities.................................. (41,075,414) (15,821,431)
------------ ------------
Cash flows from financing activities:
Proceeds from (payments for):
Short-term borrowings, net.............................................................. $(31,070,570) 53,193,212
Securities loaned, net of securities borrowed........................................... 15,675,142 1,065,192
Securities sold under agreements to repurchase.......................................... (1,495,657) (7,953,529)
Long-term borrowings.................................................................... 27,000,000 (2,087,472)
Capital lease obligation................................................................ (583,881) --
Subordinated notes...................................................................... (3,308,632) (2,710,647)
Sale of common and preferred stock...................................................... 7,431,618 4,495,809
Repurchase of common and preferred stock................................................ (7,116,201) (4,511,118)
Dividends paid.......................................................................... (3,619,755) (1,778,920)
------------ ------------
Net cash and cash equivalents provided by financing activities............................... 2,912,064 39,712,527
------------ ------------
Net increase in cash and cash equivalents.................................................... 22,787,563 3,812,073
Cash and cash equivalents at beginning of year............................................... 17,956,061 14,143,988
------------ ------------
Cash and cash equivalents at end of year..................................................... $ 40,743,624 17,956,061
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Income tax payments........................................................................ $ 23,279,250 17,421,443
Interest payments.......................................................................... 21,442,203 21,990,657
------------ ------------
------------ ------------
Supplemental disclosures of non-cash investing and financing activities:
Subordinated debt issued in connection with the repurchase of common and preferred stock... $ 4,337,224 3,233,025
Notes received from the sale of common and preferred stock................................. 4,969,846 3,941,957
Property and equipment acquired under capital lease obligation............................. 2,254,422 --
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-13
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wheat First Butcher Singer, Inc. (the "Parent") is a holding company that
owns Wheat, First Securities, Inc. ("Wheat"), Mentor Investment Group, L.L.C.
("Mentor") and other diversified financial services subsidiaries. These
subsidiaries are wholly-owned except for Mentor. On November 1, 1996, the Parent
sold a 20.2% membership interest in Mentor.
Wheat is a broker/dealer registered under the Securities Exchange Act of
1934 with offices in nineteen states and the District of Columbia. Mentor is an
asset management holding company. A summary of the significant accounting and
reporting policies of Wheat First Butcher Singer, Inc. and subsidiaries (the
"Company") is presented below.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions when preparing its financial statements. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
Wheat First Butcher Singer, Inc. and its subsidiaries. All material intercompany
balances and transactions are eliminated in consolidation.
SECURITIES TRANSACTIONS
Customers' securities transactions are recorded on settlement date with
related commission revenues and expenses recorded on trade date. Securities
transactions of the Company are recorded on trade date.
Marketable securities are valued at market value. Not readily marketable
securities are valued at estimated fair value as determined by management.
Unrealized gains and losses are included in revenues in the accompanying
consolidated statements of income.
INVESTMENT BANKING
Management fees on investment banking transactions and selling concessions
are recorded on trade date. Underwriting fees are generally recorded on trade
date except for those related to syndicate participations, which are recorded on
the date the underwriting syndicate is closed.
INCOME TAXES
The Parent and its subsidiaries file consolidated income tax returns.
Deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided on a straight-line basis using
estimated useful lives of twenty-five to thirty-nine years for buildings and
three to ten years for equipment.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash and cash equivalents to include cash on hand, cash in depository
accounts with other financial institutions, and money market investments, except
for those carried in trading accounts, with original maturities of ninety days
or less. Cash equivalents at March 31, 1997 and 1996 were $2,250,000 and
$2,092,000, respectively.
D-14
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of non-voting preferred and common shares outstanding during the
year. Because the non-voting preferred stock receives dividends equivalent to
the voting common stock, it is treated as a common stock equivalent for earnings
per share calculations.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are accounted for as collateralized
financing transactions and are recorded at their contractual amounts, including
accrued interest. The Company's policy is to take possession of securities
purchased under resale agreements. The Company monitors this collateral daily,
and additional collateral is requested where appropriate to protect against
credit risk exposure.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform
with 1997 presentations.
(2) RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS, AND CLEARING ORGANIZATIONS
Receivable from and payable to brokers, dealers, and clearing organizations
consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Receivable from brokers, dealers, and clearing organizations:
Securities failed to deliver............................................. $ 32,381,382 $ 19,458,629
Deposits paid for securities borrowed.................................... 14,058,400 11,907,596
Other.................................................................... 12,075,604 11,067,128
------------ ------------
$ 58,515,386 $ 42,433,353
------------ ------------
------------ ------------
Payable to brokers, dealers, and clearing organizations:
Securities failed to receive............................................. 26,548,682 14,371,880
Deposits received for securities loaned.................................. 194,962,875 177,136,929
Other.................................................................... 11,036,861 3,521,223
------------ ------------
$232,548,418 $195,030,032
------------ ------------
------------ ------------
</TABLE>
(3) RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
The balances represent the net amounts receivable from and payable to
customers in connection with normal cash and margin transactions. The amounts
receivable from customers are generally collateralized by securities, the value
of which is not reflected in the accompanying consolidated financial statements.
D-15
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) TRADING AND INVESTMENT SECURITIES AND SECURITIES SOLD, BUT NOT YET PURCHASED
Trading and investment securities and securities sold, but not yet
purchased consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Trading and investment securities:
Marketable securities:
Money market instruments................................................ $ 6,744,242 $ 8,469,071
U.S. government and government agency obligations....................... 17,928,190 22,035,199
State and municipal obligations......................................... 40,766,895 39,657,338
Corporate bonds......................................................... 6,076,112 6,801,591
Corporate stocks........................................................ 9,219,788 10,255,189
----------- -----------
80,735,227 87,218,388
Not readily marketable securities.......................................... 5,879,176 6,352,691
----------- -----------
$86,614,403 $93,571,079
----------- -----------
----------- -----------
Securities sold, but not yet purchased:
Money market instruments................................................... 192,445 --
U.S. government and government agency obligations.......................... 19,105,693 28,575,199
State and municipal obligations............................................ 5,742,025 393,464
Corporate bonds............................................................ 3,964,411 590,158
Corporate stocks........................................................... 3,017,751 2,477,001
----------- -----------
$32,022,325 $32,035,822
----------- -----------
----------- -----------
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land.................................................................. $ 2,166,141 $ 2,166,141
Buildings............................................................. 20,298,309 10,487,361
Furniture and equipment............................................... 22,043,745 17,348,827
Communications and computer equipment................................. 63,317,221 39,755,746
Leasehold improvements................................................ 7,863,910 6,306,355
------------ ------------
115,689,326 76,064,430
Accumulated depreciation and amortization............................. (47,349,028) (39,108,221)
------------ ------------
Property and equipment, net........................................... $ 68,340,298 $ 36,956,209
------------ ------------
------------ ------------
</TABLE>
Total depreciation and amortization expense for property and equipment
approximated $12,797,000 in 1997 and $9,267,000 in 1996.
D-16
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) SHORT-TERM BORROWINGS
Short-term borrowings consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
MARKET MARKET
AMOUNT VALUE OF AMOUNT VALUE OF
OUTSTANDING COLLATERAL OUTSTANDING COLLATERAL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Non-interest bearing book overdrafts............. $35,752,454 $ -- $30,808,024 $ --
Bank loans collateralized by customers' margin
securities..................................... -- -- 36,415,000 91,793,000
Bank loans collateralized by firm securities..... 32,900,000 48,475,000 30,000,000 51,094,000
Unsecured revolving bank loan.................... -- -- 2,500,000 --
----------- ---------- ----------- ----------
---------- ----------
$68,652,454 $99,723,024
----------- -----------
----------- -----------
</TABLE>
Bank loans collateralized by customers' margin securities and firm
securities generally bear interest at a rate that varies with the federal funds
rate and are payable on demand.
The unsecured bank loan under a revolving credit agreement bears interest
at a rate that varies with the bank's 30-day LIBOR. The revolving credit
agreement expires June 30, 1997, and any outstanding balance is payable on
December 31, 1997. The revolving credit agreement contains covenants, among
others, that require the Company to maintain minimum levels of stockholders'
equity, retain minimum levels of current year earnings, and require Wheat to
maintain minimum levels of net capital, as defined.
(7) LONG-TERM BORROWINGS
Long-term borrowings consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Unsecured revolving bank loan.................................................. $19,000,000 $ --
Secured revolving bank loan.................................................... 8,000,000 --
----------- ----------
$27,000,000 $ --
----------- ----------
----------- ----------
</TABLE>
The Company has an unsecured revolving loan agreement that provides for
borrowings of $19,000,000. Interest on the revolving loan agreement varies with
the federal funds rate or the eurodollar rate. The agreement expires on
September 8, 1997, but is renewable annually at the discretion of the lender. If
not renewed, any outstanding balance is payable in three equal annual
installments commencing September 30, 1998.
The Company has a secured revolving loan agreement that provides for
borrowings of $16,000,000. The loan is secured by certain property and
buildings. Because one of the buildings serving as collateral was not complete,
the maximum borrowing provided at March 31, 1997 was $8,000,000. Interest on the
revolving loan agreement varies with the federal funds rate or LIBOR. The
agreement expires on September 30, 1997, but is renewable annually at the
discretion of the lender. If not renewed, any outstanding balance is payable in
quarterly installments over three years commencing December 31, 1997.
The revolving loan agreements contain covenants that require the Company to
maintain minimum levels of stockholders' equity, retain minimum levels of
current year earnings, and require Wheat to maintain minimum levels of net
capital, as defined.
D-17
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(7) LONG-TERM BORROWINGS -- Continued
If the revolving loan agreements are not renewed by the lenders, the
aggregate maturities of long-term borrowings as of March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31 PRINCIPAL
- --------------------------------------------------------------- -----------
<S> <C>
1998........................................................... $ 1,333,334
1999........................................................... 8,999,999
2000........................................................... 8,999,999
2001........................................................... 7,666,668
-----------
$27,000,000
-----------
-----------
</TABLE>
(8) LEASES
On July 26, 1996, the Company entered into a capital lease obligation to
acquire computer equipment totaling $2,254,422. The capital lease bears interest
at a fixed rate and is payable in monthly installments that commenced July 31,
1996, and end June 30, 1998. The net book value of the equipment under the
capital lease at March 31, 1997 was $1,793,147.
The Company leases its office space under operating leases expiring at
various dates to 2006. Minimum future rental payments required under such
leases, including related sublease income on office space, that have initial or
remaining noncancelable lease terms in excess of one year as of March 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING SUBLEASE
MARCH 31, LEASES INCOME
- ------------------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
1998........................................................................... $ 9,741,438 $ 581,253
1999........................................................................... 14,240,211 844,915
2000........................................................................... 13,631,828 772,778
2001........................................................................... 13,281,206 756,138
2002........................................................................... 11,176,637 771,470
After 2002..................................................................... 32,999,806 3,432,992
----------- ----------
$95,071,126 $7,159,546
----------- ----------
----------- ----------
</TABLE>
Some of the Company's leases contain escalation clauses and renewal
options. Total rental expense under operating leases approximated $11,104,000 in
1997 and $9,973,000 in 1996. Total sublease income approximated $571,000 in 1997
and $429,000 in 1996.
(9) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors consist of the
following at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Liability pursuant to cash subordination agreement........................... $25,000,000 $25,000,000
Subordinated promissory notes payable........................................ 10,375,187 9,392,649
----------- -----------
$35,375,187 $34,392,649
----------- -----------
----------- -----------
</TABLE>
Wheat has a $25,000,000 cash subordination agreement which bears interest
at 7.18% and is payable in five equal annual installments beginning January 26,
2000. The cash subordination agreement has been approved by the applicable
regulatory authorities and is includable by Wheat for purposes of computing its
net capital under the rules of these regulatory authorities. To the extent that
such borrowings are required for Wheat's continued compliance with minimum net
capital requirements, they may not be repaid. The cash subordination agreement
contains covenants, among others, that require Wheat to maintain minimum levels
of stockholder's equity and net capital, as defined.
D-18
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS -- Continued
The subordinated promissory notes were issued to stockholders in connection
with the retirement of common stock by the Company. These notes are payable in
equal annual installments and bear interest at 9%.
The aggregate maturities of liabilities subordinated to claims of general
creditors as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, PRINCIPAL
- --------------------------------------------------------------- -----------
<S> <C>
1998........................................................... $ 3,934,092
1999........................................................... 3,464,227
2000........................................................... 6,892,562
2001........................................................... 6,084,306
2002........................................................... 5,000,000
After 2002..................................................... 10,000,000
-----------
$35,375,187
-----------
-----------
</TABLE>
(10) NET CAPITAL REQUIREMENTS
As a broker/dealer, Wheat is subject to the net capital rules of the
Securities and Exchange Commission, the New York Stock Exchange, Inc., and the
Commodity Futures Trading Commission and elects to compute its net capital
requirements in accordance with the alternative method. Under this method, Wheat
is required to maintain minimum net capital, as defined, equal to 2% of
aggregate debit balances arising from customer transactions, as defined. The net
capital rules also provide that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than 5% of aggregate
debits. At March 31, 1997, Wheat's net capital of $81,615,378 was $70,847,475 in
excess of the minimum net capital required.
(11) STOCKHOLDERS' EQUITY
On July 15, 1995, the Parent formed the Wheat First Butcher Singer Grantor
Trust (the "Trust"). The Trust is a grantor trust organized solely to purchase
shares of the Company's Nonvoting Preferred Stock and to issue shares ("Trust
Shares") representing beneficial ownership interests in the Trust to designated
employees of the Company.
During the years ended March 31, 1997 and 1996, the Trustees of the Trust
authorized 119,100 and 88,050 Trust Shares, respectively, which were issued to
employees of the Company. In conjunction with these transactions, the Company
simultaneously issued 119,100 and 88,050 shares of Nonvoting Preferred Stock to
the Trust.
The significant characteristics of the Company's stockholders' equity are
described below.
NONVOTING PREFERRED STOCK -- The holder of the nonvoting preferred stock
has essentially the same rights, privileges, and restrictions as holders of the
common stock, except that the preferred stockholder has preferences upon
liquidation and no voting rights.
COMMON STOCK -- Holders of the common stock are restricted in the sale,
donation, assignment, pledging, or transfer of their stock.
DIVIDENDS -- The Company's dividend payments are practically restricted to
the extent of restrictions on Wheat's dividend payments. Wheat's dividend
payments are restricted by the Securities and Exchange Commission, New York
Stock Exchange, Inc., and Commodity Futures Trading Commission net capital
rules.
STOCK REDEMPTION AGREEMENTS -- The Company has agreements with holders of
all outstanding common stock (the "Common Stock Redemption Agreement"), except
for the Company's associate stock ownership plan, whereby it is required to
purchase the common stock in the event of the stockholder's death, disability,
or retirement. In addition, the Company has agreements with stockholders whose
age plus years of service exceed 75, whereby it may purchase some or all of such
stockholders' shares. The purchase price for all such shares, at the option of
the stockholder, is either the book value per share, as defined, or a price
equal to ten times the average earnings per share for the last three full
twelve-month periods. In
D-19
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) STOCKHOLDERS' EQUITY -- Continued
addition, if a stockholder terminates employment for reasons other than death,
disability, or retirement, the Company has the option to purchase the stock at
book value.
The Company also has an agreement with the Trust, the holder of the
preferred stock, whereby it is required to purchase the preferred stock in the
event of redemption of Trust Shares. Trust Shares are redeemable under an
agreement between the Trust and its shareholders. The provisions of this
agreement are the same as those of the Common Stock Redemption Agreement.
The shares of capital stock consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
ISSUED AND ISSUED AND
AUTHORIZED OUTSTANDING OUTSTANDING
----------- ----------- -----------
<S> <C> <C> <C>
Preferred stock -- nonvoting, noncumulative, nonconvertible, no
par value.................................................... 1,000,000 189,800 87,150
Common stock -- voting, $2 par value........................... 19,000,000 8,764,836 8,793,733
Common stock -- nonvoting, $2 par value........................ 500,000 -- --
</TABLE>
(12) INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended
March 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Federal.......................................................................... $18,968,000 $16,884,000
State and local.................................................................. 4,420,000 3,988,000
----------- -----------
23,388,000 20,872,000
----------- -----------
Deferred
Federal.......................................................................... (1,834,000) (1,650,000)
State and local.................................................................. (557,000) (320,000)
----------- -----------
(2,391,000) (1,970,000)
----------- -----------
$20,997,000 $18,902,000
----------- -----------
----------- -----------
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
AMOUNT % AMOUNT %
----------- --- ----------- ---
<S> <C> <C> <C> <C>
Federal income taxes computed at the statutory rate.................. $18,373,000 35 $16,540,000 35
State and local income taxes, net of federal income tax benefit...... 2,511,000 5 2,384,000 5
Tax-exempt interest.................................................. (606,000) (1) (543,000) (1)
Other, net........................................................... 719,000 1 521,000 1
----------- --- ----------- ---
$20,997,000 40 $18,902,000 40
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
D-20
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(12) INCOME TAXES -- Continued
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows at March 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred compensation....................................................... $ 3,447,000 $ 1,810,000
Other liabilities........................................................... 5,260,000 4,199,000
Unrealized depreciation of investment securities............................ 439,000 436,000
Goodwill.................................................................... 355,000 290,000
Other....................................................................... 138,000 161,000
----------- -----------
9,639,000 6,896,000
Deferred tax liabilities:
Not readily marketable securities........................................... (915,000) (1,002,000)
Property and equipment...................................................... (753,000) (717,000)
Other....................................................................... (676,000) (273,000)
----------- -----------
(2,344,000) (1,992,000)
----------- -----------
$ 7,295,000 $ 4,904,000
----------- -----------
----------- -----------
</TABLE>
No valuation allowance related to the deferred tax assets is deemed
necessary based on the Company's history of operating earnings, and its
expectation that it is more likely than not that future operating income will be
sufficient to fully realize the benefits of the deferred tax assets.
(13) EMPLOYEE BENEFIT PLANS
The Company's retirement program consists of defined contribution plans and
covers substantially all employees. The Company matches 25% of employee
contributions up to 6% of eligible compensation, as defined. Any additional
employer contributions are made at the discretion of the Company's Board of
Directors. The Company's retirement expense was $9,039,000 in 1997 and
$9,139,000 in 1996. All expenses are accrued and charged against current
operations.
(14) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is not involved in any litigation, which based upon the advice
of legal counsel handling such matters, would be expected to have a material
adverse effect on the consolidated financial position of the Company.
As of March 31, 1997, Wheat had irrevocable letter of credit agreements
that totaled $27,086,500. The agreements, which are used in lieu of deposits
with clearing organizations, bear interest at 1/4% and are fully collateralized
by customer-owned margin securities.
(15) FINANCIAL INSTRUMENTS
Trading and investment securities and securities sold, but not yet
purchased are carried in the consolidated statements of financial condition at
market value, if available, or estimated fair value. Due to the relatively
short-term nature of receivables, payables, short-term borrowings, and
repurchase agreements, the carrying amounts are reasonable estimates of fair
value.
The fair value of long-term borrowings and capital lease obligation was
approximately the same as the carrying amount of such debt at March 31, 1997.
The fair value of the liabilities subordinated to claims of general
creditors, determined by interest rates currently available, is approximately
$34,600,000 and $33,800,000 at March 31, 1997 and 1996, respectively.
In the normal course of business, Wheat's clearance activities involve the
execution, settlement, and financing of various securities and commodities
transactions. These activities may expose Wheat to off-balance-sheet credit risk
in the event
D-21
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(15) FINANCIAL INSTRUMENTS -- Continued
the counterparty to the transaction is unable to fulfill its contractual
obligations. Credit risk is reduced by the industry policy of obtaining and
maintaining adequate collateral until the commitment is completed.
In connection with these activities, Wheat executes and clears customer
transactions involving the sale of securities not yet purchased and the writing
of option contracts. Wheat also executes customer transactions for the purchase
and sale of commodity futures contracts, substantially all of which are
transacted on a margin basis subject to individual exchange regulations. Such
transactions may expose Wheat to off-balance-sheet risk if margin requirements
are not sufficient to fully cover losses that customers may incur. If the
customer fails to satisfy its obligation, Wheat may be required to purchase or
sell financial instruments at prevailing market prices in order to fulfill the
customer's obligation.
Wheat's customer financing and securities settlement activities require
Wheat to pledge customer securities as collateral in support of various secured
financing sources. In addition, Wheat pledges customer securities as collateral
to satisfy margin deposits of various exchanges. Much of this collateral is held
by independent third parties, and if the third party is unable to meet its
contractual obligation to return customer securities pledged as collateral,
Wheat may be exposed to the risk of acquiring these securities at prevailing
market prices in order to satisfy its customer obligations.
Wheat sells short treasury bond and municipal bond index futures contracts
to hedge its fixed income inventories. The futures contracts involve
off-balance-sheet risk since the cost to close out the contracts may exceed the
amounts recognized in the consolidated statement of financial condition. The
contracts are listed on regulated exchanges and are marked to market daily with
the resulting gain or loss reflected in revenue. The exchanges guarantee
performance of counterparties; therefore credit risk is limited to a default by
the exchange. There were no contracts outstanding at March 31, 1997 and 1996.
The average fair values of these contracts during the years ended March 31, 1997
and 1996 were not material.
D-22
<PAGE>
(KPMG Peat Marwick LLP logo)
SUITE 1900
1021 EAST CARY STREET
RICHMOND, VA 23219-4023
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wheat First Butcher Singer, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Wheat First Butcher Singer, Inc. and subsidiaries as of March 31,
1996 and 1995, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Wheat First
Butcher Singer, Inc. and subsidiaries as of March 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
May 6, 1996
(Member Firm of Klynveid Peat Marwick Goerdeler logo)
D-23
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................................... $ 17,956,061 $ 14,143,988
Receivable from brokers, dealers, and clearing organizations (note 2)........................ 42,433,353 66,952,110
Receivable from customers (note 3)........................................................... 454,784,786 353,186,291
Securities purchased under agreements to resell.............................................. 25,893,963 7,884,000
Trading and investment securities (notes 4 and 5)............................................ 93,571,079 78,906,498
Property and equipment, at cost (less accumulated depreciation and amortization of
$39,108,221 in 1996 and $32,292,949 in 1995) (notes 6 and 7)............................... 36,956,209 32,598,900
Deferred income taxes (note 11).............................................................. 4,904,000 2,934,000
Other assets................................................................................. 60,350,468 51,532,465
------------ ------------
$736,849,919 $608,138,252
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings (note 5)............................................................... 99,723,024 46,529,812
Payable to brokers, dealers, and clearing organizations (note 2)............................. 195,030,032 204,363,126
Payable to customers (note 3)................................................................ 126,814,465 104,233,554
Securities sold under agreements to repurchase............................................... 11,066,256 23,871,029
Securities sold, but not yet purchased (note 4).............................................. 32,035,822 17,368,147
Accrued compensation and benefits............................................................ 69,061,622 46,681,355
Accounts payable and other liabilities....................................................... 47,103,499 33,400,048
Long-term borrowings and capital lease obligations (notes 6 and 7)........................... -- 1,984,975
------------ ------------
580,834,720 478,432,046
Liabilities subordinated to claims of general creditors (note 8)............................. 34,392,649 33,916,325
Stockholders' equity (notes 9 and 10)........................................................ 121,622,550 95,789,881
Commitments and contingent liabilities (notes 7, 13, and 14)
------------ ------------
$736,849,919 $608,138,252
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-24
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Commissions................................................................................ $157,121,938 $105,399,440
Principal transactions..................................................................... 80,314,051 69,541,636
Investment banking......................................................................... 51,100,288 44,334,844
Asset management and related fees.......................................................... 57,498,194 44,964,062
Interest and dividends..................................................................... 40,573,137 34,459,959
Execution and clearing fees................................................................ 13,885,505 10,793,604
Other...................................................................................... 13,268,699 9,408,530
------------ ------------
413,761,812 318,902,075
------------ ------------
Expenses:
Compensation and benefits.................................................................. 252,079,355 192,344,929
Occupancy and equipment.................................................................... 26,551,213 23,285,881
Communications............................................................................. 23,439,466 19,184,634
Advertising and sales promotion............................................................ 16,374,910 11,158,164
Interest................................................................................... 19,135,755 16,030,253
Brokerage, clearing and exchange fees...................................................... 7,779,952 6,580,943
Other...................................................................................... 21,145,394 15,926,353
------------ ------------
366,506,045 284,511,157
------------ ------------
Income before income taxes................................................................... 47,255,767 34,390,918
Income taxes (note 11)....................................................................... 18,902,000 13,585,000
------------ ------------
Net income................................................................................... $ 28,353,767 $ 20,805,918
------------ ------------
------------ ------------
Earnings per share based on weighted average shares outstanding of 8,801,725 in 1996 and
8,869,928 in 1995.......................................................................... $ 3.22 $ 2.35
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-25
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
NON-VOTING VOTING ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994......................... $ -- $17,862,988 $ 8,857,848 $ 57,400,880 $ 84,121,716
Purchase and retirement of 843,814 shares of
voting common stock........................... -- (1,687,628) (863,039) (10,336,493) (12,887,160)
Issuance of 585,350 shares of voting common
stock......................................... -- 1,170,700 4,365,916 -- 5,536,616
Cash dividends ($.20 per share)................. -- -- -- (1,787,209) (1,787,209)
Net income...................................... -- -- -- 20,805,918 20,805,918
---------- ----------- ----------- ------------ ------------
Balance, March 31, 1995......................... -- 17,346,060 12,360,725 66,083,096 95,789,881
Purchase and retirement of 421,997 shares of
voting common stock........................... -- (843,994) (695,959) (6,409,964) (7,949,917)
Issuance of 542,700 shares of voting common
stock......................................... -- 1,085,400 5,112,234 -- 6,197,634
Issuance of 88,050 shares of non-voting
preferred stock............................... 1,021,225 -- -- -- 1,021,225
Purchase and retirement of 900 shares of
non-voting preferred stock.................... (11,120) -- -- -- (11,120)
Cash dividends:
Preferred ($.15 per share).................... -- -- -- (11,412) (11,412)
Common ($.20 per share)....................... -- -- -- (1,767,508) (1,767,508)
Net income...................................... -- -- -- 28,353,767 28,353,767
---------- ----------- ----------- ------------ ------------
Balance, March 31, 1996......................... $1,010,105 $17,587,466 $16,777,000 $ 86,247,979 $121,622,550
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-26
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from financing activities:
Net income................................................................................. $ 28,353,767 $ 20,805,918
Adjustments to reconcile net income to cash and cash equivalents used for operating
activities:
Noncash charges (credits) included in net income:
Depreciation and amortization...................................................... 9,881,362 7,496,196
Deferred income tax expense (benefit).............................................. (1,970,000) 4,767,000
Other.............................................................................. (5,203) (806,836)
(Increase) decrease in assets:
Receivable from brokers, dealers, and clearing organizations....................... 8,895,053 (21,449,152)
Receivable from customers.......................................................... (101,598,495) (3,482,989)
Securities purchased under agreements to resell.................................... (18,009,963) 15,026,900
Trading securities................................................................. (12,493,824) (10,495,899)
Other assets....................................................................... (6,971,914) 16,032,992
Increase (decrease) in liabilities:
Payable to brokers, dealers, and clearing organizations............................ 5,225,418 (7,629,430)
Payable to customers............................................................... 22,580,911 13,008,065
Securities sold under agreements to repurchase..................................... (4,851,244) (15,260,594)
Securities sold, but not yet purchased............................................. 14,667,675 (1,828,195)
Other liabilities.................................................................. 36,217,434 (17,506,474)
------------- ------------
Total adjustments............................................................................ (48,432,790) (22,128,416)
------------- ------------
Net cash and cash equivalents used for operating activities.................................. (20,079,023) (1,322,498)
------------- ------------
Cash flows from investing activities:
Purchase of investment securities.......................................................... (2,331,251) (3,330,665)
Proceeds from sale of investment securities................................................ 204,702 563,605
Purchase of property, equipment, leasehold improvements, and software...................... (13,705,501) (8,301,456)
Proceeds from sale of property and equipment............................................... 10,619 28,022
------------- ------------
Net cash and cash equivalents used for investing activities.................................. (15,821,431) (11,040,494)
------------- ------------
Cash flows from financing activities:
Proceeds from (payments for):
Short-term borrowings, net.............................................................. $ 53,193,212 $(10,072,719)
Securities loaned, net of securities borrowed........................................... 1,065,192 25,327,219
Securities sold under agreements to repurchase.......................................... (7,953,529) 7,133,700
Long-term borrowings and capital lease obligation....................................... (2,087,472) (327,134)
Subordinated notes...................................................................... (2,710,647) (1,190,899)
Sale of common and preferred stock...................................................... 4,495,809 4,605,150
Repurchase of common and preferred stock................................................ (4,511,118) (6,502,811)
Dividends paid.......................................................................... (1,778,920) (1,787,209)
------------- ------------
Net cash and cash equivalents provided by financing activities............................... 39,712,527 17,185,297
------------- ------------
Net increase in cash and cash equivalents.................................................... 3,812,073 4,822,305
Cash and cash equivalents at beginning of year............................................... 14,143,988 9,321,683
------------- ------------
Cash and cash equivalents at end of year..................................................... $ 17,956,061 $ 14,143,988
------------- ------------
------------- ------------
Supplemental disclosures of cash flow information:
Income tax payments........................................................................ $ 17,421,443 $ 8,845,863
Interest payments.......................................................................... 21,990,657 15,444,785
------------- ------------
------------- ------------
Supplemental disclosure of noncash investing and financing activities:
Subordinated debt issued in connection with the repurchase of common stock................. $ 3,233,025 $ 6,042,422
Notes received from the sale of common stock............................................... 3,941,957 2,886,723
Charitable contribution of investment securities........................................... 31,219 1,272,405
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
D-27
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wheat First Butcher Singer, Inc. (the "Parent") is a holding company that
owns all of the outstanding capital stock of Wheat, First Securities, Inc.
("Wheat") and other diversified financial services subsidiaries. Wheat is a
broker/dealer registered under the Securities Exchange Act of 1934 with offices
in seventeen states and the District of Columbia. A summary of the significant
accounting and reporting policies of Wheat First Butcher Singer, Inc. and
subsidiaries (the "Company") is presented below.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions when preparing its financial statements. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the accounts of
Wheat First Butcher Singer, Inc. and its subsidiaries, all of which are wholly
owned. All material intercompany balances and transactions are eliminated in
consolidation.
SECURITIES TRANSACTIONS
Customers' securities transactions are recorded on settlement date with
related commission revenues and expenses recorded on trade date. Securities
transactions of the Company are recorded on trade date.
Marketable securities are valued at market value. Not readily marketable
securities are valued at estimated fair value as determined by management.
Unrealized gains and losses are included in revenues in the accompanying
consolidated statements of income.
INVESTMENT BANKING
Management fees on investment banking transactions and selling concessions
are recorded on trade date. Underwriting fees are generally recorded on trade
date except for those related to syndicate participations, which are recorded on
the date the underwriting syndicate is closed.
INCOME TAXES
The Parent and its subsidiaries file consolidated income tax returns.
Deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided on a straight-line basis using
estimated useful lives of twenty-five to thirty-one years for buildings and
three to ten years for equipment and software.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash and cash equivalents to include cash on hand, cash in depository
accounts with other financial institutions, and money market investments, except
for those carried in trading accounts, with original maturities of ninety days
or less. Cash equivalents at March 31, 1996 and 1995 were $2,092,000 and
$1,988,000, respectively.
D-28
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of non-voting preferred and common shares outstanding during the
year. Because the non-voting preferred stock receives dividends equivalent to
the voting common stock, it is treated as a common stock equivalent for earnings
per share calculations.
REPURCHASE AND RESALE AGREEMENTS
Repurchase and resale agreements are accounted for as collateralized
financing transactions and are recorded at their contractual amounts, including
accrued interest. The Company's policy is to take possession of securities
purchased under resale agreements. The Company monitors this collateral daily,
and additional collateral is requested where appropriate to protect against
credit risk exposure.
(2) RECEIVABLE FROM AND PAYABLE TO BROKERS, DEALERS, AND CLEARING ORGANIZATIONS
Receivable from and payable to brokers, dealers, and clearing organizations
consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Receivable from brokers, dealers, and clearing organizations:
Securities failed to deliver............................................................ $ 19,458,629 $ 3,852,561
Deposits paid for securities borrowed................................................... 11,907,596 27,531,300
Receivable from clearing organization................................................... -- 31,339,083
Other................................................................................... 11,067,128 4,229,166
------------ ------------
$ 42,433,353 $ 66,952,110
------------ ------------
------------ ------------
Payable to brokers, dealers, and clearing organizations:
Securities failed to receive............................................................ $ 14,371,880 $ 6,095,732
Deposits received for securities loaned................................................. 177,136,929 191,695,441
Other................................................................................... 3,521,223 6,571,953
------------ ------------
$195,030,032 $204,363,126
------------ ------------
------------ ------------
</TABLE>
(3) RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
The balances represent the net amounts receivable from and payable to
customers in connection with normal cash and margin transactions. The amounts
receivable from customers are generally collateralized by securities, the value
of which is not reflected in the accompanying consolidated financial statements.
D-29
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(4) TRADING AND INVESTMENT SECURITIES
Trading and investment securities consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Owned:
Marketable securities:
Money market instruments.................................................................. $ 8,469,071 $19,775,169
U.S. government and government agency obligations......................................... 22,035,199 20,344,309
State and municipal obligations........................................................... 39,657,338 24,122,920
Corporate bonds........................................................................... 6,801,591 5,370,743
Corporate stocks.......................................................................... 10,255,189 5,111,423
------------ ------------
87,218,388 74,724,564
Not readily marketable securities............................................................ 6,352,691 4,181,934
------------ ------------
$ 93,571,079 $78,906,498
------------ ------------
------------ ------------
Sold, but not yet purchased:
U.S. government and government agency obligations............................................ 28,575,199 12,784,023
State and municipal obligations.............................................................. 393,464 110,913
Corporate bonds.............................................................................. 590,158 321,914
Corporate stocks............................................................................. 2,477,001 4,151,297
------------ ------------
$ 32,035,822 $17,368,147
------------ ------------
------------ ------------
</TABLE>
(5) SHORT-TERM BORROWINGS
Short-term borrowings consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
MARKET MARKET
AMOUNT VALUE OF AMOUNT VALUE OF
OUTSTANDING COLLATERAL OUTSTANDING COLLATERAL
----------- ----------- ----------- -----------
Non-interest bearing book overdrafts............................ $30,808,024 $ -- $27,782,132 $ --
Bank loans collateralized by customers' margin securities....... 36,415,000 91,793,000 1,847,680 13,399,000
Bank loans collateralized by firms securities................... 30,000,000 51,094,000 15,000,000 19,611,000
Unsecured revolving bank loan................................... 2,500,000 -- 1,900,000 --
----------- ----------- ----------- -----------
----------- -----------
$99,723,024 $46,529,812
----------- -----------
----------- -----------
</TABLE>
Bank loans collateralized by customers' margin securities and firm
securities generally bear interest at a rate that varies with the federal funds
rate and are payable on demand.
The unsecured bank loan under a revolving credit agreement bears interest
at a rate that varies with the bank's 30-day LIBOR. The revolving credit
agreement expires December 31, 1996, and any outstanding balance is payable on
June 30, 1997. The revolving credit loan agreement contains covenants, among
others, that require the Company to maintain minimum levels of stockholders'
equity, retain minimum levels of current year earnings, and require Wheat to
maintain minimum levels of net capital, as defined.
(6) LONG-TERM BORROWINGS
On October 12, 1995, the Company entered into an unsecured revolving loan
agreement that provides for a maximum borrowing of $15,000,000. Interest on the
revolving loan agreement varies with the federal funds rate or the eurodollar
rate. The agreement expires on October 9, 1996, but is renewable annually at the
discretion of the lender. If not renewed, any
D-30
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(6) LONG-TERM BORROWINGS -- Continued
outstanding balance is payable in three equal annual installments commencing
October 31, 1997. There were no amounts outstanding under this agreement at
March 31, 1996.
On February 1, 1996, the Company entered into a secured revolving loan
agreement that provides for a maximum borrowing of $16,000,000. The loan is
secured by certain property and buildings. Because one of the buildings serving
as collateral was not complete, the maximum borrowing providing at March 31,
1996 was $8,600,000. Interest on the revolving loan agreement varies with the
federal funds rate or LIBOR. The agreement expires on February 1, 1997, but is
renewable annually at the discretion of the lender. If not renewed, any
outstanding balance is payable in quarterly installments over three years
commencing March 31, 1997. There were no amounts outstanding under this
agreement at March 31, 1996. In conjunction with this loan agreement, the
mortgage note payable, with a balance outstanding of $1,708,295 at March 31,
1995, was paid January 31, 1996.
The revolving loan agreements contain covenants that require the Company to
maintain minimum levels of stockholders' equity, retain minimum levels of
current year earnings, and require Wheat to maintain minimum levels of net
capital, as defined.
(7) LEASES
The Company had a capital lease obligation for computer equipment that
expired in 1996. The gross amount of equipment under the capital lease was
$549,353 at March 31, 1995, with related depreciation of $272,673.
The Company leases its office space under operating leases expiring at
various dates to 2006. Minimum future rental payments required under such
leases, including related sublease income on office space, that have initial or
remaining noncancelable lease terms in excess of one year as of March 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING SUBLEASE
MARCH 31, LEASES INCOME
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1997................................................................... $11,745,648 $ 994,019
1998................................................................... 11,717,214 1,024,699
1999................................................................... 11,408,432 1,056,244
2000................................................................... 10,973,711 996,021
2001................................................................... 9,888,883 991,311
After 2001............................................................. 35,260,770 5,716,817
----------- -----------
$90,994,658 $10,779,111
----------- -----------
----------- -----------
</TABLE>
Some of the Company's leases contain escalation clauses and renewal
options. Total rental expense under operating leases approximated $9,973,000 in
1996 and $9,516,000 in 1995.
(8) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to claims of general creditors consisted of the
following at March 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Liability pursuant to cash subordination agreement............................................. $ 25,000,000 $25,000,000
Subordinated promissory notes payable.......................................................... 9,392,649 8,916,325
------------ ------------
$ 34,392,649 $33,916,325
------------ ------------
------------ ------------
</TABLE>
Wheat has a $25,000,000 cash subordination agreement which bears interest
at 7.18% and is payable in five equal annual installments beginning January 26,
2000. The cash subordination agreement has been approved by the applicable
regulatory authorities and is includable by Wheat for purposes of computing its
net capital under the rules of these regulatory authorities. To the extent that
such borrowings are required for Wheat's continued compliance with minimum net
capital
D-31
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(8) LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS -- Continued
requirements, they may not be repaid. The cash subordination agreement contains
covenants, among others, that require Wheat to maintain minimum levels of
stockholder's equity and net capital, as defined.
The subordinated promissory notes were issued to stockholders in connection
with the retirement of common stock by the Company. These notes are payable in
equal annual installments and bear interest at 9%.
The aggregate maturities of liabilities subordinated to claims of general
creditors as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31, PRINCIPAL
- --------------------------------------------------------------------------------------- ------------
<S> <C>
1997................................................................................... $ 3,354,686
1998................................................................................... 2,849,786
1999................................................................................... 2,379,921
2000................................................................................... 5,808,256
2001................................................................................... 5,000,000
After 2001............................................................................. 15,000,000
------------
$ 34,392,649
------------
------------
</TABLE>
(9) NET CAPITAL REQUIREMENTS
As a broker/dealer, Wheat is subject to the net capital rules of the
Securities and Exchange Commission, the New York Stock Exchange, Inc., and the
Commodity Futures Trading Commission and elects to compute its net capital
requirements in accordance with the alternative method. Under this method, Wheat
is required to maintain minimum net capital, as defined, equal to 2% of
aggregate debit balances arising from customer transactions, as defined. The net
capital rules also provide that equity capital may not be withdrawn or cash
dividends paid if resulting net capital would be less than 5% of aggregate
debits. At March 31, 1996, Wheat's net capital of $81,206,698 was 16.7% of
aggregate debit balances and was $71,467,196 in excess of the minimum net
capital required.
(10) STOCKHOLDERS' EQUITY
On July 15, 1995, the Parent formed the Wheat First Butcher Singer Grantor
Trust (the "Trust"). The Trust is a grantor trust organized solely to purchase
shares of the Company's Non-Voting Preferred Stock and to issue shares ("Trust
Shares") representing beneficial ownership interests in the Trust to designated
employees of the Company.
During the year ended March 31, 1996, the Trustees of the Trust authorized
88,050 Trust Shares, which were issued to employees of the Company. In
conjunction with these transactions, the Company simultaneously issued 88,050
shares of Non-Voting Preferred Stock to the Trust.
The significant characteristics of the Company's stockholders' equity are
described below.
NON-VOTING PREFERRED STOCK -- The holder of the non-voting preferred stock
has essentially the same rights, privileges, and restrictions as holders of the
common stock, except that preferred stockholders have preferences upon
liquidation and no voting rights.
COMMON STOCK -- Holders of the common stock are restricted in the sale,
donation, assignment, pledging, or transfer of their stock.
DIVIDENDS -- The Company's dividend payments are practically restricted to
the extent of restrictions on Wheat's dividend payments. Wheat's dividend
payments are restricted by the Securities and Exchange Commission, New York
Stock Exchange, Inc., and Commodity Futures Trading Commission net capital
rules.
STOCK REDEMPTION AGREEMENTS -- The Company has agreements with holders of
all outstanding common stock (the "Common Stock Redemption Agreement"), except
for the Company's associate stock ownership plan, whereby it is required
D-32
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(10) STOCKHOLDERS' EQUITY -- Continued
to purchase the common stock in the event of the stockholder's death,
disability, or retirement. In addition, the Company has agreements with
stockholders whose age plus years of service exceed 75, whereby it may purchase
some or all of such stockholders' shares. The purchase price for all such
shares, at the option of the stockholder, is either the book value per share, as
defined, or a price equal to ten times the average earnings per share for the
last three full twelve-month periods. In addition, if a stockholder terminates
employment for reasons other than death, disability, or retirement, the Company
has the option to purchase the stock at book value.
The Company also has an agreement with the Trust, the holder of the
preferred stock, whereby it is required to purchase the preferred stock in the
event of redemption of Trust Shares. Trust Shares are redeemable under an
agreement between the Trust and its shareholders. The provisions of this
agreement are the same as those of the Common Stock Redemption Agreement.
The shares of capital stock consist of the following at March 31:
<TABLE>
<CAPTION>
1996 1995
ISSUED AND ISSUED AND
AUTHORIZED OUTSTANDING OUTSTANDING
----------- ----------- -----------
<S> <C> <C> <C>
Preferred stock -- nonvoting, noncumulative, nonconvertible, no par value............. 1,000,000 87,150 --
Common stock -- voting, $2 par value.................................................. 19,000,000 8,793,733 8,673,030
Common stock -- nonvoting, $2 par value............................................... 500,000 -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(11) INCOME TAXES
Income tax expense (benefit) consists of the following for the year ended
March 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current:
Federal.............................................................. $16,884,000 $ 7,242,000
State and local...................................................... 3,988,000 1,576,000
----------- -----------
20,872,000 8,818,000
----------- -----------
Deferred:
Federal.............................................................. (1,650,000) 3,789,000
State and local...................................................... (320,000) 978,000
----------- -----------
(1,970,000) 4,767,000
----------- -----------
$18,902,000 $13,585,000
----------- -----------
----------- -----------
</TABLE>
Income tax expense differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
AMOUNT % AMOUNT %
----------- --- ----------- ---
Federal income taxes computed at the statutory rate................................. $16,540,000 35 $12,037,000 35
State and local income taxes, net of federal income tax benefit..................... 2,384,000 5 1,660,000 5
Tax-exempt interest................................................................. (543,000) (1) (497,000) (1)
Other, net.......................................................................... 521,000 1 385,000 1
----------- --- ----------- ---
$18,902,000 40 $13,585,000 40
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
D-33
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(11) INCOME TAXES -- Continued
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows at March 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred compensation......................................................................... $ 1,810,000 $ 1,384,000
Other liabilities............................................................................. 4,199,000 2,656,000
Unrealized depreciation of investment securities.............................................. 436,000 --
Goodwill...................................................................................... 290,000 --
Other......................................................................................... 161,000 191,000
----------- -----------
6,896,000 4,231,000
Deferred tax liabilities:
Investment securities......................................................................... (1,002,000) --
Unrealized appreciation of investment securities.............................................. -- (1,172,000)
Equipment and leasehold improvements.......................................................... (717,000) (125,000)
Other......................................................................................... (273,000) --
----------- -----------
(1,992,000) (1,297,000)
----------- -----------
$ 4,904,000 $ 2,934,000
----------- -----------
----------- -----------
</TABLE>
No valuation allowance related to the deferred tax assets is deemed
necessary based on the Company's history of operating earnings, and its
expectations that it is more likely than not that future operating income will
be sufficient to fully realize the benefits of the deferred tax assets.
(12) EMPLOYEE BENEFIT PLANS
The Company's retirement program consists of defined contribution plans and
covers substantially all employees. The Company matches 25% of employee
contributions up to 6% of eligible compensation, as defined. Any additional
employer contributions are made at the discretion of the Company's Board of
Directors. The Company's retirement expense was $9,139,000 in 1996 and
$4,240,000 in 1995. All expenses are accrued and charged against current
operations.
(13) COMMITMENTS AND CONTINGENT LIABILITIES
Wheat has been named in various legal actions relating to its securities
business. In the opinion of management, based upon the advice of legal counsel
handling such matters, the resolution of open litigation is not expected to have
a material adverse effect on the consolidated financial position of the Company.
As of March 31, 1996, Wheat had irrevocable letter of credit agreements
that totaled $26,111,500. The agreements, which are used in lieu of deposits
with clearing organizations, bear interest at 1/4% and are fully collateralized
by customer-owned margin securities.
(14) FINANCIAL INSTRUMENTS
Trading and investment securities and securities sold, but not yet
purchased are carried in the consolidated statements of financial condition at
market value, if available, or estimated fair value. Due to the relatively
short-term nature of receivables, payables, short-term borrowings, and
repurchase agreements, the carrying amounts are reasonable estimates of fair
value.
The fair value of the liabilities subordinated to claims of general
creditors, determined by interest rates currently available, is approximately
$33,600,000 and $33,900,000 at March 31, 1996 and 1995, respectively.
In the normal course of business, Wheat's clearance activities involve the
execution, settlement, and financing of various securities and commodities
transactions. These activities may expose Wheat to off-balance-sheet credit risk
in the event
D-34
<PAGE>
WHEAT FIRST BUTCHER SINGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(14) FINANCIAL INSTRUMENTS -- Continued
the counterparty to the transaction is unable to fulfill its contractual
obligations. Credit risk is reduced by the industry policy of obtaining and
maintaining adequate collateral until the commitment is completed.
In connection with these activities, Wheat executes and clears customer
transactions involving the sale of securities not yet purchased and the writing
of option contracts. Wheat also executes customer transactions for the purchase
and sale of commodity futures contracts, substantially all of which are
transacted on a margin basis subject to individual exchange regulations. Such
transactions may expose Wheat to off-balance-sheet risk if margin requirements
are not sufficient to fully cover losses that customers may incur. If the
customer fails to satisfy its obligations, Wheat may be required to purchase or
sell financial instruments at prevailing market prices in order to fulfill the
customer's obligation.
Wheat's customer financing and securities settlement activities require
Wheat to pledge customer securities as collateral in support of various secured
financing sources. In addition, Wheat pledges customer securities as collateral
to satisfy margin deposits of various exchanges. Much of this collateral is held
by independent third parties, and if the third party is unable to meet its
contractual obligation to return customer securities pledged as collateral,
Wheat may be exposed to the risk of acquiring these securities at prevailing
market prices in order to satisfy its customer obligations.
Wheat sells short treasury bond and municipal bond index futures contracts
to hedge its fixed income inventories. The futures contracts involve
off-balance-sheet risk since the cost to close out the contracts may exceed the
amounts recognized in the consolidated statement of financial condition. The
contracts are listed on regulated exchanges and are marked to market daily with
the resulting gain or loss reflected in revenue. The exchanges guarantee
performance of counterparties; therefore credit risk is limited to a default by
the exchange. The notional amounts and fair values of these contracts at March
31, 1996 and 1995 and average fair value during the years ended March 31, 1996
and 1995 were not material.
D-35
<PAGE>
OWNERSHIP OF WHEAT CAPITAL STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the Record Date regarding
the number of shares of Wheat Common Stock beneficially owned by (i) each person
who is known by Wheat to beneficially own five percent or more of the
outstanding shares of Wheat Common Stock, (ii) each of Wheat's directors, and
(iii) all directors and executive officers of Wheat as a group. For the purpose
of this table, beneficial ownership has been determined in accordance with the
provisions of Rule 13d-3 under the Exchange Act, under which, in general, a
person is deemed to be a beneficial owner of a security if he has or shares the
power to vote or direct the voting of the security or the power to dispose or
direct the disposition of the security, or if he has the right to acquire
beneficial ownership of the security within 60 days. No person owns five percent
or more of the outstanding shares of Wheat Preferred Stock, other than Welford
E. Sanders, a managing director of Wheat, who owns 25,000 shares (11.7%) of the
Wheat Preferred Stock, and no director or executive officer of Wheat owns any
shares of Wheat Preferred Stock.
<TABLE>
<CAPTION>
WHEAT COMMON STOCK
NAME BENEFICIALLY OWNED (1) PERCENT OF CLASS
- --------------------------------------------------------------- ---------------------- ----------------
<S> <C> <C>
Wheat First Butcher Singer, Inc. Associate Stock Ownership Plan 2,314,000 26.8%
Lewis C. Everett 318,577 3.7
Mark M. Gambill 423,287 4.9
Daniel J. Ludeman 212,223 2.5
Thomas L. Souders 169,213 2.0
Marshall B. Wishnack 438,461 5.1
Carlton M. Collins 130,282 1.5
David L. Monday 107,422 1.2
William J. Fields 136,380 1.6
Don R. Hays 83,098 0.9
J. Edward Knowles 99,857 1.2
J. Hamilton Scherer, Jr. 95,762 1.1
All directors and executive officers as a group (11 persons) 2,214,562 25.7%
</TABLE>
- ---------------
(1) Includes shares of Wheat Common Stock attributable to a participant's
account in the Wheat ASOP.
D-36
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 55-8-50 through 55-8-58 of the NCBCA contain specific provisions
relating to indemnification of directors and officers of North Carolina
corporations. In general, the statute provides that (i) a corporation must
indemnify a director or officer who is wholly successful in his defense of a
proceeding to which he is a party because of his status as such, unless limited
by the articles of incorporation, and (ii) a corporation may indemnify a
director or officer if he is not wholly successful in such defense, if it is
determined as provided in the statute that the director or officer meets a
certain standard of conduct, provided when a director or officer is liable to
the corporation, the corporation may not indemnify him. The statute also permits
a director or officer of a corporation who is a party to a proceeding to apply
to the courts for indemnification, unless the articles of incorporation provide
otherwise, and the court may order indemnification under certain circumstances
set forth in the statute. The statute further provides that a corporation may in
its articles of incorporation or bylaws or by contract or resolution provide
indemnification in addition to that provided by the statute, subject to certain
conditions set forth in the statute.
FUNC's bylaws provide for the indemnification of FUNC's directors and
executive officers by FUNC against liabilities arising out of his status as
such, excluding any liability relating to activities which were at the time
taken known or believed by such person to be clearly in conflict with the best
interests of FUNC.
The FUNC 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.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(2)(a) The Merger Agreement, including the form of Voting Agreement as Exhibit A thereto. (Incorporated by reference to
ANNEX A to the Prospectus/Proxy Statement included in this Registration Statement.) Omitted exhibits to be
furnished upon request of the Commission.
(2)(b) The CoreStates acquisition agreement. (Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form
8-K dated November 28, 1997.) Omitted exhibits to be filed upon request of the Commission.
(2)(c) The Signet acquisition agreement. (Incorporated by reference to Exhibit (2) to FUNC's Current Report on Form 8-K
dated November 18, 1997). Omitted exhibits to be furnished upon request of the Commission.
(3)(a) Articles of Incorporation of FUNC, as amended. (Incorporated by reference to Exhibit (4) to FUNC's 1990 First
Quarter Report on Form 10-Q, to Exhibit (99)(a) to FUNC's 1993 First Quarter Report on Form 10-Q and to Exhibit
(4)(a) to FUNC's Current Report on Form 8-K dated January 10, 1996.)
(3)(b) Bylaws of FUNC, as amended. (Incorporated by reference to Exhibit (3)(b) to FUNC's 1995 Annual Report on Form
10-K.)
(4)(a) Shareholder Protection Rights Agreement, as amended. (Incorporated by reference to Exhibits (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20, 1992, and to Exhibit (99) to FUNC's Current Reports on Form
8-K dated June 20, 1995 and June 21, 1995 and to Exhibit (4) to FUNC's Current Report on Form 8-K dated October
16, 1996.)
(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)(a) Tax opinion of Sullivan & Cromwell.
(8)(b) Tax opinion of Wachtell, Lipton, Rosen & Katz.
(12) Computations of Consolidated Ratios of Earnings to Fixed Charges. (Incorporated by reference to Exhibit (12) to
FUNC's 1997 Third Quarter Report on Form 10-Q.)
(23)(a) Consent of KPMG Peat Marwick LLP.
(23)(b) Consent of KPMG Peat Marwick LLP.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. (Included in Exhibit (5).)*
(23)(d) Consent of Sullivan & Cromwell. (Included in Exhibit (8)(a).)
(23)(e) Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit (8)(b).)
(23)(f) Consent of Wheat, First Securities, Inc.*
(23)(g) Consent of Ernst & Young LLP.
(23)(h) Consent of KPMG LLP.
(23)(i) Consent of KPMG LLP.
(24) Power of Attorney.*
(27) FUNC's Financial Data Schedule. (Incorporated by reference to Exhibit (27) to FUNC's 1997 Third Quarter Report
on Form 10-Q.)
(99)(a) Form of Wheat Common Stock proxy for the Special Meeting of Stockholders of Wheat.*
(99)(b) Form of Wheat Preferred Stock proxy for the Special Meeting of Stockholders of Wheat.*
</TABLE>
- ---------------
* 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
II-2
<PAGE>
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;
(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 a 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.
(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 No.
333-39515 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 December
17, 1997.
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 No. 333-39515 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
*EDWARD E. BARR Director
- ------------------------------------------------------
EDWARD E. BARR
*G. ALEX BERNHARDT Director
- ------------------------------------------------------
G. ALEX BERNHARDT
*W. WALDO BRADLEY Director
- ------------------------------------------------------
W. WALDO BRADLEY
*ROBERT J. BROWN Director
- ------------------------------------------------------
ROBERT J. BROWN
*A. DANO DAVIS Director
- ------------------------------------------------------
A. DANO DAVIS
*R. STUART DICKSON Director
- ------------------------------------------------------
R. STUART DICKSON
*B.F. DOLAN Director
- ------------------------------------------------------
B.F. DOLAN
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------------------ ------------------------------------------------------------------
<S> <C>
*RODDEY DOWD, SR. Director
- ------------------------------------------------------
RODDEY DOWD, SR.
*JOHN R. GEORGIUS Director
- ------------------------------------------------------
JOHN R. GEORGIUS
Director
- ------------------------------------------------------
ARTHUR M. GOLDBERG
*WILLIAM H. GOODWIN, JR. Director
- ------------------------------------------------------
WILLIAM H. GOODWIN, JR.
*HOWARD H. HAWORTH Director
- ------------------------------------------------------
HOWARD H. HAWORTH
*FRANK M. HENRY Director
- ------------------------------------------------------
FRANK M. HENRY
*LEONARD G. HERRING Director
- ------------------------------------------------------
LEONARD G. HERRING
Director
- ------------------------------------------------------
JACK A. LAUGHERY
Director
- ------------------------------------------------------
MALCOLM S. MCDONALD
*MAX LENNON Director
- ------------------------------------------------------
MAX LENNON
*RADFORD D. LOVETT Director
- ------------------------------------------------------
RADFORD D. LOVETT
*MACKEY J. MCDONALD Director
- ------------------------------------------------------
MACKEY J. MCDONALD
*JOSEPH NEUBAUER Director
- ------------------------------------------------------
JOSEPH NEUBAUER
*RANDOLPH N. REYNOLDS Director
- ------------------------------------------------------
RANDOLPH N. REYNOLDS
*RUTH G. SHAW Director
- ------------------------------------------------------
RUTH G. SHAW
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------------------------ ------------------------------------------------------------------
<S> <C>
*CHARLES M. SHELTON, SR. Director
- ------------------------------------------------------
CHARLES M. SHELTON, SR.
*LANTY L. SMITH Director
- ------------------------------------------------------
LANTY L. SMITH
*ANTHONY P. TERRACCIANO Director
- ------------------------------------------------------
ANTHONY P. TERRACCIANO
*DEWEY L. TROGDON Director
- ------------------------------------------------------
DEWEY L. TROGDON
Director
- ------------------------------------------------------
JOHN D. UIBLE
*B. J. WALKER Director
- ------------------------------------------------------
B. J. WALKER
*By Marion A. Cowell, Jr., Attorney-in-Fact
MARION A. COWELL, JR.
- ------------------------------------------------------
MARION A. COWELL, JR.
</TABLE>
Date: December 17, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION LOCATION
- ----------- ------------------------------------------------------ ------------------------------------------------------
<S> <C> <C>
(2)(a) The Merger Agreement, including the Form of Voting Incorporated by reference to ANNEX A to the
Agreement as Exhibit A thereto. Prospectus/Proxy Statement included in this
Registration Statement. Omitted exhibits to be
furnished upon request of the Commission.
(2)(b) The CoreStates acquisition agreement. Incorporated by reference to Exhibit (2) to FUNC's
Current Report on Form 8-K dated November 28, 1997.
Omitted exhibits to be furnished upon request of the
Commission.
(2)(c) The Signet acquisition agreement. Incorporated by reference to Exhibit (2) to FUNC's
Current Report on Form 8-K dated November 18, 1997.
Omitted exhibits to be filed upon request of the
Commission.
(3)(a) Articles of Incorporation of FUNC, as amended. Incorporated by reference to Exhibit (4) to FUNC's
1990 First Quarter Report on Form 10-Q, to Exhibit
(99)(a) to FUNC's 1993 First Quarter Report on Form
10-Q and to Exhibit (4)(a) to FUNC's Current Report on
Form 8-K dated January 10, 1996.
(3)(b) Bylaws of FUNC, as amended. Incorporated by reference to Exhibit (3)(b) to FUNC's
1995 Annual Report on Form 10-K.
(4)(a) Shareholder Protection Rights Agreement, as amended. Incorporated by reference to Exhibits (4)(b) to FUNC's
Forms 8-K dated December 18, 1990 and October 20,
1992, and to Exhibit (99) to FUNC's Current Reports on
Form 8-K dated June 20, 1995 and June 21, 1995 and to
Exhibit (4) to FUNC's Current Report on Form 8-K dated
October 16, 1996.
(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)(a) Tax opinion of Sullivan & Cromwell. Filed herewith.
(8)(b) Tax opinion of Wachtell, Lipton, Rosen & Katz. Filed herewith.
(12) Computations of Consolidated Ratios of Earnings to Incorporated by reference to Exhibit (12) to FUNC's
Fixed Charges. 1997 Third Quarter on Form 10-Q.
(23)(a) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(b) Consent of KPMG Peat Marwick LLP. Filed herewith.
(23)(c) Consent of Marion A. Cowell, Jr., Esq. *
(23)(d) Consent of Sullivan & Cromwell. Included in Exhibit (8)(a).
(23)(e) Consent of Wachtell, Lipton, Rosen & Katz. Included in Exhibit (8)(b).
(23)(f) Consent of Wheat, First Securities, Inc. *
(23)(g) Consent of Ernst & Young LLP. Filed herewith.
(23)(h) Consent of KPMG LLP. Filed herewith.
(23)(i) Consent of KPMG LLP. Filed herewith.
(24) Power of Attorney. *
(27) FUNC's Financial Data Schedule. Incorporated by reference to Exhibit (27) to FUNC's
1997 Third Quarter Report on
Form 10-Q.
(99)(a) Form of Wheat Common Stock proxy for the Special *
Meeting of Stockholders of Wheat.
(99)(b) Form of Wheat Preferred Stock proxy for the Special *
Meeting of Stockholders of Wheat.
</TABLE>
- ---------------
* Previously filed
<PAGE>
EXHIBIT (8)(A)
TAX OPINION OF SULLIVAN & CROMWELL
December 16, 1997
Ladies and Gentlemen:
We have acted as counsel to First Union Corporation, a North Carolina
corporation, ("First Union") in connection with the planned merger (the
"Merger") of First Union Virginia Inc., a Virginia Corporation and wholly owned
subsidiary of First Union ("FUNC Subsidiary"), with and into Wheat First Butcher
Singer, Inc., a Virginia corporation ("Wheat"), pursuant to the Agreement and
Plan of Merger, dated as of August 20, 1997 and amended and restated as of
December 16, 1997 (the "Agreement"), by and among Wheat, First Union and FUNC
Subsidiary. Capitalized terms used but not defined herein shall have the
meanings specified in the Proxy Statement or the appendices thereto (including
the Agreement).
We have assumed with your consent that (1) the Merger will be effected in
accordance with the Agreement and will qualify as a merger under applicable law
and (2) the representations contained in the letters of representation from
First Union and Wheat to us dated December 16, 1997 were true and correct when
made and will be true and correct at the Effective Time.
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:
(i) no gain or loss will be recognized for federal income tax purposes
by Wheat stockholders upon the exchange in the Merger of shares of Wheat
Common Shares or Wheat Preferred Stock solely for First Union Common Shares
(except with respect to cash received in lieu of a fractional share
interests in First Union Common Stock deemed received);
(ii) the basis of First Union Common Stock received in the Merger by
Wheat stockholders (including the basis of fractional share interests in
First Union Common Stock deemed received) will be the same as the basis of
the shares of Wheat Common Stock or Wheat Preferred Stock surrendered in
exchange therefor;
(iii) the holding period of First Union Common Stock received in the
Merger by a Wheat stockholder (including the holding period of fractional
share interests in First Union Common Stock deemed received) will include
the holding period of the shares of Wheat Common Stock or Wheat Preferred
Stock surrendered in exchange therefor, provided such shares of Wheat
Common Stock or Wheat Preferred Stock were held as capital assets at the
Effective Time; and
(iv) cash received by a holder of Wheat Common Stock or Wheat
Preferred Stock in lieu of fractional share interests in First Union Common
Stock will be treated as received for such fractional share interests 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 stockholder's adjusted tax basis in the
Wheat Common Stock or Wheat Preferred Stock allocable to the fractional
share interests.
We express no opinion as to the effect of the Merger on any shareholder
that is required to recognize unrealized gains and losses for federal income tax
purposes at the end of each taxable year under a mark-to-market system.
The federal income tax consequences described herein may not apply to
certain classes of taxpayers, including, without limitation, Wheat stockholders
who received their Wheat Common Stock or Wheat Preferred Stock upon the exercise
of employee stock options or otherwise as compensation, that hold their Wheat
Common Stock or Wheat Preferred Stock as part of a "straddle" or "conversion
transaction" for federal income tax purposes, or that are foreign persons,
insurance companies, financial institutions or securities dealers, and will not
apply to Wheat stockholders that dissent from the Merger and receive cash in
exchange for their shares.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this opinion in the Registration
Statement. 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 1993, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE>
EXHIBIT (8)(B)
TAX OPINION OF WACHTELL, LIPTON, ROSEN & KATZ
December 17, 1997
WHEAT FIRST BUTCHER SINGER, INC.
Riverfront Plaza
901 East Byrd Street
Richmond, Virginia 23219
Ladies/Gentlemen:
We have acted as special counsel to Wheat First Butcher Singer, Inc., a
Virginia corporation ("Wheat First"), in connection with the proposed merger
(the "Merger") of First Union Virginia, Inc., a Virginia Corporation ("Merger
Sub"), a direct wholly-owned subsidiary of First Union Corporation, a North
Carolina corporation ("FUNC"), with and into Wheat First, upon the terms and
conditions set forth in the Agreement and Plan of Merger dated as of August 20,
1997, as amended and restated as of December 16, 1997, by and among Wheat First,
FUNC, and Merger Sub (the "Agreement"). At your request, in connection with the
filing of the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission in connection with the Merger (the "Registration
Statement"), we are rendering our opinion concerning certain federal income tax
consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of Wheat First and the consent of FUNC, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of Wheat First and FUNC
(copies of which are attached hereto and which are incorporated herein by
reference), and have assumed that such certificates will be complete and
accurate as of the Effective Time. We have also relied upon the accuracy of the
Registration Statement and the Proxy Statement/Prospectus included therein
(together, the "Proxy Statement"). Any capitalized term used and not defined
herein has the meaning given to it in the Proxy Statement or the appendices
thereto (including the Agreement).
We have also assumed that the transactions contemplated by the Agreement
will be consummated in accordance therewith and as described in the Proxy
Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the Commonwealth of Virginia.
Based upon and subject to the foregoing, it is our opinion that, under
currently applicable United States federal income tax law:
(i) No gain or loss will be recognized for federal income tax purposes
by Wheat First stockholders upon the exchange in the Merger of shares of
Wheat Common Stock or Wheat Preferred Stock solely for FUNC Common Shares
(except with respect to cash received in lieu of a fractional share
interest in FUNC Common Stock deemed received);
(ii) The basis of FUNC Common Shares received in the Merger by Wheat
First stockholders (including the basis of any fractional share interest in
FUNC Common Stock deemed received) will be the same as the basis of the
shares of Wheat Common Stock or Wheat Preferred Stock surrendered in
exchange therefor;
(iii) The holding period of the FUNC Common Shares received in the
Merger by a Wheat First stockholder (including the holding period of any
fractional share interest in FUNC Common Stock) will include the holding
period of the shares of Wheat Common Stock or Wheat Preferred Stock
surrendered in exchange therefor, provided such shares of Wheat Common
Stock or Wheat Preferred Stock were held as capital assets at the Effective
Time; and
(iv) Cash received by a holder of Wheat Common Stock or Wheat
Preferred Stock in lieu of a fractional share interest in FUNC Common Stock
will be treated as received 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 Wheat Common
Stock or Wheat Preferred Stock allocable to the fractional share interest.
<PAGE>
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement, and to the
references to us under the captions "SUMMARY -- Certain Federal Income Tax
Consequences" and "THE MERGER -- Certain Federal Income Tax Consequences" and
elsewhere in the Proxy Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
This opinion may not be applicable to special situations, such as Wheat
First stockholders who received their Wheat Common Stock or Wheat Preferred
Stock upon the exercise of employee stock options or otherwise as compensation,
that hold their Wheat Common Stock or Wheat Preferred Stock as part of a
"straddle" or "conversion transaction," or that are insurance companies,
securities dealers, financial institutions or foreign persons.
Very truly yours,
WACHTELL, LIPTON, ROSEN & KATZ
<PAGE>
EXHIBIT (23)(A)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
WHEAT FIRST BUTCHER SINGER, INC.
We consent to the inclusion in this Amendment No. 1 to the Registration
Statement on Form S-4 (333-39515) of First Union Corporation of our reports
dated May 14, 1997 and May 6, 1996, relating to the consolidated statements of
financial condition of Wheat First Butcher Singer, Inc. as of March 31, 1997 and
1996, 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 March 31, 1997. We also consent to the reference to our firm under
the caption "Experts."
KPMG PEAT MARWICK LLP
Richmond, Virginia
December 17, 1997
<PAGE>
EXHIBIT (23)(B)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
FIRST UNION CORPORATION
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement on Form S-4 (333-39515) of First Union Corporation of our
report dated January 16, 1997, relating to the consolidated balance sheets of
First Union Corporation and subsidiaries as of December 31, 1996 and 1995, 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,
1996, which report appears in the 1996 Annual Report to Stockholders which is
incorporated by reference in the 1996 Form 10-K of First Union Corporation. We
also consent to the reference to our firm under the caption "Experts."
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
December 17, 1997
<PAGE>
EXHIBIT (23)(G)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Prospectus/Proxy Statement of Wheat First Butcher Singer, Inc. that is made a
part of the Registration Statement (Form S-4 No. 333-39515) and related
prospectus of First Union Corporation for the registration of 10,267,029 shares
of its common stock and to the incorporation by reference therein of our report
dated January 22, 1997, with respect to the consolidated financial statements of
CoreStates Financial Corp included in the Current Report on Form 8-K dated
November 28, 1997 of First Union Corporation.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
December 16, 1997
<PAGE>
EXHIBIT (23)(H)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
CORESTATES FINANCIAL CORP
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement on Form S-4 (333-39515) of First Union Corporation of our
report dated January 17, 1996, except as to Note 2, which is as of February 23,
1996, relating to the consolidated balance sheet of Meridian Bancorp, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years in
the two-year period ended December 31, 1995, which report appears in First Union
Corporation's Current Report on Form 8-K dated November 28, 1997. The report
includes an explanatory paragraph indicating that Meridian Bancorp, Inc. adopted
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities, and No. 112, Employers' Accounting for
Postemployment Benefits, in 1994. We also consent to the reference to our firm
under the caption "Experts."
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
December 16, 1997
<PAGE>
EXHIBIT (23)(I)
CONSENT OF KPMG PEAT MARWICK LLP
BOARD OF DIRECTORS
CORESTATES FINANCIAL CORP
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement on Form S-4 (333-39515) of First Union Corporation of our
report dated January 16, 1996, except as to Note 20, which is as of February 23,
1996, relating to the consolidated balance sheet of United Counties
Bancorporation and subsidiaries as of December 31, 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1995,
which report appears in First Union Corporation's Current Report on Form 8-K
dated November 28, 1997. The report includes an explanatory paragraph indicating
that United Counties Bancorporation adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, in 1994.
We also consent to the reference to our firm under the caption "Experts."
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
December 16, 1997
