<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WACHOVIA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6060 56-1473727
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
100 NORTH MAIN STREET
P.O. BOX 3099
WINSTON-SALEM, NORTH CAROLINA 191 PEACHTREE STREET, N.E.
27150 ATLANTA, GEORGIA 30303
(336) 770-5000 (404) 332-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH W. McALLISTER
SENIOR EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
P.O. BOX 3099
WINSTON-SALEM, NORTH CAROLINA 27150
(336) 732-5141
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
MARK J. MENTING RALPH F. MACDONALD, III
SULLIVAN & CROMWELL ALSTON & BIRD LLP
125 BROAD STREET AND ONE ATLANTIC CENTER
NEW YORK, NEW YORK 10004 1201 WEST PEACHTREE STREET
(212) 558-4000 ATLANTA, GA 30309-3424
(404) 881-7000
</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.
------------------------
CALCULATION OF REGISTRATION FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE(2)(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value $5.00
per share.................. 1,623,838 shares N/A $38,222,051.86 $10,091
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, par value
$5.00 per share ("Wachovia Common Stock"), issuable upon consummation of the
merger of B C Bankshares, Inc. ("B C Bankshares") with and into Wachovia
Corporation ("Wachovia").
(2) Pursuant to Rule 457(f)(2), the registration fee is based on the book value
of the common stock, par value $5.00 per share ("B C Bankshares Common
Stock"), of B C Bankshares as of November 30, 1999 ($68.59), and computed
based on the estimated maximum number of shares of B C Bankshares Common
Stock (557,254) that may be converted into the shares of Wachovia Common
Stock to be registered.
(3) Pursuant to Rule 457(b) under the Securities Act of 1933, as amended, the
amount of the registration fee has been reduced by $7,704, the amount paid
to the Securities Exchange Commission on December 10, 1999 with respect to
this transaction. The difference of $2,387 is paid herewith.
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: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
B C BANKSHARES, INC.
2780 MARIETTA HIGHWAY
P.O. BOX 649
CANTON, GEORGIA 30114
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 3, 2000
------------------------
To the Shareholders of B C Bankshares, Inc.:
Notice is hereby given that a special meeting of shareholders of B C
Bankshares, Inc. will be held at Bank of Canton's Operations Center, 2780
Marietta Highway, Canton, Georgia 30114 at 10:00 a.m. on Thursday, February 3,
2000, for the following purposes:
(1) To consider and vote upon an Agreement and Plan of Merger, dated
as of October 6, 1999, between B C Bankshares, Inc. and Wachovia
Corporation and the related Plan of Merger pursuant to which B C Bankshares
will merge into Wachovia. In the merger, each share of B C Bankshares
common stock outstanding on the effective date of the merger will be
converted into 2.914 shares of Wachovia common stock. You can find a copy
of the merger agreement and related plan of merger in Appendix A to the
accompanying proxy statement/prospectus.
(2) To transact other business, if any, that may properly come before
the special meeting or any adjournment or postponement of the special
meeting.
Only shareholders of record at the close of business on December 17, 1999
are entitled to receive notice of and to vote at the special meeting or any
adjournment or postponement of the special meeting.
Appraisal rights are available under Georgia law to B C Bankshares
shareholders with respect to the merger. Please see the section entitled
"Dissenters' Appraisal Rights" beginning on page 29 of the accompanying proxy
statement/prospectus for a discussion of the availability of appraisal rights
and the procedures required to be followed to assert dissenters' rights in
connection with the merger.
We look forward to seeing you at the special meeting. Your vote is
important. Please mark, sign and return your proxy card, whether or not you plan
to attend the special meeting.
THE B C BANKSHARES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
By Order of the Board of Directors,
/s/ Kathryn J. Young
Kathryn J. Young
Secretary
December 28, 1999
<PAGE> 3
<TABLE>
<S> <C>
B C BANKSHARES, INC. (WACHOVIA LOGO)
PROXY STATEMENT OF B C BANKSHARES, INC. PROSPECTUS OF
WACHOVIA CORPORATION
</TABLE>
------------------------
Your board of directors has approved unanimously a merger transaction in
which B C Bankshares will merge into Wachovia. This strategic transaction
provides B C Bankshares with growth and strategic opportunities that would not
have been available to us on a stand-alone basis. In addition, it provides you
with the opportunity to participate as a shareholder in one of the nation's
leading financial services companies.
IN THE MERGER, EACH OF YOUR SHARES OF B C BANKSHARES COMMON STOCK WILL BE
CONVERTED INTO 2.914 SHARES OF WACHOVIA COMMON STOCK. THIS REPRESENTS A VALUE OF
$196.877 BASED ON THE DECEMBER 22, 1999 CLOSING PRICE OF WACHOVIA COMMON STOCK.
IN ADDITION, THE CONVERSION OF YOUR SHARES OF B C BANKSHARES COMMON STOCK
GENERALLY WILL NOT BE TAXABLE.
In order to complete this merger, B C Bankshares needs your approval. This
document is being furnished to you in connection with the solicitation of
proxies by B C Bankshares' board of directors for its use at the special meeting
of shareholders.
The special meeting will be held at Bank of Canton's Operations Center,
2780 Marietta Highway, Canton, Georgia 30114, at 10:00 a.m. on Thursday,
February 3, 2000. At the special meeting, you will be asked to consider and vote
upon the merger agreement.
Your board of directors believes that the merger is in the best interests
of B C Bankshares and its shareholders and strongly encourages you to vote "FOR"
approval of the merger agreement. B C Bankshares' financial advisor, Carson
Medlin, has issued its opinion to the B C Bankshares board of directors that the
exchange ratio is fair from a financial point of view to B C Bankshares
shareholders.
Wachovia common stock is traded on the New York Stock Exchange under the
symbol "WB".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES THAT WACHOVIA IS OFFERING THROUGH THIS DOCUMENT ARE NOT
SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK
SUBSIDIARY OF WACHOVIA, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this proxy statement/prospectus is December 28, 1999, and it is
being mailed or otherwise delivered to B C Bankshares shareholders on or about
that date.
<PAGE> 4
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Wachovia from documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents incorporated
by reference in this proxy statement/prospectus, other than certain exhibits to
those documents, by requesting them in writing or by telephone from Wachovia at
the following addresses:
Wachovia Corporation
<TABLE>
<S> <C> <C>
P.O. Box 3099 191 Peachtree Street, N.E.
Winston-Salem, NC 27150 Atlanta, Georgia 30303
Attention: Secretary or Attention: Secretary
(336) 732-2549 (404) 332-6661
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY THURSDAY, JANUARY
27, 2000 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
See "Where You Can Find More Information" on page 72 for further
information.
ii
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REFERENCES TO ADDITIONAL INFORMATION........................ ii
QUESTIONS AND ANSWERS ABOUT THE WACHOVIA/B C BANKSHARES
MERGER.................................................... v
SUMMARY..................................................... 1
Comparison of Unaudited Per Share Data.................... 6
Selected Financial Data of Wachovia....................... 7
Selected Financial Data of B C Bankshares................. 8
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................. 9
SPECIAL MEETING............................................. 10
Record Date............................................... 10
Quorum; Effect of Abstentions and Broker Non-Votes........ 10
Proxies................................................... 10
Vote Required............................................. 11
Recommendation of Board of Directors...................... 11
THE MERGER.................................................. 11
Overview.................................................. 11
Background of the Merger.................................. 12
Reasons of B C Bankshares for the Merger.................. 13
Opinion of B C Bankshares' Financial Advisor.............. 14
Valuation Methodologies................................... 16
Effective Time of the Merger.............................. 20
Distribution of Wachovia Stock Certificates............... 21
Fractional Shares......................................... 21
Federal Income Tax Consequences........................... 21
Management and Operations after the Merger................ 23
Post-Merger Compensation and Benefits..................... 23
Interests of Certain Persons in the Merger................ 23
Conditions to Completion of the Merger.................... 25
Regulatory Approvals...................................... 25
Amendment, Waiver and Termination......................... 26
Conduct of Business Pending the Merger.................... 27
Expenses and Fees......................................... 28
Accounting Treatment...................................... 28
New York Stock Exchange Listing of Wachovia Common
Stock.................................................. 28
Resales of Wachovia Common Stock.......................... 28
Voting Agreements......................................... 29
Dissenters' Appraisal Rights.............................. 29
Stock Option Agreement.................................... 31
DESCRIPTION OF WACHOVIA CAPITAL STOCK....................... 34
Authorized Stock.......................................... 34
Preferred Stock........................................... 34
Common Stock.............................................. 35
Anti-Takeover Provisions.................................. 35
</TABLE>
iii
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN DIFFERENCES IN THE RIGHTS OF WACHOVIA SHAREHOLDERS
AND B C BANKSHARES SHAREHOLDERS............................. 39
Authorized Capital........................................ 39
Amendment of Articles of Incorporation.................... 39
Notice of Meetings of Shareholders........................ 39
Special Meetings of Shareholders.......................... 40
Record Date............................................... 40
Number of Directors; Classified Board of Directors........ 40
Removal of Directors...................................... 40
Shareholder Proposals; Advance Notice of Director
Nominations............................................ 40
Anti-Takeover Provisions; Restrictions on Certain Business
Combinations........................................... 41
Limitation on Director Liability; Indemnification......... 41
Shareholder Inspection Rights; Shareholder Lists.......... 42
Dissenters' Appraisal Rights.............................. 43
COMPARATIVE MARKET PRICES AND DIVIDENDS..................... 44
Wachovia.................................................. 44
B C Bankshares............................................ 44
ADDITIONAL INFORMATION ABOUT B C BANKSHARES................. 45
Business Description and Background....................... 45
Supervision and Regulation................................ 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF B C BANKSHARES............... 52
FINANCIAL INFORMATION AND STATISTICAL DATA.................. 70
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF B C
BANKSHARES................................................ 71
EXPERTS..................................................... 72
VALIDITY OF WACHOVIA COMMON STOCK........................... 72
OTHER MATTERS............................................... 72
WHERE YOU CAN FIND MORE INFORMATION......................... 72
B C BANKSHARES, INC. FINANCIAL STATEMENTS................... F-1
</TABLE>
APPENDICES:
<TABLE>
<S> <C> <C>
Appendix A -- Agreement and Plan of Merger and related Plan of Merger
Appendix B -- Stock Option Agreement
Appendix C -- Opinion of The Carson Medlin Company
Appendix D -- Article 13 of the Georgia Business Corporation Code
</TABLE>
iv
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE WACHOVIA/B C BANKSHARES MERGER
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card that you want to vote with respect to the
merger agreement. Sign and return the proxy card in the enclosed prepaid
return envelope marked "Proxy" as soon as possible, so that your shares may
be represented and voted at the special meeting to be held on February 3,
2000.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY
MY BROKER, WILL MY BROKER VOTE MY SHARES FOR
ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker to
vote your shares will be the equivalent of voting against the approval of
the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY
SIGNED PROXY CARD?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to the Secretary of B C
Bankshares stating that you would like to revoke your proxy. Second, you may
complete and submit a new proxy card. Third, you may attend the special
meeting and vote in person. Simply attending the special meeting, however,
will not revoke your proxy.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Wachovia will send you written
instructions explaining how you should exchange your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO
BE COMPLETED?
A: We expect the merger to be completed during the first three months of 2000.
We are working towards completing the merger as quickly as possible. To do
so, the shareholders of B C Bankshares must approve the merger agreement and
the merger and we must obtain the banking and other regulatory approvals
that are necessary to complete the merger.
Q: WHOM SHOULD I CALL WITH QUESTIONS OR TO
OBTAIN ADDITIONAL COPIES OF THIS PROXY
STATEMENT/PROSPECTUS?
A: You should contact Kathryn J. Young at B C Bankshares, 2780 Marietta
Highway, P.O. Box 649, Canton, Georgia 30114, telephone (770) 479-1931.
v
<PAGE> 8
SUMMARY
This brief summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that is
important to you. Each item in this summary refers to the page where that
subject is discussed in more detail. You should carefully read the entire proxy
statement/prospectus and the other documents to which we refer to understand
fully the merger. See "Where You Can Find More Information" on page 72 on how to
obtain copies of those documents. In addition, the merger agreement is attached
as Appendix A to this proxy statement/prospectus. We encourage you to read the
merger agreement because it is the legal document that governs the merger.
INFORMATION REGARDING WACHOVIA AND
B C BANKSHARES
WACHOVIA CORPORATION
100 North Main Street
Winston-Salem, North Carolina 27101
(336) 770-5000
and
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
(404) 332-5000
Wachovia is a North Carolina corporation, whose principal banking
subsidiary is Wachovia Bank, National Association. As of September 30, 1999,
Wachovia had 715 branches and 1,361 ATMs throughout the Southeast United States.
Wachovia also has subsidiaries engaged in large corporate and institutional
relationship management and business development, corporate leasing, remittance
processing and brokerage services. Based on its consolidated asset size and
market capitalization at September 30, 1999, Wachovia was ranked 15th and 16th,
respectively, among domestic U.S. bank holding companies in each of these
categories. At that date, Wachovia had consolidated assets of $65.8 billion,
deposits of $39.7 billion and shareholders' equity of $5.6 billion.
B C BANKSHARES, INC.
2780 Marietta Highway
P.O. Box 649
Canton, Georgia 30114
(770) 479-1931
B C Bankshares is a Georgia corporation, whose subsidiary is Bank of
Canton, organized under the laws of Georgia. As of September 30, 1999, Bank of
Canton had eight branches and seven ATMs, all of which are located in Cherokee
County, Georgia, and is in the process of opening its first branch in adjacent
Cobb County. At September 30, 1999, B C Bankshares had consolidated assets of
$400 million, deposits of $357 million and shareholders' equity of $39 million.
WACHOVIA WILL BE THE SURVIVING CORPORATION
(SEE PAGE 23)
B C Bankshares will be merged with and into Wachovia. Wachovia will be the
surviving corporation after the merger. The directors and officers of Wachovia
in office before the merger will continue to serve as the directors and officers
of Wachovia after the merger. Some of the officers of Bank of Canton will become
officers of Wachovia Bank.
MERGER CONSIDERATION WILL BE 2.914 WACHOVIA
SHARES FOR EACH B C BANKSHARES SHARE
(SEE PAGE 16)
When the merger is complete, each of your shares of B C Bankshares common
stock will be converted into 2.914 shares of Wachovia common stock. This
exchange ratio of 2.914 is fixed. However, the market price of Wachovia common
stock may change at any time. Consequently, the value of the Wachovia common
stock you will be entitled to receive as a result of the merger may be
significantly higher or lower than its current value or its value at the date of
the special meeting.
In the case of fractional shares, you will receive cash instead of a
fractional share.
For example, if you hold 100 shares of B C Bankshares common stock, you
will receive 291 shares of Wachovia common stock (100 x 2.914 = 291), plus a
cash payment equal to the value of 0.40 of a share of Wachovia common stock.
SHARE INFORMATION AND MARKET PRICES OF WACHOVIA COMMON STOCK (SEE PAGE 45)
Wachovia common stock is traded on the NYSE under the symbol "WB". The
following table lists the closing price of Wachovia common
1
<PAGE> 9
stock and the equivalent value of a B C Bankshares share on October 6, 1999,
the last trading day before we announced the merger, and on December 22, 1999,
the last practical day to obtain share price information before the date of this
proxy statement/prospectus. The equivalent per share value of B C Bankshares on
the specified dates represents the closing price of a share of Wachovia common
stock on that date multiplied by the exchange ratio of 2.914.
<TABLE>
<CAPTION>
EQUIVALENT PER
WACHOVIA SHARE VALUE OF
COMMON B C BANKSHARES
STOCK COMMON STOCK
-------- --------------
<S> <C> <C>
October 6, 1999 $ 82.44 $ 240.23
December 22, 1999 $67.5625 $196.877
</TABLE>
THE MARKET PRICE OF WACHOVIA COMMON STOCK WILL FLUCTUATE PRIOR TO THE
COMPLETION OF THE MERGER BUT WILL NOT AFFECT THE EXCHANGE RATIO. You should
obtain current market quotations for Wachovia common stock. B C Bankshares
common stock is not traded on any securities exchange or public market and is
infrequently traded in private transactions. The holders of Wachovia common
stock received a dividend of $.54 in the third quarter of 1999. Although
Wachovia expects to continue paying quarterly cash dividends on its common
stock, it cannot be certain that its dividend policy will remain unchanged after
completion of the merger.
GENERALLY, THE MERGER WILL BE A TAX-FREE TRANSACTION FOR B C BANKSHARES
SHAREHOLDERS (SEE PAGE 21)
We expect that for United States federal income tax purposes, you will not
recognize any gain or loss in the merger, except in connection with any cash
that you may receive instead of a fractional share of Wachovia common stock or
as a result of the exercise of dissenters' appraisal rights. Your holding period
for the Wachovia common stock received in the merger, which determines how any
gain or loss should be treated for federal income tax purposes upon future sales
of Wachovia common stock, generally will include your holding period for the B C
Bankshares common stock exchanged in the merger.
It is a condition to the merger that both B C Bankshares and Wachovia
receive legal opinions that the federal income tax treatment will be as
described in this document.
This tax treatment may not apply to certain B C Bankshares shareholders,
including shareholders who are non-U.S. persons or dealers in securities.
Determining the actual tax consequences of the merger to you may be complex and
will depend on your specific situation and on variables not within our control.
You should consult your own tax advisor for a full understanding of the merger's
tax consequences for you.
B C BANKSHARES BOARD UNANIMOUSLY RECOMMENDS THAT YOU APPROVE THE MERGER
AGREEMENT (SEE PAGE 14)
The B C Bankshares board believes that the merger is in your best interests
and has approved unanimously the merger agreement. The B C Bankshares board of
directors recommends that you vote "FOR" approval of the merger agreement.
NEW WACHOVIA SHARES EXPECTED TO BE LISTED ON NYSE
Prior to the effective time of the merger, Wachovia will use its reasonable
best efforts to list on the NYSE the shares of Wachovia common stock to be
issued to B C Bankshares shareholders in the merger.
FINANCIAL ADVISOR SAYS CONSIDERATION FAIR TO B C BANKSHARES SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW (SEE PAGE 14)
The Carson Medlin Company, the financial advisor to B C Bankshares in
connection with the merger, has delivered an opinion to the B C Bankshares board
that the exchange ratio is fair from a financial point of view to B C Bankshares
shareholders. A copy of Carson Medlin's opinion is attached to this document as
Appendix C. You should read the opinion in full to understand the assumptions
made, matters considered and the limitations of the review undertaken by Carson
Medlin in providing this opinion.
Carson Medlin will receive total fees equal to 0.9% of the consideration
received by B C Bankshares' shareholders in connection with the merger, plus
reimbursement of its expenses, for its services as financial advisor to B C
Bankshares in connection with the merger. If the merger were completed on
December 21, 1999, the fee would have been approximately $1,059,000.
2
<PAGE> 10
SPECIAL MEETING TO BE HELD ON FEBRUARY 3, 2000 (SEE PAGE 40)
The special meeting of B C Bankshares shareholders will be held at 10:00
a.m. on Thursday, February 3, 2000, at Bank of Canton's Operations Center, 2780
Marietta Highway, Canton, Georgia 30114. At the special meeting, you will be
asked to consider and vote to approve the merger agreement which provides for
the merger of B C Bankshares into Wachovia.
RECORD DATE SET AT DECEMBER 17, 1999; MAJORITY VOTE OF OUTSTANDING SHARES IS
REQUIRED TO APPROVE MERGER (SEE PAGE 11)
You can vote at the special meeting if you owned B C Bankshares common
stock at the close of business on December 17, 1999. As of that date, there were
557,254 shares of B C Bankshares common stock issued and outstanding and
entitled to be voted at the special meeting. The affirmative vote of the holders
of at least a majority of the shares of B C Bankshares common stock entitled to
be cast on the merger agreement is required. The directors and executive
officers of B C Bankshares beneficially owned, as of the record date, and are
entitled to vote 90,663 shares of B C Bankshares common stock, which represents
approximately 16% of the outstanding shares of B C Bankshares common stock.
In addition, the directors of B C Bankshares and Ms. Ann McFather Fincher,
who together hold approximately 22% of B C Bankshares' outstanding common stock,
have entered into voting agreements with Wachovia. Under the voting agreements,
these shareholders have agreed to vote their shares of B C Bankshares common
stock for approval of the merger agreement. Accordingly, assuming such shares
are so voted, approval of the merger agreement will require the affirmative vote
of the holders of an additional 29% of the outstanding shares of B C Bankshares
common stock in order for the merger agreement to be approved.
IF YOU DO NOT VOTE YOUR SHARES OF COMMON STOCK, IT WILL HAVE THE EFFECT OF A
VOTE AGAINST THE MERGER.
The merger does not have to be approved by Wachovia's shareholders.
DISSENTERS' APPRAISAL RIGHTS (SEE PAGE 29)
Under Georgia law, if you do not vote for the merger agreement and you
properly and timely exercise your rights to dissent to the merger, you may
demand a cash payment for the "fair value" of your shares of B C Bankshares
common stock. To exercise these rights you must comply with all procedural
requirements of the Georgia Business Corporation Code, the relevant sections of
which are attached to this document as Appendix D.
WACHOVIA WILL USE PURCHASE ACCOUNTING TREATMENT (SEE PAGE 28)
Wachovia will account for the merger as a purchase for financial reporting
purposes.
CERTAIN PERSONS HAVE INTERESTS IN THE MERGER (SEE PAGE 23)
Some of the directors and executive officers of B C Bankshares have
interests in the merger in addition to their interests as shareholders of B C
Bankshares generally.
- - In connection with the merger, Wachovia entered into employment agreements
with Mr. E.O. McFather, Jr. and Mr. Steven L. Holcomb.
- - Following the merger, Wachovia will indemnify the present officers and
directors of B C Bankshares and its subsidiaries.
The B C Bankshares board was aware of these interests and took them into
account in approving the merger.
WACHOVIA COMMON STOCK IS FREELY TRANSFERABLE BY NON-AFFILIATES (SEE PAGE 28)
Wachovia common stock issued in the merger will be freely transferable by
you unless you are deemed to be an "affiliate" of B C Bankshares under
applicable federal securities laws. Generally, "affiliates" include directors,
certain executive officers and 10% or greater shareholders.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (SEE PAGE 25)
Completion of the merger is subject to various conditions which include:
- - approval of the merger agreement by B C Bankshares shareholders;
3
<PAGE> 11
- - receipt of all banking and other regulatory consents and approvals necessary
to permit completion of the merger;
- - approval of Wachovia common stock to be listed on the NYSE; and
- - receipt of the legal opinions concerning the tax implications of the merger.
REGULATORY APPROVALS WE MUST OBTAIN FOR THE MERGER (SEE PAGE 25)
We cannot complete the merger unless it is approved by the Board of
Governors of the Federal Reserve System and the Georgia Department of Banking
and Finance. Wachovia has filed applications with the Federal Reserve Board and
the Georgia Department of Banking and Finance for approval of the merger. In
addition, the merger is subject to the approval of or notice to other regulatory
authorities.
We cannot be certain when or if we will obtain the regulatory approvals.
However, we do not know of any reason why we should not obtain them in a timely
manner.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 26)
B C Bankshares and Wachovia can mutually agree at any time to abandon the
merger and terminate the merger agreement, even if B C Bankshares shareholders
have approved it. Also, either of our boards can decide, without the consent of
the other, to abandon the merger if any of the following occur:
- - The other party breaches the merger agreement in a material way and does not,
or cannot, correct the breach in 30 days.
- - The merger has not been completed by April 15, 2000.
- - A governmental authority denies an approval necessary to complete the merger,
in a final and nonappealable way.
- - The B C Bankshares' board of directors fails to recommend shareholder approval
of the merger agreement.
In addition, Wachovia may abandon the merger if B C Bankshares board
withdraws its recommendation to approve the merger or modifies its
recommendation in certain ways.
SHAREHOLDER RIGHTS (SEE PAGE 42)
Currently, your rights as a B C Bankshares shareholder are governed by
Georgia law, and B C Bankshares articles of incorporation and by-laws. However,
Wachovia shareholder rights are governed by North Carolina law and Wachovia's
articles of incorporation and by-laws. After the merger, you will become a
Wachovia shareholder and your rights as a shareholder will be governed by North
Carolina law and Wachovia's articles of incorporation and by-laws.
STOCK OPTION AGREEMENT (SEE PAGE 31)
To induce Wachovia to enter into the merger agreement, B C Bankshares
granted to Wachovia an option to purchase shares of B C Bankshares common stock
under certain circumstances. The stock option agreement is attached to this
document as Appendix B.
Under the option Wachovia may purchase up to 19.9% of the outstanding
shares of B C Bankshares common stock at a price of $205.00 per share. Under
certain circumstances, B C Bankshares may be required to repurchase the option
(and/or any shares purchased under the option) at a predetermined price. Instead
of exercising the option and purchasing the shares, Wachovia may choose to
surrender the option to B C Bankshares for a cash payment of $5 million. The
maximum profit realizable by Wachovia by exercising or surrendering the option
is $5.5 million.
Wachovia cannot exercise this option unless certain events occur, including
a business combination or acquisition transaction relating to B C Bankshares
with a third party other than Wachovia. We do not know of any event that has
occurred as of the date of this document that would allow Wachovia to exercise
this option.
Arrangements such as this stock option agreement are entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms and to compensate the potential acquirer for the efforts undertaken and
the expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated because the target corporation enters
into an alternative transaction with a third party. The
4
<PAGE> 12
stock option agreement was entered into to accomplish these objectives. The
stock option agreement may have the effect of discouraging offers by third
parties to acquire B C Bankshares prior to the merger, even if such persons
might have been prepared to offer to pay consideration to B C Bankshares'
shareholders that has a higher current market price than the shares of Wachovia
common stock to be received by such holders pursuant to the merger agreement.
CERTAIN SHAREHOLDERS HAVE AGREED TO VOTE IN FAVOR OF MERGER (SEE PAGE 29)
As another inducement for Wachovia to enter into the merger agreement, the
directors of B C Bankshares and Ms. Ann McFather Fincher, who together hold
approximately 22% of B C Bankshares outstanding common stock, have entered into
voting agreements with Wachovia. Under the voting agreements, these shareholders
have agreed to vote their shares of B C Bankshares common stock for approval of
the merger agreement.
The voting agreements could also discourage other companies from trying or
proposing to combine with or acquire B C Bankshares.
5
<PAGE> 13
COMPARISON OF UNAUDITED PER SHARE DATA
The following table shows information about our net income per share, cash
dividends per share and book value per share, and similar information after
giving effect to the merger (which is called "pro forma" information). In
presenting the pro forma information, we assumed that we had been merged as of
the beginning of the earliest period presented. The pro forma information gives
effect to the merger under the purchase method of accounting in accordance with
generally accepted accounting principles, or GAAP.
We used the exchange ratio of 2.914 in computing the pro forma combined and
equivalent pro forma combined per share data.
We expect that we will incur merger and integration charges as a result of
combining our companies. The pro forma information is helpful in illustrating
the financial characteristics of the combined company under one set of
assumptions. However, it does not reflect these expenses and, accordingly, does
not attempt to predict or suggest future results. Also, it does not necessarily
reflect what the historical results of the combined company would have been had
our companies been combined for the periods presented. The information for
interim periods does not necessarily reflect results that would be expected for
the entire year or any other interim period.
You should read the Wachovia information in the following table together
with the historical financial information that Wachovia has presented in its
prior SEC filings. Wachovia has incorporated this material into this document by
reference to those filings. See "Where You Can Find More Information" on page
72.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
WACHOVIA COMMON STOCK
Net income per basic common share
Historical............................................... $ 3.69 $ 4.26
Pro forma combined(1).................................... 3.66 4.23
Net income per diluted common share
Historical............................................... 3.62 4.18
Pro forma combined(1).................................... 3.60 4.15
Dividends per common share(2)
Historical............................................... 1.52 1.86
Pro forma combined....................................... 1.52 1.86
Book value per common share
Historical............................................... 27.76 26.30
Pro forma combined....................................... 28.20 26.74
B C BANKSHARES COMMON STOCK
Net income per basic common share
Historical............................................... 8.83 10.41
Equivalent pro forma combined............................ 10.67 12.33
Net income per diluted common share
Historical............................................... 8.83 10.41
Equivalent pro forma combined............................ 10.49 12.09
Dividends per common share
Historical............................................... 3.00 4.40
Equivalent pro forma combined............................ 4.43 5.42
Book value per common share
Historical............................................... 69.12 65.47
Equivalent pro forma combined(3)......................... 82.17 77.92
</TABLE>
- ---------------
(1) The effect of estimated non-recurring merger and restructuring costs has not
been included in the pro forma amounts.
(2) Pro forma dividends per share represent historical dividends paid by
Wachovia.
(3) Equivalent pro forma combined amounts are computed by multiplying the pro
forma combined amounts by the exchange ratio of 2.914.
6
<PAGE> 14
SELECTED FINANCIAL DATA OF WACHOVIA
The table below presents selected Wachovia historical financial data
derived from its previously filed audited consolidated financial statements for
the five years ended December 31, 1998. The interim financial information for
the nine months ended September 30, 1999 and September 30, 1998 has been derived
from unaudited financial statements of Wachovia. Wachovia believes that these
financial statements include all adjustments of a normal recurring nature and
disclosures that are necessary for a fair statement of the results for the
unaudited interim periods. Results for the interim periods do not necessarily
indicate results which may be expected for any other interim or annual period.
You should read the following table together with the historical financial
information that Wachovia has presented in its prior SEC filings. Wachovia has
incorporated this material into this document by reference. See "Where You Can
Find More Information" on page 72.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income................ $ 3,442 $ 3,489 $ 4,665 $ 4,262 $ 4,010 $ 3,790 $ 3,026
Interest Expense............... 1,600 1,748 2,314 2,169 2,086 2,011 1,369
Other Income................... 1,181 922 1,249 1,007 879 816 668
Other Expense.................. 1,650 1,504 1,996 1,967 1,509 1,442 1,343
Net Income..................... 748 633 874 593 757 708 624
PER SHARE AMOUNTS
Net Income, Basic.............. $ 3.69 $ 3.07 $ 4.26 $ 2.99 $ 3.70 $ 3.40 $ 3.00
Net Income, Diluted............ 3.62 3.01 4.18 2.94 3.65 3.36 2.96
Weighted Average Shares
Outstanding, Basic........... 203,007 205,811 205,058 198,290 204,889 208,230 208,117
Weighted Average Shares
Outstanding, Diluted......... 206,562 209,881 209,153 201,901 207,432 210,600 210,651
Dividends...................... $ 1.52 $ 1.37 $ 1.86 $ 1.68 $ 1.52 $ 1.38 $ 1.23
STATEMENT OF CONDITION
(PERIOD END)
Total Assets................... $ 65,806 $ 65,574 $ 64,123 $ 65,397 $ 57,229 $ 55,792 $ 49,242
Interest Earning Assets........ 58,542 58,164 56,537 57,333 50,728 50,182 44,164
Loans.......................... 47,625 45,629 45,719 44,194 38,007 35,585 31,664
Deposits....................... 39,709 38,807 40,995 42,654 35,322 34,355 30,296
Shareholders' Equity........... 5,628 5,229 5,338 5,174 4,608 4,601 3,910
RATIOS
Return on Average Assets(1).... 1.54% 1.33% 1.37% 1.03% 1.36% 1.37% 1.34%
Return on Average Equity(1).... 18.52 16.33 16.92 13.08 16.99 17.00 16.37
Dividend Payout Ratio.......... 41.32 44.63 43.67 55.21 40.37 39.91 40.77
Average Equity to Average
Assets Ratio................. 8.30 8.13 8.08 7.87 8.02 8.05 8.19
Tier 1 Risk Weighted Capital
Ratio........................ 7.73 7.44 7.99 8.43 8.93 9.21 9.54
Total Capital Risk Weighted
Ratio........................ 11.37 10.23 11.34 11.11 12.32 13.17 13.13
Tier 1 Leverage Ratio.......... 8.93 8.67 8.67 9.24 8.52 8.11 8.29
</TABLE>
- ---------------
(1) Including non-recurring items.
7
<PAGE> 15
SELECTED FINANCIAL DATA OF B C BANKSHARES
The table below presents selected B C Bankshares historical financial data.
B C Bankshares derived the historical financial data for the five years ended
December 31, 1998 from its audited financial statements. The interim financial
information for the nine months ended September 30, 1999 and September 30, 1998
has been derived from B C Bankshares' unaudited financial statements. B C
Bankshares believes that these financial statements include all adjustments of a
normal recurring nature and disclosures that are necessary for a fair statement
of the results for the unaudited interim periods. Results for the interim
periods do not necessarily indicate results which may be expected for any other
interim or annual period.
You should read the following table together with the historical financial
data that B C Bankshares has included in this document (see "Index to B C
Bankshares Financial Statements" on page F-1).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest Income.................. $ 23,044 $ 21,124 $ 28,647 $ 26,709 $ 24,907 $ 22,338 $ 18,637
Interest Expense................. 9,244 9,011 12,075 11,434 11,122 9,569 7,379
Other Income..................... 2,298 1,924 2,614 2,330 2,170 2,135 1,859
Other Expense.................... 8,286 7,585 10,148 8,569 7,896 7,632 7,137
Net Income....................... 4,922 3,964 5,817 5,872 5,032 4,588 4,015
PER SHARE AMOUNTS
Net Income, Basic................ $ 8.83 $ 7.09 $ 10.41 $ 10.45 $ 8.94 $ 7.81 $ 6.80
Net Income, Diluted.............. 8.83 7.09 10.41 10.45 8.94 7.81 6.80
Weighted Average Shares
Outstanding, Basic
(thousands).................... 557,254 559,216 558,709 561,754 563,121 587,554 590,677
Weighted Average Shares
Outstanding, Diluted
(thousands).................... 557,254 559,216 558,709 561,754 563,121 587,554 590,677
Dividends........................ $ 3.00 $ 2.55 $ 4.40 $ 3.80 $ 2.80 $ 2.50 $ 2.20
STATEMENT OF CONDITION
(PERIOD END)
Total Assets..................... $399,960 $348,359 $364,123 $321,079 $303,121 $276,295 $244,082
Interest Earning Assets.......... 368,148 323,799 331,298 302,360 278,690 255,450 228,553
Loans............................ 262,186 202,591 219,124 191,720 177,894 158,363 135,399
Deposits......................... 357,409 308,592 324,797 285,318 271,527 248,085 218,590
Shareholders' Equity............. 38,516 35,714 36,486 33,117 29,373 26,168 24,260
RATIOS
Return on Average Assets......... 1.73% 1.57% 1.70% 1.88% 1.71% 1.75% 1.68%
Return on Average Equity......... 17.49 15.50 16.83 18.89 18.24 17.91 17.68
Dividend Payout Ratio............ 33.98 35.97 42.27 36.36 31.32 32.01 32.35
Average Equity to Average Assets
Ratio.......................... 9.90 10.11 10.08 9.94 9.39 9.75 9.50
Tier 1 Risk Weighted Capital
Ratio.......................... 14.18 16.22 15.40 16.63(1) 16.20(1) 14.80(1) 16.20(1)
Total Capital Risk Weighted
Ratio.......................... 15.36 17.47 16.65 17.88(1) 17.42(1) 15.80(1) 17.30(1)
Tier 1 Leverage Ratio............ 9.98 10.19 10.04 10.15(1) 10.09(1) 9.40(1) 9.85(1)
</TABLE>
- ---------------
(1) Bank only
8
<PAGE> 16
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains and incorporates statements that
plan for or anticipate the future. Forward-looking statements include statements
about the future financial condition, results of operations and business of
Wachovia or B C Bankshares. These statements may be made directly in this
document or may be "incorporated by reference" to other documents and may
include statements for the period following the consummation of the merger. You
can find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates" or similar expressions. These forward-
looking statements involve certain risks and uncertainties. Factors that may
cause actual results to differ materially from those contemplated by such
forward-looking statements include the following possibilities:
- costs or difficulties related to the combination of the businesses of
Wachovia and B C Bankshares are greater than expected;
- retaining key personnel is more difficult than expected;
- post-merger revenues are lower than expected;
- competitive pressure among financial institutions increases
significantly;
- effects of changes in interest rates on interest margins, loan volumes
and asset valuations;
- general economic conditions or conditions in securities markets are less
favorable than expected; and
- legislation or regulatory changes adversely affect the businesses of
Wachovia or B C Bankshares.
9
<PAGE> 17
SPECIAL MEETING
The B C Bankshares board is providing this proxy statement/prospectus to
you in connection with its solicitation of proxies for use at the special
meeting of B C Bankshares shareholders and at any adjournments or postponements
of the special meeting. The special meeting will be held at Bank of Canton's
Operations Center, 2780 Marietta Highway, Canton, Georgia 30114 at 10:00 a.m. on
Thursday, February 3, 2000. At the special meeting, you will be asked to
consider and vote to approve the merger agreement which provides for the merger
of B C Bankshares into Wachovia.
Wachovia is also providing this proxy statement/prospectus to you as a
prospectus in connection with the offer and sale by Wachovia of its shares of
common stock as a result of B C Bankshares' merger into Wachovia.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE POSTAGE PREPAID ENVELOPE PROVIDED.
RECORD DATE
The B C Bankshares board has fixed the close of business on December 17,
1999 as the record date for determining the B C Bankshares shareholders entitled
to receive notice of and to vote at the special meeting. As of the record date,
there were 557,254 issued and outstanding shares of B C Bankshares common stock
held by approximately 492 holders of record. Only holders of record of B C
Bankshares common stock as of the record date are entitled to notice of and to
vote at the special meeting.
QUORUM; EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares is necessary to constitute a quorum at the
special meeting. Abstentions will be counted solely for the purpose of
determining whether a quorum is present. Abstentions will not be deemed to be
cast either "FOR" or "AGAINST" the merger agreement. Because approval of the
merger agreement requires the affirmative vote of a majority of the outstanding
shares of B C Bankshares common stock, abstentions and broker non-votes will
have the same effect as a vote against the merger agreement.
The proposal to approve the merger agreement and the plan of merger is a
"non-discretionary" item, meaning that brokerage firms may not vote shares in
their discretion on behalf of a client if the client has not given voting
instructions. Accordingly, shares held in street name that have been designated
by brokers on proxy cards as not voted with respect to that proposal ("broker
non-votes") will not be counted as votes cast on it.
PROXIES
Solicitation. Proxies in the form included in the proxy card accompanying
this proxy statement/prospectus are being solicited by the B C Bankshares board.
Shares represented by properly executed proxies which are received in time and
not revoked will be voted in accordance with the instructions indicated on the
proxies. If no instructions are indicated, those proxies will be voted "FOR"
approval of the merger agreement and any other matter that may come before the
special meeting, including a motion to adjourn or postpone the special meeting
to another time and/or place for the purpose of soliciting additional proxies or
otherwise. However, no proxy with instructions to vote against approval of the
merger agreement will be voted in favor of any adjournment or postponement of
the special meeting.
Directors, officers and other employees of B C Bankshares or its
subsidiaries may solicit proxies personally, by telephone or facsimile or
otherwise. None of these people will receive any special compensation for
solicitation activities. B C Bankshares will arrange with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation material to
the beneficial owners of stock held
10
<PAGE> 18
of record by such persons, and B C Bankshares will reimburse these persons for
their reasonable out-of-pocket expenses.
Revocability. You may revoke your proxy at any time before its exercise at
the special meeting by:
- giving written notice of revocation to the Secretary of B C Bankshares,
- properly submitting a duly executed proxy bearing a later date, or
- voting in person at the special meeting.
You should address all written notices of revocation and other
communications with respect to revocation of proxies to B C Bankshares, Inc.,
2780 Marietta Highway, P.O. Box 649, Canton, Georgia 30114, Attention: Kathryn
J. Young. A proxy appointment will not be revoked by death or supervening
incapacity of the shareholder executing the proxy unless notice of the death or
incapacity is filed with Kathryn J. Young or other person responsible for
tabulating votes on behalf of Bank of Canton, before the shares are voted.
VOTE REQUIRED
Approval of the merger agreement at the special meeting requires the
affirmative vote of a majority of the outstanding shares of B C Bankshares
common stock. Each share of B C Bankshares common stock is entitled to one vote
on each matter submitted to the meeting. IF YOU DO NOT VOTE YOUR SHARES, IT WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT.
As of the record date, neither Wachovia nor any of its directors or
executive officers or their affiliates held any shares of B C Bankshares common
stock. The directors and executive officers of B C Bankshares owned, as of the
record date, and are entitled to vote 90,663 shares of B C Bankshares common
stock, which represents approximately 16% of the outstanding shares of B C
Bankshares common stock. Directors and Ms. Ann McFather Fincher, who together
hold approximately 22% of the outstanding shares of B C Bankshares common stock,
have agreed to vote their shares in favor of the merger agreement pursuant to
voting agreements.
RECOMMENDATION OF BOARD OF DIRECTORS
The B C Bankshares board has approved unanimously the merger agreement,
believes that the merger is in the best interests of B C Bankshares and
recommends that you vote "FOR" approval of the merger agreement. See "The
Merger -- Reasons of B C Bankshares for the Merger."
THE MERGER
The following information describes the material information pertaining to
the merger. This description is not complete and is qualified by the more
detailed Appendices to this document which are incorporated by reference,
including the merger agreement in Appendix A. We urge you to read the Appendices
in their entirety.
OVERVIEW
The merger agreement provides for a transaction in which B C Bankshares
will merge into Wachovia. Wachovia will be the surviving corporation of the
merger. At the effective time of the merger, each share of issued and
outstanding B C Bankshares common stock will cease to be outstanding and will be
converted into 2.914 shares of Wachovia common stock. Following the merger,
Wachovia intends to merge Bank of Canton into its subsidiary, Wachovia Bank,
National Association.
The merger agreement provides that Wachovia may change the way it combines
with B C Bankshares. However, it cannot (1) alter the consideration to be
received by B C Bankshares shareholders, (2) adversely affect the tax treatment
for B C Bankshares shareholders or (3) materially delay the merger.
11
<PAGE> 19
BACKGROUND OF THE MERGER
B C Bankshares was formed as the holding company for Bank of Canton on May
30, 1984. Bank of Canton has operated continuously as a Georgia-chartered bank
since 1892. Bank of Canton currently operates eight offices, all of which are
located in Cherokee County, Georgia. Bank of Canton has recently acquired a new
branch located in Cobb County, Georgia, which is adjacent to Cherokee County.
This branch is expected to open in the first quarter of the year 2000.
In April 1999, Mr. Ed McFather, the chairman and chief executive officer of
B C Bankshares, contacted several investment bankers with a view to exploring
the possible strategic alternatives available to B C Bankshares, in light of the
challenges facing B C Bankshares as an independent organization in an
increasingly competitive environment. These challenges included the costs
associated with developing a broader product line and the need for greater
technological investment. Mr. McFather also believed that the Financial
Accounting Standards Board's efforts to abolish the pooling of interests method
of accounting for mergers might adversely affect the premiums paid in bank
merger transactions.
At a B C Bankshares board of directors meeting held on May 18, 1999, Carson
Medlin and Alston & Bird LLP, as special legal counsel for B C Bankshares,
reviewed a number of factors that the board of directors should consider in
determining the relative merits of a possible business combination of B C
Bankshares with a larger, regional bank holding company in the current bank
merger market, or remaining independent. Following a thorough discussion, the
board of directors requested Carson Medlin to proceed with its evaluation of the
strategic alternatives available to B C Bankshares and approved the engagement
letter with Carson Medlin dated April 27, 1999.
Following that meeting, Carson Medlin contacted nine regional bank holding
companies regarding their potential interest in acquiring a community bank in
the northern metropolitan Atlanta area. Six parties expressed an interest in
receiving more information and entered into confidentiality agreements with B C
Bankshares. In early August 1999, a confidential memorandum containing financial
and market information regarding B C Bankshares and Bank of Canton was sent to
the interested parties to assist in their evaluation of B C Bankshares. Two of
the parties decided not to pursue further negotiations. Mr. McFather and Mr.
Steven Holcomb, the president of B C Bankshares, met with senior executives of
the four remaining interested parties to discuss B C Bankshares' business and
operations and the potential acquirers' proposals for a business combination
with B C Bankshares. Carson Medlin requested that formal offers be submitted by
September 20, 1999, when the Board was scheduled to meet to review the offers.
At the September 20, 1999, B C Bankshares board meeting, Carson Medlin
presented an analysis of the offers that had been received from three parties,
including Wachovia. Two written offers had been received. One party had
expressed an oral indication of interest by telephone. The presentation included
an updated overview of the bank merger market, a summary of the offers received,
a comparison of the potential acquirers in terms of financial and stock data,
total stockholder returns and price to earnings multiples and price to book
value multiples. Carson Medlin then reviewed the terms of the two written offers
in detail, as well as the terms of the oral indication of interest, the market
value of which was significantly below that offered by the other parties in
writing.
The board of directors thoroughly reviewed the information provided by
Carson Medlin and there was a full discussion by the board of directors and its
financial and legal advisors regarding the specific terms of the respective
offers. The board of directors also considered the effects of the proposals on
Bank of Canton's employees and the proposed employment arrangements for Mr.
McFather and Mr. Holcomb. The board of directors determined that Wachovia's
offer was superior and represented the best transaction for B C Bankshares'
shareholders and voted unanimously to authorize Mr. McFather and Mr. Holcomb to
proceed with the negotiations with Wachovia with a view to Wachovia completing
due diligence and entering into a definitive merger agreement.
At the B C Bankshares board meeting held on October 6, 1999, the board of
directors reviewed the updated analyses provided by Carson Medlin and concluded
that Wachovia's offer continued to represent the most favorable financial terms
for B C Bankshares' shareholders. The board of directors also
12
<PAGE> 20
considered Carson Medlin's fairness opinion in which Carson Medlin stated that
it believed that the exchange ratio was fair, from a financial point of view, to
the shareholders of B C Bankshares. The board of directors then considered the
terms of the proposed transaction with Wachovia, including the provisions of the
merger agreement, the stock option agreement and the proposed employment
arrangements for Mr. McFather and Mr. Holcomb and voted unanimously to approve
the merger agreement and the stock option agreement. The definitive merger
agreement was executed immediately following the meeting. The board of
directors' members separately and individually agreed to vote all their shares
of B C Bankshares common stock in favor of the merger.
REASONS OF B C BANKSHARES FOR THE MERGER
The B C Bankshares board of directors, with the assistance of outside
financial and legal advisors, evaluated the financial, legal and market
considerations bearing on the decision to recommend the merger. The terms of the
merger, including the purchase price, are a result of arm's-length negotiations
between representatives of B C Bankshares and Wachovia. In reaching its
conclusion that the merger agreement is in the best interest of B C Bankshares
and its shareholders, the B C Bankshares board of directors carefully considered
the following material factors:
(1) the exchange ratio of the proposed merger, including the fact that
B C Bankshares shareholders will not recognize any gain or loss for federal
income tax purposes on the receipt of Wachovia common stock in the merger;
(2) a comparison of the terms of the proposed merger with comparable
transactions, both in the Southeastern United States and elsewhere;
(3) information concerning the business, financial condition, results
of operations and prospects of B C Bankshares and Wachovia;
(4) competitive factors and trends toward consolidation in the banking
industry;
(5) the increased access to the public capital markets and stock
liquidity and increase in cash dividends to B C Bankshares and its
shareholders resulting from the merger;
(6) the review by the B C Bankshares board with its legal and
financial advisors of the provisions of the merger agreement;
(7) the opinion rendered by Carson Medlin to the B C Bankshares board
of directors that the exchange ratio is fair, from a financial point of
view, to the holders of B C Bankshares common stock;
(8) alternatives to the merger, including continuing to operate B C
Bankshares on a stand-alone basis, in light of the breadth of its product
line, economic conditions and the prospects for community banking and
competition in the financial services area; and
(9) the value to be received by B C Bankshares' shareholders in the
merger in relation to the historical trading prices, book value, earnings
and dividends per share of B C Bankshares common stock.
The B C Bankshares board of directors believes that by becoming part of a
larger organization with greater resources, B C Bankshares will be able in the
future to serve its customers and communities better and to provide services
that will be competitive in the Cherokee County market and elsewhere. Similarly,
a larger organization will be able to provide greater career opportunities for B
C Bankshares' employees, and a combination with Wachovia offered all employees
an opportunity to work for Wachovia Bank within the Atlanta metropolitan area.
The B C Bankshares board of directors also considered the separate
agreements and benefits proposed for employees and management and concluded that
those terms were reasonable. See "-- Interests of Certain Persons In the
Merger."
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<PAGE> 21
While each member of the B C Bankshares board of directors individually
considered the foregoing and other factors, the board did not collectively
assign any specific or relative weights to the factors considered and did not
make any determination with respect to any individual factor. The B C Bankshares
board of directors collectively made its determination with respect to the
merger based on the conclusion reached by its members, in light of the factors
that each of them considered appropriate, that the merger is in the best
interests of B C Bankshares' shareholders.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
MERGER AGREEMENT AND THE MERGER.
OPINION OF B C BANKSHARES' FINANCIAL ADVISOR
B C Bankshares engaged Carson Medlin pursuant to an engagement letter dated
April 27, 1999, to provide financial advisory services. B C Bankshares selected
Carson Medlin as its financial adviser on the basis of Carson Medlin's
historical relationship with B C Bankshares and Carson Medlin's experience and
expertise in representing community banks in similar transactions. Carson Medlin
is an investment banking firm which specializes in the securities of financial
institutions located in the southeastern United States. As part of its
investment banking activities, Carson Medlin is regularly engaged in the
valuation of financial institutions and transactions relating to their
securities, including mergers and acquisitions.
On October 6, 1999, Carson Medlin delivered to B C Bankshares' board, in
conjunction with their meeting held to consider the merger, its opinion to the
effect that the exchange ratio provided for in the merger agreement is fair,
from a financial point of view, to the shareholders of B C Bankshares.
You should consider the following when reading the discussion of Carson
Medlin opinion in this document:
- The summary of Carson Medlin's opinion set forth in this prospectus/proxy
statement is qualified in its entirety by reference to the full text of
the opinion that is attached as Appendix C to this document. You should
read the opinion in its entirety for a full discussion of the procedures
followed, assumptions made, matters considered and qualifications and
limitations of the review undertaken by Carson Medlin in connection with
its opinion.
- Carson Medlin's opinion is addressed to B C Bankshares' board and is
substantially identical to the written opinion delivered to B C
Bankshares' board dated October 6, 1999.
- Carson Medlin expressed no opinion as to the price at which Wachovia
common stock would actually be trading at any time.
- Carson Medlin's opinion does not address the relative merits of the
merger and the other business strategies considered by B C Bankshares'
board, nor does it address B C Bankshares' board decision to proceed with
the merger.
- Carson Medlin's opinion to B C Bankshares' board rendered in connection
with the merger does not constitute a recommendation to any B C
Bankshares shareholder as to how he or she should vote at the special
meeting.
No limitations were imposed by B C Bankshares' board or its management upon
Carson Medlin with respect to the investigations made or the procedures followed
by Carson Medlin in rendering its opinion.
The preparation of a financial fairness opinion involves various
determinations as to the most appropriate methods of financial analysis and the
application of those methods to the particular circumstances. It is therefore
not readily susceptible to partial analysis or summary description. In
connection with rendering its opinion, Carson Medlin performed a variety of
financial analyses. Carson Medlin believes that its analyses must be considered
together as a whole and that selecting portions of its analyses and the facts
considered in its analyses, without considering all other factors and analyses,
could
14
<PAGE> 22
create an incomplete or inaccurate view of the analyses and the process
underlying the rendering of Carson Medlin's opinion.
In performing its analyses, Carson Medlin made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond the control of Wachovia and B C Bankshares and
may not be realized. Any estimates contained in Carson Medlin's analyses are not
necessarily predictive of future results or values, which may be significantly
more or less favorable than the estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may actually be sold. Except as described below,
none of the analyses performed by Carson Medlin was assigned a greater
significance by Carson Medlin than any other. The relative importance or weight
given to these analyses by Carson Medlin is not effected by the order of the
analyses (and the corresponding results). The summaries of financial analyses
include information presented in tabular format. The tables should be read
together with the text of those summaries.
Carson Medlin has relied, without independent verification, upon the
accuracy and completeness of the information it reviewed for the purpose of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of Wachovia or B C
Bankshares, nor was it furnished with any appraisals.
Carson Medlin is not an expert in the evaluation of loan portfolios,
including under-performing or non-performing assets, charge-offs or the
allowance for loan losses; it has not reviewed any individual credit files of
Wachovia or B C Bankshares and has assumed that Wachovia's and B C Bankshares'
allowances are in the aggregate adequate to cover losses. In addition, Carson
Medlin is not an expert in the evaluation of Year 2000 readiness, compliance, or
expense allocations and has assumed that Wachovia and B C Bankshares have each
taken appropriate steps or actions to properly address these issues. Carson
Medlin's opinion is necessarily based on economic, market and other conditions
existing on the date of its opinion, and on information as of various earlier
dates made available to it which is not necessarily indicative of current market
conditions.
In rendering its opinion, Carson Medlin made the following assumptions:
- that the merger will be accounted for as a purchase in accordance with
generally accepted accounting principles;
- that all material governmental, regulatory and other consents and
approvals necessary for the consummation of the merger would be obtained
without any adverse effect on B C Bankshares, Wachovia or on the
anticipated benefits of the merger;
- that B C Bankshares had provided it with all of the information prepared
by B C Bankshares or its other representatives that might be material to
Carson Medlin in its review; and
- that the financial projections it reviewed were reasonably prepared on a
basis reflecting the best currently available estimates and judgment of
the management of B C Bankshares as to the future operating and financial
performance of B C Bankshares.
In connection with its opinion, Carson Medlin reviewed:
- the merger agreement;
- the annual reports to shareholders of Wachovia, including the audited
financial statements for the five years ended December 31, 1998;
- audited financial statements of B C Bankshares for the five years ended
December 31, 1998;
- unaudited interim financial statements of Wachovia for the six months
ended June 30, 1999;
- unaudited interim financial statements of B C Bankshares for the six
months ended June 30, 1999; and
15
<PAGE> 23
- financial and operating information with respect to the business,
operations and prospects of Wachovia and B C Bankshares.
In addition, Carson Medlin:
- held discussions with members of the senior management of Wachovia and B
C Bankshares regarding the historical and current business operations,
financial condition and future prospects of their respective companies;
- reviewed the historical market prices and trading activity for the common
stock of Wachovia and the limited information available regarding the
infrequent trades of B C Bankshares common stock, and compared the market
activity of Wachovia's common stock with that of certain publicly traded
companies which it deemed to be relevant;
- compared the results of operations of Wachovia and B C Bankshares with
those of certain financial institutions which it deemed to be relevant;
- compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other recent business combinations of
financial institutions;
- analyzed the pro forma financial impact of the merger on Wachovia; and
- conducted such other studies, analyses, inquiries and examinations as
Carson Medlin deemed appropriate.
VALUATION METHODOLOGIES
The following is a summary of all material analyses performed by Carson
Medlin in connection with its opinion provided to B C Bankshares' board of
directors as of October 6, 1999. The summary does not purport to be a complete
description of the analyses performed by Carson Medlin.
Summary of Merger and Analysis
Carson Medlin reviewed the terms of the proposed merger, including the form
of consideration, the exchange ratio, the closing price of Wachovia's common
stock as of October 6, 1999, and the resulting price per share of B C Bankshares
common stock pursuant to the proposed merger. Under the terms of the merger
agreement, each outstanding share of B C Bankshares common stock will be
converted into 2.914 shares of Wachovia's common stock resulting in a value of
$240.22 per share of B C Bankshares common stock based on the closing price of
Wachovia's common stock on October 6, 1999 of $82.44 per share.
Carson Medlin calculated that the indicated value represented:
- 356% of the stated book value at June 30, 1999;
- 20.9 times earnings for the trailing twelve months ended June 30, 1999;
- a 33.6% core deposit premium at June 30, 1999, which represents the
aggregate transaction value minus stated book value divided by core
deposits; and
- 35.0% of total assets of B C Bankshares at June 30, 1999.
Industry Comparative Analysis
In connection with rendering its opinion, Carson Medlin compared selected
operating results of B C Bankshares to those of 54 publicly traded community
commercial banks in Alabama, Florida, Georgia, Mississippi, North Carolina,
South Carolina, Virginia and West Virginia as contained in the Southeastern
Independent Bank Review (SIBR), a proprietary research publication prepared
quarterly by Carson Medlin since 1991. The SIBR banks range in asset size from
approximately $126 million to $3.1 billion and in shareholders' equity from
approximately $14 million to $355 million. Carson Medlin considers this
16
<PAGE> 24
group of financial institutions more comparable to B C Bankshares than larger,
more widely traded regional financial institutions. Carson Medlin compared,
among other factors, profitability, capitalization, and asset quality of B C
Bankshares to these financial institutions. Carson Medlin noted the following
returns based on results for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
MEAN FOR SIBR
B C BANKSHARES BANKS
-------------- -------------
<S> <C> <C>
Return on Average Assets.................................... 1.71% 1.19%
Return on Average Equity.................................... 17.0% 11.8%
Shareholders' Equity to Total Assets at June 30, 1999....... 9.8% 9.8%
Nonperforming Assets (defined as 90 days past due,
nonaccrual loans and other real estate) to Total Loans net
of unearned income and other real estate, at June 30,
1999...................................................... 0.41% 0.91%
</TABLE>
This comparison indicated that B C Bankshares had above average
profitability and asset quality compared to the SIBR banks, and a comparable
level of equity.
Carson Medlin also compared selected operating results of Wachovia to those
of 11 other publicly traded bank holding companies in the Southeastern United
States, including:
- AmSouth Bancorporation, Inc.;
- BB&T Corporation;
- CCB Financial Corporation;
- Centura Banks, Inc.;
- Colonial BancGroup, Inc.;
- Compass Bancshares, Inc.;
- First Tennessee National Corp.;
- National Commerce Bancorporation;
- Regions Financial Corp.;
- SouthTrust Corporation; and
- Union Planters Corp.
Carson Medlin considers this group of financial institutions comparable to
Wachovia as to financial characteristics, operating philosophy, stock price
performance and trading volume. Carson Medlin compared selected balance sheet
data, asset quality, capitalization, profitability ratios and market statistics
using financial data as of or for the six-month period ended June 30, 1999 and
market data as of October 6, 1999. The results of this comparison are set forth
below:
<TABLE>
<CAPTION>
MEAN FOR MEDIAN FOR
COMPARABLE COMPARABLE
FINANCIAL FINANCIAL
WACHOVIA INSTITUTIONS INSTITUTIONS
-------- ------------ ------------
<S> <C> <C> <C>
Return on Average Assets.................................... 1.51% 1.34% 1.25%
Return on Average Equity.................................... 18.22% 17.54% 18.05%
Efficiency Ratio (non interest expense divided by the sum of
non interest income and taxable equivalent net interest
income before provision for loan losses).................. 54.11% 56.08% 55.83%
Shareholders' Equity to Total Assets at June 30, 1999....... 8.10% 7.63% 7.54%
Non-Performing Assets at June 30, 1999...................... 0.48% 0.61% 0.56%
</TABLE>
17
<PAGE> 25
This comparison indicated that Wachovia's financial performance was at or
above the average in comparison to the comparable financial institutions for
most of the ratios considered. The comparison also showed that:
<TABLE>
<CAPTION>
MEAN FOR MEDIAN FOR
COMPARABLE COMPARABLE
FINANCIAL FINANCIAL
WACHOVIA INSTITUTIONS INSTITUTIONS
-------- ------------ ------------
<S> <C> <C> <C>
Market Value to Trailing 12-months
Earnings.................................................... 17.8x 17.0x 15.9x
Market Value to Book Value.................................. 307% 270% 231%
</TABLE>
This comparison indicated that Wachovia's relative market valuation was
above the average in comparison to the comparable financial institutions.
Comparable Transaction Analysis
Carson Medlin reviewed certain information relating to the following 14
selected merger transactions involving commercial banks in Georgia announced
since January 1997:
<TABLE>
<CAPTION>
TARGET BUYER
------ -----
<S> <C>
Lanier Bank & Trust Company Premier Bancshares, Inc.
Button Gwinnett Financial Corporation Premier Bancshares, Inc.
Etowah Bank Regions Financial Corporation
First Community Bancorp, Inc. Regions Financial Corporation
Community Bank Capital Corporation Synovus Financial Corporation
Georgia Bank & Trust Company Synovus Financial Corporation
First Community Bancorp National Commerce Bancorporation
Community Financial Corporation Alabama National Bancorporation
Bullsboro Bancshares, Inc. Regions Financial Corporation
Georgia Bancshares, Inc. First Sterling Banks, Inc.
First Citizens Corp. BB&T Corporation
North Fulton Bancshares, Inc. Premier Bancshares, Inc.
Bank Atlanta Premier Bancshares, Inc.
Premier Bancshares, Inc. BB&T Corporation
</TABLE>
Carson Medlin considered, among other factors, the earnings, capital level,
asset size and quality of assets of the acquired financial institutions as well
as the quality of their markets. Carson Medlin compared the transaction prices
at the time of announcement to the stated book value, earnings, core deposits
and total assets of the acquired institutions.
COMPARABLE TRANSACTIONS ANALYSIS
<TABLE>
<CAPTION>
LOW HIGH MEAN
------- ------- -------
<S> <C> <C> <C>
PURCHASE PRICE AS A PERCENTAGE OF STATED BOOK VALUE
Comparable Transactions..................................... 266.8% 458.0% 358.0%
Range of Values (based on B C Bankshares stated book value
of $67.47 per share at June 30, 1999)..................... $180.01 $309.01 $241.54
</TABLE>
The implied consideration of the merger which is obtained by multiplying
Wachovia's closing stock price on October 6, 1999 of $82.44 per share by the
exchange ratio is $240.22 per share or 356.0% of stated book value, which is
approximately equal to the average for the comparable transactions.
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<PAGE> 26
<TABLE>
<CAPTION>
LOW HIGH MEAN
------- ------- -------
<S> <C> <C> <C>
PURCHASE PRICE AS A MULTIPLE OF EARNINGS
Comparable Transactions..................................... 13.9x 32.9x 23.4x
Range of Values (based on B C Bankshares trailing 12-months
earnings per share of $11.52 as of June 30, 1999)......... $160.13 $379.01 $269.57
</TABLE>
The implied consideration of the merger is $240.22 per share or 20.9x
earnings which is below the average for the comparable transactions.
<TABLE>
<CAPTION>
LOW HIGH MEAN
------- ------- -------
<S> <C> <C> <C>
CORE DEPOSIT PREMIUM
Comparable Transactions..................................... 16.8% 56.0% 33.0%
</TABLE>
The premium on B C Bankshares' core deposits implied by the merger is 33.6%
which is slightly above the average for the comparable transactions.
<TABLE>
<CAPTION>
LOW HIGH MEAN
------- ------- -------
<S> <C> <C> <C>
PURCHASE PRICE AS A PERCENTAGE OF TOTAL ASSETS
Comparable Transactions..................................... 20.2% 60.0% 33.1%
</TABLE>
The price implied by the merger is approximately 35.0% which is above the
average for the comparable transactions.
No company or transaction used in Carson Medlin's analyses is identical to
Wachovia, B C Bankshares or the merger. Accordingly, the results of these
analyses necessarily involve complex considerations and judgments concerning
differences in financial and operating characteristics of Wachovia and B C
Bankshares and other factors that could affect the value of the companies to
which they have been compared.
Historical Stock Performance Analysis
Carson Medlin reviewed and analyzed the historical trading prices and
volumes of Wachovia common stock on a monthly basis from August 1996 to
September 1999. Carson Medlin also compared price performance, on a price to
book value basis and on a price to earnings basis, of Wachovia common stock to
the stocks of the comparable financial institutions described above, over the 18
quarters ended June 30, 1999. In addition, Carson Medlin analyzed Wachovia
common stock by comparing it with the S&P 500 and the S&P bank index for the 18
quarters ended June 30, 1999. Carson Medlin considers Wachovia common stock to
be liquid and marketable relative to these comparable financial institutions and
other large regional bank holding companies.
<TABLE>
<CAPTION>
AVERAGE FOR COMPARABLE
WACHOVIA FINANCIAL INSTITUTIONS
(OCTOBER 6, 1999 (JUNE 30, 1999 BOOK
BOOK VALUE) VALUES)
---------------- ----------------------
<S> <C> <C>
Stock Price to Book Value.................................. 307% 270%
Stock Price to Trailing 12-months
Earnings................................................. 17.8x 17.0x
</TABLE>
Carson Medlin also examined the limited information regarding the
infrequent trading prices and volumes of B C Bankshares common stock. B C
Bankshares common stock has not traded in any public market or securities
exchange, and the number of shares traded was insufficient to reflect a
meaningful market value. Therefore, Carson Medlin did not place any weight on
the market value of B C Bankshares common stock in its analysis.
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<PAGE> 27
Contribution Analysis
Carson Medlin reviewed the relative contributions in terms of various
balance sheet and income statement components to be made by B C Bankshares and
Wachovia to the combined institution based on (1) balance sheet data at June 30,
1999, and (2) projected net income for 1999 and 2000 as estimated by management
of B C Bankshares. The income statement and balance sheet components analyzed
included total assets, total deposits, shareholders' equity, and net income. The
following table compares the pro forma ownership of B C Bankshares and Wachovia
shareholders in the combined company based upon the exchange ratio with each
company's respective contribution to each element of this analysis:
<TABLE>
<CAPTION>
PRO FORMA OWNERSHIP OF PRO FORMA OWNERSHIP OF
B C BANKSHARES SHAREHOLDERS WACHOVIA SHAREHOLDERS IN THE
IN THE COMBINED COMPANY COMBINED COMPANY
--------------------------- ----------------------------
<S> <C> <C>
Implied pro forma Ownership.................... 0.8% 99.2%
</TABLE>
<TABLE>
<CAPTION>
B C BANKSHARES CONTRIBUTION WACHOVIA CONTRIBUTION TO
TO COMBINED COMPANY COMBINED COMPANY
--------------------------- ----------------------------
<S> <C> <C>
Income Statement
Estimated 1999 net income.................... 0.6% 99.4%
Estimated 2000 net income.................... 0.6% 99.4%
Balance Sheet as of June 30, 1999
Total assets................................. 0.6% 99.4%
Total deposits............................... 0.9% 99.1%
Shareholders' equity......................... 0.7% 99.3%
</TABLE>
Other Analyses
Carson Medlin also reviewed selected investment research reports on, and
earnings estimates for, Wachovia as well as other information which Carson
Medlin deemed relevant.
The opinion expressed by Carson Medlin was based upon market, economic and
other relevant considerations as they existed and could be evaluated as of the
date of the opinion. Events occurring after the date of issuance of the opinion,
including but not limited to, changes affecting the securities markets, the
results of operations or material changes in the assets or liabilities of B C
Bankshares or Wachovia could materially affect the assumptions used in preparing
the opinion.
B C Bankshares has agreed to pay Carson Medlin a fee equal to 0.9% of the
aggregate consideration received by the shareholders of B C Bankshares as a
result of the merger. For purposes of Carson Medlin's fee, aggregate
consideration is defined in Carson Medlin's engagement letter to be based on the
average market value per share of Wachovia's common stock over the 15 days
preceding the completion of the merger. If the merger were completed on December
21, 1999, the fee would have been approximately $1,059,000. $25,000 of Carson
Medlin's fee was paid at the time of B C Bankshares' execution of the merger
agreement and the balance of the fee is payable upon closing of the merger. In
addition to its fees and regardless of whether the merger is consummated, B C
Bankshares has also agreed to reimburse Carson Medlin for its reasonable
out-of-pocket expenses, including expenses of counsel, incurred in connection
with its retention.
EFFECTIVE TIME OF THE MERGER
The merger will be consummated if it is approved by B C Bankshares
shareholders, and, unless waived, Wachovia and B C Bankshares obtain all
required consents and approvals and satisfy the other conditions to the
obligations of the parties to consummate the merger. The merger will become
effective on the date and at the time that a certificate of merger reflecting
the merger is filed with the Secretary of State of Georgia and articles of
merger reflecting the merger are filed with the Secretary of State of North
20
<PAGE> 28
Carolina, or a later date or time that is indicated in the certificate and
articles. Wachovia and B C Bankshares have generally agreed to cause the
effective date to occur:
- on the fifth business day after the last of the conditions to the
completion of the merger has been satisfied or waived; or
- if Wachovia elects, on the last business day of the month in which such
day occurs, or if such day occurs on one of the last five business days
of such month, on the last business day of the next month; or
- any other date to which Wachovia and B C Bankshares agree in writing.
Wachovia and B C Bankshares each has the right, acting unilaterally, to
terminate the merger agreement if the merger is not completed by April 15, 2000.
See "The Merger -- Amendment, Waiver and Termination" for further information.
DISTRIBUTION OF WACHOVIA STOCK CERTIFICATES
As promptly as practical after the effective date, Wachovia will send
transmittal materials to you for use in exchanging certificates representing
shares of B C Bankshares common stock for shares of Wachovia common stock. YOU
SHOULD NOT SURRENDER YOUR CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS. Wachovia will deliver certificates for Wachovia
common stock and/or a check for any fractional share interest or dividends or
distributions once it receives your B C Bankshares common stock certificates.
Wachovia will not be liable to any former B C Bankshares shareholder for any
amount properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Wachovia is not required to pay any dividends or other distributions on
Wachovia common stock with a record date occurring after the effective time to
any former B C Bankshares shareholder who has not delivered his or her B C
Bankshares stock certificate for exchange. Holders of unexchanged certificates
will not be eligible to vote until his or her certificates are exchanged for
Wachovia common stock certificates. All paid dividends and other distributions
and a check for any amount representing a fractional share interest will be
delivered to each shareholder who has exchanged his or her certificates, in each
case without interest.
There will be no transfers of shares of B C Bankshares common stock on B C
Bankshares stock transfer books after the effective time. B C Bankshares common
stock certificates presented for transfer after the effective time will be
canceled and exchanged for Wachovia common stock certificates and a check for
any amount to be paid for a fractional share interest.
FRACTIONAL SHARES
Wachovia will not issue any fractional shares of Wachovia common stock.
Instead, you will receive cash without interest for any fractional share
interest. The amount of cash received will be determined by multiplying that
fraction by the closing price of Wachovia common stock reported by the NYSE
Composite Transactions Reporting System on the trading day immediately preceding
the effective date. You will not be entitled to dividends, voting rights or any
other shareholder rights with respect to any fractional share interest.
FEDERAL INCOME TAX CONSEQUENCES
The following section describes the material U.S. federal income tax
consequences of the merger to holders who hold shares of B C Bankshares common
stock as capital assets and is the opinion of Sullivan & Cromwell, special
counsel to Wachovia, and Alston & Bird LLP, special counsel to B C Bankshares.
This section does not address state, local or foreign tax consequences of the
merger.
This section is based on the federal tax laws that are currently in effect.
These laws are subject to change at any time, possibly with retroactive effect.
This is not a complete description of all of the
21
<PAGE> 29
consequences of the merger in your particular circumstances. We do not address
the U.S. federal income tax considerations applicable to certain classes of
shareholders, including:
- financial institutions;
- insurance companies;
- tax-exempt organizations;
- dealers in securities or currencies;
- traders in securities that elect to mark to market;
- persons who hold B C Bankshares common stock as part of a straddle or
conversion transaction;
- persons who are not for United States federal income tax purposes:
- a citizen or resident of the United States;
- a domestic corporation;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust;
- persons who acquired or acquire shares of B C Bankshares common stock
pursuant to the exercise of employee stock options or otherwise as
compensation;
- persons who exercise their dissenters' appraisal rights; and
- persons who do not hold their shares of B C Bankshares common stock as a
capital asset.
In connection with the filing of this document, Wachovia will receive an
opinion of its special counsel, Sullivan & Cromwell, and B C Bankshares will
receive an opinion of its special counsel, Alston & Bird LLP. Each opinion will
state that:
- the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the U.S. tax code;
- each of B C Bankshares and Wachovia will be a party to the reorganization
within the meaning of Section 368(b) of the U.S. tax code; and
- no gain or loss will be recognized by B C Bankshares shareholders who
receive shares of Wachovia common stock solely in exchange for shares of
B C Bankshares common stock, except that gain or loss may be recognized
as to cash received instead of a fractional share interest.
These opinions will be dated as of the date of this document and as of the
effective date. They will be based upon the facts, representations and
assumptions outlined in the opinions. Counsel will require and rely upon
representations contained in letters to be received from B C Bankshares and
Wachovia in rendering the opinions. Neither of these tax opinions is binding on
the Internal Revenue Service. Neither Wachovia nor B C Bankshares has requested
or will request any ruling from the Internal Revenue Service as to the U.S.
federal income tax consequences of the merger.
B C Bankshares shareholders who exchange all of their shares of B C
Bankshares common stock for shares of Wachovia common stock pursuant to the
merger will be subject to the following material U.S. federal income tax
consequences:
- no gain or loss will be recognized by a B C Bankshares shareholder,
except with respect to a B C Bankshares shareholder who receives cash
instead of a fractional share of Wachovia common stock;
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<PAGE> 30
- the aggregate adjusted tax basis of shares of Wachovia common stock
received by a B C Bankshares shareholder will be the same as the
aggregate adjusted tax basis of the shares of B C Bankshares common stock
exchanged therefor, reduced by any amount allocable to a fractional share
interest for which cash is received; and
- the holding period of shares of Wachovia common stock received by a B C
Bankshares shareholder, including any fractional share deemed issued and
then redeemed for cash, will include the holding period of the B C
Bankshares common stock exchanged therefor.
Cash received by a B C Bankshares shareholder instead of a fractional share
of Wachovia common stock will be treated as received in redemption of the
fractional share interest. The shareholder would generally recognize capital
gain or loss for U.S. federal income tax purposes equal to the difference
between the amount of cash received and the shareholder's adjusted tax basis in
the B C Bankshares common stock exchanged therefor. This capital gain or loss
would be long-term capital gain or loss if the B C Bankshares shareholder's
holding period in the shares of B C Bankshares common stock allocable to the
fractional share interest is more than one year. Long-term capital gain of a
non-corporate person is generally subject to a maximum federal tax rate of 20%.
The deductibility of capital losses is subject to limitations for both
individuals and corporations.
THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON YOUR PARTICULAR
CIRCUMSTANCES. YOU SHOULD THEREFORE CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER FOR YOU, INCLUDING THE APPLICATION AND
EFFECT OF U.S. FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX LAWS.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Wachovia will be the surviving corporation resulting from the merger. It
will continue to be governed by the laws of the State of North Carolina and will
operate in accordance with its articles of incorporation and by-laws as in
effect immediately prior to the effective time.
The directors and officers of Wachovia before the merger will continue to
be the directors and officers of Wachovia after the merger, until such time as
their successors are elected and qualified.
POST-MERGER COMPENSATION AND BENEFITS
Under the merger agreement, Wachovia has agreed to provide employee
benefits to employees of B C Bankshares on terms and conditions which, when
taken as a whole, are substantially similar to those currently provided by
Wachovia and Wachovia Bank, N.A. to similarly situated employees of Wachovia
Bank, N.A. Prior to the time that these benefits are provided, the employees of
B C Bankshares will continue to receive benefits under employee benefit plans
which in the aggregate are substantially comparable to those currently provided
by B C Bankshares to its employees. All discretionary awards and benefits under
any employee benefit plans of Wachovia will be subject to the discretion of the
persons or committee administering such plans. In addition, the merger agreement
provides that these employees generally will receive credit for their service
rendered with B C Bankshares before the effective time, to the extent B C
Bankshares credited that service. This credit will count for purposes of
determining vesting and eligibility to participate, but not for the purpose of
benefit accrual, under Wachovia's employee benefit plans. The merger agreement
provides that Wachovia may modify or terminate any employee benefit plan after
the effective date.
The Bank of Canton Profit Sharing Plan will be amended prior to the
effective time of the merger, with Wachovia's consent, to permit Bank of Canton
to make contributions to participants' profit sharing accounts for the 2000 plan
year through the effective time of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of B C Bankshares' management, including all of its
directors, have interests in the merger in addition to the interests they may
have as B C Bankshares' shareholders generally. These interests include, among
others, indemnification rights of B C Bankshares directors and officers under
the
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merger agreement, and employment agreements for Mr. Ed McFather, Jr., Chairman
and CEO of B C Bankshares, and Mr. Steven L. Holcomb, President of B C
Bankshares.
Wachovia has entered into an employment agreement with Mr. McFather which
will become effective as of the effective time of the merger and will have a
three-year term. Mr. McFather will serve as a Senior Vice President of Wachovia
Bank, N.A. and will assist in the transition period following the combination of
Wachovia Bank, N.A. and Bank of Canton. During the term of his employment
agreement, Mr. McFather will be paid an annual salary of $283,333. In the event
that Mr. McFather's employment is terminated (1) by Wachovia without cause or
(2) by Mr. McFather (a) under circumstances which constitute an "involuntary
termination," as defined in the employment agreement, or (b) during the 30-day
period beginning on the anniversary of the effective date of the merger, Mr.
McFather will continue to receive his salary and coverage under Wachovia's
welfare benefit plans from the date of termination of employment through the
expiration of the term. In exchange for these payments and benefits, Mr.
McFather has agreed that he will not engage in activities which are competitive
with Wachovia for the period equal to the greater of (1) the term of his
employment agreement or (2) the 24 months following his termination date. In
addition, Mr. McFather has agreed that he will be available as a consultant to
Wachovia during the term of his employment agreement.
Wachovia has also entered into an employment agreement with Mr. Holcomb
which will become effective as of the effective time of the merger and will have
a three-year term. As a Senior Vice President of Wachovia Bank, N.A., Mr.
Holcomb's responsibilities will include the ongoing management of banking
operations in the Cherokee County market. During the term, Mr. Holcomb will be
paid an annual salary of $175,000, and will be eligible to receive increases,
consistent with Wachovia's policies. Mr. Holcomb will also be eligible for
annual bonus payments during the term with a minimum payment of $49,500 for the
year 2000. In connection with his employment, Mr. Holcomb will receive an award
of 5,000 restricted stock units, which will vest on the third anniversary of the
date of the award, and an option to purchase 5,000 shares of Wachovia common
stock, which will vest ratably over the five-year period following the date of
grant.
In the event that Mr. Holcomb's employment is terminated prior to the
expiration of the term (1) by Wachovia without cause or (2) by Mr. Holcomb under
circumstances which constitute an "involuntary termination," as defined in the
employment agreement, (a) Mr. Holcomb will continue to receive cash compensation
equal to base salary plus the sum of (i) Mr. Holcomb's three-year average bonus,
as determined by Wachovia, and (ii) the three-year average of Wachovia's
contributions under certain of its retirement plans on behalf of Mr. Holcomb and
coverage under Wachovia's welfare benefit plans from the date of termination of
employment through the expiration of the term and (b) Mr. Holcomb's outstanding
stock options shall become immediately exercisable and the restrictions on Mr.
Holcomb's restricted stock units shall lapse. In exchange for these payments and
benefits, Mr. Holcomb has agreed that he will not engage in activities which are
competitive with Wachovia for the period equal to the greater of (1) the term of
his employment agreement or (2) the 24 months following his termination date.
Wachovia has also agreed that for a period of six years after the merger it
will indemnify the directors and officers of B C Bankshares against costs or
expenses (including reasonable attorneys' fees), judgments, liens, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation (civil or criminal), administrative or
investigative, arising out of actions or omissions occurring at or prior to the
merger, to the fullest extent that B C Bankshares is permitted to indemnify (and
advance expenses to) its directors and officers under the laws of the Georgia
and B C Bankshares' articles of incorporation and by-laws in effect on the date
of the merger agreement, provided any such director's or officer's conduct
complies with the standards set forth under Georgia law and B C Bankshares'
articles of incorporation and by-laws. In addition, Wachovia has agreed that for
a period of three years after the merger it will use its reasonable best efforts
to obtain directors' and officers' liability insurance for the benefit of B C
Bankshares' directors and officers, to provide insurance coverage that will
reimburse the present and former directors and officers of B C Bankshares or any
of its subsidiaries with respect to claims against such directors and officers
arising from facts or events which occurred before the merger. The coverage and
policy limits shall be no less advantageous than the coverage provided by B C
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Bankshares on the date of the merger agreement, subject to the cost for the
insurance not exceeding 200 percent of the amount expended by B C Bankshares for
similar insurance on the date of the merger agreement.
The directors and certain officers of B C Bankshares own shares of B C
Bankshares common stock which will be converted into shares of Wachovia common
stock at the same exchange ratio as will apply to every other B C Bankshares'
shareholder. See "Voting Securities and Principal Shareholders of B C
Bankshares."
CONDITIONS TO COMPLETION OF THE MERGER
B C Bankshares' and Wachovia's obligations to complete the merger are
subject to the satisfaction or written waiver of the following conditions:
- approval of the merger agreement by B C Bankshares' shareholders;
- receipt of the required regulatory approvals described below under
"Regulatory Approvals," generally without any conditions, restrictions or
requirements which the Wachovia board reasonably determines would have a
material adverse effect on Wachovia after the merger or would reduce the
benefits of the merger to such a degree that Wachovia would not have
entered into the merger agreement had the conditions, restrictions or
requirements been known as of the date of the merger agreement;
- the absence of any action by any court or regulatory authority
prohibiting the completion of the merger;
- the continued effectiveness of the registration statement of which this
proxy statement/prospectus is a part and no stop order being issued or
threatened;
- receipt of all permits or authorizations under state securities laws
necessary to complete the merger;
- approval for listing on the NYSE of the shares of Wachovia common stock
issuable in the merger;
- the continued truth and accuracy of the representations and warranties of
each party except for any inaccuracies which would not have a material
adverse effect on the financial condition, results of operations,
businesses or prospects of the party by whom such representations and
warranties were made, and the performance by each party in all material
respects of all of the obligations required to be performed by it
pursuant to the merger agreement, and the delivery of officers'
certificates confirming satisfaction of the foregoing requirements;
- receipt by B C Bankshares of an opinion of Alston & Bird LLP as to
certain tax matters; and
- receipt by Wachovia of an opinion of Sullivan & Cromwell as to certain
tax matters.
We cannot predict if or when the conditions precedent to the merger can or
will be satisfied or waived by the appropriate party. However, as of the date of
this proxy statement/prospectus, neither Wachovia nor B C Bankshares has any
reason to believe that any of these conditions will not be satisfied.
REGULATORY APPROVALS
Federal Reserve Board. The merger is subject to prior approval by the
Federal Reserve Board under Section 3 of the Bank Holding Company Act of 1956.
The BHC Act requires the Federal Reserve Board, when considering a transaction
such as this merger, to take into consideration the financial and managerial
resources (including the competence, experience and integrity of the officers,
directors and principal shareholders) and future prospects of the institutions
and the convenience and needs of the communities to be served. In addition,
under the Community Reinvestment Act of 1977, as amended, the Federal Reserve
Board must take into account the record of performance of the acquiring
institution in meeting the credit needs of the entire community, including low-
and moderate-income neighborhoods, served by the institution.
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The BHC Act also prohibits the Federal Reserve Board from approving a
merger if it would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, or if its effect in any section of the country
would be substantially to lessen competition or to tend to create a monopoly, or
if it would in any other manner result in a restraint of trade, unless the
Federal Reserve Board finds that the anticompetitive effects of the merger are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served.
Pursuant to the BHC Act, the merger may not be consummated until 30 days
after Federal Reserve approval, during which time the United States Department
of Justice may challenge the merger on antitrust grounds. The commencement of an
antitrust action would stay the effectiveness of the Federal Reserve Board's
approval unless a court specifically ordered otherwise. With the approval of the
Federal Reserve Board and the concurrence of the Department of Justice, the
waiting period may be reduced to no less than 15 days. Wachovia and B C
Bankshares believe that the merger does not raise substantial antitrust or other
significant regulatory concerns and that they will be able to obtain all
requisite regulatory approvals on a timely basis without the imposition of any
condition that would have a material adverse effect on Wachovia.
Georgia Department of Banking and Finance. The merger is also subject to
certain notice requirements as set forth in the Financial Institutions Code of
Georgia.
Other Requisite Approvals and Consents. Approvals or notices are also
required from or to the NYSE and other self-regulatory organizations and may be
required from or to certain other regulatory agencies.
Status of Regulatory Approvals. Wachovia and B C Bankshares have filed all
of the required applications and notices with respect to the merger and will
promptly take other appropriate action with respect to any requisite approvals
or other action of any governmental authority.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. WE DO NOT KNOW IF OR WHEN ALL OF THESE REGULATORY APPROVALS WILL BE
OBTAINED. ALSO, THESE APPROVALS MAY CONTAIN A CONDITION, RESTRICTION OR
REQUIREMENT THAT CAUSES THESE APPROVALS TO FAIL TO SATISFY THE CONDITIONS FOR
THE MERGER.
AMENDMENT, WAIVER AND TERMINATION
Prior to or at the effective time, any provision of the merger agreement
may be either waived by the party benefitted by such provision or amended or
modified by written agreement between Wachovia and B C Bankshares. However,
after the special meeting, the merger agreement may not be amended in violation
of Georgia law.
The merger agreement may be terminated, and the merger abandoned, at any
time prior to the effective time by the mutual consent of B C Bankshares and
Wachovia. In addition, the merger agreement may be terminated, and the merger
abandoned, prior to the effective time by either Wachovia or B C Bankshares if:
- the other party breaches a representation, warranty, covenant or other
agreement contained in the merger agreement that has a material adverse
effect on the breaching party, and the breach cannot be or has not been
cured within 30 days of the notice having been given to the breaching
party;
- the merger is not completed by April 15, 2000;
- a governmental authority denies a requisite approval for completion of
the merger by final nonappealable action; or
- the B C Bankshares shareholders fail to approve the merger agreement.
In addition, Wachovia may terminate the merger agreement if the B C
Bankshares' board of directors withdraws or materially changes its
recommendation to approve the merger agreement.
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CONDUCT OF BUSINESS PENDING THE MERGER
The following is a summary of the agreements B C Bankshares and Wachovia
have made regarding actions prior to the merger.
B C Bankshares. B C Bankshares has agreed that it will operate its
business and the businesses of its subsidiaries in the ordinary course through
the effective time of the merger. In addition, it has agreed that it will not,
without first obtaining Wachovia's consent:
- issue any additional shares of B C Bankshares common stock, any other B C
Bankshares capital stock or any rights to acquire B C Bankshares equity
stock, except pursuant to pre-existing rights to acquire B C Bankshares
equity stock;
- make any distributions with respect to B C Bankshares common stock or any
other B C Bankshares equity stock or change its capital structure.
However, B C Bankshares may make (1) a year-end dividend on B C
Bankshares common stock in an amount not to exceed $2.00 per share and
thereafter, in 2000, quarterly cash dividends on B C Bankshares common
stock in an amount not to exceed $1.20 per share with record and payment
dates consistent with past practice and (2) dividends from wholly owned
subsidiaries to B C Bankshares (or to another wholly owned subsidiary of
B C Bankshares) on or in respect of shares of B C Bankshares common
stock;
- enter into or amend any employment related agreements, grant any salary
or wage increase or increase any employee related benefits, except in the
ordinary course of business, as previously disclosed to Wachovia or as
required by law;
- enter into or amend any employee related benefit plan or take any action
to accelerate the vesting or exercise ability of any benefits payable
under any employee-related benefit plans, except as may be required by
law or contemplated by the merger agreement;
- sell, encumber or otherwise dispose of any material amount of its
properties except in the ordinary course of business;
- acquire any material assets, business, deposits or properties of any
other entity except in the ordinary course of business;
- amend B C Bankshares' articles of incorporation, B C Bankshares' by-laws
or the articles of incorporation or by-laws (or similar governing
documents) of any of B C Bankshares' subsidiaries, except as previously
agreed with Wachovia;
- make any change in its accounting principles, practices or methods, other
than as may be required by GAAP or applicable regulatory agencies;
- enter into, terminate or amend any material contract, except in the
ordinary course of business;
- settle any material claim or proceeding, except for those claims or
proceedings previously disclosed to Wachovia;
- take any action which is reasonably likely to prevent or impede the
merger from qualifying as a reorganization under Section 368 of the U.S.
tax code or knowingly take any action which would materially interfere
with the merger agreement;
- change materially its interest rate and other risk management policies,
procedures or practices as applied to the operations of B C Bankshares or
fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk, except as required
by law;
- borrow money other than in the ordinary course of business;
- make or change any material tax-related practice other than in the
ordinary course of business; or
- agree or commit to do any of the foregoing.
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B C Bankshares has also agreed that it will not, nor ask anyone to,
initiate or solicit any inquiries or any offer relating to a merger,
consolidation or similar transaction involving B C Bankshares or Bank of Canton.
This type of proposal is referred to in this document as an "acquisition
proposal." In addition, B C Bankshares will not negotiate or provide any
confidential information or data to, or have any discussions with, any person
relating to an acquisition proposal, or otherwise facilitate an acquisition
proposal, except as legally required for the discharge by the B C Bankshares
board of its fiduciary duties. B C Bankshares has agreed to promptly advise
Wachovia following the receipt by B C Bankshares of any acquisition proposal and
to immediately advise Wachovia of any developments relating to any acquisition
proposal.
Wachovia. Wachovia has agreed that it will not, before the effective time,
without first obtaining B C Bankshares' consent:
- make any extraordinary dividend;
- take any action which is reasonably likely to prevent or impede the
merger from qualifying as a reorganization under Section 368 of the U.S.
tax code or take any action which would materially interfere with the
merger agreement; or
- agree or commit to do any of the foregoing.
Wachovia regularly evaluates acquisition opportunities and conducts due
diligence activities in connection with possible acquisitions. As a result,
acquisition discussions and, in some cases, negotiations may take place and
future acquisitions involving cash, debt or equity securities may occur.
Acquisitions typically involve the payment of a premium over book value and,
therefore, some dilution of Wachovia's book value and net income per share may
occur in connection with any future transactions.
EXPENSES AND FEES
Each party generally will be responsible for all expenses incurred by it in
connection with the merger, except that the printing expenses in connection with
this document will be shared equally between Wachovia and B C Bankshares.
ACCOUNTING TREATMENT
Wachovia expects to account for the merger as a "purchase," as that term is
used under GAAP, for accounting and financial reporting purposes. Under purchase
accounting, the assets and liabilities of B C Bankshares as of the effective
time will be recorded at their respective fair values and added to those of
Wachovia. Any excess of the value of Wachovia common stock issued for B C
Bankshares common stock over the fair value of B C Bankshares' net assets will
be recognized as goodwill. Financial statements of Wachovia issued after the
effective time will reflect these values and will not be restated retroactively
to reflect the historical financial position or results of operations of B C
Bankshares.
NEW YORK STOCK EXCHANGE LISTING OF WACHOVIA COMMON STOCK
Wachovia has agreed to use its reasonable best efforts to list the shares
of Wachovia common stock to be issued to the holders of B C Bankshares common
stock in the merger on the NYSE before the effective date.
RESALES OF WACHOVIA COMMON STOCK
The shares of Wachovia common stock to be issued in the merger will be
freely transferable under the Securities Act of 1933. However, this will not be
the case for shares issued to any shareholder who may be deemed to be an
"affiliate" of B C Bankshares for purposes of Rule 145 under the Securities Act
as of the date of the special meeting. "Affiliates" generally include directors,
certain executive officers, and beneficial owners of 10% or more of any class of
capital stock. These affiliates may not sell their shares of
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Wachovia common stock acquired in the merger except pursuant to an effective
registration statement under the securities law or other applicable securities
law exemptions from the registration requirements.
This proxy statement/prospectus does not cover resales of Wachovia common
stock received by any person who may be deemed to be an affiliate of B C
Bankshares. B C Bankshares has agreed in the merger agreement to use its
reasonable best efforts to cause each person who may be deemed to be an
"affiliate" of B C Bankshares to execute and deliver to Wachovia an affiliate
agreement. As provided for in these agreements, B C Bankshares' affiliates have
agreed not to offer to sell, transfer or otherwise dispose of any of the shares
of Wachovia common stock distributed to them pursuant to the merger except in
compliance with Rule 145, or in a transaction that is otherwise exempt from the
registration requirements of, or in an offering which is registered under, the
Securities Act. Wachovia may place restrictive legends on certificates
representing Wachovia common stock issued to all persons who are deemed to be
"affiliates" of B C Bankshares under Rule 145.
VOTING AGREEMENTS
Directors of B C Bankshares and Ms. Ann McFather Fincher, who together hold
approximately 22% of the outstanding shares of B C Bankshares common stock, have
agreed to vote all their shares in favor of approval of the merger as an
inducement to Wachovia to enter into the merger agreement. Furthermore, they
agreed not to vote any of their shares in favor of any other acquisition
proposal. These shareholders have also agreed to take all reasonable actions to
consummate the merger and, with limited exceptions, not to sell or otherwise
transfer any shares owned by them unless the buyer or transferee also agrees to
vote the shares in favor of approval of the merger agreement.
DISSENTERS' APPRAISAL RIGHTS
The following discussion is not a complete description of the law relating
to appraisal rights available under Georgia law and is qualified in its entirety
by the full text of Article 13 of the Georgia Business Corporation Code. Article
13 is reprinted in its entirety as Appendix D to this proxy
statement/prospectus. If you desire to exercise appraisal rights, you should
review carefully Article 13 and are urged to consult a legal advisor before
electing or attempting to exercise these rights.
Pursuant to the provisions of the GBCC, if the merger is consummated, any
shareholder of record of B C Bankshares who objects to the merger and who fully
complies with Sections 14-2-1301 through 14-2-1332 of the GBCC will be entitled
to demand and receive payment in cash of an amount equal to the fair value of
all, but not less than all, of his or her shares of B C Bankshares common stock.
A shareholder of record may assert dissenters' rights as to fewer than all of
the shares registered in his or her name only if he or she dissents with respect
to all shares beneficially owned by any one beneficial owner and notifies B C
Bankshares in writing of the name and address of each person on whose behalf he
or she asserts dissenters' rights. For the purpose of determining the amount to
be received in connection with the exercise of statutory dissenters' rights, the
fair value of a dissenting shareholder's B C Bankshares common stock equals the
value of the shares immediately before the effective date of the merger,
excluding any appreciation or depreciation in anticipation of the merger.
Under Article 13, B C Bankshares must notify all shareholders entitled to
appraisal rights no later than 10 days after the time of the merger and that
notice must be accompanied by a copy of Article 13. This proxy
statement/prospectus constitutes that notice, and Article 13 is attached as
Appendix D to this proxy statement/prospectus. If you wish to exercise your
appraisal rights or wish to preserve your right to do so, you should review the
following discussion and Appendix D carefully.
Any B C Bankshares shareholder desiring to dissent and receive cash payment
of the fair value of his or her B C Bankshares common stock must:
- deliver to B C Bankshares, prior to the shareholder vote on the merger
agreement, a written notice of his or her intent to demand payment for
his or her shares if the merger is consummated;
- not vote his or her shares in favor of the merger agreement; and
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- demand payment and deposit his or her stock certificates with Wachovia in
accordance with the terms of a dissenters' notice to be sent to all
dissenting shareholders within 10 days after the merger is consummated.
All written communications from shareholders with respect to the exercise
of appraisal rights should be mailed before the effective time of the merger to
B C Bankshares, Inc., 2780 Marietta Highway, P.O. Box 649, Canton, Georgia
30114, Attention: Secretary and after the effective time of the merger to
Wachovia Corporation, 100 North Main Street, P.O. Box 3099, Winston-Salem, North
Carolina 27150, Attention: General Counsel.
VOTING AGAINST, ABSTAINING FROM VOTING OR FAILING TO VOTE ON THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT IS NOT ENOUGH TO SATISFY THE REQUIREMENTS OF THE
GBCC. YOU MUST ALSO COMPLY WITH ALL OF THE CONDITIONS RELATING TO THE SEPARATE
WRITTEN NOTICE OF INTENT TO DISSENT TO THE MERGER, THE SEPARATE WRITTEN DEMAND
FOR PAYMENT OF THE FAIR VALUE OF YOUR SHARES OF B C BANKSHARES COMMON STOCK AND
THE DEPOSIT OF YOUR STOCK CERTIFICATES.
The dissenters' notice sent to dissenting shareholders will specify the
dates and place for receipt of the payment demand and the deposit of the B C
Bankshares stock certificates. Within 10 days after the effective date of the
merger or after Wachovia's receipt of a payment demand from a dissenting
shareholder who has complied with the statutory requirements, whichever is
later, Wachovia shall offer to pay the dissenter the amount that Wachovia
estimates to be the fair value of his or her shares, plus accrued interest.
Wachovia's offer will be accompanied by:
- B C Bankshares' balance sheet as of the end of a fiscal year ended not
more than 16 months before the date of making an offer, an income
statement for that year, a statement of changes in shareholders' equity
for that year and the latest available interim financial statements, if
any;
- an explanation of how the interest was calculated;
- a statement of the dissenting shareholder's right to demand payment of a
different amount under Section 14-2-1327 of the GBCC; and
- a copy of the dissenters' rights provisions of the GBCC.
If the dissenting shareholder accepts Wachovia's offer by written notice to
Wachovia within 30 days after the offer, or is deemed to have accepted the offer
by failing to respond to Wachovia's offer within 30 days, Wachovia must make
payment to the dissenting shareholder for his or her shares within 60 days after
making the offer or the effective date of the merger, whichever is later. Upon
payment of the agreed upon value, the dissenting shareholder will cease to have
any interest in his or her shares of B C Bankshares common stock.
If within 30 days after Wachovia offers payment for the shares of a
dissenting shareholder, he or she does not accept the estimate of fair value of
the shares and interest due on that fair value and demands payment of his or her
own estimate of the fair value of the shares and interest due, then Wachovia,
within 60 days after receiving the payment demand of a different amount from the
dissenting shareholder, must either settle the payment demand or file an action
in the superior court of Cherokee County, Georgia, requesting that the fair
value of the dissenting shareholder's shares be determined. Wachovia must make
all dissenting shareholders whose demands remain unsettled parties to the
proceeding. If Wachovia does not begin the proceeding within the 60-day period,
it shall be required to pay the amount demanded by each dissenting shareholder
whose demand remains unsettled.
B C Bankshares shareholders should note that cash paid to dissenting
shareholders in satisfaction of the fair value of their shares will be
recognized as gain or loss for federal income tax purposes.
FAILURE BY A B C BANKSHARES SHAREHOLDER TO FOLLOW THE STEPS REQUIRED BY THE
GBCC FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. IN
VIEW OF THE COMPLEXITY OF THESE PROVISIONS AND THE REQUIREMENT THAT THEY BE
STRICTLY COMPLIED WITH, IF YOU HOLD B C BANKSHARES COMMON STOCK AND ARE
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CONSIDERING DISSENTING FROM THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND EXERCISING YOUR APPRAISAL RIGHTS UNDER THE GBCC, YOU SHOULD CONSULT YOUR
LEGAL ADVISORS.
You may not bring any action to enforce dissenters' rights more than three
years after the date of the merger, regardless of whether notice of the merger
and of the right to dissent was given by Wachovia in accordance with Article 13.
STOCK OPTION AGREEMENT
As an inducement to Wachovia's entering into the merger agreement, B C
Bankshares and Wachovia entered into a stock option agreement, dated as of
October 6, 1999. The following description of the stock option agreement is
qualified in its entirety by reference to the text of the stock option
agreement. For a more complete description, we urge you to read carefully the
stock option agreement which is attached as Appendix B to this proxy
statement/prospectus.
B C Bankshares has granted Wachovia an option to purchase up to 110,000
shares of B C Bankshares common stock. The number of shares Wachovia may
purchase is subject to adjustment in certain cases (described below), however,
it will never exceed 19.9% of the number of shares of B C Bankshares common
stock outstanding immediately before the option is exercised. The exercise price
of the option is $205.00 per share, and is also subject to adjustment in certain
cases.
Wachovia can exercise the option if both an "Initial Triggering Event" and
a "Subsequent Triggering Event" occur prior to the occurrence of an "Exercise
Termination Event," as these terms are defined below. Wachovia's right to
exercise the option is subject to compliance with applicable law, including the
prior approval of the Federal Reserve Board, to the extent that the exercise of
the option would cause Wachovia to own more than 5% of the outstanding shares of
B C Bankshares. In considering whether to approve Wachovia's right to exercise
the option, the Federal Reserve will generally apply the same statutory criteria
that it will apply when considering whether to approve the merger.
The stock option agreement generally defines the term "Initial Triggering
Event" to mean any of the following events or transactions:
(1) B C Bankshares or Bank of Canton, without Wachovia's prior written
consent, enters into an agreement to engage in an "Acquisition Transaction"
(as defined below) with a third party or the B C Bankshares board
recommends that the shareholders of B C Bankshares approve or accept any
Acquisition Transaction, other than as contemplated by the merger
agreement;
(2) A third party acquires beneficial ownership or the right to
acquire beneficial ownership of 18% or more of the outstanding shares of B
C Bankshares common stock;
(3) The B C Bankshares shareholders fail to approve the merger
agreement at the special meeting or the special meeting has not been held
or has been canceled prior to termination of the merger agreement because,
prior to the special meeting (or if the special meeting shall not have been
held or shall have been canceled, prior to the termination of the merger
agreement), it has been publicly announced that any third party has made,
or disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(4) The B C Bankshares board withdraws or modifies (or publicly
announces its intention to withdraw or modify) in any manner adverse to
Wachovia its recommendation that the shareholders of B C Bankshares approve
the merger agreement at B C Bankshares' special meeting, or B C Bankshares,
without Wachovia's prior written consent, authorizes, recommends or
proposes (or publicly announces its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction;
(5) A third party makes a proposal to B C Bankshares or its
shareholders by public announcement or written communication that is or
becomes the subject of public disclosure;
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(6) A third party files with the SEC a registration statement with
respect to a potential exchange offer that would constitute an Acquisition
Transaction (or files a preliminary proxy statement with the SEC with
respect to a potential vote by its shareholders to approve the issuance of
shares to be offered in such an exchange offer);
(7) B C Bankshares willfully breaches any covenant or obligation
contained in the merger agreement in anticipation of engaging in an
Acquisition Transaction, and following the breach Wachovia would be
entitled to terminate the merger agreement (whether immediately or after
giving notice or passage of time or both);
(8) A third party files an application or notice with the Federal
Reserve Board or other federal or state bank regulatory or antitrust
authority, which application or notice has been accepted for processing,
for approval to engage in an Acquisition Transaction; or
(9) A shareholder or shareholders in the aggregate holding in excess
of 10% of B C Bankshares' outstanding common stock fails to comply with the
terms of his or her voting agreement.
As used in the stock option agreement, the term "Acquisition Transaction"
means (1) a merger or consolidation or any similar transaction, involving B C
Bankshares or Bank of Canton (other than mergers, consolidations or similar
transactions involving solely B C Bankshares and/or Bank of Canton, provided
that any such transaction is not entered into in violation of the terms of the
merger agreement), (2) a purchase, lease or other acquisition of all or
substantially all of the assets or deposits of B C Bankshares or Bank of Canton
or (3) a purchase or other acquisition (including by merger, consolidation,
share exchange or otherwise) of securities representing 18% or more of the
voting power of B C Bankshares or Bank of Canton.
The stock option agreement generally defines the term "Subsequent
Triggering Event" to mean any of the following events or transactions: (1) the
acquisition by a third party of beneficial ownership of 25% or more of the then
outstanding shares of B C Bankshares common stock or (2) B C Bankshares or any
of its subsidiaries, without having received the prior written consent of
Wachovia, enters into an agreement to engage in an Acquisition Transaction with
a third party or the B C Bankshares board recommends that the shareholders of B
C Bankshares approve or accept any Acquisition Transaction, other than as
contemplated by the merger agreement; provided, that for purposes of the
definition of "Subsequent Triggering Event," the percentage referred to in
clause (3) of the definition of "Acquisition Transaction" above shall be 25%
rather than 18%.
The stock option agreement defines the term "Exercise Termination Event" to
mean any of (1) the effective time of the merger; (2) the termination of the
merger agreement in accordance with its terms, if the termination occurs prior
to the occurrence of an Initial Triggering Event, except a termination by
Wachovia if B C Bankshares breaches, and does not timely cure any breach of, a
representation, warranty, covenant or other agreement contained in the merger
agreement and the breach, individually or in the aggregate, would be reasonably
likely to result in a material adverse effect (as defined in the merger
agreement) or if B C Bankshares' board of directors has failed to recommend
approval of the merger, if necessary, or has withdrawn, modified or changed such
recommendation in a manner in any respect adverse to Wachovia's interests (see
"-- Amendment, Waiver and Termination") or a termination by either Wachovia or B
C Bankshares if the B C Bankshares shareholders fail to approve the merger; or
(3) the passage of 12 months, subject to extension in order to obtain required
regulatory approvals, to comply with applicable regulatory waiting periods or to
avoid liability under Section 16(b) of the Securities Exchange Act, after
termination of the merger agreement if the termination is concurrent with or
follows the occurrence of an Initial Triggering Event or is a termination
described in clause (2) above.
Under no circumstances can Wachovia exercise the option at any time when
Wachovia is in breach of any of its covenants or agreements contained in the
merger agreement if, as a result of Wachovia's breach, B C Bankshares would be
entitled to terminate the merger agreement. The stock option agreement will
automatically terminate upon the termination of the merger agreement by B C
Bankshares as a result of a breach by Wachovia of its covenants or agreements
contained in the stock option agreement.
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If the option becomes exercisable, it may be exercised in whole or in part
within six months following the applicable Subsequent Triggering Event.
Wachovia's right to exercise the option and certain other rights under the stock
option agreement are subject to an extension in order to obtain required
regulatory approvals and to comply with applicable regulatory waiting periods
and to avoid liability under Section 16(b) of the Securities Exchange Act. The
option price and the number of shares issuable under the option are subject to
adjustment in the event of specified changes in the capital stock of B C
Bankshares.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Wachovia will have certain registration rights
with respect to the shares of B C Bankshares common stock issued or issuable
pursuant to the option.
The stock option agreement also provides that at any time after the
occurrence of a "Repurchase Event" (as defined below), upon request, B C
Bankshares shall be obligated to repurchase the option and all or any part of
the option shares received upon the full or partial exercise of the option. A
repurchase of the option shall be at a price per share equal to the amount by
which the "Market/Offer Price" (as defined below) exceeds the option price (as
adjusted). A repurchase of option shares shall be at a price per share equal to
the Market/Offer Price.
The term "Market/Offer Price" means the highest of (1) the price per share
at which a tender or exchange offer has been made for B C Bankshares common
stock, (2) the price per share of B C Bankshares common stock that any third
party is to pay pursuant to an agreement with B C Bankshares, (3) if B C
Bankshares common stock is traded on the Nasdaq or any national securities
exchange, the highest closing price per share of B C Bankshares common stock
within the six-month period immediately preceding the date that notice to
repurchase is given or (4) in the event of a sale of all or substantially all of
B C Bankshares' assets or deposits, the sum of the price paid for such assets or
deposits and the current market value of the remaining assets (as determined by
an investment banking firm), divided by the number of shares of B C Bankshares
common stock outstanding at the time of such sale.
The term "Repurchase Event" is defined to mean (1) the acquisition by any
third party of beneficial ownership of 50% or more of the outstanding shares of
B C Bankshares common stock or (2) the consummation of an Acquisition
Transaction; provided that, for purposes of the definition of "Repurchase
Event," the percentage referred to in clause (3) of the definition of
"Acquisition Transaction" above shall be 50% rather than 18%.
The stock option agreement also provides that Wachovia may, at any time
after a Repurchase Event and prior to an Exercise Termination Event, surrender
the option (and any option shares obtained upon the exercise of the option and
still held by Wachovia) for a cash surrender fee equal to $5 million (i) plus,
if applicable, Wachovia's purchase price with respect to any option shares and
(ii) minus, if applicable, the sum of (1) the excess of (A) the net cash
amounts, if any, received by Wachovia pursuant to the arm's-length sale of
option shares (or any other securities into which such option shares were
converted or exchanged) to any unaffiliated party, over (B) Wachovia's purchase
price of such option shares, and (2) the net cash amounts, if any, received by
Wachovia pursuant to an arm's-length sale of any portion of the option sold.
The "Total Profit" (as defined below) that Wachovia may realize with
respect to the option may not exceed $5.5 million. If Wachovia's Total Profit
were to exceed that amount, Wachovia would be required, at its sole election, to
(1) reduce the number of option shares subject to the option, (2) deliver option
shares to B C Bankshares for cancellation, (3) pay cash to B C Bankshares or (4)
do any combination of the foregoing so that Wachovia's actual realized Total
Profit shall not exceed $5.5 million.
"Total Profit" is defined to mean the aggregate (before taxes) of (1) any
amount received pursuant to B C Bankshares' repurchase of the option (or any
portion thereof), (2) any amount received pursuant to B C Bankshares' repurchase
of the option shares (less the purchase price for such option shares), (3) any
net cash received pursuant to the sale of option shares to any third party (less
the purchase price
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of such option shares) and (4) any amounts received on transfer of the option or
any portion thereof to a third party.
The stock option agreement provides that in the event that, prior to an
Exercise Termination Event, B C Bankshares enters into certain transactions in
which B C Bankshares is not the surviving corporation, certain fundamental
changes in the capital stock of B C Bankshares occur or B C Bankshares sells all
or substantially all of its or certain of its subsidiaries' assets, the option
shall represent the right to acquire what Wachovia would have received had it
exercised the option prior to such transaction.
The stock option agreement provides that neither Wachovia nor B C
Bankshares may assign any of its rights or obligations without the written
consent of the other party, except that in the event an Initial Triggering Event
occurs prior to an Exercise Termination Event, Wachovia may, subject to certain
limitations, assign its rights and obligations in whole or in part.
Arrangements such as the stock option agreement are customarily entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be consummated in accordance
with their terms, and to compensate the prospective acquirer for the efforts
undertaken and the expenses, losses and opportunity costs incurred by it in
connection with the transactions if they are not consummated as a result of an
acquisition or potential acquisition of the issuer by a third party. The stock
option agreement was entered into to accomplish these objectives. The stock
option agreement may have the effect of discouraging offers by third parties to
acquire B C Bankshares prior to the merger, even if such persons were prepared
to offer to pay consideration to B C Bankshares' shareholders which has a higher
current market value than the shares of Wachovia common stock to be received by
B C Bankshares shareholders pursuant to the merger agreement. It may also
preclude B C Bankshares from entering into a transaction with another party that
would be accounted for under the pooling-of-interests method of accounting.
To the best knowledge of B C Bankshares and Wachovia, no event giving rise
to the right to exercise the option has occurred as of the date of this proxy
statement/prospectus.
DESCRIPTION OF WACHOVIA CAPITAL STOCK
The descriptive information below outlines certain provisions of Wachovia's
articles of incorporation and by-laws and the North Carolina Business
Corporation Act. The information is not complete and is qualified by the more
detailed provisions of Wachovia's articles of incorporation and by-laws, which
are incorporated by reference as exhibits to this document, and the North
Carolina Business Corporation Act. See "Where You Can Find More Information" on
page 72 for information on how to obtain copies of these incorporated documents.
AUTHORIZED STOCK
Wachovia's articles of incorporation authorize 1,000,000,000 shares of
Wachovia common stock and 50,000,000 shares of preferred stock. As of September
30, 1999, there were 202,742,870 shares of Wachovia common stock outstanding and
no shares of Wachovia preferred stock outstanding. In addition, at September 30,
1999, 27,403,886 shares of Wachovia common stock were reserved for issuance upon
conversion of notes, exercise of stock options and awards and under Wachovia's
dividend reinvestment plan.
PREFERRED STOCK
The Wachovia board is authorized to fix the preferences, limitations and
relative rights of any Wachovia preferred stock and may cause Wachovia to issue
any preferred stock without the approval of the holders of Wachovia common
stock. The board may also establish one or more series of Wachovia preferred
stock and determine the variations between series. Holders of Wachovia preferred
stock may have greater rights than holders of Wachovia common stock. For
example, holders of Wachovia preferred stock may receive dividends first and may
also receive assets of Wachovia ahead of common stock holders
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in a liquidation of Wachovia. Wachovia preferred shareholders may also rank
ahead of common shareholders if the capital stock of Wachovia is redeemed.
COMMON STOCK
Dividends. The holders of Wachovia common stock are entitled to their
proportionate share of dividends declared by the Wachovia board from funds
legally available for paying dividends.
Voting Rights. Each holder of Wachovia common stock has one vote for each
share held on matters presented for consideration by the shareholders.
Classification of Board of Directors. The Wachovia board is divided into
three classes, each serving three-year terms, so that approximately one-third of
the directors of Wachovia are elected at each annual meeting of the shareholders
of Wachovia. Classification of the Wachovia board has the effect of decreasing
the number of directors that could be elected in a single year by any person who
seeks to elect its designees to a majority of the seats on the Wachovia board
and could impede a change in control of Wachovia.
Preemptive Rights. The holders of Wachovia common stock have no preemptive
rights to acquire any additional shares of Wachovia common stock.
Issuance of Stock. Wachovia's articles of incorporation authorize the
Wachovia board to issue authorized shares of Wachovia common stock and Wachovia
preferred stock and any other securities without shareholder approval. However,
Wachovia common stock is listed on the NYSE, which requires shareholder approval
of the issuance of additional shares of Wachovia common stock under certain
circumstances.
Liquidation Rights. In the event of voluntary or involuntary liquidation,
dissolution or winding-up of Wachovia, the holders of Wachovia common stock will
be entitled to their proportionate share of its assets or funds that are
available for distribution to its shareholders after the satisfaction of its
liabilities and after preferences given to any outstanding Wachovia preferred
stock.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Wachovia's articles of incorporation and by-laws may
have the effect of preventing, discouraging or delaying any change in control of
Wachovia. The authority of the Wachovia board to issue Wachovia preferred stock
may enable the Wachovia board to prevent a change in control despite a shift in
ownership of the Wachovia common stock. In addition, the Wachovia board's power
to issue additional shares of Wachovia common stock may help delay or deter a
change in control by increasing the number of shares needed to gain control.
Moreover, the classification of the Wachovia board would delay the ability of a
dissatisfied shareholder or anyone who obtains a controlling interest in the
Wachovia common stock to elect its designees to a majority of the seats on the
Wachovia board. The following provisions also may deter any change in control of
Wachovia.
Fair Price Provisions. The fair price provisions of Wachovia's articles of
incorporation limit the ability of an interested shareholder to enter into
certain transactions involving Wachovia. An "interested shareholder" is defined
in Wachovia's articles to mean a shareholder who directly or indirectly
beneficially owns, alone or with associates or affiliates, more than 10% of the
outstanding voting shares of Wachovia or a subsidiary of Wachovia, and, subject
to certain limits, certain assignees of, or successors to, the stock once held
by an interested shareholder. The transactions limited by the fair price
provisions are referred to below collectively as a "business combination." They
include:
- any merger with or consolidation into an interested shareholder or an
affiliate of an interested shareholder,
- any sale or other disposition of more than $25 million in assets to an
interested shareholder or an associate or affiliate of an interested
shareholder,
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- any issuance or transfer to any interested shareholder, or an associate
or affiliate, of equity securities of Wachovia or a subsidiary having a
fair market value of $10 million or more, or
- any recapitalization or reclassification of Wachovia securities or
similar transaction increasing the percentage of outstanding shares owned
by an interested shareholder or an associate or affiliate or any proposal
for liquidation or dissolution of Wachovia.
Under the fair price provisions, a business combination must either (1) be
approved by the holders of at least 66 2/3% of the outstanding voting shares of
Wachovia and the holders of at least a majority of the outstanding shares of
Wachovia common stock not owned by the interested shareholder or (2) comply with
either the continuing director approval requirements described in this paragraph
or the price requirements described in the following paragraph, in which case a
business combination must be approved by the affirmative vote of a majority of
the outstanding voting shares of Wachovia entitled to vote thereon. Under the
continuing director requirement, the business combination must be approved by
66 2/3% of the "continuing directors," which consist of (1) directors elected by
shareholders of Wachovia prior to the interested shareholder's acquisition of
more than 10% of the voting securities and (2) any directors recommended to join
the Wachovia board by a majority of the directors mentioned in clause (1). These
approval provisions are less stringent than those contained in the North
Carolina Shareholder Protection Act, which is not applicable to Wachovia (see
"-- Antitakeover Legislation"), but are more stringent than the standard North
Carolina law provisions, which would apply in the absence of the fair price
provisions.
Under the price requirements of the fair price provisions, the price per
share paid in a business combination must be at least equal to the greater of:
(1) the fair market value per share of Wachovia common stock on the
date of the first public announcement of the proposed business combination
or on the date on which the interested shareholder became an interested
shareholder, whichever is higher, multiplied by the ratio of:
(a) the highest per share price paid by the interested shareholder
for any shares of Wachovia common stock acquired by it during the
two-year period immediately prior to the first public announcement date;
to
(b) the fair market value per share of Wachovia common stock on the
first day during such two-year period on which the interested
shareholder acquired any shares of Wachovia common stock; and
(2) the highest per share price paid by such interested shareholder in
acquiring any shares of Wachovia common stock.
In addition, the consideration paid for Wachovia common stock in a business
combination must be either cash or the same form of consideration paid by the
interested shareholder to acquire its shares of Wachovia common stock. Moreover,
the interested shareholder must not:
(a) have, directly or indirectly, acquired, after having become an
interested shareholder, additional shares of newly issued Wachovia capital
stock from Wachovia, other than upon conversion of convertible securities,
a pro rata stock dividend or stock split or pursuant to the fair price
provisions;
(b) have received the benefit, directly or indirectly, of financial
assistance from Wachovia; or
(c) have made any major changes in Wachovia's business or equity
capital structure.
The fair price provisions are designed to discourage attempts to take over
Wachovia in non-negotiated transactions utilizing two-tier pricing tactics,
which typically involve the accumulation of a substantial block of the target
corporation's stock followed by a merger or other reorganization of the acquired
company on terms determined by the purchaser. In these two-step takeover
attempts, the purchaser generally pays cash to acquire a controlling interest in
a company and acquires the remaining equity interest by paying the remaining
shareholders a price lower than that paid to acquire the controlling interest,
often utilizing non-cash consideration.
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Federal and state securities laws and regulations require that disclosure
be made to shareholders of the terms of such a transaction. However, the
financial terms will not necessarily be fair to shareholders and the
shareholders may not be able to effectively prevent consummation of the
transaction. The fair price provisions are intended to address some of the
effects of these gaps in federal and state law and to prevent some of the
potential inequities of two-step takeover attempts by encouraging negotiations
with Wachovia. While the terms of a non-negotiated takeover could be fair to
Wachovia shareholders, negotiated transactions may result in more favorable
terms to Wachovia's shareholders because of factors such as timing of the
transaction, tax effects on the shareholders, and the fact that the nature and
amount of the consideration paid to all shareholders will be negotiated by the
parties at arm's-length rather than dictated by the purchaser.
The fair price provisions are designed to protect those shareholders who
have not tendered or otherwise sold their shares to an interested shareholder in
the initial step of an unwanted takeover attempt. Indeed, they assure that at
least the same price and form of consideration are paid to these shareholders as
were paid in the initial step of the acquisition.
The fair price provisions generally may discourage attempts to obtain
control of Wachovia given the difficulties of complying with their requirements.
As a result, holders of Wachovia common stock may be deprived of an opportunity
to sell their shares at a premium above the market price. In addition, the fair
price provisions would give veto power to the holders of a minority of the
shares of Wachovia common stock with respect to a business combination which is
opposed by more than 33 1/3% of the continuing directors but which a majority of
shareholders may believe to be desirable and beneficial. Moreover, the minimum
price provisions of the fair price provisions could be arbitrary and not
indicative of value although they provide objective pricing criteria in a
business combination not receiving the supermajority approval required of
shareholders or of continuing directors.
Removal of Directors. A director of Wachovia may be removed only for cause
and only by the affirmative vote of the holders of 66 2/3% of the outstanding
voting shares and a majority of the voting shares not held by interested
shareholders.
Amendment of Wachovia Articles. Except in certain specified circumstances,
the provisions of the Wachovia articles of incorporation concerning (1) their
amendment, (2) the duration of the corporation, (3) the authorized capital
stock, (4) the number, classification, election and removal of directors, (5)
the absence of pre-emptive rights for shareholders and (6) the approval of
business combinations may be amended only by the affirmative vote of the holders
of 66 2/3% of the outstanding voting shares and a majority of the outstanding
voting shares not held by interested shareholders.
Antitakeover Legislation. In 1987, the North Carolina General Assembly
enacted The North Carolina Shareholder Protection Act and The North Carolina
Control Share Acquisition Act. Each of these acts contains provisions intended
to prevent, discourage or delay a change in control of North Carolina
corporations electing to be covered by this legislation. Wachovia has elected to
be subject only to the Control Share Acquisition Act. For a summary of the
material provisions of the Control Share Acquisition Act, see "Certain
Differences in the Rights of Wachovia Shareholders and B C Bankshares
Shareholders -- Anti-Takeover Provisions; Restrictions on Certain Business
Contributions."
Control Acquisitions. The federal Change in Bank Control Act of 1978
prohibits a person or group of persons from acquiring "control" of a bank
holding company unless the Federal Reserve Board receives 60 days' prior written
notice of the proposed acquisition and the Federal Reserve Board has not issued
within that time period a notice disapproving the proposed acquisition or
extending for up to another 30 days the period during which such a disapproval
may be issued. An acquisition may be made prior to the expiration of the
disapproval period if the Federal Reserve Board issues written notice of its
intent not to disapprove the action. The Federal Reserve Board presumes that the
acquisition of more than 10% of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act constitutes the acquisition of control. This presumption can, under certain
circumstances, be challenged.
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In addition, federal banking law requires any company to obtain the
approval of the Federal Reserve Board before acquiring 25%, or 5% in the case of
an acquiror that is a bank holding company, or more of the outstanding shares of
Wachovia common stock, or such lesser number of shares that may constitute
control over Wachovia.
Savings and Loan Holding Company Regulations. Wachovia is subject to
additional regulations that restrict acquisitions of control by third parties
since it is a savings and loan holding company. Subject to certain limited
exceptions, control of a savings association or a savings and loan holding
company may only be obtained with the approval or, in the case of an acquisition
of control by an individual, the absence of disapproval, of the Office of Thrift
Supervision after a public comment and application review process. Any company
acquiring control of a savings association becomes a savings and loan holding
company, must register and file periodic reports with the OTS, and is subject to
OTS examination.
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CERTAIN DIFFERENCES IN THE RIGHTS OF WACHOVIA
SHAREHOLDERS AND B C BANKSHARES SHAREHOLDERS
You will automatically become a Wachovia shareholder at the effective time.
Your rights as a Wachovia shareholder will be determined by Wachovia's articles
of incorporation, Wachovia's by-laws and North Carolina law. The following is a
summary of the material differences in the rights of shareholders of Wachovia
and B C Bankshares. This summary is necessarily general and is not a complete
discussion of, and is qualified by, the more detailed provisions of Georgia law,
North Carolina law, B C Bankshares' articles of incorporation, Wachovia's
articles of incorporation and the by-laws of each corporation.
AUTHORIZED CAPITAL
Wachovia. Wachovia is authorized to issue 1,000,000,000 shares of common
stock with par value of $5.00 per share and 50,000,000 shares of Preferred Stock
with par value of $5.00 per share. As of September 30, 1999, 202,742,870 shares
of Wachovia common stock were issued and outstanding and no shares of Wachovia
preferred stock were issued.
B C Bankshares. B C Bankshares is authorized to issue 1,000,000 shares of
common stock with par value of $5.00 per share. As of the record date, 557,254
shares of B C Bankshares common stock were issued and outstanding.
AMENDMENT OF ARTICLES OF INCORPORATION
Wachovia. The affirmative vote of at least 66 2/3% of voting shares of
Wachovia, including a majority of the shares held by a person other than an
interested shareholder, is required under Wachovia's articles of incorporation
to amend or repeal provisions of the articles of incorporation that relate to
(1) the duration of the corporation, (2) the authorized capital stock, (3) the
number, classification, election and removal of directors, (4) preemptive rights
of shareholders, (5) business combinations and (6) amendment of Wachovia's
articles of incorporation.
However, the affirmative vote of the holders of at least a majority of the
voting shares is sufficient to approve any amendment of this kind if (1) there
is no interested shareholder and the amendment is approved by a majority of the
Wachovia board of directors or (2) an interested shareholder exists, but the
amendment is approved by at least 66 2/3% of the continuing directors. For the
definition of an "interested shareholder" and a "continuing director", see
"Description of Wachovia Capital Stock -- Anti-Takeover Provisions."
B C Bankshares. Under Georgia law, the B C Bankshares' board of directors
may amend its articles of incorporation without shareholder action if the
amendment relates to certain procedural matters, as set forth in sec.14-2-1002
of the GBCC. For all other amendments, B C Bankshares' board of directors must
propose amendments to the articles of incorporation for submission to the
shareholders. The amendment must then be submitted to a vote and be approved by
a majority of the shareholders entitled to vote on the amendment.
NOTICE OF MEETINGS OF SHAREHOLDERS
Wachovia. The Wachovia by-laws provide that Wachovia must notify the
shareholders between 10 and 60 days before any annual or special meeting of the
date, time and place of the meeting. Wachovia must briefly describe the purpose
or purposes of a special or substitute annual meeting or any meeting where
required to do so by law.
B C Bankshares. The B C Bankshares by-laws provide that B C Bankshares
must notify the shareholders between 10 and 50 days before any annual or special
meeting of the date, time and place of the meeting, and, for special meetings,
the purpose for which the meeting is called.
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SPECIAL MEETINGS OF SHAREHOLDERS
Wachovia. A special meeting of the shareholders of Wachovia may be called
only by its chief executive officer or by the Wachovia board of directors.
B C Bankshares. A special meeting of the shareholders of B C Bankshares
may be called by the chairman of the board of directors, the president, or at
the request in writing of the holders of not less than 25% of the issued and
outstanding capital stock of the corporation entitled to vote in an election of
directors.
RECORD DATE
Wachovia. The board of directors or the chief executive officer may fix a
record date in order to determine who the shareholders of the corporation are
for purposes of determining such things as the receipt of dividends or voting
rights. This record date must not be more than 70 days before a meeting or
action requiring a determination of shareholders.
B C Bankshares. The board of directors may fix a record date in order to
determine who the shareholders of the corporation are for purposes of
determining such things as the receipt of dividends or voting rights. This
record date must not be more than 70 days before a meeting or action requiring a
determination of shareholders.
NUMBER OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
Wachovia. The number of directors must be between 9 and 25 under
Wachovia's by-laws. The exact number of directors is set by resolution of the
Wachovia board of directors. The Wachovia board of directors must be divided
into three classes to serve staggered three-year terms under Wachovia's by-laws.
Only approximately one-third of the members of the Wachovia board of directors
are elected each year since Wachovia has a classified board; consequently, two
annual meetings are required for Wachovia's shareholders to change a majority of
the members of the Wachovia board of directors.
B C Bankshares. The number of directors must be between 5 and 11 under the
B C Bankshares by-laws. The number of directors may be increased or decreased by
resolution of the board of directors, but no decrease will have the effect of
shortening the term of an incumbent director. The directors must be elected by
plurality vote at the annual meeting of shareholders, and each director elected
holds office until his successor is elected and qualified or until his earlier
resignation, removal from office or death. B C Bankshares does not have a
staggered or classified board of directors. Consequently B C Bankshares'
shareholders may replace the entire of board of directors at a single annual
meeting.
REMOVAL OF DIRECTORS
Wachovia. A director of Wachovia may be removed only for cause and only by
the affirmative vote of the holders of 66 2/3% of the outstanding voting shares,
including a majority of the voting shares not held by an interested shareholder.
B C Bankshares. The B C Bankshares by-laws provide that at any shareholder
meeting with respect to which notice of such purpose has been given, any or all
directors may be removed from office with or without cause by the affirmative
vote of the holders of a majority of the shares entitled to vote at an election
of directors.
SHAREHOLDER PROPOSALS; ADVANCE NOTICE OF DIRECTOR NOMINATIONS
Wachovia. Business conducted at meetings of shareholders is limited to
business that is properly submitted to the meeting under Wachovia's by-laws.
Matters are properly submitted by the board of directors, or by any other holder
of voting securities of the corporation who is entitled to vote at the meeting
and who complies with the notice requirements of applicable law, or those
requirements outlined in Wachovia's articles of incorporation or by-laws. Under
the by-laws, director nominations by the
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Wachovia board must include the chief executive officer and the chairman, if the
chief executive officer is not the chairman and the nominee is not a director or
his or her term as a director is set to expire. Director nominations may also be
made by shareholders. All shareholder proposals must be made in writing and
delivered or mailed to the Secretary of Wachovia between 90 and 120 days before
any meeting of shareholders; however, if less than 100 days' notice of the
meeting is given to shareholders, the notification must be mailed or delivered
no later than the close of business 10 days after notice of the meeting was
mailed.
B C Bankshares. The B C Bankshares by-laws provide that annual meetings
will be held each year for the purpose of electing directors and transacting
such other business as may properly be brought before the meeting. B C
Bankshares' articles of incorporation and by-laws do not contain any specific
provisions relating to the notice and procedural requirements for shareholder
nominations of candidates for director. Consequently, B C Bankshares'
shareholders are subject to fewer restrictions concerning nomination of
candidates for director than Wachovia's shareholders. Special meetings may be
held upon call of the chairman of the board of directors, the president, or at
the request of the holders of 25% of the issued and outstanding capital stock of
the corporation entitled to vote in an election of directors. Any such request
must state the purpose for which the meeting is to be called.
ANTI-TAKEOVER PROVISIONS; RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
Wachovia. Wachovia's articles of incorporation have restrictions which
discourage attempts to acquire control of Wachovia in non-negotiated
transactions through the use of two-tier pricing tactics. The fair price
provisions of the articles of incorporation are described under "Description of
Wachovia Capital Stock -- Anti-Takeover Provisions -- Fair Price Provisions."
The North Carolina Control Share Acquisition Act precludes an acquiror of
the shares of a North Carolina corporation who crosses one of three voting
thresholds (20%, 33 1/3% or 50%) from obtaining voting control of the shares,
under certain circumstances, unless a majority in interest of the disinterested
shareholders of the corporation votes to give voting power to those shares.
The corporation's shareholders, other than holders of control shares, may
cause the corporation to redeem their shares under the North Carolina Control
Share Acquisition Act in the event control shares are accorded voting rights
and, as a consequence, the holders of the control shares have a majority of all
voting power for the election of directors. The right of redemption is subject
to limitations on corporate distributions to shareholders and any contrary
provision in the corporation's articles of incorporation or by-laws adopted by
the shareholders prior to the occurrence of a control share acquisition.
Wachovia's articles of incorporation and by-laws do not limit the ability of
shareholders to cause Wachovia to redeem their shares under the circumstances
described above.
B C Bankshares. The GBCC provides for voting rules and fair price
requirements in connection with business combinations with "interested
shareholders." These requirements are not applicable to any corporation unless
they are specifically incorporated in the by-laws of the corporation. B C
Bankshares has not adopted implementing by-law provisions, and is not subject to
the fair price requirements contained in the GBCC.
LIMITATION ON DIRECTOR LIABILITY; INDEMNIFICATION
Wachovia. Wachovia's articles of incorporation provide that, to the full
extent permitted by law, a director of Wachovia will have no personal liability
to Wachovia or its shareholders for monetary damages for breach of his or her
duty as a director, whether such action is brought by, or on behalf of, Wachovia
or otherwise. North Carolina law generally provides for limitation on directors'
liability. However, no provision limiting director liability shall be effective
with respect to:
- acts or omissions that the director at the time of the breach knew or
believed were clearly in conflict with the best interests of the
corporation;
- any liability for unlawful distributions;
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- any transaction from which the director derived an improper personal
benefit; or
- acts or omissions occurring prior to the date the provisions became
effective.
Wachovia's by-laws provide for indemnification of any liability of
directors, officers, employees or agents of Wachovia or any wholly-owned
subsidiary of Wachovia.
Indemnification payments for liabilities and litigation expenses may be
made only following a determination that the activities of the person to be
indemnified were at the time taken not known or believed by the person to be
indemnified to be clearly in conflict with the best interest of Wachovia. This
determination will be made: (1) by a majority of disinterested directors (if
there are at least two such directors); (2) if there are not two such directors
or if a majority of the disinterested directors so directs, by independent legal
counsel in a written opinion; (3) by a majority of the shareholders; or (4) in
accordance with any reasonable procedures prescribed by the Wachovia board of
directors prior to the assertion of the claim for which indemnification is
sought. If the person to be indemnified is an officer or an employee of
Wachovia, the determination may be made by the chief executive officer or a
designee of the chief executive officer.
B C Bankshares. Similar to Wachovia's articles of incorporation, the B C
Bankshares articles of incorporation provide that B C Bankshares' directors
shall, to the full extent permitted by law, have no personal liability to B C
Bankshares or its shareholders for breach of his or her duties as director with
the exception of the following:
- for any appropriation, in violation of his or her duties, of any business
opportunity of the corporation;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for any liability related to unlawful distributions; or
- for any transaction from which the director derived improper personal
benefit.
As authorized by the GBCC, the B C Bankshares by-laws provide
indemnification for every person who is or was a director or officer of B C
Bankshares or any other corporation in which B C Bankshares has an interest if
he or she served in such a role at the request of B C Bankshares. Such persons
may be indemnified against liability arising from his or her service, whether or
not he or she continues to be such at the time the liability or expense shall
have been incurred, provided (1) such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the corporation, and (2) with respect to a criminal proceeding, such person did
not have reasonable cause to believe that his or her conduct was unlawful.
Each officer or director who has been wholly successful, on the merits or
otherwise, with respect to any claim, action, suit or proceeding as described
above, shall be entitled to mandatory indemnification. Otherwise, any
indemnification determination shall be in the discretion of the corporation and
only if (1) a majority of a quorum of disinterested directors conclude that such
person has met the requirements for indemnification, (2) if no such quorum
exists, independent legal counsel selected by any Judge of the United States
District Court for the Northern District of Georgia, Atlanta Division, delivers
a written opinion that the indemnification requirements have been met, or (3)
the holders of a majority of the shares entitled to vote for the election of
directors determine by affirmative vote that the indemnification requirements
have been met.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
Wachovia. Qualified shareholders have the right to inspect and copy
certain records of Wachovia if their demand is in good faith and for a proper
purpose. The shareholder must give Wachovia at least 5 business days' written
notice of the demand, describing with reasonable particularity the purpose and
the requested records. The records must be directly connected with the
shareholder's purpose. However,
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Wachovia is under no duty to provide any accounting records or any records with
respect to any matter that Wachovia determines in good faith may adversely
affect Wachovia in the conduct of its business or may constitute material
non-public information. Additionally, the rights of inspection and copying are
limited to shareholders who either have been shareholders for at least six
months or hold at least five percent of the outstanding shares of any class of
Wachovia stock.
B C Bankshares. The GBCC provides B C Bankshares' shareholders with
inspection rights substantially similar to those of Wachovia's shareholders, but
does not, however, restrict these rights to shareholders who have been
shareholders for at least six months or who hold at least five percent of the
outstanding shares of a class of stock. The B C Bankshares by-laws and Georgia
law provide that after fixing a record date for a meeting, the corporation must
prepare a list of all shareholders entitled to vote at a shareholders' meeting
and make the list available for inspection by any shareholder, his agent, or his
attorney at the time and place of the meeting.
DISSENTERS' APPRAISAL RIGHTS
Wachovia. North Carolina law generally provides dissenters' rights for
mergers and certain share exchanges that would require shareholder approval,
sales of all or substantially all of the assets, certain amendments to the
articles of incorporation and any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation, by-laws, or a
resolution of the board of directors entitle shareholders to dissent. However,
North Carolina law does not provide dissenters' rights for North Carolina
corporations which have over 2,000 record holders or whose voting stock is
listed on a national securities exchange and therefore holders of Wachovia's
common stock do not have dissenters' rights.
B C Bankshares. Georgia law generally provides for dissenters' rights in
the same circumstances as does North Carolina law. B C Bankshares does not have
2,000 shareholders and its common stock is not listed on a national securities
exchange. Therefore, holders of B C Bankshares common stock do have dissenters'
rights. See "The Merger -- Dissenters' Appraisal Rights."
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COMPARATIVE MARKET PRICES AND DIVIDENDS
WACHOVIA
Wachovia common stock is traded on the NYSE under the symbol "WB." The
following table lists the high and low sale prices for Wachovia common stock for
the indicated periods as reported by the NYSE, and the cash dividends declared
per share of Wachovia common stock.
<TABLE>
<CAPTION>
PRICE RANGE CASH DIVIDENDS
------------- DECLARED PER
HIGH LOW SHARE
---- --- --------------
<S> <C> <C> <C>
1997:
First Quarter...................................... $64 5/8 $54 1/2 $ .40
Second Quarter..................................... 66 7/8 53 1/2 .40
Third Quarter...................................... 72 3/8 58 3/16 .44
Fourth Quarter..................................... 83 15/16 71 1/16 .44
1998:
First Quarter...................................... 85 3/4 72 3/4 .44
Second Quarter..................................... 90 3/16 77 3/8 .44
Third Quarter...................................... 90 15/16 72 7/8 .49
Fourth Quarter..................................... 96 13/16 80 7/8 .49
1999:
First Quarter...................................... 91 79 .49
Second Quarter..................................... 92 5/16 80 9/16 .49
Third Quarter...................................... 85 1/4 75 5/16 .54
Fourth Quarter (through Dec. 22, 1999)............. 88 7/8 65 7/16 .54
</TABLE>
On October 6, 1999, the last trading day before public announcement of the
merger, the closing price per share of Wachovia common stock on the NYSE was
$82.44. On December 22, 1999, the last practical day to obtain share price
information before the date of this proxy statement/prospectus, the closing
price per share of Wachovia common stock on the NYSE was $67 9/16. Past price
performance is not necessarily indicative of likely future price performance.
You should obtain current market quotations for shares of Wachovia common stock.
The holders of Wachovia common stock receive dividends if and when declared
by the Wachovia board out of funds legally available therefor. Wachovia expects
to continue paying quarterly cash dividends on Wachovia common stock. However,
it cannot be certain that its 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 Wachovia board's consideration of other relevant factors.
B C BANKSHARES
B C Bankshares common stock is not publicly traded and private trades are
infrequent. The last trade of which B C Bankshares is aware occurred on
September 10, 1999, at $68.00 per share. The payment of dividends by B C
Bankshares is subject to various statutory regulatory and other restrictions.
See "Additional Information About B C Bankshares -- Supervision and Regulation"
on page 46 and the Notes
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to the Consolidated Financial Statements of B C Bankshares. The following table
sets forth the cash dividends declared per share of B C Bankshares common stock.
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED PER
SHARE
--------------
<S> <C>
1997:
First Quarter............................................. $ .65
Second Quarter............................................ .65
Third Quarter............................................. .75
Fourth Quarter............................................ 1.75
1998:
First Quarter............................................. .85
Second Quarter............................................ .85
Third Quarter............................................. .85
Fourth Quarter............................................ 1.85
1999:
First Quarter............................................. 1.00
Second Quarter............................................ 1.00
Third Quarter............................................. 1.00
Fourth Quarter............................................ $2.00
</TABLE>
ADDITIONAL INFORMATION ABOUT B C BANKSHARES
BUSINESS DESCRIPTION AND BACKGROUND
Business
B C Bankshares, Inc. is the parent company of Bank of Canton, which was
founded in 1892 and was the first bank established in Cherokee County, Georgia.
Bank of Canton has grown in recent years as a result of the continuing expansion
of the metropolitan Atlanta area. Cherokee County is one of 17 counties
comprising metropolitan Atlanta, a $45 billion deposit market with a population
of more than 3.5 million. With $400 million in assets, as of September 30, 1999,
Bank of Canton is the largest independent bank in Cherokee County. Bank of
Canton operates eight full service offices, which together had 28% of Cherokee
County's $1.1 billion in deposits, as of June 30, 1998. Bank of Canton also
operates seven ATMs in Cherokee County, and is in the process of opening a new
branch in Cobb County, Georgia.
Bank of Canton's local customer base comprises small-to-medium commercial
firms and individual retail customers. Management has intentionally focused on
loans and deposits in its primary service area, Cherokee County, although its
service area has also been extended into North Fulton, North Cobb, Forsyth,
Bartow and Pickens Counties, which also offer attractive growth opportunities.
As of September 30, 1999, the $262.1 million loan portfolio included loans
for business, real estate, personal and household purposes, automobile loans,
lines of credit, single family construction loans, and permanent mortgage loans.
Bank of Canton's $357.6 million of deposits as of September 30, 1999 comprised
checking accounts, NOW accounts, savings accounts, certificates of deposit, and
individual retirement accounts.
Competition
Bank of Canton encounters vigorous competition for the provision of
financial services in its market areas from a number of sources, including
commercial banks, thrift institutions, and other financial intermediaries that
offer services in Cherokee County and North Georgia, where most of Bank of
Canton's customers reside, and elsewhere. Interstate banking laws and other
changes in state laws to permit statewide branching have resulted in increased
competition. Bank of Canton also competes for funds with
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numerous other financial intermediaries that operate locally, regionally and
nationally, including brokerage firms, consumer finance companies, commercial
finance companies, credit unions, money market funds, and federal, state, and
municipal issuers of short-term obligations. The Internet has also increased
competition for deposits and loans by offering customers a convenient and often
highly competitive method of investing funds and obtaining credit. Internet
operations also facilitate comparison shopping and may cause local institutions
to pay more interest on deposits and charge lower rates on loans.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following discussion summarizes certain statutes,
rules and regulations affecting B C Bankshares and Bank of Canton. This summary
is qualified in its entirety by reference to the statutory and regulatory
provisions referred to below and is not intended to be an exhaustive description
of the statutes or regulations applicable to B C Bankshares' and Bank of
Canton's businesses. Any change in applicable law or regulations may have a
material effect on the business of B C Bankshares and Bank of Canton. The
supervision, regulation and examination of Bank of Canton are intended primarily
for the protection of depositors rather than holders of B C Bankshares common
stock.
Bank Holding Company Regulation
As a bank holding company registered with the Federal Reserve under the
Bank Holding Company Act of 1956, and with the Georgia Department of Banking and
Finance under the Georgia Financial Institutions Code, B C Bankshares is subject
to supervision, examination and reporting by the Federal Reserve and the Georgia
Department.
B C Bankshares is required to file with the Federal Reserve its periodic
reports and such additional information as the Federal Reserve may require. The
Federal Reserve examines B C Bankshares and may examine its subsidiaries. The
Georgia Department also may examine B C Bankshares.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any bank, or for a merger or consolidation of a bank holding
company with another bank holding company. A bank holding company may acquire
direct or indirect ownership or control of voting shares of any company that is
engaged directly or indirectly in banking or managing or controlling banks or
performing services for its authorized subsidiaries. A bank holding company may,
however, engage in or acquire an interest in a company that engages in
activities which the Federal Reserve has determined by regulation or order to be
so closely related to banking as to be a proper incident thereto.
The activities permissible to bank holding companies and their affiliates
were substantially expanded by the Gramm-Leach-Bliley Act, which the President
signed on November 12, 1999. Gramm-Leach-Bliley repeals the anti-affiliation
provisions of the Glass-Steagall Act to permit the common ownership of
commercial banks, investment banks and insurance companies. The BHC Act was
amended to permit a financial holding company to engage in any activity and
acquire and retain any company that the Federal Reserve determines to be (a)
financial in nature or incidental to such financial activity or (b)
complementary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally. The Federal Reserve must consult with the Secretary of the Treasury
in determining whether an activity is financial in nature or incidental to a
financial activity. Holding companies may continue to own companies conducting
activities which had been approved by Federal Reserve order or regulation on the
day before Gramm-Leach-Bliley was enacted.
B C Bankshares is a legal entity separate and distinct from Bank of Canton.
Various legal limitations restrict Bank of Canton from lending or otherwise
supplying funds to B C Bankshares. B C Bankshares and Bank of Canton are subject
to Section 23A of the Federal Reserve Act. Section 23A defines "covered
transactions," which include extensions of credit, and limits a bank's covered
transactions with any affiliate to 10% of the bank's capital and surplus. All
covered and exempt transactions between a bank and its
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<PAGE> 54
affiliates must be on terms and conditions consistent with safe and sound
banking practices, and banks and their subsidiaries are prohibited from
purchasing low-quality assets from Bank of Canton's affiliates. Finally, Section
23A requires that all of a bank's extensions of credit to an affiliate be
appropriately secured by acceptable collateral, generally United States
government or agency securities. B C Bankshares and Bank of Canton also are
subject to Section 23B of the Federal Reserve Act, which generally limits
covered and other transactions among affiliates to terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to Bank of Canton or its subsidiary as prevailing at the time
for transactions with unaffiliated companies.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not otherwise be warranted. In addition, under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, where a bank holding company has
more than one bank or thrift subsidiary, each of the holding company's
subsidiary depository institutions are responsible for any losses to the Federal
Deposit Insurance Corporation ("FDIC") as a result of an affiliated depository
institution's failure. As a result, a bank holding company may be required to
loan money to its subsidiaries in the form of capital notes or other instruments
which qualify as capital under regulatory rules. However, any loans from the
holding company to such subsidiary banks likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of its
bank subsidiaries.
B C Bankshares is also regulated by the Georgia Department. The Financial
Institutions Code requires annual registration with the Georgia Department by
all Georgia bank holding companies and approval of banking and non-banking
activities. Such registration includes information with respect to the financial
condition, operations and management of intercompany relationships of Bank of
Canton holding company and its subsidiaries and related matters. The Georgia
Department may also require such other information as is necessary to keep
itself informed as to whether the provisions of Georgia law and the regulations
and orders issued thereunder by the Georgia Department have been complied with.
Bank Regulation
As a Georgia bank whose deposits are insured by the FDIC's Bank Insurance
Fund maintained by the FDIC, Bank of Canton is subject to regulation and
examination by the Georgia Department and by its primary federal regulator, the
FDIC. The Georgia Department and the FDIC regulate and monitor all of Bank of
Canton's operations, including reserves, loans, mortgages, payments of
dividends, interest rates and the establishment of branches. Interest and
certain other charges collected or contracted for by Bank of Canton are subject
to state usury laws and certain federal laws concerning interest rates.
Various statutes and contracts limit the ability of Bank of Canton to pay
dividends, extend credit or otherwise supply funds to B C Bankshares and its
subsidiaries. Dividends from Bank of Canton are expected to constitute B C
Bankshares' major source of funds for any cash dividends to be paid on B C
Bankshares common stock. Under Georgia law, the Georgia Department's approval of
a dividend by Bank of Canton is not required if each of the following conditions
is met: (1) total classified assets at the most recent examination of Bank of
Canton do not exceed 80% of equity capital in the most recent bank examination;
(2) the aggregate amount of dividends to be declared in the calendar year does
not exceed 50% of Bank of Canton's net profits, after taxes but before
dividends, for the previous calendar year; and (3) the ratio of the bank's
equity capital to its adjusted total assets is not less than 6%.
The FDIC has the general authority to limit the dividends paid by insured
banks if such payment may be deemed to constitute an unsafe and unsound
practice. The FDIC has indicated that paying dividends that deplete a state
non-member bank's capital base to an inadequate level would be an unsound and
unsafe banking practice. Prior FDIC approval is required for any distributions
that would cause a bank to be less than adequately capitalized. The FDIC
regularly examines Bank of Canton and has the authority to approve or disapprove
the establishment of branches, mergers, consolidations and other similar
corporate actions. Furthermore, the FDIC has the right to prevent or remedy
unsafe or unsound banking practices or other violations of law.
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<PAGE> 55
The Federal Reserve has a policy that states that a bank or a bank holding
company generally should not pay cash dividends not fully covered by net income
available to common shareholders for the past year and the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality and overall financial condition.
Statewide branching has been permissible in Georgia since June 30, 1998.
Since July 1, 1997 Georgia law has also permitted bank holding companies to
enter Georgia by acquiring banks in Georgia that are at least five years old and
banks to merge across state lines.
Capital Requirements
The Federal Reserve and the FDIC have adopted risk-based capital guidelines
for bank holding companies and state non-member banks, respectively. The minimum
ratio of capital to risk-weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital must consist of Tier 1 Capital, which includes common stock and related
surplus, retained earnings and a limited amount of qualifying preferred stock,
less goodwill. The remainder, or Tier 2 Capital, may consist of allowance for
loan and lease losses (up to 1.25% of risk-weighted assets), non-qualifying
preferred stock, qualifying subordinated, perpetual, and/or mandatory
convertible debt, term subordinated debt and intermediate-term preferred stock
and up to 45% pretax unrealized holding gains on available-for-sale equity
securities with readily determinable market values that are prudently valued,
and a limited amount of any loan loss allowance. The sum of Tier 1 Capital and
Tier 2 Capital equals Total Capital.
In addition, the federal agencies have established minimum leverage ratio
guidelines for bank holding companies, national banks, and state member banks,
which provide for a minimum leverage ratio of Tier 1 Capital to adjusted average
quarterly assets ("leverage ratio") equal to 3%, plus an additional cushion of
1.0% to 2.0%, if the institution has less than the highest regulatory rating.
The guidelines also provide that institutions 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. Higher capital may be required in individual cases,
depending upon a bank holding company's risk profile. All bank holding companies
and banks are expected to hold capital commensurate with the level and nature of
their risks, including the volume and severity of their problem loans. Lastly,
the Federal Reserve's guidelines indicate that the Federal Reserve will continue
to consider a Tangible Tier 1 Leverage Ratio (deducting all intangibles) in
evaluating proposals for expansion or new activities. The Federal Reserve and
the FDIC have not advised B C Bankshares or Bank of Canton of any specific
minimum leverage ratio or Tangible Tier 1 Leverage Ratio applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of l992
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository institution's
capital tier will depend upon how its capital levels compare to various relevant
capital measures and certain other factors, as established by regulation.
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital ratio, Tier 1 Capital ratio, and the leverage
ratio. Under the regulations, a state non-member bank will be (1) "well
capitalized" if it has a Total Capital ratio of 10% or greater, a Tier 1 Capital
ratio of 6% or greater, a leverage ratio of 5% or greater, and is not subject to
any written agreement, order, capital directive, or prompt corrective action
directive by a federal bank regulatory agency to meet and maintain a specific
capital level for any capital measure, (2) "adequately capitalized" if it has a
Total Capital ratio of 8% or greater, a Tier 1 Capital ratio of 4% or greater,
or a leverage ratio of 4% or greater (3% in certain circumstances) and is not
well capitalized, (3) "undercapitalized" if it has a Total Capital ratio of less
than 8%, a Tier 1 Capital ratio of less than 4% (3% in certain circumstances),
(4) "significantly undercapitalized" if it has Total Capital of
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less than 6%, or a Tier 1 Capital Ratio of less than 3%, or a leverage ratio of
3% or less, or (5) "critically undercapitalized" if its tangible equity to total
assets is 2% or less.
As of September 30, 1999, B C Bankshares had Tier 1 Capital and total
capital of approximately 14.18% and 15.36% of risk-weighted assets, and Bank of
Canton had Tier 1 Capital and total capital of approximately 14.08% and 15.25%
of risk-weighted assets. As of September 30, 1999, B C Bankshares had a leverage
ratio of Tier 1 Capital to total average assets of approximately 9.98% and Bank
of Canton had a leverage ratio of Tier 1 Capital to total average assets of
approximately 9.91%.
The Georgia Department also expects bank holding companies and banks to
maintain minimum levels of capital of 3% and 5.5%, respectively. If the Georgia
Department discovers high amounts of risk or significant non-banking activities,
the Georgia Department may require higher capital ratios.
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the federal
regulatory agencies deem appropriate. These standards have not had any material
effect on B C Bankshares and Bank of Canton.
FDICIA also contains a variety of other provisions that may affect the
operations of B C Bankshares and Bank of Canton, including new reporting
requirements, regulatory standards for estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days' prior
notice to customers and regulatory authorities before closing any branch, and a
prohibition on the acceptance or renewal of brokered deposits by depository
institutions that are not well capitalized or are adequately capitalized and
have not received a waiver from the FDIC. Under regulations relating to brokered
deposits, Bank of Canton is well capitalized and not restricted.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan for approval.
For a capital restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository institution's total assets at
the time it became undercapitalized and the amount necessary to bring the
institution into compliance with applicable capital standards. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized. If the controlling holding company fails to
fulfill its obligations under FDICIA and files (or has filed against it) a
petition under the federal Bankruptcy Code, the claim would be entitled to a
priority in such bankruptcy proceeding over third-party creditors of Bank of
Canton holding company.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDIC Insurance Assessments
Bank of Canton is subject to FDIC deposit insurance assessments. Bank of
Canton's deposits are primarily insured by BIF. The FDIC utilizes a risk-based
deposit insurance premium scheme to determine the assessment rates for
BIF-insured depository institutions. Each financial institution is assigned to
one of three capital groups -- "well capitalized," "adequately capitalized" or
"undercapitalized" -- and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the
49
<PAGE> 57
institution's primary federal and, if applicable, state regulators and other
information relevant to the institution's financial condition and the risk posed
to the applicable insurance fund. The actual assessment rate applicable to a
particular institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC. Bank of Canton paid
$37,532 in BIF deposit premiums for the year ending December 31, 1999.
Community Reinvestment Act
B C Bankshares and Bank of Canton are subject to the provisions of the
Community Reinvestment Act of 1977, as amended ("CRA"), and the federal banking
agencies' regulations thereunder. Under the CRA, all banks and thrifts have a
continuing and affirmative obligation, consistent with its 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 primary 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:
(1) charter a national bank; (2) obtain deposit insurance coverage for a newly
chartered institution; (3) establish a new branch office that accepts deposits;
(4) relocate an office; or (5) 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 the most
recent CRA examination in April 1999 Bank of Canton received an "outstanding"
CRA rating.
Current CRA regulations rate institutions based on their actual performance
in meeting community credit needs. CRA performance is evaluated by the FDIC,
Bank of Canton's primary federal regulator, using a lending test, an investment
test, and a service test. The FDIC also will consider (a) demographic data about
the community; (b) the institution's capacity and constraints; (c) the
institution's product offerings and business strategy; and (d) data on the prior
performance of the institution and similarly situated lenders. The lending test,
the most important of the three tests for institutions other than wholesale and
limited purpose (e.g., credit card) banks, will evaluate an institution's
lending activities as measured by its home mortgage loans, small business and
farm loans, community development loans, and, at the option of the institution,
its consumer loans.
The CRA regulations provide that an institution will receive a CRA rating
for each test of either "outstanding," "high satisfactory," "low satisfactory,"
"needs to improve," or "substantial noncompliance." An institution will receive
a certain number of points for its rating on each test, and the points are
combined to produce an overall composite rating of either "outstanding,"
"satisfactory," "needs to improve," or "substantial noncompliance." Under the
agencies' rating guidelines, an institution that receives an "outstanding"
rating on the lending test will receive an overall rating of at least
"satisfactory," and no institution can receive an overall rating of
"satisfactory" unless it receives a rating of at least "low satisfactory" on its
lending test. In addition, evidence of discriminatory or other illegal credit
practices would adversely affect an institution's overall rating. Under the new
regulations, an institution's CRA rating would continue to be taken into account
by its primary federal regulator in considering various types of applications.
The recently enacted Gramm-Leach-Bliley Act makes various changes to the
CRA. Among other changes, CRA agreements with private parties must be disclosed
and annual CRA reports must be made to a bank's primary federal regulator. A
bank holding company will not be permitted to become a financial holding company
and no new activities authorized under this Act may be commenced by a holding
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<PAGE> 58
company or by a bank financial subsidiary if any of its bank subsidiaries
received less than a "satisfactory" CRA rating in its latest CRA examination.
Legislative and Regulatory Changes
On November 12, 1999, the President signed the Gramm-Leach-Bliley Act into
law. The Act:
- allows bank holding companies meeting management, capital and CRA
standards to engage in a substantially broader range of nonbanking
activities than currently is permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies;
- allows insurers and other financial services companies to acquire banks;
- removes various restrictions that currently apply to bank holding company
ownership of securities firms and mutual fund advisory companies; and
- establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
This part of the Act will become effective on March 11, 2000.
The Act also modifies current law related to financial privacy and
community reinvestment. The new financial privacy provisions will generally
prohibit financial institutions, including us, from disclosing nonpublic
personal financial information to third parties unless customers have the
opportunity to "opt out" of the disclosure.
Fiscal and Monetary Policy
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and the interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of B C Bankshares and Bank of Canton will be subject to
the influence of economic conditions generally, both domestic and foreign, and
also to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and timing
of any changes in such policies and their effect on B C Bankshares and Bank of
Canton cannot be predicted.
51
<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
B C BANKSHARES
The following discussion and analysis is intended to provide an
understanding of the significant factors that influenced B C Bankshares'
financial condition at December 31, 1998 and 1997 and results of operations for
the three-year period ended December 31, 1998 and for the three- and nine-month
periods ended September 30, 1999 compared to three- and nine-month periods ended
September 30, 1998. The purpose of this discussion is to focus on information
about B C Bankshares' financial condition and results of operations which are
not otherwise apparent from the audited consolidated financial statements. You
should read this information in conjunction with the information included under
"Summary -- Selected Financial Data of B C Bankshares" and B C Bankshares'
audited financial statements and related notes commencing on page F-2.
FORWARD-LOOKING STATEMENTS
The following discussion contains certain forward-looking statements which
are based on certain assumptions and describe future plans, strategies, and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the federal government, including
policies of the Treasury Department and the Federal Reserve Board, the quality
or composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area,
and accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND RESULTS
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
The following is management's discussion and analysis of certain
significant factors which have affected B C Bankshares' financial position and
operating results for the three- and nine-month periods ended September 30, 1999
and 1998.
FINANCIAL CONDITION
Total assets have increased by 9.8% from $364.1 million to $400.0 million
for the nine months ended September 30, 1999. The increase in total assets in
1999 exceeds the 8.5% growth for the same periods in 1998 versus 1997. The
growth in both years was funded primarily by increases in total deposits of
$32.8 million and $23.3 million, respectively. The increase in total assets for
the nine months ended September 30, 1999 consisted primarily of an increase of
$43.1 million in gross loans. The loan to deposit ratio at September 30, 1999
was 73% compared to 67% at December 31, 1998.
Total equity increased $2.0 million, or 5.6% during the nine months ended
September 30, 1999. The net increase consists of net income for the period of
$4.9 million less dividends of $1.7 million and unrealized losses recognized on
securities available-for-sale totaling $1.2 million. The decrease in the value
of the securities portfolio reflects increases in interest rates in the second
half of 1999 and related decrease in fixed income prices.
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<PAGE> 60
LIQUIDITY
At September 30, 1999, the Bank's liquidity was more than adequate in
relation to internal target ratios. Liquidity is measured by the ratio of net
cash, Federal funds sold and securities to net deposits and short-term
liabilities. The Company has lines of credit available to meet any unforeseen
liquidity needs.
REGULATORY CAPITAL REQUIREMENTS
Banking regulations require the Company and Bank of Canton to maintain
minimum capital levels in relation to assets. At September 30, 1999, the
Company's capital ratios were considered adequate based on regulatory minimum
capital requirements. The minimum capital requirements and the actual capital
ratios for the Company at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
REQUIREMENT B C BANKSHARES BANK OF CANTON
----------- -------------- --------------
<S> <C> <C> <C>
Tier 1 capital ratio...................... 4.00% 14.18% 14.08%
Total capital ratio....................... 8.00 15.36 15.25
Tier 1 leverage ratio..................... 3.00 - 5.00 9.98 9.91
</TABLE>
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased by $626,000, or 14.7% and $1,687,000, or
13.9% for the three and nine month periods ended September 30, 1999,
respectively, compared to the same periods in 1998. These increases in net
interest income are attributable to an increase in earning assets of $44.3
million, or 13.7%, as compared to September 30, 1998. During this same period,
total deposits increased by $49.0 million, of which $21 million of the increase
was in noninterest-bearing demand deposits, interest-bearing demand deposits,
and savings accounts. The increase in net interest income is based on the spread
between rates earned on interest earning assets and rates paid on interest
bearing liabilities.
The net interest margin was 5.28% and 5.09% at September 30, 1999 and
September 30, 1998, respectively.
Provision for Loan Losses
The provision for loan losses is based on management's evaluation of the
economic environment, the history of charged off loans and recoveries, size and
composition of the loan portfolio, nonperforming and past due loans, and other
aspects of the loan portfolio. Management reviews the allowance for loan loss on
a quarterly basis and makes provisions as necessary. A provision of $368,000 was
made during the nine month period ending September 30, 1999 based upon this
evaluation process. The allowance for loan loss as a percentage of total loans
was 1.24% at September 30, 1999 compared to 1.37% at December 31, 1998. The
decrease in the allowance as a percentage of total loans is primarily the result
of the $43 million increase in loans for the nine month period. Management
believes the allowance for loan loss at September 30, 1999 is adequate to meet
any potential losses in the loan portfolio.
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<PAGE> 61
At September 30, 1999 and 1998, nonaccrual, past due, and restructured
loans were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total nonaccruing loans................................ $1,132 $3,225
Loans contractually past due ninety days or more as to
interest or principal payments and still accruing...... 140 65
Loans, the terms of which have been renegotiated to
provide a reduction or deferral of interest or
principal because of deterioration in the financial
position of the borrower............................. -- --
Loans now current about which there are serious doubts
as to the ability of the borrower to comply with
present loan repayment terms......................... -- --
</TABLE>
Nonaccrual loans have decreased by $1.4 million, or 121% since December 31,
1998 while past due loans greater than 90 days and still accruing have increased
by $133,000, or 133%. As shown in the following table, net charge-offs increased
by $128,000 for the nine months ended September 30, 1999 as compared to 1998.
The increase in charge-offs includes previously reported nonaccrual loans. Net
charge-offs as a percentage of average loans outstanding were .05% for the nine
months ended September 30, 1999 compared to net recoveries as a percentage of
average loans outstanding of .01% for the same period in 1998.
Information regarding the allowance for loan loss data through September
30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average amount of loans outstanding......................... $240,077 $193,374
-------- --------
Balance of allowance for loan losses at beginning of
period...................................................... $ 3,000 $ 2,700
-------- --------
Loans charged off
Commercial and financial.................................. (125) (49)
Real estate -- mortgage................................... -- (25)
Real estate -- construction............................... (11) --
Installment............................................... (93) (105)
-------- --------
Loans recovered (229) (179)
-------- --------
Commercial and financial.................................. 38 3
Real estate -- mortgage................................... 20 114
Real estate -- construction............................... 10 4
Installment............................................... 49 74
-------- --------
117 195
-------- --------
Net (charge-offs) recoveries................................ (112) 16
-------- --------
Additions to allowance charged to operating expense during
period.................................................... 368 552
-------- --------
Balance of allowance for loan losses at end of period....... 3,256 3,268
-------- --------
Ratio of net loan (charge-offs) recoveries during the period
to average loans outstanding.............................. (.05)% .01%
======== ========
</TABLE>
OTHER INCOME. Other income increased by $95,000 and $374,000 for the three
and nine months ended September 30, 1999, respectively, compared to the same
periods in 1998. The increase in service charges on deposit accounts accounted
for $40,000 and $93,000 of the total increase for the three and nine
54
<PAGE> 62
month periods, respectively. For the nine month period ended September 30, 1999,
the Company recognized $139,000 of increases in cash surrender values of life
insurance policies related to deferred compensation plans and $166,000 state tax
adjustment reversal. The state tax adjustment was recorded in prior years in
connection with the Georgia Department of Revenue's initial results of an
examination. The final results of the examination allowed the reversal of the
initial assessment.
Other Expenses
Other expenses increased by $702,000, or 9.3% for the nine months ended
September 30, 1999, compared to the same period in 1998. The most significant
increases in 1999 were an increase of $523,000 in salaries and employee benefits
and an increase of $112,000 in other operating expenses. The increase in
salaries and employee benefits represents normal increases in salaries and the
staffing of an additional branch opened during 1998. The increase in other
operating expenses was not attributable to any one individual item. At September
30, 1999, the number of full-time equivalent employees was 191, compared to 177
at September 30, 1998.
The increase in other operating expenses is not attributable to any one
item. However, the increases are partially attributable to the overall increase
in the number of loan and deposit accounts.
Net Income
Net income increased by $350,000 and $958,000, respectively, for the three
and nine month periods ended September 30, 1999, or approximately 24% over the
corresponding periods in 1998. The increase in net income can be attributed to
continued increases in interest-earning assets, improvement in the loan
portfolio, and the increase in other income discussed above.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes, and
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest-earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repriced assets and
liabilities is referred to as GAP management. It is the policy of the Company to
maintain GAP ratio in the one-year time horizon of .60 to 1.20. GAP management
alone is not enough to properly manage interest rate sensitivity, because
interest rates do not respond at the same speed or at the same level to market
rate changes. For example, savings and money market rates are more stable than
loans tied to a "Prime" rate and thus respond with less volatility to a market
rate change. The Company uses simulation techniques to monitor changes in net
interest income due to changes in market rates. The model of rising, falling,
and stable interest rate scenarios allows management to monitor and adjust
interest rate sensitivity to minimize the impact of market rate swings. The
analysis of impact on net interest margins as well as market value of equity
over a 12-month period is subjected to 100, 200, 300 and 400 basis point
increases and decreases in rate. The September model reflects an increase of
2.1% in net interest income and a 5.5% decrease in market value equity for a 100
basis point increase in rates. The same model shows a 2.6% decrease in net
interest income and a 4.4% increase in market value equity for a 100 basis point
decrease in rates. As of September 30, 1999 the market value of equity ratio was
9.1% as compared to an established minimum of 7.0%. A 100 basis point increase
and decrease would result in a market value equity ratio of 8.6% and 9.5%,
respectively. As of
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<PAGE> 63
September 30, 1999 the fully tax equivalent ("FTE") net interest margin was
5.43%. A 100 basis point increase and decrease would result in a FTE net
interest margin of 5.54% and 5.29%, respectively.
CAPABILITY OF THE COMPANY'S DATA PROCESSING SOFTWARE TO ACCOMMODATE THE YEAR
2000
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern among industry experts that commencing on January 1, 2000, computers
will be unable to "read" the new year and there may be widespread computer
malfunctions. Management has assessed the electronic systems, programs,
applications, and other electronic components used in the operations of the
Company and believes the hardware and software have been programmed to be able
to accurately recognize the year 2000, and that significant additional costs
will not be incurred in connection with the year 2000 issue, although there can
be no assurances in this regard.
The Situation
As the end of this century draws near, there is worldwide concern that year
2000 technology problems may wreak havoc on global economies. No country,
government, business or person is immune from the POTENTIAL effects of year 2000
problems. The year 2000 problem arose because many existing computer systems and
software programs use a two-digit year field. Because of this, some computers
will not properly recognize the turn of the century. A computer with a two-digit
year field may recognize the year 2000 as 1900. If not corrected, many computer
applications could fail or miscalculate data creating erroneous results.
For a bank, year 2000 problems could be devastating if loan or deposit
interest accruals are not calculated properly. A year 2000 caused system crash
could result in a disruption of business which in turn could cause the Company
to lose a significant portion of its customer base. Either of which could result
in material adverse consequences for the Company.
To address the year 2000 problems, the Company formed a "Year 2000 Task
Force" made up of key employees. This Task Force has been charged with the
responsibility of assessing the problem, overseeing corrective action, as well
as testing the year 2000 readiness of all equipment, software, and applications
after upgrades have been made. The Task Force updates management on a regular
basis, and management then reports to the board of directors.
Readiness
Critical systems, hardware, and software have received priority attention.
As of September 30, 1999, all critical systems have been upgraded or replaced
and the related software has been upgraded to meet year 2000 standards and are
presently in the "testing phase" to ensure proper functioning in a year 2000
environment. These critical systems include our core bank processing hardware
and software, Fedline communication system to the Federal Reserve Bank, and our
automated new accounts and loan document preparation software as well as the
network fileserver. The fileserver and several critical station personal
computers have been upgraded or replaced with year 2000 compliant hardware and
software to bring this area up to year 2000 standards. Several other software
systems have been upgraded to be year 2000 compliant and are currently in the
testing phase including accounts payable software, stock accounting software,
and fixed asset software.
Since the Company is heavily reliant on outside vendors for many services
such as electricity, phone service, water, gas, ATM processing, bond accounting,
and bank related forms, we have developed a year 2000 questionnaire to help us
determine a vendor's state of year 2000 readiness. Approximately 95% of these
questionnaires have been obtained and evaluated.
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<PAGE> 64
Contingency Plans
Due to the critical nature of our core processing system and our automated
platform for new accounts and loan document preparation, we have developed
contingency plans that will be put into operation should any of these systems
not pass year 2000 readiness testing.
Cost
After our assessment phase to determine the extent of our year 2000
problem, our board of directors approved a budget in the amount of $146,400 to
address the year 2000 issue. In order to ensure adequate funds are provided to
resolve year 2000 issues, including those that may not be presently known, our
year 2000 budget is subject to continuous review and amendment. Management does
not expect the cost of remediation to vary significantly from our present
budget, although there can be no assurances in this regard.
As of September 30, 1999, we have incurred $154,000 in year 2000 expenses.
This expense breaks down as follows: $125,000 for hardware, software and for
assessment and testing, $11,000 for currency storage and delivery service,
$7,000 for credit line fee, and $10,000 on customer awareness and education.
Other Concerns
Another area of year 2000 concern for the Company is customer awareness and
preparedness. In particular, loan customers who are not year 2000 compliant
could experience business interruptions which could affect their ability to
repay debts owed to the Company resulting in adverse Company performance. The
customer awareness and education expenses have been incurred in an effort to
insure customers are aware of the year 2000 problem and understand the potential
impact on their business. Loan customers considered to have year 2000 exposure
are being required to complete a questionnaire in order to assess their year
2000 readiness and the Company's exposure.
FINANCIAL CONDITION AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1997 AND RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET INCOME
1998 Compared to 1997
For the year ended December 31, 1998, the Company recorded net income of
$5,817,000 or $10.41 per common share on a basic and diluted basis. The decrease
in net income compared to 1997 was $55,000, or approximately 1%. The decrease in
net income in 1998, as compared with 1997, was primarily because of increases in
other expenses which rose 18.4% for the year combined with $82,000 of interest
income related to a state tax refund included in net income for the year ended
December 31, 1997. During 1998, the net interest spread and net interest margin
decreased to 4.15% and 5.15%, respectively.
1997 Compared to 1996
Net income for the year ended December 31, 1997 was $5,872,000, or $10.45
per share compared to $5,032,000, or $8.94 per share in 1996, an increase in net
income of $840,000, or 16.7%. The increase in 1997 is primarily attributable to
the increase in interest earning assets, with only a moderate increase in other
expenses.
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<PAGE> 65
NET INTEREST INCOME
Average Balances, Interest Income, and Interest Expense
The following table contains condensed average balance sheets for the years
indicated. In addition, the amount of the Company's interest income and interest
expense for each category of interest-earning assets and interest-bearing
liabilities and the related average interest rates, net interest spread and net
yield on average interest earning assets are included.
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Taxable investment
securities.............. $ 93,601 $ 6,020 6.43% $ 85,586 $ 5,593 6.53% $ 81,734 $ 5,081 6.22%
Nontaxable investment
securities(4)......... 14,496 651 4.49% 13,589 677 4.98% 15,259 875 5.73%
Interest bearing
deposits in banks..... 55 3 5.45% 44 3 6.82% 54 3 5.56%
Federal funds sold...... 16,139 890 5.51% 12,798 725 5.66% 10,071 538 5.34%
Loans(3)................ 197,641 21,083 10.67% 182,565 19,711 10.80% 169,707 18,410 10.85%
Allowance for loan
losses................ (3,016) (2,493) (2,154)
Other assets............ 23,985 20,550 19,234
-------- ------- -------- ------- -------- -------
Total................... 342,901 28,647 312,639 26,709 293,905 24,907
======== ======= ======== ======= ======== =======
Total interest-earning
assets................ $321,932 8.90% $294,582 9.07% $276,825 9.00%
======== ======== ========
Interest Bearing
Liabilities:
Noninterest-bearing
demand................ $ 50,564 $ 43,299 $ 38,242
Interest bearing demand
and savings........... 94,784 2,838 2.99% 84,240 2,612 3.10% 79,338 2,465 3.11%
Time.................... 159,655 9,237 5.79% 151,968 8,822 5.81% 146,040 8,657 5.93%
-------- ------- -------- ------- -------- -------
Total deposits........ 305,003 12,075 279,507 11,434 263,620 11,122
Other liabilities....... 3,333 2,050 2,698
Shareholders equity..... 34,565 31,082 27,587
-------- ------- -------- ------- -------- -------
Total................... $342,901 $12,075 $312,639 $11,434 $293,905 $11,122
======== ======= ======== ======= ======== =======
Total interest-bearing
liabilities........... $254,439 4.75% $236,208 4.84% $225,378 4.93%
======== ======== ========
Net interest income..... $16,572 $15,275 $13,785
Net interest
spread(1)............. 4.15% 4.23% 4.07%
Net interest
margin(2)............. 5.15% 5.19% 4.98%
</TABLE>
- ---------------
(1) Interest rate spread is the weighted average yield on interest earning
assets minus average rate on interest bearing liabilities.
(2) Net interest margin is net interest income divided by average interest
earning assets.
(3) Interest income from loans includes total fee income of approximately
$499,000, $455,000, and $468,000 for the years ended December 31, 1998,
1997, and 1996, respectively. Includes average balances of nonaccrual loans.
(4) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
(5) Average balances are computed based on month end balances.
58
<PAGE> 66
Rate and Volume Analysis
The following table describes the extent to which changes in interest rates
and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) change in volume (change in volume multiplied by previous year rate); (2)
change in rate (change in rate multiplied by previous year volume); and a
combination of change in rate and change in volume. The changes in interest
income and interest expense attributable to both volume and rate have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
------------------------- -------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
----- ------ ------ ----- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income from interest-earning assets:
Interest and fees on loans.......... $(239) $1,611 $1,372 $ (86) $1,387 $1,301
Interest on taxable securities...... (87) 514 427 263 249 512
Interest on nontaxable securities... (69) 43 (26) (107) (91) (198)
Interest on deposits in other
banks............................ (1) 1 1 (1)
Interest on Federal funds sold...... (19) 184 165 34 153 187
----- ------ ------ ----- ------ ------
Total interest income............ $(415) $2,353 $1,938 $ 105 $1,697 $1,802
----- ------ ------ ----- ------ ------
Expense from interest-bearing
liabilities:
Interest on interest-bearing
deposits.........................
Interest on time deposits........... $ (95) $ 321 $ 226 (8) $ 155 $ 147
Total interest expense........... (30) 445 415 (179) 344 165
----- ------ ------ ----- ------ ------
$(125) $ 766 $ 641 $(187) $ 499 $ 312
----- ------ ------ ----- ------ ------
Net interest income................. $(290) $1,587 $1,297 $ 292 $1,198 $1,490
===== ====== ====== ===== ====== ======
</TABLE>
1998 Compared to 1997
Net interest income increased by $1,297,000 for the year ended December 31,
1998, or 8.5%. The increase in net interest income is due to an increase of
$27.4 million in average interest-earning assets, an increase of 9.3%. During
the same period, the increase in average interest-bearing liabilities was $18.2
million, an increase of 7.7%. The net interest margin decreased slightly during
the year from 5.19% to 5.15%. The decrease in the net interest margin reflects
the decline in interest rates over the past three years and competition for
loans and deposits. The overall yield on interest-earning assets decreased by 17
basis points to 8.90% in 1998, and the rate paid on interest-bearing liabilities
decreased 9 basis points to 4.75%, resulting in a net decrease in the interest
rate spread of 8 basis points to 4.15%.
1997 Compared to 1996
Net interest income increased by $1,490,000 for the year ended December 31,
1997, or 10.8%. The increase in net interest income was due to an increase in
average interest-earning assets of $17.8 million, an increase of 6.4%. The
increase in average interest-bearing liabilities was $10.8 million, an increase
of 4.8% for the year. The net interest margin increased during 1997 from 4.98%
to 5.19%. The increase in the net interest margin is a combination of increased
yields on interest-earning assets and a decrease in yields paid on
interest-bearing liabilities. The overall yield on interest-earning assets
increased by 7 basis points to 9.07% in 1997, and the rate paid on
interest-bearing liabilities decreased 9 basis points to 4.84%, resulting in a
net increase in the interest rate spread of 16 basis points to 4.23%.
59
<PAGE> 67
The most significant increases in average interest-earning assets consisted
of increases of $15.1 million and $12.9 million in total loans for the years
ended December 31, 1998 and 1997, respectively. Taxable securities and Federal
funds sold increased $8.0 million and $3.3 million, respectively, for the year
ended December 31, 1998. Increases in 1997 for the same investments were $3.9
million and $2.7 million, respectively. The average rates earned on
interest-earning assets has not varied significantly over the past three years.
The most significant change was a 13 basis point decrease in the yield on loans
in 1998 compared to only a 5 basis point decrease in 1997.
Average interest-bearing demand and savings deposits grew $10.5 million and
$4.9 million for the years ended December 31, 1998 and 1997, respectively. The
average rate paid on these deposits in 1998 was 2.99%, down from 3.10% in 1997.
Total average time deposits grew for the same years by $7.7 million and $5.9
million. The average rate paid on time deposits declined slightly from 5.81% in
1997 to 5.79% in 1998.
The growth in average balances accounted for $1.6 million of the net $1.3
million increase in net interest income for the year ended December 31, 1998.
The changes in yields and rates accounted for a decrease of $300,000 in net
interest income. For the year ended 1997, the net increase in average balances
accounted for $1.2 million of the $1.5 million increase in net interest income,
and changes in yields and rates accounted for the balance.
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1998, the provision for loan losses
decreased by $353,000 to $396,000, compared to $749,000 for the prior year. The
decrease in 1998 was based on management's evaluation of the overall allowance
for loan losses which included a decrease in net charge-offs of $153,000.
The provision for loan losses is based on management's evaluation of
economic conditions, volume and composition of the loan portfolio, the
historical charge off experience, the level of nonperforming and past due loans,
and other indicators derived from reviewing the loan portfolio. Management
performs such reviews monthly, and the level of the allowance for loan losses is
adjusted on a quarterly basis, as deemed necessary by the board of directors. At
December 31, 1998, the allowance for loan losses was believed to be adequate to
provide for probable losses in the loan portfolio.
The allowance for loan losses represents management's assessment of the
risk associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for loan losses and the appropriate provision required to
maintain a level considered adequate to absorb anticipated loan losses. In
assessing the adequacy of the allowance, management reviews the size, quality
and risk of loans in the portfolio. Management also considers such factors as
Bank of Canton's loan loss experience, the amount of past due and nonperforming
loans, specific known risk, the status and amount of nonperforming assets,
underlying collateral values securing loans, current and anticipated economic
conditions and other factors which affect the allowance for potential credit
losses. An analysis of the credit quality of the loan portfolio and the adequacy
of the allowance for loan losses is prepared by Bank of Canton's credit
administration area and presented to the board of directors on a monthly basis.
In addition, Bank of Canton has engaged an outside loan review consultant, on a
semi-annual basis, to perform an independent review of the quality of the loan
portfolio and adequacy of the allowance.
Bank of Canton's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
Federal Reserve and the Georgia Superintendent may require a bank to make
additional provisions to its allowance for loan losses when, in the opinion of
the regulators, credit evaluations and allowance for loan loss methodology
differ materially from those of management. See "Regulatory
Matters -- Supervision and Regulation" on page 46.
60
<PAGE> 68
While it is the Bank of Canton's policy to charge off in the current period
loans for which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
Asset quality showed slight improvement for the year ended December 31,
1998. Nonaccrual loans as a percentage of total loans decreased from 1.21% to
1.14% during 1998. The ratio of nonperforming assets to total assets decreased
from .83% to .78% for the same period. At December 31, 1998, the allowance for
loan losses as a percentage of total loans was 1.37%, compared to 1.41% at
December 31, 1997. The slight decrease in the allowance for loan losses to total
loans is reflective of the overall improvement in the loan portfolio.
The following table presents at the dates indicated the aggregate
nonperforming loans for the following categories:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis........ $2,502 $2,311 $1,974 $854 $966
Loans contractually past due ninety days or more
as to interest or principal payments and still
accruing....................................... 7 78 2 161 13
Loans, the terms of which have been renegotiated
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower............. -- -- -- -- --
Loans now current about which there are serious
doubts as to the ability of the borrower to
comply with present loan repayment terms....... -- -- -- -- --
</TABLE>
The reduction in interest income associated with nonaccrual loans as of
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Interest income that would have been recorded on
nonaccrual loans under original terms................. $140
Interest income that was recorded on nonaccrual loans... $110
----
Reduction in interest income.......................... $ 30
====
</TABLE>
Management considers all nonaccrual loans to be impaired in accordance with
Financial Accounting Standards Board ("FASB") Statements of Financial Accounting
Standards Nos. 114 and 118. Loans past due greater than ninety days and still
accruing represents those loans which have collateral values in excess of the
recorded loan balance, therefore minimizing the risk of loss of principal and
interest.
In the opinion of management, any loans classified by regulatory
authorities as doubtful, substandard, or special mention that have not been
disclosed above do not (1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (2) represent material credits
about which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment terms. In the event of non-performance by the borrower, these loans
have collateral pledged which would prevent the recognition of substantial
losses. Any loans classified by regulatory authorities as loss have been charged
off.
COMMITMENTS AND LINES OF CREDIT
In the ordinary course of business, Bank of Canton has granted commitments
to extend credit and standby letters of credit to approved customers. Generally,
these commitments to extend credit have been granted on a temporary basis for
seasonal or inventory requirements and have been approved by the Loan
61
<PAGE> 69
Committee and/or board of directors. These commitments are recorded in the
consolidated financial statements as they are funded. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitment amounts expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1998,
1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Commitments to extend credit................ $54,700,000 $20,716,000 $20,454,000
Standby letters of credit................... 610,000 442,000 283,000
----------- ----------- -----------
$55,310,000 $21,158,000 $20,737,000
=========== =========== ===========
</TABLE>
Commitments to extend credit include unused commitments for open-end lines
secured by 1-4 family residential properties, commitments to fund loans secured
by commercial real estate, construction loans and land development, and other
non-real estate secured unused commitments. Commitments to fund commercial real
estate, construction, and land development increased by $30 million at December
31, 1998 compared to 1997. This increase is due to the significant growth and
development in Bank of Canton's market area. A significant portion of the
increase in outstanding commitments is in 1-4 family residential construction
and development.
The following table summarizes the allowance for loan losses for each year.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average balance of loans
outstanding......................... $197,641 $182,565 $169,707 $148,596 $126,461
======== ======== ======== ======== ========
Balance of allowance for loan losses
at beginning of year.............. $ 2,700 $ 2,200 $ 2,000 $ 1,600 $ 1,350
======== ======== ======== ======== ========
Charge-offs:
Real estate-mortgage.............. (26) (118) (337) (1) (67)
Real estate-construction.......... -- (60) -- -- --
Consumer.......................... (147) (246) (358) (205) (85)
Commercial........................ (155) (115) (61) (72) (43)
-------- -------- -------- -------- --------
(328) (539) (756) (278) (195)
-------- -------- -------- -------- --------
Recoveries:
Real estate-mortgage.............. 117 139 102 44 76
Real estate-construction.......... 4 -- -- -- --
Consumer.......................... 106 127 132 82 68
Commercial........................ 5 24 17 8 18
-------- -------- -------- -------- --------
232 290 251 134 162
-------- -------- -------- -------- --------
Net charge-offs..................... (96) (249) (505) (144) (33)
-------- -------- -------- -------- --------
Additions to allowance charged to
operations..................... 396 749 705 544 283
-------- -------- -------- -------- --------
Balance of allowance for loan losses
at end of year.................... $ 3,000 $ 2,700 $ 2,200 $ 2,000 $ 1,600
======== ======== ======== ======== ========
Ratio of net loan charge-offs during
the year to average loans
outstanding during the year....... 0.05% 0.14% 0.30% 0.10% 0.03%
</TABLE>
62
<PAGE> 70
The Company does not formally allocate the allowance for loan losses to
individual types of loans. The following table summarizes the allocation of the
allowance for loan losses to types of loans as of the indicated dates, based on
prior years' experience.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995
-------------------- -------------------- -------------------- ------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT
------ ----------- ------ ----------- ------ ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial........... $ 612 33.64% $ 426 32.61% $ 315 29.42% $ 332
Real Estate.......... 1,000 54.71 886 53.86 725 55.50 468
Consumer............. 1,388 11.65 1,388 13.53 1,160 15.08 1,200
------ ------ ------ ------ ------ ------ ------
$3,000 100.00% $2,700 100.00% $2,200 100.00% $2,000
====== ====== ====== ====== ====== ====== ======
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994
----------- --------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
EACH EACH
CATEGORY TO CATEGORY TO
TOTAL LOANS AMOUNT TOTAL LOANS
----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial........... 28.60% $ 653 28.51%
Real Estate.......... 55.27 262 55.49
Consumer............. 16.13 685 16.00
------ ------ ------
100.00% $1,600 100.00%
====== ====== ======
</TABLE>
1998 Compared to 1997
The provision for loan losses decreased to $396,000 from $749,000 for the
year ended December 31, 1998. The decrease in the provision of $353,000 is
attributable to the improvement in the loan portfolio combined with the decrease
in net charge-offs during the year. The allowance for loan losses at December
31, 1998 was $3,000,000, a net increase of $300,000 for the year. The net
charge-offs decreased from $249,000 in 1997 to $96,000 in 1998, representing a
net charge-off ratio of .05%, compared to 0.14% in 1997. The allowance as a
percentage of nonaccruing loans increased during 1998 to 119.90%, compared to
116.83% in 1997.
1997 Compared to 1996
The provision for loan losses increased to $749,000 from $705,000 for the
year ended December 31, 1997. The increase in the provision of $44,000 is
attributable to the increase in nonaccrual and past due loans for the year ended
December 31, 1997, as well as increased loan volume. The allowance for loan
losses at December 31, 1997 was $2,700,000, a net increase of $500,000 for the
year. Net charge-offs decreased from $505,000 in 1996 to $249,000 in 1997,
representing a net charge-off ratio of 0.14%, compared to 0.30% in 1996. The
allowance as a percentage of nonaccruing loans increased during 1997 to 116.83%,
compared to 111.45% in 1996.
OTHER INCOME
1998 Compared to 1997
Other income increased by $284,000 in 1998, or 12.2%, compared to 1997.
Deposit and service charge income increased by $103,000 for the year ended
December 31, 1998. This increase is due primarily to the growth of $22.8 million
in demand deposit accounts. Included in other operating income is mortgage
origination and servicing income which increased for the year ended December 31,
1998 by $221,000, to $275,000. This increase is directly related to the increase
in mortgage lending activity which fluctuates with the rise and fall of mortgage
rates.
1997 Compared to 1996
Other income increased by $222,000 in 1997, or 10.5%, compared to 1996.
Deposit and service charge income and other operating income increased by
$91,000 and $131,000, respectively for the year ended December 31, 1997.
Included in the increase in other operating income were increases in mortgage
servicing income of $52,000 and miscellaneous income of $82,000. The increase in
miscellaneous income represents the interest portion of a state income tax
refund, resulting from a settlement with the Georgia Department of Revenue.
63
<PAGE> 71
OTHER EXPENSES
1998 Compared to 1997
Other expenses increased during 1998 by $1,579,000, compared to the same
period in 1997. Salaries and employee benefits increased by $826,000 for the
year. The increase in salaries and employee benefits includes normal increases
in salaries, group insurance, payroll taxes, profit sharing and pension benefits
along with increases directly related to an increased number of employees. The
number of full-time equivalent employees increased by 14 to 177 as of December
31, 1998. Equipment and occupancy expenses combined increased by $279,000. The
increase in equipment and occupancy expenses includes increases of $166,000 in
depreciation. Other operating expenses increased by $475,000 for 1998. The most
significant increases included increases in data processing expenses, mortgage
servicing expenses, stationery and supplies, and other taxes of $60,000,
$138,000, $47,000 and $68,000, respectively. The remaining increase in other
operating expenses includes normal price increases and increased costs directly
related to increases in loans and deposits.
1997 Compared to 1996
Other expenses increased during 1997 by $673,000 compared to the same
period in 1996. Salaries and employee benefits increased by $452,000 for the
year. The number of full-time equivalent employees increased by 17 to 163 as of
December 31, 1997. Other operating expenses increased by $180,000 for 1997.
There were no significant individual increases included in other operating
expenses for 1997. The increase in other operating expenses included normal
price increases and increased costs directly related to increases in loans and
deposits.
BALANCE SHEET REVIEW
1998 Compared to 1997
Total assets increased in 1998 by $43.0 million, or 13.4%. The most
significant increase in assets came in the growth of the loan portfolio, which
grew $27.4 million, or 14.3%. Total interest-earning assets increased by $28.9
million, or 9.5% in 1998, compared to 1997. Other assets increased in 1998 by
$4.1 million for the same period. In 1998, the Company implemented a deferred
compensation plan which is funded by insurance products. The cash surrender
value of those policies totaled $4.4 million as of December 31, 1998.
Total deposits increased by $39.5 million, or 13.8%, which funded for the
most part the asset growth. Non-interest-bearing demand deposits increased by
$13.3 million, or 30.2%, interest-bearing demand increased by $9.5 million, or
13.6%, and time deposits increased by a combined total of $15.0 million, or
9.9%.
Shareholders' equity increased by $3.4 million. This increase reflected net
earnings of $5.8 million, less dividends declared of $2.5 million and an
increase in treasury stock of $278,000. Accumulated other comprehensive income
represents the net unrealized gains on securities available for sale which
increased during 1998 by $287,000 to $336,000.
64
<PAGE> 72
SECURITIES PORTFOLIO
The carrying amounts of securities at the dates indicated are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and government agencies and
corporations...................................... $ 87,430 $ 80,955 $73,301
State and municipal securities...................... 14,488 13,615 13,895
Mortgage-backed securities.......................... 2,092 4,820 8,795
Equity securities................................... 963 909 829
-------- -------- -------
Federal Home Loan Bank Stock........................ $104,973 $100,299 $96,820
======== ======== =======
</TABLE>
The carrying amounts of securities in each category as of December 31, 1998
are shown in the following table according to maturity classifications. Equity
securities are excluded from the table below because they have no contractual
maturity.
<TABLE>
<CAPTION>
U.S. TREASURY AND
GOVERNMENT AGENCIES
AND CORPORATIONS, INCLUDING STATE AND MUNICIPAL
MORTGAGE-BACKED SECURITIES SECURITIES
--------------------------- ----------------------
CARRYING CARRYING
AMOUNT YIELD AMOUNT YIELD(1)
------------ --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less............................. $ 3,391 5.55% $ 1,010 4.52%
After one year through five years............ 71,561 6.13% 8,169 5.12%
After five years through ten years........... 14,134 6.35% 4,856 5.67%
After ten years.............................. 436 7.71% 453 5.14%
------- -------
$89,522 6.15% $14,488 5.26%
======= =======
</TABLE>
- ---------------
(1) Yields on nontaxable securities have not been computed on a tax equivalent
basis.
LOAN PORTFOLIO
Types of Loans
The amount of loans outstanding at the indicated dates are shown in the
following table according to the type of loan.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural........................ $ 73,801 $ 62,566 $ 52,395 $ 45,344 $ 38,674
Real estate -- construction......... 48,837 36,397 35,425 32,031 25,158
Real estate -- mortgage............. 71,183 66,936 63,413 55,606 50,097
Consumer and other.................. 25,554 25,952 26,859 25,588 21,701
-------- -------- -------- -------- --------
$219,375 $191,851 $178,092 $158,569 $135,630
Less unearned income................ 251 131 198 206 231
Less allowance for loan losses...... 3,000 2,700 2,200 2,000 1,600
-------- -------- -------- -------- --------
Loans, net.......................... $216,124 $189,020 $175,694 $156,363 $133,799
======== ======== ======== ======== ========
</TABLE>
Maturities and Sensitivities to Changes in Interest Rates
Total loans as of December 31, 1998 are shown in the following table
according to maturity classifications (1) one year or less, (2) after one year
through two years, and (3) after two years. The
65
<PAGE> 73
disclosure of loans by the above categories, and by maturity of one year to five
years and over five years, is not available and to obtain this information would
cause undue time and expense to be incurred by the Company.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
MATURITY:
One year or less.......................................... $104,824
After one year through two years.......................... 38,879
After two years........................................... 75,421
--------
$219,124
========
</TABLE>
Total loans as of December 31, 1998, with a maturity after one year, which
have (1) predetermined interest rates and (2) floating or adjustable interest
rates, are presented below:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Predetermined rates....................................... $ 92,112
Floating or adjustable rates.............................. 22,188
--------
$114,300
========
</TABLE>
DEPOSITS
The average amount of deposits and average rates paid thereon, classified
as to noninterest-bearing demand deposits, interest-bearing and savings deposits
and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits........................... $ 50,564 --% $ 43,299 --% $ 38,242 --%
Interest bearing demand.............. 74,173 3.01 64,922 3.10 60,914 3.11
Savings.............................. 20,611 2.94 19,318 3.10 18,424 3.10
Time deposits........................ 159,655 5.79 151,968 5.81 146,040 5.93
-------- -------- --------
$305,003 $279,507 $263,620
======== ======== ========
</TABLE>
The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1998 are shown below by category, which is based on
time remaining until maturity of (1) three months or less, (2) over three
through six months, (3) over six through twelve months, and (4) over twelve
months.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less.............................. $ 6,082
Over three months through six months.............. 5,402
Over six months through twelve months............. 5,009
Over twelve months................................ 16,672
-------
$33,165
=======
</TABLE>
LIQUIDITY
Liquidity represents the ability to meet the needs of customers desiring to
withdraw funds from deposit accounts to borrow funds and to meet their credit
needs. Bank of Canton manages its liquidity needs in such a way that the needs
of depositors and borrowers are met on a timely basis so that its operations are
not interrupted. Sources of liquidity available to meet these needs include cash
on deposit,
66
<PAGE> 74
Federal funds, securities available for sale, maturities of securities, and
principal payments on loans. Growth in the bank's deposit base provides an
additional source as does access to funds through relationships with
correspondent banks. Liquidity needs at the bank can also be met through loan
participations sold to other financial institutions.
At December 31, 1998, the liquidity position of Bank of Canton was
considered adequate and within guidelines set forth in the bank's liquidity
policy.
B C Bankshares requires cash to pay dividends to stockholders. The primary
source of funds for dividends is the dividend income from Bank of Canton.
Management believes that the ability of Bank of Canton to pay such dividends is
adequate to meet B C Bankshares' cash needs.
REGULATORY CAPITAL REQUIREMENTS
The Company and Bank of Canton are subject to minimum capital standards as
set forth by federal bank regulatory agencies.
The Company's capital for regulatory purposes differs from the Company's
equity as determined under generally accepted accounting principles. Generally,
"Tier 1" regulatory capital will equal capital as determined under generally
accepted accounting principles less any unrealized gains or losses on securities
available for sale while "Tier 2" capital includes the allowance for loan losses
up to certain limitations. Total risk based capital is the sum of Tier 1 and
Tier 2 capital. The Company's capital ratios and required minimums at December
31, 1998 are shown below:
<TABLE>
<CAPTION>
MINIMUM
REGULATORY
REQUIREMENT B C BANKSHARES BANK OF CANTON
----------- -------------- --------------
<S> <C> <C> <C>
Tier 1 capital ratio...................... 4.00% 15.40% 15.35%
Total capital ratio....................... 8.00 16.65 16.60
Tier 1 leverage ratio..................... 3.00 - 5.00 10.04 10.00
</TABLE>
Total capital at the bank also has an important effect on the amount of
FDIC insurance premiums paid. Institutions not considered well capitalized are
subject to higher rates for FDIC insurance.
ASSET/LIABILITY MANAGEMENT
It is the Company's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, investment, borrowing, and capital policies. Certain
officers within the Company are charged with the responsibility for monitoring
policies and procedures that are designed to ensure acceptable composition of
the asset/liability mix.
The Company's asset/liability mix is monitored on a regular basis with a
report reflecting the interest rate sensitive assets and interest rate sensitive
liabilities being prepared and presented to the Board of Directors and
management's Asset/Liability Committee on a quarterly basis. The objective is to
monitor interest rate sensitive assets and liabilities so as to minimize the
impact of substantial movements in interest rates on earnings. An asset or
liability is considered to be interest rate-sensitive if it will reprice or
mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
period. A gap is considered positive when the amount of interest rate-sensitive
assets exceeds the amount of interest rate-sensitive liabilities. A gap is
considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income, while
a positive gap would tend to result in an increase in net interest income.
Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest income, while a positive gap would tend
to adversely affect net interest income. If the Company's assets and liabilities
were equally flexible and moved concurrently, the impact of any increase or
decrease in interest rates on net interest income would be minimal.
67
<PAGE> 75
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Company also evaluates how the repayment of particular
assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by 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
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as
"interest rate caps") which limit changes in interest rates. Prepayment and
early withdrawal levels also could deviate significantly from those assumed in
calculating the interest rate gap. The ability of many borrowers to service
their debts also may decrease in the event of an interest rate increase.
ANALYSIS OF INTEREST SENSITIVITY
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
0 - 3 3 - 12 1 - 2 OVER 2
MONTHS MONTHS YEARS YEARS TOTAL
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits......... $ 72 $ $ -- $ $ 72
Federal funds sold................ 7,128 -- -- -- 7,128
Securities........................ 7,564 1,846 4,965 90,598 104,973
Loans receivable, net(1).......... 79,163 47,933 29,555 62,473 219,124
-------- -------- -------- -------- --------
Total interest-earning
assets....................... $ 93,927 $ 49,779 $ 34,520 $153,071 $331,297
-------- -------- -------- -------- --------
Interest-bearing liabilities:
Interest-bearing demand
deposits....................... $ 79,321 $ -- $ -- $ -- $ 79,321
Savings........................... 21,414 -- -- -- 21,414
Time deposits..................... 31,883 64,384 44,696 25,691 166,654
-------- -------- -------- -------- --------
Total interest-bearing
liabilities.................. $132,618 $ 64,384 $ 44,696 $ 25,691 $267,389
-------- -------- -------- -------- --------
Interest rate sensitivity gap....... (38,691) (14,605) (10,176) $127,380 63,908
======== ======== ======== ======== ========
Cumulative interest rate sensitivity
gap............................... $(38,691) $(53,296) (63,472) $ 63,908
======== ======== ======== ========
Interest rate sensitivity gap
ratio............................. 0.71 0.77 0.77 5.96
======== ======== ======== ========
Cumulative interest rate sensitivity
gap ratio......................... 0.71 0.73 0.74 1.24
======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes nonaccrual loans.
The above table summarizes interest-sensitive assets and liabilities for
the Company as of December 31, 1998. Adjustable rate loans are included in the
period in which their interest rates are scheduled to adjust. Fixed rate loans
are included in the periods in which they are anticipated to be repaid based on
scheduled maturities and anticipated prepayments. Investment securities are
included in their period of maturity while mortgage backed securities are
included according to expected repayment. Certificates of deposit are presented
according to contractual maturity.
As shown in the above table, the cumulative interest sensitivity gap for
the one year period is a negative $53 million. At December 31, 1998, the
Company's cumulative one year interest rate sensitivity gap ratio was 73%. The
Company's targeted ratio is 60% to 120% in this time horizon. This indicates
that the interest-earning assets will reprice during this period at a rate
slower than the interest-bearing liabilities. The Company's experience has been
that not all liabilities shown as being subject to repricing
68
<PAGE> 76
will in fact reprice with changes in market rates. The Company has a base of
core deposits consisting of interest bearing checking accounts and passbook
savings accounts whose average balances and rates paid thereon will not
fluctuate with changes in the levels of market interest rates.
EFFECTS OF INFLATION
The Company's consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measure of financial position and operational
results in terms of historic dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Inflation generally increases the costs of funds and operating overhead,
and to the extent loans and other assets bear viable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on the performance of a
financial institution than the effects of general levels of inflation. In
addition, inflation affects financial institutions' cost of goods and services
purchased, the cost of salaries and benefits, occupancy expense, and similar
items. Inflation and related increases in interest rates generally decrease the
market value of investments and loans held and may adversely affect liquidity,
earnings, and stockholders' equity. Mortgage originations and refinancings tend
to slow as interest rates increase, and likely will reduce the Company's volume
of such activities and the income from the sale of residential mortgage loans in
the secondary market.
STOCK PRICES AND DIVIDENDS
There is no established or active trading market for the common stock of B
C Bankshares and it is not listed or traded on any securities exchange or public
market.
69
<PAGE> 77
FINANCIAL INFORMATION AND STATISTICAL DATA
The following selected financial data is derived from the consolidated
financial statements of B C Bankshares, and should be read in conjunction with
its consolidated financial statements and the related notes.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets................. $399,960 $348,359 $364,123 $321,079 $303,121 $276,295 $244,082
Loans, net................... 258,930 199,323 216,124 189,020 175,694 156,363 133,799
Investments(1)............... 105,962 121,208 112,173 110,693 101,364 97,087 93,154
Deposit accounts............. 357,576 308,592 324,797 285,318 271,527 248,085 218,590
Shareholders' equity......... 38,516 35,714 36,486 33,117 29,373 26,168 24,260
OPERATING DATA:
Interest income.............. $ 23,044 $ 21,124 $ 28,647 $ 26,709 $ 24,907 $ 22,338 $ 18,637
Interest expense............. 9,244 9,011 12,075 11,434 11,122 9,569 7,379
Net interest income.......... 13,800 12,113 16,572 15,275 13,785 12,769 11,258
Provision for loan losses.... 368 552 396 749 705 544 283
Other income................. 2,298 1,924 2,614 2,330 2,170 2,135 1,859
Other expenses............... 8,286 7,585 10,148 8,569 7,896 7,632 7,137
Income tax expense........... 2,521 1,936 2,825 2,415 2,322 2,140 1,682
Net income................... 4,922 3,964 5,817 5,872 5,032 4,588 4,015
Basic earnings per common
share...................... 8.83 7.09 10.41 10.45 8.94 7.81 6.80
Diluted earnings per common
share...................... 8.83 7.09 10.41 10.45 8.94 7.81 6.80
Cash dividends per share..... 3.00 2.55 4.40 3.80 2.80 2.50 2.20
- -- as a percentage of diluted
earnings per share......... 33.98% 35.97% 42.27% 36.36% 31.32% 32.01% 32.35%
Net interest margin.......... 5.28 5.09 5.15 5.19 4.98 5.18 5.02
REGULATORY CAPITAL RATIOS
(CONSOLIDATED):
Risk-based
Total capital to risk based
assets................... 15.36% 17.47% 16.65% 18.00% 17.88%(3) 15.80%(3) 17.30%(3)
Tier 1 to risked based
assets................... 14.18 16.22 15.40 16.75 16.63 (3) 14.80 (3) 16.20 (3)
Leverage..................... 9.98 10.19 10.04 10.22 10.15 (3) 9.40 (3) 9.85 (3)
SELECTED FINANCIAL RATIOS AND
OTHER DATA (AS
PERCENTAGES):
Return on average assets..... 1.73% 1.57% 1.70% 1.88% 1.71% 1.75% 1.68%
Return on average equity..... 17.49 15.50 16.83 18.89 18.24 17.91 17.68
Average equity to average
assets..................... 9.90 10.11 10.08 9.94 9.39 9.75 9.50
Allowance for loan losses to
total loans and OREO(2).... 1.24 1.61 1.37 1.41 1.24 1.25 1.18
Nonperforming assets to total
loans and OREO(2).......... 0.48 1.66 1.29 1.39 1.18 1.42 0.82
Allowance for loan losses to
nonperforming loans........ 287.54 101.30 119.90 116.83 111.45 234.19 165.63
Allowance for loan losses to
nonperforming assets,
including OREO(2).......... 258.54 97.35 106.27 101.35 104.66 87.99 143.37
</TABLE>
- ---------------
(1) Includes securities, Federal funds sold, and interest-bearing deposits in
banks.
(2) Other real estate owned.
(3) Bank only.
70
<PAGE> 78
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS OF B C BANKSHARES
The following table lists (1) the only shareholders known by B C Bankshares
to be the beneficial owners of more than five percent of outstanding B C
Bankshares common stock and (2) the names of directors and executive officers of
B C Bankshares and their beneficial ownership of shares of B C Bankshares common
stock, each as of December 22, 1999. The address of each person is in care of B
C Bankshares at its principal executive office.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT
- ------------------------ ----------------------- -------
<S> <C> <C>
E.O. McFather, Jr.(1)+*..................................... 38,862 6.97
Harold E. Bradshaw(2)+...................................... 4,225 0.76
Ann McFather Fincher(3)..................................... 33,029 5.93
William G. Hasty, Jr.(4)+................................... 5,358 0.96
Steven L. Holcomb+*......................................... 2,300 0.41
Louis L. Jones, Jr.(5)+..................................... 9,000 1.62
Louis L. Jones, III......................................... 100 0.02
William H. Nichols, Jr.(6)+................................. 23,104 4.15
James D. Patterson(7)+...................................... 212 0.04
Cecil Pruett(8)+............................................ 4,075 0.73
W.L. Wester+................................................ 2,000 0.36
Kathryn J. Young(9)......................................... 1,427 0.26
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP................. 123,692 22.21%
</TABLE>
- ---------------
(1) Includes 8,909 shares owned by E.O. McFather, Sr. Testamentary Trust #1, for
which Mr. McFather is the trustee. Also includes 1,000 shares held by Sandra
McFather (wife).
(2) Includes 1,725 shares held by Nanella Bradshaw (wife) and 100 shares held
jointly by Marshanda and Nanella Bradshaw.
(3) Includes 8,909 shares owned by E.O. McFather Sr. Testamentary Trust #2, for
which Ms. Fincher is the trustee. Also includes 3,400 shares held jointly
with Jack Fincher (husband), as custodians for Ashley Fincher (daughter).
(4) Includes 250 shares held by William G. Hasty, Jr. (PC) and 4,328 shares
owned by three trusts for Mr. Hasty and his two sisters, for which Mr. Hasty
is the trustee.
(5) Includes 1,200 shares held by Peggy H. Jones (wife). Mrs. Jones also has
voting power with respect to 3,000 shares held by her children. Also
includes 3,000 shares held by Mr. Jones' children for which he has voting
power.
(6) Includes 7,000 shares held by Martha L. Nichols (wife).
(7) Shares held jointly with wife.
(8) Includes 1,500 shares held by Myrna Pruett (wife).
(9) Includes 775 shares held by James Young (husband).
+ Director
* Executive Officer
71
<PAGE> 79
EXPERTS
Ernst & Young LLP, independent auditors, have audited Wachovia's
consolidated financial statements included in Wachovia's Annual Report on Form
10-K for the year ended December 31, 1998, as set forth in their report, which
is incorporated by reference in this prospectus and elsewhere in the
registration statement. Wachovia's financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
The financial statements of B C Bankshares as of December 31, 1998 and for
the year ended December 31, 1998, included in this proxy statement/prospectus,
have been so included in reliance on the reports of Mauldin & Jenkins LLC,
independent accountants, given the authority of said firm as experts in auditing
and accounting.
The financial statements of B C Bankshares as of December 31, 1997 and for
the two years ended December 31, 1997, included in this proxy
statement/prospectus, have been so included in reliance on the reports of
Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP), independent
accountants, given the authority of said firm as experts in auditing and
accounting.
B C Bankshares determined not to renew Coopers & Lybrand L.L.P.'s
engagement as B C Bankshares' independent accountant. Mauldin & Jenkins LLC was
subsequently retained as B C Bankshares' principal accountant. Coopers &
Lybrand's report on the financial statements for 1997 and 1996 did not contain
an adverse opinion or a disclaimer of opinion, and was not qualified or modified
as to uncertainty, audit scope, or accounting principles. The decision to change
accountants was recommended by the audit committee of the B C Bankshares' board
of directors and approved by the board of directors. Prior to Coopers &
Lybrand's dismissal there were no disagreements with Coopers & Lybrand on any
matter of accounting principle or practices, financial statement disclosure, or
auditing scope or procedure.
VALIDITY OF WACHOVIA COMMON STOCK
William M. Watson, Jr., Senior Vice President, Counsel & Secretary of
Wachovia, will pass upon the validity of the shares of Wachovia common stock
being offered pursuant to the merger.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the B C Bankshares board
does not know of any matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
However, the proposed proxy will be deemed to confer authority to the
individuals named as authorized therein to vote the shares represented by such
proxy as to any matters that fall within the purposes outlined in the Notice of
Special Meeting as determined by a majority of B C Bankshares' board, including
any adjournments or postponements. Nonetheless, a proxy which is voted against
the proposal to approve the merger will not be voted in favor of any adjournment
or postponement.
WHERE YOU CAN FIND MORE INFORMATION
Wachovia has filed with the SEC a registration statement under the
Securities Act that registers the shares of Wachovia common stock to be issued
and distributed to B C Bankshares shareholders in connection with the merger.
The registration statement, including the attached exhibits and schedules,
contains additional relevant information about Wachovia and Wachovia common
stock. The rules and regulations of the SEC allow us to omit certain information
included in the registration statement from this proxy statement/prospectus.
In addition, Wachovia files reports, proxy statements and other information
with the SEC under the Securities Exchange Act. You may read and obtain copies
of this information by mail from the Public Reference Room of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330.
72
<PAGE> 80
The SEC also maintains an Internet worldwide web site that contains
reports, proxy statements and other information about issuers, like Wachovia,
who file electronically with the SEC. The address of the site is
http://www.sec.gov. Wachovia also maintains an Internet worldwide web site that
contains certain company information; its address is http://www.wachovia.com.
You can also inspect reports, proxy statements and other information about
Wachovia at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The SEC allows Wachovia to "incorporate by reference" information into this
proxy statement/prospectus. This means that the company can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
this proxy statement/prospectus, except for any information that is superseded
by information that is included directly in this document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Wachovia has previously filed with the SEC. They contain
important information about Wachovia and its financial condition.
<TABLE>
<CAPTION>
WACHOVIA SEC FILINGS PERIOD
- -------------------- ------
<S> <C>
Annual Report on Form 10-K.................... Year ended December 31, 1998
Quarterly Reports on Form 10-Q................ Quarters ended March 31, June 30, Sept. 30, 1999
Current Reports on Form 8-K................... January 21, 1999 and May 14, 1999
</TABLE>
The description of Wachovia common stock set forth in the Wachovia's
registration statement on Form 8-B filed pursuant to Section 12 of the Exchange
Act including any amendment or report filed with the SEC for the purpose of
updating such description.
Wachovia incorporates by reference additional documents that it may file
with the SEC between the date of this proxy statement/prospectus and the date of
the special meeting. These documents include periodic reports, such as Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Wachovia has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Wachovia, as well as
all pro forma financial information, and B C Bankshares has supplied all
information contained in this proxy statement/prospectus relating to B C
Bankshares.
Documents incorporated by reference are available from Wachovia without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this proxy
statement/prospectus. You can obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
Wachovia at the following addresses:
WACHOVIA CORPORATION
<TABLE>
<S> <C> <C>
P. O. Box 3099 191 Peachtree Street, N.E.
Winston-Salem, North Carolina 27150 or Atlanta, Georgia 30303
Telephone: (336) 732-2549 Telephone: (404) 332-6661
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JANUARY 27, 2000 TO
RECEIVE THEM BEFORE THE SPECIAL MEETING. IF YOU REQUEST ANY INCORPORATED
DOCUMENTS FROM US, WE WILL MAIL THEM TO YOU BY FIRST CLASS MAIL, OR ANOTHER
EQUALLY PROMPT MEANS, WITHIN ONE BUSINESS DAY AFTER WE RECEIVE YOUR REQUEST.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement/prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
73
<PAGE> 81
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
74
<PAGE> 82
INDEX TO B C BANKSHARES FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of September 30,
1999 and December 31, 1998............................. F-2
Condensed Consolidated Statements of Income and
Comprehensive Income for the Three-Months and
Nine-Months Ended September 30, 1999 and 1998.......... F-3
Condensed Consolidated Statements of Cash Flows for the
Nine-Months Ended September 30, 1999................... F-4
Notes to Consolidated Financial Statements (unaudited).... F-5
INDEPENDENT AUDITOR'S REPORT ON THE AUDITED FINANCIAL
STATEMENTS................................................ F-6
REPORT OF INDEPENDENT ACCOUNTANTS ON THE AUDITED FINANCIAL
STATEMENTS................................................ F-7
AUDITED FINANCIAL STATEMENTS:
Consolidated balance sheets............................... F-8
Consolidated statements of income......................... F-9
Consolidated statements of comprehensive income........... F-10
Consolidated statements of stockholders' equity........... F-11
Consolidated statements of cash flows..................... F-12
Notes to consolidated financial statements................ F-13
</TABLE>
F-1
<PAGE> 83
B C BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 16,822,017 $ 19,089,687
Interest-bearing deposits in banks.......................... 52,254 71,977
Federal funds sold.......................................... 3,129,463 7,127,816
Securities available-for-sale, at fair value................ 74,902,847 60,241,634
Securities held-to-maturity (fair value $27,920,000;
$45,630,000).............................................. 27,877,019 44,732,330
Loans....................................................... 262,185,075 219,123,560
Less allowance for loan losses.............................. 3,255,567 3,000,000
------------ ------------
Loans, net................................................ 258,929,508 216,123,560
Premises and equipment...................................... 6,652,939 6,985,922
Other assets................................................ 11,593,674 9,750,265
------------ ------------
$399,959,721 $364,123,191
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 59,497,626 $ 57,408,906
Interest-bearing demand................................... 84,589,079 79,321,345
Savings................................................... 22,421,143 21,413,674
Time...................................................... 191,068,620 166,653,558
------------ ------------
Total deposits......................................... 357,576,468 324,797,483
Other liabilities........................................... 3,867,506 2,840,128
------------ ------------
Total liabilities...................................... $361,443,974 $327,637,611
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5.00; 1,000,000 shares
authorized; 600,000 shares issued...................... 3,000,000 3,000,000
Capital surplus........................................... 9,000,000 9,000,000
Retained earnings......................................... 29,638,155 26,387,745
Treasury stock, 42,746 shares............................. 2,238,630 (2,238,630)
Accumulated other comprehensive income (loss)............. (883,778) 336,465
------------ ------------
Total stockholders' equity............................. 38,515,747 36,485,580
------------ ------------
$399,959,721 $364,123,191
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 84
B C BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ --------------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans................................... $6,415,702 $5,365,040 $18,049,377 $15,433,831
Taxable securities.................... 1,345,947 1,593,894 4,056,036 4,488,349
Nontaxable securities................. 145,031 157,596 443,690 493,104
Federal funds sold.................... 219,447 203,439 492,530 707,031
Deposits in banks..................... 573 655 2,132 2,116
---------- ---------- ----------- -----------
Total Interest Income.............. 8,126,700 7,320,624 23,043,765 21,124,431
---------- ---------- ----------- -----------
Interest expense on deposits............ 3,255,399 3,075,000 9,244,167 9,011,379
---------- ---------- ----------- -----------
Net Interest Income................ 4,871,301 4,245,624 13,799,598 12,113,052
Provision for loan losses............... 184,512 179,635 367,521 552,081
---------- ---------- ----------- -----------
Net interest income after provision
for loan losses.................. 4,686,789 4,065,989 13,432,077 11,560,971
---------- ---------- ----------- -----------
Other Income
Service charges on deposit accounts... 511,306 471,275 1,507,443 1,414,067
Gain on sale of securities............ -- -- 938 --
Other operating income................ 226,853 171,797 789,406 510,306
---------- ---------- ----------- -----------
738,159 643,072 2,297,787 1,924,373
---------- ---------- ----------- -----------
Other expenses
Salaries and employee benefits........ 1,739,483 1,582,041 5,203,949 4,681,386
Equipment and occupancy expenses...... 378,508 386,555 1,091,780 1,024,644
Other operating expenses.............. 720,483 620,747 1,990,629 1,878,678
---------- ---------- ----------- -----------
2,838,474 2,589,343 8,286,358 7,584,708
---------- ---------- ----------- -----------
Income before income taxes......... 2,586,474 2,119,718 7,443,506 5,900,636
Income tax expenses..................... 833,967 717,300 2,521,320 1,936,275
---------- ---------- ----------- -----------
Net income......................... 1,752,507 1,402,418 4,922,186 3,964,361
Other comprehensive income (loss):
Unrealized gains (losses) on
securities available-for-sale
arising during period net of tax... (280,968) 326,404 (1,223,131) 336,002
Realized (gains) losses on securities
available-for-sale arising during
period net of tax.................. -- -- 619 --
---------- ---------- ----------- -----------
Comprehensive income.................. $1,471,539 $1,728,822 $ 3,699,674 $ 4,300,363
========== ========== =========== ===========
Basic and diluted earnings per common
share................................. $ 3.14 $ 2.52 $ 8.83 $ 7.11
========== ========== =========== ===========
Cash dividends per share of common
stock................................. $ 1.00 $ 0.85 $ 3.00 $ 2.55
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 85
B C BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 4,922,186 $ 3,964,361
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 516,624 526,281
Provision for loan losses................................. 367,521 552,081
Gain on sales of securities............................... (938) 0
Proceeds from sale of other real estate................... 197,766 11,000
Other operating activities................................ (17,678) 754,562
------------ ------------
Net cash provided by operating activities.............. 5,985,481 5,808,285
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale................ (29,821,018) (43,358,900)
Proceeds from sales of securities available-for-sale...... 1,995,625 0
Proceeds from maturities of securities
available-for-sale..................................... 11,310,950 12,233,436
Purchases of securities held-to-maturity.................. 0 (6,500,000)
Proceeds from sales of securities held-to-maturity........ 755,313 0
Proceeds from maturities of securities held-to-maturity... 16,105,311 26,471,940
Net decrease in Federal funds sold........................ 3,998,353 1,147,791
Net increase in loans..................................... (43,540,990) (11,618,374)
Purchase of premises and equipment........................ (183,641) (854,550)
Gain on sale of equipment................................. 0 (4,500)
------------ ------------
Net cash used in investing activities.................. (39,380,097) (22,483,157)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits.................................. 32,778,985 23,274,578
Purchase of treasury stock................................ 0 (278,460)
Dividends paid............................................ (1,671,762) (1,424,836)
------------ ------------
Net cash provided by financing activities.............. 31,107,223 21,571,282
------------ ------------
Net increase (decrease) in cash and due from banks.......... (2,287,393) 4,896,410
Cash and due from banks at beginning of period.............. 19,161,664 9,578,919
------------ ------------
Cash and due from banks at end of period.................... $ 16,874,271 $ 14,475,329
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 86
B C BANKSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods.
The results of operations for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June of 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The effective date of this
statement has been deferred by Statement of Financial Accounting Standards
(SFAS) No. 137 until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal quarter after
its issuance. The Company expects to adopt this statement effective January 1,
2001. SFAS No. 133 requires the Company to recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. For derivatives that
are not designed as hedges, the gain or loss must be recognized in earnings in
the period of change. For derivatives that are designated as hedges, changes in
the fair value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings, depending on the nature of the hedge. The ineffective
portion of a derivative's change in fair value must be recognized in earnings
immediately. Management has not yet determined what effect the adoption of SFAS
No. 133 will have on the Company's earnings or financial position.
NOTE 3. MERGER AGREEMENT
On October 6, 1999, the Company signed an Agreement and Plan of Merger with
Wachovia Corporation ("Wachovia"). This agreement provides for the merger of the
Company with and into Wachovia, with Wachovia being the surviving corporation of
the merger.
In the merger, each share of the Company's common stock outstanding on the
effective date of the merger will be converted into 2.914 of Wachovia common
stock. In connection with the merger agreement, the Company granted to Wachovia
an option to purchase up to 19.9% of the outstanding shares of the Company under
certain circumstances.
F-5
<PAGE> 87
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
B C Bankshares, Inc. and Subsidiary
Canton, Georgia
We have audited the accompanying consolidated balance sheet of B C
Bankshares, Inc. and Subsidiary as of December 31, 1998, and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
balance sheet of B C Bankshares, Inc. and Subsidiary as of December 31, 1997,
and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for the two years ended December 31, 1997
were audited by other auditors whose report, dated January 23, 1998, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of B C
Bankshares, Inc. and Subsidiary as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Atlanta, Georgia
January 22, 1999
F-6
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
B C Bankshares, Inc.
We have audited the accompanying consolidated balance sheet of B C Bankshares,
Inc. and Subsidiary as of December 31, 1997 and the related consolidated
statements of income, comprehensive income, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We have not audited the consolidated financial statements of B C
Bankshares, Inc. for any period subsequent to December 31, 1997.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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 B C Bankshares,
Inc. and Subsidiary as of December 31, 1997, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
January 23, 1998
F-7
<PAGE> 89
B C BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 19,089,687 $ 9,525,531
Interest-bearing deposits in banks.......................... 71,977 53,388
Federal funds sold.......................................... 7,127,816 10,340,046
Securities available-for-sale............................... 60,241,634 24,686,072
Securities held-to-maturity................................. 44,732,330 75,613,670
Loans....................................................... 219,123,560 191,720,486
Less allowance for loan losses.............................. 3,000,000 2,700,000
------------ ------------
Loans, net............................................. $216,123,560 $189,020,486
Premises and equipment...................................... 6,985,922 6,227,898
Other assets................................................ 9,750,265 5,612,216
------------ ------------
Total assets........................................... $364,123,191 $321,079,307
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand................................ $ 57,408,906 $ 44,090,389
Interest-bearing demand................................... 79,321,345 69,834,701
Savings................................................... 21,413,674 19,735,377
Time, $100,000 and over................................... 33,165,569 18,332,802
Other time................................................ 133,487,989 133,324,237
------------ ------------
Total deposits......................................... 324,797,483 285,317,506
Other liabilities........................................... 2,840,128 2,645,171
------------ ------------
Total liabilities...................................... 327,637,611 287,962,677
------------ ------------
Commitments and Contingent Liabilities
Stockholders' equity
Common stock, par value $5; 1,000,000 shares authorized;
600,000 issued......................................... 3,000,000 3,000,000
Capital surplus........................................... 9,000,000 9,000,000
Retained earnings......................................... 26,387,745 23,026,876
Accumulated other comprehensive income.................... 336,465 49,924
------------ ------------
38,724,210 35,076,800
Less cost of 42,746 and 38,246 shares of treasury stock... (2,238,630) (1,960,170)
------------ ------------
Total stockholders' equity............................. 36,485,580 33,116,630
------------ ------------
Total liabilities and stockholders' equity............. $364,123,191 $321,079,307
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 90
B C BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans............................................. $21,083,250 $19,711,124 $18,409,639
Taxable securities................................ 6,019,899 5,593,458 5,139,665
Nontaxable securities............................. 651,124 676,488 874,896
Federal funds sold................................ 890,541 725,080 541,294
Deposits in other banks........................... 2,958 2,502 2,849
----------- ----------- -----------
Total interest income.......................... 28,647,772 26,708,652 24,968,343
Interest expense on deposits........................ 12,075,264 11,433,578 11,121,764
----------- ----------- -----------
Net interest income............................ 16,572,508 15,275,074 13,846,579
Provision for loan losses........................... 395,906 749,287 704,723
----------- ----------- -----------
Net interest income after provision for loan
losses....................................... 16,176,602 14,525,787 13,141,856
----------- ----------- -----------
Other income
Service charges on deposit accounts............... 1,929,324 1,826,347 1,735,613
Other operating income............................ 684,528 504,449 373,366
----------- ----------- -----------
Total other income............................. 2,613,852 2,330,796 2,108,979
----------- ----------- -----------
Other expenses
Salaries and employee benefits.................... 6,242,780 5,417,267 4,965,177
Occupancy expenses................................ 602,503 509,495 496,313
Equipment expenses................................ 820,936 635,010 633,321
Stationery and supplies........................... 345,215 297,800 271,346
Other operating expenses.......................... 2,136,959 1,709,829 1,530,156
----------- ----------- -----------
Total other expenses........................... 10,148,393 8,569,401 7,896,313
----------- ----------- -----------
Income before income taxes..................... 8,642,061 8,287,182 7,354,522
Income tax expense.................................. 2,825,450 2,415,343 2,322,657
----------- ----------- -----------
Net income..................................... $ 5,816,611 $ 5,871,839 $ 5,031,865
----------- ----------- -----------
Basic and diluted earnings per common share......... $ 10.41 $ 10.45 $ 8.94
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE> 91
B C BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................................. $5,816,611 $5,871,839 $5,031,865
Other comprehensive income:
Unrealized gains on securities available-for-sale:
Net unrealized holding gains (losses) arising
during period, net of taxes (benefits) of
$147,610, $3,170, and $(78,589), respectively... 286,541 6,154 (152,556)
---------- ---------- ----------
Comprehensive Income................................... $6,103,152 $5,877,993 $4,879,309
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE> 92
B C BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
--------------------- CAPITAL RETAINED COMPREHENSIVE
SHARES PAR VALUE SURPLUS EARNINGS INCOME
------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.............. 600,000 $3,000,000 $9,000,000 $15,833,954 $ 196,326
Net income............................ -- -- -- 5,031,865 --
Cash dividends declared, $2.80 per
share............................... -- -- -- (1,576,117) --
Purchase of treasury stock............ -- -- -- -- --
Other comprehensive loss.............. -- -- -- -- (152,556)
------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1996.............. 600,000 3,000,000 9,000,000 19,289,702 43,770
Net income............................ -- -- -- 5,871,839 --
Cash dividends declared, $3.80 per
share............................... -- -- -- (2,134,665) --
Other comprehensive income............ -- -- -- -- 6,154
------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1997.............. 600,000 3,000,000 9,000,000 23,026,876 49,924
Net income............................ -- -- -- 5,816,611 --
Cash dividends declared, $4.40 per
share............................... -- -- -- (2,455,742) --
Purchase of treasury stock............ -- -- -- -- --
Other comprehensive income............ -- -- -- -- 286,541
------- ---------- ---------- ----------- ---------
BALANCE, DECEMBER 31, 1998.............. 600,000 $3,000,000 $9,000,000 $26,387,745 $ 336,465
======= ========== ========== =========== =========
<CAPTION>
TREASURY STOCK TOTAL
--------------------- STOCKHOLDERS'
SHARES AMOUNT EQUITY
------ ----------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.............. 36,465 $(1,862,215) $26,168,065
Net income............................ -- -- 5,031,865
Cash dividends declared, $2.80 per
share............................... -- -- (1,576,117)
Purchase of treasury stock............ 1,781 (97,955) (97,955)
Other comprehensive loss.............. -- -- (152,556)
------ ----------- -----------
BALANCE, DECEMBER 31, 1996.............. 38,246 (1,960,170) 29,373,302
Net income............................ -- -- 5,871,839
Cash dividends declared, $3.80 per
share............................... -- -- (2,134,665)
Other comprehensive income............ -- -- 6,154
------ ----------- -----------
BALANCE, DECEMBER 31, 1997.............. 38,246 (1,960,170) 33,116,630
Net income............................ -- -- 5,816,611
Cash dividends declared, $4.40 per
share............................... -- -- (2,455,742)
Purchase of treasury stock............ 4,500 (278,460) (278,460)
Other comprehensive income............ -- -- 286,541
------ ----------- -----------
BALANCE, DECEMBER 31, 1998.............. 42,746 $(2,238,630) $36,485,580
====== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE> 93
B C BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 5,816,611 $ 5,871,839 $ 5,031,865
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 738,816 573,220 596,888
Provision for loan losses................................. 395,906 749,287 704,723
Deferred income taxes..................................... (84,196) (318,310) (65,951)
Net (gain) loss from sale of other real estate............ 287 44,693 (8,703)
Increase (decrease) in interest receivable................ (252,178) (288,186) 109,200
Increase in interest payable.............................. 80,756 10,656 39,149
Other operating activities................................ 471,992 162,741 162,639
------------ ------------ ------------
Net cash provided by operating activities............... 7,167,994 6,805,940 6,569,810
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale................ (51,378,900) (13,600,337) (7,026,600)
Purchases of securities held-to-maturity.................. (6,500,000) (34,994,919) (31,236,264)
Proceeds from maturities and calls of securities
available-for-sale...................................... 16,257,489 8,250,000 9,514,156
Proceeds from maturities and calls of securities
held-to-maturity........................................ 37,381,340 36,862,421 26,714,783
Net (increase) decrease in Federal funds sold............. 3,212,230 (6,363,818) (1,716,228)
Net increase in loans..................................... (27,477,343) (14,342,551) (18,991,814)
Purchase of life insurance................................ (4,340,000) - -
Net proceeds from disposals of other real estate.......... 11,000 3,341 110,494
Purchase of premises and equipment........................ (1,496,840) (1,396,401) (1,216,754)
------------ ------------ ------------
Net cash used in investing activities................... (34,331,024) (25,582,264) (23,848,227)
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase in deposits.................................. 39,479,977 13,790,161 23,442,312
Purchase of treasury stock................................ (278,460) - (97,955)
Dividends paid............................................ (2,455,742) (2,134,665) (1,576,117)
------------ ------------ ------------
Net cash provided by financing activities............... 36,745,775 11,655,496 21,768,240
------------ ------------ ------------
Net increase (decrease) in cash and due from banks.......... 9,582,745 (7,120,828) 4,489,823
Cash and due from banks at beginning of year................ 9,578,919 16,699,747 12,209,924
------------ ------------ ------------
Cash and due from banks at end of year...................... $ 19,161,664 $ 9,578,919 $ 16,699,747
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest.................................................. $ 11,994,508 $ 11,422,922 $ 11,082,615
Income taxes.............................................. $ 2,716,310 $ 2,716,000 $ 2,311,000
NONCASH TRANSACTIONS
Principal balances of loans transferred to other real
estate.................................................... $ 244,270 $ 475,359 $ 819,453
Financing of sales of other real estate..................... $ 265,908 $ 208,150 $ 1,863,605
Unrealized (gains) losses on securities
available-for-sale........................................ $ (434,151) $ (9,285) $ 221,178
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE> 94
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
B C Bankshares, Inc. (the "Company") is a bank holding company whose
business is conducted by its wholly-owned subsidiary, Bank of Canton (the
"Bank"). The Bank is a commercial bank located in Canton, Cherokee County,
Georgia. The Bank provides a full range of banking services in its primary
market area of Cherokee County and surrounding counties.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiary. Significant intercompany transactions and accounts are
eliminated in consolidation.
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
disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Due from Banks
Cash on hand, cash items in process of collection, interest-bearing
deposits in banks, and amounts due from banks are included in cash and due from
banks.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts.
Securities
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities are classified as available-for-sale and carried at fair value
with net unrealized gains and losses included in stockholders' equity, net of
tax. Equity securities without a readily determinable fair value are included in
securities available-for-sale and carried at cost.
Interest and dividends on securities, including amortization of premiums
and accretion of discounts, are included in interest income. Realized gains and
losses from the sale of securities are determined using the specific
identification method.
Loans
Loans are carried at their principal amounts outstanding less deferred loan
fees and the allowance for loan losses. Interest income on loans is credited to
income based on the principal amount outstanding.
Loan origination fees are deferred and recognized over the life of the loan
and direct costs of loans are recognized at the time the loan is recorded.
Because net loan origination fees and costs are not material, the results of
operations are not materially different than the results which would be obtained
by accounting for loan fees and costs in accordance with generally accepted
accounting principles.
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. This evaluation is
F-13
<PAGE> 95
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inherently subjective as it requires material estimates that are susceptible to
significant change including the amounts and timing of future cash flows
expected to be received on impaired loans. In addition, regulatory agencies, as
an integral part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to record additions to
the allowance based on their judgment about information available to them at the
time of their examinations.
The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
received.
A loan is considered to be impaired when it is probable the Company will be
unable to collect all principal and interest payments due in accordance with the
terms of the loan agreement. Individually identified impaired loans are measured
based on the present value of payments expected to be received, using the
contractual loan rate as the discount rate. Alternatively, measurement may be
based on observable market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value of the
collateral. If the recorded investment in the impaired loan exceeds the measure
of fair value, a valuation allowance is established as a component of the
allowance for loan losses. Changes to the valuation allowance are recorded as a
component of the provision for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally over the estimated useful lives of the
assets using accelerated methods.
Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent gains
or losses on sale and any subsequent adjustment to the value are recorded in
current income from operations.
Pension Plan
The Company recognizes pension costs as paid, the results of which are not
materially different than the results which would be obtained by accounting for
net periodic pension costs in accordance with generally accepted accounting
principles.
Profit-Sharing Plan
Profit-sharing plan costs are based on a percentage of individual
employee's salary, not to exceed the amount that can be deducted for Federal
income tax purposes.
Postretirement Benefits Other Than Pensions
The Company accrues the estimated cost of retiree benefit payments during
the years the employee provides services.
F-14
<PAGE> 96
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Income tax expense consists of current and deferred taxes. Current income
tax provisions approximate taxes to be paid or refunded for the applicable year.
Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the differences between the book and tax
bases of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards, and tax credits
will be realized. A valuation allowance would be recorded for those deferred tax
items for which it is more likely than not that realization would not occur.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted earnings
per share would be computed by dividing net income by the sum of the
weighted-average number of shares of common stock outstanding and potential
common shares. There were no potential common shares outstanding at December 31,
1998, 1997, or 1996. The weighted average number of shares outstanding for the
years ended December 31, 1998, 1997, and 1996 was 558,709; 561,754 and 563,121,
respectively.
Reclassifications
Certain accounts have been reclassified in the 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Standards No. 130
("SFAS No. 130"), "Reporting Comprehensive Income". This statement establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The Company has elected to
report comprehensive income in a separate financial statement titled
"Consolidated Statements of Comprehensive Income". SFAS No. 130 describes
comprehensive income as the total of all components of comprehensive income
including net income. This statement uses other comprehensive income to refer to
revenues, expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net income.
Currently, the Company's other comprehensive income consists of items previously
reported directly in equity under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". As required by SFAS No. 130, the
financial statements for the prior year have been reclassified to reflect
application of the provisions of this statement. The adoption of this statement
did not affect the Company's financial position, results of operations or cash
flows.
Recent Developments
In June 1998, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities". This statement is required to be
adopted for fiscal years beginning after June 15, 1999. However, the
F-15
<PAGE> 97
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement permits early adoption as of the beginning of any fiscal quarter after
its issuance. The Company expects to adopt this statement effective January 1,
2000. SFAS No. 133 requires the Company to recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. For derivatives that
are not designated as hedges, the gain or loss must be recognized in earnings in
the period of change. For derivatives that are designated as hedges, changes in
the fair value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings, depending on the nature of the hedge. The
ineffective portion of a derivative's change in fair value must be recognized in
earnings immediately.
Management has not yet determined what effect the adoption of SFAS No. 133
will have on the Company's earnings or financial position.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31, 1998:
U. S. Government and agency
securities.................... $57,793,539 $451,284 $(6,453) $58,238,370
State and municipal securities... 975,000 64,964 -- 1,039,964
Federal Home Loan Bank Stock..... 963,300 -- -- 963,300
----------- -------- ------- -----------
$59,731,839 $516,248 $(6,453) $60,241,634
=========== ======== ======= ===========
DECEMBER 31, 1997:
U. S. Government and agency
securities.................... $23,701,028 $ 78,505 $(2,861) $23,776,672
Federal Home Loan Bank Stock..... 909,400 -- -- 909,400
----------- -------- ------- -----------
$24,610,428 $ 78,505 $(2,861) $24,686,072
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1998:
U. S. Government and agency
securities................... $29,191,064 $293,159 $ -- $29,484,223
State and municipal
securities................... 13,448,586 591,696 (6,020) 14,034,262
Mortgage-backed securities...... 2,092,680 23,315 (4,790) 2,111,205
----------- -------- --------- -----------
$44,732,330 $908,170 $ (10,810) $45,629,690
=========== ======== ========= ===========
DECEMBER 31, 1997:
U. S. Government and agency
securities................... $57,178,198 $246,620 $ (63,105) $57,361,713
State and municipal
securities................... 13,615,380 450,730 (223) 14,065,887
Mortgage-backed securities...... 4,820,092 25,521 (86,186) 4,759,427
----------- -------- --------- -----------
$75,613,670 $722,871 $(149,514) $76,187,027
=========== ======== ========= ===========
</TABLE>
F-16
<PAGE> 98
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were no sales of securities during 1998, 1997, or 1996.
The amortized cost and fair value of securities as of December 31, 1998 by
contractual maturity are shown below. Maturities may differ from contractual
maturities of mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities and equity securities are not included in the maturity categories in
the following summary.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
------------------------------ ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less....... $ 2,497,471 $ 2,504,060 $ 1,209,928 $ 1,213,333
Due from one to five years.... 44,296,068 44,657,580 34,160,553 34,691,991
Due from five to ten years.... 11,975,000 12,116,694 6,815,612 7,122,204
Due after ten years........... -- -- 453,557 490,957
Mortgage-backed securities.... -- -- 2,092,680 2,111,205
Federal Home Loan Bank
stock....................... 963,300 963,300 -- --
----------- ----------- ----------- -----------
$59,731,839 $60,241,634 $44,732,330 $45,629,690
=========== =========== =========== ===========
</TABLE>
Securities with a carrying value of $16,807,070 and $27,790,949 at December
31, 1998 and 1997, respectively, were pledged to secure public deposits and for
other purposes.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Commercial, financial, and agricultural................. $ 73,800,817 $ 62,566,424
Real estate -- construction............................. 48,837,000 36,397,145
Real estate -- mortgage................................. 71,183,000 66,936,015
Consumer................................................ 25,554,000 25,952,149
------------ ------------
219,374,817 191,851,733
Deferred loan fees...................................... (251,257) (131,247)
Allowance for loan losses............................... (3,000,000) (2,700,000)
------------ ------------
Loans, net.............................................. $216,123,560 $189,020,486
============ ============
</TABLE>
Changes in the allowance for loan losses for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year..................... $2,700,000 $2,200,000 $2,000,000
Provision for loan losses.................... 395,906 749,287 704,723
Loans charged off............................ (327,525) (538,865) (755,893)
Recoveries of loans previously charged off... 231,619 289,578 251,170
---------- ---------- ----------
Balance, end of year........................... $3,000,000 $2,700,000 $2,200,000
========== ========== ==========
</TABLE>
The total recorded investment in impaired loans was $3,038,915 and
$2,310,665, respectively, at December 31, 1998 and 1997, with specific reserves
of $442,666 and $403,332. The average recorded
F-17
<PAGE> 99
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investment in impaired loans for 1998 and 1997 was $2,674,790 and $2,142,000,
respectively. Interest income recognized by the Company on impaired loans was
not significant.
The Company has granted loans to certain related parties including
directors, executive officers, and their related entities. The interest rates on
these loans were substantially the same as rates prevailing at the time of the
transaction and repayment terms are customary for the type of loan involved.
Changes in related party loans for the year ended December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Balance, beginning of year.................................. $ 882,823
Advances.................................................... 127,968
Repayments.................................................. (102,518)
---------
Balance, end of year........................................ $ 908,273
=========
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Land.............................................. $ 1,840,715 $ 1,840,715
Buildings and improvements........................ 6,059,304 5,513,626
Furniture and equipment........................... 4,815,104 4,109,011
----------- -----------
12,715,123 11,463,352
Accumulated depreciation.......................... (5,729,201) (5,235,454)
----------- -----------
$ 6,985,922 $ 6,227,898
=========== ===========
</TABLE>
NOTE 5. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1999................................................... $ 96,266,961
2000................................................... 44,695,819
2001................................................... 8,358,874
2002................................................... 8,693,688
2003................................................... 8,638,216
------------
$166,653,558
============
</TABLE>
NOTE 6. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current................................ $2,909,646 $2,733,653 $2,388,608
Deferred............................... (84,196) (318,310) (65,951)
---------- ---------- ----------
Income tax expense................... $2,825,450 $2,415,343 $2,322,657
---------- ---------- ----------
</TABLE>
F-18
<PAGE> 100
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory
rate............................ $2,938,301 34% $2,817,642 34% $2,500,537 34%
Tax-exempt interest............. (221,393) (2) (232,985) (3) (297,473) (4)
Disallowed interest expense..... 30,592 -- 36,538 -- 40,666 1
State income taxes.............. 57,040 1 66,820 1 76,370 1
Georgia Department of Revenue
settlement.................... -- -- (230,305) (3) -- --
Other items, net................ 20,910 -- (42,367) -- 2,557 --
---------- -- ---------- -- ---------- --
Income tax expense.............. $2,825,450 33% $2,415,343 29% $2,322,657 32%
========== == ========== == ========== ==
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Loan loss reserves.......................................... $ 948,124 $ 894,839
Deferred loan fees.......................................... 94,814 53,034
Post retirement benefits.................................... 211,976 172,125
State tax reserve........................................... 83,768 83,768
Other....................................................... -- 61,228
---------- ----------
$1,338,682 $1,264,994
---------- ----------
DEFERRED TAX LIABILITIES:
Securities available-for-sale............................... 173,329 25,719
Pension contribution........................................ 44,786 43,558
Other real estate......................................... -- 6,860
Other....................................................... 4,217 9,093
---------- ----------
222,332 85,230
---------- ----------
Net deferred tax assets..................................... $1,116,350 $1,179,764
========== ==========
</TABLE>
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan covering
substantially all employees who have completed one year of service. The benefits
are based on years of service and the average of an employee's five highest
consecutive years of compensation during the last ten years of employment. The
Company's funding policy is to contribute annually an amount not less than the
minimum required by the Employee Retirement Income Security Act of 1974.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
F-19
<PAGE> 101
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth a reconciliation of the benefit obligation,
a reconciliation of the fair value of plan assets, and the funded status of the
plan for the years ended December 31, 1998 and 1997. The estimate for December
31, 1998 is based on information available at January 1, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $2,767,870 $2,767,870
Service cost................................................ 135,392 126,486
Interest cost............................................... 209,478 184,687
Actuarial (gain) loss....................................... 349,928 (256,064)
Benefits paid............................................... (65,722) (55,109)
---------- ----------
Benefit obligation at end of year........................... $3,396,946 $2,767,870
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $2,355,670 $2,010,908
Actual return on plan assets................................ 241,551 289,028
Employer contribution....................................... 138,321 110,843
Benefits paid............................................... (65,722) (55,109)
---------- ----------
Fair value of plan assets at end of year.................... $2,669,820 $2,355,670
---------- ----------
Funded status............................................... (727,126) (412,200)
Unrecognized net actuarial loss............................. 647,120 332,580
Unrecognized prior service cost............................. 185,555 204,130
Unrecognized net transition asset........................... (130,819) (147,195)
---------- ----------
Accrued benefit cost........................................ $ (25,270) $ (22,685)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................... 7.00% 7.25%
Expected return on plan assets.............................. 9.00% 9.00%
Rate of compensation increase............................... 4.50% 4.50%
</TABLE>
The following table sets forth the net periodic benefit cost recognized for
the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.................................... $ 135,392 $ 126,486 $ 127,156
Interest cost................................... 209,478 184,687 167,916
Expected return on plan assets.................. (215,755) (185,631) (162,115)
Amortization of prior service cost.............. 18,575 18,575 18,575
Recognized net actuarial gain................... (16,376) (16,376) (16,376)
Amortization of unrecognized net transition
obligation.................................... 9,592 -- 11,558
--------- --------- ---------
Net periodic benefit cost....................... $ 140,906 $ 127,741 $ 146,714
========= ========= =========
</TABLE>
F-20
<PAGE> 102
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a profit sharing plan (the "Plan") covering
substantially all employees. Contributions to the Plan are determined by the
Board of Directors. The Company contributed $204,000, $191,000, and $171,000 in
1998, 1997, and 1996, respectively, to the Plan.
The Company provides medical and life insurance benefits for employees who
retire with a required number of years of continuous service. The Company funds
benefits on a pay-as-you-go basis.
The following tables set forth a reconciliation of the benefit obligation,
a reconciliation of the fair value of the plan assets, and the funded status of
the Postretirement Benefit Plan for the years ended December 31, 1998 and 1997.
The estimates for December 31, 1998 and 1997 are based on information available
at January 1, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- ---------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $ 792,667 $ 684,279
Service cost................................................ 104,641 63,013
Interest cost............................................... 56,924 57,833
Assumption change........................................... 181,815 55,244
Actuarial (gain) loss....................................... 10,954 (51,124)
Benefits paid............................................... (14,890) (16,578)
---------- ---------
Benefit obligation at end of year........................... 1,132,111 792,667
---------- ---------
CHANGE IN PLAN ASSETS
Employer contribution....................................... 14,890 16,578
Benefits paid............................................... (14,890) (16,578)
---------- ---------
Fair value of plan assets at end of year.................... -- $ --
---------- ---------
Funded status............................................... (1,132,111) (792,667)
Unrecognized net actuarial loss............................. 371,757 186,111
Unrecognized net transition obligation...................... 179,090 194,210
---------- ---------
Prepaid (accrued) benefit cost.............................. $ (581,264) $(412,346)
========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................... 7.25% 7.25%
Rate of compensation increase............................... 4.50% 4.50%
</TABLE>
F-21
<PAGE> 103
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the net periodic benefit cost recognized for
the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost....................................... $104,641 $ 63,013 $ 57,498
Interest cost...................................... 56,924 57,833 46,314
Expected return on plan assets.....................
Amortization of unrecognized net transition
obligation....................................... 15,120 15,120 15,120
Recognized net actuarial loss...................... 7,123 8,929 9,283
-------- -------- --------
Net periodic benefit cost.......................... $183,808 $144,895 $128,215
======== ======== ========
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 9.0% for 1998, declining gradually to 6.0%
over six years and remaining at that level thereafter. Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plans. A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost
components............................................... $87,790 $(38,852)
Effect on postretirement benefit obligation.............. $12,795 $ (9,272)
</TABLE>
NOTE 8. DEFERRED COMPENSATION PLAN
In 1998, the Company implemented a deferred compensation plan providing for
death and retirement benefits for certain officers and directors. The estimated
amounts to be paid under the compensation plan are being funded through the
purchase of life insurance policies on the officers and directors. Cash
surrender values of $4,355,385 on the insurance policies as of December 31, 1998
are included in other assets.
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into off-balance
sheet financial instruments which are not reflected in the financial statements.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are included in the financial
statements when funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Commitments to extend credit.............................. $54,700,000 $20,716,000
Standby letters of credit................................. 610,321 442,000
----------- -----------
$55,310,321 $21,158,000
=========== ===========
</TABLE>
F-22
<PAGE> 104
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include real estate and improvements, crops, marketable
securities, accounts receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral held varies as
specified above and is required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material effect on the Company's financial
statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, mortgage, and
consumer loans to customers in Cherokee County, Georgia and surrounding
counties. The ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in the Company's
primary market area, which is part of the Atlanta, Georgia Metropolitan
Statistical Area.
Fifty-five percent of the Company's loan portfolio is concentrated in loans
secured by real estate of which a substantial portion is secured by real estate
in the Company's primary market area. Accordingly, the ultimate collectibility
of the loan portfolio is susceptible to changes in market conditions in the
Company's primary market area. The other concentrations of credit by type of
loan are set forth in Note 3.
The Company, as a matter of policy, does not generally extend credit to any
single borrower or group of related borrowers in excess of 25% of statutory
capital, or approximately $5,000,000.
NOTE 11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of dividends that
may be declared without prior regulatory approval. At December 31, 1998,
approximately $2,900,000 of retained earnings were available for dividend
declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal 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 financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and Bank must meet specific capital guidelines that involve quantitative
measures of the assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Company's and Bank's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
F-23
<PAGE> 105
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of Total
and Tier I capital to risk-weighted assets and of Tier I capital to average
assets. Management believes, as of December 31, 1998, the Company and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank's category.
The Company and the Bank's actual capital amounts and ratios are presented
in the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------- ---------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets)
Consolidated...................... $39,083 16.65% $18,775 8% $23,468 10%
Bank.............................. $38,925 16.60% $18,759 8% $23,449 10%
Tier I Capital
(to Risk Weighted Assets)
Consolidated...................... $36,149 15.40% $ 9,387 4% $14,081 6%
Bank.............................. $35,993 15.35% $ 9,379 4% $14,069 6%
Tier 1 Capital (Leverage Ratio)
(to Average Assets)
Consolidated...................... $36,149 10.04% $14,408 4% $18,010 5%
Bank.............................. $35,993 10.00% $14,397 4% $17,997 5%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated...................... $35,535 18.00% $15,793 8% $19,742 10%
Bank.............................. $35,301 17.88% $15,816 8% $19,770 10%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated...................... $33,067 16.75% $ 7,897 4% $11,845 6%
Bank.............................. $32,830 16.63% $ 7,908 4% $11,862 6%
Tier 1 Capital (Leverage Ratio)
(to Average Assets)
Consolidated...................... $33,067 10.22% $12,942 4% $16,178 5%
Bank.............................. $32,830 10.15% $12,938 4% $16,167 5%
</TABLE>
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using
discounted cash flow models. Those models are significantly affected by the
F-24
<PAGE> 106
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions used, including the discount rates and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. The use of different methodologies
may have a material effect on the estimated fair value amounts. Also, the fair
value estimates presented herein are based on pertinent information available to
management as of December 31, 1998 and 1997. Such amounts have not been revalued
for purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
Cash and Due From Banks, Interest-bearing Deposits in Banks, and Federal Funds
Sold
The carrying amounts of cash and due from banks, interest-bearing deposits
in banks, and Federal funds sold approximate their fair value.
Available-For-Sale and Held-To-Maturity Securities
Fair values for securities are based on available quoted market prices. The
carrying values of equity securities with no readily determinable fair value
approximate fair values.
Loans
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For other
loans, the fair values are estimated using discounted cash flow models, using
current market interest rates offered for loans with similar terms to borrowers
of similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the underlying
collateral.
Deposits
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values. Fair values
for fixed-rate certificates of deposit are estimated using discounted cash flow
models, using current market interest rates offered on certificates with similar
remaining maturities.
Accrued Interest
The carrying amounts of accrued interest approximate their fair values.
Off-Balance Sheet Instruments
Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments to
extend credit and standby letters of credit do not represent a significant value
to the Company until such commitments are funded. The Company has determined
that these instruments do not have a distinguishable fair value and no fair
value has been assigned.
F-25
<PAGE> 107
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks,
interest-bearing
deposits in banks,
and Federal funds
sold................. $ 26,289,480 $ 26,289,480 $ 19,918,965 $ 19,918,965
Securities
available-for-sale...... 60,241,634 60,241,634 24,686,072 24,686,072
Securities
held-to-maturity........ 44,732,330 45,629,690 75,613,670 76,187,027
Loans..................... 216,123,560 217,048,597 189,020,486 188,884,216
Accrued interest
receivable.............. 3,845,985 3,845,985 3,593,807 3,593,807
Financial liabilities:
Deposits................ 324,797,483 326,849,152 285,317,506 286,446,000
Accrued interest
payable.............. 1,370,048 1,370,048 1,289,292 1,289,292
</TABLE>
NOTE 13. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of
December 31, 1998 and 1997 and statements of income, and cash flows of B C
Bankshares, Inc. for the years ending December 31, 1998, 1997, and 1996:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets
Cash........................................................ $ 156,787 $ 236,647
Investment in subsidiary.................................. 36,328,793 32,879,983
----------- -----------
Total assets........................................... $36,485,580 $33,116,630
=========== ===========
Stockholders' equity........................................ $36,485,580 $33,116,630
=========== ===========
</TABLE>
F-26
<PAGE> 108
B C BANKSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income
Dividends from subsidiary.............................. $2,651,000 $2,280,000 $1,680,000
Interest on deposits................................... 3,358 4,503 3,174
---------- ---------- ----------
2,654,358 2,284,503 1,683,174
---------- ---------- ----------
Expense................................................ 15 15 2,621
---------- ---------- ----------
Total expense..................................... 15 15 2,621
---------- ---------- ----------
Income before income tax and equity in undistributed
income of subsidiary.............................. 2,654,343 2,284,488 1,680,553
Income tax expense..................................... -- 1,527 188
---------- ---------- ----------
Income before equity in undistributed income of
subsidiary........................................ 2,654,343 2,282,961 1,680,365
Equity in undistributed income of subsidiary........... 3,162,268 3,588,878 3,351,500
---------- ---------- ----------
Net income............................................. $5,816,611 $5,871,839 $5,031,865
========== ========== ==========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net income........................................ $ 5,816,611 $ 5,871,839 $ 5,031,865
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiary............. (3,162,268) (3,588,878) (3,351,500)
Other operating activities..................... (1) 1,527 188
----------- ----------- -----------
Net cash provided by operating activities.... 2,654,342 2,284,488 1,680,553
----------- ----------- -----------
Financing Activities
Purchase of treasury stock........................ (278,460) -- (97,955)
Dividends paid.................................... (2,455,742) (2,134,665) (1,576,117)
----------- ----------- -----------
Net cash used in financing activities........ (2,734,202) (2,134,665) (1,674,072)
----------- ----------- -----------
Net increase (decrease) in cash..................... (79,860) 149,823 6,481
Cash at beginning of year........................... 236,647 86,824 80,343
----------- ----------- -----------
Cash at end of year................................. $ 156,787 $ 236,647 $ 86,824
=========== =========== ===========
</TABLE>
F-27
<PAGE> 109
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 6, 1999
BY AND BETWEEN
WACHOVIA CORPORATION
AND
B C BANKSHARES, INC.
<PAGE> 110
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
RECITALS......................................................... 1
ARTICLE I CERTAIN DEFINITIONS................................... 1
1.01 Certain Definitions......................................... 1
ARTICLE II THE MERGER........................................... 4
2.01 The Merger.................................................. 4
2.02 Effective Date and Effective Time........................... 5
2.03 Plan of Merger.............................................. 5
2.04 Integration................................................. 5
ARTICLE III CONSIDERATION; EXCHANGE PROCEDURES.................. 5
3.01 Merger Consideration........................................ 5
3.02 Rights as Stockholders; Stock Transfers..................... 5
3.03 Fractional Shares........................................... 6
3.04 Exchange Procedures......................................... 6
3.05 Anti-Dilution Provisions.................................... 7
3.06 Dissenting Shareholders..................................... 7
ARTICLE IV ACTIONS PENDING ACQUISITION.......................... 7
4.01 Forbearances of BCB......................................... 7
4.02 Forbearances of Wachovia.................................... 9
ARTICLE V REPRESENTATIONS AND WARRANTIES........................ 9
5.01 Disclosure Schedules........................................ 9
5.02 Standard.................................................... 9
5.03 Representations and Warranties of BCB....................... 10
5.04 Representations and Warranties of Wachovia.................. 17
ARTICLE VI COVENANTS............................................ 19
6.01 Reasonable Best Efforts..................................... 19
6.02 Stockholder Approvals....................................... 19
6.03 Registration Statement...................................... 20
6.04 Press Releases.............................................. 20
6.05 Access; Information......................................... 20
6.06 Acquisition Proposals....................................... 21
6.07 Affiliate Agreements........................................ 21
6.08 Takeover Laws............................................... 21
6.09 Certain Policies............................................ 22
6.10 NYSE Listing................................................ 22
6.11 Regulatory Applications..................................... 22
6.12 Indemnification............................................. 22
6.13 Benefit Plans............................................... 23
6.14 Notification of Certain Matters............................. 23
6.15 Dividend Coordination....................................... 23
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............ 24
7.01 Conditions to Each Party's Obligation to Effect the 24
Merger......................................................
7.02 Conditions to Obligation of BCB............................. 24
7.03 Conditions to Obligation of Wachovia........................ 25
</TABLE>
A-i
<PAGE> 111
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VIII TERMINATION........................................ 25
8.01 Termination................................................. 25
8.02 Effect of Termination and Abandonment....................... 26
ARTICLE IX MISCELLANEOUS........................................ 26
9.01 Survival.................................................... 26
9.02 Waiver; Amendment........................................... 26
9.03 Counterparts................................................ 26
9.04 Governing Law............................................... 26
9.05 Waiver of Jury Trial........................................ 26
9.06 Assignment.................................................. 27
9.07 Expenses.................................................... 27
9.08 Notices..................................................... 27
9.09 Entire Understanding; No Third Party Beneficiaries.......... 28
9.10 Interpretation; Effect...................................... 28
EXHIBIT A Form of Stock Option Agreement [See Appendix B of this
Proxy Statement]
EXHIBIT B Form of Voting Agreement [Omitted]
EXHIBIT C List of Persons to execute Employment Agreements
[Omitted]
EXHIBIT D Form of Plan of Merger
EXHIBIT E Form of Affiliate Agreement [Omitted]
</TABLE>
A-ii
<PAGE> 112
AGREEMENT AND PLAN OF MERGER, dated as of October 6, 1999 by and between B
C Bankshares, Inc. ("BCB") and Wachovia Corporation ("Wachovia").
RECITALS
A. B C Bankshares, Inc. BCB is a Georgia corporation, having its principal
place of business in Cherokee County, Georgia.
B. Wachovia Corporation. Wachovia is a North Carolina corporation, having
its principal place of business in both Winston-Salem, North Carolina and
Atlanta, Georgia.
C. Stock Option Agreement. As a condition and an inducement to the
willingness of Wachovia to enter into this Agreement, BCB has granted to
Wachovia an option pursuant to a stock option agreement, in substantially the
form of Exhibit A.
D. Voting Agreements. As a further condition and an inducement to
Wachovia's entering into this Agreement, stockholders of BCB who are also
directors or executive officers of BCB holding or controlling the power to vote
in excess of 22% of the outstanding shares of BCB Common Stock have entered into
agreements with Wachovia, substantially in the form of Exhibit B hereto, under
which each stockholder has agreed to vote in favor of this Agreement (the
"Voting Agreements").
E. Employment Agreements. As a further condition and inducement to the
willingness of Wachovia to enter into this Agreement, certain employees of BCB
identified on Exhibit C have executed and delivered employment agreements with
Wachovia in substantially the forms provided to BCB.
F. Intentions of the Parties. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
G. Board Action. The respective Boards of Directors of each of Wachovia
and BCB have determined that it is in the best interests of their respective
companies and their stockholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section 6.06.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling, controlled by or under common control with
such specified person. For the purposes of this definition, "control" when used
with respect to any specified person means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have correlative meanings to the foregoing.
"Agreement" means this Agreement and Plan of Merger and the Exhibits
hereto, as such may be amended or modified from time to time in accordance with
Section 9.02.
"Benmark Plan" means individually and collectively the supplemental
retirement plan agreements that comprise the Executive Supplemental Retirement
Plan and Director Supplemental Retirement Plan of BCB, disclosed in Section
5.03(m)(i) of the BCB Disclosure Schedule.
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<PAGE> 113
"BCB" has the meaning set forth in the preamble to this Agreement.
"BCB Affiliate" has the meaning set forth in Section 6.07(a).
"BCB Articles" means the Articles of Incorporation, as amended, of BCB.
"BCB Benefit Plans" has the meaning set forth in Section 5.03(m).
"BCB Board" means the Board of Directors of BCB.
"BCB By-Laws" means the Amended and Restated By-laws of BCB.
"BCB Common Stock" means the common stock, par value $5.00 per share, of
BCB.
"BCB Financial Statements" has the meaning set forth in Section 5.03(g).
"BCB Meeting" has the meaning set forth in Section 6.02.
"BCB Pension Plan" has the meaning set forth in Section 5.03(m).
"Code" has the meaning set forth in Recital F.
"Costs" has the meaning set forth in Section 6.12(a).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Effective Date" has the meaning set forth in Section 2.02.
"Effective Time" means the effective time of the Merger, as provided for in
Section 2.02.
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01(a).
"FFIEC" means the Federal Financial Institutions Examination Council.
"GBCC" means the Georgia Business Corporation Code.
"GDBF" means the Georgia Department of Banking and Finance.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Indemnified Party" has the meaning set forth in Section 6.12(a).
"Insurance Amount" has the meaning set forth in Section 6.12(b).
"Insurance Policies" has the meaning set forth in Section 5.03(t).
"Lien" means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to Wachovia, BCB or the
Surviving Corporation, any effect that (i) is material and adverse to the
financial position, results of operations or business of
A-2
<PAGE> 114
Wachovia and its Subsidiaries taken as a whole, BCB and its Subsidiaries taken
as a whole, or the Surviving Corporation and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of either Wachovia or
BCB to perform its obligations under this Agreement or otherwise materially
threaten or materially impede the consummation of the Merger and the other
transactions contemplated by this Agreement; provided, however, that Material
Adverse Effect shall not be deemed to include the impact of (a) changes in
banking and similar laws of general applicability or interpretations thereof by
courts or governmental authorities, (b) changes in generally accepted accounting
principles or regulatory accounting requirements applicable to banks and their
holding companies generally, (c) any modifications or changes to valuation
policies and practices in connection with the Merger, or restructuring or other
charges or other actions taken in connection with the Merger, in each case in
accordance with generally accepted accounting principles, (d) effects of any
action taken with the prior written consent of Wachovia and (e) changes in
conditions or circumstances that affect the banking industry generally.
"Merger" has the meaning set forth in Section 2.01(a).
"Merger Consideration" has the meaning set forth in Section 2.01(a).
"NCBCA" means the North Carolina Business Corporation Act.
"New Certificate" has the meaning set forth in Section 3.04(a).
"NYSE" means the New York Stock Exchange, Inc.
"Old Certificate" has the meaning set forth in Section 3.04.
"Permitted Dividend Amount" has the meaning set forth in Section 4.01(c).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03(a).
"Registration Statement" has the meaning set forth in Section 6.03(a).
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.04(g).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Stock Option Agreement" has the meaning set forth in Recital C.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"Subsidiary Combination" has the meaning set forth in Section 2.04.
"Surviving Corporation" has the meaning set forth in Section 2.01(a).
"Takeover Laws" has the meaning set forth in Section 5.03(o).
A-3
<PAGE> 115
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gross receipts, gains, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of BCB Common Stock held by BCB or any
of its Subsidiaries or by Wachovia or any of its Subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously contracted
in good faith.
"Voting Agreement" has the meaning set forth in Recital D.
"Wachovia" has the meaning set forth in the preamble to this Agreement.
"Wachovia Board" means the Board of Directors of Wachovia.
"Wachovia Common Stock" means the common stock, par value $5.00 per share,
of Wachovia.
"Wachovia Preferred Stock" means the preferred stock, par value $5.00 per
share, of Wachovia.
"Wachovia Stock" means, collectively, Wachovia Common Stock and Wachovia
Preferred Stock.
"Y2K Compliant" means, with respect to any computer software or hardware,
to the extent such computer software or hardware has a calendar function, that
it is able to record, store, process and present calendar dates falling on or
after January 1, 2000 and date-dependent data in substantially the same manner
and with the same functionality as such software records, stores, processes and
presents such calendar dates and date-dependent data as of the date hereof.
"Y2K Plan" means, with respect to a party, a plan for the purpose of
providing reasonable assurance that all significant computer software and
hardware developed or currently used (including third party software and
hardware necessary for the conduct of its business) by such party or its
Subsidiaries will be Y2K Compliant.
ARTICLE II
THE MERGER
2.01 The Merger. (a) At the Effective Time, BCB shall merge with and into
Wachovia (the "Merger"), the separate corporate existence of BCB shall cease and
Wachovia shall survive and continue to exist as a North Carolina corporation
(Wachovia, as the surviving corporation in the Merger, sometimes being referred
to herein as the "Surviving Corporation"). Wachovia may at any time prior to the
Effective Time change the method of effecting the combination with BCB
(including, without limitation, the provisions of this Article II) if and to the
extent it deems such change to be necessary or appropriate; provided, however,
that no such change shall (i) alter or change the amount or kind of
consideration to be issued to holders of BCB Common Stock as provided for in
this Agreement (the "Merger Consideration"), (ii) adversely affect the tax
treatment of BCB's stockholders as a result of receiving the Merger
Consideration or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII, the Merger shall become effective upon the occurrence of the filing
in the office of the Secretary of State of the State of Georgia of a certificate
of merger in accordance with Section 14-2-1105 of the GBCC and the filing in the
office of the Secretary of State of the State of North Carolina of articles of
merger in accordance with
A-4
<PAGE> 116
Section 55-11-05 of the NCBCA or such later date and time as may be set forth in
such certificate or articles. The Merger shall have the effects prescribed in
the NCBCA and the GBCC.
(c) Articles of Incorporation and By-Laws. The articles of incorporation
and by-laws of Wachovia immediately after the Merger shall be those of Wachovia
as in effect immediately prior to the Effective Time.
(d) Directors and Officers of Wachovia. The directors and officers of
Wachovia immediately after the Merger shall be the directors and officers of
Wachovia immediately prior to the Effective Time, until such time as their
successors shall be duly elected and qualified.
2.02 Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Merger (the "Effective Date") to occur on (i) the fifth
business day to occur after the last of the conditions set forth in Article VII
shall have been satisfied or waived in accordance with the terms of this
Agreement (or, at the election of Wachovia, on the last business day of the
month in which such day occurs or, if such fifth business day occurs on one of
the last five business days of such month, on the last business day of the
succeeding month) or (ii) such other date to which the parties may agree in
writing. The time on the Effective Date when the Merger shall become effective
is referred to as the "Effective Time."
2.03 Plan of Merger. Wachovia and BCB hereby enter into a separate plan of
merger, in substantially the form of Exhibit D, for purposes of any filing
requirement.
2.04 Integration. Upon or following the Effective Time, the parties hereto
currently intend to effectuate, or cause to be effectuated, the combination (the
"Subsidiary Combination") of the business of the Bank of Canton, with that of
Wachovia Bank, National Association, provided, however, that the Subsidiary
Combination shall not be a condition to the closing of the Merger. BCB agrees to
cooperate with Wachovia and to take all reasonable actions prior to the
Effective Time, including executing all requisite documentation, as may be
requested by Wachovia to effect the Subsidiary Combination after the Effective
Time.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 Merger Consideration. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
(a) Outstanding BCB Common Stock. Each share, excluding Treasury
Stock and shares as to which dissenters' rights have been properly
perfected, of BCB Common Stock, issued and outstanding immediately prior to
the Effective Time shall become and be converted into 2.914 shares of
Wachovia Common Stock (the "Exchange Ratio"). The Exchange Ratio shall be
subject to adjustment as set forth in Section 3.05.
(b) Outstanding Wachovia Stock. Each share of Wachovia Stock issued
and outstanding immediately prior to the Effective Time shall remain issued
and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of BCB Common Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of BCB Common Stock shall cease to be, and shall have no rights as,
stockholders of BCB, other than to receive any dividend or other distribution
with respect to such BCB Common Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III. After the
Effective Time, there shall be no transfers of shares of BCB Common Stock on the
stock transfer books of BCB or the Surviving Corporation.
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<PAGE> 117
3.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Wachovia Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Wachovia shall pay to each holder of BCB Common Stock who would
otherwise be entitled to a fractional share of Wachovia Common Stock (after
taking into account all Old Certificates delivered by such holder) an amount in
cash (without interest) determined by multiplying such fraction by the closing
price of Wachovia Common Stock, as reported by the NYSE Composite Transactions
Reporting System (as reported in The Wall Street Journal or, if not reported
therein, in another authoritative source), for the NYSE trading day immediately
preceding the Effective Date.
3.04 Exchange Procedures. (a) At or prior to the Effective Time, Wachovia
shall deposit, or shall cause to be deposited, with EquiServe Trust Company,
N.A. (in such capacity, the "Exchange Agent"), for the benefit of the holders of
certificates formerly representing shares of BCB Common Stock ("Old
Certificates"), for exchange in accordance with this Article III, certificates
representing the shares of Wachovia Common Stock ("New Certificates") and an
estimated amount of cash (such cash and New Certificates, together with any
dividends or distributions with a record date occurring after the Effective Date
with respect thereto (without any interest on any such cash, dividends or
distributions), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to this Article III in exchange for outstanding shares of BCB Common
Stock.
(b) As promptly as practicable after the Effective Date, Wachovia shall
send or cause to be sent to each holder of record of shares of BCB Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. Wachovia shall cause the New Certificates into which shares
of a stockholder's BCB Common Stock are converted on the Effective Date and/or
any check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive, to be delivered to
such stockholder promptly upon delivery to the Exchange Agent of Old
Certificates (or indemnity reasonably satisfactory to Wachovia and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery. Old Certificates surrendered for exchange by any BCB Affiliate shall
not be exchanged for New Certificates until Wachovia has received a written
agreement from such person as specified in Section 6.07.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of BCB Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) At the election of Wachovia, no dividends or other distributions with
respect to Wachovia Common Stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered Old Certificate
until the holder thereof shall be entitled to receive New Certificates in
exchange therefor in accordance with the procedures set forth in this Section
3.04, and no such shares of BCB Common Stock shall be eligible to vote until the
holder of Old Certificates is entitled to receive New Certificates in accordance
with the procedures set forth in this Section 3.04. After becoming so entitled
in accordance with this Section 3.04, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Wachovia Common Stock such holder had the right to receive upon surrender of the
Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of BCB for twelve months after the Effective Time shall be paid to
Wachovia. Any stockholders of BCB who have not theretofore complied with this
Article III shall thereafter look only to Wachovia for the payment of the shares
of Wachovia Common Stock, cash in lieu of any fractional shares and unpaid
dividends and distributions on Wachovia Common Stock deliverable in respect of
each share of BCB Common Stock such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon and Wachovia shall
make such payment.
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<PAGE> 118
3.05 Anti-Dilution Provisions. In the event Wachovia changes (or
establishes a record date for changing) the number of shares of Wachovia Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Wachovia Common Stock and the record date or effective date
therefor, as applicable, shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately adjusted.
3.06 Dissenting Shareholders. Any holder of shares of BCB Common Stock who
perfects his dissenters' rights of appraisal in accordance with and as
contemplated by Section 14-2-1302 of the GBCC shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the GBCC and surrendered to BCB the certificate or certificates
representing the shares for which payment is being made. In the event that after
the Effective Time a dissenting shareholder of BCB fails to perfect, or
effectively withdraws or loses, his right to appraisal and of payment for his
shares, Wachovia shall issue and deliver the consideration to which such holder
of shares of BCB Common Stock is entitled under this Article III (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of BCB Common Stock held by him.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 Forbearances of BCB. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of Wachovia, BCB will not, and will cause each of its Subsidiaries not
to:
(a) Ordinary Course. Conduct the business of BCB and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable
efforts to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action reasonably
likely to have a Material Adverse Effect with respect to BCB.
(b) Capital Stock. (1) Issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of BCB
Common Stock or other equity stock of BCB or any Rights, (2) enter into any
agreement with respect to the foregoing other than the Stock Option
Agreement, or (3) permit any shares of BCB Common Stock to become subject
to grants of employee or director stock options, other Rights or similar
stock-based employee rights.
(c) Dividends, Etc. (1) Make, declare, pay or set aside for payment
any dividend (other than (A) a year-end 1999 cash dividend on BCB Common
Stock in an amount not to exceed $2.00 per share and thereafter, in 2000,
quarterly cash dividends on BCB Common Stock in an amount not to exceed
$1.20 per share (the "Permitted Dividend Amount") with record and payment
dates consistent with past practice as Previously Disclosed and (B)
dividends from wholly owned Subsidiaries to BCB or another wholly owned
Subsidiary of BCB) on or in respect of, or declare or make any distribution
on any shares of BCB Common Stock or any Subsidiary's capital stock or (2)
directly or indirectly adjust, split, combine, redeem, reclassify, purchase
or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer, employee or consultant of BCB or
its Subsidiaries, or grant any salary or wage increase or increase any
employee benefit (including incentive or bonus payments), except (i) for
normal individual increases in compensation to employees in the ordinary
course of business consistent with past practice or for Previously
Disclosed bonuses or other bonuses paid with the prior written consent of
Wachovia, which consent shall not to be unreasonably withheld, (ii) for
other changes that are
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required by applicable law, (iii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof, or (iv) for grants
of awards to newly hired employees consistent with past practice.
(e) Benefit Plans. Enter into, establish, adopt or amend (except (i)
as may be required by applicable law, (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof or (iii) with
respect to amendments to the Bank of Canton Profit Sharing Plan as
Previously Disclosed) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation, consulting,
bonus, severance, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer, employee
or consultant of BCB or its Subsidiaries, or take any action (other than
entering into this Agreement) to accelerate the vesting or exercisability
of stock options, restricted stock or other compensation or benefits
payable thereunder.
(f) Dispositions. Except as Previously Disclosed, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its
assets, deposits, business or properties except in the ordinary course of
business and in a transaction that is not material to BCB and its
Subsidiaries taken as a whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other than
by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith,
in each case in the ordinary and usual course of business consistent with
past practice) all or any portion of, the assets, business, deposits or
properties of any other entity except in the ordinary course of business
and in a transaction that is not material to BCB and its Subsidiaries taken
as a whole.
(h) Governing Documents. Amend the BCB Articles, BCB By-laws or the
articles of incorporation or by-laws (or similar governing documents) of
any of BCB's Subsidiaries, except that the articles of incorporation of the
Bank of Canton shall be amended and restated as Previously Disclosed.
(i) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles or, in the case of any bank
subsidiary, by the FFIEC.
(j) Contracts. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract or amend
or modify in any material respect any of its existing material contracts.
(k) Claims. Settle any claim, action or proceeding not Previously
Disclosed without the prior written consent of Wachovia, which consent
shall not be unreasonably withheld.
(l) Adverse Actions. Except as contemplated by Sections 6.02 and
6.06, (i) take any action which would materially adversely affect its
ability to consummate the Merger; (ii) take any action reasonably likely to
prevent or impede the Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code; or (iii) knowingly take any action that
is intended or is reasonably likely to result in (A) subject to the
standard set forth in Section 5.02, any of its representations and
warranties set forth in this Agreement being or becoming untrue at any time
at or prior to the Effective Time, (B) any of the conditions to the Merger
set forth in Article VII not being satisfied or (C) a material violation of
any provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate
and other risk management policies, procedures or practices; (ii) fail in
any material respect to follow its existing policies or practices with
respect to managing its exposure to interest rate and other risk; or (iii)
otherwise fail to use commercially reasonable means to avoid any material
increase in its aggregate exposure to interest rate risk.
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(n) Indebtedness. Incur any indebtedness for borrowed money other
than in the ordinary course of business consistent with past practice.
(o) Tax Matters. Make or change any material tax election, change any
annual tax accounting period, adopt or change any method of tax accounting,
file any amended Tax Return, enter into any material closing agreement,
settle any material Tax claim or assessment, surrender or compromise any
right to claim a material Tax refund, consent to any extension or waiver of
the limitations period applicable to any material Tax claim or assessment,
in each case, other than any of the foregoing actions that are not material
and which are taken in the ordinary and usual course of business consistent
with past practice.
(p) Commitments. Agree or commit to do any of the foregoing.
4.02 Forbearances of Wachovia. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of BCB, Wachovia will not, and will cause each of its
Subsidiaries not to:
(a) Extraordinary Dividends. Make, declare, pay or set aside for
payment any extra ordinary dividend.
(b) Adverse Actions. (i) Take any action reasonably likely to prevent
or impede the Merger from qualifying as a reorganization within the meaning
of Section 368 of the Code; or (ii) knowingly take any action that is
intended or is reasonably likely to result in (A) any of its
representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time at or prior to the
Effective Time, (B) any of the conditions to the Merger set forth in
Article VII not being satisfied; or (C) a material violation of any
provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, Wachovia has
delivered to BCB a schedule and BCB has delivered to Wachovia a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 5.03
or 5.04 or to one or more of its covenants contained in Article IV; provided,
that (a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect.
5.02 Standard. No representation or warranty of BCB or Wachovia contained
in Section 5.03 (other than (A) those contained in Sections 5.03(a)(i), (b),
(c)(i), (c)(ii), (c)(iii)(A), (g)(iii)(B), (h)(i), (m)(i), (m)(ii) and other
than (B) those contained in Section 5.03(e) and (g)(i) which in the case of (B)
shall not be deemed untrue or incorrect unless they are not true and correct in
all material respects) or 5.04 shall be deemed untrue or incorrect, and no party
hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had or is reasonably likely to have a
Material Adverse Effect.
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5.03 Representations and Warranties of BCB. Subject to Sections 5.01 and
5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, BCB hereby represents
and warrants to Wachovia:
(a) Organization, Standing and Authority. (i) BCB is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia. (ii) BCB is duly qualified to do business and is in good
standing in the states of the United States and any foreign jurisdictions
where its ownership or leasing of property or assets or the conduct of its
business requires it to be so qualified.
(b) BCB Stock. As of the date hereof, the authorized capital stock of
BCB consists solely of 10,000,000 shares of BCB Common Stock, of which
557,254 shares were outstanding as of the date hereof. As of the date
hereof, 42,746 shares of BCB Common Stock were held in treasury by BCB or
otherwise owned by BCB or its Subsidiaries ("Treasury Stock"). The
outstanding shares of BCB Stock have been duly authorized and are validly
issued and out standing, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any preemptive
rights). As of the date hereof, except as Previously Disclosed in its
Disclosure Schedule, there are no shares of BCB Common Stock authorized and
reserved for issuance, BCB does not have any Rights issued or outstanding
with respect to BCB Common Stock, and BCB does not have any commitment to
authorize, issue or sell any BCB Common Stock or Rights, except pursuant to
this Agreement and the Stock Option Agreement.
(c) Subsidiaries. (i)(A) BCB has Previously Disclosed a list of all
of its Subsidiaries together with the jurisdiction of organization of each
such Subsidiary, (B) except as Previously Disclosed, it owns, directly or
indirectly, all the issued and outstanding equity securities of each of its
Subsidiaries, (C) no equity securities of any of its Subsidiaries are or
may become required to be issued (other than to BCB or its wholly-owned
Subsidiaries) by reason of any Right or otherwise, (D) there are no
contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is or may be bound to sell or otherwise transfer any equity
securities of any such Subsidiaries (other than to BCB or its wholly-owned
Subsidiaries or with respect to the Subsidiary Combination), (E) there are
no contracts, commitments, understandings, or arrangements relating to its
rights to vote or to dispose of such securities and (F) all the equity
securities of each Subsidiary held by BCB or its Subsidiaries are fully
paid and nonassessable (except pursuant to 12 U.S.C. sec.55 or similar
state laws) and are owned by BCB or its Subsidiaries free and clear of any
Liens.
(ii) BCB does not own beneficially, directly or indirectly, any equity
securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries,
except for such securities or interests held as a fiduciary or as a result
of debts previously contracted.
(iii) Each of BCB's Subsidiaries (A) has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and (B) is duly qualified to do business and in good standing
in the jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified.
(d) Corporate Power. BCB and each of its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and BCB has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement to
receipt of the requisite approval of the agreement of merger set forth in
this Agreement by the holders of more than a majority of the outstanding
shares of BCB Common Stock entitled to vote thereon (which is the only
shareholder vote required thereon), this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of BCB and
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the BCB Board prior to the date hereof. This Agreement is a valid and
legally binding obligation of BCB, enforceable in accordance with its terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditors' rights or
by general equity principles). The BCB Board of Directors has received the
written opinion of The Carson Medlin Company to the effect that as of the
date hereof the Exchange Ratio is fair, from a financial point of view, to
the holders of BCB Common Stock.
(f) Regulatory Filings; No Defaults. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by BCB or any of its
Subsidiaries in connection with the execution, delivery or performance by
BCB of this Agreement or the Stock Option Agreement or to consummate the
Merger except for (A) the filing of a notice under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (B) filings of
applications or notices with federal and state banking authorities, (C)
filings with the SEC and state securities authorities, and (D) the filing
of articles of merger with the Secretary of State of the State of North
Carolina pursuant to the NCBCA and the Secretary of State of the State of
Georgia pursuant to the GBCC. As of the date hereof, BCB is not aware of
any reason why the approvals set forth in Section 7.01(b) will not be
received without the imposition of a condition, restriction or requirement
of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph, and expiration of related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and thereby do
not and will not (A) constitute a breach or violation of, or a default
under, or give rise to any Lien, any acceleration of remedies or any right
of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or contract, agreement, indenture or
instrument of BCB or of any of its Subsidiaries or to which BCB or any of
its Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the BCB Articles or the BCB By-Laws,
or (C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license,
contract, agreement, indenture or instrument.
(g) Financial Reports; No Material Adverse Effect. (i) BCB has
Previously Disclosed its audited consolidated financial statements for the
fiscal years ended December 31, 1996, 1997 and 1998 (the "BCB Financial
Statements"), and the call reports submitted to the FDIC for Bank of Canton
(the "Call Reports") for the quarters ended subsequent to December 31, 1998
(or, in the case of Call Reports for quarters ending after the date of this
Agreement and before the Effective Time, will be made available as soon as
they are completed). Each of the balance sheets contained in the BCB
Financial Statements (including the related notes and schedules thereto)
fairly presents the financial position of BCB and its Subsidiaries as of
its date, and each of the statements of income and changes in stockholders'
equity and cash flows or equivalent statements contained in the BCB
Financial Statements (including any related notes and schedules thereto)
fairly presents the results of operations, changes in stockholders' equity
and changes in cash flows, as the case may be, of BCB and its Subsidiaries
for the periods to which they relate, in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved. Each of the balance sheets contained in the Call Reports
fairly presents, or will fairly present, the financial position of the Bank
of Canton as of its date, and each of the statements of income and changes
in stockholders' equity or equivalent statements contained in the Call
Reports fairly presents, or will fairly present, the results of operations
and changes in stockholders' equity as the case may be, of the Bank of
Canton for the periods to which they relate, in each case in accordance
with FFIEC instructions, except in each case as may be noted therein,
subject to normal year-end audit adjustments.
(ii) Since December 31, 1998, BCB and its Subsidiaries have not
incurred any liability other than in the ordinary course of business
consistent with past practice.
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(iii) Since December 31, 1998, (A) BCB and its Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practice (excluding the incurrence of expenses related
to this Agreement and the transactions contemplated hereby) and (B) no
event has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in any
paragraph of Section 5.03 or otherwise), is reasonably likely to have a
Material Adverse Effect with respect to BCB.
(h) Litigation. (i) BCB has Previously Disclosed its true and
complete list, as of the date hereof, of all litigation, claims or other
proceedings before any court or governmental agency pending (or, to BCB's
knowledge, threatened) against BCB or any of its subsidiaries. (ii) No
other litigation, claim or other proceeding before any court or
governmental agency is pending against BCB or any of its Subsidiaries and,
to BCB's knowledge, no such litigation, claim or other proceeding has been
threatened.
(i) Regulatory Matters. (i) Neither BCB nor any of its Subsidiaries
or properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment
letter or similar submission to, or extraordinary supervisory letter from,
any federal or state governmental agency or authority charged with the
supervision or regulation of financial institutions or issuers of
securities or engaged in the insurance of deposits (including, without
limitation, the GDBF, the Federal Reserve Board and the FDIC) or the
supervision or regulation of it or any of its Subsidiaries (each, a
"Regulatory Authority").
(ii) Neither it nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating
issuing or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(j) Compliance with Laws. BCB and each of its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to own or lease their respective properties and to conduct their
respective businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full
force and effect and, to BCB's knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) has received, since December 31, 1998, no notification or
communication from any Governmental Authority (A) asserting that BCB or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations, or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit, or govern
mental authorization (nor, to BCB's knowledge, do any grounds for any of
the foregoing exist).
(k) Material Contracts; Defaults. Except as Previously Disclosed in
BCB's Disclosure Schedule or otherwise reflected in the BCB Financial
Statements, neither BCB nor any of its Subsidiaries, nor any of their
respective assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement contract providing for aggregate
payments to any Person in any calendar year in excess of $100,000, (ii) any
contract relating to the borrowing of money by BCB or any of its
Subsidiaries or the guarantee by BCB or any of its Subsidiaries of any such
obligation (other than contracts evidencing deposit liabilities, purchases
of federal funds, repurchase agreements, and Federal Home Loan Bank
advances of depository institution Subsidiaries, trade payables and
contracts relating to borrowings or guarantees
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made in the ordinary course of business), (iii) any contract which
prohibits or restricts BCB or any of its Subsidiaries from engaging in any
business activities in any geographic area, line of business or otherwise
in competition with any other Person, (iv) any contract involving
intellectual property (other than contracts entered into in the ordinary
course with customers and "shrink-wrap" software licenses), (v) any
contract relating to the provision of data processing, network
communication, or other technical services to or by BCB or any of its
Subsidiaries, (vi) any exchange-traded or over-the-counter swap, forward,
future, option, cap, floor, or collar financial contract, or any other
interest rate or foreign currency protection contract not included on its
balance sheet or any note thereto, (vii) any contract that obligates BCB or
any of its Subsidiaries to pay more than $100,000 over the life of such
contract that is not terminable with 30 days or less notice, or (viii) any
contract described in or pertaining to Article III, Section 1 of the BCB
By-Laws (nor to the knowledge of BCB does any such contract exist among any
shareholders of BCB). Neither it nor any of its Subsidiaries is in default
under any contract, agreement, commitment, arrangement, lease, insurance
policy or other instrument to which it is a party, by which its respective
assets, business, or operations may be bound or affected, or under which it
or its respective assets, business, or operations receives benefits, and
there has not occurred any event that, with the lapse of time or the giving
of notice or both, would constitute such a default.
(l) No Brokers. No action has been taken by BCB that would give rise
to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be
paid to The Carson Medlin Company (the engagement letter for which also has
been Previously Disclosed).
(m) Employee Benefit Plans. (i) BCB has delivered or made available
to Wachovia prior to the execution of this Agreement copies of all pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation, bonus, or other incentive plan,
all employment, change in control or other employee agreements, all
medical, vision, dental, or other health plans, all life insurance plans,
and all other employee benefit plans or fringe benefit plans, including
"employee benefit plans," as defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to
by BCB or any of its Subsidiaries or any ERISA Affiliate thereof for the
benefit of employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "BCB Benefit
Plans"). BCB has listed each BCB Benefit Plan in Section 5.03(m) of the BCB
Disclosure Schedule. Any of the BCB Benefit Plans which is an "employee
pension benefit plan," as defined in Section 3(2) of ERISA, is referred to
herein as a "BCB Pension Plan." No BCB Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(ii) BCB has delivered or made available to Wachovia prior to the
execution of this Agreement correct and complete copies of the following
documents: (i) all trust agreements or other funding arrangements for such
BCB Benefit Plans (including insurance contracts), and all amendments
thereto, (ii) with respect to any such BCB Benefit Plans or amendments, all
determination letters, material rulings, material opinion letters, material
information letters, or material advisory opinions issued by the Internal
Revenue Service, the United States Department of Labor, or the Pension
Benefit Guaranty Corporation after December 31, 1995, (iii) annual reports
or returns, audited or unaudited financial statements, actuarial valuation
and reports, and summary annual reports prepared for any BCB Benefit Plan
with respect to the most recent plan year, and (iv) the most recent summary
plan descriptions and any material modifications thereto.
(iii) All BCB Benefit Plans are in substantial compliance with the
applicable terms of ERISA, the Code, and any other applicable laws. Each
BCB Pension Plan which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the Internal
Revenue Service and BCB is not aware of any circumstance that is reason
ably likely to result in the revocation of such favorable determination
letter. Neither BCB nor any of its Subsidiaries has engaged in a
transaction with respect to any BCB Benefit Plan that, assuming the taxable
period of
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such transaction expired as of the date hereof, would subject BCB or any of
its Subsidiaries to a Tax imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(iv) No BCB Pension Plan has (except as disclosed in Section 5.03(m)
of the BCB Disclosure Schedule) any "unfunded current liability," as
defined in Section 302(d) of ERISA, and the fair market value of the assets
of any such plan exceeds the plan's "benefit liabilities," as defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that
would apply if the plan terminated in accordance with all applicable legal
requirements. Since the date of the most recent actuarial valuation, there
has been (i) no material change in the financial position of any BCB
Pension Plan, (ii) no change in the actuarial assumptions with respect to
any BCB Pension Plan, and (iii) no increase in benefits under any BCB
Pension Plan as a result of plan amendments or changes in applicable law
which is reasonably likely to materially adversely affect the funding
status of any such plan. Neither any BCB Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any BCB Entity, or the single-employer
plan of any entity which is considered one employer with BCB under Section
4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate") has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA. Neither BCB nor any of
its Subsidiaries has provided, or is required to provide, security to a BCB
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Within the six-year period preceding the Effective Time, no
liability (other than liabilities for routine contributions, all of which
have been made when due) under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by BCB or any of its Subsidiaries with
respect to any ongoing, frozen, or terminated single-employer plan or the
single-employer plan of any ERISA Affiliate, which liability is reasonably
likely to be material. Neither BCB nor any of its Subsidiaries has incurred
any withdrawal liability with respect to a multiemployer plan under
Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which liability is reasonably likely
to be material. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any BCB Pension Plan or by
an ERISA Affiliate within the 12-month period ending on the date hereof.
(vi) Except as disclosed in Section 5.03(m) of the BCB Disclosure
Schedule, neither BCB nor any of its Subsidiaries has any liability for
retiree health and life benefits under any of the BCB Benefit Plans and
there are no restrictions on the rights of BCB or any of its Subsidiaries
to amend or terminate any such retiree health or benefit Plan without
incurring any liability thereunder.
(vii) Except as disclosed in Section 5.03(m) of the BCB Disclosure
Schedule, neither the execution of this Agreement nor the consummation of
the transactions contemplated hereby will (x) entitle any employees of BCB
or any of its Subsidiaries to severance pay or any increase in severance
pay upon any termination of employment prior to or after the date hereof,
(y) accelerate the time of payment or vesting or trigger any payment or
funding (through a grantor trust or otherwise) of compensation or benefits
under, increase the amount payable or trigger any other material obligation
pursuant to, any of the BCB Benefit Plans, or (z) result in any payments
under any of the BCB Benefit Plans which would not be deductible under
Section 162(m) or Section 280G of the Code.
(viii) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of
employees and former employees of BCB or any of its Subsidiaries and their
respective beneficiaries, have been fully reflected on the BCB Financial
Statements to the extent required by and in accordance with generally
accepted accounting principles.
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(n) Labor Matters. Neither BCB nor any of its Subsidiaries is a party
to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
BCB or any of its Subsidiaries the subject of a proceeding asserting that
it or any such Subsidiary has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel BCB
or any such Subsidiary to bargain with any labor organization as to wages
or conditions of employment, nor is there any strike or other labor dispute
involving it or any of its Subsidiaries pending or, to BCB's knowledge,
threatened, nor is BCB aware of any activity involving its or any of its
Subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
(o) Takeover Laws. BCB has taken all action required to be taken by
it in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the
Stock Option Agreement, the Voting Agreements and the transactions
contemplated hereby and thereby are exempt from, the requirements of any
"moratorium", "control share", "fair price", "affiliate transaction",
"business combination" or other antitakeover laws and regulations
(collectively, "Takeover Laws") of the State of Georgia, including, without
limitation, Sections 14-2-1110 through 14-2-1113, and Sections 14-2-1131
through 14-2-1133 of the GBCC.
(p) Environmental Matters. To the knowledge of BCB and its
Subsidiaries, neither the conduct nor operation of BCB or its Subsidiaries
nor any condition of any property presently or previously owned, leased or
operated by any of them (including, without limitation, in a fiduciary or
agency capacity), or on which any of them holds a Lien, violates or
violated Environmental Laws and no condition has existed or event has
occurred with respect to any of them or any such property that, with notice
or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. Neither BCB nor any of its Subsidiaries
has received any written notice from any person or entity that BCB or its
Subsidiaries or the operation or condition of any property ever owned,
leased, operated, or held as collateral or in a fiduciary capacity by any
of them are or were in violation of or otherwise are alleged to have
liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such
property.
(q) Tax Matters. With respect to taxable periods for which the
statute of limitations as it may be extended or otherwise applied has not
expired, (i) all Tax Returns required to have been filed by or with respect
to BCB and its Subsidiaries have been duly and timely filed, (ii) all Taxes
that are due and payable by BCB or its Subsidiaries (regardless of whether
shown to be due on the Tax Returns referred to in clause (i)) have been
timely paid in full, (iii) the United States federal and state income Tax
Returns referred to in clause (i) (and other Tax Returns referred to in
clause (i) for periods beginning after 1990) have been audited by the
Internal Revenue Service or the appropriate state, local or foreign taxing
authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired, (iv) all
deficiencies asserted or assessments made as a result of such examinations
have been paid in full, (v) no issues that have been raised by the relevant
taxing authority in connection with the examination of any of the Tax
Returns referred to in clause (i) are currently pending, (vi) no waivers of
statutes of limitation have been given by or requested with respect to any
Taxes of BCB or its Subsidiaries, and (vii) all Taxes that BCB or any of
its Subsidiaries is obligated to withhold from amounts owing to any
employee, creditor or third party have been paid over to the proper
Governmental Authority in a timely manner, to the extent due and payable.
BCB has made available to Wachovia true and correct copies of the United
States federal income Tax Returns filed by BCB and its Subsidiaries for
each of the three most recent fiscal years ended on or before December 31,
1998. Neither BCB nor any of its Subsidiaries has any liability with
respect to income, franchise or similar Taxes that accrued on or before the
end of the most recent period covered by the BCB Financial Statements in
excess of the amounts accrued with respect thereto that are reflected in
the BCB Financial Statements. Neither BCB nor any of its Subsidiaries has
any reason to believe that any conditions exist that might prevent
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or impede the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code. Neither BCB nor any of its Subsidiaries is a
party to any Tax allocation or sharing agreement, is or has been a member
of an affiliated group filing consolidated or combined Tax Returns (other
than a group the common parent of which is or was BCB) or otherwise has any
liability for the Taxes of any person (other than BCB and its
Subsidiaries). No Liens for Taxes exist with respect to any of the assets
or properties of BCB or its Subsidiaries, except for statutory Liens for
Taxes not yet due and payable or that are being contested in good faith and
reserved for in accordance with United States generally accepted accounting
principles. Neither BCB nor any of its Subsidiaries has been a party to any
distribution occurring during the last two (2) years in which the parties
to such distribution treated the distribution as one to which Section 355
of the Code applied. BCB is not and has not been at any time during the
past five (5) years, a "United States real property holding corporation."
For purposes of the previous sentence, a United States real property
holding corporation means any corporation if the fair market value of its
United States real property interests equals or exceeds fifty (50) percent
of the fair market value of its United States real property interests, its
interest in real property located outside the United States, plus any other
assets which are used or held for use in a trade or business. A United
States real property interest is an interest in real property (including
any interest in a mine, well, or other natural deposit) located in the
United States or the Virgin Islands and any interest in a domestic
corporation that is a United States real property holding corporation (as
de fined above) during the shorter of the period during which BCB held such
interest or the five (5) year period ending on the date of the transaction.
(r) Risk Management Instruments. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for BCB's own account,
or for the account of one or more of BCB's Subsidiaries or their customers
(all of which are listed on BCB's Disclosure Schedule), were entered into
(i) in accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (ii) with counterparties
believed to be financially responsible at the time; and each of them
constitutes the valid and legally binding obligation of BCB or one of its
Subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full force
and effect. Neither BCB nor its Subsidiaries, nor to BCB's knowledge any
other party thereto, is in breach of any of its obligations under any such
agreement or arrangement.
(s) Books and Records. The books and records of BCB and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or discrepancies
of any kind contained or reflected therein, and they fairly present the
financial position of BCB and its Subsidiaries.
(t) Insurance. BCB's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by BCB or its Subsidiaries
("Insurance Policies"). BCB and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of BCB
reasonably has determined to be prudent in accordance with industry
practices. All the Insurance Policies are in full force and effect; BCB and
its Subsidiaries are not in material default thereunder; and all claims
thereunder have been filed in due and timely fashion.
(u) Year 2000 Compliance. The software and hardware operated by BCB
and its Subsidiaries are, or are being adapted or replaced and are expected
to be, Y2K Compliant. A true and complete copy of BCB's Y2K Plan has been
made available to Wachovia, and BCB and its Subsidiaries are in the process
of effecting the Y2K Plan in accordance with the schedule provided for
therein. To the best of BCB's knowledge, incurring the future costs to
implement the Y2K Plan is not reasonably likely to have a Material Adverse
Effect with respect to BCB.
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(v) Disclosure. The representations and warranties contained in this
Section 5.03 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 5.03 not misleading.
5.04 Representations and Warranties of Wachovia. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, Wachovia hereby
represents and warrants to BCB as follows:
(a) Organization, Standing and Authority. Wachovia is duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. Wachovia is duly qualified to do business and is in good standing
in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. Wachovia has in effect all federal, state,
local, and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now
conducted.
(b) Wachovia Stock. (i) As of the date hereof, the authorized capital
stock of Wachovia consists solely of 1,000,000,000 shares of Wachovia
Common Stock, of which 202,887,011 shares were outstanding as of October 4,
1999 and 50,000,000 shares of Wachovia Preferred Stock, of which no shares
were outstanding as of the date hereof. As of the date hereof, except as
set forth in its Disclosure Schedule, Wachovia does not have any Rights
issued or outstanding with respect to Wachovia Stock, and Wachovia does not
have any commitment to authorize, issue or sell any Wachovia Stock or
Rights, except pursuant to this Agreement.
(ii) The shares of Wachovia Common Stock to be issued in exchange for
shares of BCB Common Stock in the Merger, when issued in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable.
(c) Subsidiaries. Each of Wachovia's Significant Subsidiaries has
been duly organized and is validly existing in good standing under the laws
of the jurisdiction of its organization, and is duly qualified to do
business and in good standing in the jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and it owns, directly or indirectly, all the issued and
outstanding equity securities of each of its Significant Subsidiaries.
(d) Corporate Power. Wachovia and each of its Significant
Subsidiaries has the corporate power and authority to carry on its business
as it is now being conducted and to own all its properties and assets; and
Wachovia has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby.
(e) Corporate Authority. This Agreement and the transactions
contemplated hereby have been authorized by all necessary corporate action
of Wachovia and its Board of Directors and does not require any vote of
stockholders. This Agreement is a valid and legally binding agreement of
Wachovia enforceable in accordance with its terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditors' rights or by general equity
principles).
(f) Regulatory Approvals; No Defaults. No consents or approvals of,
or filings or registrations with, any court, administrative agency or
commission or other governmental authority or instrumentality or with any
third party are required to be made or obtained by Wachovia or any of its
Subsidiaries in connection with the execution, delivery or performance by
Wachovia of this Agreement or to consummate the Merger except for (A) the
filing of applications and notices, as applicable, with federal and state
banking authorities; (B) approval of the listing on the NYSE of Wachovia
Common Stock to be issued in the Merger; (C) the filing and declaration of
effectiveness of the Registration Statement; (D) the filing of articles of
merger with the Secretary of State of the State of North Carolina pursuant
to the NCBCA and the Secretary of State of the State of Georgia pursuant to
the GBCC; (E) such filings as are required to be made or approvals as are
required to be obtained under the securities or "Blue Sky" laws of various
states in connection with the issuance of Wachovia Common Stock in the
Merger; and (F) receipt of the approvals set forth in Section 7.01(b). As
of
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the date hereof, Wachovia is not aware of any reason why the approvals set
forth in Section 7.01(b) will not be received without the imposition of a
condition, restriction or requirement of the type described in Section
7.01(b).
(ii) Subject to receipt of the regulatory approvals referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a
breach or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or contract, agreement, indenture or instrument of Wachovia or of
any of its Subsidiaries or to which Wachovia or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of, or
a default under, the certificate of incorporation or by-laws (or similar
governing documents) of Wachovia or any of its Subsidiaries, or (C) require
any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, contract, agreement,
indenture or instrument.
(g) Financial Reports and SEC Documents; Material Adverse Effect. (i)
Wachovia's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, and all other reports, registration statements, definitive proxy
statements or information statements filed or to be filed by it or any of
its Subsidiaries subsequent to December 31, 1998 under the Securities Act,
or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form
filed or to be filed with the SEC (collectively, Wachovia's "SEC
Documents"), as of the date filed, (A) complied or will comply in all
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents, or will fairly present, the
financial position of Wachovia and its Subsidiaries as of its date, and
each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in such SEC Documents (including any
related notes and schedules thereto) fairly presents, or will fairly
present, the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of Wachovia and its Subsidiaries
for the periods to which they relate, in each case in accordance with
generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, subject to
normal year-end audit adjustments in the case of unaudited statements.
(ii) Since December 31, 1998, no event has occurred or circumstance
arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with
respect to Wachovia.
(h) Litigation; Regulatory Action. (i) Other than as set forth in its
SEC Documents filed on or before the date hereof, no litigation, claim or
other proceeding before any Govern mental Authority is pending against
Wachovia or any of its Subsidiaries and, to the best of Wachovia's
knowledge, no such litigation, claim or other proceeding has been
threatened.
(ii) Neither Wachovia nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from a
Regulatory Authority, nor has Wachovia or any of its Subsidiaries been
advised by a Regulatory Authority that such agency is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
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(i) Compliance with Laws. Wachovia and each of its Significant
Subsidiaries:
(i) in the conduct of its business, is in compliance with all
applicable federal, state, local and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act
and all other applicable fair lending laws and other laws relating to
discriminatory business practices; and
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations
with, all Governmental Authorities that are required in order to permit
them to conduct their businesses substantially as presently conducted;
all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to the best of its
knowledge, no suspension or cancellation of any of them is threatened;
and
(iii) has received, since December 31, 1998, no notification or
communication from any Governmental Authority (A) asserting that
Wachovia or any of its Subsidiaries is not in compliance with any of the
statutes, regulations, or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any license, franchise, permit, or
governmental authorization (nor, to Wachovia's knowledge, do any grounds
for any of the foregoing exist).
(j) No Brokers. No action has been taken by Wachovia that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement.
(k) Disclosure. The representations and warranties contained in this
Section 5.04 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 5.04 not misleading.
(l) Year 2000 Compliance. The software and hardware operated by
Wachovia and its Subsidiaries are, or are being adapted or replaced and are
expected to be, Y2K Compliant. A true and complete copy of Wachovia's Y2K
Plan has been made available to BCB, and Wachovia and its Subsidiaries are
in the process of effecting the Y2K Plan in accordance with the schedule
provided for therein. To the best of Wachovia's knowledge, incurring the
future costs to implement the Y2K Plan is not reasonably likely to have a
Material Adverse Effect with respect to Wachovia.
(m) Taxes. Neither Wachovia nor any of its Subsidiaries has any
reason to believe that any conditions exist that might prevent or impede
the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of BCB and Wachovia agrees to use its reasonable best efforts in
good faith to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Merger as promptly as practicable and
otherwise to enable consummation of the transactions contemplated hereby and
shall cooperate fully with the other party hereto to that end (it being
understood that any amendments or supplements to the Registration Statement or
Proxy Statement or a resolicitation of proxies as a consequence of an
acquisition agreement by Wachovia or any of its Subsidiaries shall not violate
this covenant).
6.02 Stockholder Approvals. BCB agrees to take, in accordance with
applicable law and its articles of incorporation and by-laws, all action
necessary to convene an appropriate meeting of stockholders of BCB to consider
and vote upon the approval and adoption of this Agreement and any other matters
required to be approved by BCB's stockholders for consummation of the Merger
(including any
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adjournment or postponement, the "BCB Meeting") as promptly as practicable after
the Registration Statement is declared effective. Except to the extent legally
required for the discharge by the Board of Directors of its fiduciary duties as
advised in writing by its counsel, the BCB Board shall recommend such approval,
and BCB shall take all reasonable, lawful action to solicit such approval by its
stockholders.
6.03 Registration Statement. (a) Wachovia agrees to prepare a registration
statement on Form S-4 (the "Registration Statement") to be filed by Wachovia
with the SEC in connection with the issuance of Wachovia Stock in the Merger
(including the proxy statement and prospectus and other proxy solicitation
materials of BCB constituting a part thereof (the "Proxy Statement") and all
related documents). Each of the parties hereto agrees to cooperate, and to cause
its Subsidiaries to cooperate, with the other, its counsel and its accountants,
in preparation of the Registration Statement and the Proxy Statement; and
provided that BCB and its Subsidiaries have cooperated as required above,
Wachovia shall file the Registration Statement with the SEC as soon as
reasonably practicable. Each of BCB and Wachovia agrees to use all reasonable
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as reasonably practicable after filing thereof.
Wachovia also agrees to use all reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. BCB agrees to furnish to Wachovia
all information concerning BCB, its Subsidiaries, officers, directors and
stockholders as may be reasonably requested in connection with the foregoing.
(b) Each of BCB and Wachovia agrees, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the BCB Meeting, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or any
statement which, in the light of the circumstances under which such statement is
made, will be false or misleading with respect to any material fact, or which
will omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Proxy Statement or any amendment or supplement thereto.
Each of BCB and Wachovia further agrees that if it shall become aware prior to
the Effective Date of any information furnished by it that would cause any of
the statements in the Proxy Statement to be false or misleading with respect to
any material fact, or to omit to state any material fact necessary to make the
statements therein not false or misleading, to promptly inform the other party
thereof and both parties shall take the necessary steps to promptly correct the
Proxy Statement.
(c) Wachovia agrees to advise BCB, promptly after Wachovia receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of Wachovia Common Stock for offering or sale in
any jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
6.04 Press Releases. Each of BCB and Wachovia agrees that neither it nor
any of its respective Subsidiaries will, without consultation with and the prior
approval of the other party, issue any press release or written statement for
general circulation relating to the transactions contemplated hereby, except as
otherwise required by applicable law or regulation or NYSE rules.
6.05 Access; Information. (a) Each of BCB and Wachovia agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel
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and to such other information as any party may reasonably request and, during
such period, it shall furnish promptly to such other party (i) a copy of each
material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (ii) all other
information concerning the business, properties and personnel of it as the other
may reasonably request.
(b) Each agrees that it will not, and will cause its representatives and
Subsidiaries not to, use any information obtained pursuant to this Section 6.05
(as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party will keep confidential, and will cause
its representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.05 (as well as any other information obtained prior
to the date hereof in connection with the entering into of this Agreement)
unless such information (i) was already known to such party, (ii) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (iii) is disclosed with the prior written
approval of the party to which such information pertains or (iv) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information and
data as to another party hereto to be returned to the party which furnished the
same. No investigation by either party of the business and affairs of the other
shall affect or be deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to either party's
obligation to consummate the transactions contemplated by this Agreement.
6.06 Acquisition Proposals. BCB agrees that neither it nor any of its
Subsidiaries nor any of the respective officers and directors of BCB or its
Subsidiaries shall, and BCB shall direct and use its reasonable best efforts to
cause its employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, initiate, solicit or encourage, directly or indirectly,
any enquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to stockholders of BCB) with respect to a
merger, consolidation or similar transaction involving, or any purchase of all
or any significant portion of the assets or any equity securities of, BCB or its
Significant Subsidiary (any such proposal or offer being hereinafter referred to
as an "Acquisition Proposal") or, except to the extent legally required for the
discharge by the Board of Directors of its fiduciary duties as advised in
writing by its counsel, engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. BCB shall immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of this Agreement with any parties other than
Wachovia with respect to any of the foregoing and shall use its reasonable best
efforts to enforce any confidentiality or similar agreement relating to an
Acquisition Proposal. BCB shall promptly (within 24 hours) advise Wachovia
following the receipt by BCB of any Acquisition Proposal and the substance
thereof (including the identity of the person making such Acquisition Proposal),
and advise Wachovia of any developments with respect to such Acquisition
Proposal immediately upon the occurrence thereof.
6.07 Affiliate Agreements. (a) BCB has disclosed in Section 6.07 of the
BCB Disclosure Schedule each person that, to its knowledge, is or is reasonably
likely to be, as of the date of BCB Meeting, deemed to be an "affiliate" of it
(each, a "BCB Affiliate") as that term is used in Rule 145 under the Securities
Act.
(b) BCB shall use its reasonable best efforts to cause each person who may
be deemed to be a BCB Affiliate to execute and deliver to Wachovia on or before
the Effective Date an "affiliates agreement" in form attached hereto as Exhibit
E.
6.08 Takeover Laws. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement, the Stock Option Agreement or
the Voting Agreements to be subject to requirements imposed by any Takeover Law
and each of them shall take all necessary steps within its
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control to exempt (or ensure the continued exemption of) the transactions
contemplated by this Agreement from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect.
6.09 Certain Policies. Prior to the Effective Date, BCB shall, consistent
with generally accepted accounting principles and on a basis mutually
satisfactory to it and Wachovia, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with those
of Wachovia; provided, however, that BCB shall not be obligated to take any such
action pursuant to this Section 6.09 unless and until Wachovia acknowledges that
all conditions to its obligation to consummate the Merger have been satisfied.
6.10 NYSE Listing. Wachovia agrees to use its reasonable best efforts to
list, prior to the Effective Date, on the NYSE, subject to official notice of
issuance, the shares of Wachovia Common Stock to be issued to the holders of BCB
Common Stock in the Merger.
6.11 Regulatory Applications. (a) Wachovia and BCB and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement. Each of Wachovia and BCB shall have the right to review in advance,
and to the extent practicable each will consult with the other, in each case
subject to applicable laws relating to the exchange of information, with respect
to, all material written information submitted to any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party appraised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.12 Indemnification. (a) Following the Effective Date and for a period of
six years thereafter, Wachovia shall indemnify, defend and hold harmless the
present directors and officers of BCB and its Subsidiaries (each, an
"Indemnified Party") against all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs)" incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement and the Stock Option Agreement) to the fullest extent that BCB is
permitted to indemnify (and advance expenses to) its directors and officers
under the laws of the State of Georgia, the BCB Articles and the BCB By-Laws as
in effect on the date hereof; provided that any determination required to be
made with respect to whether an officer's or director's conduct complies with
the standards set forth under Georgia law, the BCB Articles and the BCB By-Laws
shall be made by independent counsel (which shall not be counsel that provides
material services to Wachovia) selected by Wachovia and reasonably acceptable to
such officer or director; and provided, further, that in the absence of
applicable Georgia judicial precedent to the contrary, such counsel, in making
such determination, shall presume such officer's or director's conduct complied
with such standard and Wachovia shall have the burden to demonstrate that such
officer's or director's conduct failed to comply with such standard.
(b) For a period of three years from the Effective Time, Wachovia shall use
its reasonable best efforts to provide that portion of director's and officer's
liability insurance that serves to reimburse the present and former officers and
directors of BCB or any of its Subsidiaries (determined as of the Effective
Time) (as opposed to BCB) with respect to claims against such directors and
officers arising from facts or
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events which occurred before the Effective Time, which insurance shall contain
at least the same coverage and amounts, and contain terms and conditions no less
advantageous, as that coverage currently provided by BCB; provided, however,
that in no event shall Wachovia be required to expend more than 200 percent of
the current amount expended by BCB (the "Insurance Amount") to maintain or
procure such directors and officers insurance coverage; provided, further, that
if Wachovia is unable to maintain or obtain the insurance called for by this
Section 6.12(b), Wachovia shall use its reasonable best efforts to obtain as
much comparable insurance as is available for the Insurance Amount; provided,
further, that officers and directors of BCB or any Subsidiary may be required to
make application and provide customary representations and warranties to
Wachovia's insurance carrier for the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify Wachovia thereof; provided that the
failure so to notify shall not affect the obligations of Wachovia under Section
6.12(a) unless and to the extent that Wachovia is actually prejudiced as a
result of such failure.
(d) If Wachovia or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper provision shall
be made so that the successors and assigns of Wachovia shall assume the
obligations set forth in this Section 6.12.
6.13 Benefit Plans. As soon as practicable following the Effective Time,
Wachovia shall provide generally to employees (including officers) of BCB,
employee benefits, including severance benefits, under employee and welfare
benefit plans on terms and conditions which, when taken as a whole, are
substantially similar to those currently provided by Wachovia and Wachovia Bank,
N.A. to similarly situated employees (including officers) of Wachovia Bank,
N.A.; provided, however, that, prior to the time that such benefits are
provided, such employees of BCB will continue to be provided with benefits under
employee benefit plans (other than plans involving the issuance of securities of
BCB or Wachovia) which in the aggregate are substantially comparable to those
currently provided by BCB to such employees. All discretionary awards and
benefits under any employee benefit plans of Wachovia shall be subject to the
discretion of the persons or committee administering such plans. To the extent
that Wachovia causes an employee benefit plan maintained by Wachovia to cover
employees of BCB, Wachovia shall cause such employee benefit plan to credit such
Employee's service with BCB prior to the Effective Date for purposes of
participation, eligibility and vesting, but not for purposes of benefit accrual,
to the same extent that such service was credited by BCB. Wachovia hereby agrees
to assume and to perform and honor the obligations of BCB under the Benmark Plan
and all BCB Benefit Plans to the extent Previously Disclosed. Except as
expressly provided by this Section 6.13 or an individual employment agreement
referenced in the Recitals hereto, nothing contained herein shall in any way
limit or restrict the ability of Wachovia to amend, modify, or terminate any
employee benefit plan, including the BCB Benefit Plans, following the Effective
Time.
6.14 Notification of Certain Matters. Each of BCB and Wachovia shall give
prompt notice to the other of any fact, event or circumstance known to it that
(i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (ii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
6.15 Dividend Coordination. After December 31, 1999, the Board of
Directors of BCB shall cause its regular quarterly dividend record dates and
payment dates for BCB Common Stock to be the same as Wachovia's regular
quarterly dividend record dates and payment dates for Wachovia Common Stock, and
BCB shall not thereafter change its regular dividend payment dates and record
dates (it being the intention of the parties hereto that holders of BCB Common
Stock shall not receive more than one dividend, or fail to receive one dividend,
for any single calendar quarter).
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ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of Wachovia and BCB to consummate the Merger is
subject to the fulfillment or written waiver by Wachovia and BCB prior to the
Effective Time of each of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly adopted
by the affirmative vote of the holders of the requisite number of
outstanding shares of BCB Common Stock entitled to vote thereon in
accordance with applicable law, the BCB Articles and the BCB By-Laws.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the trans actions contemplated hereby, excluding the Subsidiary
Combination, shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have
expired and no such approvals shall contain any conditions, restrictions or
requirements which the Wachovia Board reasonably determines in good faith
would (i) following the Effective Time, have a Material Adverse Effect on
the Surviving Corporation and its Subsidiaries taken as a whole or (ii)
reduce the benefits of the transactions contemplated hereby to such a
degree that Wachovia would not have entered into this Agreement had such
conditions, restrictions or requirements been known at the date hereof.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) Blue Sky Approvals. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Wachovia Common Stock to be issued in the
Merger shall have been received and be in full force and effect.
(f) Listing. The shares of Wachovia Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
7.02 Conditions to Obligation of BCB. The obligation of BCB to consummate
the Merger is also subject to the fulfillment or written waiver by BCB prior to
the Effective Time of each of the following conditions:
(a) Representations and Warranties. Subject to the standard set forth
in Section 5.02, the representations and warranties of Wachovia set forth
in this Agreement shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on and as of the
Effective Date (except that representations and warranties that by their
terms speak as of the date of this Agreement or some other date shall be
true and correct as of such date), and BCB shall have received a
certificate, dated the Effective Date, signed on behalf of Wachovia by the
Chief Executive Officer and the Chief Financial Officer of Wachovia to such
effect.
(b) Performance of Obligations of Wachovia. Wachovia shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and BCB shall
have received a certificate, dated the Effective Date, signed on behalf of
Wachovia by the Chief Executive Officer and the Chief Financial Officer of
Wachovia to such effect.
(c) Opinion of BCB's Counsel. Subject to the structure of merger
conforming to the first sentence of Section 2.01, BCB shall have received
an opinion of Alston & Bird LLP, special counsel to BCB, dated the date of
the Proxy Statement and the Effective Date, to the effect that, on the
basis
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of facts, representations and assumptions set forth in such opinion, (i)
the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, (ii)
Wachovia and BCB will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, and (iii) no gain or loss will be
recognized by stockholders of BCB who receive shares of Wachovia Common
Stock solely in exchange for shares of BCB Common Stock, provided that gain
or loss will be recognized as to cash received in lieu of fractional share
interests. In rendering its opinion, Alston & Bird LLP may require and rely
upon representations contained in letters from BCB, Wachovia, Wachovia
Bank, NA and others.
7.03 Conditions to Obligation of Wachovia. The obligation of Wachovia to
consummate the Merger is also subject to the fulfillment or written waiver by
Wachovia prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. Subject to the standard set forth
in Section 5.02, the representations and warranties of BCB set forth in
this Agreement shall be true and correct as of the date of this Agreement
and as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as
of such date) and Wachovia shall have received a certificate, dated the
Effective Date, signed on behalf of BCB by the Chief Executive Officer and
the Chief Financial Officer of BCB to such effect.
(b) Performance of Obligations of BCB. BCB shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Wachovia shall have
received a certificate, dated the Effective Date, signed on behalf of BCB
by the Chief Executive Officer and the Chief Financial Officer of BCB to
such effect.
(c) Opinion of Wachovia's Counsel. Wachovia shall have received an
opinion of Sullivan & Cromwell, special counsel to Wachovia, dated the date
of the Proxy Statement and the Effective Date, to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion,
(i) the Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Code, (ii)
Wachovia and BCB will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, and (iii) no gain or loss will be
recognized by stockholders of BCB who receive shares of Wachovia Common
Stock solely in exchange for shares of BCB Common Stock, except that gain
or loss may be recognized as to cash received in lieu of fractional share
interests. In rendering its opinion, Sullivan & Cromwell may require and
rely upon representations contained in letters from Wachovia, Wachovia
Bank, N.A., BCB and others.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the Merger may be
abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Wachovia and BCB, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by Wachovia or
BCB, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by the
other party of any representation or warranty contained herein (subject to
the standard set forth in Section 5.02), which breach cannot be or has not
been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party of any
of the covenants or agreements contained herein, which breach cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach, provided
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that such breach (whether under (i) or (ii)) would be reasonably likely,
individually or in the aggregate with other breaches, to result in a
Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by Wachovia or
BCB, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Acquisition is not
consummated by April 15, 2000, except to the extent that the failure of the
Merger then to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate pursuant to this
Section 8.01(c).
(d) No Approval. By BCB or Wachovia, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority or (ii) the stockholder approval required by Section
7.01(a) herein is not obtained prior to the Effective Date.
(e) Failure to Recommend, Etc. At any time prior to the BCB Meeting,
by Wachovia if BCB Board shall have failed to make its recommendation
referred to in Section 6.02, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the
interests of Wachovia.
8.02 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Acquisition pursuant to this Article
VIII, no party to this Agreement shall have any liability or further obligation
to any other party hereunder except (i) as set forth in Section 9.01 and (ii)
that termination will not relieve a breaching party from liability for any
willful breach of this Agreement giving rise to such termination. In the event
of the termination of this Agreement, Wachovia agrees that, until August 4,
2001, it will not, directly or indirectly, solicit to employ any person known by
it to be a current officer of BCB, so long as they are employed by BCB, or
directly or indirectly solicit or encourage any such officers to leave BCB's
employ (other than pursuant to general advertisements of employment in
publications not specifically targeted at BCB's employees), in either case,
without obtaining the prior written consent of BCB.
ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.12, 6.13 and this Article IX which shall survive the Effective Time)
or the termination of this Agreement if this Agreement is terminated prior to
the Effective Time (other than Sections 6.03(b), 6.05(b), 8.02 and this Article
IX which shall survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that, after the BCB
Meeting, this Agreement may not be amended if it would violate the GBCC.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the State of North Carolina applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law or of the NCBCA or GBCC are
applicable).
9.05 Waiver of Jury Trial. Each party hereto acknowledges and agrees that
any controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each
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such party hereby irrevocably and unconditionally waives any right such party
may have to a trial by jury in respect of any litigation directly or indirectly
arising out of or relating to this Agreement, or the transactions contemplated
by this Agreement. Each party certifies and acknowledges that (a) no
representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce the foregoing waiver, (b) each party understands and has considered
the implications of this waiver, (c) each party makes this waiver voluntarily,
and (d) each party has been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications in this Section 9.05.
9.06 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties hereto and any purported
assignment in violation of this Section 9.06 shall be null and void.
9.07 Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing expenses shall be shared equally between BCB and Wachovia;
provided, however, that if the Agreement is terminated prior to the Effective
Time, Wachovia shall pay all costs incurred by BCB as a result of (i) any change
by Wachovia in the method of effecting the combination with BCB pursuant to
Section 2.01 or (ii) any amendment or supplement to the Registration Statement
or Proxy Statement or a resolicitation of proxies as a consequence of an
acquisition agreement by Wachovia or any of its Subsidiaries as contemplated in
Section 6.01.
9.08 Notices. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to BCB, to:
B C Bankshares, Inc.
2780 Marietta Highway
P.O. Box 649
Canton, Georgia 30114
Attention: E.O. McFather, Jr., Chairman
Telephone: (770) 479-1931
Facsimile: (770) 720-4679
With a copy to:
Alston & Bird LLP
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Ralph F. MacDonald, III, Esq.
Telephone: (404) 881-7000
Facsimile: (404) 881-4777
If to Wachovia, to:
Wachovia Corporation
100 North Main Street
P.O. Box 3099
Winston-Salem, North Carolina 27150
Attention: Kenneth W. McAllister, Esq.
Telephone: (336) 770-5000
Facsimile: (336) 722-2974
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With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Mark J. Menting, Esq.
Telephone: (212) 558-4000
Facsimile: (212) 558-3588
9.09 Entire Understanding; No Third Party Beneficiaries. This Agreement,
the Stock Option Agreement and the Voting Agreements represent the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and thereby and this Agreement, the Stock Option Agreement
and the Voting Agreements supersede any and all other oral or written agreements
heretofore made. Nothing in this Agreement expressed or implied, is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.10 Interpretation; Effect. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
B C BANKSHARES, INC.
By: /s/ EDWIN O. MCFATHER, JR.
------------------------------------
Name: Edwin O. McFather, Jr.
Title: Chairman and Chief
Executive Officer
WACHOVIA CORPORATION
By: /s/ G. JOSEPH PRENDERGAST
------------------------------------
Name: G. Joseph Prendergast
Title: President and Chief
Operating Officer
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FORM OF PLAN OF MERGER
PLAN OF MERGER (this "Plan") of B C Bankshares, Inc., a Georgia corporation
("BCB" or the "merged corporation") and Wachovia Corporation ("Wachovia" or the
"Surviving Corporation").
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. The following terms are used in this Plan with
the meanings set forth below:
"BCB Board" means the Board of Directors of BCB.
"BCB Common Stock" means the common stock, par value $5.00 per share,
of BCB.
"Effective Date" means the effective date of the Merger.
"Effective Time" means the effective time of the Merger.
"Exchange Agent" has the meaning set forth in Section 3.4.
"GBCC" means the Georgia Business Corporation Code.
"Merger" means the merger of BCB with and into Wachovia.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
October 6, 1999, by and between BCB and Wachovia.
"Merger Consideration" means the consideration to be issued to holders
of BCB Common Stock as provided in this Plan.
"NCBCA" means the North Carolina Business Corporation Act.
"New Certificates" has the meaning set forth in Section 3.4.
"NYSE" means the New York Stock Exchange, Inc.
"Old Certificates" has the meaning set forth in Section 3.4.
"Person" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"Subsidiary" has the meaning ascribed to it in Rule 1-02 of the
Securities and Exchange Commission's Regulation S-X.
"Treasury Stock" shall mean shares of BCB Common Stock held by BCB or
any of its Subsidiaries or by Wachovia or any of its Subsidiaries, in each
case other than in a fiduciary capacity or as a result of debts previously
contracted in good faith.
"Wachovia Common Stock" means the common stock, par value $5.00 per
share, of Wachovia.
"Wachovia Preferred Stock" means the preferred stock, par value $5.00
per share, of Wachovia.
"Wachovia Stock" means, collectively, Wachovia Common Stock and
Wachovia Preferred Stock.
ARTICLE II
THE MERGER
2.1. The Merger. (a) At the Effective Time, BCB shall merge with and into
Wachovia, the separate corporate existence of BCB shall cease and Wachovia shall
survive and continue to exist as a North Carolina corporation. Wachovia may at
any time prior to the Effective Time change the method of effecting the
combination with BCB (including, without limitation, the provisions of this
Article II) if and to the extent it deems such change to be necessary or
appropriate; provided, however, that no such change
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shall (i) alter or change the amount or kind of Merger Consideration, (ii)
adversely affect the tax treatment of BCB's stockholders as a result of
receiving the Merger Consideration or (iii) materially impede or delay
consummation of the transactions contemplated by this Agreement. In the event of
such an election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
(b) Subject to the satisfaction or waiver of the conditions set forth in
Article VII of the Merger Agreement, the Merger shall become effective upon the
occurrence of the filing in the office of the Secretary of State of the State of
Georgia of a certificate of merger in accordance with Section 14-2-1105 of the
GBCC and the filing in the office of the Secretary of State of the State of
North Carolina of articles of merger in accordance with Section 55-11-05 of the
NCBCA or such later date and time as may be set forth in such certificate and
articles. The Merger shall have the effects prescribed in the NCBCA and the
GBCC.
(c) Articles of Incorporation and By-Laws. The articles of incorporation
and by-laws of Wachovia immediately after the Merger shall be those of Wachovia
as in effect immediately prior to the Effective Time.
(d) Directors and Officers of Wachovia. The directors and officers of
Wachovia immediately after the Merger shall be the directors and officers of
Wachovia immediately prior to the Effective Time, until such time as their
successors shall be duly elected and qualified.
2.2. Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VII of the Merger Agreement, the
parties shall cause the Effective Date to occur on (a) the fifth business day to
occur after the last of the conditions set forth in Article VII of the Merger
Agreement shall have been satisfied or waived in accordance with the terms of
the Merger Agreement (or, at the election of Wachovia, on the last business day
of the month in which such day occurs or, if such last business day occurs on
one of the last five business days of such month, on the last business day of
the succeeding month) or (b) such other date to which the parties may agree in
writing.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.1. Merger Consideration. Subject to the provisions of this Plan, at the
Effective Time, automatically by virtue of the Merger and without any action on
the part of any Person:
(a) Outstanding BCB Common Stock. Each share, excluding Treasury
Stock and shares as to which dissenters' rights have been properly
perfected, of BCB Common Stock, issued and outstanding immediately prior to
the Effective Time shall become and be converted into 2.914 shares of
Wachovia Common Stock (the "Exchange Ratio"). The Exchange Ratio shall be
subject to adjustment as set forth in Section 3.4.
(b) Outstanding Wachovia Stock. Each share of Wachovia Stock issued
and outstanding immediately prior to the Effective Time shall remain issued
and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of BCB Common Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange
therefor.
3.2. Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of BCB Common Stock shall cease to be, and shall have no rights as,
stockholders of BCB, other than to receive any dividend or other distribution
with respect to such BCB Common Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III. After the
Effective Time, there shall be no transfers of shares of BCB Common Stock on the
stock transfer books of BCB or the Surviving Corporation.
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3.3. Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Wachovia Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Wachovia shall pay to each holder of BCB Common Stock who would
otherwise be entitled to a fractional share of Wachovia Common Stock (after
taking into account all Old Certificates delivered by such holder) an amount in
cash (without interest) determined by multiplying such fraction by the closing
price of Wachovia Common Stock, as reported by the NYSE Composite Transactions
Reporting System (as reported in The Wall Street Journal or, if not reported
therein, in another authoritative source), for the NYSE trading day immediately
preceding the Effective Date.
3.4. Exchange Procedures. (a) At or prior to the Effective Time, Wachovia
shall deposit, or shall cause to be deposited, with EquiServe Trust Company,
N.A. (in such capacity, the "Exchange Agent"), for the benefit of the holders of
certificates representing shares of BCB Common Stock ("Old Certificates"), for
exchange in accordance with this Article III, certificates representing the
shares of Wachovia Common Stock ("New Certificates") and an estimated amount of
cash (such cash and New Certificates, together with any dividends or
distributions with a record date occurring after the Effective Date with respect
thereto (without any interest on any such cash, dividends or distributions),
being hereinafter referred to as the "Exchange Fund") to be paid pursuant to
this Article III in exchange for outstanding shares of BCB Common Stock.
(b) As promptly as practicable after the Effective Date, Wachovia shall
send or cause to be sent to each holder of record of shares of BCB Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. Wachovia shall cause the New Certificates into which shares
of a stockholder's BCB Common Stock are converted on the Effective Date and/or
any check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be delivered to
such stockholder promptly upon delivery to the Exchange Agent of Old
Certificates (or indemnity reasonably satisfactory to Wachovia and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in lieu of
fractional share interests or in respect of dividends or distributions which any
such person shall be entitled to receive pursuant to this Article III upon such
delivery. Old Certificates surrendered for exchange by any BCB Affiliate shall
not be exchanged for New Certificates until Wachovia has received a written
agreement from such person as specified in Section 6.07 of the Merger Agreement.
(c) Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of BCB Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) At the election of Wachovia, no dividends or other distributions with
respect to Wachovia Common Stock with a record date occurring after the
Effective Time shall be paid to the holder of any unsurrendered Old Certificate
until the holder thereof shall be entitled to receive New Certificates in
exchange therefor in accordance with the procedures set forth in this Section
3.4, and no such shares of BCB Common Stock shall be eligible to vote until the
holder of Old Certificates is entitled to receive New Certificates in accordance
with the procedures set forth in this Section 3.4. After becoming so entitled in
accordance with this Section 3.4, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Wachovia Common Stock such holder had the right to receive upon surrender of the
Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of BCB for twelve months after the Effective Time shall be paid to
Wachovia. Any stockholders of BCB who have not theretofore complied with this
Article III shall thereafter look only to Wachovia for the payment of the shares
of Wachovia Common Stock, cash in lieu of any fractional shares and unpaid
dividends and distributions on Wachovia Common Stock deliverable in respect of
each share of BCB Common Stock such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon and Wachovia shall
make such payment.
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3.5. Anti-Dilution Provisions. In the event Wachovia changes (or
establishes a record date for changing) the number of shares of Wachovia Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding Wachovia Common Stock and the record date or effective date
therefor, as applicable, shall be prior to the Effective Date, the Exchange
Ratio shall be proportionately adjusted.
3.6. Dissenting Shareholders. Any holder of shares of BCB Common Stock who
perfects his dissenters' rights of appraisal in accordance with and as
contemplated by Section 14-2-1302 of the GBCC shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the GBCC and surrendered to BCB the certificate or certificates
representing the shares for which payment is being made. In the event that after
the Effective Time a dissenting shareholder of BCB fails to perfect, or
effectively withdraws or loses, his right to appraisal and of payment for his
shares, Wachovia shall issue and deliver the consideration to which such holder
of shares of BCB Common Stock is entitled under this Article III (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of BCB Common Stock held by him.
ARTICLE IV
CONDITIONS TO THE MERGER
4.1. Consummation of the Merger is subject to the conditions set forth in
Article VII of the Merger Agreement.
ARTICLE V
TERMINATION
5.1. This Plan may be terminated, and the Merger may be abandoned prior to
the Effective Time as provided in Article VIII of the Merger Agreement.
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 6, 1999, between Wachovia, a
North Carolina corporation ("Grantee"), and B C Bankshares, Inc., a Georgia
corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer are entering into an Agreement and Plan of
Merger (the "Merger Agreement");
WHEREAS, as a condition and an inducement to Grantee's entering into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined) on the terms and conditions set forth in this Agreement; and
WHEREAS, the Board of Directors of Issuer has approved the Merger
Agreement, the Voting Agreements referred to therein and the grant of the Option
prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 110,000 shares of the common stock, par value $5.00 per share,
of Issuer ("Common Stock") at a price per share equal to $205.00 (such
price, as adjusted if applicable, the "Option Price"); provided, that in no
event shall the number of shares for which this Option is exercisable
exceed 19.9% of the issued and outstanding shares of Common Stock. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event
described in Section 5(a) hereof), the number of shares of Common Stock
subject to the Option shall be increased so that, after such issuance, such
number together with any shares of Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Common Stock then issued
and outstanding without giving effect to any shares subject or issued
pursuant to the Option. Nothing contained in this Section l(b) or elsewhere
in this Agreement shall be deemed to authorize Issuer to issue shares in
breach of any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall
have sent the written notice of such exercise (as provided in subsection
(e) of this Section 2) within six (6) months following such Subsequent
Triggering Event (or such later period as provided in Section 9). Each of
the following shall be an "Exercise Termination Event": (i) the Effective
Time of the Merger; (ii) termination of the Merger Agreement in accordance
with the provisions thereof if such termination occurs prior to the
occurrence of an Initial Triggering Event, except a termination by Grantee
pursuant to Section 8.01(b) of the Merger Agreement or by Grantee or Issuer
pursuant to Section 8.01(e) of the Merger Agreement (each, a "Listed
Termination"); or (iii) the passage of twelve (12) months (or such longer
period as provided in Section 9) after termination of the Merger Agreement
if such termination follows the occurrence of an Initial Triggering Event
or is a Listed Termination. The term "Holder" shall mean the holder or
holders of the Option. Notwithstanding anything to the contrary contained
herein, (i) the Option may not be exercised at any time when Grantee shall
be in material breach of any of its covenants or agreements contained in
the Merger Agreement such that Issuer shall be entitled to terminate the
Merger Agreement pursuant to Section 8.01(b) thereof and (ii) this
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Agreement shall automatically terminate upon the proper termination of the
Merger Agreement by Issuer pursuant to Section 8.01(b) thereof as a result
of the material breach by Grantee of its covenants or agreements contained
in the Merger Agreement.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or its Significant Subsidiary (as defined in Rule 1-02
of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")), the "Issuer Subsidiary"), without having received
Grantee's prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement having the
meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations thereunder) other than Grantee or any of its
Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors of
Issuer (the "Issuer Board") shall have recommended that the shareholders
of Issuer approve or accept any Acquisition Transaction other than as
contemplated by the Merger Agreement. For purposes of this Agreement,
(a) "Acquisition Transaction" shall mean (x) a merger or consolidation,
or any similar transaction, involving Issuer or the Issuer Subsidiary
(other than mergers, consolidations or similar transactions involving
solely Issuer and/or one or more wholly-owned Subsidiaries of the
Issuer, provided, any such transaction is not entered into in violation
of the terms of the Merger Agreement), (y) a purchase, lease or other
acquisition of all or any substantial part of the assets or deposits of
Issuer or the Issuer Subsidiary, or (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise)
of securities representing 18% or more of the voting power of Issuer or
the Issuer Subsidiary, provided that "Acquisition transaction" shall not
include transfers of securities by gift or testamentary disposition
("Excluded Disposition") and (b) "Subsidiary" shall have the meaning set
forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary
shall have acquired (other than as a result of an Excluded Disposition)
beneficial ownership or the right to acquire beneficial ownership of 18%
or more of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has been
held for that purpose or any adjournment or postponement thereof, or
such meeting shall not have been held in violation of the Merger
Agreement or shall have been canceled prior to termination of the Merger
Agreement if, prior to such meeting (or if such meeting shall not have
been held or shall have been canceled, prior to such termination), it
shall have been publicly announced that any person (other than Grantee
or any of its Subsidiaries) shall have made, or disclosed an intention
to make, a proposal to engage in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse in
any respect to Grantee its recommendation that the shareholders of
Issuer approve the transactions contemplated by the Merger Agreement, or
Issuer or the Issuer Subsidiary shall have authorized, recommended,
proposed (or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders to engage
in an Acquisition Transaction and such proposal shall have been publicly
announced;
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(vi) Any person other than Grantee or any Grantee Subsidiary shall
have filed with the SEC, or distributed, a registration statement or
tender offer materials with respect to a potential exchange or tender
offer that would constitute an Acquisition Transaction (or filed a
preliminary proxy statement with the SEC with respect to a potential
vote by its shareholders to approve the issuance of shares to be offered
in such an exchange offer); or
(vii) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in anticipation of engaging
in an Acquisition Transaction, and following such breach Grantee would
be entitled to terminate the Merger Agreement (whether immediately or
after the giving of notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee Subsidiary,
without Grantee's prior written consent, shall have filed an application
or notice with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") or other federal or state bank regulatory or
antitrust authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction; or
(ix) The failure of a shareholder or shareholders in the aggregate
holding in excess of 10% of the Company's outstanding Common Stock to
comply with the terms of his, her or its Voting Agreement (as defined in
the Merger Agreement).
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (z) of the second sentence thereof
shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice
(the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided, that if prior notification to or
approval of the Federal Reserve Board or any other regulatory or antitrust
agency is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval, shall
promptly notify Issuer of such filing, and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall (i) pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
by Issuer and (ii) present and surrender this Agreement to Issuer at its
principal executive offices, provided that the failure or refusal of the
Issuer to designate such a bank account or accept surrender of this
Agreement shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates
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representing the number of shares of Common Stock purchased by the Holder
and, if the Option should be exercised in part only, a new Option
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed conspicuously with a restrictive legend that shall read
substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or any state or foreign securities
laws, and transfer is restricted. Transfer of the shares represented by
this certificate also is subject to certain provisions of an agreement
between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt by
Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference in the opinion of counsel to the Holder; and (iii) the legend
shall be removed in its entirety if the conditions in the preceding clauses
(i) and (ii) are both satisfied. In addition, such certificates shall bear
any other legend as may be required by law or deemed reasonably necessary
by the Issuer to comply with securities laws.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local document and transfer taxes and
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action, if any, as may from
time to time be required of Issuer (including (x) complying with all
applicable premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of
1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978,
as amended, or any state or other federal banking law, prior approval of or
notice to the Federal Reserve Board or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices
and providing such information to the Federal Reserve Board or such state
or other federal regulatory authority as they may require) in order to
permit the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against
dilution.
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4. This Agreement and the Option granted hereby are exchangeable,
without expense, at the option of the Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any Agreements and related Options for
which this Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer
will execute and deliver a new Agreement of like tenor and date. Any such
new Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement
so lost, stolen, destroyed or mutilated shall at any time be enforceable by
anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section
1 of this Agreement, the number of shares of Common Stock purchasable upon
the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of
shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted and proper
provision shall be made so that, in the event that any additional shares of
Common Stock are to be issued or otherwise become outstanding as a result
of any such change (other than pursuant to an exercise of the Option), the
number of shares of Common Stock that remain subject to the Option shall be
increased so that, after any foregoing issuances of shares of Common Stock
and together with shares of Common Stock previously issued pursuant to the
exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it will equal 19.9% of the number of shares
of Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within twelve (12) months (or such later period as
provided in Section 9) of such Subsequent Triggering Event (whether on its
own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a registration statement under the
1933 Act covering any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration
statement to become effective and remain current in order to permit the
sale or other disposition of any shares of Common Stock issued upon total
or partial exercise of this Option ("Option Shares") in accordance with any
plan of disposition requested by Grantee. Issuer will use its reasonable
best efforts to cause such registration statement promptly to become
effective and then to remain effective for such period not in excess of 180
days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or
other dispositions. Grantee shall have the right to demand two such
registrations. The Issuer shall bear the costs of such registrations
(including, but not limited to, Issuer's attorneys' fees, printing costs
and filing fees, except for underwriting discounts or commissions, brokers'
fees and the fees and disbursements of Grantee's counsel related thereto).
The foregoing notwithstanding, if, at the time of any request by Grantee
for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering by Issuer of
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shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the offer and sale of the Option Shares
would interfere with the successful marketing of the shares of Common Stock
offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; provided,
however, that after any such required reduction the number of Option Shares
to be included in such offering for the account of all Holders shall
constitute at least 15% of the total number of shares to be sold by all
Holders and Issuer in the aggregate; and the Holders shall thereafter be
entitled to one additional registration and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement
to be filed hereunder, and each such Holder shall indemnify and hold
harmless the underwriters and the issuer for any inaccuracies in the
information supplied by such Holder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for Issuer. Upon receiving any request under this Section 6 from
any Holder, Issuer agrees to send a copy thereof to any other person known
to Issuer to be entitled to registration rights under this Section 6, in
each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies. Notwithstanding
anything to the contrary contained herein, in no event shall the number of
registrations that Issuer is obligated to effect be increased by reason of
the fact that there shall be more than one Holder, whether as a result of
any assignment or division of this Agreement or otherwise.
7. (a) At any time after the occurrence of a Repurchase Event (as
defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 9),
Issuer (or any successor thereto) shall repurchase the Option from the
Holder at a price (the "Option Repurchase Price") equal to the amount by
which (A) the market/offer price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered prior to an Exercise Termination Event (or
such later period as provided in Section 9), Issuer (or any successor
thereto) shall repurchase such number of the Option Shares from the Owner
as the Owner shall designate at a price (the "Option Share Repurchase
Price") equal to the market/offer price multiplied by the number of Option
Shares so designated. The term "market/offer price" shall mean the highest
of (i) the price per share of Common Stock at which a tender or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) if
Issuer's Common Stock is traded on Nasdaq or any national securities
exchange, the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or any substantial part of Issuer's assets or
deposits, the sum of the net price paid in such sale for such assets or
deposits and the current market value of the remaining net assets of Issuer
as determined by an investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by
the number of shares of Common Stock of Issuer outstanding at the time of
such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by an investment banking
firm selected by the Holder or Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating
that the Holder or the Owner, as the case may be, elects to require Issuer
to repurchase this Option and/or the Option Shares in
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accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within five business days after the surrender
of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase Price and/or to
the Owner the Option Share Repurchase Price therefor or the portion thereof
that Issuer is not then prohibited under applicable law and regulation from
so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing
the Option and/or the Option Shares in full, Issuer shall immediately so
notify the Holder and/or the Owner and thereafter deliver or cause to be
delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Holder and/or
the Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain (and to take all action necessary to obtain)
all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
the Holder or Owner may revoke its notice of repurchase of the Option
and/or the Option Shares whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that
Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered
Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase
Price less the portion thereof theretofore delivered to the Holder and the
denominator of which is the Option Repurchase Price, and/or (B) to the
Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to
the date of the notice by Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the
Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be
deemed to have occurred upon the occurrence of any of the following events
or transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 50% or more of the then
outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into
any person, other than Grantee or a Grantee Subsidiary, or engage in a plan
of exchange with any person, other than Grantee or a Grantee Subsidiary and
Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge
into Issuer or be acquired by Issuer in a plan of exchange and Issuer shall
be the continuing or surviving or acquiring corporation, but, in connection
with such merger or plan of exchange, the then outstanding shares of Common
Stock shall be changed into or exchanged for stock or other securities of
any other person or cash or any other property or the then outstanding
shares of Common Stock shall after such merger or plan of exchange
represent less than 50% of the outstanding shares and share equivalents of
the merged or acquiring company, or (iii) to sell or
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otherwise transfer all or a substantial part of its or the Issuer
Subsidiary's assets or deposits to any person, other than Grantee or a
Grantee Subsidiary, then, and in each such case, the agreement governing
such transaction shall make proper provision so that the Option shall, upon
the consummation of any such transaction and upon the terms and conditions
set forth herein represent the right to acquire what the Holder would have
received had it exercised such Option immediately prior to such
transaction.
(b) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the proper provision referred to
therein is provided for.
9. Periods for exercise of certain rights hereunder shall be extended
to the extent necessary to obtain all regulatory approvals for the exercise
of such rights (for so long as the Holder or Owner, as the case may be, is
using commercially reasonable efforts to obtain such regulatory approvals),
and for the expiration of all statutory waiting periods.
10. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by the Issuer Board prior to the date hereof and no other corporate
proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option,
that number of shares of Common Stock equal to the maximum number of
shares of Common Stock at any time and from time to time issuable
hereunder, and all such shares, upon issuance pursuant thereto, will be
duly authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
11. Grantee hereby represents and warrants to Issuer that this Option
is not being, and any Option Shares or other securities acquired by Grantee
upon exercise of the Option will not be, acquired with a view to the public
distribution thereof and will not be transferred or otherwise disposed or
except in a transaction registered or exempt from registration under the
1933 Act.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any
other person, without the express written consent of the other party,
except that in the event an Initial Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder; provided, however, that until the date 15 days
following the date on which the Federal Reserve Board has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no
one party acquires the right to purchase in excess of 2% of the voting
shares of Issuer, (iii) an assignment to a single party (e.g., a broker or
investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf or (iv) any other manner approved by the
Federal Reserve Board.
13. Each of Grantee and Issuer will use its reasonable best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities, if any, that are necessary to the consummation of
the transactions contemplated by this Agreement, including, without
limitation, the Grantee applying to the Federal Reserve Board under the
BHCA and the GDBF under the Financial Institutions Code of Georgia for
approval to acquire the shares issuable hereunder.
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14. (a)(i) Notwithstanding any other provision of this Agreement, in
no event shall the Grantee's Total Profit (as hereinafter defined) exceed
$5.5 million and, if it otherwise would exceed such amount, the Grantee, at
its sole election, shall either (a) reduce the number of shares of Common
Stock subject to this Option, (b) deliver to Issuer for cancellation Option
Shares previously purchased by Grantee, (c) pay cash to Issuer, or (d) do
any combination thereof, so that Grantee's actually realized Total Profit
shall not exceed $5.5 million after taking into account the foregoing
actions.
(ii) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) of more
than $5.5 million, provided that nothing in this sentence shall restrict
any exercise of the Option permitted hereby on any subsequent date.
(iii) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged)
to any unaffiliated party, less (y) the Grantee's purchase price of such
Option Shares, and (iv) any amounts received by Grantee on the transfer of
the Option (or any portion thereof) to any unaffiliated party.
(iv) As used herein, the term "Notional Total Profit" with respect to
any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other
Option Shares held by Grantee and its affiliates as of such date, were sold
for cash at the proposed sale price for the Common Stock then being
contemplated by the Grantee.
(b) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 9), relinquish the Option (together with any Option
Shares issued to and then owned by Grantee) to Issuer in exchange for a
cash fee equal to the Surrender Price; provided, however, that Grantee may
not exercise its rights pursuant to this Section 14 if Issuer has
repurchased the Option (or any portion thereof) or any Option Shares
pursuant to Section 7. The "Surrender Price" shall be equal to $5,000,000
(i) plus, if applicable, Grantee's purchase price with respect to any
Option Shares and (ii) minus, if applicable, the sum of (1) the excess of
(A) the net cash amounts, if any, received by Grantee pursuant to the arms'
length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over
(B) Grantee's purchase price of such Option Shares, and (2) the net cash
amounts, if any, received by Grantee pursuant to an arms' length sale of
any portion of the Option sold.
(c) Grantee may exercise its right to relinquish the Option and any
Option Shares pursuant to this Section 14 by surrendering to Issuer, at its
principal office, a copy of this Agreement together with certificates for
Option Shares, if any, accompanied by a written notice stating (i) that
Grantee elects to relinquish the Option and Option Shares, if any, in
accordance with the provisions of this Section 14 and (ii) the Surrender
Price. The Surrender Price shall be payable in immediately available funds
on or before the second business day following receipt of such notice by
Issuer.
(d) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify
Grantee and thereafter deliver or cause to be delivered, from time to time,
to Grantee, the portion of the Surrender Price that it is no longer
prohibited from paying, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after delivery of a notice of surrender pursuant to paragraph (b) of
this Section 14
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is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from paying to Grantee the Surrender Price in full,
(i) Issuer shall (A) use its best efforts to obtain (and to take all action
necessary to obtain) all required regulatory and legal approvals and to
file any required notices as promptly as practicable in order to make such
payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide
Grantee with copies of the same, and (c) keep Grantee advised of both the
status of any such request for regulatory and legal approvals, as well as
any discussions with any relevant regulatory or other third party
reasonably related to the same and (ii) Grantee may revoke such notice of
surrender by delivery of a notice of revocation to Issuer and, upon
delivery of such notice of revocation, the Exercise Termination Date shall
be extended to a date six months from the date on which the Exercise
Termination Date would have occurred if not for the provisions of this
Section 14(c) (during which period Grantee may exercise any of its rights
hereunder, including any and all rights pursuant to this Section 14).
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief. In connection
therewith both parties waive the posting of any bond or similar
requirement.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to acquire,
or Issuer is not permitted to repurchase pursuant to Section 7, the full
number of shares of Common Stock provided in Section l(a) hereof (as
adjusted pursuant to Section l(b) or Section 5 hereof), it is the express
intention of Issuer to allow the Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person,
by fax, telecopy, or by registered or certified mail (postage prepaid,
return receipt requested) at the respective addresses of the parties set
forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina, without regard to the
conflict of law principles thereof (except to the extent that mandatory
provisions of Federal law are applicable).
19. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assignees. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors except as assignees, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
B C BANKSHARES INC.
By: /s/EDWIN O. MCFATHER, JR.
------------------------------------
Name: Edwin O. McFather, Jr.
Title: Chairman and Chief
Executive Officer
WACHOVIA CORPORATION
By: /s/ G. JOSEPH PRENDERGAST
------------------------------------
Name: G. Joseph Prendergast
Title: President and Chief
Operating Officer
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APPENDIX C
December 22, 1999
Board of Directors
B C Bankshares, Inc.
2780 Marietta Highway
Canton, Georgia 30114
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the shareholders of B C Bankshares,
Inc. ("BCB") under the terms of that certain Agreement and Plan of Merger dated
October 6, 1999 (the "Agreement") which provides for the acquisition of BCB by
Wachovia Corporation ("Wachovia") (the "Merger"). Under the terms of the
Agreement, each of the outstanding shares of BCB common stock shall be converted
into the right to receive 2.914 shares of Wachovia common stock. The foregoing
summary of the Merger is qualified in its entirety by reference to the
Agreement.
The Carson Medlin Company is a National Association of Securities Dealers,
Inc. member investment banking firm, which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in Georgia and the Southeast and the major
commercial banks operating in those markets. We have been retained by BCB in a
financial advisory capacity to render our opinion hereunder, for which we will
receive compensation.
In reaching our opinion, we have analyzed the respective financial
positions, both current and historical, of Wachovia and BCB. We have reviewed:
(i) the Agreement; (ii) the annual reports to shareholders and annual reports on
Form 10-K of Wachovia for the five years ended December 31, 1998; (iii) audited
financial statements of BCB for the five years ended December 31, 1998; (iv)
unaudited interim financial statements and quarterly reports on Form 10-Q of
Wachovia for the nine months ended September 30, 1999; (v) unaudited interim
financial statements of BCB for the nine months ended September 30, 1999; and
(vi) certain other financial and operating information with respect to the
business, operations and prospects of Wachovia and BCB. We also: (i) reviewed
and discussed with members of management of Wachovia and BCB the historical and
current business operations, financial condition and future prospects of their
respective companies; (ii) reviewed the historical market prices and trading
activity, if any, for the common stocks of Wachovia and BCB and compared them
with those of certain publicly-traded companies which we deemed to be relevant;
(iii) compared the results of operations of Wachovia and BCB with those of
certain banking companies which we deemed to be relevant; (iv) compared the
proposed financial terms of the Merger with the financial terms, to the extent
publicly available, of certain other recent business combinations of commercial
banking organizations; (v) analyzed the pro forma financial impact of the Merger
on Wachovia; and (vi) conducted such other studies, analyses, inquiries and
examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of all information provided to us. We have not
performed or considered any independent appraisal or evaluation of the assets of
Wachovia or BCB. The opinion we express herein is necessarily based upon market,
economic and other relevant considerations as they exist and can be evaluated as
of the date of this letter.
Based upon the foregoing, it is our opinion that the exchange ratio
provided for in the Agreement is fair, from a financial point of view, to the
shareholders of B C Bankshares, Inc.
Very truly yours,
/s/ THE CARSON MEDLIN COMPANY
--------------------------------------
The Carson Medlin Company
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APPENDIX D
GEORGIA BUSINESS CORPORATION CODE
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
14-2-1301 DEFINITIONS. -- As used in this article, the term:
(1) "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.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "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.
(6) "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.
(7) "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.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302 RIGHT TO DISSENT. -- (a) A record shareholder of the corporation
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) 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;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder 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 a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- 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 beneficial shareholder 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 Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320 NOTICE OF DISSENTERS' RIGHTS. -- (a) If proposed corporate action
creating dissenters' rights under Code Section 14-2-1302 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.
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(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
14-2-1321 NOTICE OF INTENT TO DEMAND PAYMENT. -- (a) If proposed corporate
action creating dissenters' rights under Code Section 14-2-1302 is submitted to
a vote at a shareholders' meeting, a record shareholder who wishes to assert
dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article.
14-2-1322 DISSENTERS' NOTICE. -- (a) If proposed corporate action creating
dissenters' rights under Code Section 14-2-1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten 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) 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 notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323 DUTY TO DEMAND PAYMENT. -- (a) A record shareholder sent a
dissenters' notice described in Code Section 14-2-1322 must demand payment and
deposit his certificates in accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record 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.
14-2-1324 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 Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325 OFFER OF PAYMENT. -- (a) Except as provided in Code Section
14-2-1327, within ten days of the later of the date the proposed corporate
action is taken or receipt of a payment demand, the corporation shall by notice
to each dissenter who complied with Code Section 14-2-1323 offer to pay to such
dissenter the amount the corporation estimates to be the fair value of his or
her shares, plus accrued interest.
D-3
<PAGE> 159
(b) The offer of payment must be accompanied by:
(1) The corporation's 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 changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326 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 Code Section 14-2-1322 and repeat the payment demand
procedure.
14-2-1327 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. -- (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest
due is incorrectly calculated; or
(2) 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 or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a) of
this Code section within 30 days after the corporation offered payment for his
or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his own estimate of
the fair value of his shares and the amount of interest due and demand
payment of his estimate of the fair value of his shares and interest due.
PART 3. JUDICIAL APPRAISAL OF SHARES
14-2-1330 COURT ACTION. -- (a) If a demand for payment under Code Section
14-2-1327 remains unsettled, the corporation shall commence a proceeding within
60 days after receiving the
D-4
<PAGE> 160
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section 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. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331 COURT COSTS AND COUNSEL FEES. -- (a) The court in an appraisal
proceeding commenced under Code Section 14-2-1330 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court, but not including fees and expenses of attorneys and
experts for the respective parties. The court shall assess the costs against the
corporation, except that the court may assess the costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys 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 Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys 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 attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
D-5
<PAGE> 161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is incorporated under the laws of North Carolina. Sections
55-8-50 ET SEQ. of the North Carolina Business Corporation Act prescribe the
conditions under which indemnification may be obtained by a present or former
director or officer of the Registrant who incurs expenses or liability as a
consequence of certain proceedings arising out of his or her activities as a
director or officer. Article IX of the Registrant's By-laws also provides for
indemnification of directors and officers under certain circumstances. The
Registrant has purchased a standard liability policy, which, subject to any
limitations set forth in the policy, indemnifies the Registrant's directors and
officers for damages that they become legally obligated to pay as a result of
any negligent act, error or omission committed while serving in their official
capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 6, 1999,
by and between Wachovia Corporation and B C Bankshares, Inc.
(included as Appendix A to the proxy statement/prospectus
and incorporated by reference herein).
3.1 Amended and Restated Articles of Incorporation (Exhibit 3.1
to Wachovia Corporation's Form 10-K for the year ended
December 31, 1993, File No. 1-9021*).
3.2 By-laws (Exhibit 3.2 to Wachovia Corporation's Registration
Statement on Form S-4 dated December 14, 1998, File No.
333-68823*).
4.1 Amended and Restated Articles of Incorporation (Exhibit 3.1
to Wachovia Corporation's Form 10-K for the year ended
December 31, 1993, File No. 1-9021*).
4.2 By-laws (Exhibit 3.2 to Wachovia Corporation's Registration
Statement on Form S-4 dated December 14, 1998, File No.
333-68823*).
4.3 All instruments defining the rights of holders of long-term
debt of Wachovia Corporation and its subsidiaries. (Not
filed pursuant to (4)(iii) of Item 601(b) of Regulation S-K;
to be furnished upon request of the SEC.)
5.1 Opinion of William M. Watson, Jr., including consent.
8.1 Opinion of Sullivan & Cromwell, including consent.
8.2 Opinion of Alston & Bird LLP, including consent.
10.1 Employment Agreement dated as of October 6, 1999, by and
between Wachovia Corporation and Mr. E.O. McFather, Jr.
10.2 Employment Agreement dated as of October 6, 1999, by and
between Wachovia Corporation and Mr. Steven L. Holcomb.
10.3 Stock Option Agreement, dated as of October 6, 1999, by and
between Wachovia Corporation and B C Bankshares, Inc.
(included as Appendix B to the proxy statement/prospectus
and incorporated by reference herein).
23.1 Consent of William M. Watson, Jr. (appears in Legal Opinion,
Exhibit 5.1).
23.2 Consent of Sullivan & Cromwell (appears in Legal Opinion,
Exhibit 8.1).
23.3 Consent of Alston & Bird LLP (appears in Legal Opinion,
Exhibit 8.2).
23.4 Consent of Ernst & Young LLP.
23.5 Consent of KPMG LLP.
</TABLE>
II-1
<PAGE> 162
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<C> <S>
23.6 Consent of Mauldin & Jenkins LLC.
23.7 Consent of Pricewaterhouse Coopers LLP.
23.8 Consent of The Carson Medlin Company.
24.1 Power of Attorney.
99.1 Form of Proxy.
</TABLE>
- ---------------
* Incorporated herein by reference
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) 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 Registrant undertakes that such reoffering
prospectus
II-2
<PAGE> 163
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.
(d) That every Prospectus (a) that is filed pursuant to paragraph (c)
immediately preceding, or (b) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act 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.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions (See Item 20), or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(f) 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.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 164
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 Winston-Salem, State of
North Carolina, on December 22, 1999.
WACHOVIA CORPORATION
By: /s/ L.M. BAKER, JR.
------------------------------------
L. M. Baker, Jr.
Chairman 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L.M. BAKER, JR Chairman and Chief Executive December 22, 1999
- --------------------------------------------------- Officer
L.M. Baker, Jr.
/s/ JAMES L BALLOUN* Director December 22, 1999
- ---------------------------------------------------
James L. Balloun
/s/ PETER C. BROWNING* Director December 22, 1999
- ---------------------------------------------------
Peter C. Browning
/s/ JOHN T. CASTEEN III* Director December 22, 1999
- ---------------------------------------------------
John T. Casteen III
/s/ JOHN L. CLENDENIN* Director December 22, 1999
- ---------------------------------------------------
John L. Clendenin
/s/ THOMAS K. HEARN, JR.* Director December 22, 1999
- ---------------------------------------------------
Thomas K. Hearn, Jr.
/s/ GEORGE W. HENDERSON, III* Director December 22, 1999
- ---------------------------------------------------
George W. Henderson, III
/s/ ROBERT A. INGRAM* Director December 22, 1999
- ---------------------------------------------------
Robert A. Ingram
/s/ GEORGE R. LEWIS* Director December 22, 1999
- ---------------------------------------------------
George R. Lewis
/s/ ELIZABETH VALK LONG* Director December 22, 1999
- ---------------------------------------------------
Elizabeth Valk Long
/s/ ROBERT S. MCCOY, JR.* Vice Chairman and Chief December 22, 1999
- --------------------------------------------------- Financial Officer
Robert S. McCoy, Jr.
</TABLE>
II-4
<PAGE> 165
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN G. MEDLIN, JR.* Director December 22, 1999
- ---------------------------------------------------
John G. Medlin, Jr.
/s/ LLOYD U. NOLAND, III* Director December 22, 1999
- ---------------------------------------------------
Lloyd U. Noland, III
/s/ MORRIS W. OFFIT* Director December 22, 1999
- ---------------------------------------------------
Morris W. Offit
/s/ SHERWOOD H. SMITH, JR.* Director December 22, 1999
- ---------------------------------------------------
Sherwood H. Smith, Jr.
/s/ DONALD K. TRUSLOW* Senior Executive Vice December 22, 1999
- --------------------------------------------------- President, Treasurer and
Donald K. Truslow Comptroller
/s/ JOHN C. WHITAKER, JR.* Director December 22, 1999
- ---------------------------------------------------
John C. Whitaker, Jr.
*By: /s/ WILLIAM M. WATSON, JR December 22, 1999
---------------------------------------------
William M. Watson, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 166
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 6, 1999,
by and between Wachovia Corporation and B C Bankshares, Inc.
(included as Appendix A to the proxy statement/prospectus
and incorporated by reference herein).
3.1 Amended and Restated Articles of Incorporation (Exhibit 3.1
to Wachovia Corporation's Form 10-K for the year ended
December 31, 1993, File No. 1-9021*).
3.2 By-laws (Exhibit 3.2 to Wachovia Corporation's Registration
Statement on Form S-4 dated December 14, 1998, File No.
333-68823*).
4.1 Amended and Restated Articles of Incorporation (Exhibit 3.1
to Wachovia Corporation's Form 10-K for the year ended
December 31, 1993, File No. 1-9021*).
4.2 By-laws (Exhibit 3.2 to Wachovia Corporation's Registration
Statement on Form S-4 dated December 14, 1998, File No.
333-68823*).
4.3 All instruments defining the rights of holders of long-term
debt of Wachovia Corporation and its subsidiaries. (Not
filed pursuant to (4)(iii) of Item 601(b) of Regulation S-K;
to be furnished upon request of the SEC.)
5.1 Opinion of William M. Watson, Jr., including consent.
8.1 Opinion of Sullivan & Cromwell, including consent.
8.2 Opinion of Alston & Bird LLP, including consent.
10.1 Employment Agreement dated as of October 6, 1999, by and
between Wachovia Corporation and Mr. E.O. McFather, Jr.
10.2 Employment Agreement dated as of October 6, 1999, by and
between Wachovia Corporation and Mr. Steven L. Holcomb.
10.3 Stock Option Agreement, dated as of October 6, 1999, by and
between Wachovia Corporation and B C Bankshares, Inc.
(included as Appendix B to the Proxy Statement/Prospectus
and incorporated by reference herein).
23.1 Consent of William M. Watson, Jr. (appears in Legal Opinion,
Exhibit 5.1).
23.2 Consent of Sullivan & Cromwell (appears in Legal Opinion,
Exhibit 8.1).
23.3 Consent of Alston & Bird LLP (appears in Legal Opinion,
Exhibit 8.2).
23.4 Consent of Ernst & Young LLP.
23.5 Consent of KPMG LLP.
23.6 Consent of Mauldin & Jenkins LLC.
23.7 Consent of Pricewaterhouse Coopers LLP.
23.8 Consent of The Carson Medlin Company.
24.1 Power of Attorney.
99.1 Form of Proxy.
</TABLE>
- ---------------
* Incorporated herein by reference
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF WACHOVIA CORPORATION]
December 22, 1999
Wachovia Corporation
100 North Main Street
P.O. Box 3099
Winston-Salem, North Carolina 27150
Registration Statement on Form S-4
Gentlemen:
I am familiar with the proceedings taken by Wachovia Corporation (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, pertaining to the
issuance of up to 1,623,838 shares of the Company's Common Stock, par value
$5.00 per share (the "Shares"), pursuant to the terms of the Agreement and Plan
of Merger, dated as of October 6, 1999, by and between the Company and B C
Bankshares, Inc. (the "Merger Agreement").
As counsel for the Company, I have reviewed the Registration Statement
and the Merger Agreement, and I have examined and am familiar with the records
relating to the organization of the Company, including its articles of
incorporation, by-laws and all amendments thereto, and the records of all
proceedings taken by the Board of Directors of the Company pertinent to the
rendering of this opinion.
Based on the foregoing, and having regard for such legal considerations
as I have deemed relevant, I am of the opinion that the Shares have been duly
authorized and, upon issuance in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the listing of my name in the Proxy
Statement/Prospectus.
Sincerely,
/s/ William M. Watson, Jr.
------------------------------
William M. Watson, Jr.
Senior Vice President
<PAGE> 1
EXHIBIT 8.1
December 22, 1999
Wachovia Corporation,
301 North Main Street,
Winston-Salem, North Carolina 27101.
Ladies and Gentlemen:
We have acted as special counsel to Wachovia Corporation, a North
Carolina corporation (the "Company"), in connection with the planned merger of
B C Bankshares, Inc., a Georgia Corporation ("BCB") with and into the Company,
pursuant to the Agreement and Plan of Merger, dated as of October 6, 1999, by
and between BCB and the Company (the "Agreement"). We render this opinion to
you, in part, in connection with the registration of the Wachovia common stock
to be issued in connection with the Merger. All capitalized terms used and not
otherwise defined herein shall have the meanings provided in the Agreement.
For purposes of this opinion, we have reviewed the Agreement and such
other documents and matters of law and fact as we have considered necessary or
appropriate, and we have assumed, with your consent, the following:
(i) The Merger will be completed in the manner set forth in the
Agreement and the Proxy Statement/Prospectus of the Company and BCB (the
"Proxy/Prospectus").
(ii) The representations contained in the letters of representation
from the Company and BCB to us and Alston & Bird LLP, special counsel to
BCB, both dated
<PAGE> 2
Wachovia Corporation -2-
December 22, 1999, will be true and complete at the Effective Time.
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have deemed necessary or appropriate, it is our
opinion, under presently applicable federal income tax law, that:
(1) The Merger will be treated for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
(2) Each of the Company and BCB will be a party to the reorganization
within the meaning of Section 368(b) of the Code; and
(3) No gain or loss will be recognized by stockholders of BCB who
receive shares of Wachovia common stock in exchange for shares of BCB
common stock, except that gain or loss may be recognized as to cash
received in lieu of a fractional share interest.
The tax consequences described above may not be applicable to financial
institutions, insurance companies, tax-exempt organizations, dealers in
securities or currencies, traders in securities that elect to mark to market,
persons who hold BCB common stock as part of a "straddle" or "conversion"
transaction, foreign persons, persons who acquired or acquire shares of BCB
common stock pursuant to the exercise of employee stock options or otherwise as
compensation, or persons who do not hold their shares of BCB common stock as a
capital asset.
<PAGE> 3
Wachovia Corporation -3-
This opinion is limited to the federal income tax laws of the United
States and does not purport to discuss the consequences or effectiveness of the
Merger under any other laws.
We also hereby confirm to you that the discussions set forth under the
heading "THE MERGER - Federal Income tax Consequences" in the Proxy/Prospectus
which form a part of the Registration Statement of the Company to which this
opinion is filed as an exhibit is in our opinion, subject to the limitations set
forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "THE
MERGER - Federal Income Tax Consequences" in the Proxy/Prospectus. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE> 1
EXHIBIT 8.2
ALSTON & BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-4777
www.alston.com
December 22, 1999
B C Bankshares, Inc.
2780 Marietta Highway
P.O. Box 649
Canton, Georgia 30114
Re: Merger of B C Bankshares, Inc. with
and into Wachovia Corporation
_____________________________
Ladies and Gentlemen:
We have served as special counsel to B C Bankshares, Inc., a
corporation organized under the laws of the State of Georgia ("BCB"), in
connection with the reorganization of BCB and Wachovia Corporation, a
corporation organized under the laws of the State of North Carolina
("Wachovia"), pursuant to the Agreement and Plan of Merger dated as of October
6, 1999 (the "Agreement"), which sets forth the terms of the merger of BCB with
and into Wachovia (the "Merger"). In our capacity as special counsel to BCB, our
opinion has been requested with respect to certain of the federal income tax
consequences of the Merger.
Pursuant to the Merger, and as more fully described in the Agreement,
at the Effective Time, each share of BCB Common Stock issued and outstanding at
the Effective Time shall be converted into 2.914 shares of Wachovia Common
Stock. As a result, stockholders of BCB shall become stockholders of Wachovia.
All terms used herein without definition shall have the respective meanings
specified in the Agreement, and unless otherwise specified, all section
references herein are to the Internal Revenue Code of 1986, as amended (the
"Code").
In rendering the opinions expressed herein, we have examined such
documents as we deemed appropriate, including the Agreement. In rendering the
opinions expressed herein, we have assumed with the consent of BCB and Wachovia
that the Agreement accurately and completely describes the Merger and that the
Merger will be consummated in accordance with the Agreement.
In rendering the opinions expressed herein, we have relied with the
consent of BCB and Wachovia upon the accuracy and completeness of the factual
statements and factual representations (which factual statements and factual
representations we have neither investigated nor verified) contained in the
certificates of BCB and Wachovia to us dated December 20, 1999 (together, the
"Certificates"), which we have assumed are complete and accurate as of the date
hereof and will be complete and accurate as of the date on which the Merger is
consummated.
Based on the foregoing, we are of the opinion that, under presently
applicable federal income tax law:
<PAGE> 2
B C Bankshares, Inc.
Wachovia Corporation
December 22, 1999
Page 2
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Wachovia and BCB will each be a party to the
reorganization within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by holders of BCB Common Stock
upon the exchange in the Merger of all of their BCB Common Stock solely for
shares of Wachovia Common Stock (except with respect to any cash received in
lieu of a fractional share interest in Wachovia Common Stock).
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. The federal income tax consequences described herein may not
apply to certain shareholders of BCB with special situations, including, without
limitation, shareholders who hold their BCB Common Stock other than as a capital
asset, who received their BCB Common Stock upon the exercise of employee stock
options or otherwise as compensation, who hold their BCB Common Stock as part of
a "straddle" or "conversion transaction" for federal income tax purposes, or who
are foreign persons, insurance companies, or securities dealers.
In addition, our opinions are based solely on the documents that we
have examined, and the factual statements and factual representations set out in
the Certificates, which we have assumed were true on the date of the
Certificates, and are true on the date hereof. Our opinions cannot be relied
upon if any of the facts pertinent to the federal income tax treatment of the
Merger stated in such documents or any of the factual statements or factual
representations set out in the Certificates is, or later becomes, inaccurate.
Our opinions are limited to the tax matters specifically covered thereby, and we
have not been asked to address, nor have we addressed, any other tax
consequences of the Merger, including for example any issues related to
intercompany transactions, accounting methods, or changes in accounting methods
resulting from the Merger, or the consequences of the Merger under state, local
or foreign law. Our opinions are provided solely for the benefit and use of BCB,
and BCB Shareholders. No other party or person is entitled to rely on the
opinions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading. "The Merger
- - Federal Income Tax Consequences" in the Proxy Statement/Prospectus. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act.
Very truly yours,
ALSTON & BIRD LLP
By: /s/ Terence J. Greene
-----------------------------
Terence J. Greene, Partner
TG:ew
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<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of the 6th day of October,
1999, by and between WACHOVIA CORPORATION (the "Corporation") and Edwin O.
McFather, Jr. (the "Executive") is conditioned on, and shall be effective as of
the consummation of the merger contemplated by the Agreement and Plan of Merger,
dated as of October 6, 1999, by and among the Corporation and BC Bankshares,
Inc. (the "Merger");
R E C I T A L S:
The Corporation desires to secure the services of the
Executive in its behalf or in behalf of one or more of its subsidiaries for
which the Executive may render services hereunder from time to time, in
accordance with the terms and conditions set forth herein. In addition, the
Corporation desires to provide the Executive with an incentive to remain in the
service of the Corporation or one or more of its subsidiaries by granting to the
Executive compensation security as set forth herein should his employment be
terminated by the Corporation without cause during the term of this Agreement.
NOW, THEREFORE, the Corporation and the Executive hereby
mutually agree as follows:
1. Employment.
(a) Duties. Executive shall have the title of Senior Vice
President of Wachovia Bank, N.A. Executive shall also serve as Chairman
of the Cherokee County operation of the Corporation and, in such
capacity, shall assist and consult with the Corporation concerning
business and community activities, assist in the retention of customers
and employees of the Cherokee County operations and generally assist in
the transition period following the combination of Wachovia Bank, N.A.
and Bank of Canton. Executive shall perform such services faithfully
and to the best of his ability. References herein to services rendered
for the Corporation and compensation and benefits payable or provided
by the Corporation shall include services rendered for and compensation
and benefits payable or provided by any subsidiary of the Corporation.
(b) Compensation. During the term, defined below, the
Executive shall be entitled to annual compensation at the rate if
$283,333, payable in semi-monthly installments.
(c) Medical and Other Benefits. During the term, the Executive
and his spouse shall be enrolled in the medical and other welfare
benefits offered by the
<PAGE> 2
Corporation. In addition, notwithstanding the expiration of the term,
upon the Executive's retirement the Executive shall be eligible for
retiree medical coverage offered by the Corporation between such
retirement date and the date on which the Executive attains age 65.
After age 65, any medical coverage offered by the Corporation shall be
secondary to Medicare.
2. Term of Agreement. Subject to the consummation of the
Merger, the Corporation agrees to employ the Executive and Executive
agrees to be so employed as set forth herein for the period commencing
with the effectiveness of the Merger (the "Effective Date") and ending
on the third anniversary thereof (subject to earlier termination as set
forth herein, the "term"). References herein to the "term" do not
include the Compensation Period described in Section 4. The Executive
understands that his execution of this Agreement is a condition
precedent to the Corporation's execution of the Agreement and Plan of
Merger. In consideration of the substantial expenses and other
obligations that the Corporation will incur in connection with the
Merger, including the obligations under this Agreement, the Executive
agrees and undertakes not to enter into any employment agreement or
similar arrangement (other than this Agreement ) with any party
(including, without limitation, BC Bankshares, Inc.) between the date
of this Agreement as first written above and the Effective Date or the
date of a valid termination of the Agreement and Plan of Merger, if
earlier.
3. Termination of Employment by the Corporation. The
Corporation may terminate the employment of the Executive at any time
for any reason; provided, that except as set forth in Sections 6 and 7,
the Corporation will provide the Executive with Compensation
Continuance to the extent described in Section 4 if the Executive's
employment is involuntarily terminated. The Executive's employment
shall be deemed to be involuntarily terminated if he is terminated by
the Corporation for any reason other than for "cause" as defined in
Section 6, or if he voluntarily terminates employment within six months
after: (a) his annual compensation is reduced below its level in effect
on the date hereof without the Executive's consent, (b) the duties
assigned to the Executive are not of the status and type described in
Section 1(a) and the Executive has not consented thereto or (c) the
Corporation requires Executive, without his consent, to be permanently
based at any office or location other than in Cherokee County, Georgia;
provided, however , that Executive acknowledges that he may be required
to travel on business to areas beyond Cherokee County and may, in the
course of his duties hereunder, be temporarily based in other
locations. The Executive shall be deemed to have consented to any
reduction described in (a), assignment described in (b), or relocation
described in (c), unless he shall object thereto in writing within
thirty days after he receives notice thereof.
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<PAGE> 3
4. Compensation Continuance. If the Executive's employment
hereunder is involuntarily terminated as described in Section 3, he
will be entitled to receive the cash compensation and benefits
described in (a) and (b) below (herein, "Compensation Continuance") for
the period beginning with the date of such involuntary termination and
ending with the expiration of the three year term of this Agreement
(such period is referred to herein as the "Compensation Period"). The
cash compensation and benefits are as follows:
(a) Cash Compensation. The amount of cash
compensation to be received monthly during the Compensation
Period shall equal one-twelfth of the Executive's highest
annual rate of salary from the Corporation in effect during
the 12-month period prior to his involuntary termination. Each
monthly payment of such cash compensation shall have deducted
therefrom all payroll taxes and withholdings required by law.
(b) Employee Benefits. During the Compensation Period
the Executive shall be carried on the payroll of the
Corporation, and shall be deemed to be continuing in the
employment of the Corporation for the purpose of applying and
administering employee benefit plans of the Corporation (other
than any tax-qualified retirement plans) and individual
contracts between the Corporation and the Executive providing
supplemental or equalization payments or benefits with respect
to the Executive. The Executive shall participate in any
changes during the Compensation Period in benefit plans or
programs applicable generally to employees of the Corporation,
or to a class of employees which includes executives of the
Corporation, but shall not have any right or option to
participate in any such plan or program in which he was not a
participant immediately prior to his involuntary termination
of employment. The Corporation shall have no obligation to the
Executive to make any change or improvement in any such
contract during the Compensation Period even if the
Corporation shall make changes or improvements during such
period in similar contracts, if any, with other executives of
the Corporation.
In the event that the Executive shall engage in full-time employment
permitted hereunder for another employer or on a self-employed basis
during the Compensation Period, his employment with the Corporation
shall be deemed to have terminated for purposes of Section 4(b) as of
the date he begins such full-time employment, but the payments in
Section 4(a) shall continue for the remainder of the Compensation
Period, subject to the provisions of Section 7.
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<PAGE> 4
5. Voluntary Termination of Employment by the Executive.
(a) The Executive reserves the right to terminate his
employment voluntarily at any time for any reason following at least 90
days= notice to the Corporation. If such notice shall be given, this
Agreement shall terminate as of the effective date of termination as
set forth in such notice (or the date 90 days from the date of receipt
by the Corporation of such notice, if no effective date shall be set
forth therein), unless sooner terminated as provided in Section 3, 6 or
9 The Executive shall not be entitled to any form of Compensation
Continuance as a result of such voluntary termination.
(b) Notwithstanding anything to the contrary contained in
Section 5(a) of this Agreement, the Executive shall be entitled to
receive the Compensation Continuance described in Section 4 in the
event the Executive voluntarily terminates his employment for any
reason during the 30-day period following the first anniversary of the
Merger.
6. Termination for Cause. This Agreement shall immediately be
terminated and the Corporation shall non longer have any obligation
hereunder (including but not limited to any obligation on the part of
the Corporation to provide Compensation Continuance) if the Executive's
employment is terminated for "cause". Termination for cause shall occur
when termination results from the Executive's (a) criminal dishonesty,
(b) refusal to perform his duties hereunder on substantially a
full-time basis, (c) refusal to act in accordance with any specific
substantive instructions of the executive officer or officers of the
Corporation who are responsible for the oversight of the Cherokee
County operation, or the Board of Directors of the Corporation, or (d)
engaging in conduct which could be materially damaging to the
Corporation without a reasonable good faith belief that such conduct
was in the best interests of the Corporation. The determination of
whether a termination is for cause shall be made by the Management
Resources and Compensation Committee of the Board of Directors of the
Corporation (the "Committee"), and such determination shall be final
and conclusive on the Executive and all other persons affected thereby.
7. Executive's Obligations: Early Termination of Compensation
Period.
(a) During the Compensation Period, the Executive shall
provide consulting services to the Corporation at such time or times as
the Corporation shall reasonable request, subject to appropriate notice
and to reimbursement by the Corporation of all reasonable travel and
other expenses incurred and paid by the Executive. In the event the
Executive shall engage in full-time employment permitted hereunder
during the Compensation Period for another employer or on a
self-employed basis, his obligation to provide the consulting services
hereunder shall be limited by the requirements of such employment.
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<PAGE> 5
(b) The Executive has obtained and may obtain confidential
information concerning the businesses, operations, financial affairs,
organizational and personnel matters, policies, procedures and other
non-public matters of the Corporation and its affiliates, and those of
third parties that is not generally disclosed to persons not employed
by the Corporation or its subsidiaries. Such information (referred to
herein as the "Confidential Information") may have been or may be
provided in written form or orally. The Executive shall not disclose to
any other person the Confidential Information at any time during or
after the term and the Compensation Period, provided that the Executive
may disclose such Confidential Information only to a person who is then
a director, officer, employee, partner, attorney or agent of the
Corporation who, in the Executive's reasonable good faith judgement,
has a need to know the Confidential Information.
(c) In view of the Executive's importance to the success of
the Corporation's business, the Executive and the Corporation agree
that the Corporation would likely suffer significant harm from the
Executive's competing with the Corporation during the Executive's
employment and for some period of time thereafter. Accordingly, the
Executive agrees that the Executive shall not engage in competitive
employment while employed by the Corporation and for a period equal to
the greater of (i) the Compensation Period and (ii) twenty-four (24)
months following the Executive's termination of employment by the
Corporation for cause or by the Executive for any reason during the
term. The Executive shall be deemed to engage in competitive employment
if he shall, without the prior written consent of the Committee, render
services as an employee, officer, director, consultant, partner or
otherwise for or of any organization which conducts, or is otherwise
engaged in the commercial and retail banking business within the
following counties in the State of Georgia: Cherokee County, Bartow
County, Cobb County, Dawson County, Forsyth County, Fulton County,
Gordon County and Pickens County.
(d) While employed by the Corporation and for a period equal
to the greater of (i) the Compensation Period and (ii) twenty four (24)
months following the Executive's termination of employment by the
Corporation for cause or voluntary termination other than pursuant to
Section 5(b) hereof by the Executive during the term, the Executive
agrees that the Executive shall not, in any manner, directly or
indirectly, (i) solicit by mail, by telephone, by personal meeting, or
by any other means, either directly or indirectly, any customer or
prospective customer of the Corporation to whom the Executive provided
services, or for whom the Executive transacted business, or whose
identity became known to the Executive in connection with the
Executive's employment with the Corporation (including employment with
any predecessor or successor entities), to transact business with a
person or an entity other than the Corporation or its affiliates or
reduce or refrain from doing any business with the Corporation, or its
affiliates or
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<PAGE> 6
(ii) interfere with or damage (or attempt to interfere with or damage)
any relationship between the Corporation or its affiliates and any such
customer or prospective customer. The term "solicit" as used in this
paragraph and paragraph (d) means any communication of any kind
whatsoever, inviting, encouraging or requesting any person to take or
refrain from taking any action with respect to the business of the
Corporation and its subsidiaries.
(e) While employed by the Corporation and for a period equal
to the greater of (i) the Compensation Period and (ii) twenty four (24)
months following the Executive=s termination of employment by the
Corporation for cause or voluntary termination other than pursuant to
Section 5(b) hereof by the Executive during the term, the Executive
agrees that the Executive shall not, in any manner, directly or
indirectly, solicit any person who is an employee of the Corporation or
any of its affiliates to apply for or accept employment or a business
opportunity with any person or entity.
(f) The Executive acknowledges that a violation on the
Executive's part of this Section 7 would cause immeasurable and
irreparable damage to the Corporation. Accordingly, the Executive
agrees that the Corporation shall be entitled to injunctive relief in
any court of competent jurisdiction for any actual or threatened
violation of any of the provisions of this Section 7 in addition to any
other remedies it may have.
(g) In addition to the Corporation's rights set forth in
paragraph (f), in the event that the Executive shall materially violate
the terms and conditions of paragraphs (b), (c), (d) or (e) of this
Section 7, the Corporation may terminate the Compensation Period and
Compensation Continuance, if applicable, to the Executive. The
Committee shall be responsible for determining whether the Executive
shall have violated this Section 7. Upon the request of the Executive,
such Committee shall provide an advance opinion as to whether a
proposed activity would violate the provisions of Section 7.
8. Facilitation of Transfer of Customer Relationships. (a) If
the term is terminated by the Executive for any reason, the Executive
shall, during the Facilitation Period (as defined below), take all
actions and do all things as may be reasonably requested by the
Corporation (in writing, if the Executive so requests) from time to
time and as may be reasonable under the circumstances to maintain for
the Corporation and its affiliates, the business, goodwill, and
business relationships of any of any such entity's customers with which
the Executive worked during the term of the Executive's employment by
the Corporation or any predecessor or successor. The Corporation
acknowledges that to the extent it requires the Executive to be off
premises, the Executive's ability to cooperate with the Corporation
under this Section 8 may be limited.
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<PAGE> 7
(b) For purposes of this Section 8, "Facilitation Period"
shall mean the 90-day period beginning on the date on which a notice of
termination is delivered, provided, however, that in the event the
Executive terminates his employment during the 30-day period following
the first anniversary of the Merger, the "Facilitation Period" shall
mean such 30-day period.
9. Death and Disability. In the event that, during the term of
this Agreement or during the Compensation Period, the Executive shall
die or shall become entitled to benefits under the Corporation's
Long-Term Disability Plan, this Agreement shall thereupon terminate and
neither the Executive nor any other person shall have any further
rights or benefits hereunder (including any rights to Compensation
Continuance).
10. Other Severance Benefits. Except as otherwise provided in
this Agreement, the Executive shall not be entitled to any form of
severance benefits, including benefits otherwise payable under any of
the Corporation's regular severance plans or policies, irrespective of
the circumstances of his termination of employment. The Executive
agrees that the payments and benefit provided hereunder, subject to the
terms and conditions hereof, shall be in full satisfaction of any
rights which he might otherwise have or claim by operation of law, by
implied contract or otherwise, except for rights which he may have
under employee benefit plans of the Corporation or individual written
contracts with the Corporation.
11. Waiver of Claims. In the event of the termination of the
Executive's employment by the Corporation without cause, or in
circumstances that constitute Executive's involuntary termination,
within the meaning set forth in Section 3, or if Executive voluntarily
terminates his employment pursuant to Section 5(b), in consideration of
the obligations of the Corporation hereunder, the Executive shall, and
does hereby, unconditionally release the Corporation, its directors,
officers, employees and shareholders, from any and all claims,
liabilities and obligations of any nature pertaining to termination of
the Executive's employment by the Corporation, including but not
limited to (a) any claims under federal, state or local laws
prohibiting discrimination, including without limitation the Age
Discrimination in Employment Act of 1967, as amended, or (b) any claims
growing out of any alleged legal restrictions on the Corporation's
right to terminate the Executive's employment, such as any alleged
implied contract of employment or termination contrary to public
policy. The Executive acknowledges and shall acknowledge in such
release, that he has been advised to consult with an attorney prior to
signing the release, that he has had no less than twenty-one days to
consider the release prior to its execution, and that he may revoke the
release at any time within seven days following the execution thereof.
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<PAGE> 8
12. Notices. All notices hereunder shall be in writing and
deemed properly given if delivered by hand and receipted or if mailed
by registered mail, return receipt requested. Notices to the
Corporation shall be directed to the Secretary of the Corporation with
a copy directed to the General Counsel. Notices to the Executive shall
be directed to his last known address.
13. Miscellaneous.
(a) The waiver, whether express or implied, by either
party of a violation of any of the provisions of this
Agreement shall not operate or be construed as a waiver of any
subsequent violation of any such provision.
(b) No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge,
hypothecation or set off in respect of any claim, debt or
obligation, or similar process.
(c) This Agreement may not be amended, modified or
canceled except by written agreement of the parties.
(d) In the event that any provision or portion of
this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall remain in full force and effect to the fullest
extent permitted by law.
(e) This Agreement shall be binding upon and inure to
the benefit of the Executive and the Corporation, and their
respective heirs, successors and assigns.
(f) No benefit or promise hereunder shall be secured
by any specific assets of the Corporation. The Executive shall
have only the rights of an unsecured general creditor of the
Corporation in seeking satisfaction of such benefits or
promises.
(g) This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina.
(h) This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the
matters covered hereby.
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<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed by or in
behalf of the parties hereto as of the date first above written.
WACHOVIA CORPORATION
By: /s/ G. Joseph Prendergast
----------------------------------
Name: G. Joseph Prendergast
Title: President and Chief Operating
Officer
Attest:
- -------------------------------
Secretary
[Corporate Seal]
/s/ Edwin O. McFather, Jr.
------------------------------------
Edwin O. McFather, Jr.
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of the 6th day of October,
1999, by and between WACHOVIA CORPORATION (the "Corporation") and Steven L.
Holcomb (the "Executive") is conditioned on, and shall be effective as of, the
consummation of the merger contemplated by the Agreement and Plan of Merger,
dated as of October 6, 1999, by and among the Corporation and BC Bankshares,
Inc. (the "Merger");
R E C I T A L S:
The Corporation desires to secure the services of the
Executive in its behalf or in behalf of one or more of its subsidiaries for
which the Executive may render services hereunder from time to time, in
accordance with the terms and conditions set forth herein. In addition, the
Corporation desires to provide the Executive with an incentive to remain in the
service of the Corporation or one or more of its subsidiaries by granting to the
Executive compensation security as set forth herein should his employment be
terminated by the Corporation without cause during the term of this Agreement.
NOW, THEREFORE, the Corporation and the Executive hereby
mutually agree as follows:
1. Employment.
(a) Duties. The Executive shall devote his working time
exclusively to the performance of such services for the Corporation or
one or more of its subsidiaries as may be assigned to him by the
Corporation from time to time, and shall perform such services
faithfully and to the best of his ability. Executive shall have the
title of Senior Vice President of Wachovia Bank, N.A. Executive shall
serve as Wachovia Bank, N.A.'s principal executive for Cherokee County
and, as such, his responsibilities shall include the on-going
management of banking operations, community activities and business
development in the Cherokee County market and, in any event, shall be
of a type for which the Executive is suited by background and training.
References herein to services rendered for the Corporation and
compensation and benefits payable or provided by the Corporation shall
include services rendered for and compensation and benefits payable or
provided by any subsidiary of the Corporation.
(b) Compensation. During the term, defined below, the
Executive shall be entitled to a base salary of $175,000, payable in
accordance with the Corporation's payroll policies, and shall be
eligible to receive discretionary base salary increases, based upon the
Executive's performance under the Corporation's
<PAGE> 2
salary administration program. The Executive shall also be an eligible
participant in the Management Incentive Plan ("MIP"). During the term,
the MIP award earned, if any, shall be determined in accordance with
the terms of the MIP; provided, however, that (i) for the 2000 plan
year, the Executive's MIP target award shall be no less than 30% of
base earnings and (ii) the Corporation shall pay the Executive a
minimum MIP award for the 2000 plan year of $49,500.
(c) Equity Awards/Other Benefits. The Executive shall be
entitled to receive the equity awards and employee benefits set forth
on Appendix A hereto.
2. Term of Agreement. Subject to the consummation of the
Merger, the Corporation agrees to employ the Executive and Executive
agrees to be so employed as set forth herein for the period commencing
with the effectiveness of the Merger (the "Effective Date") and ending
on the third anniversary thereof (subject to earlier termination as set
forth herein, the "term"). References herein to the "term" do not
include the Compensation Period described in Section 4. The Executive
understands that his execution of this Agreement is a condition
precedent to the Corporation's execution of the Agreement and Plan of
Merger. In consideration of the substantial expenses and other
obligations that the Corporation will incur in connection with the
Merger, including the obligations under this Agreement, the Executive
agrees and undertakes not to enter into any employment agreement or
similar arrangement (other than this Agreement ) with any party
(including, without limitation, BC Bankshares, Inc.) between the date
of this Agreement as first written above and the Effective Date or the
date of a valid termination of the Agreement and Plan of Merger, if
earlier.
3. Termination of Employment by the Corporation. The
Corporation may terminate the employment of the Executive at any time
for any reason; provided, that except as set forth in Sections 6 and 7,
the Corporation will provide the Executive with Compensation
Continuance to the extent described in Section 4 if the Executive's
employment is involuntarily terminated. The Executive's employment
shall be deemed to be involuntarily terminated if he is terminated by
the Corporation for any reason other than for "cause" as defined in
Section 6, or if he voluntarily terminates employment within six months
after: (a) his base salary is reduced below its level in effect on the
date hereof without the Executive's consent, (b) the duties assigned to
the Executive are not of the status and type described in Section 1(a)
and the Executive has not consented thereto or (c) the Corporation
requires Executive, without his consent, to be permanently based at any
office or location other than in Cherokee County, Georgia; provided,
however, that Executive acknowledges that he may be required to travel
on business to areas beyond Cherokee County and may, in the course of
his duties hereunder, be temporarily based in other locations. The
Executive shall be deemed to have
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<PAGE> 3
consented to any reduction described in (a) or assignment described in
(b), unless he shall object thereto in writing within thirty days after
he receives notice thereof.
4. Compensation Continuance. If the Executive's employment
hereunder is involuntarily terminated as described in Section 3, he
will be entitled to receive the cash compensation and benefits
described in (a), (b) and (c) below (herein, "Compensation
Continuance") for the period beginning with the date of such
involuntary termination and ending with the expiration of the three
year term of this Agreement (such period is referred to herein as the
"Compensation Period"). The cash compensation and benefits are as
follows:
(a) Cash Compensation. The amount of cash
compensation to be received monthly during the Compensation
Period shall equal one-twelfth of the sum of (i) the
Executive's highest annual rate of salary from the Corporation
in effect during the 12-month period prior to his involuntary
termination, plus (ii) an amount equal to the average of the
incentive compensation paid to the Executive by the
Corporation, if any, for the three consecutive calendar years
next preceding the year of termination (or, if less than three
years, the entire period of Executives employment with the
Corporation); provided that the incentive compensation to be
recognized for this purpose shall be approved by the
Management Resources and Compensation Committee, plus (iii)
the average of any annual contributions by the Corporation
(excluding participant contributions) in behalf of the
Executive under the Retirement Savings and Profit-Sharing Plan
of Wachovia Corporation and the Wachovia Corporation Executive
Deferred Compensation Plan for the three consecutive calendar
years preceding the year of such termination (or, if less than
three years, the entire period of Executives employment with
the Corporation). Each monthly payment of such cash
compensation shall have deducted therefrom all payroll taxes
and withholdings required by law.
(b) Employee Benefits. During the Compensation Period
the Executive shall be carried on the payroll of the
Corporation, and shall be deemed to be continuing in the
employment of the Corporation for the purpose of applying and
administering employee benefit plans of the Corporation (other
than any tax-qualified retirement plans) and individual
contracts between the Corporation and the Executive providing
supplemental or equalization payments or benefits with respect
to the Executive. The Executive shall participate in any
changes during the Compensation Period in benefit plans or
programs applicable generally to employees of the Corporation,
or to a class of employees which includes
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<PAGE> 4
executives of the Corporation, but shall not have any right or
option to participate in any such plan or program in which he
was not a participant immediately prior to his involuntary
termination of employment. Any individual contract between the
Corporation and the Executive in effect at the time of his
involuntary termination of employment may be terminated or
amended by the Corporation to the extent permitted by the
terms of such contract. The Corporation shall have no
obligation to the Executive to make any change or improvement
in any such contract during the Compensation Period even if
the Corporation shall make changes or improvements during such
period in similar contracts, if any, with other executives of
the Corporation.
(c) Acceleration of Stock Options and Restricted
Awards. Immediately upon termination of the Executive's
employment, all options previously granted to the Executive
and outstanding on the date of termination to acquire shares
of common stock of the Corporation shall become fully vested
and exercisable (or subject to surrender) in full and all
restricted awards shall be deemed to be earned in full and any
restrictions thereon shall lapse.
In the event that the Executive shall engage in full-time employment
permitted hereunder for another employer or on a self-employed basis
during the Compensation Period, his employment with the Corporation
shall be deemed to have terminated for purposes of Section 4(b) as of
the date he begins such full-time employment, but the payments in
Section 4(a) shall continue for the remainder of the Compensation
Period and the rights under Section 4(c) shall be applicable, in each
case subject to the provisions of Section 7.
5. Voluntary Termination of Employment by the Executive. The
Executive reserves the right to terminate his employment voluntarily at
any time for any reason following at least 90 days= notice to the
Corporation. If such notice shall be given, this Agreement shall
terminate as of the effective date of termination as set forth in such
notice (or the date 90 days from the date of receipt by the Corporation
of such notice, if no effective date shall be set forth therein),
unless sooner terminated as provided in Section 3, 6 or 9. The
Executive shall not be entitled to any form of Compensation Continuance
as a result of such voluntary termination.
6. Termination for Cause. This Agreement shall immediately be
terminated and the Corporation shall no longer have any obligation
hereunder (including but not limited to any obligation on the part of
the Corporation to provide Compensation Continuance) if the Executive's
employment is terminated
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<PAGE> 5
for "cause". Termination for cause shall occur when termination results
from the Executive's (a) criminal dishonesty, (b) refusal to perform
his duties hereunder on substantially a full-time basis, (c) refusal to
act in accordance with any specific substantive instructions of the
executive officer or officers of the Corporation who are delegated
oversight responsibilities for the Cherokee County operation, or the
Board of Directors of the Corporation, or (d) engaging in conduct which
could be materially damaging to the Corporation without a reasonable
good faith belief that such conduct was in the best interests of the
Corporation. The determination of whether a termination is for cause
shall be made by the Management Resources and Compensation Committee of
the Board of Directors of the Corporation (the "Committee"), and such
determination shall be final and conclusive on the Executive and all
other persons affected thereby.
7. Executive's Obligations: Early Termination of Compensation
Period.
(a) The Executive has obtained and may obtain confidential
information concerning the businesses, operations, financial affairs,
organizational and personnel matters, policies, procedures and other
non-public matters of the Corporation and its affiliates, and those of
third parties that is not generally disclosed to persons not employed
by the Corporation or its subsidiaries. Such information (referred to
herein as the "Confidential Information") may have been or may be
provided in written form or orally. The Executive shall not disclose to
any other person the Confidential Information at any time during or
after the term and the Compensation Period, provided that the Executive
may disclose such Confidential Information only to a person who is then
a director, officer, employee, partner, attorney or agent of the
Corporation who, in the Executive's reasonable good faith judgement,
has a need to know the Confidential Information.
(b) In view of the Executive's importance to the success of
the Corporation's business, the Executive and the Corporation agree
that the Corporation would likely suffer significant harm from the
Executive's competing with the Corporation during the Executive's
employment and for some period of time thereafter. Accordingly, the
Executive agrees that the Executive shall not engage in competitive
employment while employed by the Corporation and for a period equal to
the greater of (i) the Compensation Period and (ii) twenty-four (24)
months following the Executive's termination of employment by the
Corporation for cause or voluntary termination by the Executive during
the term. The Executive shall be deemed to engage in competitive
employment if he shall, without the prior written consent of the
Committee, render services as an employee, officer, director,
consultant, partner or otherwise for or of any organization which
conducts, or is otherwise engaged in the commercial and retail
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<PAGE> 6
banking business within the following counties in the State of Georgia:
Cherokee County, Bartow County, Cobb County, Dawson County, Forsyth
County, Fulton County, Gordon County, and Pickens County.
(c) While employed by the Corporation and for a period equal
to the greater of (i) the Compensation Period and (ii) twenty four (24)
months following the Executive's termination of employment by the
Corporation for cause or voluntary termination by the Executive during
the term, the Executive agrees that the Executive shall not, in any
manner, directly or indirectly, (i) solicit by mail, by telephone, by
personal meeting, or by any other means, either directly or indirectly,
any customer or prospective customer of the Corporation to whom the
Executive provided services, or for whom the Executive transacted
business, or whose identity became known to the Executive in connection
with the Executive's employment with the Corporation (including
employment with any predecessor or successor entities), to transact
business with a person or an entity other than the Corporation or its
affiliates or reduce or refrain from doing any business with the
Corporation, or its affiliates or (ii) interfere with or damage (or
attempt to interfere with or damage) any relationship between the
Corporation or its affiliates and any such customer or prospective
customer. The term "solicit" as used in this paragraph and paragraph
(d) means any communication of any kind whatsoever, inviting,
encouraging or requesting any person to take or refrain from taking any
action with respect to the business of the Corporation and its
subsidiaries.
(d) While employed by the Corporation and for a period equal
to the greater of (i) the Compensation Period and (ii) twenty four (24)
months following the Executive's termination of employment by the
Corporation for cause or voluntary termination by the Executive during
the term, the Executive agrees that the Executive shall not, in any
manner, directly or indirectly, solicit any person who is an employee
of the Corporation or any of its affiliates to apply for or accept
employment or a business opportunity with any person or entity.
(e) The Executive acknowledges that a violation on the
Executive's part of this Section 7 would cause immeasurable and
irreparable damage to the Corporation. Accordingly, the Executive
agrees that the Corporation shall be entitled to injunctive relief in
any court of competent jurisdiction for any actual or threatened
violation of any of the provisions of this Section 7 in addition to any
other remedies it may have.
(f) In addition to the Corporation's rights set forth in
paragraph (e), in the event that the Executive shall materially violate
the terms and conditions of paragraphs (a), (b), (c) or (d) of this
Section 7, the Corporation may terminate the Compensation Period and
Compensation Continuance, if applicable, to the
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<PAGE> 7
Executive. The Committee shall be responsible for determining whether
the Executive shall have violated this Section 7. Upon the request of
the Executive, such Committee shall provide an advance opinion as to
whether a proposed activity would violate the provisions of Section 7.
8. Facilitation of Transfer of Customer Relationships. (a) If
the term is voluntarily terminated by the Executive, the Executive
shall, during the Facilitation Period (as defined below), take all
actions and do all things as may be reasonably requested by the
Corporation (in writing, if the Executive so requests) from time to
time and as may be reasonable under the circumstances to maintain for
the Corporation and its affiliates, the business, goodwill, and
business relationships of any of any such entity's customers with which
the Executive worked during the term of the Executive's employment by
the Corporation or any predecessor or successor. The Corporation
acknowledges that to the extent it requires the Executive to be off
premises, the Executive's ability to cooperate with the Corporation
under this Section 8 may be limited.
(b) For purposes of this Section 8, "Facilitation Period"
shall mean the 90-day period beginning on the date on which a notice of
termination is delivered.
9. Death and Disability. In the event that, during the term of
this Agreement or during the Compensation Period, the Executive shall
die or shall become entitled to benefits under the Corporation's
Long-Term Disability Plan, this Agreement shall thereupon terminate and
neither the Executive nor any other person shall have any further
rights or benefits hereunder (including any rights to Compensation
Continuance).
10. Other Severance Benefits. Except as otherwise provided in
this Agreement, the Executive shall not be entitled to any form of
severance benefits, including benefits otherwise payable under any of
the Corporation's regular severance plans or policies, irrespective of
the circumstances of his termination of employment. The Executive
agrees that the payments and benefit provided hereunder, subject to the
terms and conditions hereof, shall be in full satisfaction of any
rights which he might otherwise have or claim by operation of law, by
implied contract or otherwise, except for rights which he may have
under employee benefit plans of the Corporation or individual written
contracts with the Corporation.
11. Waiver of Claims. In the event of the termination of the
Executive's employment by the Corporation without cause, or in
circumstances that constitute Executive's involuntary termination,
within the meaning set forth in Section 3, in consideration of the
obligations of the Corporation hereunder, the Executive shall, and does
hereby, unconditionally release the Corporation, its
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<PAGE> 8
directors, officers, employees and shareholders, from any and all
claims, liabilities and obligations of any nature pertaining to
termination of the Executive's employment by the Corporation, including
but not limited to (a) any claims under federal, state or local laws
prohibiting discrimination, including without limitation the Age
Discrimination in Employment Act of 1967, as amended, or (b) any claims
growing out of any alleged legal restrictions on the Corporation's
right to terminate the Executive's employment, such as any alleged
implied contract of employment or termination contrary to public
policy. The Executive acknowledges and shall acknowledge in such
release, that he has been advised to consult with an attorney prior to
signing the release, that he has had no less than twenty-one days to
consider the release prior to its execution, and that he may revoke the
release at any time within seven days following the execution thereof.
12. Notices. All notices hereunder shall be in writing and
deemed properly given if delivered by hand and receipted or if mailed
by registered mail, return receipt requested. Notices to the
Corporation shall be directed to the Secretary of the Corporation with
a copy directed to the General Counsel. Notices to the Executive shall
be directed to his last known address.
13. Miscellaneous.
(a) The waiver, whether express or implied, by either
party of a violation of any of the provisions of this
Agreement shall not operate or be construed as a waiver of any
subsequent violation of any such provision.
(b) No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge,
hypothecation or set off in respect of any claim, debt or
obligation, or similar process.
(c) This Agreement may not be amended, modified or
canceled except by written agreement of the parties.
(d) In the event that any provision or portion of
this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions of this
Agreement shall remain in full force and effect to the fullest
extent permitted by law.
(e) This Agreement shall be binding upon and inure to
the benefit of the Executive and the Corporation, and their
respective heirs, successors and assigns.
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<PAGE> 9
(f) No benefit or promise hereunder shall be secured
by any specific assets of the Corporation. The Executive shall
have only the rights of an unsecured general creditor of the
Corporation in seeking satisfaction of such benefits or
promises.
(g) This Agreement shall be governed by and construed
in accordance with the laws of the State of North Carolina.
(h) This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the
matters covered hereby.
IN WITNESS WHEREOF, this Agreement has been executed by or in
behalf of the parties hereto as of the date first above written.
WACHOVIA CORPORATION
By: /s/ G. Joseph Prendergast
---------------------------------------
Name: G. Joseph Prendergast
Title: President and Chief Operating
Officer
Attest:
- -------------------------------
Secretary
[Corporate Seal]
/s/ Steven L. Holcomb
---------------------------------------
Steven L. Holcomb
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<PAGE> 10
APPENDIX A
Employee Benefits
During the term of this Agreement, Executive shall be eligible to participate in
the employee benefit plans generally provided to salaried employees of the
Corporation. In addition, the Executive shall participate in the automobile
allowance program. The Corporation shall provide the Executive with an
automobile allowance of $700 per month, payable semi-monthly and net of
applicable income and payroll tax withholdings.
Equity Awards
Executive shall be granted an award of 5,000 restricted stock units on the
Effective Date of the Merger. This restricted award will vest on the third
anniversary of the award, subject to the Executive=s continuous employment with
the Corporation, and, subject to Section 4(c) hereof, shall otherwise be subject
to the terms and conditions of the Stock Plan of the Corporation (the "Stock
Plan"). In addition, the Executive shall receive an option to purchase 5,000
shares of Wachovia Corporation common stock as of the Effective Date of the
Merger. The stock options vest over a five-year period at a rate of 20% per
year, commencing on the first anniversary of grant, and, subject to Section 4(c)
hereof, shall otherwise be subject to the terms and conditions of the Stock
Plan.
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<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Proxy Statement/Prospectus of
Wachovia Corporation and to the incorporation by reference therein of our
report dated January 14, 1999, with respect to the consolidated financial
statements of Wachovia Corporation incorporated by reference in its Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Winston-Salem, North Carolina
December 20, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Wachovia Corporation:
We consent to the use of our reports with respect to Central Fidelity National
Bank and Central Fidelity Banks, Inc. incorporated herein by reference.
/s/ KPMG LLP
Richmond, Virginia
December 20, 1999
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement
of our report, dated January 22, 1999, relating to the consolidated financial
statements of B C Bankshares, Inc. and subsidiary for the year ended
December 31, 1998, and to the reference to our Firm under the caption "Experts"
in the Proxy Statement/Prospectus.
/s/ Mauldin & Jenkins, LLC
--------------------------
Mauldin & Jenkins, LLC
Atlanta, Georgia
December 22, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Wachovia Corporation of our report dated January 23, 1998 relating to the
financial of B C Bankshares, Inc. as of December 31, 1997 and for each of the
two years in the period ended December 31, 1997, which appear in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia PricewaterhouseCoopers LLP
December 21, 1999
<PAGE> 1
EXHIBIT 23.8
CONSENT OF THE CARSON MEDLIN COMPANY
We hereby consent to the inclusion as Appendix C to the
Prospectus/Proxy Statement constituting part of the Registration Statement on
Form S-4 of Wachovia Corporation of our letter to the Board of Directors of B C
Bankshares, Inc. and to the references made to such letter and to the firm in
such Prospectus/Proxy Statement. In giving such consent, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ The Carson Medlin Company
-----------------------------
THE CARSON MEDLIN COMPANY
Raleigh, North Carolina
December 22, 1999
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers of
Wachovia Corporation (the "Corporation"), and each of us, do hereby appoint
Kenneth W. McAllister and William M. Watson, Jr., and each of them (either of
whom may act without the consent or joinder of the other), our true and lawful
attorneys-in-fact (with full power of substitution and resubstitution) to act
for us and in our name, place and stead, in the capacities set forth opposite
our names, to execute and file a Registration Statement on Form S-4, or other
applicable form, relating to one or more offerings of the Corporation's common
stock, with the Securities and Exchange Commission, and to sign and file any and
all amendments (including post-effective amendments) to the Registration
Statement, with any exhibits and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact,
and each of them individually, full power and authority to take all actions
necessary to effect the purposes of this Power of Attorney, as fully to all
intents and purposes as we might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
This the 14th day of December 1999.
/s/ Robert S. McCoy, Jr. Vice Chairman and
________________________________________ Chief Financial Officer
Robert S. McCoy, Jr.
/s/ Donald K. Truslow Senior Executive Vice President,
________________________________________ Comptroller, and Treasurer
Donald K. Truslow
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of
Wachovia Corporation, and each of us, do hereby appoint Kenneth W. McAllister
and William M. Watson, Jr., and each of them (either of whom may act without the
consent or joinder of the other), my attorneys-in-fact and agents with full
power of substitution for me and in my name, place and stead, in any and all
capacities, to file a Registration Statement on Form S-4 or other applicable
form, relating to one or more offerings of the Corporation's common stock, with
the Securities and Exchange Commission, and to sign any and all amendments
(including post-effective amendments) to the Registration Statement, and to file
the same, with any exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them individually, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
the premises, as fully to all intents and purposes as I might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, we have each executed this Power of Attorney as of
the 22nd day of October 1999.
/s/ L.M. Baker, Jr. /s/ James S. Balloun
- ----------------------------------- ------------------------------------
L.M. Baker, Jr. James S. Balloun
/s/ Peter C. Browning /s/ John T. Casteen, III
- ----------------------------------- ------------------------------------
Peter C. Browning John T. Casteen, III
/s/ John L. Clendenin /s/ Thomas K. Hearn, Jr.
- ----------------------------------- ------------------------------------
John L. Clendenin Thomas K. Hearn, Jr.
/s/ George W. Henderson, III /s/ W. Hayne Hipp
- ----------------------------------- ------------------------------------
George W. Henderson, III W. Hayne Hipp
/s/ Robert A. Ingram /s/ George R. Lewis
- ----------------------------------- ------------------------------------
Robert A. Ingram George R. Lewis
/s/ Elizabeth Valk Long /s/ John G. Medlin, Jr.
- ----------------------------------- ------------------------------------
Elizabeth Valk Long John G. Medlin, Jr.
/s/ Lloyd U. Noland, III /s/ Morris W. Offit
- ----------------------------------- ------------------------------------
Lloyd U. Noland, III Morris W. Offit
/s/ John C. Whitaker, Jr. /s/ Sherwood H. Smith, Jr.
- ----------------------------------- ------------------------------------
John C. Whitaker, Jr. Sherwood H. Smith, Jr.
<PAGE> 1
EXHIBIT 99.1
PROXY SOLICITED BY B C BANKSHARES, INC.
- --------------------------------------------------------------------------------
PROXY
The undersigned, a holder of record of shares of common stock, par
value $5.00 per share ("B C Bankshares common stock"), of B C Bankshares, Inc.,
a Georgia corporation ("B C Bankshares"), hereby appoints E. O. McFather, Jr.
and Steven L. Holcomb and each of them, with full power of substitution, to
attend the special meeting of B C Bankshares shareholders at [Meeting Time], on
[Day of Week], [Meeting Date], at Bank of Canton's Operations Center, 2780
Marietta Highway, Canton, Georgia 30114 (and any adjournments, postponements,
continuations or reschedulings thereof), and to vote as specified in this proxy
all the shares of B C Bankshares common Stock which the undersigned would
otherwise be entitled to vote if personally present. The undersigned hereby
revokes any previous proxies with respect to the matters covered in this proxy.
If returned cards are signed but not marked, the undersigned will be
deemed to have voted for the proposal and in the sole discretion of the proxies
as to any other matter. The B C Bankshares board unanimously recommends a vote
"FOR" the proposal set forth below:
1. Approval of the Agreement and Plan of Merger, dated as of October 6,
1999, and the related Plan of Merger, between B C Bankshares and Wachovia
Corporation, pursuant to which B C Bankshares will merge with and into Wachovia.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the proxies are authorized to vote upon any
other business as may properly come before the meeting or any adjournments,
postponements, continuations or reschedulings thereof.
- --------------------------------------------------------------------------------
Please sign your name exactly as it appears hereon. When shares of B C
Bankshares common stock are held of record by joint tenants, only one need sign.
When signing as an attorney-in-fact, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or authorized officer. If a partnership, please sign
in partnership name by authorized person.
Dated:
Signature
--------------------------------
