<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-34575
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FNB CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6021 56-1456589
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
101 SUNSET AVENUE
ASHEBORO, NORTH CAROLINA 27203
(910) 626-8300
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
MICHAEL C. MILLER, PRESIDENT
FNB CORP.
101 SUNSET AVENUE
ASHEBORO, NORTH CAROLINA 27203
(910) 626-8300
(Name, address, including Zip Code, and telephone number, including
area code, of agent for service)
<TABLE>
<S> <C>
COPIES TO:
KENNETH N. SHELTON, ESQ. ANTHONY GAETA, ESQ.
SCHELL BRAY AYCOCK ABEL & LIVINGSTON P.L.L.C. MOORE & VAN ALLEN, P.L.L.C.
230 NORTH ELM STREET, SUITE 1500 ONE HANNOVER SQUARE, SUITE 1700
GREENSBORO, NORTH CAROLINA 27401 RALEIGH, NORTH CAROLINA 27611
(910) 370-8800 (919) 828-4481
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FNB CORP.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 CAPTION IN PROSPECTUS/PROXY STATEMENT
- ------------------------------------------------------ -----------------------------------------------------------------------
<C> <S> <C>
PART I -- INFORMATION REQUIRED IN THE PROSPECTUS
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Facing Page of Registration Statement; Cross-Reference Sheet; Outside
Front Cover Page of Prospectus/Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page of Prospectus/Proxy Statement; Available
Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Summary; Risk Factors; Selected Consolidated Financial Information; Per
Share Data
4. Terms of the Transaction........................ The Merger -- General Description of the Terms of the Agreement,
-- Background and Reasons, -- Opinion of Financial Advisor, --
Accounting Treatment, -- Certain Federal Income Tax Consequences;
Capital Stock of FNB; Certain Differences in Rights of Holders of Home
Savings Stock and FNB Stock; Appendix II
5. Pro Forma Financial Information................. Pro Forma Condensed Financial Information
6. Material Contracts with the Company Being
Acquired........................................ The Merger -- Background and Reasons; Interest of Certain Persons and
Effect of the Merger on Employees and Benefit Plans
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................... Not Applicable
8. Interest of Named Experts and Counsel........... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants..... Not Applicable
11. Incorporation of Certain Information by
Reference....................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Incorporation of Certain Documents by Reference
13. Incorporation of Certain Information by
Reference....................................... Incorporation of Certain Documents by Reference
14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants..................... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies....... Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other than
S-2 or S-3 Companies............................ Selected Consolidated Financial Information; Recent Results;
Information about Home Savings -- Business, -- Properties, -- Legal
Proceedings, -- Management's Discussion and Analysis of Financial
Condition and Results of Operations; Market Price and Dividend
Information; Consolidated Financial Statements of Home Savings
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. Cover Page of Prospectus/Proxy Statement; Incorporation of Certain
Documents by Reference; Information Concerning the Shareholders'
Meeting -- Record Date, Voting Rights and Vote Required, -- Voting and
Revocation of Proxies; Summary -- Parties to the Merger; Appendix III;
The Merger -- Dissenters' Rights; Interest of Certain Persons and
effect of the Merger on Employees and Benefit Plans; Information about
FNB and First National -- Ownership of FNB Voting Securities by
Management; Information about Home Savings -- Voting Securities and
Beneficial Ownership Thereof; Proposals of Shareholders
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited or in an
Exchange Offer..................................
</TABLE>
<PAGE>
November 10, 1997
To the Shareholders of
Home Savings Bank of Siler City, Inc., SSB
A Special Meeting of Shareholders (the "Shareholders' Meeting") of Home
Savings Bank of Siler City, Inc., SSB ("Home Savings") will be held on
Wednesday, December 17, 1997, at 1:00 p.m., Eastern Standard Time, at the
offices of Home Savings located at 300 East Raleigh Street, Siler City, North
Carolina. At the Shareholders' Meeting, the shareholders will be asked to
approve an agreement pursuant to which FNB Corp. ("FNB"), headquartered in
Asheboro, North Carolina, will acquire Home Savings by merger (the "Merger") of
Home Savings into First National Bank and Trust Company, a wholly owned
subsidiary of FNB ("First National").
Upon consummation of the Merger, each Home Savings shareholder will be
entitled to receive for each share of Home Savings' common stock, par value
$1.00 ("Home Savings Stock"), then held either (i) a number of shares of the
common stock of FNB, par value $2.50 ("FNB Stock"), equal to (x) $15.50 divided
by (y) the Average Closing Price (as defined in the accompanying
Prospectus/Proxy Statement) of FNB Stock, (ii) the right to receive cash in an
amount equal to $15.50 per share of Home Savings Stock or (iii) a combination of
shares of FNB Stock and the right to receive cash, all subject to adjustment and
proration as described in the accompanying Prospectus/Proxy Statement.
Detailed information about the proposed Merger, Home Savings, First
National and FNB is set forth in the Prospectus/Proxy Statement. A summary of
certain information contained in the Prospectus/Proxy Statement, in the form of
questions and answers, is enclosed. You are urged to study the Prospectus/Proxy
Statement, as well as the questions and answers summary, before casting your
vote on the proposed Merger.
Your Board of Directors has received the written opinion of Baxter Fentriss
& Company that the terms of the proposed Merger are fair to Home Savings'
shareholders from a financial point of view. Your Board of Directors believes
that the proposed Merger is in the best interests of Home Savings and its
shareholders. Your Board unanimously recommends that you vote "FOR" the Merger.
Whether or not you plan to attend the Shareholders' Meeting, please
complete, sign, date and return your proxy card promptly in the enclosed
envelope. If you attend the Shareholders' Meeting, you may vote in person if you
wish, even if you have previously returned your proxy. Your vote is important,
regardless of the number of shares of Home Savings Stock you own. Approval of
the Merger requires the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Home Savings Stock entitled to vote at the
Shareholders' Meeting. Consequently, failure to vote either in person or by
proxy will have the same effect as a vote against the Merger. Therefore, on
behalf of your Board of Directors, I urge you to return a duly executed proxy
card as soon as possible.
Sincerely,
EDWIN E. BRIDGES
PRESIDENT
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
300 EAST RALEIGH STREET
SILER CITY, NORTH CAROLINA 27344
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following is a summary, in the form of questions and answers, of certain
information contained in the Prospectus/Proxy Statement regarding the proposed
merger of Home Savings Bank of Siler City, Inc., SSB ("Home Savings") with First
National Bank and Trust Company ("First National"), a subsidiary of FNB Corp.,
Asheboro, North Carolina ("FNB"). This summary is provided to help shareholders
of Home Savings understand the proposed merger. However, this summary is NOT
intended to be complete, does not include all the information contained in the
Prospectus/Proxy Statement, and should NOT be used by shareholders as a
substitute for reading the Prospectus/Proxy Statement itself, including the
attachments. EACH HOME SAVINGS SHAREHOLDER IS URGED TO READ THE PROSPECTUS/PROXY
STATEMENT IN ITS ENTIRETY.
1. WHEN AND WHERE IS THE SPECIAL MEETING OF HOME SAVINGS
SHAREHOLDERS? The Special Meeting will be held at 1:00 p.m. on December 17,
1997 at the main office of Home Savings, 300 East Raleigh Street, Siler City,
North Carolina.
2. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE SPECIAL
MEETING? Shareholders will vote on the proposal to approve a Merger Agreement
between Home Savings, First National and FNB Corp.
3. WHAT WILL HAPPEN IF THE MERGER AGREEMENT IS APPROVED? Home Savings
will be merged with First National, a subsidiary corporation of FNB.
Shareholders of Home Savings will have the right to elect to receive either (i)
a number of shares of the common stock of FNB equal to (x) $15.50 divided by (y)
the Average Closing Price (as defined in the Prospectus/Proxy Statement) of
FNB's common stock, (ii) the right to receive cash in an amount equal to $15.50
per share of Home Savings common stock or (iii) a combination of shares of FNB's
common stock and the right to receive cash, such elections to be subject to
certain adjustments and prorations, if applicable, as described in the Merger
Agreement. If the merger occurred on October 31, 1997, depending on his
individual election and any applicable proration, a holder of 100 shares of Home
Savings common stock could receive approximately either (i) 46 shares of FNB
Stock; or (ii) $1,550 in cash; or (iii) a combination of cash and stock, for
example, 27 shares of FNB Stock and $620 in cash. (Shareholders also have
"dissenters' rights" under North Carolina and federal law. The process to
dissent is described in the Prospectus/Proxy Statement and should be read and
followed carefully by any shareholder who desires to exercise those rights.)
After the merger, the office of Home Savings will operate as a commercial bank
office of First National.
4. WHAT IS FNB? FNB is a bank holding company located in Asheboro,
North Carolina. Its only subsidiary is First National, a national banking
association with 11 offices. At September 30, 1997, FNB had total assets of
approximately $320 million.
5. WHAT IS THE POSITION OF HOME SAVINGS BOARD OF DIRECTORS ON THE
MERGER? Home Savings Board of Directors has approved the Merger Agreement and
recommends that Home Savings shareholders vote their shares at the Special
Meeting in favor of approval. The Board of Directors has retained a financial
advisor in connection with the merger, Baxter Fentriss and Company, Richmond,
Virginia, which has given the Board its opinion that the terms of the Merger
Agreement are fair, from a financial point of view, to Home Savings
shareholders.
<PAGE>
6. WHAT IS REQUIRED IN ORDER TO APPROVE THE MERGER AGREEMENT AND
CONSUMMATE THE MERGER? The Merger Agreement must be approved at the Special
Meeting by a vote of the holders of at least two-thirds of the outstanding
shares of Home Savings common stock. Also, the merger and certain other matters
must be approved by Home Savings' and First National's banking regulators. The
Merger Agreement contains various other conditions which must be satisfied
before the merger can take place. Those conditions are described in greater
detail in the Prospectus/Proxy Statement.
7. WHAT DO I HAVE TO DO NOW? You should complete and send in the Proxy
Card that you received with your copy of the Prospectus/Proxy Statement so that
you can be sure that your shares will be represented at the Special Meeting.
Even if you send in a Proxy Card, you can still come to the Special Meeting and
vote in person if you like. Either way, you should read your copy of the
Prospectus/Proxy Statement before you vote.
8. MY SHARES ARE HELD IN MY BROKER'S NAME. HOW DO I GO ABOUT VOTING ON
THE MERGER AGREEMENT? Copies of the Prospectus/Proxy Statement have been sent
to your broker, who will forward one to you. The broker will request
instructions from you as to how you want your shares to be voted, and the broker
will vote your shares according to your instructions.
9. DO I SEND IN MY STOCK CERTIFICATES NOW? No. You will have to send in
your Home Savings stock certificates later in order to get the cash and/or
common stock of FNB that you are entitled to receive. HOWEVER, YOU SHOULD NOT
SEND ANY STOCK CERTIFICATES NOW. After the Special Meeting, and assuming the
merger is approved, you will receive instructions as to when and how you should
send in your certificates.
10. WHAT WILL HAPPEN IF I DON'T SEND IN MY PROXY CARD? If you don't send
in your Proxy Card and you don't attend the Special Meeting and vote in person,
then your shares will not be voted at the Special Meeting. The holders of at
least two-thirds of Home Savings outstanding shares must vote in favor of the
Merger Agreement in order to approve it, and, if a significant number of
shareholders fail to return their proxy cards, there may not be enough shares
represented at the meeting to approve the Merger Agreement even if all those
present are in favor of approval. In that case, the merger could not take place.
Therefore, the failure to return your Proxy Card will have the same effect as a
vote against the Merger Agreement.
11. WHEN WILL THE MERGER TAKE PLACE? If Home Savings shareholders
approve the Merger Agreement at the Special Meeting on December 17, 1997 and all
approvals of bank regulators are received as expected by December 31, 1997, then
the Merger likely will take place in February 1998.
12. IF I'VE LOST MY HOME SAVINGS STOCK CERTIFICATE, CAN I STILL GET MY
STOCK AND/OR CASH? Yes, however, you will have to provide an indemnity or, in
some cases, a paid surety bond that will protect FNB against a loss in the event
someone finds or has your lost certificate and is able to negotiate it. To avoid
having to pay for a surety bond, you should do everything you can to find your
lost certificate before the time comes to send it in.
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
300 East Raleigh Street
Siler City, North Carolina 27344
(919) 742-4186
----------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 17, 1997
----------------------------------------------------------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Shareholders' Meeting") of Home Savings Bank of Siler City, Inc., SSB ("Home
Savings") will be held at the offices of Home Savings located at 300 East
Raleigh Street, Siler City, North Carolina, on December 17, 1997, at 1:00 p.m.,
Eastern Standard Time, for the purpose of considering and voting upon the
following matters:
1. PROPOSED MERGER. To consider and vote upon the Agreement and Plan of
Reorganization and Merger dated June 3, 1997 (the "Agreement") by and among Home
Savings, FNB Corp., a North Carolina corporation and bank holding company
headquartered in Asheboro, North Carolina ("FNB"), and First National Bank and
Trust Company, a national bank and wholly owned subsidiary of FNB ("First
National"), pursuant to which Home Savings will merge with and into First
National (the "Merger"), and each outstanding share of Home Savings' common
stock, par value $1.00 ("Home Savings Stock"), will be converted into the right
to receive either (i) a number of shares of the common stock of FNB, par value
$2.50 ("FNB Stock"), equal to (x) $15.50 divided by (y) the Average Closing
Price (as defined in the accompanying Prospectus/Proxy Statement) of FNB Stock,
(ii) the right to receive cash in an amount equal to $15.50 per share of Home
Savings Stock or (iii) a combination of shares of FNB Stock and the right to
receive cash, all subject to adjustment and proration as described in the
Agreement. The Agreement is attached as Appendix I to the Prospectus/Proxy
Statement accompanying this Notice.
If the Merger is consummated, First National, the surviving institution,
will be subject to regulation as a national bank.
2. OTHER BUSINESS. To transact such other business as properly may come
before the Shareholders' Meeting or any adjournment or adjournments thereof.
Each holder of Home Savings Stock has the right to dissent from the Merger
and to demand payment under North Carolina law and applicable federal law of the
"fair value" or "value," respectively, of his or her shares in the event the
Merger is approved and consummated. The right of any such shareholder to dissent
is contingent upon strict compliance with the requirements of Article 13 of the
North Carolina Business Corporation Act ("Article 13") or Section 215a of the
National Bank Act ("Section 215a"). The full texts of Article 13 and Section
215a are attached as Appendix III to the Prospectus/Proxy Statement which
accompanies this Notice and are incorporated herein by reference. ANY
SHAREHOLDER OF HOME SAVINGS WHO INTENDS TO EXERCISE SUCH DISSENTERS' RIGHTS
SHOULD CONSULT WITH HIS OR HER ATTORNEY REGARDING WHETHER TO PROCEED UNDER
RIGHTS GRANTED BY, AND FOLLOW THE PROCEDURES PROVIDED IN, ARTICLE 13, SECTION
215A OR BOTH.
Shareholders of record at the close of business on November 5, 1997, are
entitled to receive notice of and to vote at the Shareholders' Meeting and any
adjournment thereof.
Your proxy is solicited by the Board of Directors of Home Savings. The
Board of Directors of Home Savings unanimously recommends that holders vote to
approve the Agreement.
By Order of the Board of Directors
JACK L. TANNER
CORPORATE SECRETARY
Siler City, North Carolina
November 10, 1997
Please complete, date, sign, and return the enclosed proxy in the enclosed
postage-paid envelope as soon as possible, whether or not you plan to attend the
Shareholders' Meeting in person. The proxy may be revoked at any time prior to
its exercise in the manner described in the Prospectus/Proxy Statement. Properly
completed proxies will be voted in accordance with the instructions indicated
thereon, or if no instructions are given, "FOR" approval of the Merger.
<PAGE>
(This Page Left Blank Intentionally)
<PAGE>
PROSPECTUS
FNB CORP.
UP TO 321,210 SHARES OF COMMON STOCK
PROXY STATEMENT
HOME SAVINGS BANK OF SILER CITY, INC., SSB
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 17, 1997
------------------------
This Prospectus/Proxy Statement is being furnished by the Board of
Directors of Home Savings Bank of Siler City, Inc., SSB ("Home Savings") to the
holders of Home Savings' common stock, par value $1.00 per share ("Home Savings
Stock"), in connection with the solicitation of proxies for use at the Special
Meeting of Shareholders of Home Savings (the "Shareholders' Meeting") to be held
at 1:00 p.m., Eastern Standard time, on December 17, 1997 at the offices of Home
Savings, 300 East Raleigh Street, Siler City, North Carolina, and at any
adjournment thereof.
This Prospectus/Proxy Statement, the accompanying Notice of Special
Meeting, the form of proxy and other materials enclosed herewith are first being
mailed to shareholders of Home Savings on or about November 10, 1997.
At the Shareholders' Meeting, shareholders of Home Savings will vote upon a
proposal to approve an Agreement and Plan of Reorganization and Merger dated
June 3, 1997 (the "Agreement") by and among Home Savings, FNB Corp., a North
Carolina corporation and bank holding company headquartered in Asheboro, North
Carolina ("FNB" or the "Registrant"), and First National Bank and Trust Company,
a national bank and wholly owned subsidiary of FNB ("First National"), pursuant
to which Home Savings will merge with and into First National (the "Merger").
See "SUMMARY," "THE MERGER" and Appendix I to this Prospectus/Proxy Statement.
(CONTINUED ON NEXT PAGE)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOME
SAVINGS' SHAREHOLDERS, SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS
PROSPECTUS/PROXY STATEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SEC 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 SHARES OF FNB STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY
OTHER GOVERNMENT AGENCY. THE SHARES OF FNB STOCK OFFERED HEREBY ARE SUBJECT TO
INVESTMENT RISK INCLUDING LOSS OF PRINCIPAL.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE OTHER DOCUMENTS
RELATING TO FNB WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THOSE
DOCUMENTS, INCLUDING EXHIBITS WHICH ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO THOSE DOCUMENTS, BUT EXCLUDING EXHIBITS NOT SPECIFICALLY INCORPORATED BY
REFERENCE INTO THOSE DOCUMENTS, ARE AVAILABLE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER TO WHOM A COPY OF THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED,
UPON REQUEST TO FNB CORP., POST OFFICE BOX 1328, ASHEBORO, NORTH CAROLINA 27204,
TELEPHONE (910) 626-8300. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
BEFORE THE SHAREHOLDERS' MEETING, ANY SUCH REQUEST SHOULD BE MADE BY DECEMBER
12, 1997. THE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE, BUT PERSONS REQUESTING
COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION FROM SUCH DOCUMENTS THAT THIS PROSPECTUS/PROXY
STATEMENT INCORPORATES WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS NOVEMBER 10, 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Upon consummation of the Merger, each outstanding share of Home Savings
Stock will be converted into the right to receive either (i) a number of shares
of the common stock of FNB, par value $2.50 ("FNB Stock"), equal to (x) $15.50
(the "Cash Factor") divided by (y) the Average Closing Price (as defined herein)
of FNB Stock, (ii) the right to receive cash in an amount equal to the Cash
Factor or (iii) a combination of shares of FNB Stock and the right to receive
cash, all subject to adjustment and proration as described in the Agreement. Any
fractional shares resulting from the Merger will not be issued, and shareholders
of Home Savings will receive cash in lieu thereof. Except as specifically
provided below, the ratio reflecting the number of shares of FNB Stock that may
be exchanged for each share of Home Savings Stock (the "Exchange Ratio") will
not be adjusted. Notwithstanding the foregoing, if, during the period commencing
on June 3, 1997 and ending at the Effective Time (as defined herein), Home
Savings declares or pays cash dividends in an aggregate amount in excess of $.30
per share ($.40 per share if the Effective Time is after the record date for
FNB's regular scheduled dividend for the first calendar quarter of 1998) or
makes any other distributions on Home Savings Stock (collectively, "Excess Cash
Distributions"), then, the Cash Factor shall be reduced by the per share amount
of any such Excess Cash Distributions, and the Exchange Ratio shall be reduced
accordingly. Home Savings does not intend to make Excess Cash Distributions. See
"THE MERGER -- Exchange of Home Savings Stock."
Each shareholder of Home Savings may elect to convert his shares of Home
Savings Stock at the Effective Time into shares of FNB Stock, the right to
receive cash or a combination of shares of FNB Stock and the right to receive
cash, subject to certain limitations. Notwithstanding the foregoing, in no event
shall shares of FNB Stock be issued in the Merger for more than sixty percent
(60%) or less than fifty percent (50%) of the total outstanding shares of Home
Savings Stock. Accordingly, it may be necessary for FNB to prorate among
shareholders in accordance with the Agreement the number of shares of FNB Stock
to be issued in connection with the Merger. In addition, if, upon conclusion of
the Shareholders' Meeting, holders in excess of ten percent (10%) of Home
Savings Stock have properly exercised applicable rights of dissent and appraisal
(as described herein, "Dissenters' Rights") or have voted their shares of Home
Savings Stock against approval of the Agreement, the above-referenced elections
will not be honored. In such event, sixty percent (60%) of the outstanding
shares of Home Savings Stock held as of the Effective Time by each shareholder
of Home Savings (except for shares held, other than in a fiduciary capacity, by
Home Savings, the Registrant or any of their subsidiaries, which shall be
canceled in the Merger) shall be converted as of the Effective Time, without any
action on the part of the holder of such shares, into a number of shares of FNB
Stock equal to the Exchange Ratio per share of Home Savings Stock, and forty
percent (40%) of the outstanding shares of Home Savings Stock held as of the
Effective Time by each shareholder of Home Savings shall be converted into the
right to receive cash in an amount equal to the Cash Factor ($15.50) per share
of Home Savings Stock.
Home Savings' shareholders are entitled to Dissenters' Rights in accordance
with North Carolina law and applicable federal law. See "THE
MERGER -- Dissenters' Rights."
This document also constitutes the prospectus of FNB relating to the shares
of FNB Stock that are issuable to holders of Home Savings Stock upon
consummation of the Merger. See "CAPITAL STOCK OF FNB" and "CERTAIN DIFFERENCES
IN THE RIGHTS OF HOLDERS OF HOME SAVINGS STOCK AND FNB STOCK."
FNB Stock is traded on the National Association of Securities Dealers
Automated Quotations Inc. ("NASDAQ") National Market under the symbol "FNBN,"
and Home Savings Stock is traded over-the-counter under the symbol "HSSB" and is
listed on the National Daily Quotation Service "Bulletin Board." On June 2,
1997, the last business day prior to public announcement of the Merger, the last
reported sales price for FNB Stock was $29.50, and the last reported bid price
for Home Savings Stock was $12.125. As of October 31, 1997, the last reported
sales price for FNB Stock was $34.00, and the last reported bid price for Home
Savings Stock was $14.00. On October 31, 1997, the last reported bid and asked
prices for FNB Stock were $32.50 and $34.50, respectively.
For purposes of the Merger, the Average Closing Price is the average
"Closing Price" of FNB Stock over the period of twenty (20) consecutive trading
days ending on the trading day that is three trading days prior to the date that
the Merger is consummated, and the "Closing Price" is the sum of the reported
closing "bid" price and seventy-five percent (75%) of the spread between the
reported closing "bid" and "asked" price of FNB Stock on the NASDAQ National
Market each day. Based on the last reported bid and asked prices of FNB Stock
for the 20 consecutive trading days ending October 31, 1997, the Average Closing
Price would be $33.61.
Based on the 922,686 shares of Home Savings Stock outstanding on October
31, 1997, and assuming the Average Closing Price is $33.61 and that the maximum
sixty percent (60%) of the holders of Home Savings Stock elect or are deemed to
have elected to receive FNB Stock, approximately 255,310 shares of FNB Stock
will be issuable upon consummation of the Merger.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................................................................................................. 4
Incorporation of Certain Documents by Reference........................................................................ 4
Summary................................................................................................................ 5
Parties to the Merger................................................................................................ 5
The Merger........................................................................................................... 5
Effective Time....................................................................................................... 6
Consideration........................................................................................................ 7
Business Purposes and Reasons for the Merger......................................................................... 8
Recommendation of Board of Directors of Home Savings................................................................. 8
Opinion of Financial Advisor......................................................................................... 8
Interest of Certain Persons in the Merger............................................................................ 8
Dissenters' Rights................................................................................................... 9
Certain Federal Income Tax Consequences.............................................................................. 9
Resales by Affiliates................................................................................................ 9
FNB Stock............................................................................................................ 9
Market Prices and Dividends.......................................................................................... 10
Certain Differences in Rights of Shareholders........................................................................ 10
Accounting Treatment................................................................................................. 10
Risk Factors........................................................................................................... 11
Selected Consolidated Financial Information............................................................................ 12
Per Share Data......................................................................................................... 14
Pro Forma Condensed Financial Information.............................................................................. 15
Recent Results......................................................................................................... 20
Information Concerning the Shareholders' Meeting....................................................................... 24
The Merger............................................................................................................. 25
Interest of Certain Persons and Effect of the Merger on Employees and Benefit Plans.................................... 37
Information About FNB and First National............................................................................... 41
Information About Home Savings......................................................................................... 42
Business............................................................................................................. 43
Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 44
Capital Stock of FNB................................................................................................... 53
Capital Stock of Home Savings.......................................................................................... 55
Market Price and Dividend Information.................................................................................. 58
Certain Differences in the Rights of Holders of Home Savings Stock and FNB Stock....................................... 59
Certain Regulatory Considerations...................................................................................... 61
Opinions............................................................................................................... 65
Experts................................................................................................................ 65
Proposals of Shareholders.............................................................................................. 65
Index to Consolidated Financial Statements of Home Savings............................................................. F-1
Appendices:
I. Agreement and Plan of Reorganization and Merger
II. Opinion of Baxter Fentriss & Company
III. Sections 55-13-01 through 55-13-31 of the North Carolina General Statutes and Section 215a of the National Bank
Act, concerning Dissenters' Rights
</TABLE>
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AVAILABLE INFORMATION
This Prospectus/Proxy Statement constitutes part of the Registration
Statement on Form S-4 of FNB, including any exhibits and amendments thereto (the
"Registration Statement"), filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), in connection with the Merger described
herein. This Prospectus/Proxy Statement does not contain all of the information
set forth in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the SEC. Copies of the
Registration Statement can be obtained from the SEC at prescribed rates by
addressing written requests for such copies to the Public Reference Section of
the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Registration Statement may be inspected and copied at
the public reference facilities referred to above and at the Northeast regional
office located at Seven World Trade Center, Suite 1300, New York, New York 10048
and the Midwest regional office located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may
also be obtained electronically through the SEC's Electronic Data Gathering
Analysis and Retrieval ("EDGAR") system at the SEC's web site
(http:\\www.sec.gov).
FNB is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information filed by FNB may be inspected
without charge and copies may be obtained at prescribed rates from the SEC
offices set forth above.
Home Savings is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Federal Deposit Insurance Corporation ("FDIC"). Such
reports, proxy statements and other information filed by Home Savings may be
obtained from the FDIC at prescribed rates by addressing written requests for
such copies to the FDIC, Registration and Disclosure Section, 550 17th Street,
N.W., Washington, D.C. 20429, Telephone: (202) 898-8902. In addition, such
documents may be inspected and copied at the public reference facilities of the
FDIC at 1776 F Street, N.W., Room F-643, Washington, DC 20006.
All information contained or incorporated by reference in this
Prospectus/Proxy Statement with respect to FNB and First National was supplied
by FNB, and all information contained in this Prospectus/Proxy Statement with
respect to Home Savings was supplied by Home Savings.
No person or entity has been authorized to give any information or to make
any representation not contained in this Prospectus/Proxy Statement in
connection with the matters described herein, and, if given or made, any such
other information or representation must not be relied upon as having been
authorized by FNB or Home Savings. This Prospectus/Proxy Statement does not
constitute an offer to sell, or a solicitation of an offer to buy, any of the
securities offered hereby, or any other securities, to any person in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not authorized to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus/Proxy Statement nor any
sale hereunder shall under any circumstances create any implication that there
has been no change in the affairs of FNB or Home Savings since any of the dates
as of which information is furnished herein or since the date hereof.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by FNB with the SEC are
incorporated herein by reference in this Prospectus/Proxy Statement: (i) FNB's
Annual Report on Form 10-KSB for the year ended December 31, 1996; (ii) FNB's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997
and June 30, 1997; (iii) FNB's Current Report on Form 8-K dated June 3, 1997 and
(iv) FNB's 1996 Annual Report to Shareholders, to the extent that it discloses:
(a) Five-Year Financial History; (b) Management's Discussion and Analysis of
Financial Condition and Results of Operations; and (c) Audited Financial
Statements and Notes thereto. Each such document was filed pursuant to the
Exchange Act.
The portion of FNB's Annual Report to Shareholders for the fiscal year
ended December 31, 1996 captioned "Message to Shareholders" is not incorporated
herein and is not part of the Registration Statement.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any other 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 this
Prospectus/Proxy Statement.
FNB'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
AND QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997,
EXCLUDING EXHIBITS THERETO, ACCOMPANY THIS PROSPECTUS/PROXY STATEMENT.
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SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION RELATING TO THE
MERGER CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT. THIS SUMMARY IS
NOT INTENDED TO BE A SUMMARY OF ALL MATERIAL INFORMATION RELATING TO THE MERGER
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MORE DETAILED INFORMATION
CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, INCLUDING THE APPENDICES
HERETO AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. A COPY OF THE
AGREEMENT IS SET FORTH IN APPENDIX I TO THIS PROSPECTUS/PROXY STATEMENT AND IS
INCORPORATED BY REFERENCE HEREIN FOR A COMPLETE DESCRIPTION OF THE TERMS OF THE
MERGER. SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE PROSPECTUS/PROXY
STATEMENT, INCLUDING THE APPENDICES.
PARTIES TO THE MERGER
FNB AND FIRST NATIONAL. FNB is a North Carolina corporation with its
principal office and place of business located in Asheboro, North Carolina. FNB
serves as the parent holding company for First National, and its primary
business is to own the capital stock of First National and to promote the
general development of the business of First National. First National is a
national banking corporation with its principal office and place of business
located in Asheboro, North Carolina and is a wholly owned subsidiary of FNB.
First National is an independent community bank that offers full-service
commercial, retail and trust banking services to the consumer and business
customers primarily in the region of North Carolina that includes Randolph,
Montgomery and Chatham counties. At June 30, 1997, FNB and First National,
together, had total assets of approximately $313 million, total deposits of
approximately $272 million and total shareholders' equity of approximately $30
million. Their primary source of revenue is First National's loan portfolio, the
amount of which totaled approximately $204 million at June 30, 1997.
The principal office of FNB is located at First National's main office, 101
Sunset Avenue, Asheboro, North Carolina 27203. The telephone number is (910)
626-8300.
HOME SAVINGS. Home Savings is a North Carolina state savings bank
headquartered in Siler City, North Carolina. Home Savings was organized as a
North Carolina mutual savings bank in 1950 under the name Home Savings and Loan
Association and was converted from mutual to stock form on November 14, 1995.
Home Savings' primary source of revenue is interest income from its real estate
lending activities, which activities consist primarily of making first mortgage
loans for the purchase and refinancing of residential real property. At June 30,
1997, Home Savings had total assets of approximately $55 million, total deposits
of approximately $44 million and total shareholders' equity of approximately
$9.7 million.
The principal and only office of Home Savings is located at 300 East
Raleigh Street, Siler City, North Carolina 27344. The telephone number is (919)
742-4186.
THE MERGER
The Boards of Directors of the constituent institutions have unanimously
approved the Agreement providing for the Merger. Upon consummation of the
Merger, each of the issued and outstanding shares of Home Savings Stock will be
converted into, subject to adjustment and proration, either (i) a number of
shares of FNB Stock equal to (x) $15.50 (the "Cash Factor") divided by (y) the
Average Closing Price (as defined below) of FNB Stock, (ii) the right to receive
cash in an amount equal to the Cash Factor, or (iii) a combination of shares of
FNB Stock and the right to receive cash. The Average Closing Price is the
average "Closing Price" of FNB Stock over the period of twenty (20) consecutive
trading days ending on the trading day that is three trading days prior to the
date that the Merger is consummated, and the "Closing Price" is the sum of the
reported closing "bid" price and seventy-five percent (75%) of the spread
between the reported closing "bid" and "asked" price of FNB Stock on the NASDAQ
National Market each day. The ratio reflecting the number of shares of FNB Stock
that may be exchanged for each share of Home Savings Stock is hereinafter
referred to as the "Exchange Ratio."
The Agreement must be approved by the affirmative vote of at least
two-thirds of the shares of Home Savings Stock entitled to vote at the
Shareholders' Meeting. As of November 5, 1997, the record date for determining
shareholders of Home Savings eligible to vote at the Shareholders' Meeting (the
"Record Date"), directors and executive officers of Home Savings and their
affiliates owned and were entitled to vote approximately 10.07% of the
outstanding shares of Home Savings Stock. The directors and executive officers
of Home Savings and their affiliates have indicated that they intend to vote
their shares in favor of the Agreement and the Merger. See "INFORMATION
CONCERNING THE SHAREHOLDERS' MEETING -- Record Date, Voting Rights and Vote
Required." Pursuant to Section 55-11-03 of the North Carolina Business
Corporation Act, the vote of shareholders of FNB is not required to approve the
Merger if (i) FNB's Articles of Incorporation will not be amended; (ii) each FNB
shareholder whose shares were outstanding immediately before the Effective Time
will hold the same shares,
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with identical designations, preferences, limitations, and relative rights,
immediately after the Effective Time; (iii) the number of voting shares of the
capital stock of FNB outstanding immediately after the Merger will not exceed by
more than twenty percent (20%) the total number of voting shares of the capital
stock of FNB outstanding immediately before the Merger; and (iv) the number of
participating shares outstanding immediately after the Merger will not exceed by
more than twenty percent (20%) the total number of participating shares
outstanding immediately before the Merger. In addition, the vote of shareholders
of FNB is not required to approve the Merger if certain guidelines provided in
NASD regulations, and similar to the aforementioned North Carolina statute, are
met. Because the requirements of the North Carolina Business Corporation Act and
NASD regulations have been satisfied, shareholders of FNB are not required to
approve the Merger.
The material conditions to the Merger include, without limitation: (i) the
approval of the Boards of Directors of FNB and Home Savings; (ii) the approval
of the shareholders of Home Savings; (iii) the receipt of all necessary
regulatory approvals and expiration of all notice periods and waiting periods
required after the granting of any such approval; (iv) the receipt of an opinion
of counsel as to the tax-free nature of certain aspects of the Merger; (v) the
absence of any order, decree, or injunction of any court or governmental agency
that enjoins or prohibits consummation of the transactions contemplated by the
Agreement or either party from consummating the transactions contemplated by the
Agreement, any pending or threatened investigation of the Merger by the United
States Department of Justice ("DOJ") or any actual or threatened litigation
under federal antitrust laws; (vi) the accuracy of the representations and
warranties of FNB and Home Savings set forth in the Agreement as of the
Effective Time as if made on and as of such date; (vii) the performance in all
material respects of all obligations, covenants and agreements imposed on FNB
and Home Savings by the Agreement; (viii) the absence of a material adverse
change in the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of FNB or Home Savings or any condition or circumstance which, with
the lapse of time or otherwise, may cause, create or result in such material
adverse change; (ix) effectiveness of the Registration Statement under the
Securities Act, and FNB's satisfaction of all actions required by applicable
state securities laws to cause the issuance of FNB Stock in the Merger to be
duly qualified or registered under such laws or to be exempt therefrom; (x)
receipt of certain opinions of counsel and certificates from officers of Home
Savings and FNB and (xi) FNB's satisfaction of all requirements for the FNB
Stock to be issued in the Merger to be listed on the NASDAQ National Market as
of the Effective Time.
FNB's obligation to consummate the Merger is also subject to the
satisfaction of certain other conditions, including, without limitation, that
the holders of no more than ten percent (10%) of Home Savings Stock shall have
properly exercised Dissenters' Rights or voted against approval of the Agreement
at the Shareholders' Meeting. Home Savings' obligation to consummate the Merger
is also subject to receipt of a certain opinion and letter of confirmation from
Baxter Fentriss & Company ("Baxter Fentriss"), to the effect that the terms of
the Merger are fair to Home Savings and its shareholders from a financial point
of view, which opinion has been received as of June 2, 1997 and is to be updated
within ten business days of the closing of the Merger. See " -- Opinion of
Financial Advisor."
Applications for required approvals for the Merger have been filed with the
Office of the Comptroller of the Currency ("OCC") and with the Administrator of
the North Carolina Savings Institutions Division (the "Administrator"), and
preliminary approvals from such regulators have been received.
The Shareholders' Meeting will be held on December 17, 1997. See
"INFORMATION CONCERNING THE SHAREHOLDERS' MEETING." If the Merger is not
approved by the shareholders of Home Savings at the Shareholders' Meeting or an
adjournment thereof, or a necessary approval is not obtained, Home Savings will
not be acquired by FNB.
EFFECTIVE TIME
Assuming satisfaction of all conditions to the consummation of the Merger
(see "THE MERGER -- Conditions to Consummation of the Merger"), the Merger shall
become effective upon the later to occur of (i) the OCC issuing its certificate
of approval of the Merger and (ii) the Articles of Merger containing the plan of
merger ("Plan of Merger") and the other provisions required by, and executed in
accordance with, applicable North Carolina and federal law being accepted for
filing by the Secretary of State of the State of North Carolina (or such later
time as may be specified in the Articles of Merger) (the "Effective Time"). The
Effective Time shall in no event be more than ten (10) days following the
closing date. The Agreement may be terminated by either party if the Effective
Time has not occurred prior to the close of business on April 30, 1998, unless
such date is extended by written mutual agreement of the parties. The Effective
Time currently is anticipated to occur in February 1998.
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CONSIDERATION
Upon consummation of the Merger, each outstanding share of Home Savings
Stock will be converted into (i) a number of shares of FNB Stock equal to the
Exchange Ratio, (ii) the right to receive cash in an amount equal to the Cash
Factor, or (iii) a combination of shares of FNB Stock and the right to receive
cash. Any fractional shares resulting from the Merger will not be issued and
shareholders of Home Savings will receive cash in lieu thereof. If during the
period commencing on June 3, 1997 and ending at the Effective Time, Home Savings
declares or pays cash dividends in an aggregate amount in excess of $.30 per
share ($.40 per share if the Effective Time is after the record date for FNB's
regular scheduled dividend for the first calendar quarter of 1998) or makes any
other distributions on Home Savings Stock (collectively, "Excess Cash
Distributions"), then, the Cash Factor shall be reduced by the per share amount
of any such Excess Cash Distributions, and the Exchange Ratio shall be reduced
accordingly. See "THE MERGER -- Exchange of Home Savings Stock." Except as a
result of any Excess Cash Distributions, the Exchange Ratio will not be
adjusted. Home Savings does not intend to declare or pay any Excess Cash
Distributions.
Each shareholder of Home Savings may elect to convert his shares of Home
Savings Stock into the right to receive cash, shares of FNB Stock or a
combination of the right to receive cash and shares of FNB Stock, subject to
certain limitations. Within ten days following approval of this Agreement and
the Plan of Merger by the shareholders of Home Savings at the Shareholders'
Meeting, Home Savings will mail written instructions to each of its shareholders
regarding the making of such election together with a notice (a "Notice of
Election"), which each shareholder shall be required to use for purposes of
making such election. The instructions of Home Savings shall specify a date by
which a shareholder's election must be made (the "Election Date," which shall be
set by FNB, but in no event to be less than fifteen (15) or more than thirty
(30) days following the date that the above instructions and Notice of Election
are first distributed to the shareholders of Home Savings). The above
instructions and Notice of Election distributed to the shareholders of Home
Savings shall be provided by and in a form satisfactory to FNB. In order to make
an effective election, a Home Savings shareholder must deliver to FNB a properly
completed Notice of Election on or before the close of its business on the
Election Date and in accordance with FNB's instructions. Any shareholder who
does not make an election or whose Notice of Election is not timely received by
FNB or otherwise is not made in accordance with FNB's instructions (including
any shareholder who has properly exercised Dissenters' Rights) will be deemed to
have elected that sixty percent (60%) of such shareholder's shares of Home
Savings Stock be converted into FNB Stock at the rate of the Exchange Ratio per
share of Home Savings Stock and that the remaining forty percent (40%) be
converted into the right to receive cash at the rate of the Cash Factor per
share of Home Savings Stock.
Notwithstanding the foregoing, in no event shall shares of FNB Stock be
issued in the Merger for more than sixty percent (60%) or less than fifty
percent (50%) of the total outstanding shares of Home Savings Stock.
Accordingly, it may be necessary for the Registrant to prorate among
shareholders the number of shares of FNB Stock to be issued in connection with
the Merger. In addition, if, upon conclusion of the Shareholders' Meeting,
holders in excess of ten percent (10%) of Home Savings Stock have properly
exercised Dissenters' Rights or have voted their shares of Home Savings Stock
against approval of the Agreement (and if FNB has waived the condition to its
obligation to consummate the Merger that the holders of no more than ten percent
(10%) of Home Savings Stock so act), the above-referenced elections will not be
honored. In such event, sixty percent (60%) of the outstanding shares of Home
Savings Stock held as of the Effective Time by each shareholder of Home Savings
(except for shares held, other than in a fiduciary capacity, by Home Savings,
the Registrant or any of their subsidiaries, which shall be canceled in the
Merger) shall be converted as of the Effective Time, without any action on the
part of the holder of such shares, into a number of shares of FNB Stock equal to
the Exchange Ratio per share of Home Savings Stock and forty percent (40%) of
the outstanding shares of Home Savings Stock held as of the Effective Time by
each shareholder of Home Savings shall be converted into the right to receive
cash in an amount equal to the Cash Factor per share of Home Savings Stock. See
"THE MERGER -- Exchange of Home Savings Stock."
The Board of Directors of Home Savings believes that the consideration to
be received by Home Savings' shareholders in exchange for their shares of Home
Savings Stock is in their best interests, not only as to the value of the
consideration but also as to the form. The Board believes that the combination
of FNB Stock and cash consideration to be paid in the Merger will permit Home
Savings shareholders to have a choice of receiving in exchange for their shares
of Home Savings Stock (i) cash, without incurring brokerage commissions and at a
price higher than the historical trading price of Home Savings Stock, (ii)
shares of FNB Stock with, in the Board's opinion, greater liquidity and greater
potential for stock appreciation than Home Savings Stock inasmuch as the
combined financial institution will be a larger, more diversified and
competitive financial institution with a broader base across which to spread any
adverse economic impact, or (iii) a combination of cash and FNB Stock. Such
choice will be made based on individual preferences. Due to the potential
proration described in the paragraph immediately above, however, Home Savings'
shareholders may actually receive more or less FNB Stock or more or
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less cash than originally elected. Home Savings' shareholders will have taxable
gain to the extent of any cash received in the Merger.
BUSINESS PURPOSES AND REASONS FOR THE MERGER
Faced with slow economic growth and increasing competition in its market
area, the Board of Directors of Home Savings determined that an affiliation of
Home Savings with a larger financial institution, and, in particular, FNB (with
which Home Savings was familiar from a proposed but later abandoned
conversion-acquisition transaction between the two institutions in 1993), would
be in the best interests of Home Savings' customers and shareholders. See "THE
MERGER -- Background and Reasons." The Merger will enable the merged financial
institution to offer a wider range of services and products to Home Savings'
existing customers and to compete more effectively in its market area due to the
stronger financial and managerial resources of FNB. First National currently has
a branch office in Siler City, North Carolina, where Home Savings is located,
and, if the Merger is consummated, FNB intends to maintain Home Savings as a
branch of First National. The combined resources of First National, Home Savings
and FNB should enable FNB to maintain and expand the business of Home Savings,
in addition to that of itself and of First National.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF HOME SAVINGS
The Board of Directors of Home Savings believes that the Agreement and the
Merger contemplated thereby are in the best interests of Home Savings and its
shareholders and has unanimously approved the Agreement and the Merger
contemplated thereby. Home Savings' directors unanimously recommend that Home
Savings' shareholders vote FOR the approval of the Agreement and the Merger
contemplated thereby.
OPINION OF FINANCIAL ADVISOR
Home Savings has received the opinion of Baxter Fentriss dated June 2, 1997
to the effect that, as of that date, the consideration to be received by Home
Savings' shareholders in the Merger in exchange for their Home Savings Stock is
fair from a financial point of view. It is a condition to the Merger that Baxter
Fentriss provide a written update of its opinion within ten (10) business days
preceding the closing date. In connection with rendering the fairness opinion
and providing other financial advisory services to Home Savings, Home Savings
has paid Baxter Fentriss an aggregate fee of approximately $20,000 and has
agreed to pay Baxter Fentriss an additional success fee of $17,500 upon
completion of the Merger. Home Savings also will reimburse Baxter Fentriss for
all reasonable out-of-pocket expenses incurred in connection with its services
provided to Home Savings. For additional information concerning Baxter Fentriss
and its opinion, see "THE MERGER -- Opinion of Financial Advisor" and the text
of the opinion set forth in Appendix II to this Prospectus/Proxy Statement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Provided he remains employed as President of Home Savings at the Effective
Time, First National will enter into an Employment and Noncompetition Agreement
with Edwin E. Bridges (the "Employment Agreement") as of the Effective Time for
an initial term of five years. See "INTEREST OF CERTAIN PERSONS IN THE MERGER
AND THE EFFECT OF THE MERGER ON EMPLOYEES AND BENEFIT PLANS -- Employment
Agreement with Edwin E. Bridges" and Schedule C to the Agreement set forth in
Appendix I to this Prospectus/Proxy Statement. In addition, following the
Effective Time, FNB's Board of Directors will appoint each of the members of
Home Savings' Board of Directors to serve as a member of First National's local
advisory board in Siler City, North Carolina. For his or her service as an
advisory board member, each person so appointed shall be compensated at the rate
in effect with respect to other members of First National's advisory board in
Siler City, North Carolina, provided that he or she remains a director of the
advisory board and provided further that he or she does not serve as a director
or advisory director of another financial institution or financial institution
holding company. The compensation paid to First National's advisory board
members is significantly less than that paid by Home Savings to members of its
Board of Directors.
As of October 31, 1997, certain employees and directors of Home Savings
held options to acquire 49,295 shares of Home Savings Stock. Such options, to
the extent not exercised prior to the Effective Time, will be converted into and
become rights with respect to FNB Stock, and FNB will assume each such stock
option, in accordance with the terms of the particular stock option plan under
which it was issued and stock option agreement by which it is evidenced, with
certain exceptions. In addition, each share of Home Savings Stock held by the
trustees under the Home Savings Bank of Siler City, Inc., SSB 1995 Management
Recognition Plan (the "MR Plan") will be converted at the Effective Time into
FNB Stock and/or cash as provided herein, and such shares and/or cash will
thereafter continue to be held and subject to the MR Plan and delivered to the
respective participants at such times that the shares of Restricted Stock (as
defined in the MR Plan), or the consideration
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into which they may be converted in the Merger, become vested and nonforfeitable
under the MR Plan. The Agreement also contains provisions concerning other
benefits to be provided to employees and directors of Home Savings, including
the continued employment of certain of Home Savings' employees, employee
benefits after the Merger and the assumption of certain Home Savings' benefit
plans and agreements. See "INTEREST OF CERTAIN PERSONS AND THE EFFECT OF THE
MERGER ON EMPLOYEES AND BENEFIT PLANS."
DISSENTERS' RIGHTS
Any shareholder of Home Savings who properly exercises his right of dissent
and appraisal with respect to the Merger as provided in Article 13 of the North
Carolina Business Corporation Act ("Article 13") or Section 215a of the National
Bank Act ("Section 215a") shall be entitled to receive payment in cash of the
"fair value" (as defined in Article 13) or "value" (as defined in Section 215a)
of his or her shares of Home Savings Stock in the manner and pursuant to the
procedures provided in Article 13 or Section 215a, respectively. See "THE
MERGER -- Dissenters' Rights." ANY HOME SAVINGS' SHAREHOLDER WHO INTENDS TO
EXERCISE DISSENTERS' RIGHTS SHOULD REVIEW THE TEXTS OF ARTICLE 13 AND SECTION
215A CAREFULLY AND CONSULT WITH HIS OR HER ATTORNEY REGARDING WHETHER TO PROCEED
UNDER RIGHTS GRANTED BY, AND FOLLOW THE PROCEDURES PROVIDED IN, ARTICLE 13,
SECTION 215A OR BOTH.
CERTAIN INCOME TAX CONSEQUENCES
At the Effective Time, a Home Savings shareholder will "realize" gain to
the extent that the sum of any cash and the fair market value of any FNB Stock
received exceeds the shareholder's adjusted basis in the Home Savings Stock
surrendered. However, the amount of such gain that the shareholder will
"recognize" for federal income tax purposes as a result of the Merger will not
exceed the amount of cash received. Accordingly, if a Home Savings shareholder
receives only FNB Stock in exchange for Home Savings Stock, the shareholder will
not recognize any gain. As a result of the potential proration of FNB Stock as
described in this Summary under the heading "Consideration," a Home Savings
shareholder who elects to receive only FNB Stock may nevertheless receive a
combination of FNB Stock and cash. Such a Home Savings shareholder will then
recognize gain for federal income tax purposes to the extent of cash received.
If a Home Savings shareholder receives cash and gain is recognized, that gain
will be treated as a capital gain or, under certain circumstances, as a
dividend. A Home Savings shareholder generally will not recognize any loss on
the exchange of Home Savings Stock. HOME SAVINGS' SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER AND THE EXCHANGE OF THEIR HOME SAVINGS STOCK FOR SHARES OF FNB STOCK,
CASH OR A COMBINATION OF FNB STOCK AND CASH, INCLUDING, WITHOUT LIMITATION, TAX
RETURN REPORTING REQUIREMENTS, THE APPLICATION AND EFFECT OF FEDERAL, FOREIGN,
STATE AND LOCAL AND OTHER TAX LAWS, AND THE IMPLICATIONS OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
RESALES BY AFFILIATES
As a condition to FNB's obligation to consummate the Merger, affiliates of
Home Savings must have entered into agreements that they will not sell any
shares of FNB Stock received upon consummation of the Merger except in
compliance with Rule 145 of the Securities Act or otherwise in compliance with
the Securities Act and the rules and regulations promulgated thereunder. See
"THE MERGER -- Restrictions on Resales by Affiliates."
FNB STOCK
As of October 31, 1997, an aggregate of 1,817,253 shares of FNB Stock had
been issued and were outstanding and none of FNB's preferred stock was
outstanding. The authorized but unissued and unreserved shares of FNB Stock are
available for general corporate purposes including, but not limited to, possible
issuance of stock dividends or stock splits, issuance in future mergers or
acquisitions, issuance under FNB's stock compensation plans or issuance in a
future underwritten or other offering. SHARES OF FNB STOCK ARE NOT, AND CANNOT
BE, INSURED BY THE FDIC.
The holders of FNB Stock generally possess exclusive voting rights in FNB.
Each holder of FNB Stock is entitled to one vote for each share held of record
on all matters submitted thereto. Holders of FNB Stock are not entitled to vote
cumulatively in the election of directors. Except as otherwise provided by North
Carolina law, the vote of a majority of shares voting on any matter (assuming
the presence of a quorum at the meeting at which the vote is taken) is necessary
for approval by the shareholders. Holders of FNB Stock are entitled ratably,
share for share, to receive dividends when, as, and if declared by the Board of
Directors out of funds legally available therefor and, upon any liquidation of
FNB, to participate in the distribution of any corporate assets remaining after
payment of all debts and the liquidation preferences, if any, of preferred stock
that may then be issued and outstanding. Holders of FNB Stock do not have any
preemptive or preferential right to purchase or
9
<PAGE>
subscribe for any additional shares of FNB Stock or any other securities that
may be issued by FNB. See "CAPITAL STOCK OF FNB."
MARKET PRICES AND DIVIDENDS
FNB Stock is traded on the NASDAQ National Market. On October 31, 1997, the
last reported bid and asked prices for FNB Stock were $32.50 and $34.50,
respectively. FNB has traditionally paid a quarterly dividend, and, since the
last quarter of 1996, such quarterly dividend has been $.18 per share. Although
FNB currently intends to continue paying quarterly cash dividends on the FNB
Stock, there can be no assurance that FNB's dividend policy will remain
unchanged after completion of the Merger. The declaration and payment of
dividends thereafter will depend upon business conditions, operating results,
capital and reserve requirements, and the Board of Directors' consideration of
other relevant factors.
Home Savings Stock is traded in the over-the-counter market. On October 31,
1997, the last reported bid price for Home Savings Stock was $14.00. Since its
conversion from mutual to stock form, Home Savings has paid semiannual dividends
of $.20 per share. In addition, on August 12, 1996, Home Savings also paid a
special dividend of $4.80 per share, and on August 19, 1997, the Home Savings
Board declared a $.30 per share dividend, consisting of the regular seminannual
dividend of $.20 per share and a special dividend of $.10 per share. There can
be no assurance that, in the event that the Merger is not consummated, regular
dividends or special dividends would continue to be paid in the future. The
declaration, payment and amount of any such future dividends would depend upon
business conditions, operating results, capital, reserve requirements,
regulatory authorization and Home Savings' Board of Directors' consideration of
other relevant factors. Pursuant to the provisions of the Agreement, if Home
Savings pays cash dividends in an aggregate amount in excess of $0.30 per share
between June 3, 1997 and the Effective Time ($0.40 per share if the Effective
Time is after the record date for FNB's regular scheduled dividend for the first
calendar quarter of 1998), the consideration to be paid to shareholders of Home
Savings will be reduced on a per share basis by the excess amount of such cash
dividend. See "MARKET PRICE AND DIVIDEND INFORMATION."
The following table sets forth the market value of Home Savings Stock (on
an historical and equivalent per share basis) and the market value of the FNB
Stock (on an historical basis) as of June 2, 1997, the business date preceding
public announcement of the Merger.
<TABLE>
<S> <C>
FNB Stock (1).............................................................................. $ 29.50
Home Savings Stock (2)..................................................................... $12.125
Equivalent pro forma Home Savings Stock (giving effect to Merger only)(3).................. $ 15.50
</TABLE>
- ---------------
(1) The closing price for FNB Stock was the last reported sales price on the
NASDAQ National Market on the indicated date.
(2) The closing price for Home Savings Stock was the last reported bid price as
reported by Bloomberg, L.P. on the indicated date.
(3) Equivalent pro forma amount is calculated by multiplying the closing price
of the FNB Stock by an assumed Exchange Ratio of .525 (based on an Average
Closing Price of $29.50, the closing price of FNB Stock on June 2, 1997). If
the Merger were to be consummated as of the date of this Prospectus/Proxy
Statement, the Average Closing Price would be $33.78 and the Exchange Ratio
would be .459.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon completion of the Merger, shareholders of Home Savings who receive FNB
Stock in exchange for their Home Savings Stock will become shareholders of FNB
and their rights as such will be governed by North Carolina law and FNB's
Articles of Incorporation and Amended and Restated Bylaws. The rights of the
shareholders of FNB are different in some respects from the rights of the
shareholders of Home Savings. See "CAPITAL STOCK OF FNB," "CAPITAL STOCK OF HOME
SAVINGS" AND "CERTAIN DIFFERENCES IN THE RIGHTS OF HOLDERS OF HOME SAVINGS STOCK
AND FNB STOCK."
ACCOUNTING TREATMENT
FNB will account for the Merger as a purchase for accounting and financial
reporting purposes.
10
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS, IN ADDITION TO THE INFORMATION PRESENTED ELSEWHERE
IN THIS PROSPECTUS/PROXY STATEMENT, SHOULD BE CONSIDERED BY HOLDERS OF HOME
SAVINGS STOCK BEFORE DECIDING WHETHER TO VOTE IN FAVOR OF THE PROPOSAL TO
APPROVE THE MERGER AND WHETHER TO ELECT TO RECEIVE SHARES OF FNB STOCK OR CASH
OR A COMBINATION THEREOF IN EXCHANGE FOR THEIR SHARES OF HOME SAVINGS STOCK.
LIMITED TRADING MARKET
While FNB Stock is traded on the NASDAQ National Market, the volume of such
trading has traditionally been low. Therefore, there is no assurance that a Home
Savings shareholder who receives FNB Stock in the Merger and desired thereafter
to sell such FNB Stock could do so immediately or could do so at an acceptable
price.
EFFECT ON FUTURE OPERATING RESULTS
As a result of the Merger, FNB will record goodwill of approximately
$4,345,000. Amortization of goodwill will occur over a fifteen-year period on a
straight-line basis, which will be a charge against earnings of approximately
$290,000 each year.
Funds required for payment of cash to Home Savings' shareholders in the
Merger and for certain Merger expenses, together estimated to be approximately
$6,021,000, will be satisfied through borrowings or liquidation of existing
assets or a combination of both. Borrowings will increase interest expense and
the liquidation of assets will reduce interest income, either of which could
have an adverse effect on FNB's results of operations. See "PRO FORMA CONDENSED
FINANCIAL INFORMATION."
There can be no assurance that FNB will achieve growth and economies of
scale after the Merger sufficient to offset the foregoing.
LIMITED AVAILABILITY OF FNB STOCK; INCOME TAX CONSEQUENCES OF POTENTIAL
PRORATION OF FNB STOCK
Because shares of FNB Stock will be issued in the Merger for no more than
sixty percent (60%) of the total outstanding shares of Home Savings Stock, the
number of shares of FNB Stock to be issued in the Merger will be prorated among
such Home Savings' shareholders in the event that Home Savings' shareholders in
the aggregate elect or are deemed to have elected to convert more than sixty
percent (60%) of the total outstanding shares of Home Savings Stock into shares
of FNB Stock. Accordingly, Home Savings' shareholders who have elected to
receive only FNB Stock in the Merger may instead receive a combination of FNB
Stock and the right to receive cash. See "THE MERGER -- Exchange of Home Savings
Stock."
If a Home Savings shareholder receives only FNB Stock in exchange for Home
Savings Stock, the shareholder will not "recognize" any gain for federal income
tax purposes as a result of the Merger. By contrast, a Home Savings shareholder
who receives a combination of FNB Stock and cash in the Merger will recognize
gain for federal income tax purposes. See "THE MERGER -- Certain Income Tax
Consequences." Consequently, as a result of the proration of FNB Stock, a Home
Savings shareholder who elects to receive only FNB Stock may nevertheless
receive a combination of FNB Stock and cash and therefore recognize gain for
federal income tax purposes to the extent of cash received.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Articles of Incorporation of FNB and of federal
and North Carolina law may prevent a change in control of FNB even if desired by
a majority of shareholders. These provisions include supermajority voting
requirements and the authorization of preferred stock. See "CAPITAL STOCK OF
FNB -- Certain Provisions Which May Have an Anti-Takeover Effect."
REGULATION AND MONETARY POLICY
Certain legislation and regulations, as well as United States fiscal and
monetary policies, have had, will continue to have or may have a material effect
on the business, operations and prospects of FNB and First National. Some of the
legislative and regulatory changes may increase FNB's costs of doing business
and assist competitors of FNB and First National. FNB is unable to predict the
nature or extent of the effects on its business and earnings that any fiscal or
monetary policies or new federal or state legislation or regulations may have in
the future. See "CERTAIN REGULATORY CONSIDERATIONS."
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
FNB CORP.
The following consolidated historical financial information of FNB has been
derived from, and should be read in conjunction with, FNB's audited and
unaudited consolidated financial statements, related notes and other information
incorporated herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." Management believes such unaudited consolidated financial statements
include all adjustments (which consist only of normal recurring accruals)
necessary for a fair presentation of such results for such interim periods. All
averages presented have been calculated on a daily basis unless otherwise
stated. RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 ARE NOT NECESSARILY
INDICATIVE OF RESULTS THAT MAY BE EXPECTED FOR ANY OTHER INTERIM PERIOD OR FOR
THE FULL YEAR.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
YEARS ENDED DECEMBER 31,
(UNAUDITED) --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS
Interest income............................... $ 11,890 $ 10,879 $ 22,248 $ 20,606 $ 17,688 $ 17,507 $ 18,594
Interest expense.............................. 5,136 4,726 9,612 9,002 6,979 6,945 8,083
-------- -------- -------- -------- -------- -------- --------
Net interest income........................... 6,754 6,153 12,636 11,604 10,709 10,562 10,511
Provision for loan losses..................... 240 195 490 515 220 370 575
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses...................................... 6,514 5,958 12,146 11,089 10,489 10,192 9,936
Losses on sales of securities................. -- -- -- (415) -- -- --
Other operating income........................ 1,373 1,175 2,444 2,241 2,075 1,810 1,609
Restructuring charges......................... -- -- -- 460 -- -- --
Other operating expense....................... 4,885 4,408 9,077 8,654 8,578 8,306 7,536
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.................... 3,002 2,725 5,513 3,801 3,986 3,696 4,009
Income taxes.................................. 909 828 1,676 1,101 1,159 1,006 1,100
-------- -------- -------- -------- -------- -------- --------
Net income.................................... $ 2,093 $ 1,897 $ 3,837 $ 2,700 $ 2,827 $ 2,690 $ 2,909
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
PER SHARE DATA (1)
Net income.................................... $ 1.16 $ 1.05 $ 2.13 $ 1.50 $ 1.57 $ 1.49 $ 1.62
Cash dividends declared....................... .36 .30 .66 .52 .47 .45 .44
Book value.................................... 16.72 15.08 15.92 14.46 12.99 12.35 11.22
BALANCE SHEET INFORMATION
Total assets.................................. $312,928 $287,742 $307,134 $283,678 $261,616 $249,698 $245,205
Investment securities......................... 89,325 83,687 90,316 84,536 76,983 78,488 81,020
Loans......................................... 204,128 185,606 195,273 179,923 168,328 157,302 147,032
Deposits...................................... 272,372 254,414 271,380 250,144 229,925 224,260 223,478
Shareholders' equity.......................... 30,301 27,194 28,767 25,995 23,379 22,223 20,204
RATIOS (AVERAGES) (2)
Return on assets.............................. 1.35% 1.32% 1.32% 1.00% 1.11% 1.09% 1.24%
Return on shareholders' equity................ 14.12 14.17 13.97 10.93 12.33 12.62 15.16
Shareholders' equity to assets................ 9.58 9.35 9.41 9.17 8.98 8.65 8.19
Dividend payout ratio......................... 31.17 28.49 31.02 34.62 29.71 30.34 27.23
Loans to deposits............................. 73.37 73.26 72.87 73.10 70.67 66.76 64.47
Net yield on earning assets, taxable
equivalent basis............................ 4.95 4.86 4.90 4.84 4.73 4.86 5.17
</TABLE>
- ---------------
(1) All per share data in 1995 and prior years has been retroactively adjusted
to reflect the three-for-two common stock split effected in the form of a
50% stock dividend paid in the second quarter of 1995.
(2) Ratios for the six months ended June 30, 1997 and 1996 have been annualized.
HOME SAVINGS BANK OF SILER CITY, INC., SSB
The following table sets forth selected consolidated financial data and
other operating information of Home Savings at the dates and for the periods
indicated. The selected consolidated financial data in the table for the years
ended September 30, 1996, 1995, 1994, 1993 and 1992, are derived from, and
should be read in conjunction with, Home Savings' consolidated
12
<PAGE>
financial statements, related notes and other information presented elsewhere
herein, and the selected consolidated financial data presented for the nine
months ended June 30, 1997 and 1996 are derived from, and should be read in
conjunction with, Home Savings' unaudited consolidated financial statements,
related notes and other financial information presented elsewhere herein. See
also "INFORMATION ABOUT HOME SAVINGS -- Management's Discussion and Analysis of
Financial Condition and Results of Operations." Management believes such
unaudited consolidated financial statements include all adjustments (which
consist only of normal recurring accurals) necessary for a fair presentation of
such results for such interim periods. All averages presented have been
calculated on a monthly basis unless otherwise stated. RESULTS FOR THE NINE
MONTHS ENDED JUNE 30, 1997 ARE NOT NECESSARILY INDICATIVE OF RESULTS THAT MAY BE
EXPECTED FOR ANY OTHER INTERIM PERIOD OR FOR THE FULL YEAR.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
----------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest and dividend income................................ $ 2,862 $ 3,002 $ 3,992 $ 3,386 $ 3,034 $ 3,216 $ 3,483
Interest expense............................................ 1,592 1,619 2,149 1,897 1,546 1,657 2,211
------- ------- ------- ------- ------- ------- -------
Net interest income......................................... 1,270 1,383 1,843 1,489 1,488 1,559 1,272
Provision for loan losses................................... -- -- -- -- -- 14 218
------- ------- ------- ------- ------- ------- -------
Net interest income after provision for loan losses......... 1,270 1,383 1,843 1,489 1,488 1,545 1,054
Other operating income...................................... 55 54 78 60 72 66 73
Other operating expenses.................................... 750 581 1,595 683 1,733 590 603
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes, extraordinary credit, and
cumulative effect of change in accounting principle....... 575 856 326 866 (173) 1,021 524
Income tax (benefit) expense................................ 207 340 206 313 (72) 345 259
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary credit and cumulative
effect of change in accounting principle.................. 368 516 120 553 (101) 676 265
Extraordinary credit........................................ -- -- -- -- -- 14 --
Cumulative effect of change in accounting for income
taxes..................................................... -- -- -- -- 81 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................................... $ 368 $ 516 $ 120 $ 553 $ (20) $ 690 $ 265
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA (1)
Net Income.................................................. .41 .54 .07
Cash Dividends Declared..................................... .20 .20 5.20
Book Value.................................................. 10.52 14.56 10.12
BALANCE SHEET INFORMATION
Total assets................................................ $55,456 $56,754 $52,514 $47,785 $43,989 $43,878 $41,761
Loans receivable, net....................................... 30,932 29,898 30,034 30,074 29,653 31,635 32,765
Mortgage-backed securities.................................. 5,235 5,944 5,640 1,719 1,888 1,059 1,359
Investment securities....................................... 12,504 7,793 13,450 5,997 998 643 968
Federal funds sold.......................................... 4,450 900 975 1,750 3,350 5,400 2,500
Deposits.................................................... 44,401 41,652 41,667 41,369 38,211 38,646 37,350
Stockholders' equity........................................ 9,711 13,433 9,337 5,409 4,855 4,875 4,185
KEY OPERATING RATIOS (2)
Return on average assets.................................... .92% 1.23% 0.22% 1.22% -0.05% 1.60% 0.62%
Return on average equity.................................... 5.17 5.48 0.97 10.78 -0.49 18.72 8.35
Average equity to average assets............................ 17.20 22.37 22.15 11.33 9.11 8.53 7.37
Tangible equity to end of period assets..................... 17.66 23.95 17.78 11.32 11.04 11.11 10.02
Dividend payout ratio (1)................................... 48.45 36.90 548.1
Interest rate spread........................................ 2.37 2.23 2.36 2.83 3.13 3.48 2.69
Net interest margin......................................... 3.25 3.37 3.43 3.38 3.51 3.82 3.09
Nonperforming assets to total assets (3).................... 0.82 0.86 1.09 1.38 1.70 2.20 4.36
Average interest-earning assets to average interest-bearing
liabilities............................................... 121.48 128.83 128.62 112.59 110.42 108.37 107.42
Other operating expense to average assets................... 1.86 1.38 3.23 1.51 3.90 1.37 1.40
Loan loss reserves to nonperforming loans at period end..... 62.15 43.49 48.95 42.21 43.56 39.72 42.81
</TABLE>
13
<PAGE>
- ---------------
(1) Calculated from November 14, 1995, the date of Home Savings' conversion from
mutual to stock form. Excludes special one-time dividend of $4.80 per share
paid in the fourth quarter of 1996.
(2) Ratios for the nine months ended June 30, 1997 and 1996 have been
annualized.
(3) Nonperforming assets include nonaccrual loans, accruing loans 90 days past
due, and foreclosed assets.
PER SHARE DATA
The following unaudited consolidated financial information reflects certain
per share data relating to (i) net income, book value, and cash dividends
declared per common share for both FNB and Home Savings on a historical basis,
(ii) net income, book value, and cash dividends declared per common share on a
pro forma basis for FNB after giving effect to the Merger, and (iii) net income,
book value, and cash dividends declared per common share on a pro forma
equivalent basis for Home Savings assuming that the Merger had been effected for
the periods presented and had been accounted for as a purchase and that 60% of
Home Savings' shareholders elected to receive shares of FNB Stock in the Merger.
See "PRO FORMA CONDENSED FINANCIAL INFORMATION." The data presented should be
read in conjunction with and have been derived from historical consolidated
financial statements of FNB and Home Savings and the related notes thereto
incorporated herein by reference and presented elsewhere herein, respectively.
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996 (1)
---------------- ---------------------
<S> <C> <C>
PER COMMON SHARE:
NET INCOME:
FNB -- Historical............................................................... $ 1.16 $ 2.13
Home Savings -- Historical (1).................................................. 0.24 0.07
FNB/Home Savings Pro Forma Combined (1):
Purchase Accounting Adjustments Only.......................................... 0.99 1.69
After Nonrecurring Expense Adjustments (2).................................... 0.99 1.95
Home Savings Pro Forma Equivalent (3):
Purchase Accounting Adjustments Only.......................................... 0.46 0.78
After Nonrecurring Expense Adjustments (2).................................... 0.46 0.90
BOOK VALUE:
FNB -- Historical............................................................... 16.72 15.92
Home Savings -- Historical...................................................... 10.52 10.12
FNB/Home Savings Pro Forma Combined............................................. 18.67 17.97
Home Savings Pro Forma Equivalent (3)........................................... 8.61 8.29
CASH DIVIDENDS DECLARED:
FNB -- Historical............................................................... 0.36 0.66
Home Savings -- Historical (4,5)................................................ 0.20 5.20
FNB/Home Savings Pro Forma Combined (6)......................................... 0.36 0.66
Home Savings Pro Forma Equivalent (3)........................................... 0.17 0.30
</TABLE>
- ---------------
(1) FNB has a fiscal year end of December 31, and Home Savings has a fiscal year
end of September 30. Data included herein for Home Savings is for the fiscal
year ended September 30, 1996. Net income per share for Home Savings of $.07
for the fiscal year ended September 30, 1996 is calculated by dividing net
income for the period November 14, 1995 (the date on which Home Savings
converted from mutual to stock form) to September 30, 1996, $61,142, by the
weighted average number of common shares outstanding during that period.
FNB/Home Savings Pro Forma Combined Net Income per share includes net income
for Home Savings for the year ended September 30, 1996 of $120,028.
(2) Certain nonrecurring expenses of Home Savings for the fiscal year ended
September 30, 1996 that will not be expenses of the merged entity are
eliminated as follows:
<TABLE>
<S> <C>
Special FDIC insurance assessment in connection with the recapitalization of the Savings
Association Insurance Fund.................................................................... $256,000
Portion of ESOP compensation expense related to a special cash dividend of $4.80 per share...... 482,000
--------
Total................................................................................. $738,000
--------
--------
</TABLE>
14
<PAGE>
(3) Home Savings pro forma per share equivalent amounts are computed by
multiplying the FNB/Home Savings pro forma combined amounts by an assumed
Exchange Ratio of .461 calculated by dividing $15.50 by an assumed Average
Closing Price of $33.61.
(4) Cash dividends declared by Home Savings during its fiscal year ended
September 30, 1996 included a one-time special dividend of $4.80 per share.
(5) Pursuant to the provisions of the Agreement, if between June 3, 1997 and the
Effective Time Home Savings pays a cash dividend in an aggregate amount in
excess of $.30 per share ($.40 per share if the Effective Time is after the
record date for FNB's regular scheduled dividend for the first calendar
quarter of 1998), the cash paid in excess of such limitation will reduce the
consideration to be paid to Home Savings' shareholders in the Merger. Home
Savings does not intend to declare or pay cash dividends on Home Savings
Stock in excess in excess of such limitation.
(6) FNB/Home Savings pro forma combined dividends per share represent historical
dividends per share paid by FNB.
PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet as of
June 30, 1997 and the unaudited pro forma combined condensed statements of
income for the six months ended June 30, 1997 and for the year ended December
31, 1996 combine the historical financial statements of FNB and Home Savings.
The combined condensed statements give effect to the impact of the Merger on FNB
as if it had occurred on June 30, 1997 with respect to the balance sheet, and at
the beginning of the reporting periods for the statements of of income,
presented under the purchase method of accounting for business combinations. The
purchase method of accounting requires that all assets and liabilities be
adjusted to their estimated fair market values as of the date of acquisition.
The pro forma statements are provided for informational purposes only. The
pro forma financial information is not necessarily indicative of actual results
that would have been achieved had the Merger been consummated on June 30, 1997
or at the beginning of the periods presented, and is not indicative of future
results.
15
<PAGE>
FNB CORP. AND HOME SAVINGS BANK OF SILER CITY, INC., SSB
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PURCHASE
FNB HOME ACCOUNTING PRO FORMA
CORP. SAVINGS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks, noninterest-bearing............................... $ 11,065 $ 638 $ -- $ 11,703
Interest-bearing bank balances............................................. -- 448 -- 448
Federal funds sold......................................................... -- 4,450 -- 4,450
Investment securities:
Available for sale...................................................... 30,776 12,526 -- 43,302
Held to maturity........................................................ 58,549 5,560 -- 64,109
Loans...................................................................... 204,128 31,212 -- 235,340
Less allowance for loan losses.......................................... (2,091) (280) -- (2,371)
-------- ------- ----------- ---------
Net loans.................................................................. 202,037 30,932 -- 232,969
Premises and equipment..................................................... 6,203 298 -- 6,501
Goodwill................................................................... -- -- 3,964(a) 4,345
81(b)
300(c)
Other assets............................................................... 4,298 604 -- 4,902
-------- ------- ----------- ---------
Total assets............................................................ $312,928 $55,456 $ 4,345 $372,729
-------- ------- ----------- ---------
-------- ------- ----------- ---------
LIABILITIES
Deposits:
Noninterest-bearing..................................................... $ 39,162 $ 84 $ -- $ 39,246
Interest-bearing........................................................ 233,210 44,317 -- 277,527
-------- ------- ----------- ---------
Total deposits........................................................ 272,372 44,401 -- 316,773
Retail repurchase agreements............................................... 6,030 -- -- 6,030
Federal funds purchased.................................................... 900 -- -- 900
Other borrowings........................................................... -- -- 5,607(a) 6,021
300(c)
114 (a)(e)
ESOP note payable.......................................................... -- 260 (260)(d) --
Other liabilities.......................................................... 3,325 1,084 -- 4,409
-------- ------- ----------- ---------
Total liabilities....................................................... 282,627 45,745 5,761 334,133
-------- ------- ----------- ---------
SHAREHOLDERS' EQUITY
Common stock............................................................... 4,531 923 (923)(a) 5,169
638 (a)(e)
Surplus.................................................................... 341 8,138 (8,138)(a) 8,284
7,943 (a)(e)
Retained earnings.......................................................... 25,442 1,299 (1,299)(a) 25,442
Unearned ESOP shares....................................................... -- (260) 260(d) --
Deferred stock awards...................................................... -- (308) 22 (a)(e) (286)
Net unrealized securities losses........................................... (13) (81) 81(b) (13)
-------- ------- ----------- ---------
Total shareholders' equity.............................................. 30,301 9,711 (1,416) 38,596
-------- ------- ----------- ---------
Total liabilities and shareholders' equity.............................. $312,928 $55,456 $ 4,345 $372,729
-------- ------- ----------- ---------
-------- ------- ----------- ---------
CAPITAL RATIOS
Equity to assets........................................................... 9.68% 17.51% 10.35%
Net book value per share................................................... $ 16.72 $ 10.52 $ 18.67
</TABLE>
16
<PAGE>
- ---------------
(a) Pursuant to the Merger Agreement, each outstanding share of Home Savings
Stock will be converted into either (i) a number of shares of FNB Stock
equal to (x) $15.50 divided by (y) the Average Closing Price of FNB Stock,
(ii) the right to receive cash of $15.50 or (iii) a combination of shares of
FNB Stock and cash. The acquisition is expected to be consummated by the end
of the first quarter of 1998 and will be accounted for as a purchase. FNB
Stock will be exchanged for Home Savings Stock at the Exchange Ratio, which
will be determined based on the Average Closing Price of FNB Stock. See "THE
MERGER -- General Description of the Terms of the Agreement." For pro forma
purposes, the Average Closing Price was assumed to be $33.61, which was the
average of the sum of the bid price and 75% of the spread between the bid
and asked price for the 20 consecutive trading days ended October 31, 1997.
For pro forma purposes, 60% (the maximum allowable) of the 922,686
outstanding shares of Home Savings Stock are assumed to be converted into
FNB Stock and the remaining 40% converted into cash.
Shares awarded under Home Savings' MR Plan vest at the rate of 20% per year
on July 17th of each year beginning July 17, 1997. Under generally accepted
accounting principles, restricted shares such as those awarded under the MR
Plan are considered to vest ratably throughout the year. Accordingly,
although only 20% of the 26,347 shares awarded under the MR Plan will have
vested and become nonforfeitable by the expected closing date of the Merger,
for pro forma purposes 30% of the shares awarded under the MR Plan, or 7,904
shares, are considered to be vested as of the consummation of the Merger and
are included in the total Merger consideration, and 70%, or 18,443 shares,
are considered to be unvested and are reflected as either deferred stock
awards or other liabilities. See also Note (e) below. Thus, for pro forma
purposes, the total consideration is as follows:
<TABLE>
<S> <C>
FNB Stock, 255,310 shares to be issued............................................ $ 8,580,956
Cash.............................................................................. 5,606,330
Deferred stock awards............................................................. (285,865)
Other liabilities................................................................. 114,346
-----------
Total........................................................................... $14,015,767
-----------
-----------
</TABLE>
In recording the exchange of FNB Stock and cash for Home Savings Stock, all
Home Savings' balances for common stock, surplus and retained earnings will
be eliminated, cash will be borrowed (as assumed for pro forma purposes) for
payment to Home Savings shareholders and goodwill will result for the
difference between the total consideration given for Home Savings Stock and
the shareholders' equity accounts eliminated.
(b) The purchase method of accounting requires that all assets and liabilities
be adjusted to their estimated fair value as of the date of the acquisition.
The fair values of loans, investments and deposits are not expected to be
materially different from the historical values, therefore no pro forma
adjustments have been made except to eliminate net unrealized securities
losses included in shareholders' equity for Home Savings.
(c) To record the effect of estimated Merger expenses, which include
professional fees, printing costs and miscellaneous costs.
(d) FNB will assume Home Savings' employee stock ownership plan (the "ESOP") at
the Effective Time as plan sponsor but shall have no duty to continue the
ESOP after the employees of Home Savings become eligible to participate in
the FNB Section 401(k) savings plan. See "INTEREST OF CERTAIN PERSONS AND
EFFECT OF THE MERGER ON EMPLOYEES AND BENEFIT PLANS -- Employee Stock
Ownership Plan." For pro forma purposes, it is assumed that the ESOP will be
terminated immediately after the Merger and that the loan to the ESOP will
be repaid.
(e) Each share of Home Savings Stock held under the MR Plan will be converted to
FNB Stock and/or cash and such FNB Stock and/or cash will be delivered to
participants at such times as restricted shares of Home Savings Stock would
have become vested under the MR Plan. See "INTEREST OF CERTAIN PERSONS AND
EFFECT OF THE MERGER ON EMPLOYEES AND BENEFIT PLANS -- Other Benefit Plans."
For pro forma purposes, 60% of the shares under the MR Plan that are treated
as unvested for accounting purposes are assumed to be converted into shares
of FNB Stock (and are reflected above as deferred stock awards) and 40% of
such shares are assumed to be converted into cash (and are reflected above
as other liabilities). See note (a) above.
17
<PAGE>
FNB CORP. AND HOME SAVINGS BANK OF SILER CITY, INC., SSB
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PURCHASE
HOME ACCOUNTING PRO FORMA
FNB SAVINGS ADJUSTMENTS COMBINED
------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Interest income............................................................... $11,890 $ 1,921 $ -- $ 13,811
Interest expense.............................................................. 5,136 1,071 181(a) 6,388
------- ------- ----------- ----------
Net interest income........................................................... 6,754 850 (181) 7,423
Provision for loan losses..................................................... 240 -- -- 240
------- ------- ----------- ----------
Net interest income after provision for loan losses........................... 6,514 850 (181) 7,183
Other operating income........................................................ 1,373 38 -- 1,411
Other operating expense....................................................... 4,885 546 145(b) 5,576
------- ------- ----------- ----------
Income before income taxes.................................................... 3,002 342 (326) 3,018
Income taxes.................................................................. 909 123 (61)(c) 971
------- ------- ----------- ----------
Net income.................................................................... $ 2,093 $ 219 $ (265) $ 2,047
------- ------- ----------- ----------
------- ------- ----------- ----------
Net income per share.......................................................... $ 1.16 $ .24 $ 0.99
Weighted average number of common shares outstanding.......................... 1,810,055 896,457 2,058,108(d)
</TABLE>
- ---------------
(a) To recognize interest expense on funds that FNB may need to borrow for
estimated disbursements of $6,021,000 in connection with the Merger. While
such funds may ultimately be either partially or wholly available from
internal sources of liquidity, it is assumed for pro forma purposes that the
funds will be borrowed on a one-year basis from the Federal Home Loan Bank
at an approximate 6.00% rate.
(b) Amortization of estimated goodwill resulting from the Merger of $4,345,000
over a fifteen-year period using the straight-line method.
(c) Income tax expense (benefit) is computed using a federal tax rate of 34%.
Expense related to amortization of goodwill is not deductible for tax
purposes.
(d) The pro forma combined weighted average number of common shares outstanding
consists of FNB weighted average number of common shares outstanding plus
60% of the Home Savings weighted average number of common shares outstanding
multiplied by an assumed Exchange Ratio of .461 calculated by dividing
$15.50 by an assumed Average Closing Price of $33.61.
18
<PAGE>
FNB CORP. AND HOME SAVINGS BANK OF SILER CITY, INC., SSB
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996 (A)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
PURCHASE NONRECURRING ADJUSTED FOR
FNB HOME ACCOUNTING PRO FORMA EXPENSE NONRECURRING
CORP. SAVINGS ADJUSTMENTS COMBINED ADJUSTMENTS EXPENSES
------- ------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income................................... $22,248 $ 3,992 $ -- $26,240 $ -- $ 26,240
Interest expense.................................. 9,612 2,149 361(c) 12,122 -- 12,122
------- ------- ----------- --------- ------------ ------------
Net interest income............................... 12,636 1,843 (361) 14,118 -- 14,118
Provision for loan losses......................... 490 -- -- 490 -- 490
------- ------- ----------- --------- ------------ ------------
Net interest income after provision for loan
losses.......................................... 12,146 1,843 (361) 13,628 -- 13,628
Other operating income............................ 2,444 77 -- 2,521 -- 2,521
Other operating expense........................... 9,077 1,594 290(d) 10,961 (738)(g) 10,223
------- ------- ----------- --------- ------------ ------------
Income before income taxes........................ 5,513 326 (651) 5,188 738 5,926
Income taxes...................................... 1,676 206 (123)(e) 1,759 204(e) 1,963
------- ------- ----------- --------- ------------ ------------
Net income........................................ $ 3,837 $ 120 $ (528) $ 3,429 $ 534 $ 3,963
------- ------- ----------- --------- ------------ ------------
------- ------- ----------- --------- ------------ ------------
Net income per share.............................. $ 2.13 $ .07(b) $ 1.69(b) 1.95(b)
Weighted average number of common shares
outstanding..................................... 1,801,933 838,257 2,033,882(f) 2,033,882(f)
</TABLE>
- ---------------
(a) FNB Corp. has a fiscal year end of December 31, and Home Savings has a
fiscal year end of September 30. Earnings data included herein for Home
Savings is for the fiscal year ended September 30, 1996.
(b) Net income per share for Home Savings of $.07 is calculated by dividing net
income for the period November 14, 1995 (the date on which Home Savings
converted from mutual to stock form) to September 30, 1996, $61,142, by the
weighted average number of common shares outstanding during that period.
FNB/Home Savings Pro Forma Combined Net Income per share includes net income
for Home Savings for the year ended September 30, 1996 of $120,028.
(c) To recognize interest expense on funds that FNB may need to borrow for
estimated disbursements of $6,021,000 in connection with the Merger. While
such funds may ultimately be either partially or wholly available from
internal sources of liquidity, it is assumed for pro forma purposes that the
funds will be borrowed on a one-year basis from the Federal Home Loan Bank
at an approximate 6.00% rate.
(d) Amortization of estimated goodwill resulting from the Merger of $4,345,000
over a fifteen-year period using the straight-line method.
(e) Income tax expense (benefit) is computed using a federal tax rate of 34%.
Expense related to amortization of goodwill is not deductible for tax
purposes.
(f) The pro forma combined weighted average number of common shares outstanding
consists of FNB weighted average number of common shares outstanding plus
60% of the Home Savings weighted average number of common shares outstanding
multiplied by an assumed Exchange Ratio of .461 calculated by dividing
$15.50 by an assumed Average Closing Price of $33.61.
(g) To eliminate nonrecurring expenses of Home Savings that will not be expenses
of the merged entity as follows:
<TABLE>
<S> <C>
Special FDIC insurance assessment in connection with the recapitalization of the Savings
Association Insurance Fund................................................................ $256,000
Portion of ESOP compensation expense related to a special cash dividend of $4.80 per
share..................................................................................... 482,000
--------
Total................................................................................. $738,000
--------
--------
</TABLE>
19
<PAGE>
RECENT RESULTS
FNB CORP.
FNB earned $3,182,316 in the nine months ending September 30, 1997, a
$346,677 or 12.2% increase over the same period in 1996. Earnings per share
increased from $1.57 to $1.76 in comparing these nine-month periods. For the
three months ending September 30, 1997, earnings amounted to $1,089,645, which
represents a $151,030 or 16.1% increase over the same period 1996 and a gain in
earnings per share from $.52 to $.60. Earnings were positively impacted in the
nine- and three-month periods ending September 30, 1997 by increases in net
interest income and in total other operating income. These gains were
significantly offset, however, by increases in total other operating expense and
in the provision for loan losses. Results for both the first nine months and
third quarter of 1996 were negatively impacted by a special one-time assessment
for FDIC insurance purposes of $74,845.
Return on average assets improved from 1.32% in the first nine months of
1996 to 1.36% in the first nine months of 1997. Return on average shareholders'
equity improved from 13.95% to 14.10% in comparing the same periods. In
comparing third quarter results, return on average assets improved from 1.30% to
1.38% and return on average shareholders' equity improved from 13.53% to 14.09%.
Net interest income was $10,323,321 in the first nine months of 1997, a
$989,066, or 10.6% increase over net interest income of $9,334,255 in the same
period of 1996. This increase resulted primarily from an 8.7% increase in the
level of average earning assets coupled with an improvement in the net yield on
earning assets, or net interest margin, from 4.90% in the first nine months of
1996 to 4.99% in the same period of 1997. In comparing the three-month periods
ending September 30, 1997 and 1996, net interest income increased $388,199 or
12.2%, reflecting a 9.7% increase in average earning assets and an improvement
in the net interest margin from 4.97% to 5.06%.
The provision for loan losses for the nine- and three-month periods ending
September 30, 1997 increased $165,000 and $120,000, respectively, compared to
the same periods in 1996, due primarily to loan growth and increases in net loan
chargeoffs. As a percentage of average loans outstanding, net loan chargeoffs
were .18% (annualized) for the nine months ending September 30, 1997 and 1996,
thus reflecting no increase between periods. Nonperforming loans as a percentage
of total loans at September 30, 1997 were .08%, as compared to .12% at September
30, 1996.
Total other operating income, or noninterest income, for the nine- and
three-month periods ending September 30, 1997 increased $343,812 or 19.5% and
$145,059 or 24.5%, respectively, compared to the same periods in 1996, due to
the general increase in the volume of business and the increased level of other
service charges, commissions and fees due primarily to the implementation in the
1996 third quarter of a fee charged to noncustomers for usage of First
National's automated teller machines.
Total other operating expense, or noninterest expense, was $668,856 or
10.0% higher in the first nine months of 1997 compared to the same period in
1996 and for the third quarter was $191,895 or 8.3% higher, due largely to
costs associated with changes in operations, increased personnel expense and the
continuing effects of inflation. The 1996 results were specifically affected by
a one-time FDIC insurance assessment of $74,845 on September 30, 1996.
Total assets at September 30, 1997 were higher than at September 30, 1996
and December 31, 1996 by $18,044,000 or 6.0% and $13,567,000 or 4.4%,
respectively; deposits increased by $10,169,000 or 3.8% and $6,703,000 or 2.5%,
respectively. Average assets increased $24,385,000 or 8.5% for the first nine
months of 1997 compared to the same period in 1996, while average deposits
increased $20,060,000 or 8.0%; the third quarter increases being $27,147,000 or
9.4% and $19,934,000 or 7.8%, respectively.
FNB's primary source of revenue and largest component of earning assets is
the loan portfolio. Loans increased $20,354,000 or 10.6% during the twelve-month
period ended September 30, 1997. The net loan increase during the first nine
months of 1997 was $16,229,000 or 8.3%. Average loans were $17,119,000 or 9.2%
higher in the first nine months of 1997 than in the same period of 1996. The
ratio of average loans to average deposits, in comparing nine-month periods,
increased from 73.4% in 1996 to 74.3% in 1997. The ratio of loans to deposits at
September 30, 1997 was 76.1%.
20
<PAGE>
The following table sets forth certain consolidated historical financial
information of FNB for the three- and nine-month periods ending September 30,
1997 and 1996. Such information is based on FNB's interim unaudited financial
statements. Management believes all adjustments (which consist only of normal
recurring accruals) necessary for a fair presentation of position and results
for such interim periods have been included. All averages presented have been
calculated on a daily basis unless otherwise stated. RESULTS FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 ARE NOT NECESSARILY INDICATIVE OF RESULTS
THAT MAY BE EXPECTED FOR ANY OTHER INTERIM PERIOD OR FOR THE FULL YEAR.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
1997 1996 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income.................................................................. $ 6,262 $ 5,538 $ 18,152 $ 16,417
Interest expense................................................................. 2,693 2,357 7,829 7,083
-------- -------- -------- --------
Net interest income.............................................................. 3,569 3,181 10,323 9,334
Provision for loan losses........................................................ 230 110 470 305
-------- -------- -------- --------
Net interest income after provision for loan losses.............................. 3,339 3,071 9,853 9,029
Other operating income........................................................... 738 592 2,111 1,767
Other operating expense.......................................................... 2,497 2,305 7,382 6,713
-------- -------- -------- --------
Income before income taxes....................................................... 1,580 1,358 4,582 4,083
Income taxes..................................................................... 491 419 1,400 1,247
-------- -------- -------- --------
Net income....................................................................... $ 1,089 $ 939 $ 3,182 $ 2,836
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE DATA
Net income....................................................................... $ .60 $ .52 $ 1.76 $ 1.57
Cash dividends declared.......................................................... .18 .15 .54 .45
Book value....................................................................... 17.21 15.48 17.21 15.48
BALANCE SHEET INFORMATION
Total assets..................................................................... $320,701 $302,657 $320,701 $302,657
Investment securities............................................................ 88,160 83,448 88,160 83,448
Loans............................................................................ 211,502 191,148 211,502 191,148
Deposits......................................................................... 278,083 267,914 278,083 267,914
Shareholders' equity............................................................. 31,265 27,916 31,265 27,916
RATIOS (AVERAGES) (1)
Return on assets................................................................. 1.38% 1.30% 1.36% 1.32%
Return on shareholders' equity................................................... 14.09 13.53 14.10 13.95
Shareholders' equity to assets................................................... 9.78 9.59 9.65 9.43
Dividend payout ratio............................................................ 30.01 28.81 30.77 28.60
Loans to deposits................................................................ 75.97 73.59 74.25 73.37
Net yield on earning assets, taxable equivalent basis............................ 5.06 4.97 4.99 4.90
</TABLE>
- ---------------
(1) Ratios for the three and nine months ended September 30, 1997 and 1996 have
been annualized.
21
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
Home Savings' net income for the three-month period ended September 30,
1997 was $32,000 and for the year ended September 30, 1997 was $400,000. These
amounts compare to a loss of $396,000 for the three-month period ended September
30, 1996 and net income of $120,000 for the year ended September 30, 1996. For
the year ended September 30, 1997, net income per share was $.45, as compared to
$.07 for the prior year.
For the three-month period ended September 30, 1997, net income per share
was $.04 as compared to a loss per share of $.47 for the three months ended
September 30, 1996. Net income for the three-month period increased from the
1996 level due to a decrease in other operating expenses of $597,000. This
decrease was due principally to a nonrecurring charge in 1996 related to the
distribution of a special dividend, which triggered significant compensation
with respect to Home Savings' Employee Stock Ownership Plan (the "ESOP") and an
FDIC assessment of $256,000. Additionally, net interest income decreased by
$49,000. Income tax benefit decreased by $119,000 as a result of the
aforementioned changes.
Net interest income for the year ended September 30, 1997 totaled
$1,681,000, an 8.8% decrease from 1996. The decrease in net interest income was
due principally to the decreasing net interest margin. The net interest margin
was 3.20% for 1997, a decrease of 23 basis points from the 1996 margin of 3.43%.
The interest rate spread remained relatively constant from 1996 to 1997. Other
operating expenses decreased $428,000, principally as a result of the decreased
compensation expense related to the ESOP and the nonrecurrence of the FDIC
assessment.
At September 30, 1997, assets totaled $56,379,000 compared to $52,514,000
at September 30, 1996. Assets grew as a result principally of an increase in
deposit liabilities of $3,700,000 which was principally invested in federal
funds sold. This increase in lower yielding assets resulted in a decrease in the
net interest margin. Loans outstanding grew $1,522,000. Mortgage backed
securities and investment securities decreased by $1,595,000 to an aggregate of
$17,495,000. The allowance for loan losses was relatively constant and loan
chargeoffs were inconsequential.
The following table sets forth selected consolidated financial data and
other operating information of Home Savings as of the dates and for the three
months and year ended September 30, 1997 and 1996. Such information is based on
Home Savings' unaudited interim and year-end financial statements (and audited
financial statements with respect to the year ended September 30, 1996.)
Management believes all adjustments (which consist only of normal recurring
accruals) necessary for a fair presentation of such results for such periods
have been made. All averages presented have been calculated on a monthly basis
unless otherwise stated. RESULTS FOR THE THREE MONTHS AND YEAR ENDED SEPTEMBER
30, 1997 ARE NOT NECESSARILY INDICATIVE OF RESULTS THAT MAY BE EXPECTED FOR ANY
OTHER INTERIM PERIOD OR FULL YEAR.
22
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
1997 1996 1997 1996
------- ------- ----------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest and dividend income.................................................. $ 1,003 $ 990 $ 3,865 $ 3,992
Interest expense.............................................................. 592 530 2,184 2,149
------- ------- ----------- -------
Net interest income........................................................... 411 460 1,681 1,843
Provision for loan losses..................................................... -- -- -- --
------- ------- ----------- -------
Net interest income after provision for loan losses........................... 411 460 1,681 1,843
Other operating income........................................................ 23 24 78 78
Other operating expenses...................................................... 417 1,014 1,167 1,595
------- ------- ----------- -------
Income (loss) before income taxes............................................. 17 (530) 592 326
Income tax (benefit) expense.................................................. (15) (134) 192 206
------- ------- ----------- -------
Net income (loss)............................................................. $ 32 $ (396) $ 400 $ 120
------- ------- ----------- -------
------- ------- ----------- -------
PER SHARE DATA (1)
Net Income.................................................................... .04 (.47) .45 .07
Cash Dividends Declared....................................................... .30 5.00 .50 5.20
Book Value.................................................................... 10.33 10.12 10.33 10.12
BALANCE SHEET INFORMATION
Total assets.................................................................. $56,379 $52,514 $56,379 $52,514
Loans receivable, net......................................................... 31,556 30,034 31,556 30,034
Mortgage-backed securities.................................................... 4,985 5,640 4,985 5,640
Investment securities......................................................... 12,510 13,450 12,510 13,450
Federal funds sold............................................................ 5,050 975 5,050 975
Deposits...................................................................... 45,396 41,667 45,396 41,667
Stockholders' equity.......................................................... 9,533 9,337 9,533 9,337
KEY OPERATING RATIOS (2)
Return on average assets...................................................... .23% (2.46%) 0.73% 0.22%
Return on average equity...................................................... 1.32 (12.51) 4.17 0.97
Average equity to average assets.............................................. 17.32 19.67 17.62 22.15
Tangible equity to end of period assets....................................... 16.92 17.78 16.93 17.78
Dividend payout ratio (1)..................................................... 836.92 N/A 111.71 548.10
Interest rate spread.......................................................... 2.13 2.36 2.35 2.36
Net interest margin........................................................... 3.01 3.44 3.20 3.43
Nonperforming assets to total assets (3)...................................... .69 1.09 .69 1.09
Average interest-earning assets to average interest-bearing liabilities....... 120.26 127.28 120.39 128.62
Other operating expense to average assets..................................... 2.93 3.11 2.15 3.23
Loan loss reserves to nonperforming loans at period end....................... 71.65 48.95 71.65 48.95
</TABLE>
- ---------------
(1) Calculated from November 14, 1995, the date of Home Savings' conversion from
mutual to stock form. Excludes special one-time dividend of $4.80 per share
paid in the fourth quarter of 1996.
(2) Ratios for the three months ended September 30, 1997 and 1996 have been
annualized.
(3) Nonperforming assets include nonaccrual loans, accruing loans 90 days past
due, and foreclosed assets.
23
<PAGE>
INFORMATION CONCERNING THE SHAREHOLDERS' MEETING
This Prospectus/Proxy Statement is being furnished to shareholders of Home
Savings as of the Record Date and is accompanied by a form of proxy which is
solicited by the Board of Directors of Home Savings for use at the Shareholders'
Meeting to be held on December 17, 1997 and at any adjournment thereof. At the
Shareholders' Meeting, Home Savings' shareholders will vote on a proposal to
approve the Agreement and the Merger contemplated thereby.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
Only the holders of Home Savings Stock on November 5, 1997 (the "Record
Date") are entitled to receive notice of and to vote at the Shareholders'
Meeting and at any adjournment thereof. On the Record Date, there were 922,686
shares of Home Savings Stock outstanding which were held by approximately 261
holders of record. Each share of Home Savings Stock outstanding on the Record
Date is entitled to one vote on the proposal regarding the Merger. Approval of
the Agreement and the Merger will require the affirmative vote of at least
two-thirds of the shares of Home Savings Stock entitled to vote at the
Shareholders' Meeting. Failure of a holder of Home Savings Stock to vote such
shares, abstentions and broker nonvotes will have the same effect as a vote
"AGAINST" the Agreement and the Merger. As of the Record Date, the Directors and
executive officers of Home Savings and their affiliates owned a total of 92,916
shares, or 10.07%, of Home Savings Stock, all of which are expected to be voted
in favor of the Agreement and the Merger. Information as to the nature of such
persons' beneficial ownership is included in the section of this
Prospectus/Proxy Statement entitled "INFORMATION ABOUT HOME SAVINGS -- Voting
Securities and Beneficial Ownership Thereof." Notwithstanding the affirmative
vote of at least two-thirds of the shares of Home Savings Stock entitled to vote
at the Shareholders' Meeting, certain other conditions could preclude
consummation of the Merger. See "THE MERGER -- Conditions to Consummation."
VOTING AND REVOCATION OF PROXIES
The shares of Home Savings Stock represented by properly executed proxies
received at or prior to the Shareholders' Meeting will be voted as directed by
the shareholders, unless revoked as described below. If no instructions are
given, such proxies will be voted "FOR" the proposal to approve the Agreement
and the Merger. Such vote will constitute a waiver of the shareholder's right to
dissent. If any other matters are properly presented at the Shareholders'
Meeting, or any adjournment or adjournments thereof, and may be properly voted
on, the proxies solicited hereby will be voted on such matters in accordance
with the best judgment of a majority of the proxyholders named therein. However,
in such event, voting authority will only be exercised to the extent permissible
under applicable federal securities laws. Home Savings is not aware of any other
matters to be presented at the Shareholders' Meeting. This proxy is being
solicited for the Shareholders' Meeting and any adjournment or adjournments
thereof and will not be used for any other meeting. The presence of a
shareholder at the Shareholders' Meeting will not automatically revoke such
shareholder's proxy. A shareholder may, however, revoke a proxy at any time
prior to its exercise (1) by filing a written notice of revocation with, or by
delivering a duly executed proxy bearing a later date to, the President of Home
Savings at Home Savings' main office prior to the Shareholders' Meeting, or (2)
by attending the Shareholders' Meeting and voting in person. A proxy will not be
revoked by the death or incapacity of the shareholder executing it unless,
before the shares are voted, notice of such death or incapacity is filed with
the President of Home Savings or other person authorized to tabulate votes.
Whether or not they plan to attend the Shareholders' Meeting, HOLDERS OF HOME
SAVINGS STOCK ARE REQUESTED TO COMPLETE, DATE, AND SIGN THE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be deemed to be incurred and shall be
paid 50% by Home Savings and 50% by FNB. In addition to the use of the mails,
proxies may be solicited personally or by telephone or facsimile by the
directors, officers and employees of Home Savings who will not be specially
compensated for such solicitation activities. Because of the two-thirds
affirmative vote requirement for approval of the Merger, Home Savings may retain
a proxy soliciting firm to assist it in the solicitation of proxies for the
Shareholders' Meeting, the cost of which is not expected to exceed $10,000. Home
Savings will make arrangements with brokerage firms and other custodians,
nominees, and fiduciaries, if any, for the forwarding of solicitation materials
to the beneficial owners of Home Savings Stock held of record by such persons.
Any such brokers, custodians, nominees and fiduciaries will be reimbursed for
the out-of-pocket expenses incurred by them for such services.
24
<PAGE>
THE MERGER
The following information describes material aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Agreement, which is incorporated by reference herein and is
attached hereto as Appendix I.
BACKGROUND AND REASONS
Home Savings was chartered in 1950 as a mutual savings and loan association
and since that time has grown to its present size of approximately $55 million
in assets. Home Savings believes that the lack of significant growth during its
47-year history is due primarily to the state of the economy of Chatham County,
its primary service area. Chatham County is primarily an agricultural county
with only some light industry. The financial crisis of the 1980s which affected
savings and loan associations throughout the country was weathered by Home
Savings. In the early 1990s, Home Savings' Board of Directors began to consider
a strategic long-term plan for Home Savings and considered an affiliation with
FNB through a transaction known as conversion-acquisition. On December 30, 1993,
Home Savings entered into an agreement with FNB which provided for the
conversion of Home Savings from mutual to stock form and the simultaneous
acquisition of Home Savings by FNB. However, due to objections to this form of
transaction by both federal and state regulatory authorities, which objections
culminated on November 22, 1994 in a moratorium on such transactions declared by
the Office of Thrift Supervision ("OTS"), the agreement was ultimately
terminated on March 31, 1995. The proposed conversion-acquisition was then
abandoned. Thereafter, the Board of Directors re-examined its strategic
alternatives, affirmed its earlier decision that, as a mutually-owned
institution, Home Savings' alternatives were limited and determined that a
conversion from mutual to stock form was the best alternative for Home Savings
to increase its capital base for lending and investment purposes. On November
14, 1995, the conversion was effected after the sale of approximately $9 million
in common stock to the members and local community in Chatham County.
As a shareholder owned institution, Home Savings' Board of Directors
continued to assess its strategic position, mindful of its fiduciary duties to
its shareholders. Faced with slow economic growth and increasing competition
from other financial intermediaries in its market, Home Savings' Board of
Directors determined that the best manner of serving its customers and
establishing a positive financial influence in its market was to affiliate with
a larger financial institution. FNB periodically contacted Home Savings
regarding its interest in an affiliation but, prior to negotiations that
ultimately led to the Agreement, nothing definitive was proposed or suggested by
FNB. One other financial institution, significantly larger than both Home
Savings and FNB and with an existing presence in Home Savings' market, also
indicated an interest but made no specific proposal. During the prior
discussions between FNB and Home Savings, both parties became familiar with the
styles of operation and management teams of the other, and Home Savings'
management decided to renew private discussions with FNB beginning in April
1997, which discussions culminated in the Agreement that was signed on June 3,
1997. Inasmuch as First National currently has a branch office in Siler City,
North Carolina, where Home Savings is located, Home Savings' management believes
that the Merger, if approved, will enable the merged financial institution to
offer a wider range of services and products to Home Savings' existing customers
and to its market area.
RECOMMENDATION
The Board of Directors of Home Savings has unanimously approved the
Agreement and the Merger contemplated thereby and believes that the Merger is
fair to, and in the best interests of, Home Savings and its shareholders. Home
Savings' Board of Directors, therefore, unanimously recommends that the holders
of Home Savings Stock vote "FOR" approval of the Agreement and the Merger
contemplated thereby. In making its recommendation, the Board of Directors of
Home Savings has considered, among other things, the opinion of Baxter Fentriss
that FNB's proposal is fair to Home Savings' shareholders from a financial point
of view. See "THE MERGER -- Background and Reasons" and " -- Opinion of
Financial Advisor."
OPINION OF FINANCIAL ADVISOR
Home Savings retained Baxter Fentriss to act as its financial advisor in
connection with the Merger and other transactions contemplated by the Agreement.
On June 2, 1997, Baxter Fentriss delivered to Home Savings its opinion that, as
of such date, and on the basis of matters referred to in its written report and
opinion, the consideration in cash and/or stock to be received by the Home
Savings' shareholders is fair from a financial point of view. Baxter Fentriss
will update its opinion within ten business days prior to the closing of the
Merger. In rendering its opinion, Baxter Fentriss consulted with the management
of Home Savings and FNB, reviewed the Agreement and certain publicly-available
information on the parties and reviewed certain additional materials made
available by the managements of the respective companies. In addition,
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Baxter Fentriss discussed with the management of both Home Savings and FNB their
respective businesses and outlooks. No limitations were imposed by Home Savings'
Board of Directors upon Baxter Fentriss with respect to the investigation made
or procedures followed by it in rendering its opinion.
The full text of Baxter Fentriss' opinion as of June 2, 1997, which sets
forth certain assumptions made, matters considered and qualifications and
limitations on the review undertaken, is attached as Appendix II 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 Baxter Fentriss set forth herein as qualified in its
entirety by reference to the opinion. Baxter Fentriss' opinion is directed only
to the fairness of the consideration to the holders of Home Savings Stock from a
financial point of view and does not constitute a recommendation to any
shareholder of Home Savings as to how such shareholder should vote with respect
to the Agreement and the transactions contemplated thereby.
Baxter Fentriss' opinion was one of many factors taken into consideration
by the Home Savings' Board of Directors in determining to approve the Agreement,
and the receipt of Baxter Fentriss' opinion is a condition precedent to Home
Savings consummating the Merger. The opinion of Baxter Fentriss does not address
the relative merits of the Merger as compared to any alternative business
strategies that might exist for Home Savings, nor does it address the effect of
any other business combination in which Home Savings might engage.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations or estate, corporate and
other purposes. Baxter Fentriss is a nationally recognized advisor on mergers
and acquisitions to firms in the financial services industry. Home Savings
selected Baxter Fentriss as its financial advisor because Baxter Fentriss is an
investment banking firm focusing on bank and thrift transactions and because of
the firm's extensive experience and expertise in transactions similar to the
proposed transaction. Baxter Fentriss is not affiliated with FNB or Home
Savings.
In rendering its opinion to Home Savings' Board of Directors, Baxter
Fentriss performed a variety of financial analyses. In conducting its analyses
and arriving at its opinion, Baxter Fentriss considered such financial and other
factors as it deemed appropriate under the circumstances including, among
others, the following: (i) the historical and current financial condition and
results of operations of FNB and Home Savings, including interest income,
interest expense, interest sensitivity, noninterest income, noninterest expense,
earnings, book value, returns on assets and equity, capitalization, the reserve
for loan losses and possible tax consequences resulting from the transaction;
(ii) the business prospects of FNB and Home Savings; (iii) the economics of
FNB's and Home Savings' respective market areas; (iv) the respective historical
and current markets for FNB Stock and Home Savings Stock; and (v) the nature and
terms of certain other merger transactions that it believed to be relevant.
Baxter Fentriss also considered its assessment of general economic, market,
financial and regulatory conditions and trends, as well as knowledge of the
financial institutions industry, its experience in connection with similar
transactions, its knowledge of securities valuation generally, and its knowledge
of merger transactions involving converted mutual financial institutions, as
well as other merger transactions in North Carolina and South Carolina (the
"Carolinas").
In rendering its written opinion, Baxter Fentriss reviewed (i) the
Agreement; (ii) drafts of this Prospectus/Proxy Statement; (iii) the respective
Annual Reports to Shareholders, including the audited financial statements, of
Home Savings and FNB for the year ended September 30, 1996 and December 31,
1996, respectively, and the Quarterly Reports of Home Savings and FNB for the
six and three months, respectively, ended March 31, 1996; (iv) pro forma
combined unaudited condensed balance sheets as of December 31, 1996, pro forma
combined statements of income for the year ended December 31, 1996, (v) certain
additional financial and operating information with respect to the respective
business, operations and prospects of FNB and Home Savings as it deemed
appropriate. Baxter Fentriss also (a) held discussions with members of the
respective senior managements of FNB and Home Savings regarding the historical
and current business operation, financial condition and future prospects of
their respective companies; (b) reviewed the historical market prices and
trading activity for the common stock of each of Home Savings and FNB; (c)
compared the results of operations of Home Savings and FNB with those of certain
banking companies that it deemed to be relevant; (d) analyzed the pro forma
financial impact of the Merger on FNB; (e) analyzed the pro forma financial
impact of the Merger on Home Savings; and (f) conducted such other studies,
analyses, inquiries and examinations as Baxter Fentriss deemed appropriate.
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 fairness of the consideration to
holders of Home Savings Stock from a financial point of view was to some extent
a subjective one based on the experience and judgment of Baxter Fentriss and not
merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Baxter Fentriss believes
that its analyses must be considered as a whole and
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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
Baxter Fentriss' view of the actual value of Home Savings or FNB.
In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Home Savings and FNB. The
analyses performed by Baxter Fentriss 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, Baxter Fentriss
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 Home
Savings or FNB.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion:
(a) STOCK PRICE HISTORY. Baxter Fentriss studied the respective histories
of the trading prices and volume for Home Savings Stock and FNB Stock and
compared that to publicly traded banks in the Carolinas and to the price offered
by FNB.
(b) COMPARATIVE ANALYSIS. Baxter Fentriss compared the price to earnings
multiple, price to book multiple, and premium to deposit ratio of the Exchange
Ratio with other comparable merger transactions after considering the financial
standing of Home Savings' nonperforming assets and other variables. The
comparative multiples included 36 East Coast converted mutual institutions
involved in sale or merger transactions during the last six years, with emphasis
placed on the last three years. Of the 36 transactions, the Merger ranked tenth
in price to book multiple, sixth in premium to deposits ratio and fourth in
price to earnings multiple.
(c) PRO FORMA IMPACT. Baxter Fentriss considered the pro forma impact of
the transaction and concluded the transactions should have a positive long-term
impact on FNB.
(d) DISCOUNTED CASH FLOW ANALYSIS. Baxter Fentriss performed a discounted
cash flow analysis to determine hypothetical present values for a share of Home
Savings Stock as a five-year and ten-year investment. Under this analysis,
Baxter Fentriss considered various scenarios for the performance of Home
Savings' stock using (i) a range from 6% to 12% in the growth of Home Savings'
earnings and dividends and (ii) a range from 10 to 18 times earnings as the
terminal value for Home Savings Stock. A range of discount rates from 12% to 15%
were applied to these alternative growth and terminal value scenarios. These
ranges of discount rates, growth alternatives and terminal values were chosen
based upon what Baxter Fentriss, in its judgment, considered to be appropriate
taking into account, among other things, Home Savings' past and current
performance, the general level of inflation, and rates of return for fixed
income and equity securities in the marketplace generally and for companies with
similar risk profiles. In almost all of the scenarios considered, the present
value of a share of Home Savings Stock was calculated as of May 23, 1997 at less
than the $15.50 in market value of the consideration to be received by Home
Savings' shareholders. Thus, Baxter Fentriss' discounted cash flow analysis
indicated that Home Savings' shareholders would be in a better financial
position by receiving the FNB Stock and cash consideration offered in the Merger
than by continuing to hold shares of Home Savings Stock.
Using publicly available information on FNB and applying the capital
guidelines of banking regulators, Baxter Fentriss' analysis indicated that the
Merger would not seriously dilute the capital and earnings capacity of FNB and
would, therefore, likely not be opposed by the banking regulatory agencies from
a capital perspective. Furthermore, Baxter Fentriss considered the likely market
overlap and the guidelines of the Federal Reserve Board with regard to market
concentration and did not believe this to be an issue with regard to possible
antitrust concerns.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal of
the assets or liabilities of either Home Savings or FNB, and has not been
furnished such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to Home Savings, FNB, 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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Home Savings has paid Baxter Fentriss a retainer of $5,000 and a fairness
opinion fee of $15,000. Home Savings has also agreed to pay Baxter Fentriss a
success fee upon successful completion of the Merger of $17,500 and reasonable
out-of-pocket expenses for its services. Home Savings has agreed to indemnify
Baxter Fentriss against certain liabilities, including certain liabilities under
the federal securities laws.
GENERAL DESCRIPTION OF THE TERMS OF THE AGREEMENT
Upon consummation of the Merger, Home Savings will be merged with and into
First National, the separate corporate existence of Home Savings will cease and
the corporate existence of First National, as the surviving corporation in the
Merger, will continue. Each such outstanding share of Home Savings Stock (except
for shares held, other than in a fiduciary capacity, by Home Savings, FNB or any
of their subsidiaries, which will be canceled in the Merger) will be converted,
without any action on the part of the holder of such shares (other than the
making of an election as described below) into (i) a number of shares of FNB
Stock equal to (x) $15.50 (the "Cash Factor") divided by (y) the Average Closing
Price of FNB Stock, (ii) the right to receive cash in an amount equal to the
Cash Factor, or (iii) a combination of shares of FNB Stock and the right to
receive cash as provided herein. The Average Closing Price is the average
"Closing Price" of FNB Stock over the period of twenty (20) consecutive trading
days ending on the trading day that is three trading days prior to the date that
the Merger is consummated, and the "Closing Price" is the sum of the reported
closing "bid" price and seventy-five (75%) of the spread between the reported
closing "bid" and "asked" price of FNB Stock on the NASDAQ National Market each
day. Any Home Savings' shareholder who receives cash in exchange for his shares
of Home Savings Stock will have immediate tax consequences. See " -- Certain
Federal Income Tax Consequences."
Except as specifically provided in the Agreement, the ratio reflecting the
number of shares of FNB Stock that may be exchanged for each share of Home
Savings Stock (the "Exchange Ratio") will not be adjusted. Notwithstanding the
foregoing, if during the period commencing on June 3, 1997 and ending at the
Effective Time, Home Savings declares or pays any cash dividends in an aggregate
amount in excess of $.30 per share ($.40 per share if the Effective Time is
after the record date for FNB's regular scheduled dividend for the first
calendar quarter of 1998) or makes any other distributions on Home Savings Stock
(collectively, "Excess Cash Distributions"), then, the Cash Factor will be
reduced by the per share amount of any such Excess Cash Distributions, and the
Exchange Ratio will be reduced accordingly. See " -- Exchange of Home Savings
Stock." Home Savings does not intend to declare or pay any Excess Cash
Distributions.
The Agreement provides that, whether or not the transactions contemplated
thereby are consummated, each party will pay its own costs and expenses incurred
in connection with the Agreement and the transactions contemplated thereby
except for costs incurred in connection with the preparation, printing and
mailing of this Prospectus/Proxy Statement, which shall be paid 50% by Home
Savings and 50% by FNB. See "INFORMATION ABOUT THE SHAREHOLDERS'
MEETING -- Solicitation of Proxies."
EXCHANGE OF HOME SAVINGS STOCK
At the Effective Time, each shareholder of Home Savings may, by written
notice to FNB in the manner described below, elect individually the form of
consideration into which all such shareholder's shares of Home Savings Stock
will be converted at the Effective Time as provided above, such election subject
to adjustment and proration as described below. If the Agreement is approved at
the Shareholders' Meeting, each Home Savings shareholder may elect to receive
one of the following forms of consideration: (i) cash at the rate of the Cash
Factor per share of Home Savings Stock; (ii) shares of FNB Stock at the rate of
the Exchange Ratio per share of Home Savings Stock; or (iii) a combination of
cash and shares of FNB Stock at such respective rates based on increments of
five percent (5%) (for example, 85% shares of FNB Stock and 15% cash, or 50%
shares of FNB Stock and 50% cash). See " -- Notice of Election; Exchange of Home
Savings Stock Certificates.
Notwithstanding the above, in no event shall shares of FNB Stock be issued
in the Merger for more than sixty percent (60%) or less than fifty percent (50%)
of the total outstanding shares of Home Savings Stock. Depending on the
elections or deemed elections of Home Savings' shareholders, shares of FNB Stock
to be issued in the Merger may be prorated as follows:
(i) In the event that, immediately prior to the Effective Time, the
aggregate number of shares of Home Savings Stock to be converted into
shares of FNB Stock in the Merger pursuant to elections or deemed elections
by shareholders of Home Savings immediately prior to the Effective Time is
more than sixty percent (60%) of the total outstanding shares of Home
Savings Stock, then, with respect to those shareholders of Home Savings
who, immediately prior to the Effective Time, have elected or are deemed to
have elected to have all or part of their shares of Home Savings Stock
converted into FNB Stock, FNB will reduce on a pro rata basis the number of
shares of Home Savings Stock to be
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converted into shares of FNB Stock such that the aggregate number of shares
of Home Savings Stock to be converted into FNB Stock in the Merger is not
more than sixty percent (60%) of the total outstanding shares of Home
Savings Stock; and the number of remaining shares of Home Savings Stock
held by each such shareholder will be converted into the right to receive
cash as provided above.
(ii) In the event that, immediately prior to the Effective Time, the
difference between (A) the aggregate number of shares of Home Savings Stock
to be converted into shares of FNB Stock in the Merger pursuant to
elections or deemed elections by shareholders of Home Savings immediately
prior to the Effective Time and (B) the aggregate number of shares of Home
Savings Stock to be converted into FNB Stock pursuant to elections or
deemed elections by shareholders who have exercised Dissenters' Rights or
have voted against approval of the Agreement at the Shareholders Meeting is
less than fifty percent (50%) of the total outstanding shares of Home
Savings Stock, then, with respect to those shareholders of Home Savings
who, immediately prior to the Effective Time, have elected or are deemed to
have elected to have all or part of their shares of Home Savings Stock
converted into the right to receive cash in the Merger, FNB will reduce on
a pro rata basis the number of shares of Home Savings Stock to be converted
into the right to receive cash such that the difference between (A) and (B)
above is not less than fifty percent (50%) of the total outstanding shares
of Home Savings Stock; and the number of remaining shares of Home Savings
Stock held by each such shareholder will be converted into shares of FNB
Stock as provided above.
Notwithstanding the above, if, upon conclusion of the Shareholders'
Meeting, holders in excess of ten percent (10%) of Home Savings Stock have
exercised Dissenters' Rights or have voted their shares of Home Savings Stock
against approval of the Agreement at the Shareholders' Meeting (and if FNB has
waived the condition to its obligation to consummate the Merger that the holders
of no more than ten percent (10%) of Home Savings Stock so act), then the
election provisions above shall not apply and sixty percent (60%) of the
outstanding shares of Home Savings Stock held as of the Effective Time by each
shareholder of Home Savings (except for shares held, other than in a fiduciary
capacity, by Home Savings, FNB or any of their subsidiaries, which shall be
canceled in the Merger) shall be converted as of the Effective Time, without any
action on the part of the holder of such shares, into a number of shares of FNB
Stock equal to the Exchange Ratio per share of Home Savings Stock and forty
percent (40%) of the outstanding shares of Home Savings Stock held as of the
Effective Time by each shareholder of Home Savings shall be converted into the
right to receive cash in an amount equal to the Cash Factor per share of Home
Savings Stock.
No fractional shares of FNB Stock will be issued in connection with the
Merger. In the event the exchange of shares of Home Savings Stock results in the
creation of fractional shares, in lieu of the issuance of any fractional shares
of FNB Stock, FNB will deliver cash to First National, in its capacity as the
transfer agent of FNB Stock (the "Transfer Agent"), in an amount equal to the
aggregate market value of all such fractional shares; and in such event the
Transfer Agent shall divide such cash among and remit it, without interest, to
the former shareholders of Home Savings in accordance with their respective
interests.
The market price of FNB Stock following the completion of the Merger will
depend on the results of operations and the financial condition of FNB, the
general level of interest rates, the perception of the banking industry
generally and other relevant factors that may affect the price of FNB Stock and
that may affect the securities markets generally. Accordingly, FNB Stock could
trade at prices higher or lower than those trading prices that were considered
by Home Savings' Board of Directors in approving the Merger.
NOTICE OF ELECTION; EXCHANGE OF HOME SAVINGS STOCK CERTIFICATES
Within 10 days following approval of the Agreement by Home Savings'
shareholders, Home Savings will mail to all holders of Home Savings Stock a form
on which the shareholder may notify FNB of an election to receive either newly
issued shares of FNB Stock, the right to receive cash or a combination of newly
issued shares of FNB Stock and the right to receive cash (the "Notice of
Election"). The Notice of Election will specify a date (the "Election Date"),
which shall not be less than 15 or more than 30 days following the mailing of
such form, by which the Notice of Election must be received by FNB. Any
shareholder who does not make an election or whose Notice of Election is not
timely received by FNB or otherwise is not made in accordance with FNB's
instructions (whether or not such shareholder has exercised Dissenters' Rights)
will be deemed to have elected that sixty percent (60%) of such shareholder's
shares of Home Savings Stock be converted into FNB Stock at the rate of the
Exchange Ratio per share of Home Savings Stock and that the remaining forty
percent (40%) be converted into the right to receive cash at the rate of the
Cash Factor per share of Home Savings Stock. See " -- Exchange of Home Savings
Stock."
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As promptly as practicable following the Effective Time, FNB shall send or
cause to be sent to each former shareholder of record of Home Savings
immediately prior to the Effective Time written instructions and transmittal
materials (a "Transmittal Letter") for use in surrendering certificates
representing shares of Home Savings Stock (herein sometimes referred to as "Home
Savings Certificates") to the Transfer Agent. When the Transmittal Letter is
received, holders of Home Savings Stock should follow the instructions contained
therein. Upon the proper surrender and delivery to the Transfer Agent (in
accordance with FNB's instructions, and accompanied by a properly completed
Transmittal Letter) by a former shareholder of Home Savings of such
shareholder's Home Savings Certificate(s), and in exchange therefor, the
Transfer Agent shall as soon as practicable, (i) in the case of a shareholder
whose Home Savings Stock, or a portion thereof, has been converted into FNB
Stock, issue, register and deliver to such shareholder a certificate evidencing
the number of shares of FNB Stock to which such shareholder is entitled, and/or
(ii) in the case of a shareholder whose Home Savings Stock, or a portion
thereof, has been converted into the right to receive cash, issue and deliver to
such shareholder a check in the amount of cash to which the shareholder is
entitled.
Following the Effective Time, there shall be no further transfers of Home
Savings Stock on the stock transfer books of Home Savings or the registration of
any transfer of a Home Savings Certificate by any holder thereof, and the
surrender of each Home Savings Certificate as provided above must be made by or
on behalf of its holder of record at the Effective Time.
Following the Effective Time, Home Savings Certificates outstanding at the
Effective Time shall evidence only the right of the registered holder thereof to
receive, and may be exchanged for, (i) the form of consideration into which each
individual shareholder's shares of Home Savings Stock have been converted as
determined in the manner described above or (ii) in the case of shareholders who
properly exercise Dissenters' Rights, the consideration provided in the
Agreement and by applicable law.
Until such Home Savings Certificate(s) are surrendered, no dividend or
other distribution payable to holders of record of FNB Stock as of any date
subsequent to the Effective Time shall be delivered to the holder of such Home
Savings Certificate(s). However, subject to prior escheatment under applicable
law, upon the proper surrender of such Home Savings Certificate(s), the Transfer
Agent shall pay to the registered holder of the shares of FNB Stock represented
by such Home Savings Certificate(s) the amount of any such cash, dividends or
distributions which have accrued but remain unpaid with respect to such shares.
No interest will be payable with respect to cash to be paid for Home
Savings Stock, cash to be paid in lieu of fractional shares, if any, withheld
dividends or other distributions or cash payments in respect of FNB Stock
payable after the Effective Time.
CONDITIONS TO CONSUMMATION
The respective obligations of FNB and Home Savings to consummate the Merger
are subject to the satisfaction of certain conditions, including, without
limitation, (i) the approval of the shareholders of Home Savings; (ii) the
receipt of all necessary regulatory approvals and expiration of all notice
periods and waiting periods required after the granting of any such approval,
without the imposition of any condition contained in any such approval which, in
the reasonable opinion of FNB, is materially disadvantageous or burdensome or
would so adversely impact the business or economic benefits of the Agreement as
to render consummation of the Merger inadvisable; (iii) the receipt of an
opinion of Schell Bray Aycock Abel & Livingston P.L.L.C., in form and substance
satisfactory to Home Savings and FNB, substantially to the effect specified in
" -- Certain Income Tax Consequences" below; (iv) the absence of any order,
decree, or injunction of any court or governmental agency which enjoins or
prohibits consummation of the transactions contemplated by the Agreement or
either party from consummating the transactions contemplated by the Agreement,
any pending or threatened investigation of the Merger by the DOJ or any actual
or threatened litigation under federal antitrust laws relating to the Merger,
any suit, action, or proceeding, pending or threatened before any court or
governmental agency, in which it is sought to restrain or prohibit the parties
from consummating the Merger, or any other suit, claim or proceeding, pending or
threatened, against any of the parties or any of their respective officers or
directors which shall reasonably be considered by any of the parties to be
materially burdensome in relation to the proposed Merger or materially adverse
in relation to the financial condition, results of operations, prospects, or
businesses of any of the parties and which has not been dismissed or terminated
within 90 days of the institution thereof; (v) the accuracy of the
representations and warranties of FNB and Home Savings set forth in the
Agreement as of the Effective Time as if made on and as of such date; (vi) the
performance in all material respects of all obligations, covenants and
agreements imposed on FNB and Home Savings by the Agreement; (vii) the absence
of a material adverse change in the consolidated financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of FNB or Home Savings or any condition or circumstance
which, with the lapse of time or otherwise, may cause,
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create or result in such material adverse change; (viii) the compliance in all
material respects with all federal and state laws and regulations applicable to
the Merger, in which the violation of or failure to comply with any such law or
regulation could have a material adverse effect on the consolidated financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of Home Savings or FNB; (ix) effectiveness
of the Registration Statement under the Securities Act and the absence of
issuance, or threat of issuance, of a stop order suspending such effectiveness,
and FNB's satisfaction of all actions required by applicable state securities
laws to cause the issuance of FNB Stock in the Merger to be duly qualified or
registered under such laws or to be exempt therefrom; (x) receipt of certain
opinions of counsel and certificates from officers of Home Savings and FNB; (xi)
receipt by FNB and Home Savings of certain corporate documents of the other and
(xii) satisfaction by FNB of all requirements for the FNB Stock to be issued in
the Merger to be listed on the NASDAQ National Market as of the Effective Time.
In addition, FNB's obligation to consummate the Merger is subject to the
satisfaction of certain other conditions, including (i) the holders of no more
than ten percent (10%) of Home Savings Stock shall have exercised Dissenters'
Rights or voted against approval of the Agreement at the Shareholders' Meeting;
(ii) the Board of Directors of Home Savings shall have adopted and implemented
prescribed amendments to and terminations of certain Home Savings benefit plans;
(iii) receipt of all required consents to the assignment to FNB of Home Savings'
rights and obligations under any personal property leases material to the
business of Home Savings and any real property leases; (iv) receipt by FNB of
written agreements from each of the affiliates of Home Savings regarding
restrictions on resales by such affiliates and (v) payoff and refinancing of the
loan from First National to the Home Savings Bank of Siler City, Inc., SSB
Employee Stock Ownership Plan (the "ESOP") with a lender and on terms reasonably
satisfactory to FNB, and Edwin E. Bridges continuing to serve as the Trustee of
the ESOP.
Home Savings' obligation to consummate the Merger is also subject to
receipt of (i) the opinion of Baxter Fentriss dated as of a date prior to the
mailing of this Prospectus/Proxy Statement to Home Savings' shareholders, to the
effect that the terms of the Merger are fair to Home Savings and its
shareholders from a financial point of view and (ii) a letter from Baxter
Fentriss dated as of a date within 10 business days preceding the closing date,
to the effect that it remains the opinion of Baxter Fentriss that the terms of
the Merger are fair to Home Savings and its shareholders from a financial point
of view. See " -- Opinion of Financial Advisor."
Either Home Savings or FNB may waive in writing certain of the conditions
imposed with respect to its or their respective obligations to consummation of
the Merger upon a determination by the waiving party that such waiver would not
adversely affect the interests of the waiving party or its shareholders. The
requirements that the Merger be approved by Home Savings' shareholders, that all
required regulatory approvals be received and that all notice periods and
waiting periods required after such regulatory approvals be expired cannot be
waived.
TERMINATION
The Agreement may be terminated at any time prior to the Effective Time by
the mutual consent of the parties. Any party, upon written notice to the other
party, may elect to terminate the Agreement if (i) the conditions precedent to
the obligations of such party to consummate the transactions contemplated by the
Agreement have not been satisfied or waived by April 30, 1998 (except to the
extent that the failure of such condition to be satisfied has been caused by the
failure of the other party to satisfy its obligations, covenants or agreements
under the Agreement); (ii) the shareholder approval required to consummate the
Merger is not obtained, (iii) the Merger shall not have become effective by
April 30, 1998 (unless such date is extended by the mutual agreement of the
parties; provided, however, that in the event that there is a delay of not more
than 30 days caused by circumstances beyond the control of the parties, the
April 30, 1998 date shall be extended sixty days), (iv) the other party shall
have failed to perform or violates any obligation, covenant or agreement
contained in the Agreement in any material respect, or (v) the other party
determines that any representation or warranty contained in the Agreement shall
have been false or misleading in any material respect when made. However, before
either party may terminate this Agreement for any of the reasons specified above
in clause (i), (iv) or (v) above (a "complaining party"), it shall give written
notice to the other party (the "breaching party") stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination shall
not become effective if, within 30 days following the giving of such notice, the
breaching party shall cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of the complaining party. In the event
that the breaching party cannot or does not cure such breach, default or
violation or satisfy such condition to the reasonable satisfaction of the
complaining party within such 30-day period, the complaining party shall have 30
days to notify the breaching party of its intention to terminate the Agreement.
A failure to so notify the breaching party will be deemed to be a waiver by the
complaining party of the breach, default or violation.
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In addition to the above, Home Savings, upon written notice to FNB, may
elect to terminate the Agreement if the Average Closing Price of FNB Stock on
the NASDAQ National Market for the twenty (20) consecutive trading days ending
on the trading date that is three (3) days prior to the scheduled closing date
is more than $36.50. FNB, upon written notice to Home Savings, may elect to
terminate the Agreement if the Average Closing Price of FNB Stock on the NASDAQ
National Market for the twenty (20) consecutive trading days ending on the
trading date that is three (3) days prior to the scheduled closing date is less
than $27.00.
If either party to the Agreement breaches the Agreement by willfully or
intentionally failing to perform or violating its obligations, agreements or
covenants contained in the Agreement, such party shall be obligated to pay all
costs and expenses incurred or to be incurred by the other party, including
without limitation all accounting fees, legal fees, filing fees, printing costs,
travel expenses, and, in the case of Home Savings, all fees owed to Baxter
Fentriss and the cost of Home Savings' "Fairness Opinion," together with other
damages recoverable at law or in equity.
AMENDMENT
The Agreement may be amended, modified or supplemented at any time or from
time to time prior to the Effective Time, and either before or after its
approval by the shareholders of Home Savings, by an agreement in writing
approved by a majority of the Boards of Directors of FNB and Home Savings
executed in the same manner as the Agreement; provided however, that, except
with the further approval of Home Savings' shareholders of that change or as
otherwise provided herein, following approval of this Agreement by Home Savings'
shareholders, no change may be made in the Cash Factor or the Exchange Ratio.
CONDUCT OF HOME SAVINGS' BUSINESS PRIOR TO THE EFFECTIVE TIME
Prior to the Effective Time, Home Savings has agreed to carry on its
business, in and only in the regular and usual course in substantially the same
manner as such business was conducted prior to June 3, 1997, and, to the extent
consistent with such business and within its ability to do so, Home Savings, and
where applicable, its subsidiary, will: (i) preserve intact their present
business organization, keep available their present officers and employees, and
preserve its relationships with customers, depositors, creditors,
correspondents, suppliers, and others having business relationships with them;
(ii) maintain all of their properties and equipment in customary repair, order
and condition, ordinary wear and tear excepted; (iii) maintain their books of
account and records in the usual, regular and ordinary manner in accordance with
sound business practices applied on a consistent basis; (iv) comply with all
laws, rules and regulations applicable to them, their properties, assets or
employees and to the conduct of their business; (v) not change its existing loan
underwriting guidelines, policies or procedures except as may be required by
law; (vi) continue to maintain in force insurance such as is described in the
Agreement; not modify any bonds or policies of insurance in effect as of the
date of the Agreement unless the same, as modified, provides substantially
equivalent coverage; and, not cancel, allow to be terminated or, to the extent
available, fail to renew, any such bond or policy of insurance unless the same
is replaced with a bond or policy providing substantially equivalent coverage;
and, (vii) promptly provide to FNB such information about its financial
condition, results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations, as FNB reasonably shall request.
REGULATORY APPROVALS
The Merger is subject to certain regulatory approvals, as set forth below.
To the extent that the following information describes statutes and regulations,
it is qualified in its entirety by reference to such statutes and regulations
and the regulations promulgated under such statutes.
The Merger is subject to approval by the OCC under the Bank Merger Act,
which permits a national bank, such as First National, to merge with a state
savings bank, such as Home Savings, if the OCC has approved of the transaction
based upon its review of the financial and managerial resources and future
prospects of the existing and proposed institutions and the convenience and
needs of the community to be served. See "CERTAIN REGULATORY CONSIDERATIONS."
Before considering whether to approve the Merger, the OCC shall request reports
on the competitive factors involved in the Merger from the Attorney General of
the United States, the Federal Reserve, the FDIC and the OTS. The consideration
of the OCC includes an evaluation as to whether the Merger would result in a
monopoly, would be part of a conspiracy to monopolize or attempt to monopolize
the business of banking in any part of the United States or otherwise would
substantially lessen competition, or to tend to create a monopoly, or which in
any other manner would be in restraint of trade. In addition, the OCC may take
into account the records of FNB and Home Savings in meeting the credit needs of
the entire community served by such institutions, including low- and
moderate-income neighborhoods, consistent with sound business practices.
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The Merger also is subject to approval by the Administrator. The
Administrator approved the Merger only after determining that FNB is qualified
by character, experience and financial responsibility to control Home Savings in
a legal and responsible manner. In making this determination, the Administrator
considered FNB's financial and managerial resources, and the organizational
structure and future prospects and plans of FNB and Home Savings. The
Administrator also considered whether the business and activities of FNB, or its
officers and directors or any other person controlling, controlled by, or
associated with FNB by having a common controlling person, would create a
material deterioration of confidence in the safety, soundness, and financial
integrity of Home Savings. See "CERTAIN REGULATORY CONSIDERATIONS."
Applications for required approvals have been filed with the OCC and the
Administrator, and preliminary approvals from such regulators have been
received.
In addition to the foregoing, the Merger is subject to review by the DOJ,
which may challenge the Merger on antitrust grounds. In making its determination
of whether to do so, the DOJ will look at deposit concentration. The DOJ
typically uses the Hersh-Herfindahl Index, a calculation of deposit market
share, to determine if it will challenge a particular transaction. If the
resulting firm's market share exceeds 35%, or if the resulting firm has two
times the market share of the next largest firm, or if the resulting firm
dominates the market, the DOJ may challenge the transaction.
The Merger is not formally subject to approval by the Federal Reserve.
However, FNB must give notice of the Merger to the Federal Reserve Bank of
Richmond (the "Reserve Bank") at least ten days prior to the consummation
thereof, and the Reserve Bank must not have notified FNB within that period of
time that an application for approval of the Federal Reserve is required. FNB
and Home Savings do not expect the Reserve Bank to give such notification.
FNB and Home Savings are not aware of any other governmental approvals or
actions that are required for consummation of the Merger except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought or taken. There can be
no assurance that any such approval or action, if needed, could be obtained,
would not delay consummation of the Merger or would not be conditioned in a
manner that would cause FNB to abandon the Merger.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
After the Effective Time, without releasing any insurance carrier and after
exhaustion of all applicable director and liability insurance coverage for Home
Savings and its directors and officers, FNB shall indemnify, hold harmless and
defend the directors and officers of Home Savings in office at the Effective
Time, to the same extent as it indemnifies its own directors and officers, from
and against any and all claims, disputes, demands, causes of action, suits,
proceedings, losses, damages, liabilities, obligations, cost and expenses of
every kind and nature including without limitation reasonable attorneys' fees
and legal costs and expenses therewith whether known or unknown and whether now
existing or hereafter arising which may be threatened against, incurred,
undertaken, received or paid by such persons in connection with or which arise
out of or result from or are based upon any action or failure to act by such
person in the ordinary scope of his duties as a director or officer of Home
Savings through the Effective Time; provided, however, that FNB shall not be
obligated to indemnify such person for (i) any act not available for statutory
or permissible indemnification under North Carolina law, (ii) any act of
self-dealing in violation of federal or state law, (iii) any act or omission
which is ultimately determined to have constituted a breach of any implied or
actual duty of fair dealing in connection with a lending obligation (such claims
being commonly referred to as lender liability claims), (iv) any penalty,
decree, order, finding or other action imposed or taken by any regulatory
authority, (v) any violation or alleged violation of any federal or state law,
rule, regulation, order, decree or policy applicable to banks and bank holding
companies, (vi) any violation or alleged violation of federal or state
securities laws, or (vii) any claim of sexual or other unlawful harassment, or
any form of employment discrimination prohibited by federal or state law. The
indemnification described herein is the sole indemnification provided by FNB to
the directors and officers of Home Savings for service in such positions up to
and through the Effective Time. The indemnification provisions of the Agreement
are intended to create personal rights in the directors and officers of Home
Savings, who shall be deemed to be third-party beneficiaries thereof.
Notwithstanding any other provision of the Agreement, at the Effective Time, the
indemnification rights provided herein shall not be extinguished but shall
instead survive.
RESTRICTIONS ON RESALES BY AFFILIATES
Home Savings has disclosed to FNB a listing of the eight persons deemed by
Home Savings and its counsel as of June 3, 1997 to be "Affiliates" of Home
Savings as that term is defined in Rule 405 promulgated under the Securities
Act, including
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persons, trusts, estates or other entities related to persons deemed to be
Affiliates of Home Savings. Any sale or other disposition by such Affiliates of
shares of FNB Stock received by them pursuant to the Merger may be made only in
compliance with an exemption from the registration requirements of the
Securities Act and the restrictions set forth below.
The obligations of FNB to consummate the Merger are subject to the
condition that FNB shall have received from each Affiliate of Home Savings a
written agreement relating to restrictions on shares of FNB Stock to be received
by such Affiliate pursuant to the Agreement and confirming that the Affiliate
has no plan or intention to sell, exchange or otherwise dispose of any FNB
Stock. The certificates representing shares of FNB Stock issued to persons
deemed to be Affiliates of Home Savings will bear a restrictive legend with
respect to restrictions applicable to such shares. This Prospectus/Proxy
Statement may not be used by any such Affiliate of Home Savings for the resale
of any shares of FNB Stock received pursuant to the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary discussion of the material federal income tax
consequences of the Merger to shareholders of Home Savings. This summary is
based on the law as currently constituted and is subject to change in the event
of changes in the law, including amendments to applicable statutes or
regulations or changes in judicial or administrative rulings, some of which
could be given retroactive effect. The summary does not address any foreign,
state or local tax consequences of the Merger, nor does it address all aspects
of federal income taxation that may apply to the Merger. HOME SAVINGS'
SHAREHOLDERS ARE URGED, THEREFORE, TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER AND THE EXCHANGE OF THEIR HOME
SAVINGS STOCK FOR SHARES OF FNB STOCK, CASH OR A COMBINATION OF FNB STOCK AND
CASH, INCLUDING, WITHOUT LIMITATION, TAX RETURN REPORTING REQUIREMENTS, THE
APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE AND LOCAL AND OTHER TAX LAWS,
AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
At the Effective Time, a Home Savings shareholder will "realize" gain to
the extent that the sum of any cash received and the fair market value of any
FNB Stock received by the shareholder exceeds such shareholder's adjusted basis
in the Home Savings Stock surrendered. However, the amount of such gain that the
shareholder will "recognize" for federal income tax purposes as a result of the
Merger will not exceed the amount of cash received. Accordingly, if a Home
Savings shareholder receives only FNB Stock in exchange for Home Savings Stock,
the shareholder will not recognize any gain. As a result of the potential
proration of FNB Stock as described elsewhere herein, a Home Savings shareholder
who elects to receive only FNB Stock may nevertheless receive a combination of
FNB Stock and cash. Such a Home Savings shareholder will then recognize gain for
federal income tax purposes to the extent of cash received. If a Home Savings
shareholder receives cash and gain is recognized, that gain will be treated as a
capital gain, unless it has the effect of distribution of a dividend and is,
therefore, treated as a dividend. A Home Savings shareholder will generally not
recognize any loss on the exchange of his Home Savings Stock.
FNB and Home Savings have received an opinion dated November 10, 1997 of
Schell Bray Aycock Abel & Livingston P.L.L.C. ("SBAAL") with respect to certain
federal income tax consequences of the Merger (the "Tax Opinion"). It is a
condition to the closing of the Merger that SBAAL confirm its Tax Opinion as of
the Effective Time. The Tax Opinion, which is summarized below, is based on the
assumed facts and representations of FNB and Home Savings that are included as
part of the Tax Opinion. The Tax Opinion represents only SBAAL's best judgment
as to the matters expressed therein and has no binding effect on the Internal
Revenue Service (the "IRS") or official status of any kind. There can be no
assurance that the IRS will not successfully take and sustain a position in the
courts that is different from the opinions set forth in the Tax Opinion or that
legislative, administrative or judicial decisions or interpretations will not be
forthcoming that would significantly change the opinions set forth in the Tax
Opinion. No private letter ruling has been, nor is it anticipated that such a
ruling will be, requested from the IRS with respect to the Merger.
The Tax Opinion provides in substance that the federal income tax
consequences of the Merger will be as follows:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
(ii) No gain or loss will be recognized by FNB or First National or Home
Savings by reason of the Merger;
(iii) The basis of the assets of Home Savings in the hands of FNB will be
the same as the basis of such assets in the hands of Home Savings
immediately prior to the Merger;
(iv) No gain or loss will be recognized by the shareholders of Home
Savings upon receipt solely of FNB Stock in exchange for their Home
Savings Stock. Despite an election by a Home Savings shareholder to
receive only FNB Stock, the shareholder may also receive cash due to
the exchange procedures and potential proration of the FNB
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Stock to be issued in the Merger. Home Savings' shareholders who
receive a combination of FNB Stock and cash will generally recognize
gain realized as a result of the Merger up to the amount of cash
received. Whether the recognized gain is accorded dividend or capital
gain treatment will depend on whether the receipt of cash meets one
of the tests under Section 302 of the Code. For purposes of these
tests, Home Savings' shareholders will be treated as having received
cash in a hypothetical redemption immediately following the Merger,
and the constructive ownership rules of Section 318 of the Code will
apply. Loss, if any, will not be recognized by a shareholder who
receives FNB Stock and cash in exchange for Home Savings Stock;
(v) The tax basis in the FNB Stock received by a Home Savings'
shareholder (including any fractional share interests treated as
distributed to a Home Savings' shareholder) will be the same as the
tax basis in Home Savings Stock surrendered in exchange therefor,
decreased by the amount of cash received, if any, and increased by
the amount of dividend income or gain recognized, if any, as a result
of the Merger;
(vi) The holding period for FNB Stock received by a Home Savings'
shareholder in exchange for Home Savings Stock will include the
period during which the shareholder held Home Savings Stock
surrendered in the exchange, provided that Home Savings Stock was
held as a capital asset at the Effective Time;
(vii) The receipt of cash in lieu of a fractional share of FNB Stock will
be treated as if the fractional share of FNB Stock was distributed
as part of the exchange to the Home Savings shareholder and then
redeemed by FNB, resulting in capital gain or loss measured by the
difference, if any, between the amount of cash received for such
fractional share and the shareholder's basis in the fractional
share;
(viii) The receipt solely of cash by a Home Savings shareholder who elects
to receive cash for his or her Home Savings Stock, or who exercises
statutory dissenters' rights and receives solely cash, will be
treated as having been received by the shareholder as a distribution
in redemption of his or her Home Savings Stock. If the redemption
meets one of the tests set forth in Section 302 of the Code, after
application of the constructive ownership rules of Section 318 of
the Code, capital gain or loss will be recognized in an amount equal
to the difference, if any, between the amount of cash received and
the shareholder's basis in the Home Savings Stock. If the redemption
does not meet one of the tests of Section 302, the cash received
will be treated as a dividend pursuant to Section 301 of the Code.
ACCOUNTING TREATMENT
FNB will account for the Merger as a purchase for accounting and financial
reporting purposes.
DISSENTERS' RIGHTS
The Merger will give rise to Dissenters' Rights under Article 13 of the
North Carolina Business Corporation Act ("Article 13") and Section 215a of the
National Bank Act ("Section 215a"). Pursuant to Article 13 and Section 215a, if
the Merger is consummated, any shareholder of Home Savings who objects to the
Merger may exercise Dissenters' Rights and become entitled to be paid the "fair
value" or "value," respectively, of his shares of Home Savings Stock. The
following is only a summary of the Dissenters' Rights of Home Savings'
shareholders. A complete copy of Article 13 and Section 215a is attached hereto
as Appendix III and incorporated by reference into this Prospectus/Proxy
Statement. To the knowledge of FNB, no judicial determination has been made as
to whether Article 13 or Section 215a contains the appropriate procedure to
follow to the exclusion of the other. To the extent permitted by law, FNB
intends to honor properly exercised Dissenters' Rights pursuant to either
Article 13 or Section 215a. ANY HOME SAVINGS' SHAREHOLDER WHO INTENDS TO
EXERCISE DISSENTERS' RIGHTS SHOULD REVIEW THE TEXTS OF ARTICLE 13 AND SECTION
215A CAREFULLY AND CONSULT WITH HIS OR HER ATTORNEY REGARDING WHETHER TO PROCEED
UNDER RIGHTS GRANTED BY, AND FOLLOW THE PROCEDURES PROVIDED IN, ARTICLE 13,
SECTION 215A OR BOTH. Except as provided below, no further notices will be given
to shareholders by Home Savings regarding the existence of Dissenters' Rights or
any time periods within which those rights must be exercised.
ARTICLE 13. Article 13 provides in detail for shareholders' Dissenters'
Rights and the procedure for exercising those rights that must be followed by a
dissenting shareholder. Any shareholder who desires to assert Dissenters' Rights
must (i) give to Home Savings, and Home Savings must actually receive, before
the vote on the Merger is taken, written notice of his intent to demand payment
for his shares if the Merger is consummated, and (ii) not vote his shares in
favor of the Merger. Failure by a shareholder to satisfy both requirements will
mean that the shareholder will not be entitled to assert Dissenters' Rights and
obtain payment for his shares under Article 13. Shareholders should note that if
they sign and return a blank
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appointment of proxy with no instructions as to how their shares should be
voted, they will be deemed to have voted in favor of the Merger and thereafter
will not be entitled to assert Dissenters' Rights.
If the Agreement is approved by Home Savings' shareholders at the
Shareholders' Meeting (or at any adjournments thereof), then, within 10 days of
the date the Merger is consummated, Home Savings must send a written notice (by
registered or certified mail, return receipt requested) to each shareholder who
has taken the actions described above and is entitled to exercise Dissenters'
Rights. That notice will: (a) state where the dissenting shareholder's payment
demand must be sent, and where and when share certificates must be deposited;
(b) supply a form for demanding payment; (c) set a date by which Home Savings
must receive the dissenting shareholder's payment demand (which may not be fewer
than 30 nor more than 60 days after the date the dissenters' notice is mailed);
and, (d) be accompanied by a copy of Article 13.
A shareholder who has been sent the dissenters' notice must demand payment
and must deposit his share certificates by the date set forth in and in
accordance with the terms and conditions of the dissenters' notice; otherwise,
such shareholder is not entitled to payment for his shares under Article 13. A
shareholder who demands payment and deposits his share certificates as required
retains all other rights as a shareholder until such rights are canceled or
modified by consummation of the Merger.
As soon as the Merger is consummated or within 30 days after receipt of a
payment demand, Home Savings will pay each dissenter who timely demanded payment
and deposited his share certificates, the amount Home Savings estimates to be
the fair value of his shares, plus interest accrued to the date of payment. Home
Savings' payment will be accompanied by: (a) certain of Home Savings' most
recent available financial statements; (b) an explanation of how Home Savings
estimated the fair value of the shares; (c) an explanation of how the interest
was calculated; (d) a statement of the dissenter's right to demand payment if
dissatisfied with Home Savings' offer; and, (e) a copy of Article 13.
If Home Savings does not consummate the Merger within 60 days after the
date set for demanding payment and depositing share certificates, Home Savings
must return the deposited certificates, and if, thereafter, the Merger is
consummated, Home Savings must send a new dissenters' notice and repeat the
payment demand procedure set forth above.
If a dissenter believes that the amount offered by Home Savings as
described above is less than the fair value of his shares or that the interest
due is incorrectly calculated, or if Home Savings fails to make payment to a
dissenter within 30 days after receipt of a payment demand from the dissenter,
or if Home Savings fails to consummate the Merger and does not return the
deposited certificates within 60 days after the date set for demanding payment,
then such dissenter may notify Home Savings in writing of his own estimate of
the fair value of his shares and the amount of interest due and may demand
payment of the amount of such estimate in excess of the amount paid by Home
Savings. In any such event, if a dissenting shareholder fails to take any such
action within the 30-day period immediately following such payment believed
inadequate or incorrectly calculated or failure to act, as appropriate, he will
be deemed to have waived his rights under Article 13 and to have withdrawn his
dissent and demand for payment.
If a dissenter has taken all required actions and his demand for payment
remains unsettled, the dissenter may commence a proceeding within 60 days after
the earlier of the date payment is made and the date of his payment demand and
petition the court to determine the fair value of his shares and accrued
interest. A dissenter who takes no action within the 60-day period shall be
deemed to have withdrawn his dissent and demand for payment.
In the court proceeding described above, the court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value, and has discretion to make all dissenters whose demands
remain unsettled parties to the proceeding. Each dissenter made a party to the
proceeding must be served with a copy of the petition and is entitled to
judgment for the amount, if any, by which the court finds the fair value of his
shares, plus interest, to exceed the amount paid by Home Savings. Court costs,
appraisal and counsel fees may be assessed by the court as it deems equitable.
Article 13 contains certain additional provisions with respect to dissent
by nominees who hold shares for others, and by beneficial owners whose shares
are held in the name of other persons, and reference is made to Appendix III for
a more complete description thereof.
SECTION 215A. Section 215a also provides in detail for Dissenters' Rights
and the procedure that must be followed by a dissenting shareholder to exercise
such rights. Any Home Savings shareholder who has voted against the Merger at
the Shareholders' Meeting, or has given notice in writing at or prior to the
Shareholders' Meeting to the presiding officer that he dissents from the Plan of
Merger, is entitled to receive the value of his shares of Home Savings Stock
when the Merger shall
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be approved by the OCC upon written request made to First National at any time
before thirty days after the date of consummation of the Merger, accompanied by
surrender of his Home Savings Stock certificates.
The value of the shares of a Home Savings shareholder dissenting under
Section 215a shall be ascertained, as of the Effective Date, by an appraisal
made by a committee of three persons composed of (1) one selected by the vote of
the holders of the majority of Home Savings Stock, the owners of which are
entitled to payment in cash; (2) one selected by the directors of First
National; and (3) one selected by the two so selected. The valuation agreed upon
by any two of the three appraisers shall govern. If the value so fixed shall not
be satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the OCC, who shall cause a reappraisal to be made which
shall be final and binding as to the value of the shares of such shareholder.
Section 215a contains certain additional provisions with respect to the
failure to select appraisers as described above and the failure of such
appraisers to determine the value of the shares, and reference is made to
Appendix III for a more complete description thereof.
For a discussion of certain tax consequences applicable to shareholders who
receive cash upon the exercise of Dissenters' Rights, see " -- Certain Federal
Income Tax Consequences."
INTEREST OF CERTAIN PERSONS AND EFFECT OF THE MERGER
ON EMPLOYEES AND BENEFIT PLANS
EMPLOYMENT AGREEMENT WITH EDWIN E. BRIDGES
Provided he remains employed as President of Home Savings at the Effective
Time, FNB will cause First National to enter into the Employment Agreement with
Edwin E. Bridges as of the Effective Time for an initial term of five years,
such term to be automatically renewed for additional one-year periods unless
written notification otherwise is given by First National. Pursuant to the
Employment Agreement, Bridges is to serve as First National's Area Manager for
Siler City and is to receive a base salary at least equal to $99,000 per annum,
such salary to be subject to merit increases in accordance with First National's
policies and practices. In addition to his base salary, Bridges is to receive
(i) health insurance coverage for the remainder of his natural life (unless
Bridges were to take any or all of certain actions representing a Disqualifying
Event, as defined below), (ii) up to $1,500 annually of the membership fees
necessary for Bridges to maintain the status of an active member of the Siler
City Country Club, (iii) vacation time as may be provided by First National or
FNB to their employees in similar positions generally, (iv) disability and life
insurance and other benefits available generally to employees of First National
or FNB pursuant to the employee benefit plans and programs of either and (v)
reimbursement of all reasonable out-of-pocket travel expenses incurred in the
ordinary course of performing his duties. The Employment Agreement may be
terminated prior to the expiration of its term by First National with or without
cause or upon Bridges' death or disability or voluntarily by Bridges upon 60
days notice. If Bridges' employment is terminated without cause and is not due
to death, First National must give him 90 days written notice of such
termination, and he would then be entitled to his base salary at the rate then
in effect at the time of such termination through the term of the Employment
Agreement. In such event, FNB shall, upon such termination and at its election,
either (i) cause the full vesting of any unvested options and awards of Bridges
under the ISO Plan and the MR Plan, respectively, as assumed by FNB as of the
effective time of the Merger or (ii) provide Bridges with the economic
equivalent of any unvested portion of such options under the ISO Plan and such
awards under the MR Plan. If Bridges terminates his employment voluntarily at
any time after two years from the Effective Date, Bridges may by written notice
to First National elect to become a consultant to First National to perform such
services as may be customarily performed by advisory directors to banks, savings
and loan associations or other similar financial institutions. In such event,
Bridges would be entitled to receive for such services his base salary, as well
as any rights and benefits he may then have under First National's employee
benefit plans and programs, until the expiration of three years from the date of
such written notice or until January 1, 2006, whichever is sooner; provided,
however, that Bridges' right to continued health insurance coverage shall not be
affected by such election. In addition to the foregoing, the Employment
Agreement contains certain noncompete provisions, which provisions impact
Bridges' ability, after any termination of his employment with First National,
to compete with First National or to be in any way involved with the management
of a business that is engaged in the operation of a bank, savings and loan
association or similar financial institution within 50 miles of Siler City,
North Carolina. The Employment Agreement is contained in Schedule C to the
Agreement set forth in Appendix I attached to this Prospectus/Proxy Statement.
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EMPLOYEES; FNB AND FIRST NATIONAL AND BENEFIT PLANS
In addition to the Employment Agreement with Edwin Bridges as described
above, FNB has agreed to locate suitable positions with First National for, and
offer employment with First National to, all employees of Home Savings, provided
they remain employed by Home Savings at the Effective Time. Any employment so
offered by FNB to an employee of Home Savings shall be in such a position, at
such location, and for such rate of compensation as FNB or First National shall
determine in its sole discretion. Each such person's employment shall be on an
"at-will" basis, and nothing in the Agreement shall be deemed to constitute an
employment agreement with any such person or to obligate FNB or First National
to employ any such person for any specific period of time or in any specific
position or to restrict FNB's or First National's right to terminate the
employment of any such person at any time and for any reason. In addition, FNB
shall pay or cause First National to pay severance compensation to any former
employee of Home Savings employed by First National at the Effective Time who is
terminated by First National within six months of the Effective Time in an
amount equal to the amount of such employee's accrued but unused vacation leave,
plus an amount equal to two week's salary or normal wages (at such employee's
then current salary or wage rate) multiplied by the number of full years and any
partial year of service by such employee with Home Savings. Severance pay for
any former employee of Home Savings who is terminated by First National after
six months after the Effective Time shall be determined in accordance with First
National's then existing policies.
Except as otherwise provided in the Agreement and to the extent permitted
by contribution and deduction limitations of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Code with respect to FNB's
qualified plans, any employee of Home Savings who becomes an employee of First
National at the Effective Time (a "New Employee") shall become entitled to
receive all employee benefits and to participate in all benefit plans provided
by FNB or First National on the same basis and subject to the same eligibility
and vesting requirements, and to the same conditions, restrictions and
limitations, as generally are in effect and applicable to other newly hired
employees of FNB or First National. However, each New Employee shall be given
credit for his or her full years of service with Home Savings for purposes of
(i) entitlement to vacation and sick leave and for participation in all First
National welfare, insurance and other fringe benefit plans, and (ii) eligibility
for participation and vesting in FNB's Section 401(k) savings plan and in its
defined benefit pension plan (the "FNB Pension Plan"); provided, however, that
in no event shall any New Employee be entitled to or be given credit for past
service with Home Savings for purposes of the calculation or determination of
benefits under the FNB Pension Plan. FNB will grant to each New Employee a pro
rata amount of sick leave and vacation leave, in accordance with FNB standard
leave policies, for the period between the Effective Time and the end of the
calendar year during which the Effective Time occurs. Each New Employee will be
permitted to carry over accrued and unused sick leave and vacation leave to the
extent such carryover would be consistent with and would not exceed limitations
imposed by FNB's leave policies. In addition, any New Employee shall be entitled
to participate in First National's group health insurance plan at a cost equal
to the cost for any First National employee, and such participation shall be
without regard to pre-existing condition requirements under First National's
group health insurance plan, to the extent any such condition at the Effective
Time would have been covered under the health insurance plans of Home Savings.
FNB will assume the obligations of Home Savings to provide and will pay the
premiums for continued health insurance for Jack Tanner, a director and the
former managing officer of Home Savings, and Gayle Loggins, an employee of Home
Savings, for the remainder of their lives with coverage at least equivalent to
the group health insurance coverage generally provided to active, full-time
employees of First National generally; provided, however, that this obligation
to provide or pay for health insurance coverage may be partially or wholly
fulfilled by any Medicare, employer or similar coverage for which Tanner or
Loggins is eligible in the future to the extent of any coverage provided thereby
at no cost thereto, and provided further that FNB shall not be obligated to
provide or pay for any such health insurance coverage to Tanner or Loggins in
the event that he or she were to (a) own any interest in (other than a passive
investment not in excess of two percent (2%) of the outstanding capital stock of
any such business whose stock is publicly traded on the NASDAQ over-the-counter
market, the New York Stock Exchange or the American Stock Exchange), manage,
operate, control, become employed by, render consulting or advisory services to,
or participate in or become connected with the management or control of, any
business that is then engaged in the operation of a bank, savings and loan
association or similar financial institution that conducts its operations within
North Carolina and its contiguous states; (b) influence or attempt to influence
any customer of First National or FNB to discontinue such customer's use of
First National or FNB's services or to divert such business to any other person,
firm or corporation; (c) interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between First National or FNB and any of
their respective customers, suppliers, principals, distributors, lessors or
licensors; or (d) solicit any officer or employee of First National or FNB,
whose base annual salary at the time of termination was $20,000 or more, to work
for any other person, firm or corporation (any of the foregoing, a
"Disqualifying Event").
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<PAGE>
STOCK OPTION PLANS
Certain employees and directors of Home Savings hold options granted and
outstanding under the Home Savings Bank of Siler City, Inc., SSB 1995 Incentive
Stock Option Plan (the "ISO Plan") or the Home Savings Bank of Siler City, Inc.,
SSB 1995 Nonstatutory Stock Option Plan (the "NSSO Plan") to acquire up to
49,295 shares of Home Savings Stock. If the Merger is consummated, each such
option, whether or not then exercisable, shall be converted at the Effective
Time into, and become rights with respect to, FNB Stock, and FNB shall assume
each such stock option, in accordance with the terms of the particular stock
option plan under which it was issued and stock option agreement by which it is
evidenced, except that from and after the Effective Time with respect to each
such plan or agreement: (i) FNB shall be substituted for Home Savings; (ii) the
FNB Board of Directors or its compensation committee shall be substituted for
the Compensation Committee of the Home Savings Board of Directors administering
the ISO Plan and for the Home Savings Board of Directors administering the NSSO
Plan; (iii) service on the local advisory board of First National in Siler City,
North Carolina shall be substituted for service on the Home Savings Board of
Directors for the vesting, forfeiture and termination provisions of the NSSO
Plan; (iv) each stock option assumed by FNB may be exercised solely for shares
of FNB Stock; (v) the number of shares of FNB Stock subject to each such stock
option shall be the number of whole shares of FNB Stock (omitting any fractional
share) determined by multiplying the number of shares of Home Savings Stock
subject to such stock option immediately prior to the Effective Time by the
Exchange Ratio; and (vi) the per share exercise price under each such stock
option shall be adjusted by dividing the per share exercise price under each
such stock option by the Exchange Ratio and rounding up to the nearest cent.
Notwithstanding the above, each stock option which is an "incentive stock
option" under the ISO Plan shall be adjusted as required by Section 424 of the
Code and the regulations promulgated thereunder so as to continue as an
incentive stock option under Section 424(a) of the Code, and so as not to
constitute a modification, extension, or renewal of the option, within the
meaning of Section 424(h) of the Code. FNB and Home Savings will take all
necessary steps to effectuate the above, including appropriate amendments to the
ISO Plan and NSSO Plan.
FNB may at its election substitute as of the Effective Time options under
the FNB Corp. Stock Compensation Plan for all or a part of the stock options
granted and outstanding under the ISO Plan and the NSSO Plan, subject to the
following conditions: (a) the foregoing clauses (v) and (vi) shall be met; (b)
such substitution shall not constitute a modification, extension or renewal of
any of the stock options that are incentive stock options; and (c) the
substituted options shall continue in effect with substantially the same terms
and conditions as provided in the respective stock option plan or stock option
agreement under which the original options were granted.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with its conversion to stock form on November 14, 1995, Home
Savings created an employee stock ownership plan (the "ESOP") which was
leveraged with a loan from First National (the "ESOP Loan"). The ESOP owns
71,707 shares of Home Savings Stock, the voting rights of which are held by the
participants in the ESOP. Pursuant to the terms of the Merger Agreement, Home
Savings will refinance the ESOP Loan with an independent third party financial
institution prior to the Merger and make certain amendments to the ESOP.
Provided that (i) the ESOP Loan from First National has been refinanced prior to
the consummation of the Merger, (ii) certain amendments contemplated by the
Merger Agreement have been made prior to the consummation of the Merger, and
(iii) Edwin E. Bridges is continuing to serve as Trustee of the ESOP, FNB will
assume at the Effective Time, as successor plan sponsor, the ESOP. At the
Effective Time, shares of Home Savings Stock held by ESOP will be converted into
FNB Stock and/or cash in accordance with the elections of the ESOP participants
and proration, if necessary, as described above, and such shares and/or cash
will thereafter be held to be delivered to the respective participants in
accordance with the terms of the ESOP. Home Savings has acknowledged that FNB as
a successor plan sponsor shall have no duty to continue the ESOP, provided,
however, that FNB has agreed that, until such time as New Employees become
eligible to participate in the FNB Section 401(K) savings plan, it will continue
the ESOP and make contributions to the ESOP at the aggregate annual rate of
$62,500 prorated to the date of such contributions. FNB has indicated that it
intends to terminate the ESOP at such time.
OTHER BENEFIT PLANS
The Trustees under the Home Savings Bank of Siler City, Inc., SSB 1995
Management Recognition Plan (the "MR Plan") hold 21,060 shares of Home Savings
Stock awarded to director and employee participants and vesting over the next
four years. At the Effective Time, each share of Home Savings Stock held by such
Trustees will be converted into FNB Stock and/or cash in accordance with the
election of the participants and proration, if necessary, as described above,
and such shares and/or cash will thereafter be held to be delivered to the
respective participants at such times that the shares of Restricted Stock (as
defined in the MR Plan), or the consideration into which they may be converted
in the Merger, would
39
<PAGE>
have become vested and nonforfeitable under the MR Plan. At the Effective Time,
the MR Plan and each restricted stock agreement pursuant to which Awards (as
defined in the MR Plan) were granted will remain in effect, except that from and
after the Effective Time the MR Plan and each such restricted stock agreement
shall be amended as necessary to provide that: (i) FNB will be substituted for
Home Savings; (ii) the FNB Board of Directors or its Compensation Committee will
be substituted for the Home Savings Board of Directors with respect to the
administration of the MR Plan; (iii) service on the local advisory board of
First National in Siler City, North Carolina will be substituted for service as
a director of Home Savings; (iv) unvested shares of FNB Stock and/or cash
determined as described above will be substituted for unvested shares of Home
Savings Stock; (v) cash held by the Trustees of the MR Plan with respect to the
unvested portion of an Award under the Plan will earn interest (at the rate
payable with respect to deferred directors' fees under First National's Deferred
Directors' Fee Plan) to be distributed to the participant upon vesting of the
Award or portion thereof; (vi) no shares or other assets in addition to the
Allocated Initial Plan Shares (as defined in the MR Plan) will be purchased by
or for the MR Plan; and (vii) shares, cash or other interests in the MR Plan or
Awards forfeited by participants will not be retained by the Trustee and will
not be available for making additional Awards under the MR Plan but will be
remitted to and become assets of FNB upon forfeiture.
Upon consummation of the Merger, FNB will assume the existing obligations
of Home Savings pursuant to the Home Savings Bank of Siler City, SSB Directors'
Retirement Plan (the "Directors' Plan") effective as of January 12, 1994 and as
in effect as of June 3, 1997, except that from and after the Effective Time, the
FNB Board of Directors or its compensation committee shall be substituted for
the "Committee" administering the Directors' Plan. Eligible participants in the
Directors' Plan shall begin receiving their retirement benefits under the
Directors' Plan upon the Effective Time, which shall constitute their severance
from service on the Home Savings Board of Directors.
FNB will not assume the existing qualified defined benefit pension plan of
Home Savings (the "Home Savings Pension Plan"). Home Savings has agreed take
such actions in advance of the Effective Time as may be necessary to cease
benefit accruals for, to fully fund and to terminate the Home Savings Pension
Plan in accordance with the provisions of Section 4041 of ERISA and the
applicable provisions of the Code.
DIRECTORS
Each of the members of Home Savings' Board of Directors at the Effective
Time shall be appointed to serve as a member of First National's local advisory
board in Siler City, North Carolina. For their services as advisory board
members, each person so appointed shall be compensated at the rate in effect
with respect to other members of First National's advisory board in Siler City,
North Carolina, provided that he or she remains a director of the advisory board
and provided further that he or she is not serving as a director or advisory
director of another financial institution or financial institution holding
company. The compensation paid to First National's advisory board members is
significantly less than that paid by Home Savings to members of its Board of
Directors. Each such person's service as an advisory director will be subject to
First National's normal policies and procedures regarding the appointment and
service of advisory directors; provided, however, that if any such person's
service as an advisory director is terminated, First National shall, upon such
termination and at its election, either (i) cause the full vesting of any
unvested options and awards of such person under the NSSO Plan and the MR Plan,
respectively, as assumed by FNB as of the Effective Time, or (ii) provide such
person the economic equivalent to any unvested portion of such options under the
NSSO Plan or awards under the MR Plan.
40
<PAGE>
INFORMATION ABOUT FNB AND FIRST NATIONAL
FNB
FNB was incorporated under the laws of North Carolina in 1984. FNB's
principal asset is its investment in First National, and its primary business is
promoting the general development of the business of First National. FNB's
primary source of income is dividends from First National. At June 30, 1997, FNB
had total assets of approximately $313 million. The pro forma combined assets of
FNB, First National and Home Savings would have been approximately $373 million
as of June 30, 1997.
FIRST NATIONAL
First National was founded in 1907. First National is an independent
community bank that offers full-service commercial, retail and trust banking
services to the consumer and business customers primarily in the region of North
Carolina that includes Randolph, Montgomery and Chatham counties. At June 30,
1997, First National had total assets of approximately $313 million. The
deposits of First National are insured by the FDIC up to the maximum amount
permitted by law. Approximately 95% of such deposits are insured under the Bank
Insurance Fund ("BIF") maintained by the FDIC and, as a result of previous
acquisitions of savings institutions deposits, approximately 5% of such deposits
are insured by the Savings Association Insurance Fund ("SAIF") maintained by the
FDIC.
ADDRESS AND ADDITIONAL INFORMATION
The principal offices of FNB and First National are located at 101 Sunset
Avenue, Asheboro, North Carolina 27203. Their telephone number is (910)
626-8300. Additional information with respect to FNB and First National is
included in FNB's Annual Report on Form 10-KSB for the year ended December 31,
1996, which is incorporated herein by reference, and in FNB's 1996 Annual Report
to Shareholders, selected portions of which are incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
OWNERSHIP OF FNB VOTING SECURITIES BY MANAGEMENT
The following table sets forth as of October 31, 1997, certain information
with respect to the beneficial ownership of FNB Stock by directors and by
directors and executive officers as a group. FNB is not aware of any holders of
more than 5% of its outstanding voting securities.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP(1)(2) OF CLASS
- ----------------------------------------------------------- ----------------- --------
<S> <C> <C>
James M. Campbell, Jr...................................... 23,013 1.27%
James M. Culberson, Jr..................................... 20,779 1.14%
W. L. Hancock.............................................. 38,736 2.13%
Thomas A. Jordan........................................... 13,961 0.77%
Michael C. Miller.......................................... 11,957 0.66%
R. Reynolds Neely, Jr...................................... 82,111(3) 4.51%
Richard K. Pugh............................................ 3,000 0.16%
J. M. Ramsay III........................................... 12,381 0.68%
Charles W. Stout, M.D...................................... 12,870 0.71%
Earlene V. Ward............................................ 12,306 0.68%
Directors and executive officers
as a group (11 persons).................................. 233,944(3) 12.72%
</TABLE>
- ---------------
(1) Includes shares held by directors' and executive officers' immediate
families, including spouse and/or children residing in the same household.
Does not include 2,310 shares owned by the Ferree Educational and Welfare
Fund, of which Mr. Miller is a trustee and treasurer.
(2) Includes shares subject to stock options exercisable as of October 31, 1997
or within 60 days thereafter for Mr. Campbell (1,500 shares), Mr. Culberson
(1,500 shares), Mr. Hancock (1,200 shares), Mr. Jordan (1,500 shares), Mr.
Miller (8,000 shares), Mr. Neely (1,500 shares), Mr. Pugh (1,500 shares),
Mr. Ramsay (1,500 shares), Mr. Stout (700 shares), Mrs. Ward (1,200 shares)
and all directors and executive officers as a group (22,600 shares).
41
<PAGE>
(3) Includes 49,764 shares held of record by Mr. Neely's mother and over which
Mr. Neely and his sister have joint voting and dispository control pursuant
to a revocable power of attorney.
INFORMATION ABOUT HOME SAVINGS
Home Savings was organized as a North Carolina mutual savings and loan
association in 1950 under the name Home Savings and Loan Association and
converted from mutual to stock form on November 14, 1995. Deposits in Home
Savings are insured by the FDIC. Home Savings is engaged primarily in the
business of attracting deposits from the general public and using such deposits
to make mortgage loans secured by residential real estate. Home Savings also
makes second mortgage loans secured by the equity in a home, commercial real
estate loans, savings account loans and other loans. Home Savings' primary
sources of revenue are interest income from its real estate lending activities,
consisting primarily of making first mortgage loans for the purchase and
refinancing of residential real property. Substantially all of Home Savings'
lending and deposit activities are conducted in eastern Randolph County and
Chatham County out of its home office.
At June 30, 1997, Home Savings had total assets of approximately $55.5
million, total deposits of approximately $44.4 million and total shareholders'
equity of approximately $9.7 million.
ADDRESS
The principal and only office of Home Savings is located at 300 East
Raleigh Street, Siler City, North Carolina 27344. Its telephone number is (919)
742-4186.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF
As of October 31, 1997 the shareholders identified in the following table
beneficially owned more than 5% of Home Savings Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------------------------------- -------------------- --------
<S> <C> <C>
First Citizens BancShares, Inc., 3128 Smoketree
Court, Raleigh, North Carolina, 27604;
Lewis R. Holding, Frank B. Holding
and certain members of Frank B. Holding's
family............................................ 71,800 7.78%
</TABLE>
42
<PAGE>
As of October 31, 1997, the beneficial ownership of Home Savings Stock by
directors individually, and by directors and executive officers as a group, was
as follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS (2)
- ------------------------------------------------------ ------------------------ ----------
<S> <C> <C>
Dr. Grover C. Wrenn (*)............................... 9,768(3) 1.04%
Jack L. Tanner (*).................................... 11,768(4) 1.20%
Edwin E. Bridges...................................... 39,276(5) 4.23%
Ben S. Foust.......................................... 1,168(6) (**)
F. Lafayette Wrenn, Sr................................ 13,268(6) 1.40%
Ed M. Harris, Jr...................................... 10,768(6) 1.10%
Jennie T. Bridgers.................................... 11,989(6) 1.29%
John F. Grimes........................................ 4,768(7) (**)
All directors and executive officers as a group
(8 persons)......................................... 102,773 11.02%
</TABLE>
- ---------------
(*) Dr. Wrenn and Mr. Tanner are brothers-in-law.
(**) Less than 1% of outstanding shares.
(1) Except as otherwise noted, each individual exercises sole voting and
investment power with respect to all shares shown as beneficially owned.
Does not include 1,536 shares for each non-officer director and 8,963
shares for Mr. Bridges granted, subject to a five year vesting schedule of
20% each year commencing on July 17, 1997, pursuant to the Bank's 1995
Management Recognition Plan.
(2) The calculations of the percentage of class beneficially owned by each
individual and the group as a whole are based, in each case, on a total of
932,543 shares which includes the 922,686 shares of Common Stock issued and
outstanding as of the Record Date plus the number of shares subject to
stock options exercisable as of the Record Date or within 60 days
thereafter held by each respective individual or group.
(3) Includes 8,500 shares with respect to which Dr. Wrenn exercises shared
voting and investment power and 768 shares subject to currently exercisable
stock options.
(4) Includes 2,000 shares with respect to which Mr. Tanner exercises shared
voting and investment power and 768 shares subject to currently exercisable
stock options.
(5) Includes 15,565 shares allocated to Mr. Bridges' ESOP account to which he
exercises sole voting power and 4,481 shares subject to currently
exercisable stock options.
(6) Includes 768 shares subject to currently exercisable stock options.
(7) Includes 3,000 shares with respect to which Mr. Grimes exercises shared
voting and investment power and 768 shares subject to currently exercisable
stock options.
BUSINESS
Home Savings is engaged primarily in the business of attracting deposits
from the general public and using such deposits to make mortgage loans secured
by residential real estate. Home Savings also makes second mortgage loans
secured by the equity in a home, commercial real estate loans, savings account
loans and other loans. Home Savings' primary sources of revenue are interest
income from its real estate lending activities, consisting primarily of making
first mortgage loans for the purchase or refinancing of residential real
property located primarily in Chatham County and eastern Randolph County, North
Carolina. Home Savings also earns revenues from interest on other loans,
interest and dividend income from investments, and fees from lending and deposit
activities. The major expenses of Home Savings are interest on deposits and
general administrative expenses such as salaries, employee benefits, federal
deposit insurance premiums and office occupancy and related expenses.
Home Savings' market area can be characterized as primarily rural in
nature. The economy in this area is diverse, with such major industries as
textiles, furniture, food processing, hosiery and agriculture. Because no one
industry dominates the local economy, it can be classified as relatively stable.
Consistent with Home Savings' emphasis on being a community-oriented financial
institution, management estimates that substantially all of Home Savings'
deposits were provided by residents in this two-county area and substantially
all of its loans were secured by property located in the same area.
43
<PAGE>
Home Savings operates one full-service office which is located at 300 East
Raleigh Street in Siler City. There are no plans for expansion.
Home Savings has one subsidiary, Home S & L Service Corporation (the
"Subsidiary"), established in 1983 for the purpose of offering discount
brokerage services. The Subsidiary is presently inactive, and Home Savings
presently does not offer such services.
The business of banking in Chatham County, and in North Carolina as a
whole, is extremely competitive with state laws permitting state-wide branching.
Home Savings competes directly for deposits in its market area with other
savings institutions, commercial banks, credit unions, brokerage firms and all
other organizations and institutions engaged in money market transactions. In
its lending activities, Home Savings competes with all other financial
institutions, as well as consumer finance companies, mortgage companies and
other lenders engaged in the business of extending credit.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office locations,
office hours, customer service, community reputation and continuity of personnel
are also important competitive factors. Home Savings' predominant competitors
have greater resources, broader geographic markets and higher lending limits.
They can offer more products, and can better afford and make more effective use
of media advertising, support services and electronic technology than Home
Savings. Home Savings depends on its reputation as a community bank in its local
market, direct customer contact, its ability to make credit and other business
decisions locally, and personalized service to counter these competitive
disadvantages. With respect to deposits, Home Savings' primary competitors are
four of North Carolina's largest commercial banks, each with a significant
state-wide presence. The market share of deposits of Home Savings during the
three years ended June 30, 1996 has steadily decreased. Home Savings is
predominantly a mortgage lending financial institution that funds its loans with
savings deposits and finds it difficult to compete with larger commercial
banking institutions in its market that offer similar products as well as a full
range of commercial and retail banking products. Based on currently available
deposit information, if the Merger is consummated, the combined financial
institution will have a market share in Chatham County of approximately 13%.
Home Savings is periodically assessed insurance premiums by the FDIC in
connection with the insurance of deposits. Home Savings is required under North
Carolina law to maintain deposit insurance with the FDIC. Home Savings'
assessment for the fiscal year ended September 30, 1996 was approximately
$349,000 which included a special one time assessment of approximately $256,000
as part of the federal government's recapitalization of the SAIF. This insurance
assessment may be increased within certain parameters established by FDIC's bank
rating system.
As of June 30, 1997, Home Savings employed 10 full-time employees. Home
Savings is not a party to a collective bargaining agreement, and considers its
relations with employees to be good.
PROPERTIES
Home Savings owns its office building, which is located at 300 East Raleigh
Street, Siler City, North Carolina. The net book value of the property at June
30, 1997 was $270,248.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Home Savings is a
party or of which any of its property is the subject, other than ordinary
routine litigation incidental to its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANAYLSIS SHOULD BE READ IN CONJUNCTION WITH
THE SELECTED CONSOLIDATED FINANCIAL INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO OF HOME SAVINGS PRESENTED ELSEWHERE HEREIN.
GENERAL. The principal business of Home Savings consists of attracting
deposits from the local public and investing these funds in real estate loans
primarily collateralized by one-to-four family residences located in Chatham and
eastern Randolph Counties in North Carolina. Home Savings' profitability depends
primarily on net interest income, which is the difference between the interest
income it earns on its loan and investment portfolios and the interest expense
it pays on deposits. Home Savings' profitability, to a lesser extent, is also
affected by other operating income and expense. Other operating income consists
of fees earned on loan originations and customer deposit account service
charges. Other operating expense consists of compensation and employee benefits,
federal deposit insurance premiums, occupancy and equipment, data processing and
other expenses.
44
<PAGE>
At June 30, 1997, Home Savings had net loans receivable of $30,932,000,
which represented 55.8% of total assets. While 29% of the loan portfolio has
interest rates that are subject to adjustment every six months, only 10% of the
loans closed during the fiscal year ended September 30, 1996 have adjustable
interest rates. Management feels that, in order to succeed, Home Savings needs
to operate as more of a specialty institution. In order to accomplish that, Home
Savings has concentrated on closing loans secured by real estate to customers in
Chatham and Randolph Counties, North Carolina (the "Primary Market Area") and on
closing such loans more efficiently than other institutions. Home Savings has no
loans to customers outside of North Carolina.
At June 30, 1997, Home Savings had $31,042,000, or 98.7% of its gross loan
portfolio, in loans secured by real estate properties of which $30,442,000, or
96.8% of its gross loan portfolio, were loans secured by one-to-four family
residential properties. Home Savings has not historically made conforming
mortgage loans and has never sold loans in the secondary market. The remaining
loan portfolio consists of loans secured by commercial real estate and deposits
in Home Savings.
Home Savings' remaining interest-earning assets include interest-bearing
deposits in other financial institutions, federal funds sold and investment and
mortgage-backed securities. Home Savings currently has no foreclosed assets.
The majority of Home Savings' liabilities are its customers' deposit
accounts. At June 30, 1997, the deposit mix consisted of approximately 74% in
certificates of deposit, 7% in passbook savings accounts and 19% in NOW and
money market accounts.
CAPITAL RESOURCES AND LIQUIDITY. At June 30, 1997, Home Savings had
retained income of $1,299,000. At June 30, 1997, Home Savings had a capital to
total assets ratio of 17.5%, which is in excess of the 5% required under
regulations promulgated by the Administrator of the North Carolina Savings
Institutions Division (the "Administrator's Regulations"). At June 30, 1997,
Home Savings had Tier 1 capital and total risk-based capital of $9,792,000 and
$10,055,000, respectively, both in excess of the regulatory requirement.
The Administrator's Regulations require savings banks to maintain liquid
assets equal to at least 10% of total assets. The computation of liquidity under
the Administrator's Regulations allows the inclusion of investments with readily
marketable value, including investments with maturities in excess of five years.
Home Savings' liquidity ratio at June 30, 1997, as computed under the
Administrator's Regulations, was 52.4%.
Home Savings' primary sources of internally generated funds are principal
payments on loans receivable, cash flows generated by operations and principal
payments on investment and mortgage-backed securities. External sources of funds
during the nine months ended June 30, 1997, have been solely from increases in
deposits. Home Savings completed its conversion from mutual to stock form on
November 15, 1995, and received approximately $8,515,000 in net proceeds. Home
Savings principally invested these proceeds in federal funds sold and U.S.
Government and agency obligations of varying maturities. Home Savings believes
that it will have sufficient funds available to meet its anticipated future loan
commitments.
ASSET/LIABILITY MANAGEMENT. Home Savings strives to achieve consistent net
interest income and reduce its exposure to adverse changes in interest rates by
matching the terms to repricing of its interest-sensitive assets and
liabilities. Factors beyond Home Savings' control, such as market interest rates
and competition, may also have an impact on Home Savings' interest income and
interest expense.
In the absence of any other factors, the overall yield or return associated
with Home Savings' earning assets generally will increase from existing levels
when interest rates rise over an extended period of time, and conversely
interest income will decrease when interest rates decrease. In general, interest
expense will increase when interest rates rise over an extended period of time,
and conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market interest rates,
Home Savings can significantly influence its net interest income.
Home Savings' asset/liability management may be analyzed by examining the
extent to which its assets and liabilities are interest rate sensitive. Interest
rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap," provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities, and is considered negative
when the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an
45
<PAGE>
increase in net interest income while a positive gap within shorter maturities
would result in a decrease in net interest income. Also, changes in interest
rates could have a significant effect on Home Savings' liquidity.
At June 30, 1997, Home Savings' one year cumulative interest sensitivity
gap as a percentage of total interest-earning assets was a negative 44%. At June
30, 1997, Home Savings' five year cumulative interest sensitivity gap as a
percentage of total interest-earning assets was a negative 45%.
A static interest rate "gap" analysis may not be an accurate indicator of
how net interest income will react to changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not react uniformly to changes in interest
rates. In addition, the magnitude and duration of changes in interest rates may
have a significant impact on net interest income. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities typically fluctuate in advance
of changes in general market interest rates, while interest rates on other types
may lag behind changes in general market rates. As an example, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates on a short-term
basis over the life of the asset. In the event of a change in interest rates,
prepayment and early withdrawal levels could also deviate significantly from
those assumed in calculating the interest rate gap. The ability of many
borrowers to service their debt may also decrease in the event of an interest
rate increase.
The following table sets forth the amounts of interest-earnings assets and
interest-bearing liabilities outstanding at June 30, 1997, which are projected
to reprice or mature in each of the future time periods shown. Except as stated
below, the amounts of assets and liabilities shown which reprice or mature
within a particular period were determined in accordance with the contractual
terms of the asset or liability. Loans with adjustable rates are shown as being
due at the end of the next upcoming adjustment period. Passbook accounts, money
market deposit accounts, and NOW or other transaction accounts are assumed to be
subject to immediate repricing and depositor availability and have been placed
in the shortest period. No prepayment assumptions have been utilized for any
other interest-earning assets or interest-bearing liabilities. The interest rate
sensitivity of Home Savings' assets and liabilities illustrated in the following
table would vary substantially if different assumptions were used or if actual
experience differs from that indicated by such assumptions.
46
<PAGE>
ANALYSIS OF REPRICING MECHANISMS AND MATURITIES
BASED UPON ESTIMATES AND ASSUMPTIONS
TERM TO REPRICING AT JUNE 30, 1997
<TABLE>
<CAPTION>
MORE THAN
3 MONTHS MORE THAN
3 MONTHS TO 12 1 YEAR TO OVER 5
OR LESS MOS. 5 YEARS YEARS TOTAL
-------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS:
Real estate loans:
Fixed rate................................................... $ -- $ 26 $ 1,152 $ 21,094 $ 22,272
Adjustable rate.............................................. -- 8,770 -- -- 8,770
Loans secured by deposits -- adjustable......................... 402 -- -- -- 402
Interest-bearing deposits....................................... 448 -- -- -- 448
Federal funds sold.............................................. 4,450 -- -- -- 4,450
Investment and mortgage-backed securities....................... -- 996 3,979 12,765 17,740
-------- --------- --------- -------- --------
Total interest-earning assets................................... 5,300 9,792 5,131 33,859 54,082
-------- --------- --------- -------- --------
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook savings............................................. 3,327 -- -- -- 3,327
NOW and money market accounts................................ 8,206 -- -- -- 8,206
Fixed maturity deposits...................................... 9,527 17,821 5,520 -- 32,868
ESOP note payable............................................... -- 48 252 -- 300
-------- --------- --------- -------- --------
Total interest-bearing liabilities.............................. 21,060 17,869 5,772 -- 44,701
-------- --------- --------- -------- --------
Interest sensitivity gap per period............................. $(15,760) $ (8,077 ) $ (641 ) $ 33,859 $ 9,381
-------- --------- --------- -------- --------
-------- --------- --------- -------- --------
Cumulative gap.................................................. $(15,760) $(23,837 ) $(24,478 ) $ 9,381
-------- --------- --------- --------
-------- --------- --------- --------
Cumulative gap as a percentage of interest-earning assets....... (29.14)% (44.07 )% (45.26 )% (17.35)%
Cumulative gap as a percentage of total assets.................. (28.42)% (42.98 )% (44.14 )% (16.92)%
</TABLE>
Fixed rate loans, because of the length of time until maturity, are most
susceptible to interest rate and liquidity risks, particularly in a rising
interest rate environment. The following table sets forth the amount of Home
Savings' fixed rate loans by ranges of interest rates at June 30, 1997 (in
thousands):
<TABLE>
<S> <C>
Less than 7%....................................................... $ 205
7%-7.99%........................................................... 9,593
8%-8.99%........................................................... 8,538
9%-9.99%........................................................... 2,643
10%-10.99%......................................................... 1,082
11% and greater.................................................... 211
-------
Total......................................................... $22,272
-------
-------
</TABLE>
47
<PAGE>
NET INTEREST INCOME. Net interest income represents the difference between
income derived from interest-earning assets and the interest expense on
interest-bearing liabilities. Net interest income is affected by both (i) the
difference between the rates of interest earned on interest-earning assets and
the rates paid on interest-bearing liabilities ("interest rate spread") and (ii)
the relative amounts of interest-earning assets and interest-bearing
liabilities, which is sometimes referred to as the "net earning balance."
The following tables set forth information relating to average balances of
Home Savings' assets and liabilities for the nine months ended June 30, 1997 and
1996 and for the years ended September 30, 1996, 1995, and 1994. The tables
reflect the average yield on assets and the average cost of liabilities for the
periods indicated (derived by dividing income or expense by the monthly average
balance of assets or liabilities, respectively) as well as the "net interest
margin" (which reflects the impact of the net earning balance) for the periods
shown.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST
----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Interest-bearing deposits........................ $ 563 $ 24 5.63% $ 6,425 $ 264
Federal funds sold............................... 3,267 119 4.87 1,817 81
Investment and mortgage-backed securities........ 17,947 865 6.43 16,621 770
Loans receivable, net (1)........................ 30,413 1,854 8.13 29,831 1,887
----------- -------- -------------- ----------- --------
Total interest-earning assets.................... 52,190 2,862 7.31 54,694 3,002
-------- -------------- --------
Non-interest earning assets...................... 1,465 1,418
----------- -----------
TOTAL......................................... $ 53,655 $ 56,112
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposits......................... $ 31,018 $ 1,269 5.45% $ 29,999 $ 1,283
Savings accounts................................. 3,333 75 2.99 3,733 81
NOW accounts..................................... 8,344 233 3.72 8,117 222
ESOP note payable.................................. 267 15 7.75 606 33
----------- -------- -------------- ----------- --------
Total interest-bearing liabilities................. 42,962 1,592 4.94 42,455 1,619
--------------
Non-interest-bearing liabilities................... 1,197 1,104
Stockholders' equity............................... 9,496 12,553
----------- -----------
TOTAL......................................... $ 53,655 $ 56,112
----------- -----------
----------- -----------
Net interest income and interest rate spread (2)... $ 1,270 2.37% $ 1,383
-------- -------------- --------
-------- -------------- --------
Net interest-earning assets and net interest margin
(3).............................................. $ 9,228 3.25% $ 12,239
----------- -------------- -----------
----------- -------------- -----------
<CAPTION>
AVERAGE
YIELD/RATE
--------------
<S> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits........................ 5.48%
Federal funds sold............................... 5.92
Investment and mortgage-backed securities........ 6.18
Loans receivable, net (1)........................ 8.44
--------------
Total interest-earning assets.................... 7.32
--------------
Non-interest earning assets......................
TOTAL.........................................
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposits......................... 5.70%
Savings accounts................................. 2.91
NOW accounts..................................... 3.65
ESOP note payable.................................. 7.30
--------------
Total interest-bearing liabilities................. 5.09
--------------
Non-interest-bearing liabilities...................
Stockholders' equity...............................
TOTAL.........................................
Net interest income and interest rate spread (2)... 2.23%
--------------
--------------
Net interest-earning assets and net interest margin
(3).............................................. 3.37%
--------------
--------------
</TABLE>
- ---------------
(1) Nonperforming loans are included in the calculation of average balances.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
48
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE BALANCE INTEREST
------- -------- ---------- ------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Interest-bearing deposits.......... $ 5,238 $ 307 5.86% $ 6,579 $ 375 5.70% $ 5,925 $ 215
Federal funds sold................. 1,910 100 5.24 2,516 144 5.73 5,013 185
Investment and mortgage-backed
securities....................... 16,394 1,093 6.67 4,665 326 7.00 1,603 128
Loans receivable, net (1).......... 30,171 2,492 8.26 30,366 2,541 8.37 29,884 2,506
------- -------- --- ------- -------- --- ------- --------
Total interest-earning assets...... 53,713 3,992 7.43 44,126 3,386 7.67 42,425 3,034
-------- --- -------- --- --------
Non-interest earning assets........ 2,675 1,162 1,993
------- ------- -------
TOTAL............................ $56,388 $45,288 $44,418
------- ------- -------
------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposits........... $29,989 $ 1,699 5.67% $28,105 $ 1,487 5.29% $27,468 $ 1,199
Savings accounts................... 3,573 105 2.94 3,255 97 2.98 3,482 105
NOW accounts....................... 8,200 298 3.63 7,831 313 4.00 7,472 242
ESOP note payable.................... 643 47 7.31 -- -- -- -- --
------- -------- --- ------- -------- --- ------- --------
Total interest-bearing liabilities... 42,405 2,149 5.07 39,191 1,897 4.84 38,422 1,546
-------- --- -------- --- --------
Non-interest-bearing liabilities..... 1,638 965 1,950
Stockholders' equity................. 12,345 5,132 4,046
------- ------- -------
TOTAL............................ $56,388 $45,288 $44,418
------- ------- -------
------- ------- -------
Net interest income and interest rate
spread (2)......................... $ 1,843 2.36% $ 1,489 2.83% $ 1,488
-------- --- -------- --- --------
-------- --- -------- --- --------
Net interest-earning assets and net
interest margin (3)................ $11,309 3.43% $ 4,935 3.38% $ 4,003
------- --- ------- --- -------
------- --- ------- --- -------
<CAPTION>
AVERAGE
YIELD/RATE
----------
<S> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits.......... 3.64%
Federal funds sold................. 3.69
Investment and mortgage-backed
securities....................... 7.98
Loans receivable, net (1).......... 8.38
---
Total interest-earning assets...... 7.15
---
Non-interest earning assets........
TOTAL............................
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposits........... 4.37%
Savings accounts................... 3.01
NOW accounts....................... 3.24
ESOP note payable.................... --
---
Total interest-bearing liabilities... 4.02
---
Non-interest-bearing liabilities.....
Stockholders' equity.................
TOTAL............................
Net interest income and interest rate
spread (2)......................... 3.13%
---
---
Net interest-earning assets and net
interest margin (3)................ 3.51%
---
---
</TABLE>
- ---------------
(1) Nonperforming loans are included in the calculation of average balances.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
49
<PAGE>
RATE/VOLUME ANALYSIS. The following table analyzes the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. The table
distinguishes between (i) changes attributable to volume (changes in volume
multiplied by the prior period's rate), and (ii) changes attributable to rate
(changes in rate multiplied by the prior period's volume). The rate/volume
changes (changes in rate multiplied by changes in volume) have been allocated to
the rate and volume columns using the absolute values of the rate and volumes
columns.
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
30, YEAR ENDED SEPTEMBER 30,
----------------------- -----------------------------------------------------
1997 VS. 1996 1996 VS. 1995 1995 VS. 1994
----------------------- ----------------------- --------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
ATTRIBUTABLE TO ATTRIBUTABLE TO ATTRIBUTABLE TO
----------------------- ----------------------- --------------------------
(IN THOUSANDS)
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ---- ----- ------ ----- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON:
Interest-bearing deposits....................... $(247) $ 7 $(240) $(78) $ 10 $(68) $ 26 $ 134 $160
Federal funds................................... 54 (16) 38 (32) (12) (44) (116) 75 (41)
Investments..................................... 63 32 95 783 (16) 767 216 (18) 198
Loans receivable................................ 37 (70) (33) (16) (33) (49) 40 (5) 35
------ ---- ----- ------ ----- ---- ------ ------ ------
Total interest income on interest-earning
assets........................................ (93) (47) (140) 657 (51) 606 166 186 352
------ ---- ----- ------ ----- ---- ------ ------ ------
INTEREST EXPENSES ON:
Certificates of deposit......................... 43 (57) (14) 103 109 212 29 259 288
Savings accounts................................ (8) 2 (6) 10 (2) 8 (7) (1) (8)
NOW and money market accounts................... 7 4 11 14 (29) (15) 12 59 71
ESOP note payable............................... (20) (18) 47 0 47 0 0 0
------ ---- ----- ------ ----- ---- ------ ------ ------
Total interest expense on interest-bearing
liabilities................................... 22 (49) (27) 174 78 252 34 317 351
------ ---- ----- ------ ----- ---- ------ ------ ------
Increase (decrease) in net interest income...... $(115) $ 2 $(113) $483 $(129) $354 $132 $(131) $ 1
------ ---- ----- ------ ----- ---- ------ ------ ------
------ ---- ----- ------ ----- ---- ------ ------ ------
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND SEPTEMBER 30, 1996
Total assets of Home Savings increased to $55,456,000 at June 30, 1997, an
increase of $2,942,000 or 5.6% from September 30, 1996. Cash and cash
equivalents increased from $1,779,000 at September 30, 1996 to $5,537,000 at
June 30, 1997. This increase in cash was caused by the maturing investment
securities being invested in cash equivalents and an increase in deposits. Total
deposits increased 6.6% from $41,667,000 at year end to $44,401,000 at June 30,
1997.
Loans receivable amounted to $30,932,000 at June 30, 1997, which was a 3%
increase from September 30, 1996. Investment and mortgaged-backed securities
totaled $17,740,000 at June 30, 1997, a decrease of $1,350,000 or 7.6% from
$19,090,000 at September 30, 1996. The decrease was a result of the maturity of
securities during the period.
As of September 30, 1996 and June 30, 1997, Home Savings' allowance for
loan losses was approximately .9% of loans. Nonperforming assets, which include
nonaccrual loans, loans greater than 90 days delinquent for which interest is
still accruing, and foreclosed properties totaled $453,000, or .8%, and
$488,000, or .9%, of total assets, at June 30, 1997 and September 30, 1996,
respectively. Management considers the Home Savings' loan loss reserve to be
adequate.
Retained income amounted to $1,299,000 at June 30, 1997 and $1,109,000 at
September 30, 1996. The income was attributable to income earned during the
period. Retained income as a percentage of the Savings Bank's total assets at
June 30, 1997 was 2.3%.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1996.
NET INCOME. Net income for the nine months ended June 30, 1997 was $368,000
compared to $516,000 for the same period in 1996. This decrease is due to a
decrease in net interest income and an increase in other operating expenses.
NET INTEREST INCOME. Net interest decreased for the nine month period
ending June 30, 1997 as compared to the same period in 1996. This is primarily
the result of a decrease of approximately $2,500,000 in interest earning assets.
The decrease in earning assets was partially offset by an increase in the
interest rate spread.
INTEREST INCOME. Interest income decreased approximately $140,000 or 4.7%
for the nine months ended June 30, 1997 as compared to the nine months ended
June 30, 1996. This is primarily the result of the decrease in earning assets
after the
50
<PAGE>
special dividend of $4.80 per share was paid in the fourth quarter of 1996.
Another contributing factor was the decrease in yields on the loan portfolio as
variable rate loans repriced and fixed rate loans were refinanced at lower
rates.
INTEREST EXPENSE. Interest expense remained consistent between the periods
ended June 30, 1997 and 1996. This was due to an increase in interest bearing
deposits offset by a decrease in yields on those deposits.
OTHER OPERATING EXPENSE. Other operating expense amounted to $750,000 for
1997 and $582,000 for 1996. This increase is due to increases in compensation
and employee benefits and other expenses. Compensation has increased due to the
Bank's incurring ESOP compensation and recognizing compensation relating to the
shares that were awarded under the MR Plan in late 1996. Other operating
expenses have increased primarily as a result of incurring additional legal,
accounting and transfer agent fees.
INCOME TAXES. Home Savings' effective tax rate for the periods ending June
30 was 36.0% and 39.7% for 1997 and 1996, respectively. Management feels that
the effective rate at June 30, 1997 will approximate the actual effective rate
at year end.
COMPARISON OF FINANCIAL CONDITION AND OPERATING RESULTS AT AND FOR THE YEARS
ENDED
SEPTEMBER 30, 1996, 1995, AND 1994.
CHANGES IN FINANCIAL CONDITION. Total assets of Home Savings increased to
$52,514,000 at September 30, 1996, an increase of $4,729,000 or 9.9% from
September 30, 1995. Total assets were $47,785,000 at September 30, 1995, an
increase of $3,796,000 or 8.6% from September 30, 1994. The increase in total
consolidated assets in 1996 and 1995 was primarily due to Home Savings investing
new funds received from depositors into U.S. Government and agency obligations.
Loans receivable amounted to $30,034,000 at September 30, 1996, which was a
slight decrease from September 30, 1995. Loans receivable were $30,074,000 at
September 30, 1995, which was an increase of $421,000 from September 30, 1994.
Investment and mortgage-backed securities totaled $19,090,000, $7,716,000
and $2,886,000 at September 30, 1996, 1995, and 1994, respectively. The
increases were a result of proceeds received from subscriptions for shares of
Conversion Stock which were invested in short-term U.S. government and agency
obligations.
Retained income amounted to $1,109,000 at September 30, 1996, $5,409,000 at
September 30, 1995 and $4,855,000 at September 30, 1994. From September 30, 1994
to September 30, 1996 retained income was increased by income of $674,000 and
decreased by $4,420,000 in dividends. Retained income as a percentage of Home
Savings' total assets at September 30, 1996 was 2.1%. Shareholders' equity
increased to $9,337,000 in 1996 from $5,409,000 in 1995. This increase is
attributable to $8,515,000 received from the issuance of stock, offset by
$4,420,000 in dividends.
NET INCOME. Net income for the year ended September 30, 1996 was $120,000
compared to net income of $554,000 and a net loss of $20,000 for the years ended
September 30, 1995 and 1994, respectively. The decrease in net income in 1996 is
primarily attributable to $584,000 of compensation expense on ESOP shares and a
special SAIF assessment of approximately $256,000 offset by an increase in net
interest income of $354,000. The loss in 1994 was related to non-recurring
charges. The non-recurring charges were related to the adoption of a directors'
retirement plan ($474,000, net of tax benefit) and expenses from an unsuccessful
merger/conversion ($67,000, net of tax benefit). Without these two non-recurring
charges, net income for 1994 would have been $440,000.
NET INTEREST INCOME. Net interest income increased $354,000 to $1,843,000
from $1,489,000 in 1995. The increase is related to the growth in net
interest-earning assets of $6,374,000 or 129.2% which was offset by a decline in
the net interest spread to 2.36%. There was an increase in net interest income
of $1,000 in 1995 from $1,488,000 in 1994.
INTEREST INCOME. Interest income amounted to $3,992,000 in 1996, $3,386,000
in 1995, and $3,034,000 in 1994. Home Savings has experienced fluctuations in
its average interest-earning assets and its yields have increased from 7.15% in
1994 to 7.67% in 1995 and decreased to 7.43% in 1996. The fluctuations reflect
the changes in prevailing market interest rates over the three-year period. Home
Savings experienced an increase in the average volume of, offset by a decline in
the rate earned on, interest-earnings assets during 1996.
INTEREST EXPENSE. Interest expense amounted to $2,149,000 in 1996,
$1,897,000 in 1995 and $1,546,000 in 1994. The increase in 1996 can be
attributed to a $2,571,000 increase in average interest-bearing deposits and a
23 basis point increase in the average deposit rate. The increase in expense for
1995 can be attributed to a $769,000 increase in interest-bearing deposits and
an 82 basis points increase in the average deposit rate.
51
<PAGE>
PROVISION FOR LOAN LOSSES. Home Savings made no provision for loan losses
during the three years ended September 30, 1996. Management's decision to make
no provision is due to the reduction in the level of non-performing assets and
loan delinquencies, overall portfolio quality and current economic conditions.
OTHER OPERATING INCOME. Other operating income amounted to $78,000 in 1996,
$60,000 in 1995 and $72,000 in 1994.
OTHER OPERATING EXPENSES. Other operating expenses amounted to $1,595,000
in 1996, $683,000 in 1995 and $1,733,000 in 1994. The increase in 1996 was
primarily attributable to Home Savings' assessment of approximately $256,000 to
recapitalize the SAIF and compensation expense recorded on ESOP shares. The
decrease in 1995 was primarily attributable to the 1994 accrual for a directors'
retirement plan of $780,000 and expenses related to an unsuccessful
merger/conversion of $111,000. Also, Home Savings experienced a loss on the sale
and write-down of foreclosed assets of $145,000 in 1994 as compared to a gain of
$25,000 in 1995.
Compensation and employee benefits increased from $304,000 in 1994 to
$315,000 in 1995 and $331,000 in 1996. Occupancy and equipment expenses amounted
to $36,000 in 1996, $43,000 in 1995 and $53,000 in 1994. Regular federal deposit
insurance premiums, which are a factor of the level of Home Savings' deposit
accounts and the premium charged by the FDIC, amounted to $93,000 in 1996 and
$87,000 in 1995 and 1994.
INCOME TAXES. Home Savings' effective income tax rate was 63.2% for the
year ended September 30, 1996, 36.1% for the year ended September 30, 1995, and
41.5% for the year ended September 30, 1994. The high rate in 1996 is primarily
related to the tax effect of the difference between the average fair value and
cost of ESOP shares released. Effective October 1, 1993, Home Savings adopted
SFAS No. 109. The implementation of SFAS No. 109 resulted in a decrease in net
losses of $81,000 for the year ended September 30, 1994.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying footnotes have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which require
the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of Home
Savings are primarily monetary in nature and changes in interest rates have a
greater impact on Home Savings' performance than do the effects of inflation.
IMPACT OF RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based
Compensation," which is effective for fiscal years that begin after December 15,
1995. SFAS No. 123 establishes a fair value based method of accounting for
stock- based compensation plans and for transactions in which an entity acquires
goods or services from nonemployees in exchange for equity instruments. SFAS No.
123 allows an entity to continue to measure compensation cost for stock-based
compensation plans using the method prescribed by APB Opinion No. 25, if the
entity discloses pro forma amounts to reflect the difference in compensation
cost as defined in SFAS No. 123. Home Savings has adopted only the disclosure
provisions of SFAS No. 123.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No.
125 provides accounting and reporting standards based on a control-oriented "
financial-components" approach and is effective for transactions occuring after
December 31, 1996. Under that approach, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. Management does not
believe SFAS No. 125 will have a significant effect on its financial condition
or results of operations.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 127 ("SFAS No. 127), "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125," which was effective on December
31, 1996. SFAS No. 127 defers the application of SFAS No. 125 for certain
transactions until after December 31, 1997.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which is
effective for interim and annual periods ending after December 15, 1997. Home
Savings has elected to disclose pro forma earnings per share computed under SFAS
No. 128 in the notes to its quarterly filings with the FDIC.
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<PAGE>
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129 ("SFAS No. 129"), "Disclosure of Information about
Capital Structure," which is effective for periods ending after December 15,
1997. SFAS No. 129 requires disclosure in the financial statements of pertinent
rights and privileges of the various securities outstanding. Management does not
believe SFAS No. 129 will have a significant effect on its financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130 ("SFAS No. 130"), "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires entities to report
certain information about operating segments in complete sets of financial
statements and in condensed interim statements issued to shareholders. Under
SFAS No. 130, the management approach is to be used in determining which
segments are reported. The management approach is defined in SFAS No. 130 as the
way that management organizes the segments within the enterprise for making
operating decisions and evaluating performance. Management does not believe SFAS
No. 130 will have a significant effect on its financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 ("SFAS No. 131"), "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. SFAS No.
131 requires entities that present a full set of general purpose financial
statements to also present comprehensive income and its components in a
financial statement that is displayed with the same prominence of the other
statements.
CAPITAL STOCK OF FNB
FNB's authorized capital stock consists of 5,000,000 shares of FNB Stock
and 200,000 shares of preferred stock, par value $10.00. As of October 31, 1997,
an aggregate of 1,817,253 shares of FNB Stock had been issued and were
outstanding and none of the preferred stock was outstanding. Assuming that
holders of 60% of the presently outstanding 922,686 shares of Home Savings Stock
elect or are deemed to have elected to receive FNB Stock rather than the right
to receive cash in the Merger, and assuming an Average Closing Price of $33.61,
255,310 shares of FNB Stock will be issued in the Merger, resulting in
approximately 2,072,563 shares of FNB Stock outstanding immediately after
completion of the Merger.
FNB's Board of Directors has the authority, without any vote or action by
the shareholders, to issue preferred stock, which is nonvoting and will have
such preferences, limitations and relative rights as may be fixed by resolution
of FNB's Board of Directors. In addition, the Board of Directors may divide and
issue the preferred stock in series and may fix relative rights and preferences
as between different series.
The authorized but unissued and unreserved shares of FNB Stock will be
available for general corporate purposes including, but not limited to, possible
issuance of stock dividends or stock splits, future mergers or acquisitions,
issuance under FNB's stock compensation plans or a future underwritten or other
offering. Except as described above or as otherwise required to approve the
transaction in which the additional authorized shares of FNB Stock would be
issued, no shareholder approval will be required for the issuance of such
shares.
The following is a brief summary of FNB Stock, the relevant provisions of
North Carolina law and FNB's Articles of Incorporation and Amended and Restated
Bylaws. The following discussion is not intended to be a complete description of
FNB Stock and is qualified in its entirety by reference to the North Carolina
Business Corporation Act and FNB's Articles of Incorporation and Amended and
Restated Bylaws. SHARES OF FNB STOCK ARE NOT, AND CANNOT BE, INSURED BY THE
FDIC.
VOTING RIGHTS
The holders of FNB Stock generally will possess exclusive voting rights in
FNB. Each holder of FNB Stock will be entitled to one vote for each share held
of record on all matters submitted thereto. Except as otherwise provided by
North Carolina law, the vote of a majority of shares voting on any matter
(assuming the presence of a quorum at the meeting at which the vote is taken) is
necessary for approval by the shareholders. Holders of FNB Stock are not
entitled to cumulative voting rights and, therefore, holders of a majority of
shares voting in the election of directors may elect the entire Board of
Directors at a shareholders' meeting at which a quorum is present. In that
event, holders of the remaining shares will not be able to elect any director to
the Board of Directors.
DIVIDEND AND LIQUIDATION RIGHTS
Holders of FNB Stock are entitled ratably, share for share, to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of FNB, whether
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<PAGE>
voluntary or involuntary, the holders of FNB Stock would be entitled to share
ratably in any of the net assets or funds available for distribution to
shareholders after the satisfaction of all liabilities and of all liquidation
preferences of preferred stock, if any, then issued and outstanding, or after
adequate provision is made therefor. The form of distribution would depend on
the nature of the liquidation, dissolution or winding up of FNB and of the
assets of FNB at the time thereof. See "MARKET PRICE AND DIVIDEND INFORMATION."
If the Merger is consummated, Home Savings' Liquidation Account (as defined
elsewhere herein, see "CAPITAL STOCK OF HOME SAVINGS -- Dividends.") will be
assumed by First National and, upon any liquidation of First National, will be
given priority over any shareholder interest of FNB in First National.
PREEMPTIVE RIGHTS
Holders of FNB Stock do not have any preemptive or preferential right to
purchase or subscribe for any additional shares of FNB Stock or any other
securities that may be issued by FNB. Therefore, after completion of the Merger,
the Board of Directors may sell shares of FNB capital stock without first
offering such shares to the existing shareholders of FNB.
ASSESSMENT, REDEMPTION AND SINKING FUND
The shares of FNB Stock presently outstanding are, and the shares of FNB
Stock that will be issued in connection with the Merger will be, fully paid and
nonassessable. There is no provision for redemption or conversion of FNB Stock,
nor is there any provision for a sinking fund with respect to FNB Stock.
CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
CLASSIFICATION OF THE BOARD OF DIRECTORS. FNB's Amended and Restated Bylaws
provide that the Board of Directors shall be divided into three classes, as
nearly equal in number as possible, with one class of directors to be elected at
each annual meeting of shareholders for a term of three years. Shareholders do
not have cumulative voting rights with respect to the election of directors.
SUPERMAJORITY VOTING PROVISIONS. The Articles of Incorporation of FNB
require the affirmative vote of at least 75% of the outstanding shares of
capital stock of FNB to approve any merger or consolidation of FNB with any
other entity, the sale, lease or exchange of all or substantially all of the
assets of FNB, or the dissolution of FNB. This provision could make the
acquisition of FNB more difficult to accomplish without the cooperation of
favorable recommendation of its Board of Directors.
PREFERRED STOCK. The Articles of Incorporation of FNB authorize 200,000
shares of nonvoting preferred stock. The Board of Directors of FNB may authorize
the issuance of preferred stock and fix such preferences, limitations and
relative rights at such times, for such purpose and for such consideration as it
may deem advisable. In addition, the Board of Directors may divide and issue the
preferred stock in series and may fix relative rights and preferences as between
different series. The issuance of preferred stock under certain circumstances
may have the effect of discouraging an attempt by a third party to acquire
control of FNB without the prior approval of FNB's Board of Directors.
BANK CHANGE-OF-CONTROL LEGISLATION. State and federal law regulate the
amount of voting stock of a bank or bank holding company that a person may
acquire without prior approval of the appropriate federal or state regulators.
The overall effect of such laws is to make it more difficult to acquire a bank
or bank holding company by tender offer or similar means than it might be to
acquire control of a corporation, the control and operations of which are not a
matter of concern to federal or state banking regulatory authorities.
Consequently, shareholders of a bank or bank holding company may be less likely
to benefit from the rapid increase in stock prices that often results from a
tender offer or similar effort to acquire control of other companies. Pursuant
to North Carolina law, no person is permitted to acquire voting stock of any
state savings bank or state savings bank holding company if such acquisition
would result in the change in control of the state savings bank or state savings
bank holding company unless the Administrator shall have approved the proposed
acquisition. Control means the possession, directly or indirectly, of the power
to direct, or cause the direction of, the management or policy of the bank or
bank holding company, or ownership of as much as 10% of the outstanding voting
stock in a state savings bank or state savings bank holding company. Federal law
imposes additional restrictions on acquisitions of stock in bank holding
companies and FDIC-insured banks. Under the Change in Bank Control Act of 1978
(the "Control Act") and the regulations thereunder, a person or group must give
advance notice to the appropriate federal banking regulator before acquiring
control of any bank holding company or federally insured bank. Upon receipt of
such a notice, the federal regulator may either approve or disapprove the
acquisition. In the case of FNB, the Control Act creates a rebuttable
presumption of control if a person or group acquires 10% or more of FNB's voting
stock and if one or more "control factors" set forth in the Control Act are
present.
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The North Carolina General Statutes have two provisions which may be deemed
to have an anti-takeover effect: the Control Share Acquisition Act (the "Control
Share Acquisition Act") and the Shareholder Protection Act (the "Shareholder
Protection Act"). As permitted under such acts, however, FNB has opted out of
their provisions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Bylaws of FNB provide for indemnification of its
directors and officers to the fullest extent permitted by law. The North
Carolina Business Corporation Act permits a corporation, with certain
exceptions, to indemnify a current or former officer or director against
liability if he acted in good faith and in a manner he reasonably believed was
(i) in the case of conduct in his official capacity with the corporation, in the
best interest of the corporation, and (ii) in all other cases, in a manner that
was at least not opposed to the corporation's best interest and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. In addition, a corporation is required to indemnify an
officer or director in the defense of any proceeding to which he was a party
against reasonable expenses to the extent that he is wholly successful on the
merits or otherwise in his defense. This indemnification generally may be made
by the corporation only upon a determination that indemnification of the
director or officer is permissible under the circumstances because he met the
applicable standard of conduct set forth below. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling FNB, FNB has been informed that, in the opinion
of the SEC, such indemnification is against public policy expressed in the
Securities Act and is, therefore, unenforceable.
CAPITAL STOCK OF HOME SAVINGS
Home Savings is authorized to issue 5,000,000 shares of Home Savings Stock.
SHARES OF HOME SAVINGS STOCK ARE NOT, AND CANNOT BE, INSURED BY THE FDIC.
DIVIDENDS
The holders of Home Savings Stock are entitled to receive and share equally
in such dividends thereon as may be declared by the Board of Directors of Home
Savings out of funds legally available therefor, subject to applicable statutory
and regulatory restrictions. Home Savings is permitted under North Carolina law
to pay dividends if, after giving effect thereto, (a) Home Savings is able to
pay its debts as they become due in the usual course of business or (b) Home
Savings' total assets exceed the sum of its total liabilities plus the amount
that would be needed, if Home Savings were to be dissolved, to satisfy
preferential rights of shareholders. The Administrator's regulations provide
that Home Savings may not, for a period of five years from November 14, 1995,
the effective date of Home Savings' conversion from mutual to stock form (the
"HSB Conversion Effective Date"), without the written approval of the
Administrator, declare or pay a cash dividend on its capital stock in an amount
in excess of the greater of (i) Home Savings' net income for the most recent
fiscal year or (ii) the average of Home Savings' net income after dividends for
the most recent fiscal year and not more than two of the immediately preceding
fiscal years. In addition, as a converted institution, Home Savings is also
subject to the restriction that it will not be permitted to declare or pay a
cash dividend on its capital stock if the effect thereof would be to cause the
net worth of Home Savings to be reduced below (x) the minimum regulatory capital
required by the Administrator or the FDIC or (y) the amount required for the
liquidation account established by Home Savings pursuant to the Administrator's
regulations for the benefit of those depositors whose aggregate account balance
was $50.00 or more as of a particular date prior to the HSB Conversion Effective
Date (the "Liquidation Account"). See "MARKET PRICE AND DIVIDEND INFORMATION"
and "CERTAIN REGULATORY CONSIDERATIONS."
STOCK PURCHASES
The Administrator's regulations provide that Home Savings may not, for a
period of five years from the HSB Conversion Effective Date, without the
approval of the Administrator, repurchase any of its capital stock. Stock
purchases also are subject to North Carolina regulations regarding capital
distributions. See "CERTAIN REGULATORY CONSIDERATIONS -- Payment of Dividends."
VOTING RIGHTS
The holders of Home Savings Stock possess exclusive voting rights with
respect to Home Savings. Such holders have the right to elect Home Savings'
Board of Directors and to act on such other matters as are required to be
presented to shareholders under North Carolina law or as are otherwise presented
to them. Each holder of Common Stock is entitled to
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<PAGE>
one vote per share. For three years after the HSB Conversion Effective Date,
Home Savings' Amended and Restated Certificate of Incorporation eliminates
voting rights with respect to those shares that are beneficially owned by any
person in excess of 10% of Home Savings Stock then outstanding.
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of Home
Savings, the holders of Home Savings Stock are entitled to receive, after
payment of all debts and liabilities of Home Savings, including all deposit
accounts and accrued interest thereon, after distribution of the balance in the
Liquidation Account, all remaining assets of Home Savings available for
distribution.
PREEMPTIVE RIGHTS
Holders of Home Savings Stock are not entitled to preemptive rights with
respect to any shares which may be issued.
ASSESSMENT, REDEMPTION AND SINKING FUND
The shares of Home Savings Stock presently outstanding are fully paid and
nonassessable. There is no provision for redemption of Home Savings Stock, nor
is there any provision for a sinking fund with respect to Home Savings Stock.
CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
An acquisition of Home Savings and/or of Home Savings Stock is restricted
by provisions in the Amended and Restated Certificate of Incorporation of Home
Savings and by various federal and state laws and regulations. See "CERTAIN
REGULATORY CONSIDERATIONS." Home Savings' Amended and Restated Certificate of
Incorporation and Bylaws contain certain provisions that are intended to
encourage a potential acquiror to negotiate any proposed acquisition of Home
Savings directly with Home Savings' Board of Directors. Accordingly, these
provisions may have the effect of discouraging offers to purchase Home Savings
or its securities which are not approved by the Board of Directors, but which
certain of Home Savings' shareholders may deem to be in their best interests or
in which shareholders may receive a substantial premium for their shares over
the current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so. Such
provisions also will render removal of the current Board of Directors or
management more difficult.
The following description of certain provisions of the Amended and Restated
Certificate of Incorporation and Bylaws of Home Savings is necessarily general
and reference should be made in each instance to the actual provisions of the
Amended and Restated Certificate of Incorporation and Bylaws.
RESTRICTION ON ACQUISITION. The Amended and Restated Certificate of
Incorporation provides that for three years after the HSB Conversion Effective
Date, no person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of Home
Savings. The term "person" includes for this purpose an individual, a group
acting in concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company, a
syndicate, or any other group formed for the purpose of acquiring, holding, or
disposing of securities of Home Savings. Any shares held in violation of this
provision will not be entitled to vote. This prohibition does not apply to,
among other things, the purchase of securities by underwriters in connection
with a public offering of Home Savings' securities, any employee stock benefit
plan of Home Savings, or any class or series of preferred stock or other
security, other than common stock, as to which, and to the extent, the Board of
Directors determines this provision shall not apply.
DIRECTORS. Home Savings' Bylaws provide that the number of directors shall
be not less than seven nor more than twenty. The current number of directors is
eight, but such number may be changed by resolution of the Board of Directors.
These provisions have the effect of enabling the Board of Directors to elect
directors sympathetic to management in the event of a nonnegotiated takeover
attempt and may make it more difficult for a person seeking to acquire control
of Home Savings to gain majority representation on the Board of Directors in a
relatively short period of time.
ISSUANCE OF ADDITIONAL STOCK. The Amended and Restated Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of Home Savings stock.
The issuance of such shares of Home Savings Stock may have the effect of
impeding or deterring future attempts to gain control of Home Savings.
SHAREHOLDER PROTECTION ACT. Home Savings is subject to the Shareholder
Protection Act. The Shareholder Protection Act requires that, unless certain
"fair price" and other conditions are met, the affirmative vote of the holders
of 95% of the voting
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shares of a corporation is necessary to adopt or authorize a business
combination with any other entity, if that entity is the beneficial owner,
directly or indirectly, of more than 20% of the voting shares of the
corporation. This provision may have the effect of discouraging a change of
control by allowing minority shareholders to prevent a transaction favored by a
majority of the shareholders.
CONTROL SHARE ACQUISITION ACT. Home Savings is also subject to the Control
Share Acquisition Act which provides that any person or party who acquires
"control shares" (defined therein as a number of shares which, when added to
other shares held, gives the holder voting power in the election of directors
equal to 20%, 33 1/3%, or a majority of all voting power) may only vote those
shares if the remaining shareholders of Home Savings, by resolution, permit them
to be voted. If the shareholders of Home Savings permit the control shares to be
accorded voting rights and the holder of the control shares has a majority of
all voting power for the election of directors, the other shareholders of Home
Savings have the right to the redemption of their shares at the fair value as of
the day prior to the date on which the vote was taken which gave voting rights
to the control shares. The Merger does not trigger the provisions of the Control
Share Acquisition Act.
REGULATORY RESTRICTIONS. For a period of three years following the HSB
Conversion Effective Date, the prior written approval of the Administrator is
required before any person may, directly or indirectly, acquire or make any
offer to acquire any stock or other equity security of Home Savings if, after
such acquisition or consummation of such offer, such person would be the owner
of more than 10% of such class of stock or other class of equity security of
Home Savings.
The Control Act requires that the consent of the appropriate federal agency
be obtained prior to any person or company acquiring "control" of a
state-chartered savings bank. The Administrator's regulations also require the
prior consent of the Administrator to acquire control of a state-chartered
savings bank. Upon acquiring control, a company will be deemed to be a bank
holding company and must register with the Federal Reserve and the
Administrator. Control is conclusively presumed to exist if, among other things,
an individual or company acquires more than 25% of any class of voting stock of
the savings bank. Control is rebuttably presumed to exist if, among other
things, a person acquires more than 10% of any class of voting stock, the
issuer's securities are registered under Section 12 of the Exchange Act and the
person would be the single largest shareholder. Restrictions applicable to the
operations of bank holding companies and conditions imposed by the Federal
Reserve in connection with its approval of companies to become bank holding
companies may deter companies from seeking to obtain control of Home Savings. As
previously mentioned, preliminary approval has been received from the
Administrator.
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MARKET PRICE AND DIVIDEND INFORMATION
FNB Stock is traded on the NASDAQ National Market under the symbol "FNBN."
As of October 31, 1997, there were 1,817,253 shares of FNB Stock outstanding. As
of that date, the aggregate number of shares of FNB Stock held by directors and
officers of FNB as a group was 211,344, representing 11.63% of the outstanding
FNB Stock. Assuming that an aggregate of 255,310 shares of FNB Stock is issued
in the Merger, FNB's directors and officers would then own as a group 10.20% of
the outstanding FNB Stock on a pro forma basis as of September 30, 1997. Home
Savings Stock is traded in the over-the-counter market and is listed in the
National Daily Quotation Service "Bulletin Board." Trident Securities, Inc.,
Atlanta, Georgia is the market maker for Home Savings Stock. As of September 30,
1997, there were approximately 261 record holders of Home Savings Stock. On June
2, 1997, the last business day prior to public announcement of the Merger, the
last reported sales price for FNB Stock was $29.50, and the last reported bid
price for Home Savings Stock was $12.125. As of October 31, 1997, the last
reported sales price for FNB Stock was $34.00, and the last reported bid price
for Home Savings Stock was $14.00. On October 31, 1997, the last reported bid
and asked prices for FNB Stock were $32.50 and $34.50, respectively.
The following table presents quarterly information on the price range of
FNB Stock and Home Savings Stock for the calendar periods indicated. The table
indicates the high and low sales prices for FNB Stock as reported by the NASDAQ
National Market and the high and low bid quotations for Home Savings Stock as
obtained from Bloomberg, L.P. The prices are shown without retail markups,
markdowns or commissions.
<TABLE>
<CAPTION>
HOME SAVINGS
FNB STOCK (1) STOCK (2)
---------------------------- ------------
HIGH LOW HIGH
----------- ----------- ------------
<S> <C> <C> <C>
1997:
Fourth Quarter (through October 31).............................................. $ 34 $ 32 $ 14 3/4
Third Quarter.................................................................... 32 28 3/4 13 3/4
Second Quarter (3)............................................................... 33 28 1/2 13 3/8
First Quarter.................................................................... 32 27 12 7/8
1996:
Fourth Quarter................................................................... 30 25 1/2 13
Third Quarter.................................................................... 26 23 1/2 16 1/2
Second Quarter................................................................... 26 1/2 22 5/8 14 1/2
First Quarter.................................................................... 26 1/2 22 1/2 13 1/2
1995:
Fourth Quarter................................................................... 24 18 1/2 13 1/2
Third Quarter.................................................................... 21 16 1/2 n/a
Second Quarter................................................................... 18 15 1/3 n/a
First Quarter.................................................................... 16 2/3 15 1/3 n/a
<CAPTION>
LOW
-----
<S> <C>
1997:
Fourth Quarter (through October 31).............................................. $14
Third Quarter.................................................................... 13 1/2
Second Quarter (3)............................................................... 12 1/8
First Quarter.................................................................... 12 3/8
1996:
Fourth Quarter................................................................... 12 3/8
Third Quarter.................................................................... 11 1/2
Second Quarter................................................................... 13 1/4
First Quarter.................................................................... 12 1/2
1995:
Fourth Quarter................................................................... 12 1/8
Third Quarter.................................................................... n/a
Second Quarter................................................................... n/a
First Quarter.................................................................... n/a
</TABLE>
- ---------------
(1) All data included for FNB in 1995 has been retroactively adjusted to reflect
the three-for-two common stock split effected in the form of a 50% stock
dividend paid in the second quarter of 1995.
(2) Home Savings was a mutual savings bank without stock prior to its conversion
on November 14, 1995.
(3) The proposed Merger was announced on June 3, 1997.
The following table shows the cash dividends declared per share of FNB
Stock for the indicated periods.
<TABLE>
<CAPTION>
CASH DIVIDEND DECLARED: 1997 1996 1995
- -------------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Fourth Quarter............................................................ n/a $.21(1) $.15
Third Quarter............................................................. $.18 .15 .13
Second Quarter............................................................ .18 .15 .12
First Quarter............................................................. .18 .15 .12
</TABLE>
- ---------------
(1) Included a regular dividend of $.18 and a special dividend of $.03.
The timing and amount of future dividends will be within the discretion of
the Board of Directors of FNB and will depend upon the earnings of FNB and First
National, their financial condition, liquidity and capital requirements,
applicable
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government regulations and policies and other factors deemed relevant by the
Board of Directors. Subject to the foregoing, it is currently FNB's anticipation
that cash dividends comparable to those paid during the past two years will
continue to be paid in the future. No assurances can be given, however, that any
dividends will be declared in the future or, if declared, what the amount of
such dividends would be or whether such dividends would continue for future
periods. The ability of FNB to accumulate earnings for the payment of dividends
to its stockholders is substantially dependent upon the ability of First
National to pay dividends to FNB. First National's ability to pay dividends to
FNB is subject to certain statutory and regulatory restrictions and the need to
maintain adequate capital. See "CERTAIN REGULATORY CONSIDERATIONS -- Payment of
Dividends."
Since its conversion from mutual to stock form, Home Savings has paid three
regular semiannual dividends of $.20 per share which is the declared regular
dividend rate. On August 12, 1996, Home Savings also paid a special dividend of
$4.80 per share. Such dividend was declared based on the Board's determination
that Home Savings had excess capital resulting from its mutual to stock
conversion ten months earlier, the total amount of which could not be deployed
efficiently in loans and mortgage-backed securities. Such excess capital, in the
Board's opinion, also skewed certain ratios of Home Savings, such as return on
stockholders' equity when compared to other savings institutions. In addition to
the foregoing, on August 19, 1997, the Home Savings Board declared a $.30 per
share dividend, consisting of the regular seminannual dividend of $.20 per share
and a special dividend of $.10 per share. Such special dividend was based on the
Board's expectation that no additional regular or special dividends would be
declared prior to consummation of the Merger. There can be no assurance that, in
the event that the Merger is not consummated, regular dividends or special
dividends would continue to be paid in the future. Home Savings is required to
obtain the prior written approval of the Administrator before the payment of a
dividend. The Administrator's regulations also require its written approval
before a savings bank, which has been in stock form for less than five years
(like Home Savings) following its conversion from mutual form, may declare or
pay a cash dividend on its capital stock in an amount in excess of 1/2 the
greater of (i) Home Savings' net income for the most recent fiscal year end or
(ii) the average of Home Savings' net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends.
There can be no assurance that dividends would continue to be paid by Home
Savings in the future if the Merger is not consummated. The declaration, payment
and amount of any such future dividends would depend upon business conditions,
operating results, capital, reserve requirements, regulatory authorizations and
the consideration of other relevant factors by Home Savings' Board of Directors.
To the extent that Home Savings makes any Excess Cash Distributions, the
Exchange Ratio and the Cash Factor will be reduced. See "THE MERGER -- Exchange
of Home Savings Stock."
CERTAIN DIFFERENCES IN THE RIGHTS OF HOLDERS OF
HOME SAVINGS STOCK AND FNB STOCK
Upon consummation of the Merger, shareholders of Home Savings, other than
those shareholders who elect or are deemed to have elected under the Agreement
to receive cash in lieu of FNB Stock for their shares or who properly exercise
Dissenters' Rights, will become shareholders of FNB. Certain legal distinctions
exist between owning FNB Stock and Home Savings Stock.
The following is only a general summary of certain differences in the
rights of holders of FNB Stock and those of holders of Home Savings Stock.
Shareholders should consult with their own legal counsel with respect to
specific differences and changes in their rights as shareholders which will
result from the proposed Merger.
VOTING RIGHTS
The holders of FNB Stock and the holders of Home Savings Stock generally
possess exclusive voting rights in FNB and Home Savings, respectively. However,
for three years after the HSB Conversion Effective Date, Home Savings' Amended
and Restated Certificate of Incorporation eliminates voting rights with respect
to those shares that are beneficially owned by any person in excess of 10% of
Home Savings Stock then outstanding.
LIQUIDATION
Upon liquidation, holders of FNB Stock are entitled ratably to participate
in the distribution of any corporate assets remaining after payment of all debts
and the liquidation preferences, if any, of preferred stock that may then be
issued and outstanding. Holders of Home Savings Stock are entitled to receive,
after payment of all debts and liabilities of Home Savings, including all
deposit accounts and accrued interest thereon, after distribution of the balance
in the Liquidation Account, all remaining assets of Home Savings available for
distribution.
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DIVIDENDS AND STOCK PURCHASES
Holders of FNB Stock and holders of Home Savings Stock are each entitled to
receive dividends as may declared by the Board of Directors of FNB and Home
Savings, respectively, out of funds legally available therefor. FNB's and Home
Savings' ability to pay such dividends is subject to different statutory and
regulatory restrictions. See "CERTAIN REGULATORY CONSIDERATIONS." In addition,
for a period of five years from the HSB Conversion Effective Date, Home Savings
may not, without the approval of the Administrator, repurchase any of its
capital stock.
INDEMNIFICATION
The Bylaws of FNB provide for indemnification of its directors and officers
to the fullest extent permitted by law. The North Carolina Business Corporation
Act permits a corporation, with certain exceptions, to indemnify a current or
former officer or director against liability. See "CAPITAL STOCK OF
FNB -- Indemnification."
CERTAIN DIFFERENCES IN PROVISIONS OF INCORPORATION DOCUMENTS AND BYLAWS
DIRECTORS. FNB's Amended and Restated Bylaws provide that the number of
directors shall be not less than nine nor more than twenty-five. The current
number of directors is ten, but such number may be changed by resolution of the
Board of Directors. FNB's Amended and Restated Bylaws also provide for a
staggered board of directors divided into three classes, with one class of
directors to be elected at each annual meeting of shareholders for a term of
three years. Home Savings' Bylaws provide that the number of directors shall be
not less than seven nor more than twenty. The current number of directors is
eight, but such number may be changed by resolution of the Board of Directors.
SUPERMAJORITY VOTING PROVISIONS. FNB's Articles of Incorporation require
the affirmative vote of at least 75% of the outstanding shares of capital stock
of FNB to approve any merger or consolidation of FNB with any other entity, the
sale, lease or exchange of all or substantially all of the assets of FNB, or the
dissolution of FNB.
PREFERRED STOCK. FNB's Articles of Incorporation authorize 200,000 shares
of nonvoting preferred stock. The Board of Directors of FNB may authorize the
issuance of preferred stock and fix such preferences, limitations and relative
rights at such times, for such purpose and for such consideration as it may deem
advisable. In addition, the Board of Directors may divide and issue the
preferred stock in series and may fix relative rights and preferences as between
different series.
RESTRICTION ON ACQUISITION. Home Savings' Amended and Restated Certificate
of Incorporation provides that for three years after the HSB Conversion
Effective Date, no person may directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of equity security of
Home Savings. This prohibition does not apply to, among other things, the
purchase of securities by underwriters in connection with a public offering of
Home Savings' securities, any employee stock benefit plan of Home Savings, or
any class or series of preferred stock or other security, other than common
stock, as to which, and to the extent, the Board of Directors determines this
provision shall not apply.
CERTAIN NORTH CAROLINA LEGISLATION. Home Savings is subject to the
protection of the Shareholder Protection Act and the Control Share Acquisition
Act. See "CAPITAL STOCK OF HOME SAVINGS -- Certain Provisions Which May Have an
Anti-Takeover Effect." As permitted thereby, FNB has opted out of both Acts.
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<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
AS FINANCIAL INSTITUTIONS, FNB, FIRST NATIONAL AND HOME SAVINGS ARE SUBJECT
TO SUPERVISION, REGULATION AND EXAMINATION BY FEDERAL AND STATE REGULATORY
AUTHORITIES. THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE MATERIAL
ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING COMPANIES,
NATIONAL BANKS AND NORTH CAROLINA-CHARTERED SAVINGS BANKS AND PROVIDES CERTAIN
SPECIFIC INFORMATION RELEVANT TO FNB, FIRST NATIONAL AND HOME SAVINGS. TO THE
EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES STATUTORY AND REGULATORY
PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTICULAR
STATUTORY AND REGULATORY PROVISIONS. ANY CHANGE IN APPLICABLE LAWS OR
REGULATIONS MAY HAVE A MATERIAL EFFECT ON THE BUSINESS OF FNB, FIRST NATIONAL OR
HOME SAVINGS.
GENERAL
FNB is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "BHCA") and is registered as such with the
Federal Reserve Board. The BHC Act generally prohibits FNB from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Under the
BHCA, bank holding companies may not directly or indirectly acquire the
ownership or control of more than five percent of the voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board, unless such approval is not
required pursuant to Regulation 225.12 promulgated thereby. Because Home Savings
will be merged directly into First National in the Merger, approval of the
Merger by the Federal Reserve Board is not required but, pursuant to the Bank
Merger Act, the Merger does require the approval of the OCC. See "THE MERGER --
Regulatory Approvals."
As a national banking association, First National is subject to regulation
and examination by the OCC and the FDIC. First National is subject to various
requirements and restrictions by these agencies, including requirements to
maintain reserves against deposits, restrictions on the types and amounts of
loans that may be granted and the interest that may be charged thereon,
limitations on the types of investments that may be made and the types of
services that may be offered and requirements governing capital adequacy,
liquidity, earnings, dividends management practices and branching. First
National is also a member of the Federal Reserve System and is therefore subject
to the applicable provisions of the Federal Reserve Act, which imposes
restrictions on loans by subsidiary banks to a holding company and its other
subsidiaries and on the use of stock or securities as collateral security for
loans by subsidiary banks to any borrower.
As a North Carolina-chartered savings bank, Home Savings derives its
authority from, and is regulated by, the Administrator. The Administrator has
the right to promulgate rules and regulations necessary for the supervision and
regulation of state savings banks under his jurisdiction and for the protection
of the public investing in such institutions. The regulatory authority of the
Administrator includes, but is not limited to, the establishment of reserve
requirements; the regulation of the payment of dividends; the regulation of
incorporators, stockholders, directors, officers and employees; the
establishment of permitted types of withdrawable accounts and types of contracts
for savings programs, loans and investments; and the regulation of the conduct
and management of savings banks, chartering and branching of institutions,
mergers, conversions and conflicts of interest. North Carolina law requires that
Home Savings maintain federal deposit insurance as a condition of doing
business. Home Savings' deposits are insured by the SAIF and, accordingly, Home
Savings is also subject to regulation and examination by the FDIC.
Various consumer laws and regulations also affect the operations of First
National and Home Savings. In addition to the impact of regulation, depository
institutions and their holding companies may be significantly affected by
legislation, which can change statutes affecting financial institutions in
substantial and unpredictable ways, and by the actions of the Federal Reserve as
it attempts to control the money supply and credit availability in order to
influence the economy.
CAPITAL
The Federal Reserve has established a minimum requirement for a bank
holding company's ratio of capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) of 8%. At least
one-half of the total capital is to be composed of common equity, retained
earnings and a limited amount of qualifying perpetual preferred stock, less
certain intangibles ("Tier 1 capital"). The remainder may consist of
subordinated debt, qualifying preferred stock and a limited amount of the loan
loss allowance ("Tier 2 capital" and together with Tier 1 capital "total
capital"). On June 30, 1997, FNB's Tier 1 and total capital ratios were 14.71%
and 15.73%, respectively. Effective January 1, 1997, with mandatory compliance
as of January 1, 1998, the Federal Reserve also is requiring certain bank
holding companies that
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<PAGE>
engage in trading activities to adjust their risk-based capital to take into
consideration market risks that may result from movements in market prices of
covered trading positions in trading accounts, or from foreign exchange or
commodity positions, whether or not in trading accounts, including changes in
interest rates, equity prices, foreign exchange rates or commodity prices. Any
capital required to be maintained pursuant to these provisions may consist of
new "Tier 3 capital" consisting of short-term subordinated debt. In addition,
the Federal Reserve has issued a policy statement, pursuant to which a bank
holding company that is determined to have weaknesses in its risk management
processes or a high level of interest rate risk exposure may be required, among
other things, to hold additional capital.
The Federal Reserve Board has also established a minimum leverage ratio for
bank holding companies. These requirements currently provide for a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets ("leverage
ratio") equal to 3% for bank holding companies that meet certain specified
criteria, including that they have the highest regulatory rating period. All
other bank holding companies would generally be required to maintain a leverage
ratio of from at least 100 to 200 basis points above the stated minimum. FNB's
leverage ratio at June 30, 1997 was 9.76%. 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 requirements
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 FNB of any
specific minimum leverage ratio or tangible Tier 1 leverage ratio applicable to
it.
First National and Home Savings are subject to capital requirements adopted
by the OCC and FDIC that are substantially similar to those requirements
established by the Federal Reserve described above. Under federal banking laws,
failure to meet the minimum regulatory capital requirements could subject a
banking institution to a variety of enforcement remedies available to federal
regulatory authorities, including, in the most severe cases, the termination of
deposit insurance by the FDIC and placing the institution into conservatorship
or receivership. As a North Carolina-chartered savings bank, Home Savings is
also subject to regulations of the Administrator that require it to maintain
capital to total assets of at least 5% with no intangible items counted towards
this total.
As of June 30, 1997, First National and Home Savings each had capital
levels that qualify it as "well-capitalized" under regulations of the OCC and
the FDIC. As of June 30, 1997, First National had total, Tier 1 and leverage
capital ratios of 15.44%, 14.42% and 9.57%, respectively. As of June 30, 1997,
Home Savings had total, Tier 1 and leverage capital ratios of 47.0%, 45.8% and
18.2%, respectively. See also "INFORMATION ABOUT HOME SAVINGS -- Management's
Discussion and Analysis of Financial Condition and Results of Operations." On a
pro forma basis, First National's capital levels would improve slightly as a
result of the Merger.
Banking regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations, including a proposal to add an
interest rate risk component to risk-based capital guidelines. See "INFORMATION
ABOUT HOME SAVINGS -- Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PAYMENT OF DIVIDENDS
FNB is a legal entity separate and distinct from its banking subsidiary,
First National. FNB is not subject to any direct legal or regulatory
restrictions on the payment of dividends other than the provisions of the North
Carolina Corporation Act prohibiting distributions if, after giving them effect,
the corporation would not be able to pay its debts as they become due in the
usual course of business or if the corporation's total assets would be less than
its liabilities. Because the principal source of FNB's revenues is dividends
from First National, however, the ability of FNB to pay dividends to its
stockholders depends to a large extent upon the amount of dividends First
National may pay to FNB. The prior approval of the OCC is required for First
National to pay dividends if the total of all dividends declared by First
National in any calendar year will exceed the sum of its 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 First National from
paying dividends which would be greater than such bank's undivided profits after
deducting statutory bad debts in excess of such bank's allowance for loan
losses.
Under the foregoing dividend restrictions, as of June 30, 1997, First
National, without obtaining affirmative governmental approvals, may declare to
FNB in 1997 aggregate dividends of $4,361,057 plus an additional amount equal to
the retained net income in 1997 up to the date of any dividend declaration.
During 1996, First National declared an aggregate of $1,383,000 in dividends to
FNB. See "MARKET PRICE AND DIVIDEND INFORMATION."
Home Savings is restricted for a period of five years from the effective
date of its mutual to stock conversion (November 14, 1995), from declaring or
paying, without the written approval of the Administrator, a cash dividend on
its capital
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<PAGE>
stock in an amount in excess of the greater of (i) Home Savings' net income for
the most recent fiscal year or (ii) the average of Home Savings' net income
after dividends for the most recent fiscal year and not more than two of the
immediately preceding fiscal years. In addition, as a converted institution,
Home Savings is also subject to the restriction that it will not be permitted to
declare or pay a cash dividend on its capital stock if the effect thereof would
be to cause the net worth of Home Savings to be reduced below (x) the minimum
regulatory capital required by the Administrator or the FDIC or (y) the amount
required for the Liquidation Account. During fiscal 1996, Home Savings paid to
its shareholders an aggregate of $4,419,822 in dividends, all of which were
approved by the Administrator. See "MARKET PRICE AND DIVIDEND INFORMATION."
In addition, FNB, First National and Home Savings 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
depository institution or bank holding company that the payment of dividends
would be an unsafe or unsound practice and to prohibit payment thereof. The OCC
and the FDIC have indicated that paying dividends that deplete a bank's capital
base to an inadequate level would be an unsound and unsafe banking practice
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). It follows, then, that a depository institution may not pay any
dividend if payment would cause it to become undercapitalized or if it already
is undercapitalized. 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.
SUPPORT OF SUBSIDIARY BANKS
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, FNB is expected to act as a
source of financial strength to First National and to commit resources to
support First National. This support may be required at times when, absent such
Federal Reserve Board policy, FNB 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 bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
FDIC INSURANCE ASSESSMENTS
First National and Home Savings are both members of the FDIC. The FDIC
administers two separate deposit insurance funds: the Savings Association
Insurance Fund ("SAIF") insures the deposits of institutions the deposits of
which were insured by the Federal Savings and Loan Insurance Corporation (the
"FSLIC") prior to the enactment of the Financial Institutions Reform and
Enforcement Act of 1989, as amended ("FIRREA"), and the Bank Insurance Fund
("BIF") insures the deposits of institutions the deposits of which were insured
by the FDIC prior to the enactment of FIRREA.
FDIC insurance premiums are presently based on an assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (i) well capitalized;
(ii) adequately capitalized; and (iii) undercapitalized. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system there are nine assessment
risk classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied.
In general, the FDIC is required to set semiannual assessments so as to
maintain a designated ratio of reserves to deposits for each of the BIF and the
SAIF at $1.25 for every $100 of insured deposits (i.e., 125%). Assessment rates
for members of both the BIF and the SAIF presently, range from 0 basis points
for an institution in the highest category (i.e., "well capitalized" and
"healthy") to 27 basis points (.27% of deposits) for an institution in the
lowest category (i.e., "undercapitalized" and "substantial supervisory
concern").
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In order to recapitalize the SAIF and bring its reserve ratio level to that
of the BIF, the Deposit Insurance Funds Act of 1996 (the "Funds Act"), was
passed, which directed the FDIC to implement a special one-time assessment of
approximately 65.7 basis points (0.657 percent) on a depository institution's
SAIF-insured deposits held as of March 31, 1995 (or approximately 52.6 basis
points on SAIF-insured deposits acquired by banks in certain qualifying
transactions). Home Savings recorded a pre-tax charge against earnings for the
special assessment in the quarter ended September 30, 1996 in the amount of
approximately $256,000. First National recorded a pre-tax charge against
earnings for the special assessment in the quarter ended September 30, 1996 in
the amount of approximately $75,000.
The Funds Act also authorizes the Financing Corporation ("FICO") to levy
assessments on BIF-insured deposits (in addition to assessments currently
imposed on depositary institutions with respect to SAIF-insured deposits) to pay
for the cost of FICO funding. FICO assessments on BIF- and SAIF- insured
deposits are 1.26 basis points and 6.30 basis points, respectively.
COMMUNITY REINVESTMENT
First National and Home Savings are subject to the provisions of the
Community Reinvestment Act of 1977, as amended (the "CRA") and the federal
banking agencies' implementing regulations. Under the CRA, all financial
institutions have a continuing and affirmative obligation consistent with their
safe and sound operation to help meet the credit needs for their entire
communities, including low-and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions,
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires a depository institution's federal
regulator, in connection with its examination of the institution, to assess the
institution's record in assessing and meeting the credit needs of the community
served by that institution, including low- and moderate-income neighborhoods.
The regulatory agency's assessment of the institution's record is made available
to the public. Further, such assessment is required of any institution which has
applied to: (i) charter a national bank; (ii) obtain deposit insurance coverage
for a newly chartered institution; (iii) establish a new branch office that will
accept deposits; (iv) relocate an office; or (v) merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
Following their most recent CRA compliance examinations, First National and Home
Savings each received a "satisfactory" CRA rating.
In April 1995, the federal banking agencies adopted revised CRA regulations
in order to provide clearer guidance to depository institutions on the nature
and extent of their CRA obligations and the methods by which those obligations
would be assessed and enforced. Under the new CRA regulations, which went into
effect on January 1, 1996, the evaluation system used to judge an institution's
CRA performance consists of three tests: (a) a lending test which will compare
the institution's market share of loans in low- and moderate-income areas to its
market share of loans in its entire service area and the percentage of a bank's
outstanding loans to low and moderate-income areas or individuals, (b) a
services test which will evaluate the provision of services that promote the
availability of credit to low and moderate-income areas, and (c) an investment
test, which will evaluate an institution's record of investments in
organizations designed to foster community development, small and minority-owned
business and affordable housing lending, including state and local government
housing or revenue bonds. The regulation is designed to reduce the paperwork
requirements of the current regulations and provide regulators, institutions and
community groups with a more objective and predictable manner with which to
evaluate the CRA performance of financial institutions. The rule became
effective on January 1, 1996.
INTERSTATE BANKING
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), permits adequately capitalized bank and savings
institution holding companies to acquire control of banks and savings
institutions in any state. North Carolina adopted nationwide reciprocal
interstate acquisition legislation in 1994. Accordingly, such interstate
acquisitions are subject to certain deposit-percentage limitations, aging
requirements, and other restrictions. The Interstate Banking Act also generally
provides that, after June 1, 1997, national and state-chartered banks may
geographically expand across state lines by branching. By adopting legislation
prior to that date, a state has the ability either to "opt in" and accelerate
the date after which interstate branching is permissible or "opt out" and
prohibit interstate branching altogether. North Carolina has enacted "opt in"
legislation that permits interstate branching in North Carolina on a reciprocal
basis through June 1, 1997, and on an unlimited basis thereafter. The
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Interstate Banking Act may have the effect of increasing competition within the
markets in which FNB and Home Savings operate, although the extent and timing of
such increase cannot be predicted.
OTHER LEGISLATION AND GOVERNMENTAL POLICIES
Legislative and regulatory proposals regarding changes in banking, and the
regulation of banks, savings institutions, and other financial institutions are
considered from time to time by the executive branch of the Federal government,
Congress, and various state governments, including North Carolina. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry generally. It cannot be predicted whether
any of these proposals will be adopted, and, if adopted, how these will affect
FNB, First National or Home Savings.
MONETARY POLICY AND ECONOMIC CONTROLS
FNB, First National and Home Savings are directly affected by government
monetary policy and by regulatory measures affecting the financial services
industry in general. Of primary importance is the Federal Reserve, whose actions
directly affect the money supply and, in general, affect the lending ability of
financial institutions by increasing or decreasing the cost and availability of
funds to financial institutions. The Federal Reserve regulates the availability
of credit in order to combat recessionary and curb inflationary pressures in the
economy by open market operations in United States government securities,
changes in the discount rate on member bank borrowings and changes in reserve
requirements against bank deposits.
Deregulation of interest rates paid by banks and savings institutions
associations on deposits and the types of deposits that may be offered by such
institutions have eliminated minimum balance requirements and rate ceilings on
various types of time deposit accounts. The effect of these specific actions
and, in general, the deregulation or deposit interest rates have made such
institutions much more sensitive to fluctuations in money market rates. In view
of the changing conditions in the national economy and money markets, as well as
the effect of actions by monetary and fiscal authorities, no prediction can be
made as to possible future changes in interest rates, deposit levels, loan
demand, or the business and earnings of FNB, First National or Home Savings.
OPINIONS
The validity of the issuance of the FNB Stock will be passed upon by Schell
Bray Aycock Abel & Livingston P.L.L.C., Greensboro, North Carolina. Moore & Van
Allen, PLLC, Raleigh, North Carolina has served as counsel to Home Savings in
connection with the Merger and will pass upon certain matters on behalf of Home
Savings.
The federal income tax consequences of the Merger have been passed upon by
Schell Bray Aycock Abel & Livingston P.L.L.C., Greensboro, North Carolina.
EXPERTS
The consolidated financial statements of FNB Corp. and subsidiary as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, have been incorporated by reference herein and in the
Registration Statement 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 Home Savings Bank of Siler City,
Inc., SSB as of September 30, 1996 and 1995 and for each of the years in the
three-year period ended September 30, 1996, have been included herein and in the
Registration Statement in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
PROPOSALS OF SHAREHOLDERS
If the Merger is not consummated for any reason, Home Savings expects to
hold its 1998 annual meeting of shareholders in March 1998. In such event, any
proposal of a shareholder that is intended to be presented at the 1998 annual
meeting of shareholders must be received by Home Savings at its main office in
Siler City, North Carolina no later than December 1, 1997 in order that any such
proposal be timely received for inclusion in the proxy statement and appointment
of proxy to be issued in connection with such meeting.
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<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTERIM FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition as of June 30, 1997 and September 30, 1996 (unaudited)................ F-2
Consolidated Statements of Operations for the three months and nine months ended June 30, 1997 and 1996 (unaudited).. F-3
Consolidated Statements of Cash Flows for the nine months ended June 30, 1997, 1996 (unaudited)...................... F-4
Notes to Consolidated Financial Statements........................................................................... F-5
ANNUAL FINANCIAL STATEMENTS
Reports of Independent Accountants................................................................................... F-7
Consolidated Statements of Financial Condition as of September 30, 1996 and 1995..................................... F-8
Consolidated Statements of Operations for the years ended September 30, 1996, 1995 and 1994.......................... F-9
Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 1996,
1995 and 1994..................................................................................................... F-10
Consolidated Statements of Cash Flows for the years ended September 30, 1996, 1995 and 1994.......................... F-11
Notes to Consolidated Financial Statements........................................................................... F-12
</TABLE>
F-1
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
----------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks...................................................................... $ 638,142 $ 357,901
Interest-bearing deposits.................................................................... 448,367 445,692
Federal funds sold........................................................................... 4,450,000 975,000
----------- ------------
Total cash and cash equivalents......................................................... 5,536,509 1,778,593
Certificates of deposit........................................................................ -- 200,000
Investment securities available for sale....................................................... 6,944,150 6,889,859
Mortgage backed securities available for sale.................................................. 5,235,384 5,639,536
Investment securities held to maturity......................................................... 5,560,000 6,560,000
Loans receivable, less allowance for loan losses of $279,659................................... 30,931,979 30,034,366
Premises and equipment, net.................................................................... 297,965 314,625
Federal Home Loan Bank of Atlanta stock........................................................ 346,500 316,900
Interest receivable............................................................................ 178,674 207,990
Deferred income taxes.......................................................................... 389,969 414,800
Other assets................................................................................... 34,995 157,327
----------- ------------
$55,456,125 $ 52,513,996
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits..................................................................................... $44,400,583 $ 41,666,943
Other liabilities............................................................................ 1,084,387 1,210,117
ESOP note payable............................................................................ 260,007 299,768
----------- ------------
Total liabilities....................................................................... 45,744,977 43,176,828
----------- ------------
Stockholders' equity:
Common stock, $1 par value; 5,000,000 shares authorized;
922,686 shares issued and outstanding..................................................... 922,686 922,686
Additional paid-in capital................................................................... 8,137,951 8,126,923
Retained income substantially restricted..................................................... 1,298,721 1,108,779
Unearned ESOP shares, 26,001 and 29,977 shares at June 30, 1997 and September 30, 1996,
respectively.............................................................................. (260,007) (299,768)
Deferred stock awards........................................................................ (307,771) (367,771)
Unrealized loss on investment securities available for sale, net............................. (80,432) (153,681)
----------- ------------
Total stockholders' equity.............................................................. 9,711,148 9,337,168
----------- ------------
$55,456,125 $ 52,513,996
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ------------------------
1997 1996 1997 1996
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans receivable......................................... $ 627,404 $ 610,556 $ 1,854,125 $1,887,290
Interest on mortgage-backed securities............................... 86,757 99,174 267,737 215,024
Interest and dividends on investment securities and
bank deposits..................................................... 256,843 299,053 740,353 900,172
--------- ----------- ----------- ----------
Total interest and dividend income.............................. 971,004 1,008,783 2,862,215 3,002,486
--------- ----------- ----------- ----------
Interest expense:
Deposits............................................................. 548,294 514,566 1,576,057 1,586,236
ESOP note payable.................................................... 5,094 12,480 15,516 33,160
--------- ----------- ----------- ----------
Total interest expense.......................................... 553,388 527,046 1,591,573 1,619,396
--------- ----------- ----------- ----------
Net interest income............................................. 417,616 481,737 1,270,642 1,383,090
--------- ----------- ----------- ----------
Other operating income:
Loan fees and charges................................................ 4,448 4,079 12,220 14,074
Deposit fees and charges............................................. 9,661 8,505 27,938 22,798
Other................................................................ 4,754 5,053 14,873 17,464
--------- ----------- ----------- ----------
Total other operating income.................................... 18,863 17,637 55,031 54,336
--------- ----------- ----------- ----------
Other operating expenses:
Compensation and employee benefits................................... 150,864 92,801 419,739 268,842
Directors' fees...................................................... 10,725 11,225 32,175 36,408
Occupancy and equipment.............................................. 9,907 8,569 31,522 28,186
Federal deposit insurance premiums................................... 6,784 23,061 13,162 69,862
Data processing...................................................... 18,974 16,845 55,650 50,935
Other................................................................ 61,388 48,712 197,669 127,346
--------- ----------- ----------- ----------
Total other operating expenses.................................. 258,642 201,213 749,917 581,579
--------- ----------- ----------- ----------
Income before income taxes........................................... 177,837 298,161 575,756 855,847
Income tax expense................................................... 64,224 122,257 207,272 339,755
--------- ----------- ----------- ----------
Net income........................................................... $ 113,613 $ 175,904 $ 368,484 $ 516,092
--------- ----------- ----------- ----------
--------- ----------- ----------- ----------
Net income per share................................................. $ 0.13 $ 0.21 $ 0.41 $ 0.54(1)
--------- ----------- ----------- ----------
--------- ----------- ----------- ----------
Weighted average shares outstanding.................................. 896,686 830,509 895,709 827,629(1)
--------- ----------- ----------- ----------
--------- ----------- ----------- ----------
</TABLE>
- ---------------
(1) Calculated from November 14, 1995, the date of Home Savings' conversion from
mutual to stock form.
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................................... $ 368,484 $ 516,092
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation................................................................................ 16,660 8,441
Provision for deferred taxes................................................................ -- 7,105
MRP and ESOP compensation................................................................... 78,001 25,224
Net accretion and amortization of discount and premium on investment and mortgage-backed
securities................................................................................. (7,191) (9,551)
Changes in operating assets and liabilities:
Accrued interest and dividends receivable................................................. 29,316 (150,520)
Prepaid expenses and other assets......................................................... 133,117 203,932
Other liabilities......................................................................... (125,730) 4,082
---------- -----------
Net cash provided by operating activities.............................................. 492,657 604,805
---------- -----------
Cash flows from investing activities:
Purchases of investment securities available for sale.......................................... -- (3,965,938)
Purchases of investment securities held-to-maturity............................................ (1,000,000) (4,559,375)
Purchases of mortgage-backed securities available for sale..................................... -- (4,651,083)
Purchase of Federal Home Loan Bank of Atlanta stock............................................ (29,600) (4,200)
Maturities of investment securities -- held to maturity........................................ 2,000,000 --
Maturities of certificates of deposit.......................................................... 200,000 --
Principal payments received on mortgage-backed securities available for sale................... 477,135 338,755
Loan originations, net of principal repayments................................................. (897,613) --
---------- -----------
Net cash provided by (used in) investing activities.................................... 749,922 (12,655,885)
---------- -----------
Cash flows from financing activities:
Net change in deposits......................................................................... 2,733,640 282,837
Net proceeds from issuance of stock............................................................ -- 8,514,917
Cash dividends................................................................................. (178,542) (164,926)
Principal payment on ESOP note................................................................. (39,761) (58,767)
---------- -----------
Net cash provided by financing activities.............................................. 2,515,337 8,574,061
---------- -----------
Net increase (decrease) in cash and cash equivalents............................................. 3,757,916 (3,487,019)
Cash and cash equivalents, beginning of period................................................... 1,778,593 8,452,793
---------- -----------
Cash and cash equivalents, end of period......................................................... $5,536,509 $ 4,965,774
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
HOME SAVINGS BANK OF SILER CITY INC., SSB AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of the Home Savings Bank of Siler City, Inc., SSB (the "Savings Bank")
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations have been made.
Operating results for interim periods are not necessarily indicative of results
which may be expected for a full year. The information included in this Form S-4
should be read in conjunction with the September 30, 1996 annual consolidated
financial statements and notes thereto.
2. EARNINGS PER SHARE
The Savings Bank will adopt Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share, on October 1, 1998. SFAS No. 128 requires
the Savings Bank to change its method of computing, presenting and disclosing
earnings per share information. Upon adoption, all prior period data presented
will be restated to conform to the provisions of SFAS No. 128.
If the Savings Bank had adopted SFAS No. 128 for the period ended June 30,
1997, the following computation would have been used to arrive at basic income
per common share and diluted income per common share that would have been
presented on the consolidated statements of income:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------ -----------
<S> <C> <C>
Basic income per common share:
Net income..................................................................................... $ 113,613 $ 368,484
------------ -----------
------------ -----------
Weighted average common shares outstanding..................................................... 896,686 895,709
------------ -----------
------------ -----------
Basic income per common share.................................................................. $ 0.13 $ 0.41
------------ -----------
------------ -----------
Diluted income per common share:
Net income..................................................................................... $ 113,613 $ 368,484
------------ -----------
------------ -----------
Weighted average shares:
Common shares outstanding................................................................... 896,686 895,709
Dilutive effect of stock options and MRP shares............................................. 14,343 14,691
------------ -----------
Total shares........................................................................... 911,029 910,400
------------ -----------
------------ -----------
Diluted income per common share.................................................................. $ 0.12 $ 0.40
------------ -----------
------------ -----------
Weighted average shares issued................................................................... 922,686 922,686
Weighted average unearned ESOP shares............................................................ 26,000 26,977
------------ -----------
Weighted average shares for EPS calculation...................................................... 896,686 895,709
------------ -----------
------------ -----------
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS:
The Savings Bank will adopt Statements of Financial Accounting Standards
(SFAS) No. 129 "Disclosure of Information about Capital Structure", No. 130
"Reporting Comprehensive Income", and No. 131 "Disclosures about Segments of an
Enterprise and Related Information" on October 1, 1998. The impact of adopting
these statements is not expected to be material to the Savings Bank's
consolidated financial statements.
F-5
<PAGE>
HOME SAVINGS BANK OF SILER CITY INC., SSB AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. MERGER
The Savings Bank entered into a definitive agreement to merge with FNB
Corp. on June 3, 1997. The proposed merger is expected to be presented for
shareholder approval in the first fiscal quarter of 1998. If approved by the
shareholders, management expects the merger to be completed in the second fiscal
quarter of 1998.
Under the provisions of this agreement, shareholders can elect to receive
FNB Corp. common stock, cash, or a combination of stock and cash for their
shares of the Savings Bank's common stock. The agreed upon value of the Savings
Bank's common stock per the agreement is $15.50 per share.
5. STOCK OPTIONS
On June 2, 1997 the Board of Directors voted to grant FNB Corp. an option
to purchase an aggregate of 183,615 shares of the Savings Bank's common stock.
The option price was set at $12.50, the fair market value of the shares as
established by the Board of Directors. The number of shares subject to the
option is subject to adjustment so that the number of shares for which the
option may be exercised will not exceed 19.9% of the Savings Bank's issued and
outstanding shares. The option can only be exercised when a purchase event as
defined in the option agreement occurs. The option has a maximum term of three
years, however the agreement has provisions for earlier termination in certain
circumstances. The option was not exercised or exercisable during the three
months ended June 30, 1997.
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
HOME SAVINGS BANK OF SILER CITY, INC., SSB
Siler City, North Carolina
We have audited the accompanying consolidated statements of financial
condition of Home Savings Bank of Siler City, Inc., SSB and Subsidiary as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1996. These financial statements are the
responsibility of the Savings Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Home Savings
Bank of Siler City, Inc., SSB and Subsidiary as of September 30, 1996 and 1995
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
November 4, 1996,
except for Note 14,
as to which the date
is June 3, 1997
F-7
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks...................................................................... $ 357,901 $ 714,186
Interest-bearing deposits.................................................................... 445,692 5,988,607
Federal funds sold........................................................................... 975,000 1,750,000
----------- -----------
Total cash and cash equivalents......................................................... 1,778,593 8,452,793
Certificates of deposit........................................................................ 200,000 200,000
Investment securities -- available for sale.................................................... 6,889,859 --
Mortgage backed securities -- available for sale............................................... 5,639,536 --
Investment securities held-to-maturity, estimated market value of $6,443,000 in 1996 and
$6,000,000 in 1995........................................................................... 6,560,000 5,997,201
Mortgage-backed securities held-to-maturity, estimated market value of $1,743,000 in 1995...... -- 1,719,224
Loans receivable, less of allowance for loan losses of $279,659 in 1996 and 1995............... 30,034,366 30,073,860
Premises and equipment, net.................................................................... 314,625 320,257
Federal Home Loan Bank of Atlanta stock, at cost which approximates market..................... 316,900 312,700
Deferred income taxes.......................................................................... 414,800 362,100
Accrued interest and dividends receivable...................................................... 207,990 93,694
Prepaid expenses and other assets.............................................................. 157,327 252,936
----------- -----------
$52,513,996 $47,784,765
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits..................................................................................... $41,666,943 $41,369,422
Accrued interest payable..................................................................... 100,588 139,503
Other liabilities............................................................................ 1,109,529 867,267
ESOP note payable............................................................................ 299,768 --
----------- -----------
Total liabilities....................................................................... 43,176,828 42,376,192
----------- -----------
Commitments (Note 12)
Stockholders' equity:
Common stock, $1 par value, 5,000,000 shares authorized, 922,686 shares issued and
outstanding............................................................................... 922,686 --
Additional paid-in capital................................................................... 8,126,923 --
Retained income, substantially restricted.................................................... 1,108,779 5,408,573
Unearned ESOP shares, 29,977 shares.......................................................... (299,768) --
Deferred stock awards........................................................................ (367,771) --
Unrealized loss on available for sale securities, net of taxes............................... (153,681) --
----------- -----------
Total stockholders' equity.............................................................. 9,337,168 5,408,573
----------- -----------
$52,513,996 $47,784,765
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest and dividend income:
Loans receivable.................................................................. $2,491,791 $2,540,552 $2,505,625
Investment securities and bank deposits........................................... 1,189,629 712,687 443,664
Mortgage-backed securities........................................................ 310,088 133,019 84,547
---------- ---------- ----------
Total interest and dividend income........................................... 3,991,508 3,386,258 3,033,836
Interest expense:
Deposits.......................................................................... 2,102,145 1,896,921 1,545,838
ESOP note......................................................................... 46,490 -- --
---------- ---------- ----------
Total interest expense....................................................... 2,148,635 1,896,921 1,545,838
---------- ---------- ----------
Net interest income.......................................................... 1,842,873 1,489,337 1,487,998
Provision for loan losses........................................................... -- -- --
---------- ---------- ----------
Net interest income after provision for loan losses.......................... 1,842,873 1,489,337 1,487,998
---------- ---------- ----------
Other operating income:
Loan fees and charges............................................................. 18,560 12,972 15,884
Deposit fees and charges.......................................................... 32,342 24,727 26,650
Other............................................................................. 26,675 22,268 29,812
---------- ---------- ----------
Total other operating income................................................. 77,577 59,967 72,346
---------- ---------- ----------
Other operating expenses:
Compensation and employee benefits................................................ 330,930 314,583 303,966
Compensation expense on ESOP shares............................................... 584,223 -- --
Directors' fees................................................................... 42,883 54,030 52,504
Directors' retirement plan........................................................ -- -- 780,000
Conversion/acquisition expenses................................................... -- 2,041 111,319
Occupancy and equipment........................................................... 36,239 43,301 53,189
Federal deposit insurance premiums................................................ 349,219 87,283 87,305
(Income) loss from sales and operations of foreclosed assets, net................. -- (25,032) 149,108
Data processing................................................................... 67,577 67,260 66,484
Other............................................................................. 183,527 139,170 129,907
---------- ---------- ----------
Total other operating expenses............................................... 1,594,598 682,636 1,733,782
---------- ---------- ----------
Income (loss) before income taxes and cumulative effect of a change in accounting
for income taxes in accounting for income taxes................................... 325,852 866,668 (173,438)
Income tax expense (benefit)........................................................ 205,824 312,786 (72,050)
---------- ---------- ----------
Income (loss) before cumulative effect of a change in accounting for income taxes... 120,028 553,882 (101,388)
Cumulative effect of a change in accounting for income taxes........................ -- -- 80,973
---------- ---------- ----------
Net income (loss)................................................................... $ 120,028 $ 553,882 $ (20,415)
---------- ---------- ----------
---------- ---------- ----------
Net income per common share (1)..................................................... $ 0.07(1)
----------
----------
Weighted average shares outstanding (1)............................................. 838,257
----------
----------
</TABLE>
- ---------------
(1) Calculated from date of conversion, see Note 2.
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
RETAINED LOSS ON
ADDITIONAL INCOME -- UNEARNED DEFERRED AVAILABLE
COMMON PAID-IN SUBSTANTIALLY ESOP STOCK FOR SALE
STOCK CAPITAL RESTRICTED SHARES AWARDS SECURITIES
-------- ---------- ------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1993........... $ -- $ -- $ 4,875,106 $ -- $ -- $ --
Net loss for year ended
September 30, 1994................. -- -- (20,415) -- -- --
-------- ---------- ------------- --------- --------- ----------
Balance September 30, 1994........... -- -- 4,854,691 -- -- --
Net income for year ended
September 30, 1995................. -- -- 553,882 -- -- --
-------- ---------- ------------- --------- --------- ----------
Balance September 30, 1995........... -- -- 5,408,573 -- -- --
Issuance of shares of common stock... 896,339 7,618,578 -- (717,070) -- --
Net income for the year ended
September 30, 1996................. -- -- 120,028 -- -- --
Change in unrealized loss on
available for sale securities, net
of taxes........................... -- -- -- -- -- (153,681 )
Cash dividends paid ($5.20 per
share)............................. -- -- (4,419,822) -- -- --
Release of ESOP shares............... -- 166,921 -- 417,302 -- --
Issuance of deferred stock awards.... 26,347 355,685 -- -- (382,032) --
Change in market value of deferred
stock awards....................... -- (14,261) -- -- 14,261 --
-------- ---------- ------------- --------- --------- ----------
Balance September 30, 1996........... $922,686 $8,126,923 $ 1,108,779 $(299,768) $(367,771) $(153,681 )
-------- ---------- ------------- --------- --------- ----------
-------- ---------- ------------- --------- --------- ----------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance September 30, 1993........... $ 4,875,106
Net loss for year ended
September 30, 1994................. (20,415)
-----------
Balance September 30, 1994........... 4,854,691
Net income for year ended
September 30, 1995................. 553,882
-----------
Balance September 30, 1995........... 5,408,573
Issuance of shares of common stock... 7,797,847
Net income for the year ended
September 30, 1996................. 120,028
Change in unrealized loss on
available for sale securities, net
of taxes........................... (153,681)
Cash dividends paid ($5.20 per
share)............................. (4,419,822)
Release of ESOP shares............... 584,223
Issuance of deferred stock awards.... --
Change in market value of deferred
stock awards....................... --
-----------
Balance September 30, 1996........... $ 9,337,168
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................. $ 120,028 $ 553,882 $ (20,415)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Cumulative effect of a change in accounting for income taxes..................... -- -- (80,973)
Depreciation..................................................................... 15,816 22,726 32,001
ESOP compensation................................................................ 584,223 -- --
Net accretion and amortization of discount and premium on investment and
mortgage-backed securities...................................................... (10,659) (1,836) 449
Net (gain) loss on sale and write-down of foreclosed assets...................... -- (25,359) 145,036
Deferred income tax provision (benefit).......................................... 45,600 34,100 (370,050)
Stock dividends received from Federal Home Loan Bank of Atlanta.................. -- -- (5,500)
Changes in operating assets and liabilities:
Accrued interest and dividends receivable...................................... (114,296) (62,319) (5,979)
Prepaid expenses and other assets.............................................. 89,905 (206,590) 5,638
Accrued interest payable....................................................... (38,915) 81,278 957
Income taxes currently payable................................................. -- (4,884) (158,907)
Other liabilities.............................................................. 247,966 6,726 780,030
------------ ----------- ----------
Net cash provided by operating activities................................... 939,668 397,724 322,287
------------ ----------- ----------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank of Atlanta stock................................ (4,200) -- (5,400)
Redemption of Federal Home Loan Bank of Atlanta stock.............................. -- 130,700 --
Maturity of certificate of deposit................................................. 100,000 100,000 100,000
Purchase of certificate of deposit................................................. (100,000) (100,000) (100,000)
Maturities of investment securities available-for-sale............................. 2,000,000 -- --
Purchases of investment securities available-for-sale.............................. (2,966,035) -- --
Maturities of investment securities held-to-maturity............................... -- -- 10,000
Purchases of investment securities held-to-maturity................................ (6,559,375) (4,996,718) (998,655)
Purchases of mortgage-backed securities available-for-sale......................... (3,577,281) -- --
Purchases of mortgage-backed securities held-to-maturity........................... (1,105,590) -- (986,212)
Principal payments received on mortgage-backed securities available for sale....... 548,276 -- --
Principal payments received on mortgage-backed securities held-to-maturity......... 45,713 168,331 157,502
Loan originations, net of principal repayments..................................... 39,494 (421,041) 1,982,443
Proceeds from sale of foreclosed assets............................................ -- 131,969 8,896
Purchases of equipment............................................................. (10,184) -- --
------------ ----------- ----------
Net cash provided by (used in) investing activities......................... (11,589,182) (4,986,759) 168,574
------------ ----------- ----------
Cash flows from financing activities:
Net change in deposits............................................................. 297,521 3,158,274 (434,864)
Net proceeds from issuance of stock................................................ 8,514,917 -- --
Cash dividends paid................................................................ (4,419,822) -- --
Principal payments on ESOP note.................................................... (417,302) -- --
------------ ----------- ----------
Net cash provided by (used in) financing activities......................... 3,975,314 3,158,274 (434,864)
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents................................. (6,674,200) (1,430,761) 55,997
Cash and cash equivalents, beginning of year......................................... 8,452,793 9,883,554 9,827,557
------------ ----------- ----------
Cash and cash equivalents, end of year............................................... $ 1,778,593 $ 8,452,793 $9,883,554
------------ ----------- ----------
------------ ----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest......................................................................... $ 2,187,550 $ 1,815,643 $1,656,614
Income taxes..................................................................... 245,821 312,894 456,871
Supplemental schedule of noncash investing and financing:
Funding of MRP plan................................................................ 367,771 -- --
Transfer of securities to available for sale:
Investment securities............................................................ 2,779,233 -- --
Mortgage-backed securities....................................................... 6,000,000 -- --
Issuance of deferred stock awards.................................................. 382,032 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Home Savings Bank of Siler City, Inc., SSB (the "Savings Bank") operates
one office in central North Carolina. The Savings Bank's principal business
activity is to accept deposits from the general public and to make conventional
first mortgage loans for the purchase of real estate or for the refinancing of
loans secured by real estate. These loans, and the securities portfolio, are the
Savings Bank's primary source of revenue. Substantially all of the Savings
Bank's lending activity is with customers located in Chatham, Randolph, Guilford
and Orange counties in central North Carolina.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at September 30, 1996 and 1995
and the reported amounts of revenues and expenses during the years ended
September 30, 1996, 1995 and 1994. Actual results could differ from those
estimates.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Savings
Bank and its wholly-owned subsidiary, Home S&L Service Corporation. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand and time deposits (with original
maturities of ninety days or less) at other institutions and Federal funds sold.
Generally, Federal funds are purchased and sold for one-day periods.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investments in certain securities are classified into three categories and
accounted for as follows: (1) debt securities that the entity has the positive
intent and the ability to hold to maturity are classified as held-to-maturity
and reported at amortized cost; (2) debt and equity securities that are bought
and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings; (3) debt and equity securities not
classified as either held-to-maturity securities or trading securities are
classified as available for sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity.
Premium and discounts on debt securities are recognized in interest income
on the level interest yield method over the period to maturity.
On December 31, 1995, the Savings Bank transferred mortgage-backed and
investment securities with a carrying value of $2,779,233 and $6,000,000 and a
market value of $2,830,781 and $6,051,720, respectively, from the
held-to-maturity category to the available-for-sale category under a one time
amnesty provision from SFAS No. 115. The carrying values of these securities
were adjusted to market upon transfer. The related unrealized gain of $103,268
was included in the total unrealized gain/(loss) (net of tax effect) presented
as a separate component of equity in the financial statements.
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are stated at the amount of unpaid principal, reduced by
an allowance for loan losses and net deferred loan origination fees. Interest is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. Deferred loan fees and costs are amortized to
interest income over the contractual life of the loan using the interest method.
The Savings Bank adopted Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114), as
amended by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure" (SFAS
No. 118), on October 1, 1995. Under the new standards, a loan is considered
impaired, based on current information and events, if it is probable that the
Savings Bank will be unable to collect the scheduled payments of principal and
interest when due according to the contractual terms of the
F-12
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
loan agreement. Uncollateralized loans are measured for impairment based on the
present value of expected future cash flows discounted at the historical
effective interest rate, while all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. The adoption of SFAS No.
114 and SFAS No. 118 did not result in any additional provision for credit
losses.
The Savings Bank uses several factors in determining if a loan is impaired.
The internal asset classification procedures include a thorough review of
significant loans and lending relationships and the accumulation of related
data. This data includes loan payment status, borrowers' financial data and
borrowers' operating factors such as cash flows, operating income or loss, etc.
At September 30, 1996 and during the year then ended, there were no loans
material to the consolidated financial statements that were considered impaired.
The allowance for loan losses is established through a provision for loan
losses charged to expense to reduce the recorded balance of loans to their
estimated net realizable value or fair value, as applicable. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on the evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature, quality and volume of the loan portfolio,
review of specific problem loans, and current economic conditions and trends
that may affect the borrowers' ability to pay. Accrual of interest is
discontinued on loans (1) which are past due 90 days or more if collateral is
inadequate to cover principal and interest, or (2) immediately if management
believes, after considering economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection is
doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation.
The provision for depreciation is computed using the straight-line method over
the estimated useful lives of the various classes of assets. Useful lives range
from 10 to 30 years for buildings and 5 to 10 years for furniture and equipment.
Repairs and maintenance are charged to expense as incurred.
FORECLOSED ASSETS
Assets acquired as a result of foreclosure are valued at the lower of the
recorded investment in the loan or fair value less estimated costs to sell. The
recorded investment is the sum of the outstanding principal loan balance and
foreclosure costs associated with the loan. Any excess of the recorded
investment over the fair value of the property received is charged to the
allowance for loan losses. Valuations are periodically performed by management
and any subsequent write-downs due to the carrying value of a property exceeding
its estimated fair value are recorded as a valuation allowance with a
corresponding charge to other operating expenses.
Activity in the valuation allowance consisted of write-downs of $145,036
during the year ended September 30, 1994. The valuation allowance was eliminated
during the year ended September 30, 1995 due to sales of all foreclosed assets.
INCOME TAXES
Deferred tax asset and liability balances are determined by application to
temporary differences of the tax rate expected to be in effect when taxes will
become payable or receivable. Temporary differences are differences between the
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements that will result in taxable or deductible
amounts in future years. This policy is in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), adopted on October 1, 1994, whose cumulative effect was to increase net
income for the year ended September 30, 1994 by $80,973.
NET INCOME PER COMMON SHARE
Net income per common share is computed on the basis of weighted average
number of shares of common stock outstanding, excluding unallocated ESOP shares.
Common stock equivalents are not included in the computation of weighted
F-13
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
average shares since the effect is not material. Net income per common share for
1996 of $.07 is calculated by dividing net income for the period November 14,
1995 to September 30, 1996, $61,142, by the number of weighted average shares of
common stock outstanding.
2. CONVERSION TO STOCK SAVINGS BANK
On November 14, 1995, the Savings Bank converted from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered capital
stock savings bank. In connection with the conversion the Savings Bank issued
896,339 shares of common stock, including 71,707 issued to the Employee Stock
Ownership Plan ("ESOP"), for $10 per share. The sale of common stock generated
proceeds of $8,514,917, net of conversion costs of $451,473.
At the time of the conversion, the Savings Bank established a liquidation
account in an amount equal to the Savings Bank's net worth, or approximately
$5,467,000, for the benefit of eligible account holders at that time. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their eligible deposits, shall cease upon the closing of
the accounts, and shall never be increased. In the event of the liquidation of
the Savings Bank, all remaining eligible deposit account holders shall be
entitled, after all payments to creditors, to a distribution from the
liquidation account before any distribution to stockholders. Dividends paid by
the Savings Bank cannot be paid from the liquidation account.
The Savings Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if its regulatory capital would thereby be reduced
below either the aggregate amount then required for the liquidation account or
the minimum regulatory capital requirements imposed by federal and state
regulations.
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES
A summary of investment and mortgage-backed securities at September 30,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996:
Held-to-maturity:
U.S. Treasury notes:
Due within one year................................................. $1,000,000 $ 1,400 $ -- $1,001,400
---------- ---------- ---------- ----------
Federal Home Loan Bank bonds:
Due after one through five years.................................... 3,560,000 -- 72,900 3,487,100
Due after ten years................................................. 2,000,000 -- 45,500 1,954,500
---------- ---------- ---------- ----------
5,560,000 -- 118,400 5,441,600
---------- ---------- ---------- ----------
$6,560,000 $ 1,400 $ 118,400 $6,443,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Available for sale:
U.S. Treasury notes:
Due after one through five years.................................... $1,974,468 $ -- $ 10,562 $1,963,906
Federal Home Loan Bank bonds:
Due after one through five years.................................... 5,000,000 -- 74,047 4,925,953
---------- ---------- ---------- ----------
$6,974,468 $ -- $ 84,609 $6,889,859
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Mortgage-backed securities:
GNMA Certificates................................................... $ 804,066 $ 11,946 $ -- $ 816,012
FNMA Certificates................................................... 1,508,022 -- 39,867 1,468,155
FHLMC Certificates.................................................. 3,494,820 -- 139,451 3,355,369
---------- ---------- ---------- ----------
$5,806,908 $ 11,946 $ 179,318 $5,639,536
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-14
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. INVESTMENT AND MORTGAGE-BACKED SECURITIES -- Continued
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
1995:
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. Treasury notes:
Due within one year................................................. $ 998,716 $ 4,284 $ -- $1,003,000
Due after one through five years.................................... 999,423 11,577 -- 1,011,000
---------- ---------- ---------- ----------
1,998,139 15,861 -- 2,014,000
---------- ---------- ---------- ----------
Federal Home Loan Bank bonds:
Due after one through five years.................................... 2,999,687 -- 19,687 2,980,000
Due after ten years................................................. 999,375 6,625 -- 1,006,000
---------- ---------- ---------- ----------
3,999,062 6,625 19,687 3,986,000
---------- ---------- ---------- ----------
$5,997,201 $ 22,486 $ 19,687 $6,000,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Mortgage-backed securities:
GNMA Certificates................................................... $1,010,243 $ 24,757 $ -- $1,035,000
FNMA Certificates................................................... 708,981 -- 981 708,000
---------- ---------- ---------- ----------
$1,719,224 $ 24,757 $ 981 $1,743,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Expected maturities for mortgage-backed securities will differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
4. LOANS RECEIVABLE
Loans receivable at September 30, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Real estate loans:
Residential owner occupied................................................................... $24,976,725 $23,822,950
Residential non-owner occupied............................................................... 3,800,546 4,350,617
Commercial................................................................................... 711,727 1,911,979
Construction loans........................................................................... 1,230,332 531,681
Loans collateralized by deposits............................................................... 382,982 341,136
----------- -----------
31,102,312 30,958,363
Less:
Undisbursed portion of construction loans.................................................... (591,877) (425,186)
Net deferred loan origination fees........................................................... (196,410) (179,658)
Allowance for loan losses.................................................................... (279,659) (279,659)
----------- -----------
Loans receivable, net.......................................................................... $30,034,366 $30,073,860
----------- -----------
----------- -----------
</TABLE>
The Savings Bank originates both adjustable and fixed interest rate loans.
The composition of these loans at September 30, 1996 and 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
FIXED RATE ADJUSTABLE RATE
TERM TO MATURITY OR ------------------ ----------------
RATE ADJUSTMENT 1996 1995 1996 1995
- ---------------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
1 month-1 year...................................................................... $ 14 $ 24 $6,768 $7,509
1 year-5 years...................................................................... 832 894 -- 428
More than 5 years................................................................... 23,488 21,629 -- 474
------- ------- ------ ------
$24,334 $22,547 $6,768 $8,411
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
F-15
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. LOANS RECEIVABLE -- Continued
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the current market rate at the date of adjustment. Future
market factors may affect the correlation of the interest rate adjustment with
the rates the Savings Bank pays on the short-term deposits that have been
primarily utilized to fund these loans.
The allowance for loan losses has remained unchanged during the years ended
September 30, 1996, 1995 and 1994 with no charge-offs or provisions.
The following is a summary of nonperforming assets at September 30, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans 90 days past due and still accruing interest.................................... $525 $661
Nonaccrual loans...................................................................... 45 --
---- ----
$570 $661
---- ----
---- ----
</TABLE>
5. PREMISES AND EQUIPMENT
Premises and equipment at September 30, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land............................................................................ $ 44,000 $ 44,000
Building and improvements....................................................... 368,605 368,604
Furniture, fixtures and equipment............................................... 244,115 233,931
--------- ---------
656,720 646,535
Less accumulated depreciation................................................... (342,095) (326,278)
--------- ---------
$ 314,625 $ 320,257
--------- ---------
--------- ---------
</TABLE>
6. DEPOSITS
A summary of deposits at September 30, 1996 and 1995 follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE BALANCE RATE BALANCE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
NOW and money market accounts
(includes noninterest-bearing
deposits of $85 and $77 at
September 30, 1996 and 1995,
respectively)................................................................... 3.65% $ 8,618 3.73% $ 7,873
Passbook savings.................................................................. 3.04 3,165 3.00 3,130
Certificates of deposit:
3 months........................................................................ 5.37 7,658 5.03 799
4 months........................................................................ 5.27 3,179 5.27 594
6 months........................................................................ 5.11 4,382 5.68 4,878
9 months........................................................................ 5.2 4,187 6.76 2,297
12 months....................................................................... 5.28 3,571 6.02 8,769
18 months....................................................................... 6.08 3,994 5.78 5,011
36 months....................................................................... 6.07 2,913 5.89 8,008
48 months and over.............................................................. -- -- 8 10
------- -------
Total certificates of deposit................................................... 5.45 29,884 5.9 30,366
------- -------
Total deposits.................................................................... 4.89% $41,667 5.27% $41,369
------- -------
------- -------
</TABLE>
F-16
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. DEPOSITS -- Continued
The aggregate amount of certificates of deposit $100,000 or greater at
September 30, 1996 by scheduled maturities follows:
<TABLE>
<S> <C>
3 months or less............................................................................ $ 545,084
Less than 3 months through 6 months......................................................... --
Less than 6 months through 12 months........................................................ 1,007,372
In excess of 12 months...................................................................... 416,343
----------
$1,968,799
----------
----------
</TABLE>
Interest on deposits for the years ended September 30, 1996, 1995 and 1994
consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NOW and money market accounts....................................................... $ 298,213 $ 313,080 $ 242,006
Passbook savings.................................................................... 104,600 97,056 104,797
Certificates of deposit............................................................. 1,699,332 1,486,785 1,199,035
---------- ---------- ----------
$2,102,145 $1,896,921 $1,545,838
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
7. REGULATORY CAPITAL REQUIREMENTS
The Savings Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank's financial statements. Quantitative
measures established by regulation to ensure capital adequacy require the
Savings Bank to maintain minimum amounts and rati os, as set forth in the table
below. Management believes, as of September 30, 1996, that the Savings Bank
meets all capital adequacy requirements to which it is subject.
As of September 30, 1996, the most recent notification from the FDIC
categorized the Savings Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the Savings
Bank must maintain minimum amounts and ratios, as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Savings Bank's category.
The Savings Bank's actual capital amounts and ratios are also presented in
the table below (dollars in thousands).
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
--------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1996:
Total Capital (to Risk Weighted Assets)................................... $9,771 49.2 % $1,589 8.0% $1,987 10.0 %
Tier I Capital (to Risk Weighted Assets).................................. 9,491 47.8 795 4.0 1,192 6.0
Tier I Capital (to Average Assets)........................................ 9,491 17.3 2,189 4.0 2,736 5.0
Total Tangible Capital (to Total Tangible Assets)......................... 9,491 17.8 2,626 5.0 2,626 5.0
AS OF SEPTEMBER 30, 1995:
Total Capital (to Risk Weighted Assets)................................... $5,688 28.6 % $1,453 8.0% $1,816 10.0 %
Tier I Capital (to Risk Weighted Assets).................................. 5,408 29.8 726 4.0 1,090 6.0
Tier I Capital (to Average Assets)........................................ 5,408 11.9 1,812 4.0 2,264 5.0
Total Tangible Capital (to Total Tangible Assets)......................... 5,408 11.3 2,389 5.0 2,389 5.0
</TABLE>
F-17
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. REGULATORY CAPITAL REQUIREMENTS -- Continued
On September 30, 1996, Congress passed into law a recapitalization plan for
the Savings Association Insurance Fund (the "SAIF"), the insurance fund covering
deposits of savings institutions. The approved plan provided for a special
assessment of 0.66% on certain deposits as of March 31, 1995. The Savings Bank's
assessment amounted to approximately $256,000 and is included in Federal deposit
insurance premiums in the statement of operations for the year ended September
30, 1996. Future deposit insurance premiums are expected to decrease to
approximately .06% from the .23% of deposits currently paid by the Savings Bank.
8. INCOME TAXES
Income taxes charged (credited) to operations for the years ended September
30, 1996, 1995 and 1994 consist of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................................................................ $154,824 $252,366 $253,000
State.................................................................................. 5,400 26,320 45,000
-------- -------- --------
160,224 278,686 298,000
-------- -------- --------
Deferred:
Federal................................................................................ 35,800 26,900 (304,550)
State.................................................................................. 9,800 7,200 (65,500)
-------- -------- --------
45,600 34,100 (370,050)
-------- -------- --------
$205,824 $312,786 $(72,050)
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the net deferred income tax asset at September 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred income tax assets:
Deferred compensation............................................................................... $311,100 $306,000
Deferred loan origination fees and costs............................................................ 73,000 66,500
Bad debt reserve.................................................................................... 31,700 86,700
Conversion/acquisition expenses..................................................................... 1,400 1,400
Unrealized securities losses........................................................................ 98,300 --
-------- --------
515,500 460,600
-------- --------
Deferred income tax liabilities:
Depreciation........................................................................................ (49,200) (47,000)
FHLB stock dividends................................................................................ (51,500) (51,500)
-------- --------
100,700 (98,500)
-------- --------
Net deferred income tax asset......................................................................... $414,800 $362,100
-------- --------
-------- --------
</TABLE>
A reconciliation of income taxes computed at the statutory federal income
tax rate (34%) to the income tax expense (benefit) for the years ended September
30, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at the statutory federal rate............................... $110,790 $294,667 $(58,969)
Increases (decreases) resulting from:
State tax expense (benefit) net of federal income tax benefit.......................... 9,986 17,349 (13,530)
Effect of difference between average fair value and cost of released ESOP shares....... 56,187 -- --
Other.................................................................................. 28,861 770 449
-------- -------- --------
$205,824 $312,786 $(72,050)
-------- -------- --------
-------- -------- --------
</TABLE>
F-18
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. INCOME TAXES -- Continued
Retained income at September 30, 1996, includes approximately $1,550,000
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. Reductions of the amount so allocated for purposes other than tax
bad debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the then
current corporate income tax rate.
9. PENSION AND RETIREMENT PLANS
The Savings Bank has a noncontributory defined benefit pension plan
covering substantially all its employees. The Savings Bank's policy is to fund
current normal pension costs.
Net periodic pension cost for the years ended September 30, 1996, 1995 and
1994 included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned............................................................ $ 38,953 $21,743 $19,478
Interest cost on projected benefit obligation............................................... 9,196 12,188 10,549
Actual return on plan assets................................................................ (15,163) (8,734) (6,297)
Net amortization and deferral............................................................... 7,703 6,697 5,367
-------- ------- -------
$ 40,689 $31,894 $29,097
-------- ------- -------
-------- ------- -------
</TABLE>
The following schedule sets forth the plan's funded status at September 30,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Vested benefit obligation............................................................................ $ 105,343 $ 79,802
--------- --------
--------- --------
Accumulated benefit obligation....................................................................... $ 106,170 $ 82,795
--------- --------
--------- --------
Projected benefit obligation......................................................................... $ 179,505 $207,931
Plan assets at fair value............................................................................ (122,275) (95,415)
--------- --------
Projected benefit obligation in excess of plan assets................................................ 57,230 112,516
Unrecognized net obligation.......................................................................... (17,367) (18,311)
Unrecognized prior service cost...................................................................... 30,539 (31,326)
Unrecognized net loss................................................................................ (43,777) (36,878)
--------- --------
Accrued pension liability recognized in other liabilities............................................ $ 26,625 $ 26,001
--------- --------
--------- --------
</TABLE>
The assumed discount rate used in the determination of the actuarial
present value of accumulated plan benefits was 7% at September 30, 1996 and
1995. The assumed long-term rate of return on plan assets was 7%, and the
assumed rate of compensation increase was 6%, for the years ended September 30,
1996 and 1995.
The plan was amended on April 28, 1995 to reflect a change in the benefit
calculation. The result of this amendment was to decrease the projected benefit
obligation and increase the unrecognized prior service cost by approximately
$64,000.
The Savings Bank's 401(k) plan was terminated on October 12, 1995, at which
time the balance in each participant's account was paid in full.
Total pension plan expense charged to operations for the years ended
September 30, 1996, 1995 and 1994 was $44,177, $42,464 and $41,558,
respectively.
Effective January 12, 1994, the Savings Bank adopted a Director's
Retirement Plan ("DRP") to provide retirement benefits of $1,000 per month for a
period of ten years to members of the Board of Directors upon each director's
retirement. All directors are immediately vested under the DRP. Persons
reelected or appointed to the Board subsequent to the effective date shall have
no rights under the DRP. The Savings Bank recorded an expense of $780,000 to
accrue benefits payable under the DRP.
F-19
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. EMPLOYEE STOCK OWNERSHIP PLAN
On November 15, 1995 the Savings Bank established an Employee Stock
Ownership Plan ("ESOP"), under which the Savings Bank makes annual contributions
to a trust for the benefit of eligible employees. To be eligible, an employee
must be 18 years of age and have completed 1,000 or more hours of service during
the consecutive twelve month period following employment commencement. The
contributions may be in the form of cash or common shares of the Savings Bank.
Allocations to participants' accounts occur annually on September 30 (the plan
valuation date). Shares are committed to be released for financial statement
purposes when the Savings Bank makes scheduled payments on the ESOP note payable
and will be allocated to employees for services rendered in the current
accounting period. Employees vest in their allocated ESOP shares over six years.
The number of shares legally released and allocated is based on the ratio of the
actual principal payment amounts to the remaining principal balance for the ESOP
note payable. As required by current regulations, the ESOP includes a provision
allowing participants to require that allocated shares be distributed in cash
upon withdrawal. The amount of the annual contribution is at the discretion of
the Board of Directors of the Savings Bank, but must be sufficient to enable the
trust to pay principal and interest on the related ESOP note payable.
Additionally, the contribution is limited by Federal tax regulations.
Initially, the ESOP acquired 71,707 shares of the Savings Bank's common
stock financed by $717,070 in borrowings by the ESOP. At September 30, 1996
approximately 41,730 shares have been allocated to participants' accounts and
29,977 shares, with an estimated market value of $389,701, remain unallocated.
All allocated shares are considered outstanding for earning per share purposes,
while the unallocated shares are not included in the calculation.
The principal balance of the ESOP loan was $299,768 at September 30, 1996.
The Savings Bank is using the dividends declared on shares held by the ESOP to
reduce the outstanding debt. Dividends on allocated shares are treated as a
reduction of retained earnings. Dividends on unallocated shares are treated only
as debt service, and there is no reduction of retained earnings. Compensation
expense related to the plan is based on the difference between fair market value
and the cost to the Plan on the date shares are committed to be released. The
financial statements for the years ended September 30, 1996 include compensation
expense of $584,223, and interest expense of $43,686 related to the ESOP.
The Savings Bank guarantees the repayment of the ESOP debt to the outside
lender and, accordingly, has recorded the debt on its balance sheet with a
corresponding contra-equity account.
Future minimum principal payments related to the ESOP obligation are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------
<S> <C>
1997.......................................................................................... $ 62,500
1998.......................................................................................... 62,500
1999.......................................................................................... 62,500
2000.......................................................................................... 62,500
2001.......................................................................................... 62,500
Thereafter.................................................................................... 67,500
--------
380,000
Less amounts representing interest at 7.5%.................................................... (80,232)
--------
$299,768
--------
--------
</TABLE>
11. STOCK OPTION AND AWARD PLANS
MANAGEMENT RECOGNITION PLAN (MRP)
The Savings Bank adopted the MRP Plan on July 17, 1996 and committed to
provide funding to the MRP Plan to purchase 35,854 shares of common stock. On
July 17, 1996, 26,347 shares, with a market value of $382,032, were issued to
the MRP Plan and awarded to certain officers and employees as restricted stock
which will vest 20% per year over the five year period ending July 17, 2001. The
remaining 9,507 shares may be purchased and awarded at the discretion of the
Board of Directors to participants in the future by Trustees of the MRP Plan.
The plan contains provisions providing for forfeiture of unvested shares in the
event of termination of employment, and vesting in the event of death or
disability.
F-20
<PAGE>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. STOCK OPTION AND AWARD PLANS -- Continued
The shares issued to the MRP plan have been recorded as outstanding shares,
and the unvested portion has been recorded as unearned compensation through a
contra equity account. The contra equity account is adjusted for the
appreciation (depreciation) in the fair market value of the unawarded shares.
INCENTIVE AND NON-STATUTORY STOCK OPTION PLANS
On July 17, 1996, the shareholders of the Savings Bank approved the
Incentive and Non-Statutory Stock Option Plans ("ISO" and "NSSO"). The number of
shares authorized and awarded by the ISO and NSSO are 22,408 and 26,887,
respectively. The options were granted on September 12, 1996. On that date the
exercise price was set at $11.50, the fair market value of the shares as
established by the Board of Directors. The options for both plans become
exercisable at 20% per year over the five year period following the grant date.
The option term is ten years from the grant date. No options were vested or
exercised for either plan during the year ended September 30, 1996.
On October 1, 1996, the Savings Bank adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation." The
impact of adopting this statement is not expected to be material to the Savings
Bank's consolidated financial statements.
12. COMMITMENTS
The Savings Bank is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments consist of the unfunded portion of
construction loans. All construction loans are subject to the Savings Bank's
underwriting criteria and are secured by first deeds of trust, however these
instruments involve elements of credit risk in excess of amounts recognized in
the accompanying financial statements.
The Savings Bank's risk of loss in the event of nonperformance by the other
party to the unfunded loan is represented by the contractual amount of these
instruments. The Savings Bank uses the same credit policies in making
commitments under such instruments as it does for on-balance sheet instruments.
The amount of collateral obtained, if any, is based on management's credit
evaluation of the counterparty. Collateral held includes a first mortgage on the
underlying single family home under construction. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. At September 30, 1996 and
1995, the Savings Bank had outstanding loan commitments totaling approximately
$836,000 and $531,000, respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
On October 1, 1995, the Savings Bank adopted Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments" (SFAS No. 107), which requires the disclosure of estimated fair
values for financial instruments. Quoted market prices, if available, are
utilized as an estimate of the fair value of financial instruments. Because no
quoted market prices exist for a significant part of the Savings Bank's
financial instruments, the fair value of such instruments has been derived based
on management's assumptions with respect to future economic conditions, the
amount and timing of future cash flows and estimated discount rates. Different
assumptions could significantly affect these estimates. Accordingly, the net
realizable value could be materially different from the estimates presented
below. In addition, the estimates are only indicative of individual financial
instruments' values and should not be considered an indication of the fair value
of the Savings Bank taken as a whole.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument.
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD
Cash and due from banks and Federal funds sold are equal to the fair value
due to the liquid nature of the financial instruments.
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HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
SECURITIES
Fair values of securities available for sale and held to maturity are based
on quoted market prices. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
FEDERAL HOME LOAN BANK OF ATLANTA STOCK
The carrying amount of the investment in Federal Home Loan Bank stock
approximates market.
LOANS RECEIVABLE
For variable-rate loans that reprice frequently and with no significant
credit risk, fair values are based on carrying values. The fair values of fixed
rate loans are estimated by discounting the future cash flows using the current
rates at which loans with similar terms would be made to borrowers with similar
credit ratings and for the same remaining maturities. The Savings Bank has
assigned no fair value to off-balance sheet financial instruments since they are
either short term in nature or subject to immediate repricing.
DEPOSITS
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand at year end. Fair value of certificates
of deposit is estimated by discounting the future cash flows using the current
rate offered for similar deposits with the same maturities.
ACCRUED INTEREST RECEIVABLE AND PAYABLE
The carrying amount of accrued interest approximates market.
The following table presents information for financial assets and
liabilities as of September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
--------- ---------
<S> <C> <C>
Financial assets:
Cash and due from banks............................................................................... $ 804 $ 804
Federal funds sold.................................................................................... 975 975
Securities available for sale......................................................................... 6,890 6,890
Mortgage backed securities available for sale......................................................... 5,640 5,640
Investment securities held to maturity................................................................ 6,560 6,450
Federal Home Loan Bank of Atlanta stock............................................................... 317 317
Interest receivable................................................................................... 208 208
Loans, less allowance for loan losses................................................................. 30,034 30,402
--------- ---------
Total financial assets........................................................................... $ 51,428 $ 51,686
--------- ---------
--------- ---------
Financial liabilities:
Deposits.............................................................................................. $ 41,667 $ 41,714
Interest payable...................................................................................... 101 101
ESOP note payable..................................................................................... 300 300
--------- ---------
Total financial liabilities...................................................................... $ 42,068 $ 42,115
--------- ---------
--------- ---------
</TABLE>
14. SUBSEQUENT EVENT
The Savings Bank entered into a definitive agreement to merge with FNB
Corp. on June 3, 1997. The proposed merger is expected to be presented for
shareholder approval in the first fiscal quarter of 1998. If approved by the
shareholders, management expects the merger to be completed in the second fiscal
quarter of 1998.
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HOME SAVINGS BANK OF SILER CITY, INC., SSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. SUBSEQUENT EVENT -- Continued
Under the provisions of this agreement shareholders can elect to receive
FNB Corp. common stock, cash or a combination of stock and cash for their shares
of the Savings Bank's common stock. The agreed upon value of the Savings Bank's
common stock per the agreement is $15.50 per share.
In conjunction with the merger, the Board of Directors voted to grant FNB
Corp. an option to purchase 183,615 shares of the Savings Bank's common stock.
The option price was set at $12.50, the fair market value of the shares as
established by the Board of Directors. The number of shares subject to the
option is subject to adjustment so that the number of shares for which the
option may be exercised will not exceed 19.9% of the Savings Bank's issued and
outstanding shares. This option can only be exercised when a purchase event as
defined in the option agreement occurs. The option has a maximum term of three
years, however the agreement has provisions for earlier termination in certain
circumstances.
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
BY AND AMONG
HOME SAVINGS BANK OF SILER CITY, INC., SSB,
FNB CORP.
AND
FIRST NATIONAL BANK AND TRUST COMPANY
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (hereinafter called
the "Agreement") is entered into as of the 3rd day of June, 1997 by and among
HOME SAVINGS BANK OF SILER CITY, INC., SSB, a North Carolina savings bank with
its principal office and place of business located in Siler City, North
Carolina, ("Home Savings"), FNB CORP., a North Carolina corporation with its
principal office and place of business located in Asheboro, North Carolina
("FNB"), and FIRST NATIONAL BANK AND TRUST COMPANY, a national banking
corporation with its principal office and place of business located in Asheboro,
North Carolina and wholly owned subsidiary of FNB ("First National").
WITNESSETH:
WHEREAS, the parties hereto have agreed that it is in their mutual best
interests and in the best interests of their respective shareholders for Home
Savings to be merged with and into First National (the "Merger") pursuant to a
plan of merger (the "Plan of Merger") in the form attached hereto as SCHEDULE A,
and the parties desire to provide for certain undertakings, conditions,
representations, warranties and covenants in connection with the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the premises, the mutual benefits to be
derived from this Agreement, and of the representations, warranties, conditions,
covenants and promises herein contained, and subject to the terms and conditions
hereof, the parties hereto mutually agree as follows:
ARTICLE I. THE MERGER
1.1 MERGER. Subject to the provisions of this Agreement and the Plan of
Merger, as of the Effective Time (as defined in Section 1.10 hereof), Home
Savings shall be merged with and into First National (the "Merger"), the
separate corporate existence of Home Savings shall cease and the corporate
existence of First National, as the surviving corporation in the Merger, shall
continue with all of its purposes, objects, rights, privileges, powers and
franchises, all of which shall be unaffected and unimpaired by the Merger.
1.2 ASSETS AND LIABILITIES OF HOME SAVINGS. At the Effective Time and by
reason of the Merger, and in accordance with applicable law, all of the
property, assets and rights of every kind and character of Home Savings
(including without limitation all real, personal or mixed property, all debts
due on whatever account, all other choses in action and every other interest of
or belonging to or due to Home Savings, whether tangible or intangible) shall be
transferred to and vest in First National, and First National shall succeed to
all the rights, privileges, immunities, powers, purposes and franchises of a
public or private nature of Home Savings, all without any conveyance, assignment
or further act or deed; and, First National shall become responsible for all of
the liabilities, duties and obligations of every kind, nature and description of
Home Savings as of the Effective Time.
1.3 ARTICLES OF INCORPORATION, BYLAWS AND MANAGEMENT. The Articles of
Association and Bylaws of First National in effect at the Effective Time shall
be the Articles of Association and Bylaws of First National as the surviving
corporation in the Merger. The officers and directors of First National at the
Effective Time shall continue to hold such offices and positions until removed
as provided by law or until the election or appointment of their respective
successors.
1.4 CONVERSION OF SHARES.
(A) HOME SAVINGS STOCK. Except as otherwise provided herein, at the
Effective Time (as defined in Section 1.10 below), all rights of Home Savings'
shareholders with respect to all then outstanding shares of the common stock of
Home Savings, par value $1.00 ("Home Savings Stock") shall cease to exist, and
the holders of shares of Home Savings Stock shall cease to be, and shall have no
further rights as, shareholders of Home Savings. At the Effective Time, each
such outstanding share of
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Home Savings Stock (except for shares held, other than in a fiduciary capacity,
by Home Savings, FNB or any of their subsidiaries, which shall be canceled in
the Merger) shall be converted, without any action on the part of the holder of
such shares (other than the making of an election as described in Section 1.5
below) into (i) a number of shares of the common stock of FNB, par value $2.50
(the "FNB Stock"), equal to (x) $15.50 (the "Cash Factor") divided by (y) the
Average Closing Price (as defined below) of FNB Stock (such number of shares,
the "Exchange Ratio"), (ii) the right to receive cash in an amount equal to the
Cash Factor per share of Home Savings Stock, or (iii) a combination of shares of
FNB Stock and the right to receive cash as provided in Sections 1.5(a) through
1.5(c) below. For purposes hereof, "Average Closing Price" shall mean the
average "Closing Price" of FNB Stock over the period of twenty (20) consecutive
trading days ending on the trading day that is three trading days prior to the
Closing Date (as defined in Section 1.9 below), and "Closing Price" shall mean
the sum of the reported closing "bid" price and seventy-five (75%) of the spread
between the reported closing "bid" and "asked" price of FNB Stock on the
National Association of Securities Dealers Automated Quotations Inc. ("NASDAQ")
National Market each day. Except as otherwise provided herein, the form of
consideration into which each individual shareholder's shares of Home Savings
Stock will be converted will be determined in the manner described in Sections
1.5(a) through 1.5(c) below. Notwithstanding anything contained herein to the
contrary, if during the period commencing on the date of this Agreement and
ending at the Effective Time, Home Savings declares or pays cash dividends in an
aggregate amount in excess of $.30 per share ($.40 per share if the Effective
Time is after the record date for FNB's regular scheduled dividend for the first
calendar quarter of 1998) or makes any other distributions on Home Savings Stock
(collectively, the "Excess Cash Distributions"), then, for purposes of this
Agreement, the Cash Factor shall be reduced by the per share amount of any such
Excess Cash Distributions, and the Exchange Ratio shall be reduced accordingly.
(B) OUTSTANDING FNB STOCK. Each share of FNB Stock, issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding and shall not be affected by the Merger.
(C) OUTSTANDING FIRST NATIONAL STOCK. Each share of capital stock of First
National issued and outstanding immediately prior to the Effective Time shall
continue to be issued and outstanding and shall not be affected by the Merger.
1.5 PAYMENT OF MERGER CONSIDERATION.
(A) ELECTION OF CONSIDERATION. Subject to Sections 1.5(b) and 1.5(c) below,
each shareholder of Home Savings may, by written notice to FNB in the manner
described below, elect individually the form of consideration into which all
such shareholder's shares of Home Savings Stock will be converted at the
Effective Time as provided in Section 1.4(a) above. Within ten days following
approval of this Agreement and the Plan of Merger by the shareholders of Home
Savings at the Shareholders' Meeting (as defined in Section 6.1(a) below), Home
Savings will mail written instructions to each of its shareholders regarding the
making of an election, for the conversion of their respective shares, together
with a notice (a "Notice of Election"), which each shareholder shall be required
to use for purposes of making such election. Each shareholder may elect to
receive one of the following forms of consideration: (i) cash at the rate of the
Cash Factor per share of Home Savings Stock; (ii) shares of FNB Stock at the
rate of the Exchange Ratio per share of Home Savings Stock; or (iii) a
combination of cash and shares of FNB Stock at such respective rates based on
increments of five percent (5%) (for example, 85% shares of FNB Stock and 15%
cash, or 50% shares of FNB Stock and 50% cash). The instructions of Home Savings
shall specify a date by which a shareholder's election must be made (the
"Election Date," which shall be set by FNB, but in no event to be less than
fifteen (15) or more than thirty (30) days following the date that the above
instructions and form are first distributed to the shareholders of Home
Savings). The above instructions and Notice of Election distributed to the
shareholders of Home Savings shall be provided by and in a form satisfactory to
FNB. In order to make an effective election, a Home Savings shareholder must
deliver to FNB a properly completed Notice of Election on or before the close of
its business on the Election Date and in accordance with FNB's instructions. Any
shareholder who does not make an election or whose Notice of Election is not
timely received by FNB or otherwise is not made in accordance with FNB's
instructions (including any shareholder who has exercised Dissenters' Rights, as
defined in Section 1.6 hereof) will be deemed to have elected that sixty percent
(60%) of such shareholder's shares of Home Savings Stock be converted into FNB
Stock at the rate of the Exchange Ratio per share of Home Savings Stock and that
the remaining forty percent (40%) be converted into the right to receive cash at
the rate of the Cash Factor per share of Home Savings Stock.
(B) LIMIT ON ELECTION; PRORATION OF CASH AND FNB STOCK. Notwithstanding
anything contained herein to the contrary, in no event shall shares of FNB Stock
be issued in the Merger for more than sixty percent (60%) or less than fifty
percent (50%) of the total outstanding shares of Home Savings Stock. Depending
on the elections or deemed elections of Home Savings' shareholders, and subject
to Section 1.5(c) below, shares of FNB Stock to be issued in the Merger may be
prorated as follows:
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(i) In the event that, immediately prior to the Effective Time, the
aggregate number of shares of Home Savings Stock to be converted into
shares of FNB Stock in the Merger pursuant to elections or deemed elections
by shareholders of Home Savings immediately prior to the Effective Time is
more than sixty percent (60%) of the total outstanding shares of Home
Savings Stock, then, with respect to those shareholders of Home Savings
who, immediately prior to the Effective Time, have elected or are deemed to
have elected to have all or part of their shares of Home Savings Stock
converted into FNB Stock, FNB will reduce on a pro rata basis the number of
shares of Home Savings Stock to be converted into shares of FNB Stock such
that the aggregate number of shares of Home Savings Stock to be converted
into FNB Stock in the Merger is not more than sixty percent (60%) of the
total outstanding shares of Home Savings Stock; and, the number of
remaining shares of Home Savings Stock held by each such shareholder will
be converted into the right to receive cash as provided in Section 1.4(a)
(ii) above.
(ii) In the event that, immediately prior to the Effective Time, the
difference between (A) the aggregate number of shares of Home Savings Stock
to be converted into shares of FNB Stock in the Merger pursuant to
elections or deemed elections by shareholders of Home Savings immediately
prior to the Effective Time and (B) the aggregate number of shares of Home
Savings Stock to be converted into FNB Stock pursuant to elections or
deemed elections by shareholders who have exercised Dissenters' Rights (as
provided in Section 1.6 above) or have voted against approval of this
Agreement and Plan of Merger at the Shareholders Meeting is less than fifty
percent (50%) of the total outstanding shares of Home Savings Stock, then,
with respect to those shareholders of Home Savings who, immediately prior
to the Effective Time, have elected or are deemed to have elected to have
all or part of their shares of Home Savings Stock converted into the right
to receive cash in the Merger, FNB will reduce on a pro rata basis the
number of shares of Home Savings Stock to be converted into the right to
receive cash such that the difference between (A) and (B) above is not less
than fifty percent (50%) of the total outstanding shares of Home Savings
Stock; and, the number of remaining shares of Home Savings Stock held by
each such shareholder will be converted into shares of FNB Stock as
provided in Section 1.4(a) (i) above.
(C) NO ELECTIONS. Notwithstanding the provisions of Sections 1.5(a) and
1.5(b) above, if, upon conclusion of the Shareholders' Meeting, holders in
excess of ten percent (10%) of Home Savings Stock have exercised Dissenters'
Rights (as provided in Section 1.6 hereof) or have voted their shares of Home
Savings Stock against approval of this Agreement and Plan of Merger at the
Shareholders' Meeting, then the provisions of Sections 1.5(a) and 1.5(b) above
shall not apply and sixty percent (60%) of the outstanding shares of Home
Savings Stock held as of the Effective Time by each shareholder of Home Savings
(except for shares held, other than in a fiduciary capacity, by Home Savings,
FNB or any of their subsidiaries, which shall be canceled in the Merger) shall
be converted as of the Effective Time, without any action on the part of the
holder of such shares, into a number of shares of FNB Stock equal to the
Exchange Ratio and forty percent (40%) of the outstanding shares of Home Savings
Stock held as of the Effective Time by each shareholder of Home Savings shall be
converted into the right to receive cash in an amount equal to the Cash Factor
per share of Home Savings Stock.
(D) EXCHANGE AND PAYMENT PROCEDURES. Following the Effective Time,
certificates representing shares of Home Savings Stock outstanding at the
Effective Time (herein sometimes referred to as "Home Savings Certificates")
shall evidence only the right of the registered holder thereof to receive, and
may be exchanged for, (i) the form of consideration into which each individual
shareholder's shares of Home Savings Stock have been converted as determined in
the manner described in Sections 1.5(a) through 1.5(c) above or (ii) in the case
of shareholders who properly exercise Dissenters' Rights, the consideration
provided in Section 1.6 below and by applicable law. At the Effective Time, FNB
shall issue and deliver, or cause to be issued and delivered, to First National,
in its capacity as the transfer agent of FNB Stock (the "Transfer Agent"), cash
and certificates representing whole shares of FNB Stock into which outstanding
shares of Home Savings Stock have been converted as provided above. As promptly
as practicable following the Effective Time, FNB shall send or cause to be sent
to each former shareholder of record of Home Savings immediately prior to the
Effective Time written instructions and transmittal materials (a "Transmittal
Letter") for use in surrendering Home Savings Certificates to the Transfer
Agent. Upon the proper surrender and delivery to the Transfer Agent (in
accordance with FNB's instructions, and accompanied by a properly completed
Transmittal Letter) by a former shareholder of Home Savings of such
shareholder's Home Savings Certificate(s), and in exchange therefor, the
Transfer Agent shall as soon as practicable, (i) in the case of a shareholder
whose Home Savings Stock, or a portion thereof, has been converted into FNB
Stock, issue, register and deliver to such shareholder a certificate evidencing
the number of shares of FNB Stock to which such shareholder is entitled pursuant
to Sections 1.5(a) through 1.5(c) above, and/or (ii) in the case of a
shareholder whose Home Savings Stock, or a portion thereof, has been converted
into the right to receive cash, issue and deliver to such shareholder a check in
the amount of cash to which the shareholder is entitled pursuant to Sections
1.5(a) through 1.5(c) above. Following the Effective Time, there shall be no
further transfers of Home Savings Stock on the stock transfer books of Home
Savings or the registration of any transfer of a
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Home Savings Certificate by any holder thereof, and the surrender of each Home
Savings Certificate as provided herein must be made by or on behalf of its
holder of record at the Effective Time.
(E) TREATMENT OF FRACTIONAL SHARES. No scrip or certificates representing
fractional shares of FNB Stock will be issued to any former shareholder of Home
Savings, and, except as provided below, no such shareholder will have any right
to vote or receive any dividend or other distribution on, or any other right
with respect to, any fraction of a share of FNB Stock resulting from the above
exchange. In the event the exchange of shares results in the creation of
fractional shares, in lieu of the issuance of fractional shares of FNB Stock,
FNB will deliver cash to the Transfer Agent in an amount equal to the aggregate
of all fractional shares multiplied by the Average Closing Price, and, in such
event, the Transfer Agent shall divide such cash among and remit it (without
interest) to the former shareholders of Home Savings in accordance with their
respective interests.
(F) SURRENDER OF CERTIFICATES. Subject to Section 1.5(g) below, no FNB
Stock certificate or cash shall be delivered to any former shareholder of Home
Savings unless and until such shareholder shall have properly surrendered to the
Transfer Agent the Home Savings Certificate(s) formerly representing his or her
shares of Home Savings Stock, together with a properly completed Transmittal
Letter in such form as shall be provided to the shareholder by FNB for that
purpose. Further, until such Home Savings Certificate(s) are so surrendered, no
dividend or other distribution payable to holders of record of FNB Stock as of
any date subsequent to the Effective Time shall be delivered to the holder of
such Home Savings Certificate(s). However, subject to prior escheatment under
applicable law, upon the proper surrender of such Home Savings Certificate(s),
the Transfer Agent shall pay to the registered holder of the shares of FNB Stock
represented by such Home Savings Certificate(s) the amount of any such cash,
dividends or distributions which have accrued but remain unpaid with respect to
such shares. Neither FNB, Home Savings nor the Transfer Agent shall have any
obligation to pay any interest on any such cash, dividends or distributions for
any period prior to such payment.
(G) LOST CERTIFICATES. Any shareholder of Home Savings whose certificate
evidencing shares of Home Savings Stock has been lost, destroyed, stolen or
otherwise is missing shall be entitled to receive a certificate representing the
shares of FNB Stock to which he or she is entitled in accordance with and upon
compliance with conditions imposed by the Transfer Agent or FNB (including
without limitation a requirement that the shareholder provide a lost instruments
indemnity or surety bond in form, substance and amount satisfactory to the
Transfer Agent and FNB).
1.6 DISSENTERS. Any shareholder of Home Savings who properly exercises his
right of dissent and appraisal ("Dissenters' Rights") with respect to the Merger
as provided in Article 13 of the North Carolina Business Corporation Act
("Article 13") or Section 215a of the National Bank Act ("Section 215a") shall
be entitled to receive payment in cash of the "fair value" (as defined in
Article 13) or "value" (as described in Section 215a) of his or her shares of
Home Savings Stock in the manner and pursuant to the procedures provided in
Article 13 or Section 215a, respectively. Until the "fair value" or "value" of
the shares of Home Savings Stock held by any dissenting shareholder is
determined and paid pursuant to Article 13 or Section 214a, respectively,
however, such shares shall be converted into FNB Stock and the right to receive
cash in accordance with such shareholder's election or deemed election and in
the manner provided in Sections 1.5(a) through 1.5(c) above.
1.7 CONVERSION OF HOME SAVINGS STOCK OPTIONS. (a) At the Effective Time,
each option to purchase Home Savings Stock granted and outstanding under the
Home Savings Bank of Siler City, Inc., SSB 1995 Incentive Stock Option Plan (the
"ISO Plan") or the Home Savings Bank of Siler City, Inc., SSB 1995 Nonstatutory
Stock Option Plan (the "NSSO Plan"), whether or not then exercisable, shall be
converted into and become rights with respect to FNB Stock, and FNB shall assume
each such stock option, in accordance with the terms of the particular stock
option plan under which it was issued and stock option agreement by which it is
evidenced, except that from and after the Effective Time with respect to each
such plan or agreement: (i) FNB shall be substituted for Home Savings; (ii) the
FNB Board of Directors or its compensation committee shall be substituted for
the Compensation Committee of the Home Savings Board of Directors administering
the ISO Plan and for the Home Savings Board of Directors administering the NSSO
Plan; (iii) service on the local advisory board of First National in Siler City,
North Carolina shall be substituted for service on the Home Savings Board of
Directors for the vesting, forfeiture and termination provisions of the NSSO
Plan; (iv) each stock option assumed by FNB may be exercised solely for shares
of FNB Stock; (v) the number of shares of FNB Stock subject to each such stock
option shall be the number of whole shares of FNB Stock (omitting any fractional
share) determined by multiplying the number of shares of Home Savings Stock
subject to such stock option immediately prior to the Effective Time by the
Exchange Ratio; and (vi) the per share exercise price under each such stock
option shall be adjusted by dividing the per share exercise price under each
such stock option by the Exchange Ratio and rounding up to the nearest cent. In
addition, notwithstanding the provisions of clauses (v) and (vi) of the first
sentence of this Section 1.7(a), each stock option which is an "incentive stock
option" under the ISO Plan shall be adjusted as required by Section 424 of the
Internal Revenue Code of 1986, as amended ("the Code") and the regulations
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promulgated thereunder so as to continue as an incentive stock option under
Section 424(a) of the Code, and so as not to constitute a modification,
extension, or renewal of the option, within the meaning of Section 424(h) of the
Code. FNB and Home Savings agree to take all necessary steps to effectuate the
foregoing provisions of this Section 1.7, including appropriate amendments to
the ISO Plan and NSSO Plan.
(b) As soon as practicable after the Effective Time, FNB shall deliver to
each of the participants in the ISO Plan and the NSSO Plan an appropriate notice
setting forth such participant's rights pursuant thereto, and the grants
pursuant to such stock option plans shall continue in effect on the same terms
and conditions (subject to the adjustments required by Section 1.7(a) after
giving effect to the Merger). FNB shall comply with the terms of the ISO Plan to
ensure, to the extent required by and subject to the provisions of the ISO Plan,
that stock options which qualified as incentive stock options prior to the
Effective Time continue to qualify as incentive stock options after the
Effective Time. At or prior to the Effective Time, FNB shall take all corporate
action necessary to reserve for issuance sufficient shares of FNB Stock for
delivery upon exercise of the stock options assumed by it in accordance with
this Section 1.7. Home Savings hereby represents that the ISO Plan and the NSSO
Plan in their current forms comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), as in effect as of
the date hereof.
(c) Notwithstanding the foregoing provisions of this Section 1.7, FNB may
at its election substitute as of the Effective Time options under the FNB Corp.
Stock Compensation Plan (the "FNB Plan") for all or a part of the stock options
granted and outstanding under the ISO Plan and the NSSO Plan, subject to the
following conditions: (i) the requirements of Section 1.7(a) (v) and (vi) shall
be met; (ii) such substitution shall not constitute a modification, extension or
renewal of any of the stock options that are incentive stock options; and (iii)
the substituted options shall continue in effect with substantially the same
terms and conditions as provided in the respective stock option plan or stock
option agreement under which the original options were granted. As soon as
practicable following the Effective Time, FNB shall deliver to the participants
receiving substitute options under the FNB Plan an appropriate notice setting
forth each such participant's rights pursuant thereto. FNB has reserved under
the FNB Plan adequate shares of FNB Stock for delivery upon exercise of any such
substituted options. FNB hereby represents that the FNB Plan in its current form
complies with Rule 16b-3 promulgated under the 1934 Act, as in effect on the
date hereof.
1.8 MANAGEMENT RECOGNITION PLAN. (a) At the Effective Time, each share of
Home Savings Stock held by the Trustees under the Home Savings Bank of Siler
City, Inc., SSB 1995 Management Recognition Plan (the "MR Plan") shall be
converted into FNB Stock and/or cash pursuant to the provisions of Sections 1.4
and 1.5 above, and such shares and/or cash shall thereafter be held to be
delivered to the respective participants at such times that the shares of
Restricted Stock (as defined in the MR Plan), or the consideration into which
they may be converted in the Merger, would have become vested and nonforfeitable
under the MR Plan. At the Effective Time, the MR Plan and each restricted stock
agreement pursuant to which Awards (as defined in the MR Plan) were granted
shall remain in effect, except that from and after the Effective Time the MR
Plan and each such restricted stock agreement shall be amended as necessary to
provide that: (i) FNB shall be substituted for Home Savings; (ii) the FNB Board
of Directors or its Compensation Committee shall be substituted for the Home
Savings Board of Directors with respect to the administration of the MR Plan;
(iii) service on the local advisory board of First National in Siler City, North
Carolina shall be substituted for service as a director of Home Savings; (iv)
unvested shares of FNB Stock and/or cash determined in accordance with the
provisions of Sections 1.4 and 1.5 above shall be substituted for unvested
shares of Home Savings Stock; (v) cash held by the Trustees of the MR Plan with
respect to the unvested portion of an Award under the Plan shall earn interest
(at the rate payable with respect to deferred directors' fees under First
National's Deferred Directors' Fee Plan) to be distributed to the participant
upon vesting of the Award or portion thereof; (vi) no shares or other assets in
addition to the Allocated Initial Plan Shares (as defined in the MR Plan) shall
be purchased by or for the MR Plan; and (vii) shares, cash or other interests in
the MR Plan or Awards forfeited by participants shall not be retained by the
Trustee and shall not be available for making additional Awards under the MR
Plan but shall be remitted to and become assets of FNB upon forfeiture.
(b) As soon as practicable after the Effective Time, FNB shall deliver to
each of the participants in the MR Plan an appropriate notice setting forth such
participant's rights pursuant thereto, including the consideration into which
such participant's unvested shares of Home Savings Stock subject to the
restricted stock agreement has been converted.
1.9 CLOSING. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Schell Bray Aycock Abel &
Livingston P.L.L.C. in Greensboro, North Carolina, or at such other place as FNB
shall designate, on a date mutually agreeable to Home Savings, FNB and First
National (the "Closing Date") after the expiration of any and all required
waiting periods following the effective date of required approvals of the Merger
by governmental or regulatory authorities (but in no event to be more than 60
days following the expiration of all such required waiting
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periods). At the Closing, FNB, First National and Home Savings shall take such
actions (including, without limitation, the delivery of certain closing
documents and the execution of Articles of Merger under federal and North
Carolina law) as are required herein and as otherwise shall be required by law
to consummate the Merger and cause it to become effective.
1.10 EFFECTIVE TIME. The Merger shall become effective (the "Effective
Time") after the Office of the Comptroller of the Currency (the "OCC") has
issued its certificate of approval of the Merger and on the date and at the time
on which Articles of Merger containing the Plan of Merger and the other
provisions required by, and executed in accordance with applicable North
Carolina and applicable federal law shall have been accepted for filing by the
Secretary of State of the State of North Carolina (or such later time as may be
specified in the Articles of Merger); provided, however, that unless otherwise
mutually agreed upon by the parties hereto, the Effective Time shall in no event
be more than ten days following the Closing Date.
1.11 FURTHER ASSURANCES. If, at any time after the Effective Time, First
National, the surviving corporation in the Merger, shall consider or be advised
that any further deeds, assignments or assurances in law or any other actions
are necessary, desirable or proper to vest, perfect or confirm of record or
otherwise, in First National, the title to any property or rights of Home
Savings acquired or to be acquired by reason of, or as a result of, the Merger,
Home Savings agrees that Home Savings and their proper officers and directors
shall and will execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in First National and
otherwise to carry out the purpose of this Agreement, and that the proper
officers and directors of First National are fully authorized and directed in
the name of Home Savings or otherwise to take any and all such actions.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF HOME SAVINGS
Except as otherwise specifically provided herein or as "Previously
Disclosed" to FNB, Home Savings hereby makes the following representations and
warranties to FNB. ("Previously Disclosed" shall mean, as to Home Savings, the
disclosure of information in a letter delivered by Home Savings to FNB
specifically referring to this Agreement and arranged in sections corresponding
to the sections, subsections and items of this Agreement applicable thereto, and
which letter has been delivered prior to the execution of this Agreement.
Information shall be deemed Previously Disclosed for the purpose of a given
section, subsection or item of this Agreement only to the extent that a specific
reference thereto is made in connection with disclosure of such information at
the time of such delivery.)
2.1 ORGANIZATION; STANDING; POWER. Home Savings (i) is duly organized and
incorporated, validly existing and in good standing as a savings bank under the
laws of the State of North Carolina, (ii) has all requisite power and authority
(corporate and other) to own, lease and operate its properties and to carry on
its business as it is now being conducted, (iii) is duly qualified to do
business and is in good standing in each other jurisdiction in which the
character of the properties owned, leased or operated by it therein or in which
the transaction of its business makes such qualification necessary, except where
failure so to qualify would not have a material adverse effect on Home Savings
and its subsidiary considered as one enterprise and (iv) is not transacting
business or operating any properties owned or leased by it in violation of any
provision of federal, state or local law or any rule or regulation promulgated
thereunder, which violation would have a material adverse effect on Home Savings
and its subsidiary considered as one enterprise.
2.2 CAPITAL STOCK. The authorized capital stock of Home Savings consists of
5,000,000 shares of common stock, $1.00 par value per share, of which 922,686
shares are issued and outstanding and constitute Home Savings' only outstanding
securities. Each outstanding share of Home Savings Stock has been duly
authorized, is validly issued and outstanding, is fully paid and nonassessable,
has been issued in compliance with applicable federal and state securities laws
and has not been issued in violation of the preemptive rights of any
shareholder. The Home Savings Stock has been registered with the Federal Deposit
Insurance Corporation ("FDIC") under the 1934 Act.
2.3 PRINCIPAL SHAREHOLDERS. Except as Previously Disclosed, there are no
persons or entities known to Home Savings to own beneficially, directly or
indirectly, more than 5% of the outstanding shares of Home Savings Stock.
2.4 SUBSIDIARIES. Other than Home Savings and Loan Service Corporation, a
North Carolina corporation (the "Subsidiary"), Home Savings has no subsidiaries,
direct or indirect, and does not own any stock or other equity interest in any
other corporation, service corporation, joint venture, partnership or other
entity, except for equity issues reflected in Home Savings' investment
portfolio. The Subsidiary has no operations or assets and has been inactive
since 1983.
2.5 CONVERTIBLE SECURITIES, OPTIONS, ETC. Except for the stock options
issued under the ISO Plan and NSSO Plan as Previously Disclosed, Home Savings
does not have any outstanding (i) securities or other obligations (including
debentures or other debt instruments) which are convertible into shares of Home
Savings Stock or any other securities of Home Savings,
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(ii) options, warrants, rights, calls or other commitments of any nature which
entitle any person to receive or acquire any shares of Home Savings Stock or any
other securities of Home Savings or (iii) plan, agreement or other arrangement
pursuant to which shares of Home Savings Stock or any other securities of Home
Savings or options, warrants, rights, calls or other commitments of any nature
pertaining thereto, have been or may be issued.
2.6 AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been duly
and validly approved by Home Savings' Board of Directors. Subject only to
approval of the Plan of Merger by the shareholders of Home Savings at a meeting
called in the manner required by law (as contemplated by Section 6.1(a) below),
(i) Home Savings has the corporate power and authority to execute and deliver
this Agreement and to perform its obligations and agreements and carry out the
transactions described herein, (ii) all corporate proceedings and approvals
required to authorize Home Savings to enter into this Agreement and to perform
its obligations and agreements and carry out the transactions described herein
have been duly and properly completed or obtained, and (iii) this Agreement
constitutes the valid and binding agreement of Home Savings enforceable in
accordance with its terms (except to the extent enforceability may be limited by
(A) applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect which affect creditors' rights generally, (B)
legal and equitable limitations on the availability of injunctive relief,
specific performance and other equitable remedies and (C) general principles of
equity and applicable laws or court decisions limiting the enforceability of
indemnification provisions).
2.7 VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions described herein, nor compliance by Home Savings with any of
its obligations or agreements contained herein, will: (i) conflict with or
result in a breach of the terms and conditions of, or constitute a default or
violation under any provision of, the Articles of Incorporation or Bylaws of
Home Savings or the Subsidiary, or any material contract, agreement, lease,
mortgage, note, bond, indenture, license, or obligation or understanding (oral
or written) to which Home Savings or the Subsidiary is bound or by which it or
its business, capital stock or any of its properties or assets may be affected;
(ii) result in the creation or imposition of any lien, claim, interest, charge,
restriction or encumbrance upon any of the properties or assets of Home Savings
or the Subsidiary; (iii) violate any applicable federal or state statute, law,
rule or regulation, or any judgment, order, writ, injunction or decree of any
court, administrative or regulatory agency or governmental body; (iv) result in
the acceleration of any obligation or indebtedness of Home Savings or the
Subsidiary; or, (v) interfere with or otherwise adversely affect the ability of
Home Savings to carry on its business as presently conducted, or interfere with
or otherwise adversely affect the ability of either FNB or First National to
carry on such business after the Effective Time. No consents, approvals or
waivers are required to be obtained from any person or entity in connection with
Home Savings' execution and delivery of this Agreement, or the performance of
its obligations or agreements or the consummation of the transactions described
herein, except for required approvals of Home Savings' shareholders as described
in Section 7.1(a) below and of governmental or regulatory authorities as
described in Section 7.1(c) below.
2.8 BOOKS AND RECORDS. Home Savings' and the Subsidiary's books of account
and business records have been maintained in substantial compliance with all
applicable legal and accounting requirements and in accordance with good
business practices, and such books and records are complete and reflect
accurately in all material respects Home Savings' and the Subsidiary's,
respectively, items of income and expense and all of its assets, liabilities and
shareholders' equity. The minute books of Home Savings and the Subsidiary
accurately reflect in all material respects the corporate actions which its
respective shareholders and board of directors, and all committees thereof, have
taken during the time periods covered by such minute books. All such minute
books have been or will be made available to FNB and its representatives.
2.9 REGULATORY REPORTS. Since January 1, 1990, Home Savings has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that were required to be filed with (i) the FDIC,
(ii) the North Carolina Savings Institutions Division (the "Division") or the
Administrator of the Division (the "Administrator"), (iii) any other
governmental or regulatory authorities having jurisdiction over Home Savings.
All such reports, registrations and statements filed by Home Savings with the
FDIC, the Division, the Administrator or other such regulatory authority are
collectively referred to herein as the "Home Savings Reports." As of their
respective dates, the Home Savings Reports complied in all material respects
with all the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, neither Home
Savings nor the Subsidiary has been notified that any such Home Savings Reports
were deficient in any material respect as to form or content. Following the date
of this Agreement, Home Savings shall deliver to FNB, simultaneous with the
filing thereof, a copy of each report, registration, statement or other
regulatory filing made by Home Savings, with the FDIC, the Division, the
Administrator or any other such regulatory authority.
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2.10 FINANCIAL STATEMENTS. Home Savings has delivered to FNB a copy of (i)
its audited consolidated balance sheets as of September 30, 1996 and 1995 and
its consolidated statements of operations, changes in shareholders' equity and
cash flows for the years ended September 30, 1996, 1995 and 1994, together with
notes thereto (collectively, the "Home Savings Financial Statements"), and (ii)
its unaudited consolidated balance sheet as of March 31, 1997 and its statement
of operations for the three months ended March 31, 1997 (the "Home Savings
Interim Financial Statements"); and, following the date of this Agreement, Home
Savings promptly will deliver to FNB all other annual or interim financial
statements prepared by or for Home Savings. The Home Savings Financial
Statements and the Home Savings Interim Financial Statements (including any
related notes and schedules thereto) (i) are in accordance with Home Savings'
books and records, and (ii) were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods indicated and present fairly Home Savings' consolidated financial
condition, assets and liabilities, results of operations, changes in
shareholders' equity and changes in cash flows as of the dates indicated and for
the periods specified therein. The Home Savings Financial Statements have been
audited by Coopers & Lybrand L.L.P., independent certified public accountants.
2.11 TAX RETURNS AND OTHER TAX MATTERS. (i) Each of Home Savings and the
Subsidiary has timely filed or caused to be filed all federal, state and local
income tax returns and reports which are required by law to have been filed, and
all such returns and reports were true, correct and complete and contained all
material information required to be contained therein; (ii) all federal, state
and local income, profits, franchise, sales, use, occupation, property, excise,
withholding, employment and other taxes (including interest and penalties),
charges and assessments which have become due from or been assessed or levied
against Home Savings, the Subsidiary or their respective properties have been
fully paid or, if not yet due, a reserve or accrual which is adequate in all
material respects for the payment of all such taxes to be paid and the
obligation for such unpaid taxes is reflected on the Home Savings Financial
Statements; (iii) tax returns and reports of Home Savings and the Subsidiary
have not been subject to audit by the Internal Revenue Service (the "IRS") or
the North Carolina Department of Revenue in the last ten years and neither Home
Savings nor the Subsidiary has received any indication of the pendency of any
audit or examination in connection with any such tax return or report and have
no knowledge that any such return or report is subject to adjustment; and (iv)
neither Home Savings nor the Subsidiary has executed any waiver or extended the
statute of limitations (or been asked to execute a waiver or extend a statute of
limitation) with respect to any tax.
2.12 ABSENCE OF MATERIAL ADVERSE CHANGES OR CERTAIN OTHER EVENTS.
(A) Since September 30, 1996, Home Savings and the Subsidiary have each
conducted its respective business only in the ordinary course, and there has
been no material adverse change, and there has occurred no event or development
and there currently exists no condition or circumstance which, with the lapse of
time or otherwise, may or could cause, create or result in a material adverse
change, in or affecting the financial condition of Home Savings or the
Subsidiary in its respective results of operations, prospects, business, assets,
loan portfolio, investments, properties or operations.
(B) Since September 30, 1996, and other than in the ordinary course of its
business, neither Home Savings nor the Subsidiary has incurred any material
liability or engaged in any material transaction or entered into any material
agreement, increased the salaries, compensation or general benefits payable to
its employees, suffered any loss, destruction or damage to any of its respective
properties or assets, or made a material acquisition or disposition of any
assets or entered into any material contract or lease.
2.13 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Home Savings nor the
Subsidiary has any liabilities or obligations, whether known or unknown, matured
or unmatured, accrued, absolute, contingent or otherwise, whether due or to
become due (including without limitation tax liabilities or unfunded liabilities
under employee benefit plans or arrangements), other than (i) those reflected in
the Home Savings Financial Statements or the Home Savings Interim Financial
Statements, or (ii) obligations or liabilities incurred in the ordinary course
of its business since March 31, 1997 and which are not, individually or in the
aggregate, material to Home Savings.
2.14 COMPLIANCE WITH EXISTING OBLIGATIONS. Each of Home Savings and the
Subsidiary has performed in all material respects all obligations required to be
performed by it under, and it is not in default in any respect under, or in
violation in any respect of, the terms and conditions of its respective Articles
of Incorporation or Bylaws, and/or any contract, agreement, lease, mortgage,
note, bond, indenture, license, obligation, understanding or other undertaking
(whether oral or written) to which it is bound or by which its business, capital
stock or any property or asset may be affected.
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2.15 LITIGATION AND COMPLIANCE WITH LAW.
(A) There are no actions, suits, arbitrations, controversies or other
proceedings or investigations (or, to the best knowledge and belief of
management of Home Savings, any facts or circumstances which reasonably could
result in such), including without limitation any such action by any
governmental or regulatory authority, which currently exist or are ongoing,
pending or, to the best knowledge and belief of management of Home Savings,
threatened, contemplated or probable of assertion, against, relating to or
otherwise affecting Home Savings, the Subsidiary or any of their respective
properties, assets or employees which, if determined adversely, could result in
liability on the part of Home Savings or the Subsidiary for, or subject Home
Savings or the Subsidiary to, monetary damages, fines or penalties or an
injunction, or which could have a material adverse effect on the financial
condition, results of operations, prospects, business, assets, loan portfolio,
investments, properties or operations of Home Savings or the Subsidiary or on
Home Savings' ability to consummate the Merger.
(B) Each of Home Savings and the Subsidiary has all licenses, permits,
orders, authorizations or approvals ("Permits") of any federal, state, local or
foreign governmental or regulatory body that are material to or necessary for
the conduct of its respective business or to own, lease and operate their
respective properties; all such Permits are in full force and effect; no
violations are or have been recorded in respect of any such Permits; and no
proceeding is pending or, to the best knowledge of management of Home Savings,
threatened or probable of assertion to suspend, cancel, revoke or limit any
Permit.
(C) Neither Home Savings nor the Subsidiary are subject to any supervisory
agreement, enforcement order, writ, injunction, capital directive, supervisory
directive, memorandum of understanding or other similar agreement, order,
directive, memorandum or consent of, with or issued by any regulatory or other
governmental authority (including without limitation the FDIC or the
Administrator) relating to its financial condition, directors or officers,
employees, operations, capital, regulatory compliance or otherwise; there are no
judgments, orders, stipulations, injunctions, decrees or awards against Home
Savings or the Subsidiary which in any manner limits, restricts, regulates,
enjoins or prohibits any present or past business or practice of Home Savings or
the Subsidiary; and, neither Home Savings nor the Subsidiary has been advised
and has no reason to believe that any regulatory or other governmental authority
or any court is contemplating, threatening or requesting the issuance of any
such agreement, order, injunction, directive, memorandum, judgment, stipulation,
decree or award.
(D) Neither Home Savings nor the Subsidiary is in violation or default in
any material respect under, and has complied in all material respects with, all
laws, statutes, ordinances, rules, regulations, orders, writs, injunctions or
decrees of any court or federal, state, municipal or other governmental or
regulatory authority having jurisdiction or authority over it or its business
operations, properties or assets (including without limitation all provisions of
North Carolina law relating to usury, the Consumer Credit Protection Act, and
all other laws and regulations applicable to extensions of credit) and, to the
knowledge of Home Savings, there is no basis for any claim by any person or
authority for compensation, reimbursement or damages or otherwise for any
violation of any of the foregoing.
2.16 REAL PROPERTIES. Home Savings has Previously Disclosed to FNB a
listing of all real property owned or leased by Home Savings or the Subsidiary
(the "Real Property") and all leases pertaining to any such Real Property to
which Home Savings or the Subsidiary is a party (the "Real Property Leases").
With respect to all Real Property, Home Savings or the Subsidiary has good and
marketable fee simple title to such Real Property and owns the same free and
clear of all mortgages, liens, leases, encumbrances, title defects and
exceptions to title other than (i) the lien of current taxes not yet due and
payable, and (ii) such imperfections of title and restrictions, covenants and
easements (including utility easements) which do not materially affect the value
of the Real Property and which do not and will not materially detract from,
interfere with or restrict the present or future use of the properties subject
thereto or affected thereby. With respect to each Real Property Lease (i) such
lease is valid and enforceable in accordance with its terms, (ii) there
currently exists no circumstance or condition which constitutes an event of
default by Home Savings or the Subsidiary (as lessor or lessee) or its
respective lessor or which, with the passage of time or the giving of required
notices will or could constitute such an event of default, and (iii) subject to
any required consent of Home Savings' lessor, each such Real Property Lease may
be assigned to FNB and the execution and delivery of this Agreement does not
constitute an event of default thereunder. To the best of the knowledge and
belief of management of Home Savings, the Real Property (excluding other real
estate owned) complies in all material respects with all applicable federal,
state and local laws, regulations, ordinances or orders of any governmental
authority, including those relating to zoning, building and use permits, and the
Real Property (excluding other real estate owned) may be used under applicable
zoning ordinances for commercial banking facilities as a matter of right rather
than as a conditional or nonconforming use. All improvements and fixtures
included in or on the Real Property are in good condition and repair, ordinary
wear and tear excepted, and there does not exist any condition which affects the
economic value thereof or interferes (or will interfere after the Merger) with
the contemplated use thereof.
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2.17 LOANS, ACCOUNTS, NOTES AND OTHER RECEIVABLES.
(A) All loans, accounts, notes and other receivables reflected as assets on
Home Savings' books and records (i) have resulted from bona fide business
transactions in the ordinary course of its operations, (ii) in all material
respects were made in accordance with its standard loan policies and procedures,
and (iii) are owned by it free and clear of all liens, encumbrances,
assignments, participation or repurchase agreements or other exceptions to title
or to the ownership or collection rights of any other person or entity.
(B) All of Home Savings' records regarding all outstanding loans, accounts,
notes and other receivables, and all other real estate owned, are accurate in
all material respects, and, with respect to each loan which its loan
documentation indicates is secured by any real or personal property or property
rights ("Loan Collateral"), such loan is secured by valid, perfected and
enforceable liens on all such Loan Collateral having the priority described in
the Subsidiary's records of such loan.
(C) To the best knowledge of management of Home Savings, each loan
reflected as an asset on Home Savings' books and each guaranty therefor, is the
legal, valid and binding obligation of the obligor or guarantor thereon, and no
defense, offset or counterclaim has been asserted with respect to any such loan
or guaranty.
(D) Home Savings has Previously Disclosed to FNB (i) a written listing of
each loan, extension of credit or other asset of Home Savings which, as of March
31, 1997, is classified by the FDIC or the Administrator as "Loss," "Doubtful,"
"Substandard" or "Special Mention" (or otherwise by words of similar import), or
which it has designated as a special asset or for special handling or placed on
any "watch list" because of concerns regarding the ultimate collectibility or
deteriorating condition of such asset or any obligor or Loan Collateral
therefor, and (ii) a written listing of each loan or extension of credit that,
as of March 31, 1997, was past due as to the payment of principal and/or
interest, or as to which any obligor thereon (including the borrower or any
guarantor) otherwise was in default, is the subject of a proceeding in
bankruptcy or otherwise has indicated any inability or intention not to repay
such loan or extension of credit. Each such listing is accurate and complete as
of the date indicated.
(E) Home Savings' reserve for possible loan losses (the "Loan Loss
Reserve") has been established in conformity with GAAP, sound banking practices
and all applicable requirements, rules and policies of the FDIC and the
Administrator and, in the best judgment of management of Home Savings, is
reasonable in view of the size and character of its loan portfolios, current
economic conditions and other relevant factors, and is adequate to provide for
losses relating to or the risk of loss inherent in its loan portfolios and other
real estate owned. At March 31, 1997, Home Savings' Loan Loss Reserve was
$279,659.
2.18 SECURITIES PORTFOLIO AND INVESTMENTS. All securities owned by Home
Savings or the Subsidiary (whether owned of record or beneficially) are held
free and clear of all mortgages, liens, pledges, encumbrances or any other
restriction or rights of any other person or entity, whether contractual or
statutory, which would materially impair the ability of Home Savings or the
Subsidiary to dispose freely of any such security and/or otherwise to realize
the benefits of ownership thereof at any time. There are no voting trusts or
other agreements or undertakings to which Home Savings or the Subsidiary is a
party with respect to the voting of any such securities. With respect to all
"repurchase agreements" to which Home Savings or the Subsidiary has "purchased"
securities under agreement to resell, Home Savings or the Subsidiary has a
valid, perfected first lien or security interest in the government securities or
other collateral securing the repurchase agreement, and the value of the
collateral securing each such repurchase agreement equals or exceeds the amount
of the debt owed which is secured by such collateral. Except for fluctuations in
the market values of United States Treasury and agency or municipal securities,
since March 31, 1997, there has been no significant deterioration or material
adverse change in the quality, or any material decrease in the value, of Home
Savings' securities portfolio as a whole.
2.19 PERSONAL PROPERTY AND OTHER ASSETS. All assets of Home Savings or the
Subsidiary (including without limitation all banking equipment, data processing
equipment, vehicles, and all other personal property located in any office of or
used by Home Savings in the operation of its business) are owned by Home Savings
or the Subsidiary free and clear of all liens, encumbrances, leases, title
defects or exceptions to title. All of Home Savings' or the Subsidiary's
personal property material to its business is in good operating condition and
repair, ordinary wear and tear excepted.
2.20 PATENTS AND TRADEMARKS. Home Savings and the Subsidiary own, possess
or have the right to use any and all patents, licenses, trademarks, trade names,
copyrights, trade secrets and proprietary and other confidential information
necessary to conduct their business as now conducted; and, neither Home Savings
nor the Subsidiary has violated, and currently is not in conflict with, any
patent, license, trademark, trade name, copyright or proprietary right of any
other person or entity.
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2.21 ENVIRONMENTAL MATTERS.
(A) Home Savings has Previously Disclosed to FNB copies of all written
reports, correspondence, notices or other materials, if any, in its possession
pertaining to environmental surveys or assessments of the Real Property or any
of its Loan Collateral and any improvements thereon, or to any violation of
"Environmental Laws" (as defined below) on, affecting or otherwise involving the
Real Property or any Loan Collateral.
(B) There has been no presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, reporting,
testing, processing, emission, discharge, release, threatened release, control,
removal, clean-up or remediation of any "Hazardous Substances" (as defined
below) by any person prior to the date hereof on, from or relating to the Real
Property or, to the best of the knowledge and belief of management of Home
Savings, the Loan Collateral, which constitutes a violation of any Environmental
Laws.
(C) Home Savings has not violated any federal, state or local law, rule,
regulation, order, permit or other requirement relating to health, safety or the
environment or imposing liability, responsibility or standards of conduct
applicable to environmental conditions, and there has been no violation of any
Environmental Laws (as defined in Section 2.2(f) below) (including, to the best
of the knowledge and belief of management of Home Savings, any violation with
respect to or relating to any Loan Collateral) by any other person or entity for
whose liability or obligation with respect to any particular matter or violation
Home Savings is or may be responsible or liable.
(D) Home Savings is not subject to any claims, demands, causes of action,
suits, proceedings, losses, damages, penalties, liabilities, obligations, costs
or expenses of any kind and nature which arise out of, under or in connection
with, or which result from or are based upon the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to the Real Property or, to the best
of the knowledge and belief of management of Home Savings, any Loan Collateral
by any person or entity.
(E) No facts, events or conditions relating to the Real Property or, to the
best knowledge of management of Home Savings, any Loan Collateral, or the
operations of Home Savings, will prevent, hinder or limit continued compliance
with Environmental Laws, or give rise to any investigatory, emergency removal,
remedial or corrective actions, obligations or liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental Laws.
(F) For purposes of this Agreement, "Environmental Laws" shall include:
(i) all federal, state and local statutes, regulations, ordinances,
orders, decrees, and similar provisions having the force or effect of law,
(ii) all contractual agreements, and
(iii) all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, emergency removal, clean-up or remediation of any
Hazardous Substances (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, any "Superfund" or "Superlien" law, the Americans with Disabilities
Act, and the Occupational Safety and Health Act), as such may now or at any time
hereafter be defined or in effect.
(G) For purposes of this Agreement, "Hazardous Substances" shall include
hazardous, toxic or otherwise regulated materials, substances or wastes;
chemical substances or mixtures; pesticides; pollutants; contaminants; toxic
chemicals; oil or other petroleum products, byproducts, or constituents
(including but not limited to crude oil, diesel oil, fuel oil, gasoline,
lubrication oil, oil refuse, oil mixed with other waste, oil sludge, and all
other liquid hydrocarbons regardless of specific gravity); asbestos or asbestos
containing material; flammable explosives; polychlorinated biphenyls ("PCBs") or
any material containing PCBs; radioactive materials; biological micro organisms,
viruses, fungi, spores; environmental tobacco smoke; radon or radon gas;
formaldehyde or any material containing formaldehyde; fumigants; any material or
substance comprising or contributing to conditions known as "sick building
syndrome," "building-related illness" or similar conditions or exposures; and/or
any hazardous, toxic, regulated or dangerous waste, substance or material
defined as such by the United States
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Environmental Protection Agency or any other federal, state or local
governmental agency or political subdivision thereof, or for the purpose of or
by any Environmental Laws, as now or at any time hereafter may be in effect.
2.22 ABSENCE OF BROKERAGE OR FINDERS' COMMISSIONS. All negotiations
relative to this Agreement and the transactions described herein have been
carried on by Home Savings directly with FNB, and no person or firm has been
retained by or has acted on behalf of, pursuant to any agreement, arrangement or
understanding with, or under the authority of, Home Savings or its Board of
Directors, as a broker, finder or agent or has performed similar functions or
otherwise is or may be entitled to receive or claim a brokerage fee or other
commission in connection with or as a result of the transactions described
herein. Home Savings has not agreed to pay any brokerage fee or other commission
to any person or entity in connection with or as a result of the transactions
described herein.
2.23 MATERIAL CONTRACTS. (a) Other than a benefit plan or employment
agreement Previously Disclosed to FNB pursuant to Section 2.25 below (true and
complete copies of which have been provided by Home Savings to FNB), neither
Home Savings nor its Subsidiary is a party to or bound by any agreement (i)
involving money or other property in an amount or with a value in excess of
$50,000, (ii) which is not to be performed in full prior to December 31, 1997,
(iii) which calls for the provision of goods or services to Home Savings and
cannot be terminated without material penalty upon written notice to the other
party thereto, (iv) which is material to Home Savings or the Subsidiary and was
not entered into in the ordinary course of business, (v) which involves hedging,
options or any similar trading activity, or interest rate exchanges or swaps,
(vi) which commits Home Savings or the Subsidiary to extend any loan or credit
(with the exception of letters of credit, lines of credit and loan commitments
extended in the ordinary course of the Subsidiaries' business), (vii) which
involves the purchase or sale of any assets of Home Savings or the Subsidiary,
or the purchase, sale, issuance, redemption or transfer of any capital stock or
other securities of Home Savings or the Subsidiary, or (viii) with any director,
officer or principal shareholder of Home Savings or the Subsidiary (including
without limitation any consulting agreement, but not including any agreement
relating to loans or other banking services which were made in the ordinary
course of its business and on substantially the same terms and conditions as
were prevailing at that time for similar agreements with unrelated persons).
(b) Neither Home Savings nor the Subsidiary is in default in any material
respect, and there has not occurred any event which with the lapse of time or
giving of notice or both would constitute such a default, under any contract,
lease, insurance policy, commitment or arrangement to which it is a party or by
which it or its property is or may be bound or affected or under which it or its
property receives benefits, where the consequences of such default would have a
material adverse effect on the financial condition, results of operations,
prospects, business, assets, loan portfolio, investments, properties or
operations of Home Savings or the Subsidiary.
2.24 EMPLOYMENT MATTERS; EMPLOYEE RELATIONS. (a) Each of Home Savings and
the Subsidiary (i) has paid in full to or accrued on behalf of all its
respective directors, officers and employees all wages, salaries, commissions,
bonuses, fees and other direct compensation for all labor or services rendered,
including all wages, salaries, commissions, bonuses, fees and other direct
compensation for all labor or services performed by them to the date of this
Agreement and all vacation pay, sick pay, severance pay and other amounts
promised to the extent required by law or its existing policies or practices and
(ii) is in material compliance with all applicable federal, state and local
laws, statutes, rules and regulations with regard to employment and employment
practices, terms and conditions, and wages and hours and other compensation
matters; and, no person has, to the knowledge of management of Home Savings,
asserted that Home Savings or the Subsidiary is liable in any amount for any
arrearages in wages or employment taxes or for any penalties for failure to
comply with any of the foregoing.
(b) There is no action, suit or proceeding by any person pending or, to the
best knowledge of management of Home Savings, threatened, against Home Savings
or the Subsidiary (or their employees), involving employment discrimination,
sexual harassment, wrongful discharge or similar claims. Neither Home Savings
nor the Subsidiary is a party to or bound by any collective bargaining agreement
with any of its employees, any labor union or any other collective bargaining
unit or organization. There is no pending or threatened labor dispute, work
stoppage or strike involving Home Savings, the Subsidiary, or any of their
employees, or any pending or threatened proceeding in which it is asserted that
Home Savings or the Subsidiary has committed an unfair labor practice; and, Home
Savings is not aware of any activity involving it or any of its employees
seeking to certify a collective bargaining unit or engaging in any other labor
organization activity.
2.25 EMPLOYMENT AGREEMENTS; EMPLOYEE BENEFIT PLANS.
(A) Home Savings has Previously Disclosed to FNB a true and 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 and severance contracts;
all medical, dental, health, and life insurance plans; all vacation,
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sickness and other leave plans, disability and death benefit plans; and all
other employee benefit plans, contracts, or arrangements maintained or
contributed to by Home Savings or the Subsidiary for the benefit of any
employees, former employees, directors, former directors or any of their
beneficiaries (collectively, the "Plans"). True and complete copies of all
Plans, including, but not limited to, any trust instruments and/or insurance
contracts, if any, forming a part thereof, and all amendments thereto,
previously have been supplied to FNB. Except as Previously Disclosed, neither
Home Savings nor the Subsidiary maintains, sponsors, contributes to or otherwise
participates in any "Employee Benefit Plan" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
any "Multiemployer Plan" within the meaning of Section 3(37) of ERISA, or any
"Multiple Employer Welfare Arrangement" within the meaning of Section 3(40) of
ERISA. Each Plan which is an "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has
received or applied for a favorable determination letter from the IRS and Home
Savings is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter. All reports and
returns with respect to the Plans (and any Plans previously maintained by Home
Savings or the Subsidiary) required to be filed with any governmental
department, agency, service or other authority, including without limitation
Internal Revenue Service Form 5500 (Annual Report), have been properly and
timely filed.
(B) All "Employee Benefit Plans" maintained by or otherwise covering
employees or former employees of Home Savings currently are, and at all times
have been, in compliance with all material provisions and requirements of ERISA.
There is no pending or threatened litigation relating to any Plan or any such
Plan previously maintained by Home Savings. Neither Home Savings nor the
Subsidiary has engaged in a transaction with respect to any Plan that has
subjected it, or absent the exemption under which the transaction was effected,
would subject it to a tax or penalty imposed by either Section 4975 of the Code
or Section 502 (i) of ERISA.
(C) Home Savings has delivered to FNB a true, correct and complete copy
(including copies of all amendments thereto) of each of its retirement plans
that is intended to be qualified under Section 401(a) of the Code (collectively,
the "Retirement Plans"), together with true, correct and complete copies of the
summary plan descriptions relating to the Retirement Plans, the most recent
determination letters received from the IRS regarding the Retirement Plans, and
the most recent Annual Reports (Form 5500 series) and related schedules, if any,
for the Retirement Plans. The Retirement Plans are qualified under the
provisions of Section 401(a) of the Code, the trusts under the Retirement Plans
are exempt trusts under Section 501(a) of the Code, and determination letters
have been issued or applied for with respect to the Retirement Plans to said
effect, including determination letters covering the current terms and
provisions of the Retirement Plans. There are no issues relating to said
qualification or exemption of the Retirement Plans currently pending before the
IRS, the United States Department of Labor, the Pension Benefit Guaranty
Corporation or any court. The Retirement Plans and the administration thereof
meet (and have met since the establishment of the Retirement Plans) all of the
material requirements of ERISA, the Code and all other laws, rules and
regulations applicable to the Retirement Plans and do not violate (and since the
establishment of the Retirement Plans have not violated) any of the material
provisions of ERISA, the Code and such other laws, rules and regulations.
Without limiting the generality of the foregoing, all reports and returns with
respect to the Retirement Plans required to be filed with any governmental
department, agency, service or other authority have been properly and timely
filed. There are no disputes or unresolved disagreements with respect to the
Retirement Plans or the administration thereof currently existing between Home
Savings, the Subsidiary or any trustee or other fiduciary thereunder, and any
governmental agency, any current or former employee of Home Savings, the
Subsidiary or beneficiary of any such employee or any other person or entity. No
"reportable event" within the meaning of Section 4043(b) of ERISA has occurred
at any time with respect to the Retirement Plans.
(D) No liability under subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by Home Savings or the Subsidiary with respect to the
Retirement Plans or with respect to any other ongoing, frozen or terminated
defined benefit pension plan currently or formerly maintained by Home Savings or
the Subsidiary. Neither Home Savings nor the Subsidiary presently contributes to
a "Multiemployer Plan" or has ever contributed to such a plan. All contributions
required to be made pursuant to the terms of each of the Plans (including
without limitation the Retirement Plans and any other "pension plan" (as defined
in Section 3(2) of ERISA, provided such plan is intended to qualify under the
provisions of Section 401(a) of the Code) maintained by Home Savings have been
timely made. Neither the Retirement Plans nor any other "pension plan"
maintained by Home Savings or the Subsidiary have an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Neither Home Savings nor the Subsidiary has
provided, and is not required to provide, security to any "pension plan" or to
any "Single Employer Plan" pursuant to Section 401(a)(29) of the Code. Under the
Retirement Plans and any other "pension plan" maintained by Home Savings or the
Subsidiary as of the last day of the most recent plan year ended prior to the
date hereof, the actuarially determined present value of all "benefit
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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 any
such plan since the last day of the most recent plan year.
(E) There are no restrictions on the rights of Home Savings or the
Subsidiary to amend or terminate any Plan. There are no restrictions on the
rights or ability of Home Savings to satisfy its obligations under Section
4.1(g) below, or on the right or ability of FNB to terminate the ESOP (as
defined in Section 4.1(g) below), without Home Savings or FNB incurring any
liability under the ESOP or ERISA, assuming that such termination is in
compliance with the Code and ERISA. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
(except as otherwise specifically provided for or contemplated by the
transactions described in this Agreement) (i) result in any payment to any
person (including without limitation any severance compensation or payment,
unemployment compensation, "golden parachute" or "change in control" payment, or
otherwise) becoming due under any plan or agreement to any director, officer,
employee or consultant, (ii) increase any benefits otherwise payable under any
plan or agreement, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
2.26 INSURANCE. Home Savings has in effect a "banker's blanket bond" and
such other policies of general liability, casualty, directors and officers
liability, employee fidelity, errors and omissions and other property and
liability insurance as has been Previously Disclosed to FNB (the "Policies").
The Policies provide coverage in such amounts and against such liabilities,
casualties, losses or risks as is customary or reasonable for entities engaged
in the businesses of Home Savings and the Subsidiary or as is required by
applicable law or regulation; and, in the reasonable opinion of management of
Home Savings, the insurance coverage provided under the Policies is considered
reasonable and adequate in all respects for Home Savings or the Subsidiary. Each
of the Policies is in full force and effect and is valid and enforceable in
accordance with its terms, and is underwritten by an insurer of recognized
financial responsibility and which is qualified to transact business in North
Carolina; and, Home Savings and the Subsidiary have taken all requisite actions
(including the giving of required notices) under each such Policy in order to
preserve all rights thereunder with respect to all matters. Neither Home Savings
nor the Subsidiary is in default under the provisions of, has received notice of
cancellation or nonrenewal of or any premium increase on, or has any knowledge
of any failure to pay any premium on or any inaccuracy in any application for
any Policy. There are no pending claims with respect to any Policy, and Home
Savings has no knowledge of any facts or of the occurrence of any event that is
reasonably likely to form the basis for any such claim.
2.27 INSURANCE OF DEPOSITS. All deposits of Home Savings are insured by the
Savings Association Insurance Fund of the FDIC to the maximum extent permitted
by law, all deposit insurance premiums due from Home Savings to the FDIC have
been paid in full in a timely fashion, and, to the best of the knowledge and
belief of Home Savings, no proceedings have been commenced or are contemplated
by the FDIC or otherwise to terminate such insurance.
2.28 COMPENSATION; STOCK OWNERSHIP. Home Savings has Previously Disclosed
(i) the name and current salary or wage rate for each present employee of Home
Savings or the Subsidiary, (ii) the name of and number of shares of Home Savings
Stock beneficially owned by each of the directors and officers of Home Savings
and by any person or entity known to Home Savings to beneficially own 5% or more
of Home Savings Stock, and (iii) the name and number of outstanding options held
by each person to whom a stock option has been granted and currently is
outstanding under any stock option or other plan of Home Savings.
2.29 AFFILIATES. Home Savings has Previously Disclosed to FNB a listing of
those persons deemed by Home Savings and its counsel as of the date of this
Agreement to be "Affiliates" of Home Savings as that term is defined in Rule 405
promulgated under 1933 Act, including persons, trust, estates or other entities
related to persons deemed to be Affiliates of Home Savings.
2.30 OBSTACLES TO REGULATORY APPROVAL OR TAX TREATMENT. To the best of the
knowledge and belief of management of Home Savings, there exists no fact or
condition relating to Home Savings or the Subsidiary that may reasonably be
expected to (i) prevent or materially impede or delay FNB or Home Savings from
obtaining the regulatory approvals required in order to consummate transactions
described herein, or (ii) prevent the Merger from qualifying to be a tax-free
reorganization under Section 368(a)(1)(A) of the Code; and, if any such fact or
condition becomes known to Home Savings, Home Savings shall promptly (and in any
event within three days after obtaining such knowledge) communicate such fact or
condition to the President of FNB.
2.31 DISCLOSURE. To the best of the knowledge and belief of management of
Home Savings, no written statement, certificate, schedule, list or other written
information furnished by or on behalf of Home Savings at any time to FNB in
connection with this Agreement (including without limitation the statements
contained herein), when considered as a whole, contains or
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will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. Each document delivered or to be delivered by Home Savings to FNB is
or will be a true and complete copy of such document, unmodified except by
another document delivered thereby.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF FNB
Except as otherwise specifically described herein or as "Previously
Disclosed" to Home Savings, FNB hereby makes the following representations and
warranties to Home Savings. ("Previously Disclosed" shall mean, as to FNB, the
disclosure of information in a letter delivered by FNB to Home Savings
specifically referring to this Agreement and arranged in sections corresponding
to the sections, subsections and items of this Agreement applicable thereto, and
which letter has been delivered prior to the execution of this Agreement.
Information shall be deemed Previously Disclosed for the purpose of a given
section, subsection or item of this Agreement only to the extent a specific
reference thereto is made in connection with disclosure of such information at
the time of such delivery.)
3.1 ORGANIZATION; STANDING; POWER. FNB is duly organized and incorporated,
validly existing and in good standing as a business corporation under the laws
of North Carolina; First National is duly organized and incorporated, validly
existing and in good standing as a national banking association under federal
law. Each of FNB and First National (i) has all requisite power and authority
(corporate and other) to own its respective properties and conduct its business
as now being conducted, (ii) is duly qualified to do business and is in good
standing in each other jurisdiction in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except where failure so to qualify would not have
a material adverse effect on its business operations or financial condition, and
(iii) is not transacting business, or operating any properties owned or leased
by it, in violation of any provision of federal or state law or any rule or
regulation promulgated thereunder, which violation would have a material adverse
effect on its business operations or financial condition.
3.2 CAPITAL STOCK. FNB's authorized capital stock consists of 5,000,000
shares of FNB Stock and 200,000 shares of preferred stock, par value $10.00. As
of March 27, 1997, an aggregate of 1,811,104 shares of FNB Stock had been issued
and were outstanding, and none of the preferred stock was issued and
outstanding. FNB's outstanding capital stock has been duly authorized and
validly issued, and is fully paid and nonassessable, and the shares of FNB Stock
issued to Home Savings' shareholders pursuant to this Agreement, when issued as
described herein, will be duly authorized, validly issued, fully paid and
nonassessable.
3.3 CONVERTIBLE SECURITIES, OPTIONS, ETC. Except as Previously Disclosed,
FNB has no outstanding (i) securities or other obligations (including debentures
or other debt instruments) which are convertible into shares of FNB Stock or any
other securities of FNB, (ii) options, warrants, rights, calls or other
commitments of any nature which entitle any person to receive or acquire any
shares of FNB Stock or any other securities of FNB, or (iii) plan, agreement or
other arrangement pursuant to which shares of FNB Stock or any other securities
of FNB, or options, warrants, rights, calls or other commitments of any nature
pertaining thereto, have been or may be issued.
3.4 AUTHORIZATION AND VALIDITY OF AGREEMENT. This Agreement has been duly
and validly approved by FNB's Board of Directors. (i) FNB has the corporate
power and authority to execute and deliver this Agreement and to perform its
obligations and agreements and carry out the transactions described herein, (ii)
all corporate proceedings required to be taken to authorize FNB to enter into
this Agreement and to perform its respective obligations and agreements and
carry out the transactions described herein have been duly and properly taken,
and (iii) this Agreement constitutes the valid and binding agreement of FNB
enforceable in accordance with its terms (except to the extent enforceability
may be limited by (A) applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect creditors'
rights generally, (B) legal and equitable limitations on the availability of
injunctive relief, specific performance and other equitable remedies, and (C)
general principles of equity and applicable laws or court decisions limiting the
enforceability of indemnification provisions).
3.5 VALIDITY OF TRANSACTIONS; ABSENCE OF REQUIRED CONSENTS OR WAIVERS.
Except where the same would not have a material adverse effect on FNB and First
National considered as one enterprise, neither the execution and delivery of
this Agreement, nor the consummation of the transactions described herein, nor
compliance by FNB with any of its obligations or agreements contained herein,
will: (i) conflict with or result in a breach of the terms and conditions of, or
constitute a default or violation under any provision of, FNB's Articles of
Incorporation or Bylaws, or any contract, agreement, lease, mortgage, note,
bond, indenture, license, or obligation or understanding (oral or written) to
which FNB is bound or by which it, its
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business, capital stock or any of its properties or assets may be affected; (ii)
result in the creation or imposition of any lien, claim, interest, charge,
restriction or encumbrance upon any of FNB's properties or assets; (iii) violate
any applicable federal or state statute, law, rule or regulation, or any order,
writ, injunction or decree of any court, administrative or regulatory agency or
governmental body; (iv) result in the acceleration of any obligation or
indebtedness of FNB; or, (v) interfere with or otherwise adversely affect FNB's
ability to carry on its business as presently conducted. No consents, approvals
or waivers are required to be obtained from any person or entity in connection
with FNB's execution and delivery of this Agreement, or the performance of its
obligations or agreements or the consummation of the transactions described
herein, except for required approvals of governmental or regulatory authorities
described in Section 7.1(c) below.
3.6 FNB REPORTS. Since January 1, 1990, FNB and First National have filed
all reports, registrations and statements, together with any amendments that
were required to be made with respect thereto, that were required to be filed
with (i) the SEC, (ii) the Federal Reserve Board ("FRB"), (iii) the FDIC, (iv)
the OCC, and (v) any other governmental or regulatory authorities having
jurisdiction over FNB or its subsidiary. All such reports and statements filed
with the SEC, the FRB, the FDIC, the OCC or other such regulatory authority are
collectively referred to herein as the "FNB Reports." As of their respective
dates, the FNB Reports complied in all material respects with all the statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; and, FNB has not been notified that any
such FNB Reports were deficient in any material respect as to form or content.
Following the date of this Agreement, FNB shall deliver to Home Savings upon its
request a copy of any report, registration, statement or other regulatory filing
made by FNB or First National with the SEC, the FRB, the FDIC, the OCC or any
other such regulatory authority.
3.7 FNB FINANCIAL STATEMENTS. FNB has delivered to Home Savings a copy of
(i) FNB's audited consolidated balance sheets as of December 31, 1996 and
December 31, 1995, and its consolidated statements of income, changes in
shareholders' equity, and cash flows for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 (the "FNB Financial Statements") and
(ii) FNB's unaudited consolidated balance sheet as of March 31, 1997 and its
consolidated statement of operations for the three months ended March 31, 1997
(the "FNB Interim Financial Statements"). The FNB Financial Statements and the
FNB Interim Financial Statements were prepared in accordance with GAAP applied
on a consistent basis throughout the periods indicated, the FNB Financial
Statements have been audited and certified by certified public independent
accountants, KPMG Peat Marwick, and the FNB Financial Statements and the FNB
Interim Financial Statements present fairly FNB's consolidated financial
condition, assets and liabilities, results of operations, changes in
shareholders' equity and changes in cash flows as of the dates and for the
periods specified therein.
3.8 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1996, there has
been no material adverse change, and there has occurred no event or development
and there currently exists no condition or circumstance which, with the lapse of
time or otherwise, may or could cause, create or result in a material adverse
change, in or affecting FNB's consolidated financial condition or results of
operations, or in its prospects, business, assets, loan portfolio, investments,
properties or operations.
3.9 ABSENCE OF BROKERAGE OR FINDERS' COMMISSIONS. All negotiations relative
to this Agreement and the transactions described herein have been carried on by
FNB directly with Home Savings and no person or firm has been retained by or has
acted on behalf of, pursuant to any agreement, arrangement or understanding
with, or under the authority of, FNB or its Board of Directors, as a broker,
finder or agent or has performed similar functions or otherwise is or may be
entitled to receive or claim a brokerage fee or other commission in connection
with or as a result of the transactions described herein. FNB has not agreed to
pay any brokerage fee or other commission to any person or entity in connection
with or as a result of the transactions described herein.
3.10 OBSTACLES TO REGULATORY APPROVAL OR TAX TREATMENT. To the best of the
knowledge and belief of the executive officers of FNB, no fact or condition
relating to FNB exists that may reasonably be expected to (i) prevent or
materially impede or delay FNB or Home Savings from obtaining the regulatory
approvals required in order to consummate transactions described herein, or (ii)
prevent the Merger from qualifying to be a tax-free reorganization under Section
368(a)(1)(A) of the Code; and, if any such fact or condition becomes known to
the executive officers of FNB, FNB promptly (and in any event within three days
after obtaining such knowledge) shall communicate such fact or condition to the
President of Home Savings.
3.11 DISCLOSURE. To the best of the knowledge and belief of FNB, no written
statement, certificate, schedule, list or written information furnished by or on
behalf of FNB at any time to Home Savings in connection with this Agreement
(including without limitation the statements contained herein), when considered
as a whole, contains or will contain any
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untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. Each document
delivered or to be delivered by FNB to Home Savings is or will be a true and
complete copy of such document, unmodified except by another document delivered
by FNB.
ARTICLE IV. COVENANTS OF HOME SAVINGS
4.1 AFFIRMATIVE COVENANTS OF HOME SAVINGS. Home Savings hereby covenants
and agrees as follows with FNB:
(A) "AFFILIATES" OF HOME SAVINGS. Home Savings will cause each Affiliate
Previously Disclosed to FNB (in addition to each additional person who shall
become an Affiliate of Home Savings after the date of this Agreement or who
shall be deemed by FNB or its counsel, in their sole discretion, to be an
Affiliate of Home Savings, and including persons, trusts, estates, corporations
or other entities related to persons deemed to be Affiliates of Home Savings) to
execute and deliver to FNB prior to the Closing a written agreement (the
"Affiliates' Agreement") relating to restrictions on shares of FNB Stock to be
received by such Affiliates pursuant to this Agreement and confirming that the
Affiliate has no plan or intention to sell, exchange or otherwise dispose of any
FNB Stock, and which Affiliates' Agreement shall be in form and content
reasonably satisfactory to FNB and substantially in the form attached as
Schedule B to this Agreement. Certificates for the shares of FNB Stock issued to
Affiliates of Home Savings shall bear a restrictive legend (substantially in the
form as shall be set forth in the Affiliates' Agreement) with respect to the
restrictions applicable to such shares.
(B) CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME. While the parties
recognize that the operation of Home Savings until the Effective Time is the
responsibility of Home Savings and its Board of Directors and officers, Home
Savings agrees that, between the date of this Agreement and the Effective Time,
Home Savings will carry on its business, in and only in the regular and usual
course in substantially the same manner as such business heretofore was
conducted, and, to the extent consistent with such business and within its
ability to do so, Home Savings agrees that it, and where applicable, the
Subsidiary, will:
(i) preserve intact their present business organization, keep
available their present officers and employees, and preserve its
relationships with customers, depositors, creditors, correspondents,
suppliers, and others having business relationships with them;
(ii) maintain all of their properties and equipment in customary
repair, order and condition, ordinary wear and tear excepted;
(iii) maintain their books of account and records in the usual,
regular and ordinary manner in accordance with sound business practices
applied on a consistent basis;
(iv) comply with all laws, rules and regulations applicable to them,
their properties, assets or employees and to the conduct of their business;
(v) not change its existing loan underwriting guidelines, policies or
procedures except as may be required by law;
(vi) continue to maintain in force insurance such as is described in
Section 2.26 above; not modify any bonds or policies of insurance in effect
as of the date hereof unless the same, as modified, provides substantially
equivalent coverage; and, not cancel, allow to be terminated or, to the
extent available, fail to renew, any such bond or policy of insurance
unless the same is replaced with a bond or policy providing substantially
equivalent coverage; and,
(vii) promptly provide to FNB such information about the financial
condition, results of operations, prospects, businesses, assets, loan
portfolio, investments, properties or operations of Home Savings and the
Subsidiary, as FNB reasonably shall request.
(C) PERIODIC INFORMATION REGARDING LOANS. Home Savings agrees that each new
extension of credit that it proposes to make in excess of $150,000 will be
submitted to FNB at least three business days before Home Savings' issuance of a
commitment on such loan. Additionally, Home Savings agrees to make available and
provide to FNB the following information with respect to its loans and other
extensions of credit (such assets herein referred to as "Loans") as of March 31,
1997 and as of the end of each month thereafter until the Effective Time, such
information for each month to be in form and substance as is usual and customary
in the conduct of its business and to be furnished within 25 days of the end of
each month ending after the date hereof, except as otherwise provided:
(i) a list of Loans past due for 30 days or more as to principal or
interest;
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(ii) an analysis of the Loan Loss Reserve and management's assessment
of the adequacy of the Loan Loss Reserve, which analysis and assessment
shall include a list of all classified or "watch list" Loans, along with
the outstanding balance and amount specifically allocated to the Loan Loss
Reserve for each such classified or "watch list" Loan;
(iii) a list of Loans in nonaccrual status;
(iv) a list of all Loans over $50,000 without principal reduction for
a period of longer than one year;
(v) a list of all foreclosed real property or other real estate owned
and all repossessed personal property;
(vi) a list of reworked or restructured Loans over $50,000 and still
outstanding, including original terms, restructured terms and status; and
(vii) a list of any actual or threatened litigation by or against Home
Savings pertaining to any Loans or credits, which list shall contain a
description of circumstances surrounding such litigation, its present
status and management's evaluation of such litigation.
(D) NOTICE OF CERTAIN CHANGES OR EVENTS. Following the execution of this
Agreement and up to the Effective Time, Home Savings promptly will notify FNB in
writing of and provide to it such information as it shall request regarding (i)
any material adverse change in its consolidated financial condition,
consolidated results of operations, prospects, business assets, loan portfolio,
investments, properties or operations, or of the actual or prospective
occurrence of any condition or event which, with the lapse of time or otherwise,
may or could cause, create or result in any such material adverse change, or of
(ii) the actual or prospective existence or occurrence of any condition or event
which, with the lapse of time or otherwise, has caused or may or could cause any
statement, representation or warranty of Home Savings herein to be or become
inaccurate, misleading or incomplete, or which has resulted or may or could
cause, create or result in the breach or violation of any of Home Savings'
covenants or agreements contained herein or in the failure of any of the
conditions described in Sections 7.1 or 7.3 below.
(E) ACCRUALS FOR LOAN LOSS RESERVE AND EXPENSES. Home Savings will
cooperate with FNB and, not later than the Effective Time, Home Savings will
make such appropriate accounting entries in its books and records and take such
other actions as FNB shall, in its sole discretion, deem to be necessary or
desirable in anticipation of the Merger, including without limitation additional
provisions for its Loan Loss Reserve or accruals or the creation of reserves for
employee benefit and Merger-related expenses.
(F) CONSENTS TO ASSIGNMENT OF LEASES. Home Savings will use its best
efforts to obtain all required consents of its lessors to the assignment to FNB
of Home Savings' rights and obligations under any personal property leases, each
of which consents shall be in such form as shall be specified by FNB.
(G) REFINANCE OR TRANSFER OF ESOP LOAN. Subject to the approval of the ESOP
Trustee, the loan to the Home Savings Bank of Siler City, Inc., SSB Employee
Stock Ownership Plan (the "ESOP") from First National, the outstanding principal
balance of which was approximately $260,000 as of May 29, 1997 (the "ESOP
Loan"), shall be refinanced with a lender and on terms reasonably satisfactory
to FNB, and to pay to First National all principal, interest and other amounts
owing First National thereunder. In the alternative, Home Savings shall either
pay off the ESOP Loan in full or take such actions as may be necessary to cause
the ESOP Loan to be transferred and assigned, without recourse to FNB or First
National, to another lender and on terms reasonably satisfactory to FNB in
exchange for the payment to First National of all principal interest and other
amounts owing First National thereunder.
(H) AMENDMENTS TO ESOP. Home Savings shall take such actions as shall cause
the ESOP to be amended in accordance with the resolutions of the Board of
Directors of Home Savings on June 3, 1997 relating to the ESOP.
(I) PENSION PLAN. Home Savings shall take such actions as may be necessary
to terminate, in advance of the Effective Time, the defined pension plan of Home
Savings (the "Home Savings Pension Plan") in such a manner as would qualify for
a standard termination pursuant to Section 4041(b) of ERISA and any applicable
provision of the Code. Prior to or in connection with such termination, Home
Savings shall have amended the Home Savings Pension Plan to (i) reflect the
adoption of PBGC interest rate assumptions for purposes of determining the
amount of participant accrued benefits under the Home Savings Pension Plan, (ii)
bring the Home Savings Pension Plan into compliance with applicable law in
effect at the time of its termination, and (iii) recognize that, on account of
the Merger, FNB shall become the sponsor of the Home Savings Pension Plan, as
terminated. Home Savings shall submit the Home Savings Pension Plan to the
Internal Revenue Service for determination as to the impact of such amendments
and termination on the tax-qualified status of the Home Savings Pension Plan.
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(J) FURTHER ACTION; INSTRUMENTS OF TRANSFER. Home Savings covenants and
agrees with FNB that it (i) will use its best efforts in good faith to take or
cause to be taken all action required of it hereunder as promptly as practicable
so as to permit the consummation of the transactions described herein at the
earliest possible date, (ii) shall perform all acts and execute and deliver to
FNB all documents or instruments required herein or as otherwise shall be
reasonably necessary or useful to or requested of Home Savings in consummating
such transactions and (iii) will cooperate with FNB in every way in carrying
out, and will pursue diligently the expeditious completion of, such
transactions.
4.2 NEGATIVE COVENANTS OF HOME SAVINGS. Home Savings hereby covenants and
agrees that, between the date hereof and the Effective Time, neither Home
Savings nor, if applicable, the Subsidiary, will do any of the following things
or take any of the following actions without the prior written consent and
authorization of the President of FNB.
(A) AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS. Amend its Articles
of Incorporation or Bylaws.
(B) CHANGE IN CAPITAL STOCK. Make any change in its authorized capital
stock, or create any other or additional authorized capital stock or other
securities, or issue, sell, purchase, redeem, retire, reclassify, combine or
split any shares of its capital stock or other securities (including securities
convertible into capital stock), or enter into any agreement or understanding
with respect to any such action.
(C) OPTIONS, WARRANTS AND RIGHTS. Grant or issue any options, warrants,
calls, puts or other rights of any kind relating to the purchase, redemption or
conversion of shares of its capital stock or any other securities (including
securities convertible into capital stock) or enter into any agreement or
understanding with respect to any such action, other than the Option Agreement
between Home Savings and FNB executed as of the date hereof.
(D) DIVIDENDS. Declare or pay any dividends on the outstanding shares of
capital stock or make any other distributions on or in respect of any shares of
its capital stock or otherwise to its shareholders except as may be allowed
pursuant to Section 1.4(a) above.
(E) EMPLOYMENT, BENEFIT OR RETIREMENT AGREEMENTS OR PLANS. Except as
required by law or contemplated by this Agreement, (i) enter into or become
bound by any oral or written contract, agreement or commitment for the
employment or compensation of any director, officer, employee or consultant
which is not immediately terminable by Home Savings or the Subsidiary without
cost or other liability on no more than 30 days notice; (ii) amend any existing,
or adopt, enter into or become bound by any new or additional, profit-sharing,
bonus, incentive, change in control or "golden parachute," stock option, stock
purchase, pension, retirement, insurance (hospitalization, life or other), paid
leave (sick leave, vacation leave or other) or similar contract, agreement,
commitment, understanding, plan or arrangement (whether formal or informal) with
respect to or which provides for benefits for any of its current or former
directors, officers, employees or consultants; (iii) make contributions to the
Home Savings Pension Plan to correct any underfunding in excess of $35,000; (iv)
make contributions to the ESOP for the plan year beginning October 1, 1997 in
excess of an aggregate amount determined by prorating an aggregate annual
contribution amount of $62,500 to the date of such contributions; or (v) enter
into or become bound by any contract with or commitment to any labor or trade
union or association or any collective bargaining group.
(F) INCREASE IN COMPENSATION. With the exception of the anticipated
increases in annual salary and annual officer and employee bonuses Previously
Disclosed to FNB, increase the compensation or benefits of, or pay any bonus or
other special or additional compensation to, any of its directors, officers,
employees or consultants.
(G) ACCOUNTING PRACTICES. Make any changes in its accounting methods,
practices or procedures or in depreciation or amortization policies, schedules
or rates heretofore applied (except as required by GAAP or governmental
regulations).
(H) ACQUISITIONS; ADDITIONAL BRANCH OFFICES. Directly or indirectly (i)
acquire or merge with, or acquire any branch or all or any significant part of
the assets of, any other person or entity, (ii) open any new branch office, or
(iii) enter into or become bound by any contract, agreement, commitment or
letter of intent relating to, or otherwise take or agree to take any action in
furtherance of, any such transaction or the opening of a new branch office.
(I) CHANGES IN BUSINESS PRACTICES. Except as may be required by the FDIC,
the Administrator or any other governmental or other regulatory agency or as
shall be required by applicable law, regulation or this Agreement, (i) change in
any material respect the nature of its business or the manner in which it
conducts its business, (ii) discontinue any material portion or line of its
business or (iii) change in any material respect its lending, investment,
asset-liability management or other material banking or business policies
(except to the extent required by Sections 4.1(b) and 4.1(e) above).
(J) EXCLUSIVE MERGER AGREEMENT. Directly or indirectly, through any person
(i) encourage, solicit or attempt to initiate or procure discussions,
negotiations or offers with or from any person or entity (other than FNB)
relating to a merger or other
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acquisition of Home Savings or the purchase or acquisition of any Home Savings
Stock or all or any significant part of Home Savings' assets; or provide
assistance to any person in connection with any such offer; (ii) except to the
extent required by law, disclose to any person or entity any information not
customarily disclosed to the public concerning Home Savings or its business, or
afford to any other person or entity access to its properties, facilities, books
or records; (iii) sell or transfer all or any significant part of Home Savings'
assets to any other person or entity; or (iv) enter into or become bound by any
contract, agreement, commitment or letter of intent relating to, or otherwise
take or agree to take any action in furtherance of, any such transaction.
(K) ACQUISITION OR DISPOSITION OF ASSETS. (i) Sell or lease (as lessor), or
enter into or become bound by any contract, agreement, option or commitment
relating to the sale, lease (as lessor) or other disposition of any real estate;
or sell or lease (as lessor), or enter into or become bound by any contract,
agreement, option or commitment relating to the sale, lease (as lessor) or other
disposition of any equipment or any other fixed or capital asset (other than
real estate) having a book value or a fair market value, whichever is greater,
of more than $25,000 for any individual item or asset, or more than $50,000 in
the aggregate for all such items or assets;
(ii) Purchase or lease (as lessee), or enter into or become bound
by any contract, agreement, option or commitment relating to the
purchase, lease (as lessee) or other acquisition of any real property;
or purchase or lease (as lessee), or enter into or become bound by any
contract, agreement, option or commitment relating to the purchase,
lease (as lessee) or other acquisition of any equipment or any other
fixed assets (other than real estate) having a purchase price, or
involving aggregate lease payments, in excess of $25,000 for any
individual item or asset, or more than $50,000 in the aggregate for all
such items or assets;
(iii) Enter into any purchase commitment for supplies or services
which calls for prices of goods or fees for services materially higher
than current market prices or fees or which obligates Home Savings or
the Subsidiary for a period longer than 12 months;
(iv) Except in the ordinary course of its business consistent with
its past practices, sell, purchase or repurchase, or enter into or
become bound by any contract, agreement, option or commitment to sell,
purchase or repurchase, any loan or other receivable or any
participation in any loan or other receivable; or
(v) Sell or dispose of, or enter into or become bound by any
contract, agreement, option or commitment relating to the sale or other
disposition of, any other asset (whether tangible or intangible, and
including without limitation any trade name, trademark, copyright,
service mark or intellectual property right or license); or assign its
right to or otherwise give any other person its permission or consent to
use or do business under the corporate name of Home Savings or the
Subsidiary or any name similar thereto; or release, transfer or waive
any license or right granted to it by any other person to use any
trademark, trade name, copyright, service mark or intellectual property
right.
(L) DEBT; LIABILITIES. Except in the ordinary course of its business
consistent with its past practices, (i) enter into or become bound by any
promissory note, loan agreement or other agreement or arrangement pertaining to
its borrowing of money, (ii) assume, guarantee, endorse or otherwise become
responsible or liable for any obligation of any other person or entity, or (iii)
incur any other liability or obligation (absolute or contingent).
(M) LIENS; ENCUMBRANCES. Mortgage, pledge or subject any of its assets to,
or permit any of its assets to become or (with the exception of those liens and
encumbrances Previously Disclosed to FNB with specificity) remain subject to,
any lien or any other encumbrance (other than in the ordinary course of business
consistent with its past practices in connection with securing of public funds
deposits, repurchase agreements or other similar operating matters).
(N) WAIVER OF RIGHTS. Waive, release or compromise any material rights in
its favor (except in the ordinary course of business) except in good faith for
fair value in money or money's worth, nor waive, release or compromise any
rights against or with respect to any of its officers, directors or shareholders
or members of families of officers, directors or shareholders.
(O) OTHER CONTRACTS. Enter into or become bound by any contracts,
agreements, commitments or understandings (other than those described elsewhere
in this Section 4.2.) (i) for or with respect to any charitable contributions;
(ii) with any governmental or regulatory agency or authority; (iii) pursuant to
which Home Savings would assume, guarantee, endorse or otherwise become liable
for the debt, liability or obligation of any other person or entity; (iv) which
is entered into other than in the ordinary course of its business; or (v) which,
in the case of any one contract, agreement, commitment or understanding and
whether or not in the ordinary course of its business, would obligate or commit
Home Savings to make expenditures of
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more than $25,000 (other than contracts, agreements, commitments or
understandings entered into in the ordinary course of Home Savings' lending
operations).
(P) DEPOSIT LIABILITIES. Make any change in its current deposit policies,
including pricing and acceptance, and shall not take any actions designed to
materially decrease the aggregate level of deposits as of the date of this
Agreement.
ARTICLE V. COVENANTS OF FNB
FNB hereby covenants and agrees as follows with Home Savings:
5.1 NASDAQ NOTIFICATION. As soon as possible after the Effective Time, FNB
shall file with the National Association of Securities Dealers such
notifications and other materials (and shall pay such fees) as shall be required
for the listing on the NASDAQ National Market of the shares of FNB Stock to be
issued to Home Savings' shareholders.
5.2 EMPLOYEES; SEVERANCE PAYMENTS. (a) Employment of Edwin E. Bridges.
Provided he remains employed as President of Home Savings at the Effective Time,
FNB agrees to cause First National to enter into an Employment Agreement with
Edwin E. Bridges as of the Effective Time which shall contain substantially the
same terms and conditions and be in substantially the same form as is attached
hereto as Schedule C.
(B) EMPLOYMENT OF OTHER HOME SAVINGS EMPLOYEES. Provided they remain
employed by Home Savings at the Effective Time, FNB will locate suitable
positions with First National for and offer employment with First National to,
all other employees of Home Savings. Any employment so offered by FNB to an
employee of Home Savings shall be in such a position, at such location, and for
such rate of compensation as FNB or First National shall determine in its sole
discretion. Each such person's employment shall be on an "at-will" basis, and
nothing in this Agreement shall be deemed to constitute an employment agreement
with any such person or to obligate FNB or First National to employ any such
person for any specific period of time or in any specific position or to
restrict FNB's or First National's right to terminate the employment of any such
person at any time and for any reason.
(C) SEVERANCE COMPENSATION. FNB shall pay or cause First National to pay
severance compensation to any former employee of Home Savings employed by First
National at the Effective Time who is terminated by First National within six
months of the Effective Time in an amount equal to the amount of such employee's
accrued but unused vacation leave, plus an amount equal to two week's salary or
normal wages (at such employee's then current salary or wage rate) multiplied by
the number of full years and any partial year of service by such employee with
Home Savings. Notwithstanding anything contained herein to the contrary, no
payment of severance compensation pursuant to this Section 5.2(c) shall be made
to any person who does not remain an employee of Home Savings at the Effective
Time. Severance pay for any former employee of Home Savings who is terminated by
First National after six months of the Effective Time shall be determined in
accordance with First National's then existing policies.
5.3 EMPLOYEE BENEFITS.
(A) GENERALLY. Except as otherwise provided herein and to the extent
permitted by contribution and deduction limitations of ERISA and the Code with
respect to FNB's qualified plans, any employee of Home Savings who becomes an
employee of First National at the Effective Time (a "New Employee") shall become
entitled to receive all employee benefits and to participate in all benefit
plans provided by FNB or First National on the same basis and subject to the
same eligibility and vesting requirements, and to the same conditions,
restrictions and limitations, as generally are in effect and applicable to other
newly hired employees of FNB or First National. However, each New Employee shall
be given credit for his or her full years of service with Home Savings for
purposes of (i) entitlement to vacation and sick leave and for participation in
all First National welfare, insurance and other fringe benefit plans, and (ii)
eligibility for participation and vesting in FNB's Section 401(k) savings plan
and in its defined benefit pension plan (the "FNB Pension Plan"); provided,
however, that in no event shall any New Employee be entitled to or be given
credit for past service with Home Savings for purposes of the calculation or
determination of benefits under the FNB Pension Plan. FNB will grant to each New
Employee a pro rata amount of sick leave and vacation leave, in accordance with
FNB standard leave policies, for the period between the Effective Time and the
end of the calendar year during which the Effective Time occurs. Each New
Employee will be permitted to carry over accrued and unused sick leave and
vacation leave to the extent such carryover would be consistent with and would
not exceed limitations imposed by FNB's leave policies.
(B) HEALTH INSURANCE. Any New Employee shall be entitled to participate in
First National's group health insurance plan at a cost equal to the cost for any
First National employee and such participation shall be without regard to
pre-existing condition requirements under First National's group health
insurance plan, to the extent any such condition at the Effective
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Time would have been covered under the health insurance plans of Home Savings.
In addition to assuming Home Savings' obligations to provide continued health
insurance for Edwin E. Bridges, which is described in the Employment Agreement
attached hereto as Schedule C, FNB will assume the obligations of Home Savings
to provide and will pay the premiums for continued health insurance for Jack
Tanner and Gayle Loggins for the remainder of their lives with coverage at least
equivalent to the group health insurance coverage generally provided to active,
full-time employees of First National generally; provided, however, that this
obligation to provide or pay for health insurance coverage may be partially or
wholly fulfilled by any Medicare, employer or similar coverage for which the
employee is eligible in the future to the extent of any coverage provided
thereby at no cost to the employee; provided further, however, that FNB shall
not be obligated to provide or pay for any such health insurance coverage for
any such individual in the event he or she: (a) owns any interest in (other than
a passive investment not in excess of two percent (2%) of the outstanding
capital stock of any such business whose stock is publicly traded on the NASDAQ
over-the-counter market, the New York Stock Exchange or the American Stock
Exchange), manages, operates, controls, becomes employed by, renders consulting
or advisory services to, or participates in or become connected with the
management or control of, any business that is then engaged in the operation of
a bank, savings and loan association or similar financial institution that
conducts its operations within North Carolina and its contiguous states; (b)
influences or attempts to influence any customer of First National or FNB to
discontinue such customer's use of First National or FNB's services or to divert
such business to any other person, firm or corporation; (c) interferes with,
disrupts or attempts to disrupt the relationship, contractual or otherwise,
between First National or FNB and any of their respective customers, suppliers,
principals, distributors, lessors or licensors; or (d) solicits any officer or
employee of First National or FNB, whose base annual salary at the time of the
Employee's termination was $20,000 or more, to work for any other person, firm
or corporation.
(C) ESOP. Provided that (i) the ESOP Loan from First National has been
refinanced prior to the Closing in accordance with Section 4.1(g) above, (ii)
the ESOP has been amended prior to the Closing in accordance with Section 4.1(h)
above, and (iii) Edwin E. Bridges is continuing to serve as Trustee of the ESOP,
FNB agrees to assume at the Effective Time, as successor plan sponsor, the ESOP.
Home Savings acknowledges that FNB as a successor plan sponsor shall have no
duty to continue the ESOP, provided, however, that FNB agrees that until such
time as new employees (as defined in Section 5.3) become eligible to participate
in the FNB Section 401(K) savings plan, it will continue the ESOP and make
contributions to the ESOP at the aggregate annual rate of $62,500 prorated to
the date of such contributions.
(D) OPTION AND MR PLANS. FNB shall assume each stock option granted under
the ISO Plan and NSSO Plan as provided in Section 1.7(a) above, or shall
substitute options under the FNB Plan in accordance with the provisions of
1.7(c) above. FNB will assume the obligations of Home Savings under the MR Plan
as provided in Section 1.8 above. Home Savings agrees that it will take such
actions in advance of the Effective Time as may be necessary to amend the ISO,
NSSO and MR Plans effective upon consummation of the Merger consistent with the
provisions of this Agreement and otherwise satisfactory to FNB.
5.4 BOARD OF DIRECTORS; RETIREMENT PLAN.
(A) ADVISORY BOARD. Each of the members of Home Savings' Board of Directors
at the Effective Time shall be appointed to serve as a member of First
National's local advisory board in Siler City, North Carolina. Each person so
appointed, shall diligently discharge his or her duties as an advisory board
member and promote in good faith FNB's and First National's best interests. For
their services as advisory board members, each person so appointed shall be
compensated at the rate in effect with respect to other members of First
National's advisory board in Siler City, North Carolina provided that he or she
remains a director of the advisory board and provided further that he or she not
be serving as a director or advisory director of another financial institution
or financial institution holding company. Each such person's service as an
advisory director will be at First National's pleasure and will be subject to
First National's normal policies and procedures regarding the appointment and
service of advisory directors; provided, however, that if any such person's
service as an advisory director is terminated by First National shall, upon such
termination and at its election, either (i) cause the full vesting of any
unvested options and awards of such person under the NSSO Plan and the MR Plan,
respectively, as assumed by FNB as of the Effective Time, or (ii) provide such
person the economic equivalent to any unvested portion of such options under the
NSSO Plan or awards under the MR Plan.
(B) RETIREMENT PLAN. FNB shall assume the obligations of Home Savings
pursuant to the Home Savings Bank of Siler City, SSB Directors' Retirement Plan
(the "Directors' Plan") effective as of January 12, 1994 and as in effect as of
the date hereof, except that from and after the Effective Time, the FNB Board of
Directors or its compensation committee shall be substituted for the "Committee"
administering the Directors' Plan. Eligible participants in the Directors' Plan
shall begin
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receiving their retirement benefits under the Directors' Plan upon the Effective
Time, which shall constitute their severance from service on the Home Savings
Board of Directors.
5.5 INDEMNIFICATION OF DIRECTORS AND OFFICERS. After the Effective Time,
without releasing any insurance carrier and after exhaustion of all applicable
director and liability insurance coverage for Home Savings and its directors and
officers, FNB shall indemnify, hold harmless and defend the directors and
officers of Home Savings in office at the Effective Time, to the same extent as
it indemnifies its own directors and officers, from and against any and all
claims, disputes, demands, causes of action, suits, proceedings, losses,
damages, liabilities, obligations, cost and expenses of every kind and nature
including without limitation reasonable attorneys' fees and legal costs and
expenses therewith whether known or unknown and whether now existing or
hereafter arising which may be threatened against, incurred, undertaken,
received or paid by such persons in connection with or which arise out of or
result from or are based upon any action or failure to act by such person in the
ordinary scope of his duties as a director or officer of Home Savings through
the Effective Time; provided, however, that FNB shall not be obligated to
indemnify such person for (i) any act not available for statutory or permissible
indemnification under North Carolina law, (ii) any act of self-dealing in
violation of federal or state law, (iii) any act or omission which is ultimately
determined to have constituted a breach of any implied or actual duty of fair
dealing in connection with a lending obligation (such claims being commonly
referred to as lender liability claims), (iv) any penalty, decree, order,
finding or other action imposed or taken by any regulatory authority, (v) any
violation or alleged violation of any federal or state law, rule, regulation,
order, decree or policy applicable to banks and bank holding companies, (vi) any
violation or alleged violation of federal or state securities laws, or (vii) any
claim of sexual or other unlawful harassment, or any form of employment
discrimination prohibited by federal or state law. The indemnification provided
by this Section 5.5 is the sole indemnification provided by FNB to the directors
and officers of Home Savings for service in such positions up to and through the
Effective Time. This Section 5.5 is intended to create personal rights in the
directors and officers of Home Savings, who shall be deemed to be third-party
beneficiaries hereof. Notwithstanding any other provision of this Agreement, at
the Effective Time, the indemnification rights provided herein shall not be
extinguished but shall instead survive.
ARTICLE VI. MUTUAL AGREEMENTS
6.1 SHAREHOLDERS MEETING; REGISTRATION STATEMENT; PROXY
STATEMENT/PROSPECTUS.
(A) MEETING OF SHAREHOLDERS. Home Savings shall cause a special meeting of
its shareholders (the "Shareholders' Meeting") to be duly called and held as
soon as practicable (but in no event less than 20 business days following the
mailing to Home Savings' shareholders of the "Proxy Statement/Prospectus"
described below) for the purpose of Home Savings' shareholders voting on the
approval of the Merger and the ratification and adoption of this Agreement. In
connection with the call and conduct of and all other matters relating to the
Shareholders' Meeting (including the solicitation of proxies), Home Savings will
fully comply with all provisions of applicable federal and state law and
regulations and with its Articles of Incorporation and Bylaws.
(B) PREPARATION AND DISTRIBUTION OF PROXY STATEMENT/PROSPECTUS. FNB and
Home Savings jointly shall prepare a "Proxy Statement/Prospectus" for
distribution to Home Savings' shareholders as the proxy statement relating to
Home Savings' solicitation of proxies for use at the Shareholders' Meeting and
as FNB's prospectus relating to the offer and distribution of FNB Stock as
described herein. The Proxy Statement/Prospectus shall be in such form and shall
contain or be accompanied by such information regarding the Shareholders'
Meeting, this Agreement, the parties hereto, the Merger and other transactions
described herein as is required by applicable law and regulations and otherwise
as shall be agreed upon by FNB and Home Savings. FNB shall include the Proxy
Statement/Prospectus as the prospectus in its "Registration Statement" described
below; and, FNB and Home Savings shall cooperate with each other in good faith
and shall use their best efforts to cause the Proxy Statement/Prospectus to
comply with any comments of the SEC and FDIC thereon. Home Savings will mail the
Proxy Statement/Prospectus to its shareholders not less than 20 business days
prior to the scheduled date of the Shareholders' Meeting; provided, however,
that no such materials shall be mailed to Home Savings' shareholders unless and
until FNB shall have determined to its own satisfaction that the conditions
specified in Section 7.3(d) below have been satisfied and shall have approved
such mailing.
(C) REGISTRATION STATEMENT AND "BLUE SKY" APPROVALS. As soon as practicable
following the execution of this Agreement, FNB shall prepare and file with the
SEC under the Securities Act of 1933, as amended (the "1933 Act") a registration
statement on Form S-4 (or on such other form as FNB shall determine to be
appropriate) (the "Registration Statement") covering the FNB Stock to be issued
to shareholders of Home Savings pursuant to this Agreement. Additionally, FNB
shall take all such other actions, if any, as shall be required by applicable
state securities or "blue sky" laws (i) to cause the FNB
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Stock to be issued upon consummation of the Merger, and at the time of the
issuance thereof, to be duly qualified or registered (unless exempt) under such
laws, (ii) to cause all conditions to any exemptions from qualification or
registration under such laws to have been satisfied, and (iii) to obtain any and
all required approvals or consents to the issuance of such stock. FNB shall
deliver to Home Savings and its counsel a preliminary draft of the Registration
Statement and the Proxy Statement/Prospectus not later than 90 days after the
date of this Agreement.
(D) RECOMMENDATION OF HOME SAVINGS' BOARD OF DIRECTORS. Unless due to a
material change in circumstances or for any other reason Home Savings' Board of
Directors reasonably believes that such a recommendation would violate the
directors' duties or obligations as such to Home Savings or to its shareholders,
Home Savings' Board of Directors shall recommend to and actively encourage Home
Savings' shareholders that they vote their shares of Home Savings Stock at the
Shareholders' Meeting to ratify and approve this Agreement and the Merger, and
the Proxy Statement/Prospectus mailed to Home Savings' shareholders will so
indicate and state that Home Savings' Board of Directors considers the Merger to
be advisable and in the best interests of Home Savings and its shareholders.
(E) INFORMATION FOR PROXY STATEMENT/PROSPECTUS AND REGISTRATION STATEMENT.
FNB and Home Savings each agrees to promptly respond, and to use its best
efforts to cause its directors, officers, accountants and affiliates to promptly
respond, to requests by any other such party and its counsel for information for
inclusion in the various applications for regulatory approvals and in the Proxy
Statement/Prospectus. FNB and Home Savings each hereby covenants with the other
that none of the information provided by it for inclusion in the Proxy
Statement/Prospectus will, at the time of its mailing to Home Savings'
shareholders, contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading; and, at all times following such mailing up to and
including the Effective Time, none of such information contained in the Proxy
Statement/Prospectus, as it may be amended or supplemented, will contain any
untrue statement of a material fact or omit any material fact required to be
stated therein or necessary in order to make the statements contained therein,
in light of the circumstances under which they were made, not misleading.
(F) SECTION 3(A)(10) EXEMPTION. Notwithstanding anything in this Agreement
to the contrary, FNB, at its option, may satisfy the requirements of the 1933
Act by effecting the issuance of the FNB Stock pursuant to Section 3(a)(10)
thereof ("Section 3(a)(10)") in lieu of filing the Registration Statement. In
such case, all references to the Proxy Statement/Prospectus in this Agreement
shall mean only the proxy statement relative to Home Savings' solicitation of
proxies for use at the Shareholders' Meeting. If FNB determines that it will
utilize Section 3(a)(10), it shall notify Home Savings in writing within 90 days
of the date of this Agreement and shall file the application to the office of
the Secretary of State of North Carolina relating to the approval of the
fairness of the terms and conditions of the Merger within 120 days of the date
of this Agreement.
6.2 REGULATORY APPROVALS. Within 75 days after the date of this Agreement,
FNB and Home Savings each shall prepare and file, or cause to be prepared and
filed, all applications for regulatory approvals and actions as may be required
of them, respectively, by applicable law and regulations with respect to the
transactions described herein (including applications to the Federal Reserve,
the FDIC, the OCC and the Administrator and to any other applicable federal or
state banking, securities or other regulatory authority). Each such party shall
use their respective best efforts in good faith to obtain all necessary
regulatory approvals required for consummation of the transactions described
herein. Each such party shall cooperate with each other party in the preparation
of all applications to regulatory authorities and, upon request, promptly shall
furnish all documents, information, financial statements or other material that
may be required by any other party to complete any such application; and, before
the filing therefor, each party to this Agreement shall have the right to review
and comment on the form and content of any such application to be filed by any
other party. Should the appearance of any of the officers, directors, employees
or counsel of any of the parties hereto be requested by any other party or by
any governmental agency at any hearing in connection with any such application,
such party shall promptly use its best efforts to arrange for such appearance.
6.3 ACCESS. Following the date of this Agreement and to and including the
Effective Time, Home Savings shall provide FNB and its employees, accountants,
counsel or other representatives, access to all its books, records, files and
other information (whether maintained electronically or otherwise), to all its
properties and facilities, and to all its employees, accountants, counsel and
consultants as FNB shall, in its sole discretion, consider to be necessary or
appropriate; provided, however, that any investigation or reviews conducted by
FNB shall be performed in such a manner as will not interfere unreasonably with
Home Savings' normal operations or with their relationship with their customers
or employees, and shall be conducted in accordance with procedures established
by the parties having due regard for the foregoing.
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6.4 COSTS. Subject to the provisions of Section 8.3(c) below, and whether
or not this Agreement shall be terminated or the Merger shall be consummated,
FNB and Home Savings each shall pay its own legal, accounting and financial
advisory fees and all its other costs and expenses incurred or to be incurred in
connection with the execution and performance of its obligations under this
Agreement or otherwise in connection with this Agreement and the transactions
described herein (including without limitation all accounting fees, legal fees,
filing fees, printing costs, travel expenses, and, in the case of Home Savings,
all fees owed to Baxter Fentriss and Company and the cost of Home Savings'
"Fairness Opinion" described in Section 7.2(e) below. However, subject to the
provisions of Section 8.3(c) below, all costs incurred in connection with the
preparation, printing and mailing of the Proxy Statement/Prospectus, including
but not limited to printing and postage expenses, shall be deemed to be incurred
and shall be paid fifty percent (50%) by Home Savings and fifty percent (50%) by
FNB.
6.5 ANNOUNCEMENTS. Home Savings and FNB each agrees that no person other
than the parties to this Agreement is authorized to make any public
announcements or statements about this Agreement or any of the transactions
described herein, and that, without the prior review and consent of the others
(which consent shall not unreasonably be denied or delayed), no party hereto may
make any public announcement, statement or disclosure as to the terms and
conditions of this Agreement or the transactions described herein, except for
such disclosures as may be required incidental to obtaining the prior approval
of any regulatory agency or official to the consummation of the transactions
described herein. However, notwithstanding anything contained herein to the
contrary, prior review and consent shall not be required if in the good faith
opinion of counsel to FNB any such disclosure by FNB is required by law or
otherwise is prudent.
6.6 CONFIDENTIALITY. FNB and Home Savings each agrees that it shall treat
as confidential and not disclose to any unauthorized person any documents or
other information obtained from or learned about the other during the course of
the negotiation of this Agreement and the carrying out of the events and
transactions described herein (including any information obtained during the
course of any due diligence investigation or review provided for herein or
otherwise) and which documents or other information relates in any way to the
business, operations, personnel, customers or financial condition of such other
party; and, that it will not use any such documents or other information for any
purpose except for the purposes for which such documents and information were
provided to it and in furtherance of the transactions described herein. However,
the above obligations of confidentiality shall not prohibit the disclosure of
any such document or information by any party to this Agreement to the extent
(i) such document or information is then available generally to the public or is
already known to the person or entity to whom disclosure is proposed to be made
(other than through the previous actions of such party in violation of this
Section 6.6), (ii) such document or information was available to the disclosing
party on a nonconfidential basis prior to the same being obtained pursuant to
this Agreement, (iii) disclosure is required by subpoena or order of a court or
regulatory authority of competent jurisdiction, or by the SEC or other
regulatory authorities in connection with the transactions described herein, or
(iv) to the extent that, in the reasonable opinion of legal counsel to such
party, disclosure otherwise is required by law. In the event this Agreement is
terminated for any reason, then each of the parties hereto immediately shall
return to the other party all copies of any and all documents or other written
materials or information (including computer generated and stored data) of or
relating to such other party which were obtained from them during the course of
the negotiation of this Agreement and the carrying out of the events and
transactions described herein (whether during the course of any due diligence
investigation or review provided for herein or otherwise) and which documents or
other information relates in any way to the business, operations, personnel,
customers or financial condition of such other party. The parties' obligations
of confidentiality under this Section 6.6 shall survive and remain in effect
following any termination of this Agreement.
6.7 ENVIRONMENTAL STUDIES. At its option, FNB may cause to be conducted
Phase I environmental assessments of the Real Property, the real estate subject
to any Real Property Lease, or the Loan Collateral, or any portion thereof,
together with such other studies, testing and intrusive sampling and analyses as
FNB shall deem necessary or desirable (collectively, the "Environmental
Survey"); provided, however, that the Environmental Survey, as much as possible,
shall be performed in such a manner as will not interfere unreasonably with Home
Savings' normal operations. FNB shall attempt in good faith to complete all such
Phase I environmental assessments within 60 days following the date of this
Agreement and thereafter to conduct and complete any such additional studies,
testing, sampling and analyses as promptly as practicable. Subject to the
provisions of Section 8.3(c) below, the costs of the Environmental Survey shall
be paid by FNB. If (i) the final results of any Environmental Survey (or any
related analytical data) reflect that there likely has been any discharge,
disposal, release or emission by any person of any Hazardous Substance on, from
or relating to any of the Real Property, real estate subject to a Real Property
Lease or Loan Collateral at any time prior to the Effective Time, or that any
action has been taken or not taken, or a condition or event likely has occurred
or exists, with respect to any of the Real Property, real estate subject to a
Real Property Lease or Loan Collateral which constitutes or would constitute a
violation of any Environmental Laws, and if, (ii) based on the advice of its
legal counsel or other consultants, FNB believes that Home Savings or, following
the Merger,
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FNB or First National, could become responsible for the remediation of such
discharge, disposal, release or emission or for other corrective action with
respect to any such violation, or that Home Savings or, following the Merger,
FNB or First National, could become liable for monetary damages (including
without limitation any civil or criminal penalties or assessments) resulting
therefrom (or that, in the case of any of the Loan Collateral, Home Savings or,
following the Merger, FNB or First National, could incur any such liability if
it acquired title to such Loan Collateral), and if, (iii) based on the advice of
their legal counsel or other consultants, FNB believes the amount of expenses or
liability which either of them could incur or for which either of them could
become responsible or liable on account of any and all such remediation,
corrective action or monetary damages at any time or over any period of time
could equal or exceed an aggregate of $100,000 over any period of time, then FNB
shall give Home Savings prompt written notice thereof (together with all
information in its possession relating thereto) and, at FNB's sole option and
discretion, at any time thereafter and up to the Effective Time, it may
terminate this Agreement without further obligation or liability to Home Savings
or its shareholders.
6.8 TAX-FREE REORGANIZATION. FNB and Home Savings each undertakes and
agrees that it will use its best efforts to cause the Merger to qualify as a
tax-free "reorganization" within the meaning of Section 368(a)(1)(A) of the Code
and that it shall not intentionally take any action that would cause the Merger
to fail to so qualify.
6.9 TRANSITION TEAM. FNB and Home Savings shall create a transition team
comprised of staff and representatives of Home Savings and staff and
representatives of FNB and First National (the "Transition Team"). The purpose
of the Transition Team shall be to provide detailed guidance to FNB in
fulfilling and consummating the Merger, to maintain open lines of communication
between Home Savings and First National, and to handle customer inquiries
regarding the Merger. The Transition Team shall meet as necessary until the
Effective Time. Members of the Transition Team shall receive no compensation for
such service.
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER
7.1 CONDITIONS TO ALL PARTIES' OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
(A) CORPORATE ACTION. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the Plan of Merger in
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken, including without limitation the approval of the
shareholders of Home Savings of this Agreement and the Plan of Merger.
(B) REGISTRATION STATEMENT EFFECTIVE OR SECTION 3(A)(10) EXEMPTION
APPROVED. Either (i) the Registration Statement (including any post-effective
amendments thereto) shall be effective under the 1933 Act, and no stop orders or
proceedings shall be pending or, to the knowledge of FNB, threatened by the SEC
to suspend the effectiveness of such Registration Statement or (ii) the
application contemplated by Section 6.1(f) above shall have been finally
approved such that the requirements of Section 3(a)(10) shall have been met. FNB
Stock to be issued as contemplated in the Plan of Merger shall have been
registered or shall either be not subject to registration or subject to
exemption from registration under applicable state securities laws.
(C) "BLUE SKY" APPROVALS. FNB Corp. shall have received all state
securities or "Blue Sky" permits or other authorizations, or confirmations as to
the availability of exemptions from Blue Sky registration requirements as may be
necessary, and no stop orders or proceedings shall be pending or, to the
knowledge of FNB, threatened by any state Blue Sky administration to suspend the
effectiveness of any registration statement filed therewith with respect to the
issuance of FNB Stock in the Merger.
(D) REGULATORY APPROVALS. (i) The Merger and other transactions described
herein shall have been approved, to the extent required by law, by the Federal
Reserve, the FDIC, the OCC, the Administrator, and by all other governmental or
regulatory agencies or authorities having jurisdiction over such transactions,
(ii) no governmental or regulatory agency or authority shall have withdrawn its
approval of such transactions or imposed any condition on such transactions or
conditioned its approval thereof, which condition is reasonably deemed by FNB to
be materially disadvantageous or burdensome or to so adversely impact the
economic or business benefits of this Agreement to FNB as to render it
inadvisable for it to consummate the Merger; (iii) all applicable waiting
periods following regulatory approvals shall have expired without objection to
the Merger by the United States Department of Justice or other applicable
regulatory authorities; and (iv) all other consents, approvals and permissions,
and the satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.
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(E) ADVERSE PROCEEDINGS, INJUNCTION, ETC. There shall not be (i) any order,
decree or injunction of any court or agency of competent jurisdiction which
enjoins or prohibits the Merger or any of the other transactions described
herein or any of the parties hereto from consummating any such transaction, (ii)
any pending or threatened investigation of the Merger or any of such other
transactions by the United States Department of Justice, or any actual or
threatened litigation under federal antitrust laws relating to the Merger or any
other such transaction, (iii) any suit, action or proceeding by any person
(including any governmental, administrative or regulatory agency), pending or
threatened before any court or governmental agency in which it is sought to
restrain or prohibit Home Savings or FNB from consummating the Merger or
carrying out any of the terms or provisions of this Agreement, or (iv) any other
suit, claim, action or proceeding pending or threatened against Home Savings or
FNB or any of their respective officers or directors which shall reasonably be
considered by Home Savings or FNB to be materially burdensome in relation to the
proposed Merger or materially adverse in relation to the financial condition,
results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of either such corporation, and which has
not been dismissed, terminated or resolved to the satisfaction of all parties
hereto within 90 days of the institution or threat thereof.
(F) TAX OPINION. FNB and Home Savings shall have received an opinion of
Schell Bray Aycock Abel & Livingston P.L.L.C., in form and substance
satisfactory to them, substantially to the effect that: (i) for federal income
tax purposes, consummation of the Merger will constitute a "reorganization" as
defined in Section 368(a) of the Code; (ii) no taxable gain will be recognized
by a shareholder of Home Savings upon such shareholder's receipt solely of FNB
Stock in exchange for his or her Home Savings Stock; (iii) dividend income or
capital gain will be recognized by a shareholder of Home Savings who receives
FNB Stock and cash in exchange for his or her Home Savings Stock pursuant to
Section 1.5 above, limited to an amount not to exceed the amount of cash
received; (iv) the basis of the FNB Stock received by the shareholder in the
Merger will have the same basis as his or her Home Savings Stock surrendered in
exchange therefor decreased by the amount of cash received, if any, and
increased by any gain recognized on the exchange; (v) if Home Savings Stock is a
capital asset in the hands of the shareholder at the Effective Time, then the
holding period of the FNB Stock received by the shareholder in the Merger will
include the holding period of Home Savings Stock surrendered in exchange
therefor; (vi) cash received by a shareholder who receives solely cash pursuant
to Section 1.5 above will generally be treated as a distribution in redemption
of his or her Home Savings Stock subject to the provisions of Section 302 of the
Code and the constructive ownership rules of Section 318 of the Code; and (vii)
a shareholder who receives cash in lieu of a fractional share of FNB Stock will
recognize gain or loss equal to any difference between the amount of cash
received and the shareholder's basis in the fractional share interest. In
rendering its opinion, Schell Bray Aycock Abel & Livingston P.L.L.C. will
require and rely on representations by officers of FNB and Home Savings, and
will be entitled to make reasonable assumptions.
(G) NASDAQ LISTING. FNB shall have satisfied all requirements for the
shares of FNB Stock to be issued to the shareholders of Home Savings in
connection with the Merger to be listed on the NASDAQ National Market as of the
Effective Time.
7.2 ADDITIONAL CONDITIONS TO HOME SAVINGS' OBLIGATIONS. Notwithstanding any
other provision of this Agreement to the contrary, Home Savings' separate
obligation to consummate the transactions described herein shall be conditioned
upon the satisfaction of each of the following conditions precedent on or prior
to the Closing Date:
(A) MATERIAL ADVERSE CHANGE. There shall not have been any material adverse
change in the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of FNB and its consolidated subsidiary considered as one enterprise
and there shall not have occurred any event or development and there shall not
exist any condition or circumstance which, with the lapse of time or otherwise,
may or could cause, create or result in any such material adverse change.
(B) COMPLIANCE WITH LAWS. FNB shall have complied in all material respects
with all federal and state laws and regulations applicable to the transactions
described herein and where the violation of or failure to comply with any such
law or regulation could or may have a material adverse effect on the
consolidated financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of FNB and its
consolidated subsidiary considered as one enterprise.
(C) FNB'S REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF AGREEMENTS;
OFFICERS' CERTIFICATE. Unless waived in writing by Home Savings as provided in
Section 10.2 below, each of the representations and warranties of FNB contained
in this Agreement shall have been true and correct as of the date hereof and
shall remain true and correct on and as of the Effective Time with the same
force and effect as though made on and as of such date, except (i) for changes
which are not, in the aggregate, material and adverse to the consolidated
financial condition, results of operations, prospects, businesses,
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assets, loan portfolio, investments, properties or operations of FNB and its
consolidated subsidiary considered as one enterprise, and (ii) as otherwise
contemplated by this Agreement; and FNB shall have performed in all material
respects all of its obligations, covenants and agreements hereunder to be
performed by it on or before the Closing Date. Home Savings shall have received
a certificate dated as of the Closing Date and executed by its President to the
foregoing effect and as to such other matters as may be reasonably requested by
Home Savings.
(D) LEGAL OPINION OF FNB'S COUNSEL. Home Savings shall have received from
Schell Bray Aycock Abel & Livingston P.L.L.C., counsel for FNB, a written
opinion dated as of the Closing Date and substantially in the form of Schedule D
attached hereto or otherwise in form and substance reasonably satisfactory to
Home Savings.
(E) FAIRNESS OPINION. Home Savings shall have received from its financial
advisor, Baxter Fentriss & Company ("Baxter Fentriss"), a written opinion ( the
"Fairness Opinion"), dated as of a date prior to the mailing of the Proxy
Statement/Prospectus to Home Savings' shareholders in connection with the
Shareholders Meeting, to the effect that the consideration to be received by
Home Savings' shareholders in the Merger is fair, from a financial point of
view, to Home Savings and its shareholders; and, Baxter Fentriss shall have
delivered a letter to Home Savings, dated as of a date within ten business days
preceding the Closing Date, to the effect that it remains its opinion that the
terms of the Merger are fair, from a financial point of view, to Home Savings
and its shareholders.
(F) NO STOCK DIVIDENDS OR SPLITS. FNB shall not have effected any stock
dividends or stock splits with respect to the FNB Stock beginning on the date
that is thirty-five (35) days prior to the Closing Date.
(G) OTHER DOCUMENTS AND INFORMATION FROM FNB. FNB shall have provided to
Home Savings correct and complete copies of its Articles of Incorporation,
Bylaws and Board and shareholder resolutions approving this Agreement and the
Merger (all certified by its Secretary), together with certificates of the
incumbency of its officers and such other closing documents and information as
may be reasonably requested by Home Savings or its counsel.
(H) ACCEPTANCE BY HOME SAVINGS' COUNSEL. The form and substance of all
legal matters described herein or related to the transactions contemplated
herein shall be reasonably acceptable to Home Savings' legal counsel.
7.3 ADDITIONAL CONDITIONS TO FNB'S OBLIGATIONS. Notwithstanding any other
provision of this Agreement to the contrary, FNB's obligations to consummate the
transactions described herein shall be conditioned upon the satisfaction of each
of the following conditions precedent on or prior to the Closing Date:
(A) MATERIAL ADVERSE CHANGE. There shall not have occurred any material
adverse change in the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of Home Savings and there shall not have occurred any event or
development and there shall not exist any condition or circumstance which, with
the lapse of time or otherwise, may or could cause, create or result in any such
material adverse change.
(B) COMPLIANCE WITH LAWS. Home Savings shall have complied in all material
respects with all federal and state laws and regulations applicable to the
transactions described herein and where the violation of or failure to comply
with any such law or regulation could or may have a material adverse effect on
the consolidated financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or operations of FNB
or Home Savings.
(C) HOME SAVINGS' REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
AGREEMENTS; OFFICERS' CERTIFICATE. Unless waived in writing by FNB as provided
in Section 10.2 below, each of the representations and warranties of Home
Savings contained in this Agreement shall have been true and correct as of the
date hereof and shall remain true and correct at and as of the Effective Time
with the same force and effect as though made on and as of such date, except (i)
for changes which are not, in the aggregate, material and adverse to the
consolidated financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of Home Savings
considered as one enterprise, and (ii) as otherwise contemplated by this
Agreement; and Home Savings shall have performed in all material respects all
its obligations, covenants and agreements hereunder to be performed by it on or
before the Closing Date. FNB shall have received a certificate dated as of the
Closing Date and executed by Home Savings and its President to the foregoing
effect and as to such other matters as may be reasonably requested by FNB.
(D) LEGAL OPINION OF HOME SAVINGS' COUNSEL. FNB shall have received from
Moore & Van Allen, PLLC, counsel to Home Savings, a written opinion, dated as of
the Closing Date and substantially in the form of Schedule E attached hereto or
otherwise in form and substance reasonably satisfactory to FNB.
(E) OTHER DOCUMENTS AND INFORMATION FROM HOME SAVINGS. Home Savings shall
have provided to FNB correct and complete copies of Home Savings' Articles of
Incorporation, Bylaws and board and shareholder resolutions (all certified by
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Home Savings' Secretary), together with certificates of the incumbency of Home
Savings' officers and such other closing documents and information as may be
reasonably requested by FNB or its counsel.
(F) AMENDMENTS TO BENEFIT PLANS; TERMINATION OF HOME SAVINGS PENSION PLAN.
The Board of Directors of Home Savings shall have adopted and implemented,
effective as of the Effective Time, amendments to the ISO Plan, the NSSO Plan,
the MR Plan, the ESOP and the Directors' Plan, in form and content consistent
with the provisions of this Agreement and satisfactory to FNB. Home Savings
shall have taken such actions to terminate the Home Savings Pension Plan in
accordance with Section 4.1 (i) above.
(G) ESOP LOAN. The ESOP Loan from First National shall have been
refinanced, paid off or transferred as contemplated in accordance with Section
4.1(g) above, and Edwin E. Bridges shall be continuing to serve as the ESOP
Trustee.
(H) CONSENTS TO ASSIGNMENT OF PROPERTY LEASES. Home Savings shall have
obtained all required consents to the assignment to FNB of its rights and
obligations under any personal property lease material to the business of Home
Savings and any Real Property Lease, and such consents shall be in such form and
substance as shall be satisfactory to FNB; and, each of the lessors of Home
Savings shall have confirmed in writing that Home Savings is not in default
under the terms and conditions of any personal property lease or any Real
Property Lease.
(I) AFFILIATES' AGREEMENTS. FNB shall have received the written Affiliates'
Agreements in form and content satisfactory to FNB and signed by all persons
Previously Disclosed to FNB as an Affiliate (other than those principal
shareholders Previously Disclosed under Section 2.3 of this Agreement) or who
otherwise are deemed by FNB or its counsel to be Affiliates of Home Savings as
provided in Section 4.1(a) above.
(J) DISSENTERS' RIGHTS. The holders of no more than ten percent (10%) of
the Home Savings Stock shall have exercised Dissenters' Rights or voted against
approval of this Agreement and the Plan of Merger at the Shareholders' Meeting
(as provided in Section 1.6 above).
(K) ACCEPTANCE BY FNB'S COUNSEL. The form and substance of all legal
matters described herein or related to the transactions contemplated herein
shall be reasonably acceptable to FNB's legal counsel.
ARTICLE VIII. TERMINATION; BREACH; REMEDIES
8.1 MUTUAL TERMINATION. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of Home Savings),
this Agreement may be terminated by the mutual agreement of FNB and Home
Savings. Upon any such mutual termination, all obligations of Home Savings and
FNB hereunder shall terminate and each party shall pay costs and expenses as
provided in Section 6.4 above.
8.2 UNILATERAL TERMINATION. This Agreement may be terminated by either FNB
or Home Savings (whether before or after approval hereof by Home Savings'
shareholders) upon written notice to the other parties and under the
circumstances described below.
(A) TERMINATION BY FNB. This Agreement may be terminated by FNB by action
of its Board of Directors or Executive Committee:
(i) if any of the conditions to the obligations of FNB (as set forth
in Section 7.1 or 7.3 above) shall not have been satisfied or effectively
waived in writing by FNB by April 30, 1998 (except to the extent that the
failure of such condition to be satisfied has been caused by the failure of
FNB to satisfy any of its obligations, covenants or agreements contained
herein);
(ii) if Home Savings shall have violated or failed to fully perform
any of its obligations, covenants or agreements contained in Article IV or
Article VI herein in any material respect;
(iii) if FNB determines at any time that any of Home Savings'
representations or warranties contained in Article II above or in any other
certificate or writing delivered pursuant to this Agreement shall have been
false or misleading in any material respect when made, or that there has
occurred any event or development or that there exists any condition or
circumstance which has caused or, with the lapse of time or otherwise, may
or could cause any such representations or warranties to become false or
misleading in any material respect;
(iv) if, notwithstanding FNB's satisfaction of its obligations under
Sections 6.1(b), (c), (e) and (f) above, Home Savings' shareholders do not
ratify and approve this Agreement and approve the Plan of Merger at the
Shareholders' Meeting;
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(v) if the Merger shall not have become effective on or before April
30, 1998 unless such date is extended as evidenced by the written mutual
agreement of the parties hereto; provided, however, that in the event there
is a delay of not more than 30 days caused by circumstances beyond the
control of the parties hereto, the parties hereto agree that the dates set
forth in this Section 8.2(a) shall be extended by mutual agreement for up
to an additional 60 days;
(vi) if the average Closing Price of FNB Stock for the twenty (20)
consecutive trading days ending on the trading date that is three (3) days
prior to the scheduled Closing Date is less than $27.00 (as proportionately
adjusted in the event of any stock dividend or stock split of FNB Stock
after the date hereof); or,
(vii) under the circumstances described in Section 6.7 above.
However, before FNB may terminate this Agreement for any of the reasons
specified above in (i), (ii) or (iii) of this Section 8.2(a), it shall give
written notice to Home Savings as provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by FNB
shall not become effective if, within 30 days following the giving of such
notice, Home Savings shall cure such breach, default or violation or satisfy
such condition to the reasonable satisfaction of FNB. In the event Home Savings
cannot or does not cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of FNB within such 30-day period, FNB
shall have 30 days to notify Home Savings of its intention to terminate this
Agreement. A failure to so notify Home Savings will be deemed to be a waiver by
FNB of the breach, default or violation pursuant to Section 10.2 below.
(B) TERMINATION BY HOME SAVINGS. This Agreement may be terminated by Home
Savings:
(i) if any of the conditions of the obligations of Home Savings (as
set forth in Section 7.1 or 7.2 above) shall not have been satisfied or
effectively waived in writing by Home Savings by April 30, 1998 (except to
the extent that the failure of such condition to be satisfied has been
caused by the failure of Home Savings to satisfy any of its obligations,
covenants or agreements contained herein);
(ii) if FNB shall have violated or failed to fully perform any of its
obligations, covenants or agreements contained in Article V or Article VI
herein in any material respect;
(iii) if Home Savings determines that any of FNB's representations and
warranties contained in Article III herein or in any other certificate or
writing delivered pursuant to this Agreement shall have been false or
misleading in any material respect when made, or that there has occurred
any event or development or that there exists any condition or circumstance
which has caused or, with the lapse of time or otherwise, may or could
cause any such representations or warranties to become false or misleading
in any material respect;
(iv) if, notwithstanding Home Savings' satisfaction of its obligations
contained in Sections 6.1(a), (b), (d) and (e) above, its shareholders do
not ratify and approve this Agreement and approve the Plan of Merger at the
Shareholders' Meeting by the requisite vote under federal and state law;
or,
(v) if the Merger shall not have become effective on or before April
30, 1998, unless such date is extended as evidenced by the written mutual
agreement of the parties hereto; provided, however, that in the event there
is a delay of not more than 30 days caused by circumstances beyond the
control of the parties hereto, the parties hereto agree that the dates set
forth in this Section 8.2(b) shall be extended by mutual agreement for up
to an additional 60 days; or (vi) if the average Closing Price for the
twenty (20) consecutive trading days ending on the trading date that is
three (3) days prior to the scheduled Closing Date is more than $36.50 (as
proportionately adjusted in the event of any stock dividend or stock split
of FNB Stock after the date hereof).
However, before Home Savings may terminate this Agreement for any of the
reasons specified above in clause (i), (ii) or (iii) of this Section 8.2(b), it
shall give written notice to FNB as provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by
Home Savings shall not become effective if, within 30 days following the giving
of such notice, FNB shall cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of Home Savings. In the event FNB
cannot or does not cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of Home Savings within such 30-day
period, Home Savings shall have 30 days to notify FNB of its intention to
terminate this Agreement. A failure to so notify FNB will be deemed to be a
waiver by Home Savings of the breach, default or violation pursuant to Section
10.2 below.
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8.3 BREACH; REMEDIES.
(A) Except as otherwise provided below, in the event of a breach by Home
Savings of any of its representations or warranties contained in this Agreement
or in any other certificate or writing delivered pursuant to this Agreement, or
in the event of its failure to perform or violation of any of its obligations,
agreements or covenants contained in this Agreement, then FNB's sole right and
remedy shall be to terminate this Agreement prior to the Effective Time as
provided in Section 8.2 above, or, in the case of a failure to perform or
violation of any obligations, agreements or covenants, to seek specific
performance thereof.
(B) Likewise, and except as otherwise provided below, in the event of a
breach by FNB of any of its representations or warranties contained in this
Agreement, or in the event of its failure to perform or violation of any of its
obligations, agreements or covenants contained in this Agreement, then Home
Savings' sole right and remedy shall be to terminate this Agreement prior to the
Effective Time as provided in Section 8.2 above, or, in the case of a failure to
perform or violation of any obligations, agreements or covenants, to seek
specific performance thereof.
(C) Notwithstanding anything contained herein to the contrary, if either
party to this Agreement breaches this Agreement by willfully or intentionally
failing to perform or violating any of its obligations, agreements or covenants
contained in this Agreement, such party shall be obligated to pay all expenses
of the other party described in Section 6.4, together with other damages
recoverable at law or in equity.
ARTICLE IX. INDEMNIFICATION
9.1 AGREEMENT TO INDEMNIFY. Home Savings and FNB hereby agree that in the
event this Agreement is terminated for any reason and the Merger is not
consummated, then they will indemnify each other as provided below.
(A) BY HOME SAVINGS. Home Savings shall indemnify, hold harmless and defend
FNB from and against any and all claims, disputes, demands, causes of action,
suits, proceedings, losses, damages, liabilities, obligations, costs and
expenses of every kind and nature, including without limitation reasonable
attorneys' fees and legal costs and expenses in connection therewith, whether
known or unknown, and whether now existing or hereafter arising, which may be
threatened against, incurred, undertaken, received or paid by FNB:
(i) in connection with or which arise out of or result from or are
based upon (A) Home Savings' operations or business transactions or its
relationship with any of its employees, or (B) Home Savings' failure to
comply with any statute or regulation of any federal, state or local
government or agency (or any political subdivision thereof) in connection
with the transactions described in this Agreement;
(ii) in connection with or which arise out of or result from or are
based upon any fact, condition or circumstance that constitutes a breach by
Home Savings of, or any inaccuracy, incompleteness or inadequacy in, any of
its representations or warranties under or in connection with this
Agreement, or any failure of Home Savings to perform any of its covenants,
agreements or obligations under or in connection with this Agreement;
(iii) in connection with or which arise out of or result from or are
based upon any information provided by Home Savings which is included in
the Proxy Statement/Prospectus and which information causes the Proxy
Statement/Prospectus at the time of its mailing to Home Savings'
shareholders to contain any untrue statement of a material fact or to omit
any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under
which they were made, not false or misleading; and,P (iv) in connection
with or which arise out of or result from or are based upon the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, reporting, testing, processing, emission,
discharge, release, threatened release, control, removal, clean-up or
remediation on, from or relating to the Real Property by Home Savings or
any other person of any Hazardous Substances, or any action taken or any
event or condition occurring or existing with respect to the Real Property
which constitutes a violation of any Environmental Laws by Home Savings or
any other person.
(B) BY FNB. FNB shall indemnify, hold harmless and defend Home Savings from
and against any and all claims, disputes, demands, causes of action, suits,
proceedings, losses, damages, liabilities, obligations, costs and expenses of
every kind and nature, including without limitation reasonable attorneys' fees
and legal costs and expenses in connection therewith, whether known or unknown,
and whether now existing or hereafter arising, which may be threatened against,
incurred, undertaken, received or paid by Home Savings:
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(i) in connection with or which arise out of or result from or are
based upon (A) FNB's operations or business transactions or its
relationship with any of its employees, or (B) FNB's failure to comply with
any statute or regulation of any federal, state or local government or
agency (or any political subdivision thereof) in connection with the
transactions described in this Agreement;
(ii) in connection with or which arise out of or result from or are
based upon of any fact, condition or circumstance that constitutes a breach
by FNB of, or any inaccuracy, incompleteness or inadequacy in, any of its
representations or warranties under or in connection with this Agreement,
or any failure of FNB to perform any of its covenants, agreements or
obligations under or in connection with this Agreement; and,
(iii) in connection with or which arise out of or result from or are
based upon any information provided by it which is included in the Proxy
Statement/Prospectus and which information causes the Proxy
Statement/Prospectus at the time of its mailing to Home Savings'
shareholders to contain any untrue statement of a material fact or to omit
any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under
which they were made, not false or misleading.
9.2 PROCEDURE FOR CLAIMING INDEMNIFICATION.
(A) BY FNB. If any matter subject to indemnification hereunder arises in
the form of a claim against FNB, its successors and assigns (collectively,
"Indemnitee") (herein referred to as a "Third Party Claim"), the applicable
Indemnitee promptly shall give notice and details thereof, including copies of
all pleadings and pertinent documents, to Home Savings. Within 15 days of such
notice, Home Savings either (i) shall pay the Third Party Claim either in full
or upon agreed compromise or (ii) shall notify the applicable Indemnitee and FNB
that Home Savings disputes the Third Party Claim and intends to defend against
it, and thereafter shall so defend and pay any adverse final judgment or award
in regard thereto. Such defense shall be controlled by Home Savings and the cost
of such defense shall be borne by Home Savings except that the applicable
Indemnitee shall have the right to participate in such defense at its own
expense and provided that Home Savings shall have no right in connection with
any such defense or the resolution of any such Third Party Claim to impose any
cost, restriction, limitation or condition of any kind upon any of the parties
comprising Indemnitee hereunder. FNB agrees that it shall cooperate in all
reasonable respects in the defense of any such Third Party Claim, including
making personnel, books and records relevant to the Third Party Claim available
to Home Savings without charge therefor except for out-of-pocket expenses. If
Home Savings fails to take action within 15 days as hereinabove provided or,
having taken such action, thereafter fails diligently to defend and resolve the
Third Party Claim, the parties comprising Indemnitee shall have the right to
pay, compromise or defend the Third Party Claim and to assert the
indemnification provisions hereof. Each of the parties comprising Indemnitee
also shall have the right, exercisable in good faith, to take such action as may
be necessary to avoid a default prior to the assumption of the defense of the
Third Party Claim by Home Savings.
(B) BY HOME SAVINGS. If any matter subject to indemnification hereunder
arises in the form of a claim against Home Savings or its successors and assigns
(herein referred to as a "Third Party Claim"), Home Savings promptly shall give
notice and details thereof, including copies of all pleadings and pertinent
documents, to FNB. Within 15 days of such notice, FNB either (i) shall pay the
Third Party Claim either in full or upon agreed compromise or (ii) shall notify
Home Savings that FNB disputes the Third Party Claim and intends to defend
against it, and thereafter shall so defend and pay any adverse final judgment or
award in regard thereto. Such defense shall be controlled by FNB and the cost of
such defense shall be borne by FNB except that Home Savings shall have the right
to participate in such defense at its own expense and provided that FNB shall
have no right in connection with any such defense or the resolution of any such
Third Party Claim to impose any cost, restriction, limitation or condition of
any kind upon Home Savings. Home Savings agrees that it shall cooperate in all
reasonable respects in the defense of any such Third Party Claim, including
making personnel, books and records relevant to the Third Party Claim available
to FNB without charge therefor except for out-of-pocket expenses. If FNB fails
to take action within 15 days as hereinabove provided or, having taken such
action, thereafter fails diligently to defend and resolve the Third Party Claim,
Home Savings shall have the right to pay, compromise or defend the Third Party
Claim and to assert the indemnification provisions hereof. Home Savings also
shall have the right, exercisable in good faith, to take such action as may be
necessary to avoid a default prior to the assumption of the defense of the Third
Party Claim by FNB.
ARTICLE X. MISCELLANEOUS PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, INDEMNIFICATION AND OTHER
AGREEMENTS.
(A) REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS. None of the
representations, warranties or agreements herein shall survive the effectiveness
of the Merger, and no party shall have any right after the Effective Time to
recover damages or
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<PAGE>
any other relief from any other party to this Agreement by reason of any breach
of representation or warranty, any nonfulfillment or nonperformance of any
agreement contained herein, or otherwise; provided, however, that the parties'
agreements contained in Section 6.6. above, FNB's covenants contained in Article
V above, and FNB's representation and warranty contained in Section 3.2 above,
shall survive the effectiveness of the Merger.
(B) INDEMNIFICATION. The parties' indemnification agreements and
obligations pursuant to Section 9.1 above shall become effective only in the
event this Agreement is terminated, and neither of the parties shall have any
obligations under Section 9.1 in the event of or following consummation of the
Merger.
10.2 WAIVER. Any term or condition of this Agreement may be waived (except
as to matters of regulatory approvals and approvals required by law), either in
whole or in part, at any time by the party which is, and whose shareholders are,
entitled to the benefits thereof, provided, however, that any such waiver shall
be effective only upon a determination by the waiving party (through action of
its Board of Directors) that such waiver would not adversely affect the
interests of the waiving party or its shareholders; and, provided further, that
no waiver of any term or condition of this Agreement by any party shall be
effective unless such waiver is in writing and signed by the waiving party or as
provided in Sections 8.2(a) and 8.2(b) above, or be construed to be a waiver of
any succeeding breach of the same term or condition. No failure or delay of any
party to exercise any power, or to insist upon a strict compliance by any other
party of any obligation, and no custom or practice at variance with any terms
hereof, shall constitute a waiver of the right of any party to demand full and
complete compliance with such terms.
10.3 AMENDMENT. This Agreement may be amended, modified or supplemented at
anytime or from time to time prior to the Effective Time, and either before or
after its approval by the shareholders of Home Savings, by an agreement in
writing approved by a majority of the Boards of Directors of FNB and Home
Savings executed in the same manner as this Agreement; provided however, that,
except with the further approval of Home Savings' shareholders of that change or
as otherwise provided herein, following approval of this Agreement by Home
Savings' shareholders, no change may be made in the Cash Factor or the Exchange
Ratio.
10.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by courier, or mailed by certified mail, return receipt requested, postage
prepaid, and addressed as follows:
(a) If to Home Savings, to:
Home Savings Bank of Siler City, Inc., SSB
300 East Raleigh Street
Siler City, North Carolina 27344
Attention: Edwin E. Bridges, President
With copy to:
Moore & Van Allen, L.L.P.
One Hanover Square, Suite 1700
Raleigh, North Carolina 27611
Attention: Anthony Gaeta, Jr.
(b) If to FNB or First National, to:
FNB Corp.
Post Office Box 1328 (27204)
101 Sunset Avenue
Asheboro, North Carolina 27203
Attention: Mr. Michael C. Miller, President
With copy to:
Schell Bray Aycock Abel & Livingston P.L.L.C.
230 North Elm Street
1500 Renaissance Plaza
Greensboro, North Carolina 27420
Attention: Kenneth N. Shelton
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<PAGE>
10.5 FURTHER ASSURANCE. Home Savings and FNB each agree to furnish to the
other such further assurances with respect to the matters contemplated herein
and their respective agreements, covenants, representations and warranties
contained herein, including the opinion of legal counsel, as such other party
may reasonably request.
10.6 HEADINGS AND CAPTIONS. Headings and captions of the sections and
Sections of this Agreement have been inserted for convenience of reference only
and do not constitute a part hereof.
10.7 ENTIRE AGREEMENT. This Agreement (including all schedules and exhibits
attached hereto and all documents incorporated herein by reference) contains the
entire agreement of the parties with respect to the transactions described
herein and supersedes any and all other oral or written agreement(s) heretofore
made, and there are no representations or inducements by or to, or any
agreements between, any of the parties hereto other than those contained herein
in writing.
10.8 SEVERABILITY OF PROVISIONS. The invalidity or unenforceability of any
term, phrase, clause, Section, restriction, covenant, agreement or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.
10.9 ASSIGNMENT. This Agreement may not be assigned by any party hereto
except with the prior written consent of the other parties hereto.
10.10 COUNTERPARTS. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and which
together shall constitute one agreement.
10.11 GOVERNING LAW. This Agreement is made in and shall be construed and
enforced in accordance with the laws of North Carolina.
10.12 INSPECTION. Any right of FNB hereunder to investigate or inspect the
assets, books, records, files and other information of Home Savings in no way
shall establish any presumption that FNB should have conducted any investigation
or that such right has been exercised by FNB, its agents, representatives or
others. Any investigations or inspections that have been made by FNB or its
agents, representatives or others prior to the Closing Date shall not be deemed
in any way in derogation or limitation of the covenants, representations and
warranties made by or on behalf of Home Savings in this Agreement.
IN WITNESS WHEREOF, Home Savings and FNB each has caused this Agreement to
be executed in its name by its duly authorized officers and its corporate seal
to be affixed hereto as of the date first above written.
<TABLE>
<S> <C>
HOME SAVINGS BANK OF SILER CITY, INC., SSB
ATTEST:
/s/JACK L. TANNER By: /s/EDWIN E. BRIDGES
Secretary Edwin E. Bridges, President
[CORPORATE SEAL]
FNB CORP.
ATTEST:
/s/JERRY A. LITTLE By: /s/MICHAEL C. MILLER
Secretary Michael C. Miller, President
[CORPORATE SEAL]
FIRST NATIONAL BANK AND TRUST COMPANY
ATTEST:
/s/JERRY A. LITTLE By: /s/MICHAEL C. MILLER
Secretary MICHAEL C. MILLER, PRESIDENT
[CORPORATE SEAL]
</TABLE>
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<PAGE>
SCHEDULES TO AGREEMENT AND PLAN OF
REORGANIZATION AND MERGER
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
A Plan of Merger
B Form of Affiliate's Letter
C Form of Employment Agreement
D Form of Legal Opinion of Counsel for FNB
E Form of Legal Opinion of Counsel for Home Savings
</TABLE>
Schedules A and C follow. FNB and Home Savings agree to furnish
supplementally a copy of any omitted schedule upon request.
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<PAGE>
SCHEDULE A
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED JUNE 3, 1997
PLAN OF MERGER
OF
HOME SAVINGS BANK OF SILER CITY, INC., SSB
WITH AND INTO
FIRST NATIONAL BANK AND TRUST COMPANY
A. NAMES OF MERGING CORPORATIONS. The names of the corporations proposed to
be merged are Home Savings Bank of Siler City, Inc., SSB, a North Carolina
savings bank ("Home Savings"), and First National Bank and Trust Company, a
national banking corporation ("First National") and wholly owned subsidiary of
FNB Corp., a North Carolina corporation ("FNB").
B. NATURE OF TRANSACTION. Subject to the provisions of this Plan of Merger,
Home Savings shall be merged into and with First National (the "Merger") with
the effect provided in the North Carolina Business Corporation Act and the
National Bank Act.
C. NAME OF SURVIVING CORPORATION. First National shall be the surviving
corporation in the Merger and shall exist under the name "First National Bank
and Trust Company."
D. TERMS AND CONDITIONS OF THE MERGER.
1. The Merger shall be effected pursuant to the terms and conditions
of this Plan of Merger and of the Agreement and Plan of Reorganization and
Merger dated as of June 3, 1997, by and among FNB, Home Savings and First
National (the "Agreement"). As provided herein and in the Agreement, except
insofar as the same may be continued by law and except as continued in and
merged into First National, at the effective time of the Merger (the
"Effective Time") the separate corporate existence of Home Savings shall
cease and the corporate existence of First National shall continue with all
of its purposes, objects, rights, privileges, powers and franchises, all of
which shall be unaffected and unimpaired by the Merger.
2. At the Effective Time and by reason of the Merger, and in
accordance with applicable law, all of Home Savings' property, assets and
rights of every kind and character (including without limitation all real,
personal or mixed property, all debts due on whatever account, all other
choses in action and all and every other interest of or belonging to or due
to Home Savings, whether tangible or intangible) shall be transferred to
and vest in First National, and First National shall succeed to all the
rights, privileges, immunities, powers, purposes and franchises of a public
or private nature (including all trust and fiduciary properties, powers and
rights) of Home Savings, all without any conveyance, assignment or further
act or deed; and, First National shall become responsible for all of the
liabilities, duties and obligations of every kind, nature and description
(including duties as trustee or fiduciary) of Home Savings as of the
Effective Time.
3. The Articles of Association and Bylaws of First National in effect
at the Effective Time shall be the Articles of Association and Bylaws of
First National as the surviving corporation in the Merger and shall
continue in full force and effect following the Effective Time, until
amended in accordance with applicable laws. The officers and directors of
First National at the Effective Time shall continue to hold such offices
and positions until removed as provided by law or until the election or
appointment of their respective successors.
E. CONVERSION AND EXCHANGE OF SHARES.
1. Except as otherwise provided herein, at the Effective Time, all
rights of Home Savings's shareholders with respect to all then outstanding
shares of the common stock of Home Savings, par value $1.00 ("Home Savings
Stock") shall cease to exist, and the holders of Home Savings Stock shall
cease to be, and shall have no further rights as, shareholders of Home
Savings. At the Effective Time, each such outstanding share of Home Savings
Stock (except for shares held, other than in a fiduciary capacity, by Home
Savings, FNB or any of their subsidiaries, which shall be canceled in the
Merger) shall be converted, without any action on the part of the holder of
such shares (other than the making of an election as described in Section
E.4 below) into (i) a number of shares of the common stock of FNB, par
value $2.50 (the "FNB Stock"), equal to (x) $15.50 (the "Cash Factor")
divided by (y) the Average Closing Price (as defined below) of FNB Stock
(such number of shares, the "Exchange Ratio"), (ii) the right to receive
cash in an amount equal to the Cash Factor per share of Home Savings Stock,
or (iii) a combination of shares of FNB Stock and the right to
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<PAGE>
receive cash as provided in Sections E.4 through E.6 below. For purposes
hereof, "Average Closing Price" shall mean the average "Closing Price" of
FNB Stock over the period of twenty (20) consecutive trading days ending on
the trading day that is three trading days prior to the date on which the
closing of the Merger takes place, and "Closing Price" shall mean the sum
of the reported closing "bid" price and seventy-five (75%) of the spread
between the reported closing "bid" and "asked" price of FNB Stock on the
National Association of Securities Dealers Automated Quotations Inc.
("NASDAQ") National Market each day during such twenty (20) day period.
Except as otherwise provided herein, the form of consideration into which
each individual shareholder's shares of Home Savings Stock will be
converted will be determined in the manner described in Sections E.4
through E.6 below. Notwithstanding anything contained herein to the
contrary, if during the period commencing on the date of this Agreement and
ending at the Effective Time, Home Savings declares or pays cash dividends
in an aggregate amount in excess of $.30 per share ($.40 per share if the
Effective Time is after the record date for FNB's regularly scheduled
dividend for the first calendar quarter of 1998) or makes any other
distributions on Home Savings Stock (collectively, the "Excess Cash
Distributions"), then, for purposes of this Agreement, the Cash Factor
shall be reduced by the per share amount of any such Excess Cash
Distributions, and the Exchange Ratio shall be reduced accordingly.
2. Each share of FNB Stock, issued and outstanding immediately prior
to the Effective Time shall continue to be issued and outstanding and shall
not be affected by the Merger.
3. Each share of capital stock of First National issued and
outstanding immediately prior to the Effective Time shall continue to be
issued and outstanding and shall not be affected by the Merger.
4. Subject to Sections E.5 and E.6 below, each shareholder of Home
Savings may, by written notice to FNB in the manner described below, elect
individually the form of consideration into which all such shareholder's
shares of Home Savings Stock will be converted at the Effective Time as
provided in Section E.1 above. Within ten days following approval of this
Agreement and the Plan of Merger by the shareholders of Home Savings at a
special meeting of its shareholders to be duly called and held for the
purpose of Home Savings' shareholders voting on the approval of the Merger
and the ratification and adoption of the Agreement (the "Shareholders'
Meeting"), Home Savings will mail written instructions to each of its
shareholders regarding the making of an election, for the conversion of
their respective shares, together with a notice (a "Notice of Election"),
which each shareholder shall be required to use for purposes of making such
election. Each shareholder may elect to receive one of the following forms
of consideration: (i) cash at the rate of the Cash Factor per share of Home
Savings Stock; (ii) shares of FNB Stock at the rate of the Exchange Ratio
per share of Home Savings Stock; or (iii) a combination of cash and shares
of FNB Stock at such respective rates based on increments of five percent
(5%) (for example, 85% shares of FNB Stock and 15% cash, or 50% shares of
FNB Stock and 50% cash). The instructions of Home Savings shall specify a
date by which a shareholder's election must be made (the "Election Date,"
which shall be set by FNB, but in no event to be less than fifteen (15) or
more than thirty (30) days following the date that the above instructions
and form are first distributed to the shareholders of Home Savings). The
above instructions and Notice of Election distributed to the shareholders
of Home Savings shall be provided by and in a form satisfactory to FNB. In
order to make an effective election, a Home Savings shareholder must
deliver to FNB a properly completed Notice of Election on or before the
close of its business on the Election Date and in accordance with FNB's
instructions. Any shareholder who does not make an election or whose Notice
of Election is not timely received by FNB or otherwise is not made in
accordance with FNB's instructions (including any shareholder who has
exercised Dissenters' Rights as defined in Section F hereof) will be deemed
to have elected that sixty percent (60%) of such shareholder's shares of
Home Savings Stock be converted into FNB Stock at the rate of the Exchange
Ratio per share of Home Savings Stock and that the remaining forty percent
(40%) be converted into the right to receive cash at the rate of the Cash
Factor per share of Home Savings Stock.
5. Notwithstanding anything contained herein to the contrary, in no
event shall shares of FNB Stock be issued in the Merger for more than sixty
percent (60%) or less than fifty percent 50% of the total outstanding
shares of Home Savings Stock. Depending on the elections or deemed
elections of Home Savings' shareholders, and subject to Section E.6 below,
shares of FNB Stock to be issued in the Merger may be prorated as follows:
(a) In the event that, immediately prior to the Effective Time, the
aggregate number of shares of Home Savings Stock to be converted into
shares of FNB Stock in the Merger pursuant to elections or deemed
elections by shareholders of Home Savings immediately prior to the
Effective Time is more than sixty percent (60%) of the total outstanding
shares of Home Savings Stock, then, with respect to those shareholders
of Home Savings who, immediately prior to the Effective Time, have
elected or are deemed to have elected to have all or part of their
shares of Home Savings Stock converted into FNB Stock, FNB will reduce
on a pro rata basis the number of shares of Home
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<PAGE>
Savings Stock to be converted into shares of FNB Stock such that the
aggregate number of shares of Home Savings Stock to be converted into
FNB Stock in the Merger is not more than sixty percent (60%) of the
total outstanding shares of Home Savings Stock; and, the number of
remaining shares of Home Savings Stock held by each such shareholder
will be converted into the right to receive cash at the rate of the Cash
Factor per share of Home Savings Stock.
(b) In the event that, immediately prior to the Effective Time, the
difference between (A) the aggregate number of shares of Home Savings
Stock to be converted into shares of FNB Stock in the Merger pursuant to
elections or deemed elections by shareholders of Home Savings
immediately prior to the Effective Time and (B) the aggregate number of
shares of Home Savings Stock to be converted into FNB Stock pursuant to
elections or deemed elections by shareholders who have exercised
Dissenters' Rights (as provided in Section F) or have voted against
approval of this Agreement and Plan of Merger at the Shareholders'
Meeting is less than fifty percent (50%) of the total outstanding shares
of Home Savings Stock, then, with respect to those shareholders of Home
Savings who, immediately prior to the Effective Time, have elected or
are deemed to have elected to have all or part of their shares of Home
Savings Stock converted into the right to receive cash, FNB will reduce
on a pro rata basis the number of shares of Home Savings Stock to be
converted into the right to receive cash such that the difference
between (A) and (B) above is not less than fifty percent (50%) of the
total outstanding shares of Home Savings Stock; and, the number of
remaining shares of Home Savings Stock held by each such shareholder
will be converted into shares of FNB Stock at the rate of the Exchange
Ratio per share of Home Savings Stock.
6. Notwithstanding the provisions of Sections E.4 and E.5 above, if,
upon conclusion of the Shareholders' Meeting, holders in excess of ten
percent (10%) of Home Savings Stock have exercised Dissenters' Rights (as
provided in Section F hereof) or have voted their shares of Home Savings
Stock against approval of this Agreement and Plan of Merger at the
Shareholders' Meeting, then the provisions of Sections E.4 and E.5 above
shall not apply and sixty percent (60%) of the outstanding shares of Home
Savings Stock held as of the Effective Time by each shareholder of Home
Savings (except for shares held, other than in a fiduciary capacity, by
Home Savings, FNB or any of their subsidiaries, which shall be canceled in
the Merger) shall be converted as of the Effective Time, without any action
on the part of the holder of such shares, into a number of shares of FNB
Stock equal to the Exchange Ratio and forty percent (40%) of the
outstanding shares of Home Savings Stock held as of the Effective Time by
each shareholder of Home Savings shall be converted into the right to
receive cash in an amount equal to the Cash Factor per share of Home
Savings Stock.
7. Following the Effective Time, certificates representing shares of
Home Savings Stock outstanding at the Effective Time (herein sometimes
referred to as "Home Savings Certificates") shall evidence only the right
of the registered holder thereof to receive, and may be exchanged for, (i)
the form of consideration into which each individual shareholder's shares
of Home Savings Stock have been converted as determined in the manner
described in Sections E.4 through E.6 above or (ii) in the case of
shareholders who properly exercise Dissenters' Rights, the consideration
provided in Section F below and by applicable law. At the Effective Time,
FNB shall issue and deliver, or cause to be issued and delivered, to First
National, in its capacity as the transfer agent of FNB Stock (the "Transfer
Agent"), cash and certificates representing whole shares of FNB Stock into
which outstanding shares of Home Savings Stock have been converted as
provided above. As promptly as practicable following the Effective Time,
FNB shall send or cause to be sent to each former shareholder of record of
Home Savings immediately prior to the Effective Time written instructions
and transmittal materials (a "Transmittal Letter") for use in surrendering
Home Savings Certificates to the Transfer Agent. Upon the proper surrender
and delivery to the Transfer Agent (in accordance with FNB's instructions,
and accompanied by a properly completed Transmittal Letter) by a former
shareholder of Home Savings of such shareholder's Home Savings
Certificate(s), and in exchange therefor, the Transfer Agent shall as soon
as practicable, (i) in the case of a shareholder whose Home Savings Stock,
or a portion thereof, has been converted into FNB Stock, issue, register
and deliver to such shareholder a certificate evidencing the number of
shares of FNB Stock to which such shareholder is entitled pursuant to
Sections E.4 through E.6 above, and/or (ii) in the case of a shareholder
whose Home Savings Stock, or a portion thereof, has been converted into the
right to receive cash, issue and deliver to such shareholder a check in the
amount of cash to which the shareholder is entitled pursuant to Sections
E.4 through E.6 above. Following the Effective Time, there shall be no
further transfers of Home Savings Stock on the stock transfer books of Home
Savings or the registration of any transfer of a Home Savings Certificate
by any holder thereof, and the surrender of each Home Savings Certificate
as provided herein must be made by or on behalf of its holder of record at
the Effective Time.
8. No scrip or certificates representing fractional shares of FNB
Stock will be issued to any former shareholder of Home Savings, and, except
as provided below, no such shareholder will have any right to vote or
receive any dividend
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or other distribution on, or any other right with respect to, any fraction
of a share of FNB Stock resulting from the above exchange. In the event the
exchange of shares results in the creation of fractional shares, in lieu of
the issuance of fractional shares of FNB Stock, FNB will deliver cash to
the Transfer Agent in an amount equal to the aggregate of all fractional
shares multiplied by the Average Closing Price, and, in such event, the
Transfer Agent shall divide such cash among and remit it (without interest)
to the former shareholders of Home Savings in accordance with their
respective interests.
9. Subject to Section E.10 below, no FNB Stock certificate or cash
shall be delivered to any former shareholder of Home Savings unless and
until such shareholder shall have properly surrendered to the Transfer
Agent the Home Savings Certificate(s) formerly representing his or her
shares of Home Savings Stock, together with a properly completed
Transmittal Letter in such form as shall be provided to the shareholder by
FNB for that purpose. Further, until such Home Savings Certificate(s) are
so surrendered, no dividend or other distribution payable to holders of
record of FNB Stock as of any date subsequent to the Effective Time shall
be delivered to the holder of such Home Savings Certificate(s). However,
subject to prior escheatment under applicable law, upon the proper
surrender of such Home Savings Certificate(s), the Transfer Agent shall pay
to the registered holder of the shares of FNB Stock represented by such
Home Savings Certificate(s) the amount of any such cash, dividends or
distributions which have accrued but remain unpaid with respect to such
shares. Neither FNB, Home Savings nor the Transfer Agent shall have any
obligation to pay any interest on any such cash, dividends or distributions
for any period prior to such payment.
10. Any shareholder of Home Savings whose certificate evidencing
shares of Home Savings Stock has been lost, destroyed, stolen or otherwise
is missing shall be entitled to receive a certificate representing the
shares of FNB Stock to which he or she is entitled in accordance with and
upon compliance with conditions imposed by the Transfer Agent or FNB
(including without limitation a requirement that the shareholder provide a
lost instruments indemnity or surety bond in form, substance and amount
satisfactory to the Transfer Agent and FNB).
F. DISSENTERS' RIGHTS. Any shareholder of Home Savings who properly
exercises his right of dissent and appraisal ("Dissenters' Rights") with respect
to the Merger as provided in Article 13 of the North Carolina Business
Corporation Act ("Article 13") or Section 215a of the National Bank Act
("Section 215a") shall be entitled to receive payment in cash of the "fair
value" (as defined in Article 13) or "value" (as described in Section 215a) of
his or her shares of Home Savings Stock in the manner and pursuant to the
procedures provided in Article 13 and Section 215a, respectively. Until the
"fair value" or "value" of the shares of Home Savings Stock held by any
dissenting shareholder is determined and paid pursuant to Article 13 and Section
215a, respectively, however, such shares shall be converted into FNB Stock and
the right to receive cash in accordance with such shareholder's election or
deemed election and in the manner provided in Sections E.4 through E.6 above.
G. ABANDONMENT. This Plan of Merger may be terminated and the Merger may be
abandoned at any time prior to the Effective Time upon termination of the
Agreement as provided therein.
H. EFFECTIVENESS. This Plan of Merger shall be effective upon the later to
occur of (i) the receipt of a certificate of approval from the Office of the
Comptroller of the Currency and (ii) the filing of Articles of Merger with
respect hereto with the North Carolina Secretary of State.
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<PAGE>
SCHEDULE C
TO AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
DATED JUNE 3, 1997
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (this "Agreement") made and
entered into as of the day of , 199 , by and between FIRST
NATIONAL BANK AND TRUST COMPANY, a national banking corporation with its
principal office and place of business located in Asheboro, North Carolina (the
"Bank") and EDWIN E. BRIDGES (the "Employee").
W I T N E S S E T H:
WHEREAS, the Bank desires to employ the Employee, the Employee desires to
accept employment with the Bank, and each desires to enter into an agreement
embodying the terms of such employment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Bank hereby employs the Employee, and the Employee
hereby accepts employment with the Bank, for the term set forth in Section 2
below, in the position and with the duties and responsibilities set forth in
Section 3 below, and upon the other terms and conditions hereinafter stated.
2. TERM. The term of this Agreement shall commence as of the date hereof
and, unless otherwise terminated as hereinafter provided, shall continue for an
initial term of five years and shall automatically be extended each anniversary
date of this Agreement for an additional one year period unless the Bank
notifies Employee of its decision not to allow such annual renewal upon written
notice given not less than 90 days prior to such anniversary date.
3. POSITION AND RESPONSIBILITIES. The Employee shall serve as the Bank's
Area Manager for Siler City and, in such capacity, shall at all times report to,
and his activities shall at all times be subject to the direction and control
of, the principal executive officer of the Bank or his designee. The Employee
agrees to devote substantially all of his business time, attention and services
to discharge faithfully and diligently his duties and responsibilities under
this Agreement and to use his best efforts for both the successful operation of
the Bank's business and the successful implementation of the policies
established by the Bank or its parent, FNB Corp. ("FNB").
4. COMPENSATION: SALARY AND OTHER BENEFITS. During the term of this
Agreement, and with respect to Section 4(b) below thereafter, the Bank shall pay
to the Employee the following compensation:
(A) SALARY. In consideration of the services to be rendered by the
Employee to the Bank and the Employee's covenants hereunder, the Bank shall
pay to the Employee a base salary at the rate of $99,000 per annum (such
salary as it may be increased from time to time being hereinafter referred
to as the "Base Salary"). The Employee shall receive from the Bank a formal
review of Employee's performance at least as frequently as annually, and
Employee may be considered for merit increases to his Base Salary in
accordance with the Bank's policies and practices for employee compensation
as established or modified from time to time. Except as may otherwise be
agreed, the Base Salary shall be payable in accordance with the Bank's
policies and practices for employee compensation as established or modified
from time to time; provided that the Base Salary shall be payable not less
frequently than monthly. Salary payments shall be subject to all applicable
federal and state withholding, payroll and other taxes.
(B) HEALTH INSURANCE. The Bank or FNB shall provide or pay the
premiums for continued health insurance coverage for the Employee for the
remainder of his natural life, the extent of such health insurance coverage
to be at least equivalent with that provided by the Bank to its active,
full-time employees generally; provided that, this obligation to provide
health insurance coverage to the Employee may be partially or wholly
fulfilled by any Medicare, employer or similar coverage for which the
Employee becomes eligible in the future to the extent of any coverage
provided thereby at no cost to Employee. The Bank's obligation to provide
health insurance coverage to the Employee pursuant to this Section 4(b)
shall survive the termination of the Employee's employment under this
Agreement other than a termination pursuant to Section 5(a) or Section 5(c)
hereof; provided, however, that such obligation to provide health insurance
coverage to the Employee will cease if the Employee, at any time, whether
or not within the term of this Agreement,
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<PAGE>
takes any of the actions described in Section 7(a) hereof, with the
geographical limitation for purposes of this Section 4(b) being North
Carolina and its contiguous states rather than the geographical limitation
contained in that Section 7(a).
(C) CLUB MEMBERSHIP. The Bank shall pay up to $1500 annually of the
membership fees necessary for Employee to maintain the status of an active
member of the Siler City Country Club.
(D) VACATION. The Employee shall be entitled to such vacation and
other leave as may be provided by the Bank or FNB to their employees in
similar positions generally; provided, however, that, to the extent that
the amount of vacation and other leave to which the Employee is entitled is
related to the Employee's years of service to the Bank or FNB, the Employee
shall be given credit for each full year of his employment with Home
Savings Bank of Siler City, Inc., SSB as if he had been employed by the
Bank or FNB for such years.
(E) OTHER BENEFITS. The Employee will be entitled to participate, in
accordance with the provisions thereof, in any disability and life
insurance and other employee benefit plans and programs made available by
the Bank or FNB to their employees generally.
(F) TRAVEL EXPENSES. The Bank shall reimburse the Employee for any
reasonable out-of-pocket travel expenses incurred by the Employee in the
ordinary course of performing his duties for the Bank upon presentation by
the Employee, from time to time, of appropriate documentation therefor in
accordance with the Bank's policies and practices as established or
modified from time to time.
5. TERMINATION. The Employee's term of employment under this Agreement may
be terminated before the end of the initial term or any extension thereof as
follows:
(A) DEATH. In the event of the death of the Employee during his
employment under this Agreement, this Agreement shall be deemed terminated
as of the date of death. In such event, the Bank shall pay the Employee's
Base Salary, at the rate in effect at the time of his death, through the
last day of the calendar month in which such death occurs to the Employee's
designated beneficiary, or, in the absence of such designation, to the
estate or other legal representative of the Employee. Any rights and
benefits the Employee's estate or any other person may have under employee
benefit plans and programs of the Bank in the event of the Employee's death
shall be determined in accordance with the terms of such plans and
programs.
(B) LONG-TERM DISABILITY. If the Employee suffers any disability while
employed under this Agreement that prevents him from performing his duties
under this Agreement for a period of 30 consecutive days, then, unless
otherwise then agreed in writing by the parties hereto, the employment of
the Employee under this Agreement shall be deemed terminated effective as
of the thirtieth day. Upon termination of the Employee's employment by
reason of disability under this Section 5(b), the Employee shall be
entitled to receive his Base Salary, at the rate in effect on the date of
such termination, less any disability insurance payments paid to the
Employee on a policy maintained for the benefit of the Employee by the Bank
or FNB through the end of the term of this Agreement. Any rights and
benefits the Employee may have under employee benefit plans and programs of
the Bank generally in the event of the Employee's disability shall be
determined in accordance with the terms of such plans and programs, except
that Employee's right to continued health insurance coverage shall be
governed by Section 4(b) hereof.
For purposes of this Agreement, "disability" shall mean the inability,
by reason of bodily injury or physical or mental disease, or any
combination thereof, of the Employee to perform his customary or other
comparable duties with the Bank. In the event that the Employee and the
Bank are unable to agree as to whether the Employee is suffering a
disability, the Employee and the Bank shall each select a physician and the
two physicians so chosen shall make the determination or, if they are
unable to agree, they shall select a third physician, and the determination
as to whether the Employee is suffering a disability shall be based upon
the determination of a majority of the three physicians. The Bank shall pay
the reasonable fees and expenses of all physicians selected pursuant to
this Section 5(b).
(C) TERMINATION FOR CAUSE. Nothing herein shall prevent the Bank from
terminating the Employee's employment at any time for Cause (as hereinafter
defined). Upon termination for Cause, the Employee shall receive his Base
Salary only through the date that such termination becomes effective.
Neither the Employee nor any other person shall be entitled to any further
payments from the Bank, for salary or any other amounts. Any rights and
benefits the Employee may have under employee benefit plans and programs of
the Bank generally following a termination of the Employee's employment for
Cause shall be determined in accordance with the terms of such plans and
programs. For purposes of this Agreement, termination for Cause shall mean:
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(i) a determination by the Bank, in good faith, that the Employee
has (A) breached in any material respect any of the terms and conditions
of this Agreement or (B) is engaging or has engaged in willful
misconduct or conduct that is detrimental to the business prospects of
the Bank or FNB or that has had or likely will have a material adverse
effect on the Bank's or FNB's business or reputation.
Prior to any termination by the Bank of the Employee's employment
for a breach, failure to perform or conduct described in this Section
5(c)(i), the Bank shall give to the Employee written notice that
describes such breach, failure to perform or conduct and if during a
period of five business days following such notice, the Employee cures
or corrects the same to reasonable satisfaction of the Bank, then this
Agreement shall remain in full force and effect. However,
notwithstanding the above, if the Bank has given written notice to the
Employee of the same or a substantially similar breach, failure to
perform or conduct that the Bank determines in good faith to be of
substantially similar import, or if the Bank determines in good faith
that the then current breach, failure to perform or conduct is not
reasonably curable, then termination under this Section 5(c)(i) shall be
effective immediately, and the Employee shall have no right to cure such
breach, failure to perform or conduct;
(ii) the violation by the Employee of any applicable federal or
state law, or any applicable rule, regulation, order or statement of
policy promulgated by any governmental agency or authority having
jurisdiction over the Bank or FNB (a "Regulatory Authority," including
without limitation the Federal Deposit Insurance Corporation, the
Federal Reserve Board, the Office of the Comptroller of the Currency,
the North Carolina Commissioner of Banks or any other banking
regulator), which results from the Employee's gross negligence, willful
misconduct or intentional disregard of such law, rule, regulation, order
or policy statement and results in any substantial damage, monetary,
reputation or otherwise, to the Bank or FNB;
(iii) the commission in the course of the Employee's employment
with the Bank of an act of fraud, embezzlement, theft or proven personal
dishonesty (whether or not resulting in criminal prosecution or
conviction);
(iv) the conviction of the Employee of any felony or any criminal
offense, or a plea of no contest entered by the Employee to a charge of
a felony or any criminal offense, involving dishonesty or breach of
trust, or the occurrence of any event described in Section 19 of the
Federal Deposit Insurance Act or any other event or circumstance that
disqualifies the Employee from serving as an employee of, or a party
affiliated with, the Bank or FNB;
(v) the Employee becomes unacceptable to, or is removed, suspended
or prohibited from participating in the conduct of the Bank's affairs
(or if proceedings for that purpose are commenced) by any Regulatory
Authority; or
(vi) the occurrence of any event believed by the Bank, in good
faith, to have resulted in the Employee being excluded from coverage, or
having coverage limited as to the Employee as compared to other covered
employees, under the Bank's then current "blanket bond" or other
fidelity bond or insurance policy covering its directors, officers or
employees.
(D) TERMINATION OTHER THAN FOR CAUSE. The Bank may terminate the
Employee's employment under this Agreement at any time upon 90 days written
notice to the Employee for whatever reason it deems appropriate, or for no
reason. In the event such termination by the Bank occurs and is not due to
death as provided in Section 5(a) above or for Cause as provided in Section
5(c) above, the Bank agrees to continue the Employee's Base Salary, at the
rate in effect at the time of such termination through the end of the term
hereof. Such salary continuation shall be subject to all applicable federal
and state withholding taxes. Any rights and benefits the Employee may have
under employee benefit plans and programs of the Bank generally following a
termination of the Employee's employment other than for Cause shall be
determined in accordance with the terms of such plans and programs, except
that Employee's right to continued health insurance coverage shall be
governed by Section 4(b) hereof. In the event of a termination pursuant to
this Section 5(d), FNB shall, upon such termination and at its election,
either (i) cause the full vesting of any unvested options and awards of
Employee under the Home Savings Bank of Siler City, Inc., SSB 1995
Incentive Stock Option Plan (the "ISO Plan") and the Home Savings Bank of
Siler City, Inc., SSB 1995 Management Recognition Plan (the "MR Plan"),
respectively, as assumed by FNB as of the effective time of the merger of
Home Savings Bank of Siler City, Inc., SSB into the Bank or (ii) provide
the Employee the economic equivalent of any unvested portion of such
options under the ISO Plan and such awards under the MR Plan.
(E) AT THE EMPLOYEE'S OPTION. The Employee may terminate his
employment at any time upon at least 60 days advance written notice to the
Bank; provided, however, that the Bank, in its discretion, may cause such
termination to be effective at any time during such notice period. In the
event of such a voluntary termination of employment, the Employee will be
entitled to receive only any earned but unpaid Base Salary through the date
on which the Employee's
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termination becomes effective; provided, however, that if at any time after
two years from the date hereof, the Employee terminates this Agreement
pursuant to this Section 5(e), the Employee may, by written notice to the
Bank, elect to become a consultant to the Bank to perform such services as
may be customarily performed by advisory directors to banks, savings and
loan associations or other similar financial institutions and shall be
entitled to receive for such services his Base Salary from the Bank until
the expiration of three years from the date of such notice or until January
1, 2006, whichever is sooner, and shall continue to be entitled for such
period to any rights and benefits the Employee may have under employee
benefit plans and programs of the Bank as determined in accordance with the
terms of such plans and programs, except that the Employee's right to
continued health insurance coverage shall be governed by Section 4(b)
hereof.
(F) Notwithstanding anything in this Agreement to the contrary, if any
payments and benefits provided for under this Section 5, either alone or
together with any other payments and benefits that the Employee may have
the right to receive, would constitute a "parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code")), such payments and, if necessary, such benefits shall be reduced
to the largest amounts as will result in no portion thereof being subject
to the excise tax imposed by Section 4999 of the Code. The determination of
any reductions under the foregoing proviso shall be made by independent
counsel to the Bank in consultation with the independent certified public
accountants of the Bank.
6. NO SOLICITATION OF CHANGE IN CONTROL. The Employee hereby agrees
that he will not solicit, counsel or encourage a change in control without
the prior written approval of the Board of Directors of the Bank or FNB. A
violation of this Section 6 shall be deemed to constitute a forfeiture by
the Employee of all of his rights under Section 5(e) hereof.
7. NONCOMPETITION COVENANT; NONSOLICITATION.
(A) For a period commencing on the date hereof and continuing until
(i) two years after the date of expiration of the term hereof or the date
that any termination of the Employee's employment under this Agreement
becomes effective or (ii) the last day of the period after the date that
any termination of the Employee's employment under this Agreement becomes
effective in which the Employee is entitled to receive any payments
pursuant to Section 5 hereof, whichever is later, the Employee agrees that
he will not, directly or indirectly:
(I) own any interest in, manage, operate, control, be employed by,
render consulting or advisory services to, or participate in or be
connected with the management or control of any business that is then
engaged in the operation of a bank, savings and loan association or
similar financial institution that conducts any of its operations within
50 miles of Siler City, North Carolina; provided, however, that Employer
may, without violating this Agreement, own as a passive investment not
in excess of two percent (2%) of the outstanding capital stock of any
such business whose stock is publicly traded on the NASDAQ
over-the-counter market, the New York Stock Exchange or the American
Stock Exchange;
(II) influence or attempt to influence any customer of the Bank or
FNB to discontinue its use of the Bank's or FNB's services or to divert
such business to any other person, firm or corporation;
(III) interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Bank or FNB and any
of its respective customers, suppliers, principals, distributors,
lessors or licensors; and
(IV) solicit any officer or employee of the Bank or FNB, whose base
annual salary at the time of the Employee's termination was $20,000 or
more, to work for any other person, firm or corporation.
(B) It is the desire and intent of the parties that the provisions of
Section 7(a) shall be enforced to the fullest extent permitted under the
laws and public policies of each jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of Section 7(a) shall be
adjudicated to be invalid or unenforceable, such adjudication shall apply
only with respect to the operation of that portion in the particular
jurisdiction in which such adjudication is made, and all other portions
shall continue in full force and effect.
(C) It is expressly agreed that the provisions and covenants in this
Section 7 shall not apply and shall be of no force or effect in the event
that the Bank fails to honor its obligations hereunder.
8. CONFIDENTIALITY. The Employee hereby acknowledges and agrees that (i) in
the course of his service as an employee of the Bank, he will gain substantial
knowledge of and familiarity with the Bank's customers and its dealings with
them, and other information concerning the business of the Bank and FNB, all of
which constitute valuable assets and privileged information that is particularly
sensitive due to the fiduciary responsibilities inherent in the banking
business; and (ii) in order to
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protect the interest in and to assure the benefit of the business of the Bank
and FNB, it is reasonable and necessary to place certain restrictions on the
Employee's ability to disclose information about the business and customers of
the Bank and FNB. For that purpose, and in consideration of the agreements
contained herein, the Employee covenants and agrees as provided below.
The Employee covenants and agrees that any and all data, figures,
projections, estimates, lists, files, records, documents, manuals or other such
materials or information (financial or otherwise) relating to the Bank or FNB
and their business, regulatory examinations, financial results and condition,
lending and deposit operations, customers (including lists of the customers and
information regarding their accounts and business dealings with the Bank or
FNB), policies and procedures, computer systems and software, shareholders,
employees, officers and directors (herein referred to as "Confidential
Information") are proprietary to the Bank and FNB and are valuable, special and
unique assets of the business to which the Employee will have access during his
employment with the Bank. The Employee agrees that (i) all such Confidential
Information shall be considered and kept as the confidential, private and
privileged records and information of the Bank and FNB, and (ii) at all times
during the term of his employment with the Bank and following the termination of
his employment under this Agreement for any reason, and except as shall be
required in the course of the performance by the Employee of his duties on
behalf of the Bank or FNB or otherwise pursuant to the direct, written
authorization of the Bank or FNB, the Employee will not: divulge any such
Confidential Information to any other person, firm, corporation, bank, savings
and loan association or similar financial institution; remove any such
Confidential Information in written or other recorded form from the Bank's
premises; or make any use of the Confidential Information for his own purposes
or for the benefit of any person, firm, corporation, bank, savings and loan
association or similar financial institution other than the Bank or FNB.
However, following the termination of the Employee's employment with the Bank,
this Section 8 shall not apply to any Confidential Information which then is in
the public domain (provided that the Employee was not responsible, directly or
indirectly, for permitting such Confidential Information to enter the public
domain without the Bank's consent), or which is obtained by the Employee from a
third party which or who is not obligated under an agreement of confidentiality
with respect to such information.
9. REMEDIES UPON BREACH. The Employee agrees that any breach of this
Agreement by him could cause irreparable damage to the Bank and that in the
event of such breach the Bank shall have, in addition to any and all remedies of
law, the right to an injunction, specific performance or other equitable relief
to prevent the violation of his obligations hereunder, without the necessity of
posting a bond, plus the recovery of any and all costs and expenses incurred by
the Bank, including reasonable attorneys' fees in connection with the
enforcement of this Agreement, provided that the Bank shall have been successful
on the merits or otherwise in any proceeding related to the enforcement thereof.
10. ACKNOWLEDGMENTS. The Employee hereby acknowledges that (i) the
enforcement of the provisions of Section 7 hereof may potentially interfere with
his ability to pursue a proper livelihood, (ii) the enforcement of this
Agreement is necessary to ensure the preservation, protection and continuity of
the business, trade secrets and goodwill of the Bank, and (iii) the restrictions
set forth in Sections 7 and 8 of this Agreement are reasonable as to time, scope
and territory and in all other respects.
11. TOLLING PERIOD AND LEGAL COSTS. In the event the Employee breaches any
of the provisions contained herein and the Bank seeks compliance with such
provisions by judicial proceedings, the time period during which the Employee is
restricted by such provisions shall be extended by the time during which the
Employee has actually competed with the Bank or been in violation of any such
provision and any period of litigation required to enforce the Employee's
obligations under this Agreement. In the event such judicial proceedings are
brought, the Employee shall pay all court costs, including reasonable attorney's
fees, associated with the enforcement of such provisions.
12. REFORMATION OF SCOPE OR DURATION OF AGREEMENT. The Employee and the
Bank intend that Section 7 of this Agreement be enforced as written. However, if
one or more of the provisions contained in Section 7 shall for any reason be
held to be unenforceable because of the duration or scope of such provision or
the area covered thereby, the Employee and the Bank agree that the court making
such determination shall have the power to reform the duration, scope and/or
area of such provision and in its reformed form such provision shall then be
enforceable and shall be binding on the parties. To the extent that the courts
of any one or more jurisdictions may hold any part of Section 7 unenforceable,
that determination shall not bar or in any way hinder the Bank's right to relief
as provided in this Agreement in courts of any other jurisdiction as to breaches
of this Agreement in such other jurisdiction.
13. RETIREMENT PAYMENT AGREEMENT. As of the date hereof, the Bank shall
assume any and all obligations of Home Savings Bank of Siler City, Inc., SSB
(the "Savings Bank") with respect to that Retirement Payment Agreement between
the Savings Bank and the Employee dated as of July 1, 1987 including all
attachments thereto, as amended by Amendment No.1 thereto dated as of November
12, 1996 (as amended, the "Retirement Payment Agreement"), except that from and
after the
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date hereof with respect to the Retirement Payment Agreement: (i) "First
National Bank and Trust Company" or "the Bank" shall be substituted for "Home
Savings and Loan Association of Siler City" or "the Association"; (ii)
"Employee" shall be substituted for "Director"; (iii) "employed by the Bank"
shall be substituted for "in the Directorship of the Association"; and (iv)
"employment with the Bank" shall be substituted for "Directorship."
14. TERMINATION OF PREVIOUS EMPLOYMENT AGREEMENT. The Employee and the Bank
specifically agree that this Agreement supersedes that certain Employment
Agreement dated November 14, 1995, as amended, by and between the Employee and
the Savings Bank and the Employee hereby waives any and all of his rights, and
releases the Bank and the Savings Bank from any and all obligations, under such
agreement and agrees that such agreement hereby is terminated and shall be of no
further force or effect.
15. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
16. CONSENT AND WAIVER BY THIRD PARTIES. The Employee hereby represents and
warrants that his employment with the Bank on the terms and conditions set forth
herein and his execution and performance of this Agreement do not constitute a
breach or violation of any other agreement, obligation or understanding with any
third party. The Employee represents that he is not bound by any agreement or
any other existing or previous business relationship which conflicts with, or
may conflict with, the performance of his obligations hereunder or prevents the
full performance of his duties and obligations hereunder.
17. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in accordance
with this Section 15. No waiver by either party of any breach by the other or
any provision hereof shall be deemed to be a waiver of any later or other breach
thereof or as a waiver of any other provision of this Agreement. This Agreement
sets forth all of the terms of the understandings between the parties with
reference to the subject matter set forth herein and may not be waived, changed,
discharged or terminated orally or by any course of dealing between the parties,
but only by an instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought.
18. ASSIGNMENT. The Employee acknowledges that the services to be rendered
by him are unique and personal. Accordingly, the Employee may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The Bank shall have the right to assign this Agreement to its successors and
assigns, and the rights and obligations of the Bank under this Agreement shall
inure to the benefit of, and shall be binding upon, the successors and assigns
of the Bank.
19. NOTICES. All notices hereunder shall be (i) delivered by hand, (ii)
sent by first-class certified mail, postage prepaid, return receipt requested,
(iii) delivered by overnight commercial courier, or (iv) transmitted by telecopy
or facsimile machine, to the following address of the party to whom such notice
is to be made, or to such other address as such party may designate in the same
manner provided herein:
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If to the Bank:
FNB Corp.
101 Sunset Avenue
Asheboro, North Carolina 27203
Attention: Mr. Michael C. Miller, President
With copy to:
Schell Bray Aycock Abel & Livingston P.L.L.C.
230 North Elm Street
1500 Renaissance Plaza
Greensboro, North Carolina 27420
Attention: Kenneth N. Shelton
If to the Employee, to his last address as shown on the personnel records
of the Bank.
With copy to:
Moore & Van Allen, L.L.P.
One Hanover Square, Suite 1700
Raleigh, North Carolina 27611
Attention: Anthony Gaeta, Jr.
20. SURVIVAL OF OBLIGATIONS. The Employee's obligations under this
Agreement shall survive the termination of his employment with the Bank
regardless of the manner of such termination and shall be binding upon his
heirs, executors and administrators. Except as otherwise provided herein, the
provisions of Sections 4(b), 7, 8, 9, 10, 11, 12 and 13 shall survive the
termination or expiration of this Agreement as a continuing agreement of the
Bank and the Employee. The existence of any claim or cause of action by Employee
against the Bank or FNB shall not constitute and shall not be asserted as a
defense to the enforcement by the Bank of this Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
<TABLE>
<S> <C>
BANK: EMPLOYEE:
FIRST NATIONAL BANK
AND TRUST COMPANY
By: (SEAL)
Edwin E. Bridges
Title:
</TABLE>
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APPENDIX II
JUNE 2, 1997
The Board of Directors
Home Savings Bank of Siler City, Inc., SSB
300 East Raleigh Street
Siler City, NC 27344
Dear Members of the Board:
Home Savings Bank of Siler City Inc., SSB, Siler City, North Carolina
("Home") and FNB Corp., Asheboro, North Carolina ("FNB") have entered into an
agreement providing for the acquisition of Home by FNB ("Acquisition"). The
terms of the Acquisition are set forth in the Agreement and Plan of
Reorganization and Merger dated June 2, 1997.
The terms of the Acquisition provide that, with the possible exception of
those shares as to which dissenter's rights may be perfected, each common share
of Home will be converted into a combination of cash and FNB common stock with a
value of $15.50 ("Consideration").
You have asked our opinion as to whether the Consideration is fair to the
respective shareholders of Home from a financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of Home and FNB available to us from published sources. In addition,
we have, among other things: (a) to the extent deemed relevant, analyzed
selected public information of certain other financial institutions and compared
Home and FNB from a financial point of view to the other financial institutions;
(b) considered the historical market price of the common stock of Home and FNB;
(c) compared the terms of the Acquisition with the terms of certain other
comparable transactions to the extent information concerning such acquisitions
was publicly available; (d) reviewed the Agreement and Plan of Reorganization
and Merger and related documents; and (e) made such other analyses and
examinations as we deemed necessary. We also met with various senior officers of
Home and FNB to discuss the foregoing as well as other matters that may be
relevant.
We have not independently verified the financial and other information
concerning Home, or FNB, or other data which we have considered in our review.
We have assumed the accuracy and completeness of all such information; however,
we have no reason to believe that such information is not accurate and complete.
Our conclusion is rendered on the basis of securities market conditions
prevailing as of the date hereof and on the conditions and prospects, financial
and otherwise, of Home and FNB as they exist and are known to us as of March 31,
1997.
We have acted as financial advisor to Home in connection with the
Acquisition and will receive from Home a fee for our services, a significant
portion of which is contingent upon the consummation of the Acquisition.
It is understood that this opinion may be included in its entirety in any
communication by Home or the Board of Directors to the stockholders of Home. The
opinion may not, however, be summarized, excerpted from or otherwise publicly
referred to without our prior written consent.
Based on the foregoing, and subject to the limitations described above, we
are of the opinion that the Consideration is fair to the shareholders of Home
from a financial point of view.
Sincerely,/s/ Baxter Fentriss and Company
BAXTER FENTRISS AND COMPANY
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APPENDIX III
NORTH CAROLINA GENERAL STATUTES
ARTICLE 13.
DISSENTERS' RIGHTS.
PART 1.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
(SECTION MARK) 55-13-01. DEFINITIONS.
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value" with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(SECTION MARK) 55-13-02. RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by
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the shareholder to a fraction of a share if the fractional share so created
is to be acquired for cash under G.S. 55-6-04; or (vi) changes the
corporation into a nonprofit corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, 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 (ii) held by at least 2,000 record shareholders,
unless in either case:
(1) The articles of incorporation of the corporation issuing the
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 the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which,
at the record date fixed to determine the shareholders entitled to
receive notice of and 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
c. A combination of cash and shares as set forth in
sub-subdivisions a. and b. of this subdivision.
(SECTION MARK) 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
PART 2.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
(SECTION MARK) 55-13-20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
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(SECTION MARK) 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
(SECTION MARK) 55-13-22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
(SECTION MARK) 55-13-23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
(SECTION MARK) 55-13-24. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(SECTION MARK) 55-13-25. PAYMENT.
(a) As soon as the proposed corporate action is taken, or within 30 days
after receipt of a payment demand, the corporation shall pay each dissenter who
complied with G.S. 55-13-23 the amount the corporation estimates to be the fair
value of his shares, plus interest accrued to the date of payment.
(b) The payment shall be accompanied by
(l) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of cash flows for
that year, and the latest available interim financial statements, if any;
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(2) An explanation of how the corporation estimated the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
(SECTION MARK) 55-13-26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
(SECTION MARK) 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
CORPORATION'S PAYMENT OR FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of the amount in excess of the payment by the corporation under G.S. 55-13-25
for the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment for his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
PART 3.
JUDICIAL APPRAISAL OF SHARES.
(SECTION MARK) 55-13-30. COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i) the
date payment is made under G.S. 55-13-25, or (ii) the date of the dissenter's
payment demand under G.S. 55-13-28 and petition the court to determine the fair
value of the shares and accrued interest. A dissenter who takes no action within
the 60-day period shall be deemed to have withdrawn his dissent and demand for
payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
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(SECTION MARK) 55-13-31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
NATIONAL BANK ACT
MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER AGREEMENT;
NOTICE; CAPITAL STOCK; LIABILITY OR RECEIVING ASSOCIATION
SEC. 215a(a). One or more national banking associations or one or more
State banks, with the approval of the Comptroller, under an agreement not
inconsistent with this subchapter [XVI], may merge into a national banking
association located within the same State, under the charter of the receiving
association. The merger agreement shall --
(1) be agreed upon in writing by a majority of the board of directors
c association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater proportion of
such capital stock in the case of a State bank if the laws of the State
where it is organized so require, at a meeting to be held on the call of
the directors, after publishing notice of the time, place, and object of
the meeting for four consecutive weeks in a newspaper of general
circulation published in the place where the association or State bank is
located, or, if there is no such newspaper, then in the newspaper of
general circulation published nearest thereto, and after sending such
notice to each shareholder of record by certified or registered mail at
least ten days prior to the meeting, except to those shareholders who
specifically waive notice, but any additional notice shall be given to the
shareholders of such State bank which may be required by the laws of the
State where it is organized. Publication of notice may be waived, in cases
where the Comptroller determines that an emergency exists justifying such
waiver, by unanimous action of the shareholders of the association or State
bank;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located
and which will be outstanding upon completion of the merger, the amount of
stock (if any) to be allocated, and cash (if any) to be paid, to the
shareholders of the association or State bank being merged into the
receiving association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the
receiving association.
DISSENTING SHAREHOLDERS
(b) If a merger shall be voted for at the called meetings by the
necessary majorities of the shareholders of each association or State bank
participating in the plan of merger, and thereafter the merger shall be
approved by the Comptroller, any shareholder of any association or State
bank to be merged into the receiving association who has voted against such
merger at the meeting of the association or bank of which he is a
stockholder, or has given notice in writing at or prior to such meeting to
the presiding officer that he dissents from the plan of merger, shall be
entitled to receive
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the value of the shares so held by him when such merger shall be approved
by the Comptroller upon written request made to the receiving association
at any time before thirty days after the date of consummation of the
merger, accompanied by the surrender of his stock certificates.
VALUATION OF SHARES
(c) The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made
by a committee of three persons, composed of (1) one selected by the vote
of the holders of the majority of the stock, the owners of which
areentitled to payment in cash; (2) one selected by the directors of the
receiving association; and (3) one selected by the two so selected. The
valuation agreed upon by any two of the there appraisers shall govern. If
the value so fixed shall not be satisfactory to any dissenting shareholder
who has requested payment, that shareholder may, within five day days after
being notified of the appraised value of his shares, appeal to the
Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS;
APPRAISAL BY COMPTROLLER; EXPENSES OR RECEIVING ASSOCIATION;
SALE AND RESALE OF SHARES; STATE APPRAISAL AND MERGER LAW
(d) If, within ninety days from the date of consummation of the
merger, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such
shares, the Comptroller shall upon written request of any interested party
cause an appraisal to be made which shall be final and binding on all
parties. The expenses of the Comptroller in making the reappraisal or the
appraisal, as the case may be, shall be paid by the receiving association.
The value of the shares ascertained shall be promptly paid to the
dissenting shareholders by the receiving association. The shares of stock
of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at public
auction, if it is the highest bidder therefor, for the purpose of reselling
such shares within thirty days thereafter to such person or persons and at
such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a greater price than
the amount paid to the dissenting shareholders, the excess in such sale
price shall be paid to such dissenting shareholders. The appraisal of such
shares of stock in any State bank shall be determined in the manner
prescribed by the law of the State in such cases, rather than as provided
in this section, if any such provision is made in the State law; and no
such merger shall be in contravention of the law of the State under which
such bank is incorporated. The provisions of this subsection shall apply
only to shareholders of (and stock owned by then in) a bank or association
being merged into the receiving association.
STATUS OF RECEIVING ASSOCIATIONS;
PROPERTY RIGHTS AND INTERESTS VESTED AND HELD AS FIDUCIARY
(e) The corporate existence of each of the merging banks or banking
associations participating in such merger shall be merged into and
continued in the receiving association and such receiving association shall
be deemed to be the same corporation as each bank or banking association
participating in the merger. All rights, franchises, and interests of the
individual merging banks or banking associations in and to every type of
property (real, personal, and mixed) and choses in action shall be
transferred to and vested in the receiving association by virtue of such
merger without any deed or other transfer. The receiving association, upon
the merger and without any order or other action on the part of any court
or otherwise, shall hold and enjoy all rights of property, franchises, and
interests, including appointments, designations, and nominations, and all
other rights and interests as trustee, executor, administrator, registrar
of stocks and bonds, guardian of estates, assignee, receiver, and committee
of estates of lunatics, and in every other fiduciary capacity, in the same
manner and to the same extent as such rights, franchises, and interests
were held or enjoyed by any one of the merging banks or banking
associations at the time of the merger, subject to the conditions
hereinafter provided.
REMOVAL AS FIDUCIARY; DISCRIMINATION
(f) Where any merging bank or banking association, at the time of the
merger, was acting under appointment of any court as trustee, executor,
administrator, registrar of stocks and bonds, guardian or estates,
assignee, receiver, or committee of estates of lunatics, or in any other
fiduciary capacity, the receiving association shall be subject to removal
by a court of competent jurisdiction in the same manner and to the same
extent as was such merging bank or banking association prior to the merger.
Nothing contained in this section shall be considered to impair in any
manner the right of any court to remove the receiving association and to
appoint in lieu thereof a substitute trustee, executor, or other fiduciary,
AIII-6
<PAGE>
except that such right shall not be exercised in such a manner as to
discriminate against national banking associations, nor shall any receiving
association be removed solely because of the fact that it is a national
banking association.
ISSUANCE OF STOCK BY RECEIVING ASSOCIATION; PREEMPTIVE RIGHTS
(g) Stock of the receiving association may be issued as provided by
the terms of the merger agreement, free from any preemptive rights of the
shareholders of the respective merging banks.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the Company's Amended and Restated Bylaws provides:
ARTICLE VIII.
INDEMNIFICATION
1. EXTENT. In addition to the indemnification otherwise provided by law,
the corporation shall indemnify and hold harmless its directors and officers
against liability and litigation expense, including reasonable attorneys' fees,
arising out of their status as directors or officers or their activities in any
of such capacities or in any capacity in which any of them is or was serving, at
the corporation's request, in another corporation, partnership, joint venture,
trust or other enterprise, and the corporation shall indemnify and hold harmless
those directors, officers or employees of the corporation and who are deemed to
be fiduciaries of the corporation's employee pension and welfare benefit plans
as defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA fiduciaries") against all liability and litigation expense, including
reasonable attorneys' fees, arising out of their status or activities as ERISA
fiduciaries; provided, however, that the corporation shall not indemnify a
director or officer against liability or litigation expense that he may incur on
account of his activities that at the time taken were known or reasonably should
have been known by him to be clearly in conflict with the best interests of the
corporation, and the corporation shall not indemnify an ERISA fiduciary against
any liability or litigation expense that he may incur on account of his
activities that at the time taken were known or reasonably should have been
known by him to be clearly in conflict with the best interests of the employee
benefit plan to which the activities relate. The corporation shall also
indemnify the director, officer, and ERISA fiduciary for reasonable costs,
expenses and attorneys' fees in connection with the enforcement of rights to
indemnification granted herein, if it is determined in accordance with Section 2
of this Article that the director, officer and ERISA fiduciary is entitled to
indemnification hereunder.
2. DETERMINATION. Any indemnification under Section 1 of this Article shall
be paid by the corporation in any specific case only after a determination that
the director, officer or ERISA fiduciary did not act in a manner, at the time
the activities were taken, that was known or reasonably should have been known
by him to be clearly in conflict with the best interests of the corporation, or
the employee benefit plan to which the activities relate, as the case may be.
Such determination shall be made (a) by the affirmative vote of a majority (but
not less than two) of directors who are or were not parties to such action, suit
or proceeding or against whom any such claim is asserted ("disinterested
directors") even though less than a quorum, or (b) if a majority (but not less
than two) of disinterested directors so direct, by independent legal counsel in
a written opinion, or (c) by the vote of a majority of all of the voting shares
other than those owned or controlled by directors, officers or ERISA fiduciaries
who were parties to such action, suit or proceeding or against whom such claim
is asserted, or by a unanimous vote of all of the voting shares, or (d) by a
court of competent jurisdiction.
3. ADVANCED EXPENSES. Expenses incurred by a director, officer or ERISA
fiduciary in defending a civil or criminal claim, action, suit or proceeding
may, upon approval of a majority (but not less than two) of the disinterested
directors, even though less than a quorum, or, if there are less than two
disinterested directors, upon unanimous approval of the Board of Directors, be
paid by the corporation in advance of the final disposition of such claim,
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer or ERISA fiduciary to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified against such
expenses by the corporation.
4. CORPORATION. For purposes of this Article, references to directors,
officers or ERISA fiduciaries of the "corporation" shall be deemed to include
directors, officers and ERISA fiduciaries of FNB Corp., its subsidiaries, and
all constituent corporations absorbed into FNB Corp. or any of its subsidiaries
by a consolidation or merger.
5. RELIANCE AND CONSIDERATION. Any director, officer or ERISA fiduciary who
at any time after the adoption of this Bylaw serves or has served in any of the
aforesaid capacities for or on behalf of the corporation shall be deemed to be
doing or to have done so in reliance upon, and as consideration for, the right
of indemnification provided herein. Such right shall inure to the benefit of the
legal representatives of any such person and shall not be exclusive of any other
rights to which such person may be entitled apart from the provision of this
Bylaw. No amendment, modification or repeal of this Article VIII shall adversely
affect the right of any director, officer or ERISA fiduciary to indemnification
hereunder with respect to any activities occurring prior to the time of such
amendment, modification or repeal.
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6. INSURANCE. The corporation may purchase and maintain insurance on behalf
of its directors, officers, employees and agents and those persons who were
serving at the request of the corporation as a director, officer, partner or
trustee of, or in some other capacity in, another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article or otherwise. Any
full or partial payment made by an insurance company under any insurance policy
covering any director, officer, employee or agent made to or on behalf of a
person entitled to indemnification under this Article shall relieve the
corporation of its liability for indemnification provided for in this Article or
otherwise to the extent of such payment, and no insurer shall have a right of
subrogation against the corporation with respect to such payment.
The North Carolina General Statutes contain provisions prescribing the
extent to which directors and officers shall or may be indemnified. These
statutory provisions are set forth below:
CH. 55 N.C. BUSINESS CORPORATION ACT
PART 5. INDEMNIFICATION.
(SECTION MARK)55-8-50. POLICY STATEMENT AND DEFINITIONS.
(a) It is the public policy of this State to enable corporations organized
under this Chapter to attract and maintain responsible, qualified directors,
officers, employees and agents, and, to that end, to permit corporations
organized under this Chapter to allocate the risk of personal liability of
directors, officers, employees and agents through indemnification and insurance
as authorized, in this Part.
(b) Definitions in this Part:
(1) "Corporation" includes any domestic or foreign corporation
absorbed in a merger which, if its separate existence had continued, would
have had the obligation or power to indemnify its directors, officers,
employees, or agents, so that a person who would have been entitled to
receive or request indemnification from such corporation if its separate
existence had continued shall stand in the same position under this Part
with respect to the surviving corporation.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or
was serving at the corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other
enterprise. A director is considered to be serving an employee benefit plan
at the corporation's request if his duties to the corporation also impose
duties on, or otherwise involve services by him to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless
the context requires otherwise, the estate or personal representative of a
director.
(3) "Expenses" means expenses of every kind incurred in defending a
proceeding, including counsel fees.
(4) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan). or reasonable expenses incurred with respect to a
proceeding.
(4a) "Officer", "employee", or "agent" includes, unless the context
requires otherwise, the estate or personal representative of a person who
acted in that capacity.
(5) "Official capacity" means: (i) when used with respect to a
director, the office of director in a corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in G.S.
55-8-56, the office in a corporation held by the officer or the employment
or agency relationship undertaken by the employee or agent on behalf of the
corporation. "Official capacity" does not include service for another
foreign or domestic corporation or any partnership, joint venture, trust,
employee benefit plan, or other enterprise.
(6) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal.
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<PAGE>
(SECTION MARK)55-8-51. AUTHORITY TO INDEMNIFY.
(a) Except as provided in subsection (d), a corporation may indemnify
an individual made a party to a proceeding because he is or was a director
against liability incurred in the proceeding if:
(1) He conducted himself in good faith; and
(2) He reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests;
and (ii) in all other cases, that his conduct was at least not opposed to
its best interests; and
(3) In the case of any criminal proceeding, he had no reasonable cause
to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants in and
beneficiaries of the plan is conduct that satisfies the requirement of
subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest or its equivalent is not, of itself,
determinative that the director did not meet the standard of conduct described
in this section.
(d) A corporation may not indemnify a director under this section:
(1) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(2) In connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity,
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.
(e) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation that is concluded without a
final adjudication on the issue of liability is limited to reasonable expenses
incurred in connection with the proceeding.
(f) The authorization, approval or favorable recommendation by the board of
directors of a corporation of indemnification, as permitted by this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such indemnification shall be void or voidable on
such ground.
(SECTION MARK)55-8-52. MANDATORY INDEMNIFICATION.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which he was a party because he is or was a
director of the corporation against reasonable expenses incurred by him in
connection with the proceeding.
(SECTION MARK)55-8-53. ADVANCE FOR EXPENSES.
Expenses incurred by a director in defending a proceeding may be paid by
the corporation in advance of the final disposition of such proceeding as
authorized by the board of directors in the specific case or as authorized or
required under any provision in the articles of incorporation or bylaws or by
any applicable resolution or contract upon receipt of an undertaking by or on
behalf of the director to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation against such
expenses.
(SECTION MARK)55-8-54. COURT-ORDERED INDEMNIFICATION.
Unless a corporation's articles of incorporation provide otherwise, a
director of the corporation who is a party to a proceeding may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction. On receipt of an application, the court after giving any
notice the court considers necessary may order indemnification if it determines:
(1) The director is entitled to mandatory indemnification under G.S.
55-8-52, in which case the court shall also order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
or
(2) The director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in G.S. 55-8-51 or was adjudged liable as described in G.S.
55-8-51(d), but if he was adjudged so liable his indemnification is limited to
reasonable expenses incurred.
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(SECTION MARK)55-8-55. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(a) A corporation may not indemnify a director under G.S. 55-8-51 unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because he
has met the standard of conduct set forth in G.S. 55-8-51.
(b) The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subdivision (1), by majority
vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely
of two or more directors not at the time parties to the proceeding;
(3) By special legal counsel (i) selected by the board of directors or
its committee in the manner prescribed in subdivision (1) or (2); or (ii)
if a quorum of the board of directors cannot be obtained under subdivision
(1) and a committee cannot be designated under subdivision (2), selected by
majority vote of the full board of directors (in which selection directors
who are parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not
be voted on the determination.
(c) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(b)(3) to select counsel.
(SECTION MARK)55-8-56. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS.
Unless a corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation is entitled to mandatory indemnification
under G.S. 55-8-52, and is entitled to apply for court-ordered indemnification
under G.S. 55-8-54, in each case to the same extent as a director.
(2) The corporation may indemnify and advance expenses under this Part to
an officer, employee, or agent of the corporation to the same extent as to a
director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
(SECTION MARK)55-8-57. ADDITIONAL INDEMNIFICATION AND INSURANCE.
(a) In addition to and separate and apart from the indemnification provided
for in G.S. 55-8-51, 55-8-52, 55-8-54, 55-8-55 and 55-8-56, a corporation may in
its articles of incorporation or bylaws or by contract or resolution indemnify
or agree to indemnify any one or more of its directors, officers, employees, or
agents against liability and expenses in any proceeding (including without
limitation a proceeding brought by or on behalf of the corporation itself)
arising out of their status as such or their activities in any of the foregoing
capacities; provided, however, that a corporation may not indemnify or agree to
indemnify a person against liability or expenses he may incur on account of his
activities which were at the time taken, known or believed by him to be clearly
in conflict with the best interests of the corporation. A corporation may
likewise and to the same extent indemnify or agree to indemnify any person who,
at the request of the corporation, is or was serving as a director, officer,
partner, trustee, employee, agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or as a trustee or
administrator under an employee benefit plan. Any provision in any articles of
incorporation, bylaw, contract or resolution permitted under this section may
include provisions for recovery from the corporation of reasonable costs,
expenses, and attorneys' fees in connection with the enforcement of rights to
indemnification granted therein and may further include provisions establishing
reasonable procedures for determining and enforcing the rights granted therein.
(b) The authorization, adoption, approval, or favorable recommendation by
the board of directors of a public corporation of any provision in any articles
of incorporation, bylaw, contract or resolution, as permitted in this section,
shall not be deemed an act or corporate transaction in which a director has a
conflict of interest, and no such articles of incorporation or
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bylaw provision or contract or resolution shall be void or voidable on such
grounds. The authorization, adoption, approval, or favorable recommendation by
the board of directors of a nonpublic corporation of any provision in any
articles of incorporation, bylaw, contract or resolution, as permitted in this
section which occurred prior to July 1, 1990, shall not be deemed an act or
corporate transaction in which a director has a conflict of interest, and no
such articles of incorporation, bylaw provision, contract or resolution shall be
void voidable on such grounds. Except as permitted in G.S. 55-8-31, no such
bylaw, contract, or resolution not adopted, authorized, approved or ratified by
shareholders shall be effective as to claims made or liabilities asserted
against any director prior to its adoption, authorization, or approval by the
board of directors.
(c) A corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation, or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the corporation would have power to indemnify him against the
same liability under any provision of this Chapter.
(SECTION MARK)55-8-58. APPLICATION OF PART.
(a) If articles of incorporation limit indemnification or advance for
expenses, indemnification and advance for expenses are valid only to the extent
consistent with the articles.
(b) This Part does not limit a corporation's power to pay or reimburse
expenses incurred by a director in connection with his appearance as a witness
in a proceeding at a time when he has not been made a name defendant or
respondent to the proceeding.
(c) This Part shall not affect rights or liabilities arising out of acts or
omissions occurring before July 1, 1990.
ITEM 21. EXHIBITS.
The following exhibits, listed in accordance with the number assigned to
each in the exhibit table of Item 601 of Regulation S-K, are included in Part II
of this Registration Statement. Exhibit numbers omitted are not applicable.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
2.10 Agreement and Plan of Reorganization and Merger by and among Home Savings Bank of Siler City, Inc., SSB,
FNB Corp. and First National Bank and Trust Company dated June 3, 1997, incorporated herein by reference
to Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated
June 3, 1997.
2.11 Stock Option Agreement issued by Home Savings Bank of Siler City, Inc., SSB to FNB Corp. dated June 3,
1997, incorporated herein by reference to Exhibit 2(b) to the Registrant's Current Report on Form 8-K
dated June 3, 1997.
3.10 Articles of Incorporation of the Registrant, incorporated herein by reference to Exhibit 3.1 to the
Registrant's Form S-14 Registration Statement (No. 2-96498) filed March 16, 1985.
3.11 Articles of Amendment to Articles of Incorporation of the Registrant, adopted May 10, 1988, incorporated
herein by reference to Exhibit 19.10 to the Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1988.
3.20 Amended and Restated Bylaws of the Registrant, adopted May 9, 1995, incorporated herein by reference to
Exhibit 3.20 to the Registrant's Form 10-QSB Quarterly Report for the quarter ended June 30, 1995.
4 Specimen of Registrant's Common Stock Certificate, incorporated herein by reference to Exhibit 4 to
Amendment No. 1 to the Registrant's Form S-14 Registration Statement (No. 2-96498) filed
April 19, 1985.
5 Legal Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
8 Tax Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
10.10 Form of Split Dollar Insurance Agreement dated as of November 1, 1987 between First National Bank and
Trust Company and certain of its key employees and directors, incorporated herein by reference to Exhibit
19.20 to the Registrant's Form 10-Q Quarterly Report for the Quarter ended June 30, 1988.
10.11 Form of Amendment to Split Dollar Insurance Agreement dated as of November 1, 1994 between First National
Bank and Trust Company and certain of its key employees and directors, incorporated herein by reference to
Exhibit 10.11 to the Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
10.20 Copy of Split Dollar Insurance Agreement dated as of May 28, 1989 between First National Bank and Trust
Company and James M. Culberson, Jr., incorporated herein by reference to Exhibit 10.30 to the Registrant's
Form 10-K Annual Report for the fiscal year ended December 31, 1989.
10.30 Copy of Stock Compensation Plan adopted May 11, 1993, as amended May 13, 1997, incorporated herein by
reference to Exhibit 10.30 to the Registrant's Form 10-Q Quarterly Report for the quarter ended June 30,
1997.
10.31 Form of Incentive Stock Option Agreement between FNB Corp. and certain of its key employees, pursuant to
the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.31 to the
Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.32 Form of Nonqualified Stock Option Agreement between FNB Corp. and certain of its directors, pursuanta o
the Registrant's Stock Compensation Plan, incorporated herein by reference to Exhibit 10.32 to the
Registrant's Form 10-KSB Annual Report for the fiscal year ended December 31, 1994.
10.40 Copy of FNB Corp. Savings Institutions Management Stock Compensation Plan adopted
May 10, 1994, incorporated herein by reference to Exhibit 10.40 to the Registrant's Form 10-QSB Quarterly
Report for the quarter ended June 30, 1994.
10.50 Copy of Employment Agreement dated as of December 27, 1995 between First National Bank and Trust Company
and Michael C. Miller, incorporated herein by reference to Exhibit 10.50 to the Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1996.
13.10 Portions of the Registrant's 1996 Annual Report to Shareholders, incorporated by reference to Exhibit 13
to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996.
13.20 Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 is incorporated by reference herein.
13.21 Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 is incorporated by reference herein.
21 Subsidiaries of the Registrant, incorporated herein by reference to Exhibit 21 to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1996.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of KPMG Peat Marwick L.L.P.
23.3 Consent of Baxter Fentriss & Company
23.4 Consents of Schell, Bray, Aycock, Abel & Livingston P.L.L.C. are contained in its opinions filed as
Exhibits 5 and 8.
27 Financial Data Schedule, incorporated by reference to Exhibit 27 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
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.
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.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
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The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415 ((section mark)230.415 of this
chapter), will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that 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 a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Asheboro, State of North
Carolina, on November 10, 1997.
FNB CORP.
By: /s/_______MICHAEL C. MILLER________
MICHAEL C. MILLER, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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/s/MICHAEL C. MILLER President, Chief Executive Officer and November 10, 1997
MICHAEL C. MILLER Director
/s/JERRY A. LITTLE Treasurer and Secretary (Principal November 10, 1997
JERRY A. LITTLE Financial and Accounting Officer)
/s/* Chairman of the Board November 10, 1997
JAMES M. CULBERSON, JR.
/s/* Director November 10, 1997
JAMES M. CAMPBELL, JR.
/s/* Director November 10, 1997
WILBERT L. HANCOCK
/s/* Director November 10, 1997
THOMAS A. JORDAN
/s/* Director November 10, 1997
R. REYNOLDS NEELY, JR.
/s/* Director November 10, 1997
RICHARD K. PUGH
/s/* Director November 10, 1997
J.M. RAMSAY III
/s/* Director November 10, 1997
CHARLES W. STOUT, M.D.
/s/* Director November 10, 1997
EARLENE V. WARD
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* Michael C. Miller, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a Power of Attorney duly
executed by such person and filed with the Securities and Exchange Commission.
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By: /s/MICHAEL C. MILLER
MICHAEL C. MILLER
ATTORNEY-IN-FACT
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II-8
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INDEX TO EXHIBITS
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SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
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2.10 Agreement and Plan of Reorganization and Merger by and among Home
Savings Bank of Siler City, Inc., SSB, FNB Corp. and First National Bank
and Trust Company dated June 3, 1997, incorporated herein by reference
to Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated
June 3, 1997.
2.11 Stock Option Agreement issued by Home Savings Bank of Siler City, Inc.,
SSB to FNB Corp. dated June 3, 1997, incorporated herein by reference to
Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated June
3, 1997.
3.10 Articles of Incorporation of the Registrant, incorporated herein by
reference to Exhibit 3.1 to the Registrant's Form S-14 Registration
Statement (No. 2-96498) filed March 16, 1985.
3.11 Articles of Amendment to Articles of Incorporation of the Registrant,
adopted May 10, 1988, incorporated herein by reference to Exhibit 19.10
to the Registrant's Form 10-Q Quarterly Report for the quarter ended
June 30, 1988.
3.20 Amended and Restated Bylaws of the Registrant, adopted May 9, 1995,
incorporated herein by reference to Exhibit 3.20 to the Registrant's
Form 10-QSB Quarterly Report for the quarter ended June 30, 1995.
4 Specimen of Registrant's Common Stock Certificate, incorporated herein
by reference to Exhibit 4 to Amendment No. 1 to the Registrant's Form
S-14 Registration Statement (No. 2-96498) filed
April 19, 1985.
5 Legal Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
8 Tax Opinion of Schell Bray Aycock Abel & Livingston P.L.L.C.
10.10 Form of Split Dollar Insurance Agreement dated as of November 1, 1987
between First National Bank and Trust Company and certain of its key
employees and directors, incorporated herein by reference to Exhibit
19.20 to the Registrant's Form 10-Q Quarterly Report for the Quarter
ended June 30, 1988.
10.11 Form of Amendment to Split Dollar Insurance Agreement dated as of
November 1, 1994 between First National Bank and Trust Company and
certain of its key employees and directors, incorporated herein by
reference to Exhibit 10.11 to the Registrant's Form 10-KSB Annual Reportp
for the fiscal year ended December 31, 1994.
10.20 Copy of Split Dollar Insurance Agreement dated as of May 28, 1989
between First National Bank and Trust Company and James M. Culberson,
Jr., incorporated herein by reference to Exhibit 10.30 to the
Registrant's Form 10-K Annual Report for the fiscal year ended December
31, 1989.
10.30 Copy of Stock Compensation Plan adopted May 11, 1993, as amended May 13,
1997, incorporated herein by reference to Exhibit 10.30 to the
Registrant's Form 10-Q Quarterly Report for the quarter ended June 30,
1997.
10.31 Form of Incentive Stock Option Agreement between FNB Corp. and certain
of its key employees, pursuant to the Registrant's Stock Compensation
Plan, incorporated herein by reference to Exhibit 10.31 to the
Registrant's Form 10-KSB Annual Report for the fiscal year ended
December 31, 1994.
10.32 Form of Nonqualified Stock Option Agreement between FNB Corp. and
certain of its directors, pursuanta o the Registrant's Stock
Compensation Plan, incorporated herein by reference to Exhibit 10.32 to
the Registrant's Form 10-KSB Annual Report for the fiscal year ended
December 31, 1994.
10.40 Copy of FNB Corp. Savings Institutions Management Stock Compensation
Plan adopted
May 10, 1994, incorporated herein by reference to Exhibit 10.40 to the
Registrant's Form 10-QSB Quarterly Report for the quarter ended June 30,
1994.
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SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
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10.50 Copy of Employment Agreement dated as of December 27, 1995 between First
National Bank and Trust Company and Michael C. Miller, incorporated
herein by reference to Exhibit 10.50 to the Registrant's Annual Report
on Form 10-KSB for the year ended December 31, 1996.
13.10 Portions of the Registrant's 1996 Annual Report to Shareholders,
incorporated by reference to Exhibit 13 to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1996.
13.20 Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 is
incorporated by reference herein.
13.21 Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 is
incorporated by reference herein.
21 Subsidiaries of the Registrant, incorporated herein by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1996.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of KPMG Peat Marwick L.L.P.
23.3 Consent of Baxter Fentriss & Company
23.4 Consents of Schell, Bray, Aycock, Abel & Livingston P.L.L.C. are
contained in its opinions filed as Exhibits 5 and 8.
27 Financial Data Schedule, incorporated by reference to Exhibit 27 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997.
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EXHIBIT 5
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November 10, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: FNB Corp.
Registration Statement on Form S-4
Registration No. 333-34575
Gentlemen:
We have represented FNB Corp., a North Carolina corporation with its
principal office and place of business located in Asheboro, North Carolina (the
"Corporation"), in connection with the proposed merger (the "Merger") of Home
Savings Bank of Siler City, Inc., SSB, a North Carolina savings bank with its
principal office and place of business located in Siler City, North Carolina
("Home Savings"), with and into First National Bank and Trust Company, a
national banking corporation with its principal office and place of business
located in Asheboro, North Carolina and a wholly owned subsidiary of the
Corporation ("First National"), pursuant to the Agreement and Plan of Merger
dated June 3, 1997 by and among Home Savings, the Corporation and First National
(the "Agreement") as described in the Registration Statement on Form S-4,
including all amendments thereto (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission"). This opinion is delivered
pursuant to the requirements of Item 21(a) of Form S-4 under the Securities Act
of 1933, as amended (the "Act").
Pursuant to the terms of the Merger, the Corporation will issue to the
shareholders of Home Savings shares of the Corporation's common stock, $2.50 par
value (the "Common Stock"), in the event the Merger is consummated. Accordingly,
the Corporation will register such shares with the Commission under the Act by
filing the Registration Statement.
To opine as to the legality of the securities to be issued by the
Corporation, we have examined the Corporation's Articles of Incorporation, and
all amendments thereto, its Amended and Restated Bylaws, the minutes of its
Board of Directors and such of its corporate records as we deemed necessary or
appropriate, the Registration Statement and all amendments thereto filed with
the Commission, including the Prospectus/Proxy Statement therein (the
"Prospectus/Proxy Statement") and the Agreement. For purposes of this opinion,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as certified, photostatic or conformed copies, and the
authenticity of the originals of such documents.
Based upon our review (and subject to the Registration Statement becoming
and remaining effective, approval of the Merger by Home Savings' shareholders,
receipt of all required regulatory approvals and consummation of the Merger on
the terms and in the manner described in the Agreement), we are of the opinion
that all necessary corporate action has been taken to authorize the issuance of
the shares of Common Stock as contemplated by the Agreement, and such shares, if
and when issued in accordance with the procedures described in the Agreement,
will be validly issued, fully paid and nonassessable.
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We hereby consent to the use of this opinion as Exhibit 5 of the
Registration Statement relating to the offering referred to above, as filed with
the Commission under the Act, and to any reference to this opinion and to our
firm name under the heading "Opinions" in the Prospectus/Proxy Statement. We do
not, however, thereby admit that we are within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission promulgated thereunder.
Very truly yours,
/s/ SCHELL BRAY AYCOCK ABEL &
LIVINGSTON P.L.L.C.
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EXHIBIT 8
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November 10, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: FNB Corp.
Registration Statement on Form S-4
Registration No. 333-34575
Gentlemen:
We have represented FNB Corp., a North Carolina corporation with its
principal office and place of business located in Asheboro, North Carolina (the
"Corporation"), in connection with the proposed merger (the "Merger") of Home
Savings Bank of Siler City, Inc., SSB, a North Carolina savings bank with its
principal office and place of business located in Siler City, North Carolina
("Home Savings"), with and into First National Bank and Trust Company, a
national banking corporation with its principal office and place of business
located in Asheboro, North Carolina and a wholly owned subsidiary of the
Corporation ("First National"), pursuant to the Agreement and Plan of Merger
dated June 3, 1997 by and among Home Savings, the Corporation and First National
(the "Agreement") as described in the Registration Statement on Form S-4,
including all amendments thereto (the "Registration Statement"), filed with the
Securities and Exchange Commission (the "Commission"). This opinion is delivered
pursuant to the requirements of Item 21(a) of Form S-4 under the Securities Act
of 1933, as amended (the "Act").
In connection with this opinion, we have examined (i) the Agreement, (ii)
the Registration Statement, including the Prospectus/Proxy Statement contained
therein (the "Prospectus/Proxy Statement"), and (iii) such other documents as we
have deemed necessary or appropriate to enable us to render the opinions below.
For purposes of this opinion, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to originals of all documents submitted to us as certified, photostatic or
conformed copies, and the authenticity of the originals of such documents. In
addition, we have relied on certain representations and covenants of FNB and
Home Savings and have assumed that certain written representations of FNB and
Home Savings are true, correct and complete on the date hereof and will be true,
correct and complete at the effective time of the Merger.
Based upon our review of the foregoing, the discussion included in the
Prospectus/Proxy Statement under the captions "Certain Federal Income Tax
Consequences" and "Summary -- Certain Federal Income Tax Consequences,"
expresses our opinion as to the material federal income tax consequences
applicable to holders of the common stock of Home Savings. You should be aware,
however, that such discussion represents our conclusions as to the application
of existing law to the Merger. There can be no assurance that the Internal
Revenue Service will not take contrary positions.
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We hereby consent to the use of this opinion as Exhibit 8 of the
Registration Statement relating to the offering referred to above, as filed with
the Commission under the Act, and to any reference to this opinion and to our
firm name under the heading "Opinions" in the Prospectus/Proxy Statement. We do
not, however, thereby admit that we are within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations of
the Commission promulgated thereunder.
Very truly yours,
/s/ SCHELL BRAY AYCOCK ABEL &
LIVINGSTON P.L.L.C.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of FNB Corp. on
Form S-4 of our report dated November 4, 1996, except for Note 14, as to which
the date is June 3, 1997, on our audits of the consolidated financial statements
of Home Savings Bank of Siler City, Inc., SSB as of September 30, 1996 and 1995
and for each of the three years in the period ended September 30, 1996. We also
consent to the reference to our firm under the caption "Experts."
Raleigh, North Carolina
November 7, 1997
/s/ COOPERS & LYBRAND L.L.P.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
FNB Corp.
We consent to the use of our report dated March 7, 1997 incorporated by
reference in the December 31, 1996 Form 10-KSB of FNB Corp. and subsidiary
incorporated herein by reference and to the reference to our firm under the
heading "Experts" in the Proxy Statement/Prospectus for the acquisition of Home
Savings Bank of Siler City, Inc., SSB.
/s/ KPMG PEAT MARWICK LLP
November 7, 1997
Greensboro, North Carolina
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EXHIBIT 23.3
[Baxter Fentriss and Company Letterhead (goes here)]
CONSENT OF FINANCIAL ADVISORS
We consent to the inclusion of our Fairness Opinion isssued to Home Savings
Bank of Siler City Inc., SSB in this registration statement on Form S-4. We also
consent to the reference to our firm under the caption "Experts."
/s/ BAXTER FENTRISS AND COMPANY
Richmond, Virginia
November 7, 1997
